TaxTMI 
TaxTMI 
2021 (9) TMI 635
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....s methods and the preference for higher degrees of comparability anda more direct and closer relationship to the transaction? 2. Whether, the Ld.CIT(A)-IT/TP, Pune has erred on facts and in law, while allowing the adjustment made on account of Sales Commission, when perfectly comparable internal segment was available and disregarding the fact that all International Transactions should have been separately benchmarked by ACIL? 3. Whether on the facts and circumstances of the case, the CIT(A) was justified in allowing the software expenses of Rs. 1,26,000/- when the onus to prove the genuineness of the expenses was not discharged by the assessee inspite of opportunity allowed by the A.O and also when in fact the CIT(A) has not given a finding on the genuineness of the claim? 4. Whether on the facts and circumstances of the case, the CIT(A) was justified in allowing expenditure incurred on account of repair and maintenance for which no documentary evidence was produced of Rs. 96,776/-, when in fact the CIT(A) has not given a finding on the genuineness of the claim? 5. Whether on the facts and circumstances of the case, the CIT(A) was justified in re....
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....se of determination of Arms Length Price (hereinafter referred as "ALP") in relation to the following international transactions : Sl.No. Description Amount (Rs) Method 1 Import of raw material and components 1,86,70,42,829 TNMM 2 Import of finished goods 1,74,70,85,852 TNMM 3 Export of finished goods 1,13,75,17,625 TNMM 4 Import of Capital goods 87,61,495 5 Payment of Royalty 6,41,38,716 TNMM 6 Receipt of sales commission 34,30,50,057 TNMM 7 Payment of commission 1,33,97,434 TNMM 8 Payment of consultancy fees 20,45,414 TNMM 9 Payment of management fees 1,89,14,290 TNMM 10 Provision of administrative support services 4,91,75,419 TNMM 11 Provision of IT enabled design engineering services 32,58,75,250 TNMM 12 Recovery of warranty expenses 3,00,54,240 TNMM 13 Amounts written back 3,09,485 TNMM Sub Total A 5,60,73,68,106 Allocation of common costs 14 Certification Fees paid 8,67,511 TNMM 15 Communication Expenses 4,50,13,073 TNMM ....
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....gards to the addition on account of Software Development Expenses of Rs. 1.26 lakhs, ld.CIT(A) had directed the Assessing Officer to allow the same as Revenue expenditure by following decisions : i. CIT Vs. Southern Roadway Ltd (2008) 304 ITR 84 (Mad). ii. CIT Vs. Asashi India Safety Glass Ltd (2011) 203 Taxman 277. iii. CIT Vs. Renuga Textiles Mills Ltd (2012) 254 CTR (Mad) 423. 6. As regards to the disallowance of Repairs and Maintenance Expenses of Rs. 1,01,869/-, the ld.CIT(A) following his order in assessee's own case for earlier years i.e., A.Ys. 2009-10 had directed the Assessing Officer for the deletion of the same. As regards to the disallowance of Miscellaneous Expenditure of Rs. 2,59,407/-, ld.CIT(A) out of the disallowance of Rs. 2,59,407/-, confirmed the disallowance only to the extent of Rs. 1,00,000/-. Regarding to the disallowance of commission expenditure of Rs. 39,60,335, ld.CIT(A) following his own order in respondent / assessee's own case for the earlier assessment year 2008-09 had deleted the addition. 7. Aggrieved by the order of ld.CIT(A), the Revenue is in appeal before us. 8. In Ground No.1, the Revenue challenges the dec....
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....with the policy of the Government of India on payment of royalty under Foreign Technology Collaboration Agreement. He also filed a copy of the Press Note No.8 dt. l6.12.2009 in terms of which payment of royalty @ 5% domestic sales and 8% of exports is permitted under automatic approval. He also relied on the decision of Hon'ble jurisdictional High Court in the case of CIT Vs. SGS India Pvt Ltd., reported in (2015) 94 CCH 0338 (Bombay High Court) wherein it is held that the royalty paid at 3% of the sales to arrive at the ALP is much below the royalty for trade mark and which is allowed to be paid. He also placed reliance on the orders of the Tribunal in assessee's own case for earlier assessment years wherein the Tribunal had deleted the similar addition by holding that comparison of one controlled transaction cannot be made with another controlled transaction. 13. We heard the rival submissions and perused the material on record. The issue in the present ground of appeal relates to the determination of ALP of the transaction of payment of royalty. Admittedly, the royalty was paid @ 5% of domestic sales and 8% of the export sales in consideration of receipt of technology in the ....
