TaxTMI 
TaxTMI 
2021 (3) TMI 883
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....f its appeals give rise to the following issues:- (a) Transfer pricing adjustment made on recovery of third party expenses (b) Disallowance of Research & Development Expenses (c) Disallowance u/s 14A of the Act (d) Non-granting of entire Foreign Tax credit claimed by the assessee (e) Non-granting of entire TDS claimed by the assessee. 3. The appeal of the revenue is directed against the direction given by Ld DRP for adopting Fair Market Value as on 01-04-1981 for computing capital gains. 4. The assessee is engaged in the business of growing, curing of coffee and Tea and also manufacturing & marketing of value added coffee/tea products. It grows coffee in its own estates, processes the beans, exports green coffee, manufactures & exports "instant coffee". The assessee also grows pepper and cardamom. 5. The first issue urged by the assessee relates to the Transfer pricing adjustment of Rs. 94,40,071/- confirmed by Ld DRP. 5.1 The facts relating to the above said transaction are that the assessee has shown a sum of Rs. 9,44,00,714/- as an international transaction under the title "Reimbursement of expenses received from its AE named "Campestress Holdings Ltd". Initially, ....
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....remlin Project is as follows. The Total amount of expenditure incurred under CUP method is NIL. The Arm's Length Price adjustment under CUP method is Rs. 96,076,131/- To sum up the Total ALP adjustment is Rs. 96,076,131/-. The above amount of Rs. 96,076,131/-. is treated as transfer pricing adjustment u/s 92CA in respect of reimbursement of expenditure of Kremlin Project of the taxpayer's international transactions." It is pertinent to note that the assessee had also declared international transactions by way of reimbursement of expenses of Rs. 16,75,417/- and hence the TPO has made adjustment to the tune of Rs. 9,60,76,131/-, which is inclusive of above said amount. The Ld DRP deleted the TP adjustment of Rs. 16,75,417/- and hence the facts relating to net amount of TP adjustment of Rs. 9,44,00,714/- are discussed here. 5.4 The Ld DRP held that the TPO was not right in making TP adjustment of entire amount on the reasoning that there was no intra-group services between the AEs. The Ld DRP held that the TP adjustment should be restricted to mark-up amount of the amount spent by the assessee. Accordingly, the Ld DRP directed the TPO to determine the mark-up @ 10% a....
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....les is 9.95%. in view of the facts and circumstances related to the impugned transactions a mark-up of 10% is considered reasonable. The TP adjustment, therefore, is directed to be restricted to this amount. The objections are partly acceptable. 5.5 The Ld. A.R. submitted that there is "no income" element in this transaction. In the absence of any income element, the Ld. DRP was not justified in making TP adjustment to the extent of 10% of the reimbursement of amount received by the assessee. He further submitted that the Ld. DRP has determined the rate of 10% on the basis of operating profit of the assessee, which is not recognized method of bench marking prescribed in the I.T. Rules. Accordingly, he submitted that the entire TP adjustment sustained by the Ld. DRP should be deleted. 5.6 The Ld. DR on the contrary submitted that the assessee has incurred expenditure in the process of acquisition of M/s OOO Sunty Limited. Since the assessee has spent money and also performed pre-acquisition activities and thus, relieved of the subsequent buyer (AE of the assessee) from pre-acquisition exercises, the same would represent services performed by the assessee to CHL. Accordingly, the ....
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....ied in holding that the transfer pricing adjustment by way of a markup on the amount spent by the assessee and claimed back from CHL is required to be made. 5.10 We have noticed earlier that the Ld. DRP has determined the markup rate at 10% on the basis of financial results of the assessee company. It is well settled proposition that the bench marking of international transactions have to be made under any one of the recognized methods prescribed in the I.T. Rules. Apparently, the Ld. DRP has adopted CUP method for bench marking the international transactions. However, it has not brought on record any external supporting material to substantiate the mark-up rate of 10%. We have noticed earlier that the Ld DRP has arrived at the rate of 10% on the basis of the internal profits declared by the assessee. What is required to be shown is that under same set of facts, what would have been the mark-up if the transactions were between unrelated parties. Accordingly, we are of the view that the determination of rate of markup requires fresh examination. Accordingly, we modify the order passed by Ld. DRP on the issue determination of percentage of markup and restore the same to the file of ....
