TaxTMI 
TaxTMI 
2021 (4) TMI 682
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....ence and brevity. First we take ITA 3492/Ahd/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 su....
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....enefit from such associated enterprises by getting the business from the foreign markets besides getting the higher valuation of the AE. iii. 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 give....
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....s given to the AEs namely "Jina Pharmaceuticals, INC USA" and Lambda Therapeutic Research, SP Z.O.O Poland" by observing that the assessee was able to generate the 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. Bein....
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....nd separately. 9.1 Both the ld. DR and AR before us vehemently supported the order of the authorities below to the extent favorable to them. 10. We have heard the rival contentions of both 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 Pha....
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....e to consider the transaction (of which the routing is a part) in its entirety, rather than considering the individual parts of transaction on a separate basis. 10.4 We further find that the US Treasury Regulations also provide the similar view as under; "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 th....
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.... has to be evaluated after aggregating both the transactions. The transaction of interest free advances cannot be viewed without considering the benefit derived by the assessee from the associated enterprises. On analyzing the notional interest added by the TPO under the transfer pricing adjustment with the benefit derived by the assessee, 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 &....
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....; 18,223,340 (8,923,447) 9,299,893 250-13 3,019,285 3,019,285 277-09 902,565 902,565 294-07 1,487,860 1,487,860 296-12 200,000 200,000 305-12 736,800 736,800 326-07 3,182,700 1,118,500 4,301,200 Z 5,284,200 525,000 5,809,200 347-13 2,000,000 2,000,000 357-08 12,742,758 - 12,742,758 413-10 4,637,525 1,655,175 6,292,700 518-11 1,953,....
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....xamined in detail. The first important aspect of this interest free advance is that the loan was said to be in the nature of quasi-capital, and it was so given out of EEFC (Exchange Earners Foreign Currency) account, because while the assessee could have given loan up to US $ 50 million, it was not open to the assessee to subscribe to the equity capital without the permission of the Reserve Bank of India. There was, thus, indeed a technical problem in subscribing to the capital directly. It is also important to note that immediately upon obtaining the permission of the Reserve Bank of India, which assessee did obtain at later stages, the advances were converted into shares. Except for an amount of US $10,000, entire advances received by the step down subsidiary were converted into shares. It is also not in dispute that when RBI permission to convert loan into equity was sought, it was sought effective from the date on which remittance was made. The second very important aspect of this interest free loan is that the entity receiving the interest free advances 'M' USA, existed only to facilitate the marketing of assessee's products in US markets. The relationship....
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....ded to the total income of the assessee. 12.1 The AO at the same time also made the disallowance of the same amount while determining the books profit under the provisions of section 115JB of the Act. 12.2 Aggrieved assessee preferred an appeal to the learned CIT (A) who deleted the addition made by the AO under section 14A read with rule 8D while determining the income under normal computation of income. However the learned CIT (A) regarding the addition made while working out the book profit under section 115JB of the Act held that this issue does not require any separate adjudication in view of the fact that disallowance made under section 14A read with rule 8D under normal computation of income has been deleted. As such the disallowance under section 115JB of the Act was based on the disallowance made under section 14A read with rule 8D for the normal computation of income. As the addition under normal computation of income has been deleted, accordingly the question of making the disallowance under section 115JB of the Act does not arise. Consequently, the learned CIT (A) held that the issue raised by the assessee for the addition made under section 115JB of the Act becom....
