TaxTMI 
TaxTMI 
2021 (10) TMI 1283
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....der passed in assesee's own case by coordinate bench of this Tribunal for assessment year 2008-09 and 2010-11. We are therefore disposing of all these appeals by way of common order. Brief facts of the case are as under: 3. The assesee is a private limited company engaged in the business of retail trade of apparels and accessories, toys baby basics, footwear, leather products, furniture and household, and other accessories. It has been submitted that assesee operates stores across India under the brand name "lifestyle" and "Max". Assessment year 2009-10 4. For year under consideration assesee filed and return of income on 30/09/2009 declaring total income of 'NIL". The return was selected for scrutiny and notice under section 143(2) of the Act was issued, in response to which representatives of assessee appeared before the Ld.AO and filed requisite details as called for. As there were international transactions between assessee and the AE's the case was referred to transfer pricing officer. 4.1 The Ld.TPO on receipt of reference observed that, assessee is in retailing business and has stores across India at Chennai, Hyderabad, Bangalore, Gurgaon, Mumbai and other cit....
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....ital loans. This is speculation loss, as it is a transaction which has been settled otherwise than by actual delivery of the goods in which the assessee company is trading. This transaction does not fall into any of the exclusive provisos mentioned u/s 43(5). Although the basic thing on which the forward contract has been entered into is trading merchandise and working loan but the settlement is happening on currency. Therefore the amount of Rs. 16,47,303/- is treated as speculative loss u/s 43(5) r.w.s 73." 4.6 Based on above, the Ld.AO passed assessment order under section 143(3) read with 144C(3) of the Act on 29/04/2013 making addition of Rs. 74,38,200/- along with the adjustment proposed by the Ld.TPO. 4.7 On an appeal before the Ld.CIT(A), all other additions were deleted except for the Transfer Pricing adjustment proposed in respect of payments made to Home Centre LLC and RNA, towards consultancy. Aggrieved by the addition made by Ld.CIT(A), assesee in appeal before us. IT(TP)A No. 2333/Bang/2016 (Assessee Appeal) 5. Only issue argued by the Ld.AR for year under consideration arises out of following grounds: "2. The learned AO/ learned TPO/ learned CI....
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.... assessee could have received services from any other service providers, had it not been provided by the AE's. The Ld.AO thus considered the arms length to be at 'nil'. 5.7 The Ld.AR submitted that, the payments made to Home Centre LLC towards consultancy, was for setting up of new retail stores at various places in India. He also submitted that the same was capitalised in the books of account and depreciation was claimed on the same. 5.8 He then submitted that, payments made to RNA were towards existing stores, which was claimed as revenue expenses during the year under consideration. 5.9 The Ld.AR submitted that, this issue stands squarely covered by order dated 19/04/2021 passed by coordinate bench of this Tribunal for assessment in 2008-09 and 2010-11 in ITA No. 2258/B/2016. The Ld.AR relied on the arguments referred to therein as the facts are identical for year under consideration. 5.10. On the contrary, the Ld.DR submitted that, coordinate bench of this Tribunal in immediately preceding and succeeding assessment year recorded that the Ld.TPO considered same transaction to be at arms length, whereas in the present facts Ld.TPO observed that assessee did not substa....
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....mount paid as professional fees for stores set up (post set up) was Rs. 63,09,804. The professional fees, it is claimed is in the nature of consultancy and were towards setting up of new stores and running the same after its set up. It is also stated that professional fees paid for setting up stores were capitalized in the books of account of the assessee and depreciation was claimed accordingly. As regards professional fees for post set up of stores (for running the store by RNA), the same is claimed by the assessee as revenue expenditure. For rendering of professional services, a consultancy agreement was executed between the assessee and RNA on 15.12.2004. 4.1 The Assessing Officer for assessment years 2008-2009 and 2010- 2011 disallowed the professional fees paid by the assessee to RNA by stating following reasons:- (i) The payments made to RNA were unreasonable and excessive and without legitimate need of business. (ii) The assessee has full-fledged management team with expertise needed to execute such operations and there was no such necessity to procure services of RNA. (iii) According to AO, the employee cost incurred and legal and profes....
