TaxTMI 
TaxTMI 
2021 (1) TMI 405
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....o scrutiny assessment and notice u/s. 143(2) of the Act was issued on 23rd Sep, 2011. The assessee company is engaged in the business of manufacturing and trading of alloy steel castings. After taking into consideration the submission of the assessee, the Assessing Officer has framed assessment u/s. 143(3) r.w.s. 144C of the act vide order dated 23rd Feb, 2012 whereas various additions were made. Assessee has not filed any objection against draft assessment order before the dispute resolution panel. Being aggrieved with the additions made by the Assessing Officer, the assessee has filed appeal before the ld. CIT(A). The ld. CIT(A) has partly allowed the appeal of the assessee. The various additions wherein reliefs have been granted by the ld. CIT(A) or sustained by the ld. CIT(A) , the revenue and assessee have contested in the instant appeal. The facts and nature of issues are discussed while adjudicating the grounds of appeal as under:- ITA No. 1766/Ahd/2012 A.Y. 2008-09 filed by revenue Ground No. 1(Deleting addition of Rs. 18,39,75,000/- in respect of income from investment in free zone entity in Ajman Free Zone Alternatively the said amount would have been added to incom....
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....exure A). * The Tax Residence Certificate of Vega UAE dated 3rd February,2010 issued by Executive Director of Revenue and Budget, i.e., Ministry of Finance of UAE (enclosed as Annexure B). * A Certificate issued by A/man Free Zone Authority (enclosed as Annexure C) dated 15 July 2009 confirming that Vega UAE is a registered company, a body corporate incorporated in the Free Zone of Ajrnan (UAE) under the law laid down by the Amiri Decree No, (2) of 1996 on amending the Arniri Decree No. (3) of 1988. In view of the above above, we submit that Vega UAE is an independent company and it is managed and controlled out of the UAE. Further, we also submit that Vega UAE is a company for the purposes of Section 2(17) of the Act. * Vega UAE has independent operations and separate Board of Directors. * Vega UAE is a 'Company'/ 'Body Corporate' incorporated in UAE and cannot be treated as proprietary concern of the Assessee. * Vega is a Tax Res/dent of UAE under the India-UAE Tax Treaty. * It is submitted that the management and control of Vega UAE being located in UAE, no part of its income can be brought to tax in ....
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.... proprietary concern of AI A. Therefore, the income of Vega Industries (Middle East) FZE should not be added in the total income of the Company, The Company also places reliance on the following: The decision of Union of India v. Azadi Bachao Andolan [2003] 263 ITR 706 (SC) wherein the Supreme Court held that the Tax Residence Certificate issued by the Government of other Contracting State would be a conclusive proof of residential status of the company. CBDT Circular No. 789, dated 13 April 2000, where it has been clarified that wherever a Certificate of Residence is issued by the Mauritian Authorities, such Certificate will constitute sufficient evidence for accepting the status of residence as well as beneficial ownership for applying the Double Tax A voidance Convention accordingly. The Assessee submits that the principle laid down by this Circular also stands extended to cases under any other treaty including for Vega UAE." The assessee has explained that Vega UAE was a body corporate under the law Ajman and was not a proprietary concern of the assessee company, therefore, the income of Vega Industries Middle East FZE should not be added in the to....
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....egard, we feel that the provisions of Section 2(17) of Income Tax Act ore very much relevant and the same are reproduced below: "[(17) "company" means- (i) any Indian company, or (ii) any body corporate incorporated by or under the laws of a country outside India, or (iii) any institution, association or body which is or was assessable or was assessed as a company for any assessment year under the Indian Income-tax Act, 1922 {] I of 1922), or which is or was assessable or was assessed under this Act as a company for any assessment year commencing on or before the 1st day of April, 1970, or (iv) any institution, association or body, whether incorporated or not and whether Indian or non-Indian, which is declared by general or special order of the Board to be a company : Provided that such institution, association or body shall be deemed to be a company only for such assessment year or assessment years (whether commencing before the 1st day of April 197], or on or after that date) as may be specified in the declaration ] 10. As per these provisions of Section 2(I7J, for other than an Indian company, a company means any body corpora....
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....find any force in this contention of the A.O. because as per Article (1) of the said Memorandum of Incorporation, it has been stated that this entity is established with corporate entity and independent and separate financial liability from those of its owner in accordance with this memorandum of incorporation and the only situation where the owner will be treated as personally responsible is regarding omission of some specified information that the entity is a free zone establishment (FZE) and it will be pursuant to Amiri Decree No.(3) of 1988 as amended. In our considered opinion, this is a situation where it specifies that corporate veil may be lifted. This may differ from country to country and in India also, in some situations, corporate veil can be lifted and, therefore, because of this restriction alone, it cannot be said that Vega UAF is not a separate legal entity. 12. the main objection of the A.O. is that since the assessee is the only shareholder and holding 100% shares of Vega UAF, it is not a valid company because as per Indian Companies Act and as per UAE CCL, two shareholders are required. The argument of the revenue is this that as per CL of UAE, two share....
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....urisdictional ITAT in the appellant's own case on the same issue, it is clear that Vega ME is held to be an independent entity and not a proprietorship concern of the appellant. ITAT has met with all the arguments of the assessing officer and therefore the same are not repeated here. Since highest fact-finding authority has held that Vega UAE is an independent corporate body, the profit of Vega UAE cannot be taxed in the hands of appellant. Respectfully following the decision of jurisdictional tribunal in the appellant's own case in the immediate preceding year on the identical facts, it is held that Vega UAE is a separate company and accordingly profit of Vega UAE cannot be added to the income of the appellant. As a result of this, addition made by the assessing officer is deleted." 5. During the course of appellate proceedings before us, the ld. counsel has brought to our notice that ld. CIT(A) has granted relief to the assessee after following the decision of ITAT Ahmedabad on identical issue based on similar facts in the case of the assessee for assessment year 2006-07 vide ITA No. 580/Ahd/2011. The ld. Departmental Representative was fair enough not to controvert th....
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.... present case because we find that the assessee company has executed proper distributor agreement with Vega UAE and it has been adhered to also and since the objection of the revenue that Vega UAE is not bearing any inventory and credit risk, we find that as per the facts of the present case, both these objections are not correct and Vega UAE is carrying both the inventory risk as well as credit risk and therefore, we hold that Vega UAE is not a marketing service provider in the facts of the present case but if is a distributor of the assessee company. Once it is accepted that Vega UAE is a distributor, ALP has to be determined on the basis of profit on sale of goods by the assessee company as compared to the comparable companies. The assessee has demonstrated that the arithmetic mean of 3 years weight age average NOPM of 12 comparable companies was 7.92% as against NOPM of 18.89% of the assessee for the present year. Later on the assessee has also furnished the revised arithmetic mean of NOPM of the comparable companies on the basis of current year data only and it was 7.04% whereas mean of 3 years weight age average NOPM of 12 comparable companies was 7.92% as against NOPM of 18.....
