TaxTMI 
TaxTMI 
2021 (4) TMI 682
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....hd/2015, an appeal by the Assessee for A.Y. 2010-11 2. The assessee has raised the following grounds of appeal: 1. The Id. CIT(A) has erred in law and on facts in confirming the action of Id. AO in treating the transaction of granting quasi capital interest free contribution to Lambda Therapeutic Ltd., UK and Lambda Therapeutic Research INC, USA as "international transaction" falling within the purview of Chapter X of the Act. 2. The Id. CIT(A) has erred in law and on facts in confirming the action of Id. AO in making addition of Rs. 27,36,080/- as proposed by TPO being interest free loan advances to Lambda Therapeutic Ltd., UK and Lambda Therapeutic Research INC, USA. 3. The Id. CIT(A) has erred in law and on facts in not adjudicating upon the ground with respect to addition of 14A disallowance to the amount of book profits u/s 115JB of the Act by holding it to be infractuous. Ld. CIT(A) ought to have independently decided the said ground on merits. 4. Both the power authorities have passed the orders without properly appreciating the facts and that they further erred in grossly ignoring various submission, explanations and information submitted by the appellant from time....
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....i. In many cases these interest free loans were provided in the nature of quasi capital. 4.2 In view of the above, the assessee before the AO/TPO contended that there cannot be any adjustment of the notional interest under the provisions of section 92C read with rule 10B of the Income Tax Rules. 4.3 However, the AO/TPO disagreed with the contentions of the assessee by observing that the transaction of advancing the interest-free loans to the associated enterprises is an international transaction which requires to be determined at the arm length price in pursuance to the provisions of section 92C of the Act. The AO accordingly has worked out the amount of interest with respect to the AE's based in USA at LIBOR plus 412 bps and with respect to the AE based in Europe EURIBOR plus 281 bps and made the upward adjustment aggregating to Rs. 1,78,63,433/- to the total income of the assessee. 5. Aggrieved assessee preferred an appeal to the Ld. CIT-A. The assessee before the ld. CIT-A submitted that interest free loans and advances given to the associated enterprises based in foreign countries were in the nature of quasi capital which is akin to shareholders fund. While making equity inv....
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....business and income from such AEs which is more than the notional interest cost on advances. 6.1 The learned CIT (A) also found that the advances given to the AE namely "Lambda Therapeutic Research, SP. Z.O.O. Polland" were eventually partly converted into share capital. Thus it can be inferred that the advances were made by the assessee for acquiring the equity in the associated enterprise. Therefore, no further adjustment on account of interest is required to be made. 6.2 However, the learned CIT(A), with respect to the advance given to the associated enterprises namely "Lambda Therapeutic Ltd, UK" and "Lambda Therapeutic Research INC, USA" found that there was no benefit accrued to the assessee from such AEs. Accordingly, the learned CIT (A) confirmed the upward adjustment made by the AO/TPO for the interest amount toRs. 26,19,740/- and Rs. 1,16,340/- respectively on account of interest free advances made to these AEs. Hence the learned CIT (A) allowed the grounds of appeal of the assessee in part. 7. Being aggrieved by the order of the Ld. CIT-A both the assessee and the Revenue are in appeal before us. The assessee is in appeal before us against the confirmation of the add....
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.... the parties and perused the materials available on record. The dispute in the case on hand before us revolves whether the amount of interest free loans and advances provided to the associated enterprises should be subject to the adjustment on account of notional interest under the transfer pricing provisions as provided under section 92C of the Act. The assessee in the case on hand has provided interest-free advances to its four associated enterprises as discussed above. 10.1 From the preceding discussion, we find that the assessee along with its associated enterprises has been carrying out clinical research activities as a whole. These activities are interconnected with each other. These activities of clinical research can be understood better in the manner as detailed below: Phase Primary goal Undertaken at Preclinical Testing of drug in non-human subjects, to gather efficacy, toxicity and pharmacokinetic information India, Canada, since Inception Phase O Pharmacodynamics and Pharmacokinetics particularly oral bioavailability and halftime of the drug India, Canada, and Poland since Inception Phase I Testing of drug on healthy volunteers for dose-ranging Ind....