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....e dismiss the same as infructuous. 16.3 In the result, the appeal filed by the assessee is partly allowed. Coming to the ITA No. 3470/AHD/2015, an appeal by the Revenue for A.Y. 2010-11 17. The revenue has raised the following grounds of appeal: 4. The Ld.CIT(A) has erred in law and on facts in deleting the addition made on account of deduction u/s.80IB of the Act amounting to Rs. 9,82,226/-, without properly appreciating the facts of the case and the material brought on record. 5. Whether the Ld.CIT(A) erred in facts and law while holding that no interest was required to be charged on the loan extended to the AEs-M/s. Lambda Therapeutic Research Sp. Z.o.o and M/s. Jina Pharmaceuticals Inc on account of business connection between the AEs and the assessee company. 6. Whether the Ld.CIT(A) erred in facts and law while holding that no interest was required to be charged on the loan extended to the AE-M/s. Lambda Therapeutic Research Sp. Z.o.o as the same was converted into the equity. 7. On the facts and in the circumstances of the case, the Ld. CIT(A) ought to have upheld the order of the Assessing Officer. 8. It is, therefore, p....
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....e materials available on record. From the preceding discussion we note that income arising to the assessee on account of notice pay represents the income of the earlier cessation of the job of the employees. It is a normal business practice in the industry where the employee wants to leave organization, the employee is required to give the notice in advance and if he doesn't do so the employer recovers certain amount from the employee to compensate the loss which otherwise arises in hiring the new staff in place of previous employee. In other words, the assessee would have adjusted the amount of notice pay recovered from the employee against the salary expenses but the assessee has not done so and shown notice pay as a separate item of income. It doesn't mean that the assessee is not entitled for the deduction with respect to the notice pay. In holding so we draw support and guidance from the order of ITAT Delhibench in the case of Birlasoft (India) Ltd. vs. Dy. CIT reported in 20 Taxmann.com 43 wherein it was held that notice pay received/receivable from the employee is an income derived from eligible undertaking for the purpose of the section 10A of the Act. 25.1 Similarly, we....
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....ing the impugned order. This action of the lower authorities is in clear breach of law and Principles of Natural Justice and therefore deserves to be quashed. 5. The learned CIT(A) has erred in law and on facts of the case in confirming action of the Id. AO in levying interest U/S.234A/B/C of the Act. At the outset the learned AR before us submitted that he has been instructed by the assessee not to press ground No. 1 and 2 on account of smallness of amount. Accordingly we dismiss the same as not pressed. 6. The learned CIT(A) has erred in law and on facts of the case in confirming action of the ld.AO in intimating penalty u/s.271(1)(c) of the Act. The appellant craves leave to add, amend, alter, edit, delete, modify or change all or any of the grounds of appeal at the time of or before the hearing of the appeal. The first issue raised by the assessee in ground Nos. 1 & 2 is that the ld. CIT-A erred in confirming the addition made by the AO for Rs. 37,514/- under section 14A of the Act under normal and MAT computation of income. At the outset, the learned AR for the assessee before us submitted that amount involved in the dispute raised by the asses....
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....A.Y.2003-04 as the initial assessment year and now it says it was not legally allowed in that assessment year. 1.4 The LdCIT(A) has grossly erred in law hy admitting new /fresh evidences in the form of alleged letter by Apaji Amin & Co. IIP ( which has been reproduced ; at Page 77 of the Appellate order) which id in violation of Rule 46A of the IT Rules, and the impugned order is liable to be set aside on this ground alone. 1.5 The Ld CIT(A) failed to appreciate that violation of natural justice ,if any, cannot render the order a nullity, but can at best be a ground to set aside the impugned order to be done de-novo. 2. The LdCIT(A) has failed to appreciate that the approval from the prescribed authority is only a condition precedent for allowing deduction u/s 80IB(8A) and that approval could not restrain the AO from examining as to whether all the activities carried out by the R&D were eligible for benefits under Section 80IB (8A) of the H Act ( Page 42 of the appellate order). 2.1 The LdCIT(A) has failed to appreciate that one of the activities carried out by the assessee during the year was clinical trial where there was no R&D work but the wo....