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....E (Middle East) has now become global distributor with Vega US and Vega UK becoming its sub-distributors. This entity was found to be performing all the roles of a distributor of developing marketing strategy, logistic handling, inventory management, working capital management etc. The Vega ME remained full scale distributor even under the new distribution model in which it was made global distributor. Appellant executed distributorship agreement with Vega ME and also adopted associated risks as earlier years. There was no dilution of its activities during the year as compared to earlier years. Accordingly, the findings of ITAT in assessment year 2006-07 that Vega UAE was distributor to the appellant completely apply to this year. Respectfully following the order of jurisdictional ITAT in appellant's own case in assessment year 2006-07, it is held that Vega ME was a full-fledged distributor to the appellant and not marketing service provider during the year. Once if is held that the AE is a distributor, the ALP has is to be determined on the basis of profit on sale of goods rather than operating margin to value added expenses. Like earlier years, this year also appellant had ma....
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....nbsp; 97323848 (Staff + Enam + SPI Cap + Amarchand) Other Expenses (Gift Vouchers to Press Reporters etc.) 41000.00 SEBI Filing Fees of Draft R.H.P. 250000 00 BSE For Processing fee to get their approval to use - 62600 Use Usage of Electronic Facility & Software of the 783500 Initial Listing Fees 20000 Annual Listing Fees 30000 896100.00 NSE Use Usage of Electronic Facility & Software of the 870125 Initial Listing Fees 7000 Annual Listing Fees 28500 905625.00 Sanjay Majmudar 8 Associates Professional Fees - 500000 Air Fare - Mum - A'bad - 2965 Hotel charges &....
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....r will be effective only in respect of the difference between these two figures and not the amount of expenses considered to be not eligible. Accordingly the 20% of disallowed public issue expenses not eligible will be RS 3,92,316 which should have been disallowed by the AO. As against this, assessing officer straightaway disallowed 20% of the expenses treated by him as not eligible which is not correct. Accordingly assessing officer Is directed to restrict the disallowance under section 35D to RS 3,92,316 as against RS 11,09,684. Appellant did not press ground against AO's order treating some of the public issue expenses as not eligible for deduction hence the assessing officer's order treating RS 55,48,422 as not eligible for deduction is confirmed." 8. Heard both the sides and perused the material on record. The assessee has contended in its submission before the ld. CIT(A) that according to section 35D(3), if the aggregate amount of the eligible public issue expenditure is in excess of 5% of the total cost of project, the said expenses to be ignored. Therefore the assessee submitted before the ld. CIT(A) that disallowance u/s. 35D should be reduced to Rs. 3,....
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....d by the industry therefore restricted the loss of raw material in the melting process of scrape to 2% and the remaining claim of melting loss to the amount of Rs. 6,51,81,105/- was added to the total income of the assessee. 10. The assessee filed appeal before the ld. CIT(A). The ld. CIT(A) has allowed the appeal of the assessee. The detailed discussion made by the ld. CIT(A) in his order is as under:- "5.3 have considered the facts of the case; assessment order and appellant's written submission. Assessing officer treated appellant's burning loss excess and made the addition on account of this. The reasons for such addition are- burning loss as per Internet data for melting is 2% and Excise Department in some assessments considered burning loss at 2%. Appellant submitted that burning loss suffered by it varied from 2.5% to 8.19% in nine years including this year which shows that burning loss is different each year depending on the product and input mix. Appellant also submitted that it involved several processes in manufacturing and therefore 2% burning loss which is in melting alone, will be much higher if losses in all manufacturing processes are co....
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....ocesses of manufacturing will be much more than 2%. Further, export import policy allowed 16% more input in foundry industries in their input-output ratio. Even in the case of appellant's subsidiary company (now part of the appellant itself) burning loss in excess of even 10% was held to be allowable. The disallowance was made by the assessing officer in respect of burning loss in excess of 5% which was set aside by ITAT with specific directions. After considering the same, no disallowance on account of burning loss was made. Since this decision is in respect of appellant's subsidiary doing the job work of appellant only, this is directly applicable to the facts of the appellant's case. This entity is now part of the appellant company and therefore these decisions cannot be ignored. The certificate from Centre for Foundry Education and Research submitted before ITAT clearly mentioned that burning loss is from 10 to 14%. Considering all these facts and absence of any evidence to prove claim of burning of wrong, I find burning loss claimed by the appellant reasonable and within industry norms. Accordingly, the addition made by the assessing officer is deleted." 11. Hea....
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....ing officer made adjustments on account of warranty expenses and expenses relating to exempt income under section 115JB. Assessment is made by AO on total income under the normal provisions of IT Act therefore this ground is only academic without having any tax impact. As regards warranty expenses, appellant submitted that these are actual expenses and not mere provision of unascertained liability. Assessing officer has accepted the warranty expenses in regular assessment and no addition has been made to the total income. This clearly shows that the claim was not in respect of unascertained liability. The decision of honourable Supreme Court relied upon by the appellant allowed warranty expenses even on estimate basis, Since appellant claimed warranty expenses on the basis of actual claims as mentioned in its submission, there is no question of making adjustment of this amount to the book profit. Accordingly, assessing officer is directed not to add warranty expenses to book profit under section 1 1 5 JB. As regards addition to book profit in respect of expenses relating to exempt income under section 10, assessing officer disallowed the expenses under section 14A....
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....ment out of which it had earned substantial income claimed as exempt from tax. The exempt income was constituted 11% of the total profit earned by the assessee company however the assessee has not disallowed any amount according to the provision of section 14A of the Act. On query the assessee submitted that during the year the assessee company has not utilized any borrowed money for the purpose of investment and the investment had been made out of its own fund. It is also submitted that assessee company has not incurred any direct expenditure to earn the exempt income and stated that section 14A r.w.r. 8D was not applicable in respect of investment made out of its own fund. The assessee has further submitted that to avoid litigation it has calculated disallowance of Rs. 9,32,489/- u/s. 14A r.w.r. 8D of the IT act. The Assessing Officer has not accepted the submission of the assessee stating that assessee has not disallowed any amount as required under the provisions of section 14A of the Income Tax Act. The Assessing Officer also stated that return on investments was not automatic and it involves time, energy and resources in terms of finance, administration, decision making an....
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....wable. Considering the fact that appellant claimed huge administrative and other expenses, the disallowance of administrative expenses made by the assessing officer @.5% of investment resulting in exempt income is as per the formula given in rule 8D which is mandatory for making disallowance. In view of this the addition @ .5% of investment resulting in exempt income made by the assessing officer is confirmed. As regards interest, appellant has borrowed funds on which interest was paid. While making Investments, both borrowed funds as well as own funds were used hence one cannot say the: borrowed funds were used only for business purpose and owned capital was only used for investment. Admittedly no separate account: are maintained for business and investment activities therefore appellant's claim is not justified that borrowed funds were not used in making investment therefore in the absence of clear cut details of utilization of funds, the formula given in rule 8D which is mandatory this year is to be applied. Therefore decision relied upon by the appellant is not applicable to this year when rule 8D is mandatory. Since assessing officer worked out interest disallowan....