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...."US Treasury Regulations even provide for aggregating transaction between different legal entities for benchmarking. Where a US parent has three overseas subsidiaries engaged in administration, marketing and distribution relating to a single product of US parent, then to ensure that economies of integration are well captured in comparability analysis, the regulations provide that the combined effect of all controlled transactions between these companies should be considered." 10.5 We further find that the Para 3.13 of OECD Commentary also deals with the topic of Intentional set offs where it was mentioned that the Intentional set-offs generally occur between AEs in respect of controlled transactions wherein when one enterprise provides benefit to another enterprise within the group that is balanced to some degree by different benefits received from that enterprise in return. 10.6 This view is also considered in the judgment of Hon'ble High Court of Delhi in the case of Sony Ericsson Mobile Communications India (P.) Ltd.vs. CIT reported in [2015] 55 taxmann.com 240 (Delhi) as under; Bundled/Inter-Connected Transactions Clubbing of closely linked transactions, which would inclu....
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....see, the interest cost appears to be negligible. The amount of interest cost stands at Rs. 26,19,740/- whereas the amount of gross receipt generated by the assessee stands at USD 1,556,230 which is far more than the interest expenses after converting in India rupees. 10.8 Likewise, we also note that the assessee has derived the benefit from its associated enterprises namely Jina Pharmaceuticals located at USA for Rs. 3.56 crores in the year under consideration against the interest expenses of Rs. 1,14,87,233/-. The details stand as under: Revenue Details Year Wise Year Wise 2008-09 2009-10 2010-11 2011-12 2012-13 2013-14 2014-15 2015-16 Project Number 2007-08 2008-09 2009-10 2010-11 2011-12 2012-13 2013-14 2014-15 Grand Total 010-12 5,016,650 4,212,650 9,229,300 022-10 21,488,475 7,439,597 28,928,072 033-12 8,985,249 8,985.249 039-11 506,850 506,850 053-11 442,500 &....
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....-08 12,742,758 - 12,742,758 413-10 4,637,525 1,655,175 6,292,700 518-11 1,953,900 1,953,900 630-13 9,165,249 9,165,249 635-13 6,759,563 2,440,187 9,199,749 667-14 272,700 272,700 Grand Total 24,218,260 7,808,150 35,584,298 37,920,270 63,851,979 6,241,250 15,744,812 16,897,421 208,266,439 10.9 However, we find that the assessee has not demonstrated any benefit derived from its associated enterprises namely Lambda USA whereas it has advanced interest free loan of EURO 49,999/-. Thus, the question arises whether there is a need to make any adjustment on account of notional interest under the provisions of section 92C of the Act. In this regard we note that admittedly there was no benefit accrued to the assessee in the year under consideration but considering the interrelated activities carried out by the assessee along with ....
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.... free advances 'M' USA, existed only to facilitate the marketing of assessee's products in US markets. The relationship on account of lending of money cannot, thus, be considered in isolation without these crucial business considerations. [Para 15] It is only elementary legal position that what could not have been done directly could not have done indirectly also. There is, thus, not much of a merit in the stand of the revenue authorities that in the absence of a specific mention about conversion of loan into equity, it cannot be presumed that the interest free loans could not have been in the nature of quasi-capital. [Para 16]" 10.11 It is also significant to note that the Ld. CIT-A in his order has given a finding that there was no benefit derived by the assessee with respect to the amount of interest free loans and advances given to UK AE. However, on perusal of the details submitted by the assessee, we note that there was the benefit derived by the assessee from such associated enterprises which has been elaborated somewhere in the preceding paragraph. Thus, such finding of the Ld. CIT-A is factually incorrect. At the time of hearing the Ld. DR has also not contr....
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....ed CIT (A) held that the issue raised by the assessee for the addition made under section 115JB of the Act becomes infructuous. 13. Being aggrieved by the order of the learned CIT (A), the assessee is in appeal before us. 14. The learned AR before us contended that the learned CIT (A) instead of holding the issue raised by the assessee for the disallowance made under section 15JB of the Act as infructuous, he should have adjudicated the same on merit in the light of the order of the Hon'ble special bench of ITAT in the case of ACIT Vs Vireet investments private Ltd reported in 165 ITD 27. 15. On the other hand the learned DR vehemently supported the order of the authorities below. 16. We have heard the rival contentions of both the parties and perused the materials available on record. There are certain specified adjustments which needs to be made to work out the book profit as provided in the explanation (1) to section 115 JB of the Act. Clause (f) of explanation (1) of section 115 JB of the Act deals with the issue on hand which reads as under: Explanation 1.-For the purposes of this section, "book profit" means the profit as shown in the statement of profit and loss for th....
