TaxTMI 
TaxTMI 
2020 (8) TMI 724
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.... "Appeal against the order under section 143(3) read with section 144C of the Income-tax Act, 1961 ("the Act") dated 20 January 2016 for the Assessment Year 2011-12 passed by the learned Deputy Commissioner of Income Tax, Large Tax Payer Unit, New Delhi (hereinafter referred to as "the Ld. AO") 1. That on the facts and in the circumstances of the case and in law, the assessment order passed by the Ld. Assessing Officer ("Ld. AO") is bad in law. 2. The Ld. Dispute Resolution Panel ("DRP") has inadvertently omitted to adjudicate on the specific ground raised by the Appellant during DRP proceedings in respect of advances available with the Appellant from the Associated Enterprise ("AE") and that pursuant to the said advances, no adjustment on account of outstanding receivables is warranted. The Appellant has filed a rectification application with the Hon'ble DRP requesting adjudication on the same, which is pending. 3. The Ld. DRP erred in confirming the Ld. AO/ Ld. Transfer Pricing Officer's ("Ld. TPO") approach of enhancing the income of the Appellant by Rs. 355,309 holding that the alleged international transactions pertaining to interest on outstand....
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....be used despite the fact that the same was not necessarily available to the Appellant at the time of preparing its TP documentation; 5.3 not appropriately considering the functions, assets and risk profile of the companies used for comparison with the Appellant, thereby including in the final comparable set certain companies with completely different functional profile; 5.4 excluding certain companies considered by the Appellant in its TP documentation/ fresh search on arbitrary/ frivolous grounds even though they are comparable to the Appellant in terms of functions performed, assets employed and risks assumed; 5.5 including companies having abnormal margins/ volatile operating margins in the final comparables' set, that signify high element of entrepreneurial risk, thereby not appreciating the risk profile of the services rendered by the Appellant and not allowing risk adjustment to the Appellant; 5.5.1. without prejudice, that if risk adjustment is not allowed to compensate for risk free activities of the Appellant and hence considered it to be risk bearing, in that case appropriate tested party for the arm's length analysis should be the Appe....
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.... expenditure of Rs. 12,52,630 per provisions of section 14A of the Act read with rule 8D of the Rules. In doing so: 10.1. The Ld. AO also erred in law and on the facts and circumstances of the case in making addition of notional expenditure of Rs. 12,52,630 per provisions of section 14A of the Act while calculating book profit under section 115 JB of the Act. 11. That the Ld. AO has erred in law and on the facts and circumstances of the case by disallowing expenses incurred by the Appellant on facility maintenance, advertisement and tour and travel of Rs. 19,60,055 on account of short deduction of tax at 1% instead of 2% under section 40(a)(ia) of the Act. In doing so: 11.1. The Ld. AO erred in law and on facts and circumstances of the case by ignoring the submission of the Appellant wherein it was highlighted, relying on the various judicial precedents, that no disallowance is warranted in case of short deduction of tax under the provisions of section 40(a)(ia) of the Act. 12. That the Ld. AO has erred in law and on the facts and circumstances of the case in not allowing deduction under section 10A of the Act in respect of profit and gains of bu....
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.... of the total income and determining book profit u/s 115JB of Rs. 1095270405/-. 5. The assessee has entered into an international transaction, therefore, the ld AO referred the matter for determination of ALP to the ld TPO. The LD TPO noted that the assessee has entered into six different international transactions. The main international transaction was with respect to provision of IT enabled services amounting to Rs. 6975172486/- and other five transaction were related to reimbursement of expenses to its associated enterprises. The assessee adopted the transaction net margin method (TNMM) as the most appropriate method, adopted the profit level indicator of operating profit/ operating cost. The assessee arrived at set of 12 comparable companies' shows average margin at 14.29% using the multiple year data. The assessee computed its own margin at 14.89% and thus held that according to TP study report its international transactions are at arm's length. 6. Ld TPO was dissatisfied with the TP study report of the assessee, proposed certain different filters and after discussing the various judicial precedents as well as considering the objection of the assessee, carried out addit....