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....at no disallowance should be made out interest income as assessee has having substantial interest free fund. The assessee has given the detail of calculation vide which it has bifurcated the expenditure in three categories. (i) Expenses directly related to manufacturing and sales. (ii) Expenses deemed to relatable to exempt income. (iii) Expenses directly related to exempt income. Accordingly as per the detailed submission of the assessee produced at page no. 12 of the assessment order , the assessee has suo moto computed the disallowance related to exempt income to the amount of Rs. 9,32,487/-. However, without contradicting the computation made by the assessee with any specific finding the Assessing Officer has simply stated that working provided by the assessee was arbitrary and was void of any merit. The Assessing Officer has made general observation stating that investment was not automatic and involves time, energy, and resources etc. stating the aforesaid dissatisfaction, the Assessing Officer has computed the disallowance as per rule 8D to the amount of Rs. 71,73,745/-. In this regard we have gone through the provision of sub-section 2 of....
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....s earned in the form of dividend on the aforesaid investment which was made through IPO funds and to earn this dividend income no direct expenditure was incurred by the assessee company. It was also brought to the notice of the assessee that to invoke rule 8D, the Assessing Officer has to record his satisfaction after establishing the nexus of the expenditure with the exempt income. Then again in its submission dated 24th August, 2011 placed at page no. 302 of the paper book, the assessee has again brought to the notice of the Assessing Officer that assessee company has not incurred any direct expenditure to earn the exempt income and highlighted the nature of investment made by the assessee company. The assessee has also submitted its copy of annual reports placed at page no. 36 to 128 of the paper book, for perusal of the Assessing Officer wherein as per Profit and Loss Account, the assessee has shown gross sale for financial year 2007-08 to the amount of Rs. 77,137.59 lacs. The assessee has also given details of all the expenditure in its annual account. From the perusal of the annual account, it is clear that the main activity of the assessee company was manufacturing and tradi....
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....as in ITA No. 2342/Ahd/2017 Assessment Year 2009-10 therefore after applying the decision adjudicated vide ITA No. 1766/Ahd/2012 as supra in this order, this ground of appeal of the revenue stands dismissed. Ground No. 2 (Deleting the disallowance of excess claim of depreciation of Rs. 2,27,644/- 21. During the course of assessment the Assessing Officer noticed that assessee has shown addition of Rs. 86,65,518/- in motor vehicles out of which vehicle amounting to Rs. 13,00,823/- were purchased and put to use after first January, 2009 but before 31st March, 2009. On verification of depreciation chart, the Assessing Officer found that assessee has claimed depreciation on a car purchased during the year @ 50%. After verification of the detail submitted by the assessee, the Assessing Officer was of the view that the vehicle on which higher rate of depreciation claimed was not registered as commercial vehicle by the RTO. Therefore, the Assessing Officer has rejected the claim of assessee of higher depreciation @ 50% and allowed the depreciation at normal rate of 15%. Therefore, excess claim of depreciation of Rs. 2,27,644/- was disallowed and added to the total income of the asses....
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....ove while disposing ground no. 1 that A.O. after following the statutory procedure of referring the appellant's detail of international transaction to TPO who vide dt. 29/01/2013 u/s. 92CA(3) of the Act made upward adjustment of Rs. 287992817(283647565+4345252), but since the A.O. has treated VEGA ME as appellant's proprietary concern made no separate addition of such upward revision. As I have already held that VEGA ME is a separate entity therefore such additions are required to be adjudicated. The A.O. in the impugned order mentioned about the amount with a note that in the eventuality of treating VEGA ME and VEGA UK as separate entity then such upward revision are required to be made. It is therefore, for "the facts and reasons of such upward revision, the TPO order dt. 29/01/2013 u/s. 92CA(3) of the Act has to be considered. The TPO in that order after considering appellant's business, details of international transactions as per audit report in From 3CEB and transfer pricing study report dt. 09/4/2012 where appellant used "CUP" to bench mark purchase of raw material from VEGA US brought out the defects in the TP study conducted by appellant and show cause....
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.... appellant. Such order was followed by my predecessor in the case of appellant for A.Y. 08-09 vide order dt. 08/06/2012 as follows: "I have considered the facts of the case; TPO's order and appellant's written submission. TPO made the similar adjustments in assessment year 2006-07 which was confirmed by DRP against which appellant preferred appeal in ITAT. ITAT Ahmedabad by order dated 23rd of January 2012 in ITA number 580/AHD/20T1 decided the issue in favour of the appellant. The decision of ITAT on this issue is given in para-21 of the said order which is quoted below- "21.We have considered the rival submissions, perused the material on record and have gone through the orders of authorities below. We find that this is one of the rejections of the revenue that Vega UAE is not a distributor but market service provider and merely on this basis, the TP analysis conducted by the assessee had been rejected by the TPO. He has adopted the transfer pricing adjustment on the basis of operating cost/operating profit percentage of Vega UAE, Vega UK and ega US. Regarding this aspect that as to whether Vega UIAE is a distributor or simply marketing service provider,....
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....ning by- the respective-Vega entities. We find that percentage of employee cost to fatal turnover of Vega US is highest i.e. 6.5% and if is lowest for Vega UAE i.e. 1.3%. Similarly, percentage of administrative expenses, to turnover is highest for Vega US and Vega UK @ 4.9% and it is only 2% for Vega UAE. If the operating cost is higher in Vega US, it cannot be said that the profit margin of other Vega Entities i.e. Vega UK and Vega UAE should be of par with the profit margin of Vega US and hence, TP adjustment proposed by TPO and confirmed by DRP on the basis of operating cost/operating profit of Vega US is not sustainable. Various allegations raised by the TPO-for-not-accepting the TP analysis carried out by the assessee are not found to be valid and , hence, we hold that no TP adjustment is called for in respect of Vega (JAE. The same is deleted. Hence, ground No.2 of the assessee is allowed." From the above, it is clear that honorable ITAT has treated Vega UAE (Middle East) as full-fledged-distributor of the appellant as against marketing service provider treated by TPO. All the arguments of TPO were considered and it was held that Vega Middle East was performing all t....
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....e order of TPO an upward adjustment on account of international transaction with Vega UAE, FZE of Rs. 43,45,252/- on account of corporate guarantee was made. 26. The assessee preferred appeal before the ld. CIT(A). The ld. CIT(A) has partly allowed the appeal of the assessee as under:- "(F) Ground no.11 is against the upward revision of international transaction related to guarantee issued by appellant towards performance bond and bids which were held by TPO in the nature of service rendered to associated enterprises (AEs).-The appellant objected for adoption of rate at 2,956% also. The TPO in its order dt. 29/01/2013 discussed this issue at para 11 of that order. The TPO considered that appellant admitted for giving corporate: guarantee on behalf of VEGA ME and -VEGA UK i.e. its AEs and recovered a fees of Rs. 235201/- as indicated in Form no. 3CEB. It was further-observed that no TP analysis-of such transaction carried out. It was also observed that fees @ 0.5% for issuance of such guarantee were charged from VEGA UK but no such fess was recovered by VEGA ME, The TPO examined appellant's explanation that such guarantee had not been given for performance b....