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....r. 8. It is, therefore, prayed that the order of the Ld. CIT(A) may be set aside and that of the Assessing Officer may be restored to the above extent.the 1st issue raised by the revenue is that the learned CIT (A) erred in including the income on account of notice pay and miscellaneous income while working out the deduction under section 80IB(8) of the Act. 9. The appellant craves leave to amend or alter any ground or add a new ground, which may be necessary. The first issue raised by the Revenue is that the ld. CIT-A erred in deleting the addition made by the AO for Rs. 9,82,226/-on account of deduction u/s.80IB of the Act. 18. The AO during the assessment proceedings found that the income from the notice pay and miscellaneous income amounting to Rs. 9,62,549 and Rs. 18,677/- respectively are not arising from the eligible business activities and therefore such income is not subject for deduction under section 80IB (8) of the Act. Accordingly the AO added the same to the total income of the assessee. 19. Aggrieved assessee preferred an appeal to the learned CIT (A) who allowed the ground of appeal of the assessee by observing that both the income are related to the business....
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.... also note that miscellaneous income represents the settlement of the advances given by the assessee to its employees. In other words such income also represents from the day to day activities of the assessee. Accordingly we hold that such income is eligible for deduction under section 80IB of the Act. Accordingly we do not find any infirmity in the order of the learned CIT (A). Hence the ground of appeal of the revenue is dismissed. 26. The next issue raised by the Revenue in ground No. 2 and 3 is that the learned CIT (A) erred in deleting the addition made by the AO to the extent of Rs. 1,51,27,353/- on account of upward adjustment on the interest-free advances given to the associated enterprises. 27. At the outset we note that the issue raised by the revenue has already been decided along with the appeal filed by the assessee bearing ITA No. 3492/ahd/2015 in favour of the assessee vide paragraph number 10 of this order. For the detailed discussion, please refer the relevant paragraph. Accordingly, we dismiss the ground of appeal raised by the revenue. 28. The issues raised by the revenue in ground No. 4 to 6 are general in nature and no separate adjudication is required. Ac....
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....ess of the amount involved therein. Accordingly, we dismiss the same as not pressed. 30. The second issue raised by the assessee in ground No. 3 is that the learned CIT (A) erred in confirming the upward adjustment with respect to interest on account of interest free loans and advances provided to the AE. 31. At the outset we note that the identical issue has been raised by the assessee in ITA No. 3492/Ahd/2015 which has been decided in the favour of the assessee vide paragraph number 10 of this order. For the detailed discussion, please refer the relevant paragraph. Accordingly, we allow the ground of appeal raised by the assessee. 32. The issue raised by the assessee in ground 4, 5 and 6 in its appeal are general, consequential and premature to adjudicate. According we dismiss the same being general, consequential and premature to adjudicate as infructuous. 32.1 In the result, appeal of the assessee is partly allowed Coming to ITA No. 2293/AHD/2016, an appeal by the Revenue for A.Y 2011-12. 33. At the outset we find that in this appeal of Revenue, the tax in dispute is lower than the amount specified by the CBDT vide circular no 17 of 2019 dated 08-08-20019. Thus the appea....
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....such receipts (income), provisions of Section 80!B(8A) would not be applicable. 2.2 The LdCIT(A) has failed to appreciate that the work of the collation/collection of data undertaken by the assessee during the year were related to regulatory compliance by its customers and it had nothing to do with the any sort of R& D Work; Thus such receipts/ income were not relatable to provisions of Section 80IB(8A) were not eligible for deduction u/s 80IB. 2.3 The Ld. CIT(A) has failed to appreciate that in Clinical. Trails as undertaken by theassessee company there would be input on account of Research but there was no development work carried out by the assessee and therefore the assessee was not carrying out Research and Development. 2.4 The order of the LdCIT(A), in any case suffers, from non -application of mind and is .therefore, liable to be set aside on this ground alone. 3. The LdCIT(A) has erred in law and on facts by deleting the adjustment made by the AO/TPO on account of interest in the case of loans and advances made to Jina Pharmaceuticals, USA & Lambda Therapeutics, Canada. (Page 112 to 125 of the appellate order) . 3.1 The LdCIT(A) has erred in law and on facts by de....