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....7923967663/- was held to be at Arm's length and therefore, the adjustment proposed by the TPO of Rs. 562582883/- made in the order of the ld TPO was deleted. With respect to the outstanding receivable the ld DRP directed the ld TPO to compute interest rate by taking six months Libor plus + 400 resulting into interest of 4.519%. therefore, the addition proposed by the TPO on account of overdue amount receivable from associated enterprises of Rs. 5695209/- was reduced to Rs. 355309/-. 9. On the corporate issues, the ld DRP retained disallowance on account of depreciation of software, disallowance u/s 14A, deduction u/s 10A of other income and short credit of TDS resulting into disallowance as per AIR information. In short the ld DRP upheld the addition/ disallowance only at Rs. 3784743/-. The normal income computation resulted into determination of income of assessee at Rs. 658393110/- against the return income of Rs. 654608370/-. 10. While computing the book profit the ld DRP directed to retain the disallowance u/s 14A of the Act of Rs. 1252630/- which resulted into adjusted book profit u/s 115JB of Rs. 1096523035/- against the book profit shown by the assessee at Rs. 10952704....
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....e Commissioner Of Income Tax Versus Kusum Healthcare Private Limited in ITA number 765/2016. He stated that the similar view was followed by the honourable Delhi High Court in case of Avenue Asia Advisors Private Limited Versus Deputy Commissioner Of Income Tax [398 ITR 120]. In view of this, it was submitted that even if the appellant has received receivable from its associated enterprise beyond the agreed credit period, no interest can be charged for delay in receipt of receivable by treating the same as an international transaction separate from the international transaction of rendering of the services. Without prejudice to the above submission, he submitted that the interest cost has already been suitably factored in the sale price as the learned transfer pricing officer has benchmarked its operating profit margin earned from international transaction with the associated enterprises at 14.89% with average working capital adjustment of operating profit margin of comparable companies at 14.29%. He therefore submitted that since the operating margin of the appellant is higher than the operating margin to the comparable companies after taking into consideration the difference in w....
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....cipal Commissioner Of Income Tax Versus Kusum Healthcare Private Limited (supra). Therefore ground number two of the appeal of the assessee is allowed and learned transfer pricing officer/learned assessing officer are directed to delete the addition of Rs. 3 55509/- in relation to the delay in receipt of receivable from associated enterprise. 17. Ground number 4 to 8 of the appeal are not pressed and therefore those grounds are dismissed. 18. Ground number 9 of the appeal is with respect to the disallowance of depreciation claimed by the appellant at the rate of 60% on voice recording software licenses amounting to Rs. 3,31,030/-. On this voice recording software license purchased by the assessee, the assessee claimed depreciation of Rs. 1 98618/- at the rate of 60% however the learned assessing officer held that it is actually a license as opposed to software and assessee is eligible for depreciation at the rate of 25% only, disallowed differential depreciation of an amount of Rs. 115860. The learned dispute resolution panel on objection by the assessee confirms the finding of the learned assessing officer following its directions for assessment year 2010 - 11 and held that ....
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....owance of Rs. 1,252,630 being 0.5% of the average value of investment related to the tax free income in terms of Section 14 A of the act by invoking the provisions of rule 8D (iii) Of the income tax rules. The learned dispute resolution panel on objection before it followed its own order for assessment year 2010 - 11 and upheld the findings of the learned assessing officer. 23. The learned authorised representative challenged the above addition on the fact that no satisfaction was recorded by the assessing officer having regard to the accounts of the assessee, which is mandatory. He relied upon the several judicial precedents for the proposition. He further submitted that appellant has earned dividend from investment in mutual fund only and mutual funds are required to pay dividend distribution tax on dividends distributed and only the net income has been received as dividends by the appellant. He further stated that mutual funds are covered by SEBI rules and charge fund management charges. Out of the income earned by the fund the fund management charges are deducted and net income is available for distribution to unit holders. He therefore submitted that during the year under c....
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....tly attributable to and which are necessarily required for making / maintaining investment in shares and mutual funds and earning there from. Therefore, he held that he is not satisfied with the correctness of the claim of the assessee that no expenditure has been incurred in respect of such expenditure in relation to income, which does not form part of the total income under this act. Thereafter he proceeded to compute the disallowance applying the provisions of rule 8D and computed such disallowance at Rs. 1,252,630. On careful consideration of the reasons given by the learned assessing officer we do not find any satisfaction with respect to the books of accounts maintained by the assessee that assessee has incurred any expenditure with respect to the earning of exempt income. In view of this, according to us, the learned assessing officer has failed to record any satisfaction with regard to the correctness of the claim of the assessee that it has not incurred any expenditure. The learned assessing officer did not cite any of the expenditure in the profit and loss account of the assessee, which is incurred by the assessee for earning of the exempt income. The satisfaction of t....