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....ts or deterred payment or receivable or any other debt arising during the course of business; ...................................... ...................................... Thus the explanation, inserted vide the retrospective amendment, makes it amply clear that the transaction of guarantee was already included in the definition of "international transaction" and the same has now been clarified through the retrospective amendment. Therefore the contentions of the appellant that providing corporate guarantee to AEs is outside the ambit of international transaction has to fail. This view is supported by the decision Mumbai Tribunal in the case of Everest Kanto Cylinder [34 Taxman.Com 19 Mumbai ITAT], The TPO was justified in benchmarking the AEs and recovered a fees of Rs. 235201/- as indicated in Form no. 3CEB. It was further observed that no TP analysis of such transaction carried out. It was also observed that fees @ 0.5% for issuance of such guarantee were charged from VEGA UK but no such fess was recovered by VEGA ME. The TPO examined appellant's explanation that such guarantee had not been given for performance bonds and bids so the same are not q....
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....ng during the course of business; .............................. ................................ Thus the explanation, inserted vide the retrospective amendment, makes it amply clear that the transaction of guarantee was already included in the definition of "international transaction" and the same has now been clarified through the retrospective amendment. Therefore the contentions of the appellant that providing corporate guarantee to AEs is outside the ambit of international transaction has to fail. This view is supported by the decision in Mumbai Tribunal in the case of Everest Kanto Cylinder [34 Taxman.Com 19 Mumbai ITAT]. The TPO was justified-in benchmarking the transactions. The Delhi Tribunal judgement [relied on by the A.R]-.in the case of Bharti Airtel Ltd. is not applicable to the instant case, as the appellant is not able to prove that it has not incurred any cost for the guarantee provided[as was done in the case of Bharti Airtel Ltd.], The next issue for the consideration is regarding the quantum of upward adjustment to be made. In this connection, it is seen that the TPO adopted the rate at 2.956% on the total amount of ....
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....that assessee has given corporate guarantee of USD 2 million on behalf of Vega ME and USD 1 million on behalf of Vega UK. The guarantee are in the nature of bonds and guarantee facility for issuing bonds payment guarantee performance bonds etc. It is further stated that assessee has provided corporate guarantee to a company on behalf of its associate enterprise. It is further stated that no fees has been charged to the Vega ME, a fees of 0.5% has been charged from Vega U.K. and for both these transactions no rational has been provided either in form no. 3CEB or in the TP study except merely stating that the transaction is at arms length. It is further submitted that the claim of the assessee that benchmarking on such guarantee at nil has been accepted by the Department in the earlier years found not to be tenable as perusal of these guarantees reveal that these guarantees put strain on the assets of the assessee company by shifting performance risk of Vega entities of the assessee company. It is further submitted that one way of benchmarking the service rendered by the assessee company would be to find out the difference in risk spread between high rated and medium rated corpora....
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....ued corporate guarantees to banks on behalf of its AE Vega ME and Vega U.K.. The assessee has charged commission to Vega U.K. @ 0.5% for issue of such guarantee. However, no fee has been charged from Vega ME. The assessee has claimed that since the guarantee has been given for performance bonds and bids so the same are not qualified as guarantee but treated as corporate function, hence no fees is chargeable. The assessee has stated that the provision of guarantee was a corporate function. The Assessing Officer was of the view that performance guarantee carry a potential financial liability which in case of failure of the beneficiary is to be met with the guarantor. The Assessing Officer was of the view that services have been rendered by the assessee company to its associate enterprises in the form of provision of the guarantee and these services need to be bench marked. It is also stated that OECD guidelines as well as cases decided by the US and Canada tax court held that guarantee was a service rendered and the guarantor was justified in charging a suitable guarantee for such services. Therefore, the Assessing Officer has made bench marking as per the report of the TPO as stated....
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....e nature of purchase, sale or lease of tangible or intangible property, or provision of services, or lending or borrowing money, or any other transaction having a bearing on the profits, income, losses or assets of such enterprises and shall include a mutual agreement or arrangement between two or more associated enterprises for the allocation or apportionment of, or any contribution to, any cost or expense incurred or to be incurred in connection with a benefit, service or facility provided or to be provided to any one or more of such enterprises. (2) A transaction entered into by an enterprise with a person other than an associated enterprise shall, for the purposes of sub-section (1), be deemed to be a transaction entered into between two associated enterprises, if there exists a prior agreement in relation to the relevant transaction between such other person and the associated enterprise, or the terms of the relevant transaction are determined in substance between such other person and the associated enterprise. Explanation*: - For the removal of doubts, it is hereby clarified that -- (*inserted by the Finance Act 2012, though with retrospective effect from 1....
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....n; (f) customer related intangible assets, such as, customer lists, customer contracts, customer relationship, open purchase orders; (g) contract related intangible assets, such as, favourable supplier, contracts, licence agreements, franchise agreements, non -compete agreements; (h) human capital related intangible assets, such as, trained and organised work force, employment agreements, union contracts; (i) location related intangible assets, such as, leasehold interest, mineral exploitation rights, easements, air rights, water rights; (j) goodwill related intangible assets, such as, institutional goodwill, professional practice goodwill, personal goodwill of professional, celebrity goodwill, general business going concern value; (k) methods, programmes, systems, procedures, campaigns, surveys, studies, forecasts, estimates, customer lists, or technical data; (l) any other similar item that derives its value from its intellectual content rather than its physical attributes.'. 22. As analyzed by a coordinate bench, in the case of Bharti Airtel (supra) and speaking through one us, the legal position with re....
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....ion 92 B, are transactions with regard to purchase, sale, transfer, lease or use of tangible and intangible properties. These transactions were anyway covered by 2 (a) above which covered transactions 'in the nature of purchase, sale or lease of tangible or intangible property'. The only additional expression in the clarification is 'use' as also illustrative and inclusive descriptions of tangible and intangible assets. Similarly, clause (d) deals with the " provision of services, including provision of market research, market development, marketing management, administration, technical service, repairs, design, consultation, agency, scientific research, legal or accounting service" which are anyway covered by 2(b) and 3 above in "provision for services" and "mutual agreement or arrangement between two or more associated enterprises for the allocation or apportionment of, or any contribution to, any cost or expense incurred or to be incurred in connection with a benefit, service or facility provided or to be provided to any one or more of such enterprises ". That leaves us with two clauses in the Explanation to Sect ion 92 B which are not covered by any of the three....
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.... bank. 31. In this light now, let us revert to the provisions of clause (c) of Explanation to Section 92B which provides that the expression 'international transaction' shall include "capital financing, including any type of long -term or short- term borrowing, lending or guarantee, purchase or sale of marketable securities or any type of advance, payments or deferred payment or receivable or any other debt arising during the course of business". In view of the discussions above, the scope of these transactions, as could be covered under Explanation to Section 92 B read with Section 92B(1), is restricted to such capital financing transactions, including inter alia any guarantee, deferred payment or receivable or any other debt during the course of business, as will have "a bearing on the profits, income, losses or assets or such enterprise". This pre-condition about impact on profits, income, losses or assets of such enterprises is a pre-condition embedded in Section 92B(1) and the only relaxation from this condition precedent is set out in clause (e) of the Explanation which provides that the bearing on profits, income, losses or assets could be immediate....