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....law, the TPO ought to have arrived at the ALP of the respondent's sale to its A.E.viz. Flow Serve by only comparing it with uncontrolled transaction of sale to in USA. Thus the approach of the TPO is contrary to the clear provisions of law. Besides as held by the Tribunal the comparison has to be region/country specific, which in this case, the TPO has completely ignored. (e) Therefore, the view taken by the Tribunal does not call for any interference as it is in accordance with the self-evident provisions of law. Thus, this question as proposed does not give rise to any substantial question of law. Thus not entertained." 14. We found that the decision referred by the Co-ordinate Bench of the Tribunal in assessee's own case for earlier assessment years i.e., 2005-06, 2007-08 and 2008-09 are in consonance with the above principle of law and therefore, the ld.CIT(A) merely followed the order of Tribunal in earlier orders. In these circumstances, we do not see any reason to interfere with the order of ld.CIT(A). Accordingly, the ground No.1 of appeal filed by the Revenue stands dismissed. 15. In Ground No.2 of appeal, the Revenue challenges the decision of ld.CIT(A)....
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....cost and the cost has been taken as key for allocation of net profit earned by the entity. 16. The TPO of the view that since the cost of material consumption and depreciation does not contribute to the profits, the same should not be included as a part of total cost incurred by the entity. On this basis, the TPO was of the opinion that for the purpose of calculating the percentage of marketing cost to the total cost, the cost of material and depreciation should be excluded as result of which percentage of marketing cost to total cost was arrived at 41.36%. Then TPO proceeded to allocate the total profits earned by the respondent / assessee in terms of percentage of cost between two segments. Accordingly, the TPO attributed profits to marketing functions in the proportion of percentage cost at 59.36 crores. When the profit is converted into percentage of sales, it worked out to 4.58%. Then the TPO calculated the profit attributable to marketing functions on sales of 354.56 crores @ 16.24 crores. Then after including the cost incurred on marketing A.E. products of Rs. 26.11 crores, the TPO arrived at 42.35 crores as the amount ought to have been received on marketing services fro....
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....enchmarking should also have been done with reference to an uncontrolled transaction of earning commission only. Notwithstanding the fact that the TPO was required to take the comparable uncontrolled transaction as that of rendering of marketing services alone, he started with the entity level figures of the assessee which also include sale of self goods ostensibly involving altogether different functions, assets and risks vis-à-vis earning commission on sale for AEs. Thereafter again, he went off the mark by excluding the amount of raw material costs etc. and depreciation from the base of total costs by overlooking the fact that the figure of profit taken up by him also included profit from sale of manufactured goods. The ld. DR was fair enough to accept that the amount of depreciation ought to have been included. Even if we presume the initial step of adoption of the entity level profit of the assessee, including that from sale of self goods as correct, with which we do not otherwise agree, then also the total costs contributing to the manufacturing profit should have been considered, which obviously include raw material cost and depreciation, as has been held in the first....
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....llenged by the Revenue. 11. In view of the fact that the Revenue has accepted the order of the Tribunal on its finding on facts on the two issues as pointed out hereinabove as well as the refusal of the Tribunal to restore the issue of determination of ALP to the TPO by following one of the methods prescribed under Section 92C of the Act. Thus, the questions as formulated for our consideration even if answered in favour of the Revenue would become academic in the present facts. Thus, we see no reason to entertain this appeal. However, we make it clear that the issues of law which has been raised in the present appeal are left open for consideration in an appropriate case." The ratio that can be culled out from the above decision is that when the TPO had not adopted any of methods prescribed u/s 92CA of the I.T. Act, no adjustment on account of ALP can be made by TPO. Therefore, the order of the ld.CIT(A) though does not contain independent reasoning, keeping in view of the order of the Tribunal for earlier years on identical issue in assessee's own case on the principle of consistency and ratio of decision of Hon'ble Bombay High Court in the case of CIT Vs. Kodak India ....
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....om details on record, it is evident that the expenditure was paid to M/s Radix Business Models Pvt. Ltd., in order to upgrade the application software on contract basis for Lotus Notes Developer. The Hon'ble High Court in the case of CIT Vs. Geoffrey Manners & Co., Ltd., reported in 49 Taxmann.com 320 held vide para 12 that in view of the rapid advancement in the recent technology, it cannot be said that there is any enduring benefit to the assessee. Since the decision of the ld.CIT(A) is in line with the decision of jurisdictional High Court, we do not find any reason to interfere with the decision of ld.CIT(A). Accordingly, ground No.3 of the Revenue stands dismissed. 29. In ground No.4 the Revenue challenges the decision of ld.CIT(A) holding that the expenditure incurred on the renovation of lease premises of Rs. 1,01,869/- is revenue in nature. The brief factual matrix of the issue in ground No.4 is as under : During the previous year relevant to the assessment year under consideration, the respondent / assessee incurred an expenditure of Rs. 1,01,869/- on renovating the lease premises which are used for the business purpose of the respondent / assessee at Bangalor....