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....vance not returned back without appreciating the fact that the assessee had failed to deductTDS on such, rent advances in terms of Section 194 I of the Act and therefore, the said amount was disallowable u/s 40a(ia) of the IT Act. ( Page 132 of the appellate 1; order). 6. The Ld CIT(A) has erred in law and on facts in accepting in principle the submission of the assessee regarding non -reconciliation of receipts in P& L Account with that in Form 26AS without considering the fact that the assessee ought to have shown these receipts in view of mercantile basis of accounting adopted by the assessee. (Page 142 of the appellate order). 7. The Ld.CIT(A) has erred in law and on facts in deleting the disallowance u/s 14A of the IT Act. 7.1 The LdCIT(A) has failed to appreciate that for making disallowance u/s 14A, actual earning of exempt income during the year is not required. (Page 159 of the appellate order). 8. The Ld CIT(A) has erred in deleting the addition made u/s 40a(ia) r.w.s 195 of the IT Act on account of non-deduction of TDS on payment ,of Rs. 19,86,207/- made on account of consultancy fees to tax residents of USA & Canada without a....
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....also established during survey proceedings conducted under section 133A of the Act where the statements of various persons representing the assessee were recorded to that effect. Besides, the copy of the revised return for the year under consideration was also discovered during the survey proceedings wherein the assessee has shown income chargeable to tax amounting to Rs. 28,66,44,640/- in which no deduction under section 80-IB(8) of the Act was claimed. ii. In addition to the above, it was also pointed out that the deduction under section 80-IB (8) of the Act is available to the assessee for consecutive 10 years beginning from the initial assessment year. The initial assessment year is AY 2003-04. This fact can be verified from the report submitted by the assessee in form 10 CCB as well as from the assessment order framed under section 153A read with section 143(3) of the Act for the assessment year 2003-04. Thus it is implied that 10 consecutive assessment years came to an end in the assessment year 2012-13. Hence the assessee was not eligible for claiming the deduction under section 80 IB(8) of the Act for the year under consideration being the 11thyear of its deduction....
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....ewise the approval by the DSIR was further extended for 3 years vide letter dated 6th April 2009 i.e. AY's 2010-11 to 2012-13. Further, 10th year approval i.e. A.Y. 2013-14 was granted dated 24th February 2012. Accordingly the learned CIT (A) concluded that the year under consideration was the 10th year for claiming the deduction under section 80IB(8) of the Act. 39.1 Regarding the deduction claimed by the assessee for the assessment year 2003-04, the learned CIT (A) observed that the deduction was claimed by the assessee on the basis of the application moved for the approval from the DSIR. But the same was not granted by the DSIR in that year. However the assessee claimed the deduction under the belief that it will get the approval from the DSIR. But, the assessee was not eligible for such deduction in the absence of the approval from the DSIR. However the Revenue has allowed the deduction which was not as per the provisions of the Act. In fact the assessee for the year under consideration fulfils all the conditions for claiming the deduction under section 80IB(8) of the Act. 39.2 Regarding the statement obtained during survey proceedings under section 133-A of the ....
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....Act have been duly complied with by the assessee. There was no adverse report brought on record by the AO evidencing that the assessee failed to comply the provisions of section 80 IB(8) of the Act. Accordingly the learned CIT (A) allowed the ground of appeal raised by the assessee. 40. Being aggrieved by the order of the learned CIT (A), the Revenue is in appeal before us. 41. The learned DR before us contended that the assessee claimed deduction under section 80 IB(8) of the Act first time in the assessment year 2003-04 and its period of 10 years has expired in the assessment year 2012-13. Therefore the assessee is not eligible for deduction under section 80 IB(8) of the Act for the year under consideration. The learned DR vehemently supported the order of the AO. 42. On the other hand the learned AR before us filed a paper book running from pages 1 to 553 and submitted that the assessee was approved for the deduction under section 80 IB(8) of the Act for the year under consideration by the order of the DSIR. Therefore, the AO had no jurisdiction on questioning on the deduction claimed by the assessee. 42.1 The learned AR also contended that the Revenue has allowed th....