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.... remand report from the AO so as to ascertain the exact nature of consultancy rendered by these Non-residents. 9. The LdCIT(A) has erred in deleting the addition made u/s 40(a)(ia) r.w.s 195 Act for non deduction of IDS on payment made for subscription of software from Portugal without appreciating that such payments would constitute royalty payment in terms of Section 9(1 )(vi) of the IT Act and also the relevant provisions of DTAA. 10. TheLdCIT(A) had erred in law and on facts in deleting the addition2(22)(e) without considering the fact that the therewere share holders which were common in both these entities and had substantial voting power in both theircompanies as per the requirement of Section 2(22)(e) of the IT Act. (Page 175 of the appellate order). 10.1 Whether the LdCIT(A) has failed to appreciate the law that for the purposes of deemed dividend, as enshrined in Section 2(22)(e) of the IT Act, it is not necessary that the receiving company should be a share holder of the giver company. 10.2 The LdCIT(A) has erred in law and on fact that there would be charge of deemed dividend even incases where there ate common share holders holding stipulated voting rights betw....
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....T (A) submitted that it is acting as a partner to pharmaceutical and biotech companies in the drug development program. It provides various services such as clinical research, clinical laboratory, data management, biostatistics, medical and scientific affairs, quality assurance, regulatory affairs, and bio-equivalence / bioavailability studies. All the services have been accepted by the Revenue as scientific and industrial research and development for the purpose of deduction under section 80 IB(8) of the Act in the earlier assessment years. There being no change in the aforesaid services in the year under consideration viz a viz the acceptance of DSIR, the deduction under section 80IB(8) of the Act cannot be denied merely on the reasoning that the assessee does not render the specified services. Once the services of the assessee have been accepted by the DSIR, the same cannot be denied based on the statements recorded during the survey proceedings under section 133A of the Act. Furthermore, the survey statements were not provided to the assessee for the cross examination. Accordingly no reliance can be placed on such statements. 38.1 The assessee also contended that DSIR has ext....
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....he assessee. Furthermore, Shri NareshKhemani, AGM Finance and purchase is not a technical person with respect to the scientific research and development activities as he was looking after the finance and the purchases. 39.3 Likewise, learned CIT (A) also found that the statement obtained of Shri Jitesh Patel in the survey proceedings under section 133A of the Act is not relevant as he is not connected with the assessee. Rather, the statement of Shri Jitesh Patel supports the case of the assessee as he admitted that he has come on behalf of the client company to verify the clinical trials carried out by the assessee. 39.4 Similarly, the learned CIT (A) held that the statement of Shri Tausif Monif, President -Global Operations cannot be relied for the reason that he has joined the company in the year 2016 whereas the case of the assessee relates for the assessment year 2013-14. However, he has provided in the statement that the assessee undertakes clinical trials of pharmaceutical products and the assessee is registered with the DSIR for such activities as scientific research and development activities. 39.5 There were various clients of the assessee but no enquiry was conducted b....
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....rties and perused the materials available on record. For claiming the deduction under section 80 IB(8) of the Act, the assessee has to comply with the conditions as detailed under: i. Carrying scientific research and development activity ii. Company Registered in India iii. Having main object of scientific and industrial research and development iv. Approved by the prescribed authority i.e. DSIR 43.1 The AO in his order framed under section 143(3) of the Act has nowhere alleged that the assessee has violated any of the provisions of section 80 IB(8) of the Act. As such the claim of the assessee was rejected by the AO on the reasoning that the assessee is not engaged in the activity of research and development activities as contemplated under the provisions of section 80 IB (8) of the Act. In this regard we note that the Government authority i.e. DSIR has approved the activities of the assessee as research and development activity which are eligible for the deduction under section 80 IB(8) of the Act. Thus the question arises whether the AO can go on to hold that the activities of the assessee are not in the nature of research and development activities which is against the....
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....ory functions, the Assessing Officer should be allowed to overrule the decision of the said body. Thirdly, there are multiple indications within the rules themselves. Under rule 18D(2), extension of approval once granted is subject to satisfactory performance of the company, to be judged on periodic review. Further, rule 18DA(3) gives wide powers to the prescribed authority to withdraw the approval if it is found that the same was to avoid payment of taxes by its group companies or companies related to its directors or majority of its shareholders or that any provisions or the rules have been violated. Thus once again the task of judging whether the provisions or the rules have been violated or not, has entrusted to the prescribed authority with matching powers for withdrawal of the approval, if the authority is satisfied about such breach. [Para 18] 43.2 It is also significant to note that there being no change in the facts and under the provisions of law, the principles of consistency needs to be applied as held by the Hon'ble Supreme Court in the case of CIT vs. Excel Industries Ltd reported in [2013] 358 ITR 295 (SC) where the Hon'ble court observed as under: Secondly, as no....