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....he case of (i) Manipal Health Systems Private Limited [ITA No.1667 and 1668/Bang/2016 - order dated 27.06.2018] and (ii)Cisco Systems Capital India Private Limited [IT(TP)A No.1558/Bang/ 2012 - order dated 19.09.2014], for the proposition that onus is on the A.O. to bring on record comparable cases to prove that payment made by the assessee is in excess of fair market value and provisions of section 40A(2) of the I.T.Act are not automatic. It was further stated by the learned AR that since in the facts of this case, the A.O. has not proved that the expenditure incurred is in excess of fair market value, provisions of section 40A(2) of the I.T.Act does not have application. 4.5 We have heard rival submissions and perused the material on record. In the instant case, the admitted facts are RNA is an associate enterprise of the assessee and professional fees paid by the assessee to RNA was considered by the assessee as an international transaction in its transfer pricing study and also disclosed in Form 3CEB. During the course of assessment proceedings for assessment years 2008-2009 and 2010-2011, the A.O. referred the said international transaction to the TPO for determining ....
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....cannot go back to the provisions of sec.40A(2) for determining the reasonableness of the price paid by the assessee. Our attention was invited by the learned authorised representative of the assessee that for the assessment year 2001-02 to 2002-03 the payment in question was subjected to MAP and only 25% is charged to tax. Therefore, it was accepted by the department that the services were rendered by the AE to the assessee in India. We further note that the AO has not conducted any inquiry or investigation to find out the excessiveness of the payment made by the assessee to its AE." 4.5.1 Moreover, the AO has not compared the reasonableness of payment with respect to fair market value of services provided by RNA vis-à-vis outside parties. The Hon'ble Delhi High Court in the case of CIT v. Nestle India Ltd. reported in [2011] 11 taxmann.com 106 (Delhi) had held that "once the assessee has discharged initial onus, the burden would be shifted to the Revenue to show that the expense was unreasonable and excessive having regard to the legitimate needs of business based on material or evidence on record and that the assessee had made less than ordinary profits". The Bang....
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....has to be accepted particularly in the light of the wordings of the section 40A(2) of the Act." 4.5.2 In view of the aforesaid reasoning, we are of the view that the A.O. has erred in invoking the provisions of section 40A(2) of the I.T.Act to disallow the claim of expense as excessive and not legitimate to the business needs, especially in view of the fact that the TPO, in its transfer pricing orders for assessment years 2008-2009 and 2010-2011, had held the impugned transaction at arms length. 4.5.3 The A.O. has also disallowed the said expenditure u/s 37 of the I.T.Act considering that it is not incurred wholly and exclusively for the purpose of business or profession. The Assessing Officer has disallowance u/s 37 of the I.T.Act without stating the reason as to why the expenditure is considered to be not incurred wholly and exclusively for the purpose of business. As per section 37 of the I.T.Act, expenditure laid out and expended wholly and exclusively for the purpose of business or profession shall be allowed as deduction while computing the business income. To qualify as a business expenditure, the following the conditions are to be satisfied :- (i)....
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....ality of the expenditure, namely, whether the amount claimed as deduction was factually expended or laid down and whether it was wholly and exclusively for the purpose of the business. The reasonableness of the expenditure could be gone into only for the purpose of determining whether, in fact, the amount was spent. Once it is established that there was nexus between the expenditure and the purpose of business, the revenue cannot justifiably claim to put itself in the armchair of a businessman or in the position of the board of directors and assume the said role to decide how much is a reasonable expendi ture having regard to the circumstances of the case......it is settled position in law that no businessman can be compelled to maximise his profits". 4.5.6 The above judgment of the Hon'ble Delhi High Court was confirmed by the Hon'ble Apex Court in the case reported in [2007] 288 ITR 1 (SC). 4.5.7 For the aforesaid reasoning and the judgments relied on, we are of the view that the A.O. is not correct in disallowing the expenditure also u/s 37 of the I.T.Act. 4.5.8 Now coming to the decision relied on by the learned DR, we are of the view that the above o....