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....circumstances, once such authority grants approval and such approval holds the field, it would not be open for the Assessing Officer or any other revenue authority to go behind such approval certificate and re-examine for himself, the fulfilment of the conditions contained in rule 18DA(1). These conditions are prescribed in terms of clause (iv) of section 80-IB(8A). The Commissioner was, therefore, completely in error in observing that even though the assessee had valid approval issued by the prescribed authority, the Assessing Officer still had to examine whether such company had fulfilled the conditions referred to in clause (iv), as such other conditions as may be prescribed, reference to which we find in rule 18DA. Any other view would create conflict of decision making process. Even revenue could not dispute that many of these requirements prescribed under rule 18DA are to be examined by the prescribed authority. If once the prescribed authority examines such conditions and upon being satisfied that the conditions are fulfilled, grants approval, can the Assessing Officer take a different view? The answer obviously has to be in the negative. First and foremost, the prescribed a....
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.... on the issue and it ought let the matter rest rather than spend the taxpayers' money in pursuing litigation for the sake of it. [Para 31] 43.3 We also find that during the survey proceedings statements of various persons were recorded which were used by the AO to hold that the assessee is not engaged in the research and development activities as envisaged under the provisions of section 80 IB(8) of the Act. First of all, we note that no reliance can placed on these statements in view of the fact that the opportunity of cross examination was not afforded to the assessee which was mandatory in view of the judgment of Hon'ble Supreme Court in the case of Andaman Timber Industries vs. Commissioner of Central Excise Kolkata-II reported in [2015] 62 taxmann.com 3 (SC) where the Hon'ble apex court held as under: 6. According to us, not allowing the assessee to cross-examine the witnesses by the Adjudicating Authority though the statements of those witnesses were made the basis of the impugned order is a serious flaw which makes the order nullity inasmuch as it amounted to violation of principles of natural justice because of which the assessee was adversely affected. 4....
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....tful claim. In view of the above and after considering the facts in totality, we do not find any infirmity in the order of the learned CIT (A). Accordingly we uphold the same. Thus the AO is directed to allow the deduction to the assessee under the provisions of section 80IB of the Act. Hence the ground of appeal of the revenue is dismissed. 44. The second issue raised by the Revenue is that the learned CIT (A) erred in deleting the adjustments made by the TPO/AO with respect to the interest free advances to the AE's. 45. At the outset, we note that the identical issue has been raised by the Revenue in ITA No. 3470/Ahd/2015 which has been decided 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. 46. The next issue raised by the Revenue is that the learned CIT (A) erred in deleting the adjustments made by the TPO/AO with respect to corporate guarantee provided by the assessee. 47. During the year under consideration, Axis Bank of India has issued a standby letter of credit for Rs. 32.75 crore in favour of assessee's AE n....
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....nd also the Circular No. 8 of 2002 dated 27/08/2002 i.e. Explanatory notes on provisions relating to Direct Taxes in Finance Act, 2002. It has been noticed that by providing the corporate guarantee to the Axis bank for the AE, there was payment of guarantee charges by the appellant to the bank. Since after ] amendment in the definition of international transaction under the provisions-of section 92B of the I. T. Act, it has been noticed that providing the guarantee has to be seen as per ALP. In this regard, various judgments have been cited by the appellant whereby similar nature of guarantees have been adjusted at the Arms' Length Price. 3.12. In view of the aforesaid discussion, it is noticed that the appellant himself has made the disallowance of bank guarantee charges paid of Rs. 23,52,607/- in the computation of income of the appellant company and therefore, the same cannot be once again considered for upward adjustment, otherwise it would tantamount to double taxation of the same amount. Further with regard to mark up on the guarantee charges worked out by the AO @ 24.1% which amounted to Rs. 5,66,979/- is found correct and hence, the same is confirmed in view of....