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.... discharge this onus. Such an impact on profits, income, losses or assets has to be on real basis, even if in present or in future, and not on contingent or hypothetical basis, and there has to be some material on record to indicate, even if not to establish it to hilt, that an intra AE international transaction has some impact on profits, income, losses or assets. Clearly, these conditions are not satisfied on the facts of this case. 23. Learned Departmental Representative submits that this decision is no longer good law in the light of Everest Kanto decision (supra) and Vodafone India Services decision (supra) by Hon'ble Bombay High Court. 24. As for Hon'ble High Court's judgment in the case of Everest Kanto (supra), it is necessary to appreciate the fact the assessee was charging a .5% commission on issuance of corporate guarantees, on behalf of the AEs, and it could not, therefore, be said that the transaction will have no impact on "profits, incomes, losses or assets of such enterprise". This aspect of the matter is clear from an observations in the related Tribunal order, which is reported as Everest Kanto Cylinders Limited Vs DCIT [(2012) 34taxm....
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....ing easily encashable in the event of default, and if the bank guarantee had to be obtained from Commercial Banks, the higher commission could have been justified. In the present case, it is assessee company that is issuing Corporate Guarantee to the effect that if the subsidiary AE does not repay loan availed of it from ICICI, then in such event, the assessee would make good the amount and repay the loan. The considerations which applied for issuance of a Corporate guarantee are distinct and separate from that of bank guarantee and accordingly we are of the view that commission charged cannot be called in question, in the manner TPO has done. In our view the comparison is not as between like transactions but the comparisons are between guarantees issued by the commercial banks as against a Corporate Guarantee issued by holding company for the benefit of its AE, a subsidiary company. In view of the above discussion we are of the view that the appeal does not raise any substantial question of law and it is dismissed 25. We are unable to see, in the judgment of Hon'ble Bombay High Court, any support to the proposition that issuance of corporate guarantees is inherently w....
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.... as being effected or dependent upon or flowing from the transfer of a share or shares of a company registered or incorporated outside India. 216. Two aspects of a transfer are clarified - the asset itself and the manner in which it is dealt with. The asset is no longer restricted to the asset per se or a right therein, but also extends to "any interest therein". Prior to the amendment, the words "any interest therein" were absent. Further, the nature of the disposal is also expanded. It now includes the creation of any interest in any asset. Moreover, the disposal of or creation of any interest in the asset may be direct or indirect, absolute or conditional, voluntary or involuntary. It may be by way of an agreement or otherwise. Further, the concluding words constitute a non-obstante provision. It provides that the transfer contemplated therein would be notwithstanding that it has been characterised as being effected or dependent upon or flowing from the transfer of a share or shares of a company registered or incorporated outside India. It would be evident, therefore, that a lot more must now be seen and considered than before while arriving at a conclusion whe....
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....ive which it may not have done earlier. 220. These are important issues. There is no justification for withdrawing the proceedings from the channel provided by the Income Tax Act, bypassing the Tribunal and considering all these questions in exercise of the High Court's extra-ordinary jurisdiction under Article 226 (Emphasis, by underlining, supplied by us) 27. Revenue's emphasis is on the last two sentences in paragraph no 213 which state that "The effect of the amendment would have to be considered. It cannot be brushed aside" but in doing so what it overlooks is the subsequent observations highlighted above which recognize the fact that merely because a subsequent Explanation is introduced by the legislature, it is not an open and shut case against the assessee or the revenue, and that all these observations are in the context that I.T.A. No.: 2873/Ahd/10 Assessment year: 2006-07 "there is no justification for withdrawing the proceedings from the channel provided by the Income Tax Act, bypassing the Tribunal and considering all these questions in exercise of the High Court's extra-ordinary jurisdiction under Article 226". When Their Lordships have m....
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....nt, divorced from the context of the questions under consideration by this Court, to support their reasoning" It was also recalled that in Madhav Rao Jivaji Rao Scindia Bahadur vs. Union of India (1971) 3 SCR 9 : AIR 1971 SC 530, Hon'ble Supreme Court had cautioned that "It is not proper to regard a word, clause or a sentence occurring in a judgment of the Supreme Court, divorced from its context, as containing a full exposition of the law on a question when the question did not even fall to be answered in that judgment." That precisely, however, has been the approach of the revenue authorities in placing reliance on Vodafone India Services (supra) decision. We reject this approach. 28. For the reasons set out above, learned Departmental Representative's reliance on Hon'ble Bombay High Court's judgments in the cases of Everest Kanto (supra) and Vodafone India Services (supra) is wholly misplaced and devoid of any merits. As for co-ordinate bench decision in the case of Hindalco Industries (supra), all it does is to follow the Everest Kanto decision by Hon'ble Bombay High Court, but then, as we have seen earlier, that was a case in which Their Lordships ....
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....e the Canadian Tax Court, and the plea of the assessee was eventually upheld. It is also interesting to note that as a sequel to this Tax Court of Canada decision, the transfer pricing legislation was amended, to bring greater clarity on the issue and as a measure of abundant caution, and section 247 (7.1), granting specific exemption to guarantee fees, was introduced. This amendment is as follows: (7.1) Subsection (2) does not apply to adjust an amount of consideration paid, payable or accruing to a corporation resident in Canada (in this subsection referred to as the "parent") in a taxation year of the parent for the provision of a guarantee to a person or partnership (in this subsection referred to as the "lender") for the repayment, in whole or in part, of a particular amount owing to the lender by a non-resident person, if (a) the non-resident person is a controlled foreign affiliate of the parent for the purposes of section 17 throughout the period in the year during which the particular amount is owing; and (b) it is established that the particular amount would be an amount owing described in paragraph 17(8)(a) or (b) if it were owed to the parent. (http://....
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.... the assessee, in support of its subsidiaries, are not necessarily international transactions. Revenue, therefore, does not derive any advantage from the Tax Court of Canada's decision in the case of GE Capital Canada. There are many more aspects which make this decision wholly irrelevant in the present context but suffice to say that relevant legal provisions and context being radically different, the reliance of this decision must be rejected for this short reason alone. 32. As we take note of the above legal position in Canada, it is appropriate to take note of the concept of 'shareholder activities' in the context of corporate guarantees which provides conceptual justification for exclusion of corporate guarantees, under certain conditions, from the scope of transfer pricing adjustments. Taking note of these proposed amendments, 'Transfer Pricing and Intra Group Financing - by Bakker & Levvy, IBFD publication (ISBN- 978-90-8722- 153-9)' observes that "Proposed subsection 247(7.1) of the ITA provides that the transfer pricing rules will not apply to guarantees provided by Canadian parent corporations in respect of certain financial commitments of the....
