TaxTMI 
TaxTMI 
2021 (3) TMI 1
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....hat along with grounds of appeal in the appeal memo, they have also filed three additional grounds which are as follows: "Claim of Education Cess 1. The appellant prays that the liability for education cess on income tax paid for the year ought to be allowed as tax deductable expenses while computing the taxable income. Consequential claim of Depreciation on the expenditure of premises 2. Consequent to the decision of Hon'ble ITAT for the AY 2004-05 to 2007-08 in relation to the disallowance of expenditure on premises to the extent of 40% of such expenses, being held to be capital in nature for the respective years under consideration, the Appellant prays for allowance of the consequential depreciation on the same, in the subsequent years including AY 2010-11. Consequential claim of depreciation on the Expenditure of software 3. Consequent to the decision of Hon'ble ITAT in the AY 2007-08, in relation to disallowance of expenditure of software amounting to Rs. 15,60,198/- incurred during the year were held to be capital in nature, the Appellant prays for allowance of the consequential depreciation on the same, in the subsequent ....
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....re, respectfully following the same parity of reasoning in the above referred decisions, additional ground No.1 raised in appeal by the assessee is allowed. 7. Additional Ground No.2 refers to the claim of depreciation on the expenditure of premises and as submitted by the Ld. Counsel for the assessee that this issue was also dealt in assessee's own case by the Pune Bench of the Tribunal in ITA No.736 & 732/PUN/2011 for the assessment year 2005-06. The question before the Tribunal was as follows: "2. Claim of Depreciation : Consequent to the decision of Hon'ble ITAT in the AY 2004- 05, in relation to disallowance of expenditure of premise amounting to Rs. 14,18,515, being 40% of the total expenditure incurred during the year, which are held to be capital in nature for such year under consideration, i.e. AY 2004-05, the Appellant prays for allowance of the depreciation the same, in the subsequent years, including AY 2005-06." The Tribunal on this issue has held and observed as follows : "35. The second additional ground is against the allowing of depreciation on the amount of capital expenditure incurred by the assessee on certain premises, which was....
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....sequential depreciation on the software development cost for the year under consideration, the AO should keep in mind to compute the opening w.d.v. by reducing not only the depreciation granted by him for the A.Y. 2007-08 but also deemed depreciation at the rate of 60% for the next two years, whose assessments have been quashed. Only the remaining amount will constitute opening w.d.v. of the software development cost on this score. Accordingly, additional ground No.3 is allowed to this extent. 10. Thus, all the additional grounds raised by the assessee are allowed as indicated above. ADJUDICATION OF GROUNDS IN APPEAL MEMO 11. Now, we would adjudicate grounds referred before us in the appeal memo which are as follows: "The appellant objects to the order of the Hon'ble Commissioner of Income Tax (Appeals) - 13, Pune ["CIT (Appeals)"] dated July 27, 2015 for the aforesaid assessment year on the following among other grounds: 1. The Hon'ble CIT(Appeals) erred on following grounds for making an adjustment to the international transaction of export of finished goods on account of difference in price of similar goods sold to Associated Enterprises ("AEs"....
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....on is Rs. 47,00,000/-. 13. The observation of the AO/TPO was that the assessee has made total sales of Rs. 113.75 crores to its AEs. The TPO accepted that TNMM is the most appropriate method for sales aggregating Rs. 106.03 crore. However, as regards sales worth Rs. 7.72 crores, he held that CUP should be adopted as the most appropriate method on the basis that similar products has been sold to non AEs. He rejected the submissions of the assessee that the sales to AEs and non AEs cannot be benchmarked on CUP basis due to geographical difference, volume difference, timing difference, risk difference and functional difference. The TPO took the similar view in the previous year. 14. The Ld. CIT(Appeals) on this issue at Para 2.3.3 of his order has placed reliance on the decision of the Pune Bench of the Tribunal in the case of Henkel Adhesives Technologies India Private Limited Vs. DCIT, ITA No.1647/PUN/2011 dated 18.02.2015 for the assessment year 2007-08 and has held that on identical facts, the Tribunal had rejected the assessee's argument on TNMM applied by it and confirmed the decision of the TPO to apply CUP method to the assessee's international transaction of export of f....
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....e assessee's version, the TPO separated figure of exports in respect of the goods which were also sold to non-AEs at Rs. 3.09 crore. The remaining amount of exports to AEs at Rs. 47.86 crore was accepted at ALP. For the disputed transaction of exports made by the assessee to its AE at Rs. 3.09 crore, the TPO found the assessee to have charged its AEs less by Rs. 2,24,11,726/-. He, therefore, held that if the assessee had sold such goods to third parties, the amount of sales would have been Rs. 5,33,87,694/- (Rs. 3.09 crore + Rs. 2.24 crore). As the assessee deliberately exported similar goods to its AE at price lower than that charged from non-AEs, the TPO held that the lower amount charged at Rs. 2.24 crore was liable to be considered as transfer pricing adjustment. The AO made this addition, which got sustained at the hands of the ld. first appellate authority. 6. We have heard both the sides and gone through the relevant material on record. The assessee declared an international transaction of `Export of manufactured finished goods' with value at Rs. 50.95 crore, whose ALP was determined by the assessee under the TNMM by aggregating it with other two international trans....