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....ee is an international transaction which needs to be benchmarked under the provisions of the Act. The learned DR also contended that the facts of the case Micro ink ltd. Vs. ACIT are distinguishable from the facts of the case on hand. As per the learned DR there was no bank guarantee involved in the case of Micro ink ltd. whereas in the case on hand the assessee has furnished the bank guarantee after incurring the cost. 51. On the other hand, the learned AR before us submitted that the corporate guarantee furnished by the assessee on behalf of its subsidiary is in the nature of quasi capital/shareholder activity. Therefore the same needs to be excluded from the scope of international transaction. 52. We have heard the rival contentions and perused the materials on record. At the outset we note that the fact of issue on hand has been elaborated in previous paragraph, therefore we are not inclined to repeat the same for the sake of brevity. Hence we proceed to adjudicate the same accordingly. 52.1 The provisions of section 92B of the Act defines the parameters of what constitutes an international transaction. Although the ambit of international transaction was wide enough....
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....see has extended the guarantee by involving the Axis Bank of India after incurring the cost. Indeed, such cost was reimbursed by the AE of the assessee on actual basis and the same was added by the assessee in the computation of income. Thus, what is inferred is this that the assessee has given corporate guarantee to its AE after availing the services from the bank viz a viz incurring the cost there on which was given in the course of the business. Accordingly, we hold that the corporate guarantee given in the case on hand is the international transaction which requires to be benchmarked at the arm length price. In holding so we draw support and guidance from the order of Hyderabad Tribunal the case of Infotech Enterprises Ltd. vs. Addl. CIT reported in 41 taxmann.com 364 wherein it was held as under: 13. We have heard both the parties and perused the material available on record. In the present case though the immediate transaction is that of the assessee and CITI Bank India the benefit of the guarantee is for the US Subsidiary and hence the assessee has rendered a service to its US subsidiary for which it must charge fees at an arm's-length. This same logic was ap....
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....out the ALP of the impugned international transaction. The AO in the case on hand has adopted CPM method for working out the ALP using the data of banks obtained from the money control.com. The relevant finding of the TPO/AO reads as under: 6.4 Since such services in the nature of guarantee fee etc falls in the domain of financial services, the functional profile of the assessee company and the risk assumed by the assessee company in the present facts of the case is thus similar to the entities engaged in the business of providing financial services. In the arm's length scenario, when the assessee company had incurred the cost to the tune of 0.71% of the credit extended, it would be expecting return equal to what is earned by such entities engaged in providing financial services. For the purpose of identifying the valid comparables, the Google database was queried to identify top 10 private sector entities engaged in extending banking and other financial services. Such entities were identified from information available at www.moneYControl.com. The average margin (OP/OC) of such entities was computed at 24.1 % using data available on Capitaline database as under: Sr....
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....onal transaction with its AE. In the interest of justice and fair play, we are of the view that a sum of Rs. 1,17,630/- being 5% of the fees paid to the bank for the corporate guarantee of Rs. 23,52,607/- will be sufficient to add as margin of the assessee. 52.8 Regarding the revenue appeal, we note that the assessee has already made the disallowance of Rs. 23,52,607/- in its computation of income and further addition of the same amount to the total income of the assessee will lead to the double addition which is unwanted under the provisions of law. Accordingly, we are of the view that the decision of the learned CIT (A) for deleting the addition of Rs. 23,52,607/-does not require any interference. Hence, the ground of appeal of the assessee is partly allowed whereas the ground of appeal of the revenue is dismissed. 53. The next issue raised by the revenue is that the learned CIT (A) erred in deleting the addition made by the AO for an amount of Rs. 2,33,374/- representing the advances with respect to the premises taken on rent. 53.1 The assessee has written off the advances given as rent deposits which were not recovered. As per the assessee such loss has been incurred i....