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....priate and preferred mode of contribution vis-a-vis equity contribution. It is significant, in this context, that the case of the assessee has all along been, as noted in the assessment order itself, that "said guarantees were in the form of corporate guarantees/ quasi capital and not in the nature of any services". In other words, these guarantees were specifically stated to be in the nature of shareholder activities. The assessee's claim of the guarantees being in the nature of quasi capital, and thus being in the nature of a shareholder's activity, is not rejected either. The concept of issuance of corporate guarantees as a shareholder activity is not alien to the transfer pricing literature in general. On the contrary, it is recognized in international transfer pricing literature as also in the official documentation and legislation of several transfer pricing jurisdictions. The 'OECD Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations' itself recognizes the distinction between a shareholder activity and a provision for services, when, contrasting the shareholder activity with broader term "stewardship activity" and thus highlightin....
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....aving regard to international best practices, we donot quite agree with it inasmuch as, in our considered view, Revenue cannot seek to widen the net of transfer pricing legislation by taking refuge of the best practices recognized by the OECD work. 35. While dealing with "special consideration for intra group services", the 'OECD Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations' has noted that there are two fundamental issues with respect to the intra group services- first, whether intra group services have indeed been provided, and, second- if the answer to the first question is in positive, that charge to these services should be at an arm's length price. Dealing with the first question, which is relevant for the present purposes, these Guidelines (2010 version) state as follows: 7.6 Under the arm's length principle, the question whether an intra-group service has been rendered when an activity is performed for one or more group members by another group member should depend on whether the activity provides a respective group member with economic or commercial value to enhance its commercial position. This can be d....
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.... activity" used in the 1979 Report. Stewardship activities covered a range of activities by a shareholder that may include the provision of services to other group members, for example services that would be provided by a coordinating centre. These latter types of non-shareholder activities could include detailed planning services for particular operations, emergency management or technical advice (trouble shooting), or in some cases assistance in day-to-day management. 7.10 The following examples (which were described in the 1984 Report) will constitute shareholder activities, under the standard set forth in paragraph 7.6: a) Costs of activities relating to the juridical structure of the parent company itself, such as meetings of shareholders of the parent, issuing of shares in the parent company and costs of the supervisory board; b) Costs relating to reporting requirements of the parent company including the consolidation of reports; c) Costs of raising funds for the acquisition of its participations. In contrast, if for example a parent company raises funds on behalf of another group member which uses them to acquire a new company, t....
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....e to the recipient any property or other resources of the rendered" [Regulation 1.482-9(1)(2)]. The issuance of guarantees is not within the ambit of transfer pricing in United States because it is a service but because it is covered by the specific definition discussed above. As a matter of fact, David S Miller, in a paper titled 'Federal Income Tax Consequences of Guarantees; A Comprehensive Framework for Analysis' published in the 'The American Lawyer Vol. 48, No. 1 (Fall 1994), pp. 103-165 (http://www.jstor.org/stable/20771688), has stated that a guarantee is not a service. The following observations, at pages 114, are important: The position that guarantees are services has been discredited by the courts with good reason38. Guarantee fees do not represent payments for services any more than payments with respect to other financial instruments constitute payment for services39. A guarantor does not arrange financing for the debtor, but merely executes a financial instrument in its favour. See. e.g., Centel Communications Co. V. Commissioner, 92 T.C. 612, 632 (1989), aff d, 920 F2d 1335 (7th Cir. 1990); Bank of Am. V. United States, 680 F.2d 142, 15....
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....transaction, even though there is a reference to the expression 'benefit' in the context of cost or expense sharing arrangements but that is a different aspect of the matter altogether. In the absence of benefit test being mentioned in the definition for the present purposes, we cannot infer the same. 38. One more thing which is clearly discernable from the above discussions is that the tests recognized by these guidelines are interwoven twin tests of benefit and arm's length. Benefit test implies the recipient group member should get "economic or commercial value to enhance its commercial position". The benefit test is interlinked with the an arm's length test in the sense that it seeks an answer to the question whether under a similar situation an independent enterprise would have been willing to pay for the activity concerned, or would have performed the activity in-house for itself. So far as the benefit test is concerned, as we have noted earlier, it is alien to the definition of international transaction' under the Indian transfer pricing legislation. So far as arm's length test is concerned, it presupposes that such a transaction is possible ....
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....e shape of cash or capital assets. Any entity that can pass the risk assessment and provide security may obtain a bank guarantee. The consideration for the issuance of bank guarantee, so far as a banker is concerned, is this. When the client is not able to honour the financial commitments and when client is not able to meet his financial commitments and the bank is called upon to make the payments, the bank will seek a compensation for the action of issuing the bank guarantee, and for the risk it runs inherent in the process of making the payment first and realizing it from the underlying security and the client. Even when such guarantees are backed by one hundred percent deposits, the bank charges a guarantee fees. In a situation in which there is no underlying assets which can be realized by the bank or there are no deposits with the bank which can be appropriated for payment of guarantee obligations, the banks will rarely, if at all, issue the guarantees. Of course, when a client is so well placed in his credit rating that banks can issue him clean and unsecured guarantees, he gets no further economic value by a corporate guarantee either. Let us now c....
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....assessee, are not for its own business purposes. As a plain look at the details of corporate guarantees would show, these guarantees were issued to various banks in respect of the credit facilities availed by the subsidiaries from these banks. The guarantees were prima facie in the nature of shareholder activity as it was to provide, or compensate for lack of, core strength for raising the finances from banks. No material, indicating to the contrary, is brought on record in this case. Going by the OECD Guidance also, it is not really possible to hold that the corporate guarantees I.T.A. No.: 2873/Ahd/10 Assessment year: 2006-07 issued by the assessee were in the nature of 'provision for service' and not a shareholder activity which are mutually exclusive in nature. In the light of these discussions, we are of the considered view, and are fully supported by the OECD Guidance in this, that the issuance of corporate guarantees, in the nature of quasi capital or shareholder activity- as is the uncontroverted position on the facts of this case, does not amount to a service in which respect of which arm's length adjustment can be done. 42. As observed by Hon'ble ....
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....them, using the methods applied by the taxpayer insofar as these are consistent with the methods described in Chapters II and III. In other than exceptional cases, the tax administration should not disregard the actual transactions or substitute other transactions for them. Restructuring of legitimate business transactions would be a wholly arbitrary exercise the inequity of which could be compounded by double taxation created where the other tax administration does not share the same views as to how the transaction should be structured. 1.37 However, there are two particular circumstances in which it may, exceptionally, be both appropriate and legitimate for a tax administration to consider disregarding the structure adopted by a taxpayer in entering into a controlled transaction. The first circumstance arises where the economic substance of a transaction differs from its form. In such a case the tax administration may disregard the parties' characterization of the transaction and re- characterise it in accordance with its substance. An example of this circumstance would be an investment in an associated enterprise in the form of interestbearing debt when, at....
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....#39;s length." 17. The significance of the aforesaid guidelines lies in the fact that they recognise that barring exceptional cases, the tax administration should not disregard the actual transaction or substitute other transactions for them and the examination of a controlled transaction should ordinarily be based on the transaction as it has been actually undertaken and structured by the associated enterprises. It is of further significance that the guidelines discourage re-structuring of legitimate business transactions. The reason for characterisation of such re-structuring as an arbitrary exercise, as given in the guidelines, is that it has the potential to create double taxation if the other tax administration does not share the same view as to how the transaction should be structured. 18. Two exceptions have been allowed to the aforesaid principle and they are (i) where the economic substance of a transaction differs from its form and (ii) where the form and substance of the transaction are the same but arrangements made in relation to the transaction, viewed in their totality, differ from those which would have been adopted by independent enterpri....