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....hts to the assessee. Accordingly, he disallowed the above said amount of Rs. 42.95 lakhs incurred by the assessee. The Ld. DRP also concurred with the view taken by the A.O. 6.2 The Ld. A.R submitted that the assessee has been incurring expenditure on research & development activities in a routine manner year after year and it has not developed any "copy right" as presumed by the A.O. He further submitted that the capital expenditure incurred in connection with the R&D activities have been duly capitalized by the assessee and details of the same have been reported in the annual report of the assessee. He submitted that revenue expenses have been charged to profit and loss account. He further submitted that major portion of the R&D expenses is the expenditure incurred on salaries & wages paid to its staff. He submitted that the assessee is constrained to maintain "R & D department" in the normal course in order to meet the competition and to remain upto date with the changes in the market. Accordingly, the Ld. A.R. submitted that there is no justification for treating this expenditure as capital in nature. 6.3 On the contrary, the Ld. D.R. submitted that the assessee has not been ....
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....7 to 2008-09. Before the Tribunal, the assessee had submitted that the investments have been made by the assessee in the past out of own surplus funds and hence, there is no requirement of making any disallowance out of interest expenses. Hence, the ITAT, vide its order dated 6.9.2013 passed in ITA No.1462 to 1464/Bang/2012, has restored the matter to the file of the A.O. for examining the issue afresh. The Ld. A.R. submitted that the A.O. has since passed the order giving effect to the order passed by the Tribunal and he did not make any disallowance out of interest expenditure. The Ld. A.R. submitted that the facts are identical in the instant case and accordingly, prayed that the matter may be restored to the file of the A.O. with similar directions. 7.1 The Ld. D.R. on the contrary, submitted that the assessee has not demonstrated that the investments have been made out of surplus funds in the past. Further, the assessee is maintaining its accounts in a consolidated manner, whereby all funds and receipts are intermingled in a common pool. Hence, it will be difficult to relate the investment to a particular receipt. Accordingly, the Ld. D.R. submitted that the A.O. was justifie....
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.....43 crores claimed by the assessee. The Ld. A.R. has submitted that issue relating to foreign tax credit has been explained well in the case of Ittiam Systems Pvt. Ltd. by the Bangalore bench of Tribunal. Accordingly, we are of the view that the claim of the assessee requires fresh examination at the end of the A.O. Accordingly, we restore this issue to the file of the A.O. with the direction to follow the principles laid down by the Bangalore bench in the case of Ittiam Systems Pvt. Ltd. and accordingly, allow credit of foreign tax credit. 9. Next issue relates to short credit of TDS. It is the claim of the assessee that the A.O. has not granted credit of TDS to the tune of Rs. 8,22,566/-. Since this matter requires factual verification, we restore this issue to the file of the A.O. 10. We shall now take up the appeal filed by the revenue, wherein the revenue is contesting the direction given by the Ld. DRP to the A.O. to consider FMV as on 1.4.1981 for computing capital gain. 10.1 The facts relating to the above issue are stated in brief. During the year under consideration, the assessee had sold Rosewood, Silver Oak, Eucalyptus and other trees. The assessee computed capital g....
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....8.4 It was submitted that sale of rosewood to government depot and transfer of silver oak and other trees to Timber division is shown as sale of capital asset and offered to tax as capital gains. Further, sale of marine plywood, fire retardant plywood, phenol formaldehyde black board, commercial plywood produced in timber division are shown as business income. It was submitted that the reason for the different treatment is the difference in characterization of the item of sale i.e., trees. As regards Rosewood, Eucalyptus and other trees which are used for shade of coffee bushes are in the nature of capital assets and hence, income/loss from their sale is computed under the head "Capital gains" once the income is recognized in the books of the company based on its accounting As regards, Silver Oak the income is computed under the head "Capital gains" upon their conversion into stock in trade of timber value addition division. The subsequent sale in the timber division is of the stock in trade of the business of the timber division and hence, income from their sale is computed under the head "Business income". 8.5 The following case laws were relied upon by the assessee: * Deci....