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....upply of 6472 units to AE at a price of Rs. 14.02 per unit. Same result follows that higher the quantity, lower the price. The next item is Reducer. The assessee supplied 10 units to non-AE at a price of Rs. 199.02 per unit as against 78 units to its AE at an average price of Rs. 236.22. Here it is found that the price charged from AE is more than that charged from non-AEs even for more quantity. The entire case is like this. Normally, the quantity of sale of similar products to non AEs is several times higher than that sold to AEs. On an overview of Annexure-1, it is found that no doubt the assessee charged less price from its AEs vis-à-vis non-AEs, but such lower prices are invariably conjoined with much higher number of units sold. In certain cases, the assessee charged its AEs at prices higher than that charged from non-AEs for similar products. The ld. AR explained that though the products are similar but these were customized as per the requirements of the non-AEs, which position has not been controverted on behalf of the Revenue. That apart, it is seen that there is difference in locations of AEs and non-AEs. Whereas the biggest buyer AE, namely, Power Tools Distribut....
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....pprove the application of the CUP method on account of such difference. When the Revenue preferred an appeal against the Tribunal order, the Hon'ble High Court held that the CUP method is not appropriate method in case of geographical difference, volume difference, timing difference, risk difference and functional difference. Reverting to facts of the extant case, we find that since there are significant differences in the sales made by the assessee to its AEs and non-AEs, the effect of which has neither been given by the TPO nor it has been shown that how it can be given, we hold that the action of the authorities below in applying the CUP as the most appropriate method cannot be countenanced. 10. Having held that the CUP is not the most appropriate method in the given circumstances, there is a need to determine the ALP of the international transaction under another suitable method. The ld. AR vehemently argued that in such a scenario of the Tribunal not approving the application of the CUP method by the authorities, the ALP determination by the assessee under the TNMM would revive not calling for any transfer pricing addition. This contention in our considered opinion is....
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....transactions of Rs. 3.09 crore. The other part of the international transaction of Export of manufactured finished goods with the value of Rs. 47.86 crore, which has been accepted by the TPO at ALP, cannot be now interfered with. Needless to say, the assessee will be allowed a reasonable opportunity of hearing in such fresh proceedings." 16. The same view was followed by the Tribunal in assessee's own case for assessment year 2006-07 in ITA No.1470/PUN/2010 dated 21.08.2019 wherein on the issue, the Tribunal has held and observed as follows: "11. The first ground is with regard to the "sales to Associated Enterprises (AEs)". 12. It was contended by the Ld. AR of the assessee that during the year total sales to AEs was at Rs. 61.38 Crores, out of which Rs. 54.10 Crores is not disputed. It is Rs. 7.28 Crores which is the disputed amount. The Ld. AR invited our attention to the TPO's order at Page 15 for assessment year 2006-07 read with TPO's order at Page 8 for assessment year 2005-06 and demonstrated that the subject matter and facts for both these assessment years are similar. It is seen that sales to AEs is always more. At Page 661 onwards Volume-I of the Pap....
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.... Rs. 2.59 lakhs, disallowed the same. Whereas, the Ld. CIT(Appeals) restricted such disallowance to Rs. 1 Lakhs. 19. The Ld. Counsel for the assessee submitted because of pettiness of the grievance, he is not pressing this ground. After recording the submissions of the Ld. Counsel for the assessee, ground No.2 is dismissed as not pressed. 20. Ground No.3 pertains to the disallowance u/s.14A of the Income Tax Act, 1961 (hereinafter referred to as "the Act') of Rs. 36,30,760/-. 21. The brief facts on this issue are that the Assessing Officer has made disallowance of Rs. 40,80,379/- u/s.14A r.w.r.8D comprising of interest expenses of Rs. 32,92,953/- and disallowance under rule 8D @0.5% of the average investment yielding exempt income. The Ld. CIT(Appeals) observed vide Para 2.8.1 to 2.8.10, Page 36 to 42 of his order that the company has not furnished any evidence that the investments have been made out of short term surplus funds available with them. The Ld. CIT(Appeals) further observed that the assessee has to incur some expenditure to keep track of tax free income. Therefore, the Ld. CIT(Appeals) confirmed the disallowance made by the Assessing officer and restricted the ....
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....er the observation of the Hon'ble Jurisdictional High Court. 7.1 Reverting to the facts of the present case, it is already analyzed that the assessee was having sufficient own funds and therefore, whatever investment was made, the legal presumption is they were from the said own funds of the assessee. Therefore, no disallowance u/s.14A of the Act is called for." 23. Therefore, out of the total disallowance of Rs. 40,80,379/- made by the Assessing Officer u/s.14A r.w.r.8D, the disallowance in respect of interest expenditure of Rs. 32,92,953/- is, therefore, deleted following the aforesaid order of the Tribunal in assessee's own case and placing reliance on the decision of the Hon'ble Jurisdictional High Court (supra.). That however, on disallowance of Rs. 7,87,426/- under rule 8D @ 0.5% of the average investment yielding exempt income towards administrative expenses, the view of the Tribunal at Para 7.2 of its order in ITA No.1311 & 1414/PUN/2011 for the assessment year 2002-03 has been as follows: "7.2 With regard to the disallowance on administrative expenses, considering the entirety of facts and circumstances in the case of the assessee, we direct the Ass....