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....d to be treated as shareholder participation in the subsidiaries. 44. As for the words 'provision for services" appearing in Section 92 B, and connotations thereof, our humble understanding is that this expression, in its natural connotations, is restricted to services rendered and it does not extend to the benefits of activities per se. Whether we look at the examples given in the OECD material or even in Explanation to Section 92 B, the thrust is on the services like market research, market development, marketing management, administration, technical service, repairs, design, consultation, agency, and scientific research, legal or accounting service or coordination services. As a matter of fact, even in the Explanation to Section 92 B- which we will deal with a little later, guarantees have been grouped in item 'c' dealing with capital financing, rather than in item 'd' which I.T.A. No.: 2873/Ahd/10 Assessment year: 2006-07 specifically deals with 'provision for services'. When the legislature itself does not group 'guarantees' in the 'provision for services' and includes it in the 'capital financing', it is reasonable ....
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....ally covers I.T.A. No.: 2873/Ahd/10 Assessment year: 2006-07 sale or lease of tangible or intangible property". The expression "bearing on the profits, income, losses or assets of such enterprises" is relevant only for residuary clause i.e. any other services not specifically covered by Section 92 B. It was also contended that, while rendering Bharti Airtel decision, the Delhi Tribunal did go overboard in deciding something which was not even raised before us. In the written submission, it was stated that "Hon'ble Delhi ITAT was not requested by the contesting parties to decide the issue as to whether the provision of guarantee was a service or not". That's not factually correct. We are unable to see any merits in learned Departmental Representative's contention, particularly as decision categorically noted that not only before the Tribunal, but this issue was also raised before the DRP- as evident from the text of DRP decision. We now take up the issue with respect to specific mention of the words in Explanation to Section 92B which states that "For the removal of doubts, it is hereby clarified that (i) the expression "international transaction" shall include.....
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.... or lending money. The remaining two items in the Explanation to Section 92 B are set out in clause (c) and (e) thereto, dealing with (a) capital financing and (b) business restructuring or reorganization. These items can only be covered in the residual clause of definition in international transactions, as in Section 92B (1), which covers "any other transaction having a bearing on profits, incomes, losses, or assets of such enterprises". It is, therefore, essential that in order to be covered by clause (c) and (e) of Explanation to Section 92 B, the transactions should be such as to have beating on profits, incomes, losses or assets of such enterprise. In other words, in a situation in which a transaction has no bearing on profits, incomes, losses or assets of such enterprise, the transaction will be outside the ambit of expression 'international transaction'. This aspect of the matter is further highlighted in clause (e) of the Explanation dealing with restructuring and reorganization, wherein it is acknowledged that such an impact could be immediate or in future as evident from the words "irrespective of the fact that it (i.e. restructuring or reorganization) has bearing....
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....e could not have realized money by giving it to someone else during the course of its normal business, such an assistance or accommodation does not have any bearing on its profits, income, losses or assets, and, therefore, it is outside the ambit of international transaction under section 92B (1) of the Act. 45. Before we part with this issue, there are a couple of things that we would like to briefly deal with. 46. The first issue is this. We find that in the case of Four Soft Ltd Vs DCIT [(2011) 142 TTJ 358 (Hyd)], a co-ordinate bench had, vide order dated 9th September 2011, observed as follows: "We find that the TP legislation provides for computation of income from international transaction as per Section 92B of the Act. The corporate guarantee provided by the assessee company does not fall within the definition of international transaction. The TP legislation does not stipulate any guidelines in respect to guarantee transactions. In the absence of any charging provision, the lower authorities are not correct in bringing aforesaid transaction in the TP study. In our considered view, the corporate guarantee is very much incidental to the business of t....
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....e transfer pricing legislation inherently is, is not primarily a source of revenue as it mainly seeks compliant behaviour from the assessee vis-à-vis certain norms, and these norms cannot be given effect from a date earlier than the date norms are being introduced. However, as we have decided the issue in favour of the assessee on merits and even after taking into account the amendments brought about by Finance Act 2012, we need not deal with this aspect of the matter in greater detail 48. In the present case, we have held that the issuance of corporate guarantees were in the nature of shareholder activities- as was the uncontroverted claim of the assessee, and, as such, could not be included in the 'provision for services' under the definition of 'international transaction' under section 92 B of the Act. We have also held, taking note of the insertion of Explanation to Section 92B of the Act, that the issuance of corporate guarantees is covered by the residuary clause of the definition under section 92 B of the Act but since such issuance of corporate guarantees, on the facts of the present case, did not have "bearing on profits, income, losses or a....
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....its in this case, it would not really be necessary to deal with that aspect of the matter. 49. The second issue is this. We must deal with the question whether in this case the matter should have been referred to a larger bench. The parties before us were opposed to the matter being sent for consideration by the special bench, and at least one of the reasons for which the grievance of the assessee is upheld, i.e. guarantees being in the nature of shareholder activity and excludible from the scope of services for that reason alone, is an area which had come up for consideration for the first time. In effect, therefore, there was no conflict on this issue of and the other issues, given decision on the said issue, were wholly academic. It cannot be open to refer the academic questions to the special bench. No doubt, some decisions of the coordinate benches which have reached the different conclusions. There is, however, no conflict in the reasoning. Four Soft decision (supra) had decided the I.T.A. No.: 2873/Ahd/10 Assessment year: 2006-07 issue in favour of the assessee but that was with respect to the law prior to insertion to Explanation to Section 92B. As for the post ame....
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.... above, and for the detailed reasons set out above, we uphold the grievance raised by the assessee. The impugned ALP adjustment of Rs. 2,23,62,603, thus stands deleted. As we do so, however, we must add that, in our considered view, the way forward, to avoid such issues being litigated and to ensure satisfactorily resolution of these disputes, must include a clear and unambiguous legislative guidance on the transfer pricing implications of the corporate guarantees as also on the methodology of determining its ALP, if necessary. Of course, no matter how good is the legislative framework, the importance of a very comprehensive analysis, in the transfer pricing study, of the nature of corporate guarantees issued by the assesses, can never be overemphasized. The sweeping generalizations, vague statements and evasive approach in the transfer pricing study reports, which are quite common in most of the transfer pricing reports, cannot do good to a reasonable cause. When judicial calls on the complex transfer pricing issues are to be taken, utmost clarity in the legislative framework and a comprehensive analysis of relevant facts, in the transfer pricing documentation, are basic inputs. ....