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....w an inference that the assessee was not carrying out any research and development activities. Moving further, Shri Tausif Patel has joined the assessee company in the year 2016 only whereas the year under consideration is 2013-14. Therefore, such person was not connected with the affairs of the business of the assessee during the relevant time. 43.5 We have also seen the approvals granted by the DSIR, as recorded in the order of the learned CIT (A), we find that initial assessment year for the deduction under section 80 IB(8) of the Act was for the assessment year 2004-05. The approval from the prescribed authority is mandatory for claiming the deduction. Admittedly, the assessee has claimed deduction for the assessment year 2003-04 under section 80 IB(8) of the Act which was also allowed by the Revenue. Thus it appears that the assessee has wrongfully claimed the deduction under section 80 IB(8) of the Act for the assessment year 2003-04 under the bona fides believe that it will get the approval in that particular year. But the Revenue failed to take a note of such wrong deduction claimed by the assessee. Thus the question arises, whether the AO can disturb the deduction claime....
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....ecause of ownership interest. Therefore the provision of transfer pricing will not apply in the case on hand. 47.1 However the TPO observed that due the standby letter credit issued to the AE M/s Lambda Therapeutic Research Inc (Canada) got direct benefit and incurred low interest charges on loans taken from Canadian Imperial Bank of Commerce. Thus it is in the nature of financial services provided by the assessee to its AE for which it incurred cost in form of commission paid to Axis Bank India, therefore the same needs to be determined at arm length for the purpose of transfer pricing. Accordingly, the TPO worked margin of 24.1% on cost i.e. Rs. 23,52,607/- by employing CPM as most appropriate method and made upward adjustment of Rs. 29,19,586/- ( 23,52,607 + 24.1%) to the total income of the assessee. 48. Aggrieved assessee preferred to appeal to the learned CIT (A), who partly deleted the upward adjustment made by the AO by observing as under: 3.11. The appellant's contention that as per the provisions of section 92(1), it is clear that the income which is actually arising from an international transaction shall be computed having regard to the Arms' Length Price ....
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....eal against the relief provided for Rs. 23,52,607/- whereas the assesse is in appeal for addition sustained of Rs. 5,66,979/- only by the ld. CIT-A. The relevant ground of the assessee's appeal in ITA No 1751/Ahd/2017 reads as under: 3. The learned CIT(A) has erred both in law and on the facts of the case in holding that Corporate Guarantee given to associate enterprise is an "international transaction" falling within the purview of transfer pricing provisions. 4. The learned CIT(A) has erred both in law and on the facts of the case in holding that direct and binding decision of jurisdictional Tribunal which has considered all the earlier judgments on the issues in the case of Micro Ink Limited vs ACIT (2015)(63 taxmann.com 353) is not to be followed, despite the same being applicable on the facts of the case. 5. The learned CIT(A) has erred both in law and on the facts of the case in confirming the upward adjustment to the extent of Rs. 5,66,979/-@ 24.1% markup on account of corporate guarantee given to associate enterprise while determining arm's length price under the provisions of transfer pricing. 6. Both the lower authorities have passed the orders without properl....
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....it of international transactions which is reproduced as under: [Explanation.-For the removal of doubts, it is hereby clarified that- (i) the expression "international transaction" shall include- (a) *********** (b) ************* (c) 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; 52.2 It can be seen that the guarantee was included within the ambit of international transaction vide the Finance Act 2012 with retrospective effect. Thus there remains no ambiguity to the fact that corporate guarantee extended by the assessee to its AE is an international transaction and therefore the same has to be benchmarked at the arm length price. However, we note that the different benches of the ITAT have taken different view. Some of them held that the transaction of corporate guarantee is an international transaction whereas some of them held that the transaction of corporate guarantee is outside the purview of the international transaction including the Ahmedabad tribunal....
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....Glenmark Pharmaceuticals v. Asstt. CIT [ITA No.5031/Mum/2012 dated 13-11-2013) which has analyzed this issue in detail and held that 0.53% corporate guarantee rate in that case was appropriate. We therefore set aside the issue to the TPO to decide the quantum of corporate guarantee rates in the instant case following the method adopted in Glenmark Pharmaceuticals (supra). 52.4 In this regard we also find support and guidance from the order of the Bangalore ITAT in case of Advanta India Ltd. vs. ACIT reported in 64 taxmann.com 251 where it was held as under: 29. In the case of Bharti Airtel Ltd. (supra), it was an undisputed position that the issuance of the guarantee did not cost the assessee anything and it was for this reason that the coordinate bench concluded that the issuance of guarantee did not have any "bearing on the profits, income, losses or assets or such enterprise" thus taking it out of the ambit of international transaction which could be subjected to arm's length price adjustment. That was a case in which the assessee had issued a comfort letter to the banker and it was the consideration for issuance of this comfort letter which was sought to be subjected to ....