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.... the tenants is to make the rent deposits with the landlord. Generally these rent deposits are returned back to the tenants on the expiry of rent agreement or it is adjusted against the rent due. The assessee against such advance rent deposit has neither generated any capital assets nor getting any benefit of enduring nature. Therefore the same cannot be treated as capital advance as held by the AO. Any expense incurred by the assessee for the purpose of the business is allowable expenses under section 37(1) of the Act, if it is not capital in nature viz a viz personal in nature. In the case on hand, such advance was neither capital in nature nor personal in nature. In other words, the premises were taken for the purpose of the business and therefore any rent deposits with respect to such rented premises are allowable as deduction as business loss. 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. 59. The next issue raised by the Revenue in ground No. 6 is that the learned CIT (A) erred in deleting the amount reflecting in form 26AS which was not shown as income of the assessee. 60. The AO du....
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....that it is following the practice of taking 50% advance of the contract value at the time of signing of the contract and the balance amount is received in phased manner depending upon the completion of the work. However, the assessee raises invoice to the party for the 50% of the contract value at the time of signing the contract which is shown as an advance in the books of accounts. Such advance will be recognized as revenue depending upon the completion of the work. However, the other party i.e. payer shows such payment to the assessee is an expense after deducting the TDS in its books of accounts. In effect, the entire amount of the project is offered to tax by showing it is income over a period of time. The assessee in support of its contention also filed the copy of the ledger of the parties. 60.7 The learned CIT (A) after considering the submission of the assessee observed that the project of the assessee spills over in various year/s and the income is recognized in each year depending upon the completion of the project. It is not the case that the assessee has not shown the income in the books of accounts rather the income of the assessee spreads in various years. Further....
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....ng income in its books of accounts as the work was not completed up to the certain stage. In fact the assessee accounts for the income upon the completion of level of work, therefore the advances from the customer are shown as liability in the books of accounts. 63.1 The principles of accounting standard requires that the income should be booked by the assessee when it is certain to accrue whereas the expenditures are required to be recorded where there is a possibility of incurring the same. Similarly, the assessee also require to apply the matching concept. Once the assessee has received the advance but has not incurred any expense against such advances received for rendering any service. Then such advance cannot be accounted as income. In other words when the expenses are incurred by the assessee against such advances then both the income and the advance should be accounted for in the same proportion. 63.2 In the case on hand, there is no dispute to the fact that the AO has selected only those instances where the assessee has shown less income than the amount shown in form 26AS ignoring the cases where the assessee has shown more income in the books of accounts then the....
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....income earned by the assessee being exempted from tax and therefore no disallowance under section 14A read with rule 8D is required to be made in terms of the judgment of Hon'ble Gujarat High Court in the case of CIT vs. Corrtech Energy Private Ltd reported in 372 ITR 97 wherein it was held as under: Section 14A(1) provides that for the purpose of computing total income under chapter IV, no deduction shall be allowed in respect of expenditure incurred by the assessee in relation to income which does not form part of the total income under the Act. In the instant case, the Tribunal has recorded the finding of fact that the assessee did not make any claim for exemption of any income from payment of tax. It was on this basis that the Tribunal held that disallowance under section 14A could not be made. In the process tribunal relied on the decision of Division Bench of Punjab and Haryana High Court in case of CIT v. Winsome Textile Industries Ltd. [2009] 319 ITR 204 in which also the Court had observed that where the assessee did not make any claim for exemption, section 14A could have no application. 69.1 As there is no income to the assessee by way of dividend in the year....
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.... not outside India. In absence of any details and evidences, the income arose in the hands of the recipient party is found to accrue outside India on which no TDS was liable to made in India. Thus, the disallowance made by the AO is found untenable and hence, the same is deleted. 72. Being aggrieved by the order of the learned CIT (A) the Revenue is in appeal before us. The learned DR and the AR before us vehemently supported the order of the authorities below as favourable to them. 73. We have heard the rival contentions of the parties and perused the materials available on record. In the case on hand, the AO made the disallowance on the consultancy expenses paid by the assessee to a non-resident on the reasoning that the assessee failed to deduct TDS under section 195 of the Act. Accordingly the AO made the disallowance by invoking the provisions of section 40(a)(i) of the Act. However, the learned CIT (A) deleted the addition made by the AO by observing that the payment made by the assessee to the non-residents based in USA and Canada are not chargeable to tax in India in terms of the Article 12 of the DTAA with both the countries. As per the learned CIT (A), the pay....