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....re similar as in ITA No. 2224/Ahd/2015 Assessment Year 2009-10 therefore after applying the decision adjudicated vide ITA No. 1757/Ahd2014 as supra in this order, this ground of appeal of the assessee stands dismissed. ITA No. 2343/Ahd/2015 A.Y. 2010-11 filed by revenue Ground No. 1 (Deleting the addition of Rs. 31,05,06,247/- being taxable income of M/s. Vega Industries (Middle East) FZE, UAE_ 31. As the facts and issue involved in ground of appeal no. 1 vide ITA No. 1766/Ahd/2012 Assessment Year 2008-09 are similar as in ITA No. 2343/Ahd/2015 Assessment Year 2010-11 therefore after applying the decision adjudicated vide ITA No. 1766/Ahd/2012 as supra in this order, this ground of appeal of the revenue stands dismissed. Ground No. 2 Deleting the disallowance of excess claim of depreciation of Rs. 15,51,795/- on vehicle u/s. 32 of the Act) 32. As the facts and issue involved in ground of appeal no. 2 vide ITA No. 2342/Ahd/2015 Assessment Year 2009-10 are similar as in ITA No. 2343/Ahd/2015 Assessment Year 2010-11 therefore after applying the decision adjudicated vide ITA No. 2342/Ahd/2015 as supra in this order, this ground of appeal of the revenue stands dismissed. ....
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....of the form 3CD for the relevant assessment year 2010-11. A copy of the relevant statement No. 6 of the tax audit report is appended for your ready reference. Thus, it is very clear that this amount of Rs. 16.62 lacs being the difference between the MODVAT credit availed and utilized during the year, (i.e. Rs. 20569147 Less Rs. 18907154 = Rs. 16,61,993) pertains to capital goods to which the provisions of Section 145A are clearly not applicable. This aspect is also evidenced by the plain reading of Section 145A and we also draw our inference from the decision of Income Tax Appellate Tribunal, Mumbai Bench "B" Mumbai . In case of M/s Navdeep Chemicals Pvt. Ltd Vs. the Deputy Commissioner of Income Tax Circle 2(2) OSD, Mumbai, ITA NO. 3755/MUM/2011 A.Y. 2007-08." The details so submitted from tax audit report as "Statement no. 6" is as follows: Details of Excise MODVAT Credit A.Y. 2010-2011 Capital Goods Rs. Offers Rs. Opening balance of Excise 273900 44843319 MODVATE Credit Availed During the year 20569147 275462556 MQDVATE Credit Utilised During the Year 18907154 281 93577 Balance representing outstanding Amount as at the....
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....'ble Supreme Court in the case of CIT vs. Indo Nippon Chemical Ltd. 261 ITR 275 (SC), decision of Hon'ble Gujarat High Court in the case of ACIT vs. Narmada Chemmatur Petrochemical 327 ITR 369 (Guj) and decision of ITAT Ahmedabad in the case of the assessee itself vide ITA No. 1122/Ahd/2015. With the assistance of ld. authorized representatives, we have gone through the decision of Hon'ble ITAT Ahmedabad in the case of the assessee itself for assessment year 2006-07 vide ITA 1122/Ahd/2015 dated 26-09-2017 wherein similar issue on identical fact has been decided in favour of the assessee. The relevant part of the decision of the ITAT is as under:- "3. At the time of hearing before us, learned representatives fairly agree that the above grievance is covered, in favour jf the assessee, by the decision dated 31.08,2016 of the Co-ordinate Bench of this Tribunal in the case of ITO vs. Mamata Brampton Engg. Pvt. Ltd. in ITA No.2387/Ahd/2013 for assessment year 2008-09 wherein the Tribunal has, inter alia, observed as follows:- "5. We have heard the rival submissions, perused the material available on record and gone through the orders of the authorities below. The issue ....
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....led for depreciation @ 10%. Consequenlty, excess depreciation of Rs. 67,707 and additional depreciation of Rs. 2,70,826/- totaling to Rs. 3,38,533/- was disallowed and added to the total income of the assessee. 37. Aggrieved assessee has filed appeal before the ld. CIT(A). The ld. CIT(A) has allowed the appeal of the assessee. 38. After considering the material on record, facts and finding of ld. CIT(A) it is noticed that during the year under consideration the assessee had installed new plant and machinery and also incurred electric installation expenditure. Since the electric fitting and installation was part and parcel of the plant and machinery without which the plant and machinery cannot be operated therefore we consider that decision of ld. CIT(A) is justified in holding that electric installation was part and parcel of plant and machinery and the same cannot be considered separately. Therefore, we do not find any error in the decision of ld. CIT(A). Accordingly, this ground of appeal of the Revenue stands dismissed. Ground No. 5 ( Deleting the addition of Rs. 25,22,50,297/- made on account of upward revision of arms length price) 39. As the facts and issue involv....
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....ilar as in ITA No. 1112/Ahd/2017 Assessment Year 2011-12 therefore after applying the decision adjudicated vide ITA No. 1766/Ahd/2012 as supra in this order, this ground of appeal of the revenue stands dismissed. Ground No. B (Deleting disallowance u/s. 14A of assessee vide ITA No. 1028/Ahd/2017 and revenue vide ITA No. 1112/Ahd/2017) 45. The similar issue on identical facts was adjudicated for assessment year 2008-09. Therefore, applying the findings on the similar issue adjudicated vide ITA No. 1757/Ahd/2012 for A.Y. 2008-09 as supra, we restrict the disallowance as administrative expenses to the amount of Rs. 15 lacs. Since the assessee itself made disallowance to the extent of Rs. 6,69,616/-,therefore, disallowance is restricted to the extent of Rs. 8,30,384/- (Rs. 15,00,000- 6,69,616/-). Accordingly, this ground of appeal of the assessee is partly allowed and ground of appeal of Revenue for deleting addition of Rs. 61,159/- by ld. CIT(A) is dismissed. Ground No. C (Deleting disallowance u/s. 35D) 46. As the facts and issue involved in ground of appeal no. 2 vide ITA No. 1766/Ahd/2012 Assessment Year 2008-09 are similar as in ITA No. 1112/Ahd/2017 Assessment Year 20....
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.... of the assessee stands dismissed. Ground No. 3 (Depreciation on electrical fittings) 52. As the facts and issue involved in ground of appeal no. 4 vide ITA No. 2343/Ahd/2012 Assessment Year 2010-11 are similar as in ITA No. 1028/Ahd/2015 Assessment Year 2011-12 therefore after applying the decision adjudicated vide ITA No. 2343/Ahd/2012 as supra in this order, this ground of appeal of the assessee is stands dismissed. Ground No. 4 (Addition of Rs. 7,00,275/- on account of Corporate Guarantee charges) 53. As the facts and issue involved in ground of appeal for Assessment Year 2009-10 are similar as in ITA No. 1028/Ahd/2017 Assessment Year 2012-13 therefore after applying the decision adjudicated vide assessment year 2009-10 as supra in this order, this ground of appeal of the assessee is allowed. ITA No. 1835/Ahd/2017 A.Y. 2012-13 filed by revenue Ground No. 1 (Deleting the addition of Rs. 31,56,69,000/- being income of Vega Industries ME) 54. As the facts and issue involved in ground of appeal no. 1 vide ITA No. 1766/Ahd/2012 Assessment Year 2008-09 are similar as in ITA No. 1835/Ahd/2015 Assessment Year 2012-13 therefore after applying the decision adjudicated v....