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.... 2462.39 403.02 2059.37 19,6% 12 Yes Bank 9551.43 1925.73 7625.7 25.3% 24.1% 6.5 Applying the mark-up of 24.1% on the amount of Rs. 2352607/- paid to the Axis Bank, the ALP of international transaction of corporate guarantee extended to the AE was determined at Rs. 29,19,586/- and accordingly, the assessee company was issued with the show-cause notice as mentioned in Para 3 of the order. 52.6 From the above, it is revealed that the TPO/AO has treated the assessee as if it was engaged in the business of financial services and accordingly the ALP was determined by comparing with the average margin earned by the banks on cost. Admittedly, the assessee is not carrying out any financial activity and therefore we are not convinced with the basis adopted by the authorities below. 52.7 Moving ahead, we note that there is no difference between the banks or a corporate entity as far as corporate guarantee is concerned. Both have to consider the functions performed, assets employed and risks assumed. In case of default by the borrower, the corporate guarantor is exposed to the same risk of a bank. In case of an AE the risk woul....
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....dvance which was not recoverable and not a business expenditure. I 4.4. On the other side, the appellant has claimed that it was business expenditure for the reason that the appellant company has taken a premises on rent for business purpose and subsequently this premise was vacated by the appellant and paid all the rent dues. However, the rent deposit could not be recovered. 4.5. Having considered the facts and submissions, it is noticed that the appellant had given the advance for the purpose of business and such advance could not be recovered is nothing but a business loss which is allowable u/s. 37(1) of the I. T. Act, 1961. The same cannot be said lo be capital loss as it was not a claim pertaining to some capital asset or expenditure having incurred for some enduring benefits. Thus, the disallowance made by the AO is found not correct and justified and hence, the same is deleted. 55. Being aggrieved by the order of the learned CIT (A), the Revenue is in appeal before us. 56. The learned DR before us vehemently supported the order of the AO. 57. On the other hand, the learned AR before us contended that the advances were given by the assessee in its normal business ac....
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.... on the work completed. Thus the differences are arising between the income shown by the assessee in the books of accounts viz a viz income shown in the form 26AS. 60.2 The assessee also submitted that all the transactions have been duly recorded in the books of accounts either as revenue or advance for the project which will be credited to the income on the completion of the work which may be next accounting year. The assessee in support of his contention filed the ledger copies of the parties along with the TDS reconciliation. 60.3 However, the AO found that the assessee failed to furnish the documentary evidence, reflecting the difference in the income as discussed above, to justify that it has shown such difference as income in the books of accounts in the subsequent year/s. 60.4 The AO also found that the payer have received services from the assessee and therefore they have credited the account of the assessee in the books of accounts. Accordingly, the assessee was to account for such income in its books of accounts based on mercantile system of accounting. In case, the assessee does not account for the full income in respect of services provided then the same should have....
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....amount shown in form 26AS which is not correct method. If this factor is considered then the effective difference works out at Rs. 85,43,113/- in place of Rs. 4,00,89,104/- as observed by the AO in his order. 60.10 The learned CIT (A) also found that the assessee has filed the reconciliation statement between the income shown in the books of accounts viz a viz the amount of income reflected in form 26AS. Accordingly it was found that the income of the assessee has been spread over in various years and no difference was found out. Consequently, the learned CIT (A) directed the AO to allow the claim of the assessee subject to the verification of the reconciliation statement. 61. Being aggrieved by the order of the learned CIT (A), the Revenue is in appeal before us. 62. Both the learned DR and the AR before us vehemently supported the order of the learned CIT (A) as favourable to them. 63. We have heard the rival contentions of both the parties and perused the materials available on record. From the preceding discussion we note that the assessee has been following its policy for its revenue recognition consistently. As per the policy, the assessee receives the advances at the time....