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.... total income of the assessee. 76. Aggrieved assessee preferred an appeal to the learned CIT (A) who deleted the addition made by the AO by observing as under: 8.4. It is worth here to mention that identical issue has been decided in appellant's own case in A. Y. 2011-12, vide this office Appellate Order No.CII(A)-2/l/l/DC. Cir. 2(1)(2)/2015-16 dated 28/06/2016 whereby Ihe issue has been decided in favour of the appellant-. The relevant extract of the decision is reproduced hereunder:- "5.3. Decision: I have carefully considered the facts of the case, the assessment order and the written submission of the appellant. The AO has made the addition of Rs. 27,00,000/- in respect of loans taken from M/s. Epsillion Marketing and Cons Pvt. Ltd. to the extent of accumulated profits in the hands of the aforesaid company. It is worth here to mention that Shri Binish H. Chudgar and Ms. Bindi B. Chudgar were holding 21% and 47% shares respectively in the appellant company. They were also holding the shares of 75% and 25% respectively in the lender company namely; M/s. EpsillionMarketing and Cons Pvt. Ltd. Thus, AO hold that the loans taken by the appellant comp....
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....ced as under:- "Section 2(22) of the Income-tax Act, 1961 - Deemed dividend -Assessment year 1997-98 - Whether deemed dividend can be assessed only in hands of a person who is a shareholder of lender company and not in hands of a person other than a shareholder - Held, yes, - Whether expression 'shareholder' referred to in section 2(22)(e) refers to both a registered shareholder and beneficial shareholder and, thus, if a person is a registered shareholder but not beneficial shareholder then provisions of section 2(22)(e) would not apply and similarly if a person is a beneficial shareholder but not a registered shareholder then also provisions of section 2(22)(e) would not apply - Held, yes - Whether deeming provision of section 2(22)(e) as it applies to case of loans or advances by a company to a concern in which its shareholder has substantial interest, is based on presumption that loan or advances would ultimately be made available to shareholders of company giving loan or advance, and, therefore, intention of Legislature is to tax dividend only in hands of shareholder and not in hands of concern." 5.7. Judgment of Hon'ble High Court of Gujarat in th....
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....said company and not assessee-firm, such an advance could not be taxed as deemed dividend in hands of assessee-f/rm. Section 2(22) of the Income-tax Act, 1961 - Deemed dividend -Assesseefirm had received certain amount as an advance from a company under an agreement to hand over management of firm's hotel to said company - Parnters of assesse- firm were also shareholders in said company - Assessing Officer treated said amount received by assessee-firm as deemed dividend under section 2(22)(e) in hands ofassessee and assessed same to tax - Whether it was not assessee-firm which was shown to be shareholder of company but in fact it was its partners who were holding more than requisite amount of shareholding in company and were having requisite interest in firm - Held, yes - Whether, therefore, aforesaid amount received by assessee would not be deemed dividend in hands of assessee-firm, rather it would obviously be deemed dividend in hands of individuals (partners), on whose behalf, or on whose individual benefit, being such shareholders, amount was paid by company to concern- Held, yes" 5.10. The Hon'ble IT AT, Ahmedabad Bench 'A' in the case of Krup....