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....certain expenses. Though the assessing officer accepted that tax was deducted at source under section 194C of the Act out of the said payments, the disallowance proposed in the draft assessment order was sustained on the ground that tax was short deducted. Therefore, the learned assessing officer disallowed the above sum. 30. The ld Authorised Representative submitted that Disallowance under section 40(a)(ia) of the Act cannot be sustained for short deduction of tax at source, as held in i. CIT vs. S.K Tekriwal: 361 ITR 432 (Cal. HC) ii. ACIT vs. Pankaj Bhargava: ITA No. 86/Del./2012 (Del.) iii. Micromax Informatics Ltd. vs. DCIT: 154 ITD 156 (Del.) iv. UE Trade Corpn. (India) Ltd. vs. DCIT: 28 taxmann.com 77 (Del.) v. Hero Motocorp Ltd. vs. ACIT: 60 SOT 25 (Del.) Without prejudice, learned authorised representative further submitted that disallowance under section 40(a)(ia) of the Act should, if at all, be restricted to 30% of the expenditure, in view of the amendment made by the Finance Act 2014 to the following effect: "40. Notwithstanding anything to the contrary in sections 30 to 38, the following amounts shall not....
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.... it he submitted that, is curative in nature, being introduced to reduce the undue hardship caused to assessee on disallowance of entire amount of expenditure. Accordingly, the same would, have retrospective operation, relying upon the following cases: i. Allied Motors (P) Ltd vs CIT: 224 ITR 677 (SC) ii. CIT vs Alom Extrusions Ltd: 319 ITR 306 (SC) iii. CIT, Kolkata vs Calcutta Export Company: 404 ITR 654 (SC) Specific reliance in this regard is placed on the following decisions, where it has been held that amendment to section 40(a)(ia) of the Act restricting the disallowance to 30% of expenditure, being clarificatory/ curative in nature, is applicable retrospectively: i. Smt. Kanta Yadav vs. ITO: ITA No. 6312/Del/2016 (Del) ii. Prabhatam Advertising Pvt. Ltd. vs. DCIT: ITA No.5798 of 2014 (Del) iii. RH International Ltd. vs. ITO: ITA No. 6724 of 2018 (Del) iv. Sh. Rajendra Yadav vs. ITO: ITA No. 895/JP/2012 (Jaipur) v. Smt.Sonu Khandelwal vs. ITO: ITA No. 597/JP/2013 (Jaipur) - vi. Siddi Vinayak Sarees vs. ITO: 2056 of 2018 (Kol) 31. The learned department representative vehemently sup....
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.... the learned assessing officer in not allowing deduction u/s 10 A / 10 B of the act on sale of scrap is correct. 36. The learned authorised representative submitted that the issue squarely covered in favour of the assessee by the order of the coordinate bench in assessee's own case for assessment year 2008 - 09 in ITA number 4459/del/2013 and assessment year 2000 - 11 in ITA number 302/del/2015. Therefore this ground of the appeal of the learned assessing officer deserves to be dismissed. 37. We have carefully considered the rival contention and find that this issue is squarely covered in favour of the assessee by the decision of the coordinate bench in assessee's own case as per para number 64 of ITA number 302/del/2015 for assessment year 2010 - 11 wherein the coordinate bench held that the receipt from sale of scrap being part and parcel of the activity and having the proximate relationship would also be within the ambit of gain derived from the industrial undertaking and therefore the deduction u/s 10 B was granted. We have also noted from the assessment order that the learned assessing officer has treated this income from sale scrap as business income and not income from....
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....f the honourable Supreme Court in CIT versus Smif securities Ltd (2012) 348 ITR 302 and the decision of the honourable Delhi High Court in case of Areva T & D India Ltd versus Deputy Commissioner Of Income Tax (2012) 345 ITR 421 held that depreciation was admissible on goodwill amounting to Rs. 769,789,365 and dismissed the appeal of the revenue. The learned dispute resolution panel deleted the disallowance following its own direction issued in assessment year 2010 - 11. Therefore, the learned assessing officer is in appeal before us. 39. The learned departmental representative payment please submitted that for the purpose of the claim of the depreciation merely an accounting entry could not suffice. He submitted that there has to be an asset available with the assessee, which should be owned by the assessee. He submitted that it is merely an accounting entry which does not result into an asset automaticaly. He relied upon the order of the learned assessing officer. 40. The learned authorised representative submitted that the issue squarely covered in favour of the assessee by the decision of the coordinate bench for assessment year 2000 - 11 in ITA number 302/del/2015 at par....