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.... highlighted by the AO, has been accounted for as income by the assessee any other year which will prove that the income of the assessee has suffered the tax otherwise the AO will make the addition to the total income of the assessee. The direction of the learned CIT (A) is very clear on the issue and therefore no interference is required. Hence the ground of appeal of the revenue is dismissed. 64. The issue raised by the revenue in ground No. 7 is that the learned CIT (A) erred in deleting the addition made by the AO under the provisions of section 14A read with rule 8D of Income Tax Rule. 65. The AO during the assessment proceedings found that the assessee has made huge investments amounting to Rs. 59,11,96,725/- which will generate the exempted income. Accordingly, the AO was of the view that the disallowance under section 14A read with rule 8D is required to be made. Accordingly the AO made the disallowance of Rs. 1,17,27,579/- under the provisions of section 14A read with rule 8D and added the same to the total income of the assessee. 66. Aggrieved assessee preferred an appeal to the learned CIT (A), who deleted the addition made by the AO by observing that there was no inc....
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....ada) for Rs. 19,86,202/- without deducting the withholding tax under section 195 of the Act. The assessee claimed that consultancy services provided by the impugned parties did not fall under the article 12 of DTAA between Govt. of India and Govt. of USA and Canada. As impugned parties did not provide any technical or consultancy services which is ancillary to the use of any right, information or property, neither made available any technical knowledge, know how, experience etc.Accordingly the payment falls under the article 7 of DTAA which is to be considered as business income in the hand of the impugned parties. Therefore deduction of withholding tax is not required being the impugned parties do not have PE in India. 71.1 However the AO held that the assessee was liable to deduct taxes on payment of consultancy but the assessee failed to do so. Accordingly the AO disallowed the expenses under section 40(a)(i) of the Act and added to the total income of the assessee. 72. Aggrieved, assessee preferred an appeal before learned CIT (A) who deleted the addition made by the AO by observing as under: It has been noticed that the AO has not controverted the submission given by the a....
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....e by the assessee to the non-residents as discussed above is not chargeable to tax in India in terms of the provisions of DTAA. In view of the above, we do not find any infirmity in the order of the learned CIT (A). Hence the ground of appeal of the Revenue is dismissed. 74. The next issue raised by the revenue is that the learned CIT (A) erred in deleting the addition made by the AO for Rs. 26,00,000/- under the provisions of section 2(22)(e) of the Act. 75. The assessee in the year under consideration has received unsecured loan of Rs. 26 lakhs from M/s Epsilion Marketing and Cons Pvt. Ltd. There were 2 shareholders namely Mr. Binish H. Chudgar and Ms. Bindi B. Chudgar who were common in both the companies i.e. assessee company and Epsilion Marketing and Cons Pvt. Ltd. holding more than 10% voting rights as well as substantial interest. Accordingly the AO was of the view that such amount of loan is deemed dividend in the hands of the assessee. 75.1 However, the assessee on question by the AO, contended that it is precondition to invoke the provisions of section 2(22)(e) of the Act that the recipient should be a shareholder in the company which has provided the loan. But the ....
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....) of the I. T. Act in the hands of appellant. In other words, merely because the share holders were common between the appellant and lender company, the loan received are no I luxable as dividend as the appellant company did not have the requisite shareholding. The A.R has relied upon various decisions of theauthorities in support of this proposition which are briefly noted in the written submission filed which is reproduced in the preceding paras of this order. 5.5. The Hon'ble Mumbai ITAT Special Bench in the case of ACIT Vs. BhaumikColour (P) Ltd. 313 ITR 146 (AT) of which decision was also subsequently affirmed by the Hon'ble Mumbai High Court in the case of CIT Vs. Universal Medicare (P) Ltd. 324 ITR 263. In both the judgments, it was observed that the intention of the various legislature is to tax dividend only in the hands of the share holder and not in the hands of the concern and therefore no dividend can be taxed in the hands of the appellant being not a share holder in any of the three lender companies. In the written submission various judgments have been cited. 5.6. Having considered the facts and the written submission, it is observed that the plea of th....
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....3-04 - Certain amount was transferred from bank account of company 'CSPL' to bank account of assessee-company - One 'V, who was director of CSPL, held over 10 per cent of equity capital of CSPL and over 20 per cent of equity capital of assessee - Assessing Officer, relying upon provisions of section 2(22}(e), treated aforesaid amount as deemed dividend in hands of assessee and while doing so, he rejected assessee's contention that amount in question was neither an advance nor a loan to assessee but represented misappropriation of funds by vice president (Finance) - On appeal. Tribunal found that as a matter of fact no loan or advance was granted to assessee, since amount in question had actually been defalcated and was not reflected in books of account of assessee and, therefore, first requirement of section 2(22)(e) of there being an advance or loan was no fulfilled and that even assuming that it was a dividend, if would have to be taxed not in hands of assessee but in hands of shareholder - Whether, on facts. Tribunal was justified in allowing assessee's appeal-Held - yes." 5.9. Further the Hon'ble Rajasthan High Court in the case of CIT, Udaipur Vs. Hot....