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....ength price of international transaction. 6.9 The Ld.TPO determined ALP at NIL by applying CUP, vis-à-vis, ALP determined by assessee at aggregate level by using TNMM. Ld.TPO held that, as there is no benefit from services rendered by AE's, he determined ALP of international transaction at Nil, without carrying out any FAR analysis of intra-group services. This approach of Ld.TPO is not acceptable, as it is necessary to determine ALP of such transaction as per law. Further these services are more or less intangible in nature as the AE's are helping assessee to set up, run the store's and other related matters as per the company standards. In our view the Ld.TPO ignored the evidences filed by assessee. The Ld.TPO cannot consider ALP at 'NIL' and value of transaction has to be computed as per law. Hon'ble Delhi High Court in case of Cushman Wakefield Limited reported in 46 taxmann.com 317 held that: "34. The Court first notes that the authority of the TPO is to conduct a transfer pricing analysis to determine the ALP and not to determine whether there is a service or not from which the assessee benefits. That aspect of the exercise is left to the AO. This distincti....
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....efits from it or not; the real question which is to be determined in such cases is whether the price of this service is what an independent enterprise would have paid for the same. Similarly, whether the AE gave the same services to the assessee in the preceding years without any consideration or not is also irrelevant. The AE may have given the same service on gratuitous basis in the earlier period, but that does not mean that arm's length price of these services is 'nil'. The authorities below have been swayed by the considerations which are not at all relevant in the context of determining the arm's length price of the costs incurred by the assessee in cost contribution arrangement. We have also noted that the stand of the revenue authorities in this case is that no services were rendered by the AE at all, and that since there is No. evidence of services having been rendered at all, the arm's length price of these services is 'nil'." 6.10. We therefore remand this issue back to the Ld.TPO/AO. The Ld.TPO to consider all the evidences filed by assessee in the light of observations by the Ld.TPO in preceding and subsequent assessment years. The Ld.TPO....
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....-informed, reasoned and fair working and not only on market rate/benefit test but even the compatibility test. However the Ld.CIT(A) restricted the disallowance to 50% of the expenses on ad hoc basis. 7.2 The Ld.AR relied on observations of coordinate bench of this Tribunal in assessee's own case for assessment year 2008-09 and 2010-11 (supra). Whereas the Ld.DR relied on arguments recorded hereinabove in identical ground for assessment year 2009-10. 7.3 We have perused submissions advanced by both sides in light of records placed before us. 7.4 It is noted that for year under consideration the Ld.AO invoked provisions of section 40(A)(2) disallowed the entire expenses. We note that on one hand the Ld.CIT(A) is observing the casual manner in which the disallowance is made, and on the other hand he is confirming disallowance to the extent of 50% on adhoc basis. We are not in agreement with such ways of the Ld.CIT(A) and the Ld.TPO. 7.5 We have remanded identical issue to the Ld.TPO/AO while considering assessee's appeal for assessment year 2009-10. The facts for year under consideration is same and the issue of disallowance being identical, we remand this issue to the....
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....orporation has to be also treated as bogus purchases in the hands of the Assessee. The appellant has produced certain documents relating to invoices payment details before the AO. However, the proof of physical delivery including transportation receipts, have not been produced even during the current appeal proceedings. In these facts and circumstances, the disallowance of Rs. 3,52,654/- is upheld. The Assessee's grounds of appeal are accordingly dismissed." Aggrieved by the disallowance assessee is in appeal before us. 10. The Ld.AR submitted that, the purchases made by assessee were genuine and that they have physically received the goods from Mahavir Corporation. The Ld.AR submitted that, tax invoices were received by assessee for which payments were made. It is also submitted that, the purchases made by assessee from Mahavir Corporation was genuine and on bonafide belief. 10.1 On the contrary the Ld.DR relied on observations of the Ld.CIT(A). 10.2 We have perused submissions advanced by both sides in light of records placed before us. 10.3 We note that the Ld.CIT(A) accepted the transaction undertaken by assessee to be under bona fide belief. However, the Ld.....