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....accounting years company advanced loans to assessee-HUF - Tribunal found as fact that loan in question had been granted to assessee-HUF and not to shareholders who were members of HUF - Whether HUF cannot be considered as a shareholder under section 2(6A)(e) of 1922 Act and hence, a loan given to HUF cannot be considered as a loan advanced to a 'shareholder' of a company - Held, yes - Whether since no loans had been advanced to a shareholders, they did not get any income and hence, section 2(6A)(e) became inapplicable - Held, yes" 5.15. Further the Hon'ble Gujarat High Court in the case of CIT Vs. Navinbhai N. Patel [2013] 35 taxmann.com 312 (Gujarat) as also taken the similar view. The head notes of the judgment are reproduced as under:- "Section 2(22) of the Income-tax Act, 1961 - Deemed dividend '[Loans or advances to shareholder] - Assessment year 2006-07 - Whether requirement of section 2(22) is that loan or advance must be made by a company to its shareholder holding share representing 10 per cent voting power and he must be beneficial owner of said shares - Held, yes -Whether where assessee shareholder had already divested his interest in sh....
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....r facts has been decided by this office in A. Y. 2011-12, following I the same, the addition made by the A.O. in the year under consideration | is also not found correct and justified and hence the same is deleted. 77. Being aggrieved by the order of the learned CIT (A), the Revenue is in appeal before us. 78. Both the learned DR and the AR before us vehemently supported the order of the authorities below as favourable to them. 79. We have heard the rival contentions of both the parties and perused the materials available on record. Admittedly, the shareholder of the assessee namely Shri Binish H. Chudgar and Smt. Bindi B. Chudgarare holding 21 % and 47% share in assessee company and also holding 75% and 25% share in M/S Epsillion Marketing and Cons Pvt Ltd. from where assessee has received unsecured loan of Rs. 26 Lakh. Accordingly the AO in the case on hand has treated the amount of Rs. 26 Lakh as deemed dividend in the hands of the assessee on the reasoning that the transactions of advancing loan to the companies as discussed above falls within the purview of the provisions of section (2)(22)(e) of the Act. However, the learned CIT (A) was pleased to delete the addition....
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....2)(e), in para 4 has observed and held as under: "4.Shri Bhatt, learned Counsel appearing on behalf of the revenue has as such tried to justify the decision of the Delhi Court in the case of Ankitech Pvt. Ltd. (Supra) and has vehemently submitted that the Delhi High Court has not considered the third category i.e. shareholder in the assessee Company holding not less than 10% of the voting power in the Company from whom the loan or advance is taken. However, on considering Section 2(22)(e) of the Act, we are not at all impressed with the aforesaid. If the contention on behalf of the revenue is accepted, in that case, it will be creating the third category / class, which is not permissible. What is provided under Section 2(22)(e) of the Act seems to be that the assessee company must be a shareholder in the Company from whom the loan or advance has been taken and should be holding not less than 10% of the voting power. It does not provide that any shareholder in the assessee- Company who had taken any loan or advance from another Company in which such shareholder is also a shareholder having substantial interest, Section 2(22)(e) of the act may be applicable. 5.1. Co....
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....ns of transfer pricing. 6. Both the lower authorities have passed the orders without properly appreciating the facts and they further erred in grossly ignoring various submissions, explanations and information submitted by the I appellant from time to time which ought to have been considered before passing the impugned order. This action of the lower authorities is in clear breach of law and Principles of Natural Justice and therefore deserves to be quashed. 7. The learned CIT(A) has erred in law and on facts of the case in confirming action of the Id. AO in levying interest u/s.234A/B/C of the Act. 8. The learned CIT(A) has erred in law and on facts of the case in confirming action of the Id. AO in initiating penalty u/s.271(l)(c) of the Act. The appellant craves leave to add, amend, alter, edit, delete, modify or change all or any of the grounds of appeal at the time of or before the hearing of the appeal. 81. The first issue raised by the assessee vide ground number 1 and 2 of its appeal is that the learned CIT (A) erred in sustaining the upward adjustment of Rs. 49,88,829/- on account of interest free loan provided to AE. 82. A....