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....gh Court in Universal Medicare (P.) Ltd. (supra) which is binding on us, we are of the view that the Id. CIT(A) was fully justified in deleting the addition made by the A.O. The grounds taken by the Revenue are, therefore, rejected" 5.13. Further, ITAT Mumbai in the case of Bijis Hotels (I) P. Ltd. Mumbai vs. 1 Department of Income Tax in ITA Np.3444/Mum/2011 dtd. 29.2.2012 has also taken the similar view. Finding is briefly reproduced as under:- "9. Thus respectfully following the principle and ratio laid down i by fheHon'ble Special Bench in the case of ACIT vs. BhaumikColour (P) tl'd. (supra) and Hon'ble Jurisdictional High Court in the case of CIT vs. Universal Medicare Pvt. Ltd. (supra), the order of the learned CIT(Appeals) deleting the addition of Rs. 1,58,14,061/- on account of deemed dividends is thus upheld and accordingly the departmental appeal is dismissed." 5.14. Further, Hon'ble Supreme Court in the case of CIT Vs. C.P. SarathyMudaliar in Civil Appeal Nos.2242 and 2243 of 1968 dtd. 12.10.1971 has also taken the similar view. The head notes are reproduced a sunder:- "Section 2(22} of the Income-tax Act, 1961 (Corresponding to section 2(6A)(e) o....
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....her than shareholder - Held, yes". 5.17. In view of the above discussion, considering the facts of the case, written submissions and various judgments, it is observed that appellant was not the share holder in the aforesaid lender company from whom loans have been taken and therefore it does not attract the deemingprovisions of Section 2(22) (e) of the I.T. Act. It is worth to mention that the provisions of Section 2(22) (e) are deeming for the dividend but the same are not deeming for the shareholders. Merely Shri Binish H. Chudgar and Ms. Bindi 6. Chudgar, were common share holders in appellant company and lender company would not brought the appellant company into the deeming fiction of dividend u/s.2(22)(e). Moreover, for attracting the provisions conditions precedent are that the shareholders shall not only be registered shareholders but they should be beneficial shareholders. In the present case, the appellant is not even the shareholder of the lender company, hence the question of application of other conditions do not come into play. Hence, the provisions of section 2(22) (e) are not applicable on the same. 5.18. In view of the above discussion, the addition made by the....
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....a partner and in which he has a substantial interest (hereafter in this clause referred to as the said concern) or any payment by any such company on behalf, or for the individual benefit, of any such shareholder, to the extent to which the company in either case possesses accumulated profits ; 79.2 On perusal of above provision what inferred is that the provision of section 2(22)(e) of the Act can only be invoked in case of shareholder who is holding substantial interest. The provision of section 2(22)(e) of the act nowhere talks about taxing an entity/company who is not a shareholder holder in lender company but shareholder of such company holding substantial share in lender company. In this regard we find support and guidance from the judgment of Hon'ble Jurisdictional high court in Tax appeal no- 891 of 2016 in case of PCIT vs. Mahavir Inductomelt Pv.t Ltd where in similar facts the Hon'ble court held as under: "50. Identical question came to be considered by the Division Bench of this Court in Tax Appeal No. 253 of 2015. After considering the decision of the Bombay High Court in the case of CIT vs. Impact Containers Private Limited &ors rendered in I TA No. 114 of 2012 and ....
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.... holding that giving loan which is in nature of "quasi capital", is an "international transaction" falling within the purview of transfer pricing provisions. 2. The learned CIT(A) has erred both in law and on the facts of the case in confirming the action of the AO of making an addition of Rs. 49,88,829/- as proposed by TPO on account of interest free loans and advances to Lamda Therapeutic Ltd., U.K. 3. The learned CIT(A) has erred both in law and on the facts of the case in holding that Corporate Guarantee given to associate enterprise is an "international transaction" falling within the purview of transfer pricing provisions. 4. The learned CIT(A) has erred both in law and on the facts of the case in holding that direct and binding decision of jurisdictional Tribunal which has considered all the earlier judgments on the issues in the case of Micro Ink Limited vs ACIT (2015)(63 taxmann.com 353) is not to be followed, despite the same being applicable on the facts of the case. 5. The learned CIT(A) has erred both in law and on the facts of the case in confirming the upward adjustment to the extent of Rs. 5,66,979/-@ 24.1% markup on account of corporate guarantee given to a....