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....orted in (2019) 105 taxmann.com 289 (Madras). In the case of CIT Vs. Viswams (supra) the Hon'ble Madras High Court held as under : "14. We have carefully considered the rival arguments advanced. 15. The primary basis on which the Tribunal had answered the issues in favour of the Assessee was that this Court in Hari Vignesh Motor (P.) Ltd., cited supra, following the earlier Judgment of the Hon'ble Supreme Court in Madras Auto Services (P.) Ltd., cited supra had held that expenditure incurred in the nature as incurred by the Assessee herein cannot be considered as Capital expenditure. However, as pointed out by Mr. M. Swaminathan, learned Senior Standing Counsel for the Revenue, Madras Auto Service (P.) Ltd. (supra), related to the Assessment Year 1968-1969. Thereafter, Section 32(1A) had been inserted with effect from 01.04.1970 and this provision had been clarified by Explanation 1 with effect from 01.04.1988. Consequently, the correct provision which is applicable to these cases are Explanation 1 to Section 32(1) of the Act. 16. It is not in dispute that the Assessees had taken on lease the premises and had put up further additional construction and....
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....lied on by the learned counsel in TVS Lean Logistics Ltd., cited supra related to totally distinguishable set of facts. In that case, the Assessee had put up construction of a building on a lease hold land. The building was not taken on lease. Consequently, it was held as follows:- "4.1 It is not in dispute that the assessee had put up the impugned construction of building only on the leasehold land and no building was taken on lease by the assessee. Therefore, the fiction created by Expln. 1 that the building put up by him in the leasehold land or structure or work shall be construed as if the same is owned by the assessee, is not applicable to the case of the assessee and the Expln. 1 to S.32(1) of the Act is not attracted to the instant case of the assessee at all." The aforesaid Judgement cited by the learned counsel for the Assessee are therefore not applicable to the facts of the present case in view of amended law. 19. In Silver Screen Enterprises v. CIT [1972] 85 ITR 578 (Punj. & Har.), while examining whether expenditure incurred on repairs to chairs, renovation of building and modernisation of cinema house taken on lease by the Assessee, it was ....
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....he Act is rejected since the renovations made are Capital in nature in the first Assessment Year and only further repairs may attract the provisions under Section 30(a)(i) of the Act. Section 30(a)(i) of the Act is as follows:- "30. In respect of rent, rates, taxes, repairs and insurance for premises, used for the purposes of the business or profession, the following deductions shall be allowed- (a) Where the premises are occupied by the assessee- (i) as a tenant, the rent paid for such premises; and further if he has undertaken to bear the cost of repairs to the premises, the amount paid on account of such repairs." 21. In the present case, the Assesses had incurred substantial expenditure towards renovation leading to enduring benefit. They are not merely repairs. The Assessees had also incurred expenditures towards improvement and construction of the building. These cannot be termed as 'repairs'. Consequently, this alternate submission is rejected by us. The second alternate submission advanced by Mr. M.P. Senthil Kumar that the case should be remitted back to the Assessing Officer is also rejected since the fact have been addressed an....
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....of Rs. 2,59,407/- out of the total Miscellaneous Expenditure. On appeal before ld.CIT(A), ld.CIT(A) restricted the disallowance to Rs. 1,00,000/- which is in accordance with the decision of his order in assessee's own case for the earlier assessment years. On the principle of consistency, we uphold the order of ld.CIT(A). Accordingly, this ground of appeal stands dismissed. 43. In ground No.6, the Revenue challenges the decision of ld.CIT(A) deleting the addition of commission expenditure of Rs. 39,60,335/-. The brief factual matrix of the issue in ground No.6 is as under : During the course of assessment proceedings, the Assessing Officer had called for details of total commission expenditure of Rs. 17,65,74,867/-. Out of which, the assessee could not furnish the confirmations from the parties to the extent of Rs. 39,60,335/-. Therefore, the Assessing Officer dismissed the same. 44. On appeal before ld.CIT(A), ld.CIT(A) following his earlier decision for the assessment year 2008-09 deleted the same on the ground that the ld.CIT(A) had not conducted any fresh verification to prove the genuineness of the transaction or otherwise of the case. 45. Being aggrieve by the ....