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....other grounds that may be urged at the time of hearing, it is prayed that the order of the CIT (A) in so far as it relates to the above grounds may be reversed and that of the Assessing Officer may be restored. 7. The appellant craves leave to add, alter, amend and / or delete any of the grounds that may be urged." 11. The Revenue is in appeal for assessment year 2011-12, on issues that were allowed by the Ld.CIT(A). 11.1 Ground No.2 of Revenue appeal is challenging 50% addition deleted by the Ld.CIT(A) in addition made under section 40A(2). As we have remitted the identical issue in assessee's appeal, for assessment year 2011-12 with necessary direction. The Ld.TPO/AO shall verify the entire issue in light of evidences filed in accordance with law. Ld.TPO/AO shall verify the details mutatis mutandis as observed by us for assessment year 2009-10. Accordingly, this ground raised by revenue stands allowed for statistical purposes. 12. Ground no.3 in revenue appeal is challenging the addition deleted under section 43(5) r.w.section 73 of the Act. 12.1 It is submitted that assessee imported certain trade merchandise from parties located outside India and the ....
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....es /stocks or commodity, to constitute a speculative transactions as per section 43(5). Since, in the present case, forex-cover is not a contract for purchase of shares / stock or commodity, but towards foreign currency, the definition u/s 43(5) would not apply to the present case. - In respect of the definition I meaning of commodity and in respect of the legality of AO's action, the Appellant has placed reliance on several judicial precedents which are found to be in favour of the Assessee's stand. These include: The Delhi Bench of ITAT in the case of Munjal Showa Ltd Vs DCIT; Hon'ble Calcutta High Court in the case of CIT Vs Britannia Industries Ltd; Hon'ble Supreme Court in the case of ACIT Vs EleconEngg. Co. Ltd; Hon'ble Gujarat High Court in the case of CIT Vs Friends and Friends Shipping (P) Ltd; Hon'ble Bombay High Court in the case of CIT Vs BadridasGauridu (P) Ltd. In background of the above detailed discussion, facts & circumstances of the present case and judicial position on the subject, the AO's action of disallowing Rs. 95,55,691/- on account of premium on forward-cover, cannot be upheld. The said disallowance is....
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....e said definition is required to be satisfied. Definition of a speculative transaction vis-a-vis forward cover are as follows:- (i)A forex cover is a contract for purchase or sale and thus the first characteristic as per section 43(5) is satisfied. The third and fourth characteristic of periodic and ultimate settlement and settlement other than by actual delivery would be satisfied in a forex cover transaction. (ii) The second characteristic is that the purchase should be of a share, or stock or commodity. A forex cover is not a contract for the purchase of a share or a stock. In a forex cover, the purchase or sale is towards foreign currency. Therefore it has to be seen whether foreign currency can be equated with the term "commodity" such that its purchase or sale triggers the definition of a speculative transaction under the Act. 5.8 The term "commodity" has not been defined under the Income Tax Act Black's Law Dictionary (8th Edition) defines the term "commodity" as an article of trade or commerce; the term embraces only tangible goods, such as products or merchandise, as distinguished from services; an economic good, especially a raw material or an a....
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....ingly this ground raised by revenue stands dismissed. 13. Ground no. 4 in Revenue's appeal is regarding claims not made in the returns but allowed by Ld.CIT(A). 13.1 The Ld.AO observed that assessee remitted for employees contribution to provident fund and employees State insurance amounting to Rs. 8,85,369/- after the date. He thus disallowed the expenses under section 43B of the Act. Aggrieved by the disallowance, assessee preferred appeal before the Ld.CIT(A). 13.2 The Ld.CIT(A) observed that though the remittance were delayed, the same was paid within due date mentioned under section 139 of the Act. The Ld.CIT(A) deleted the disallowance made by the Ld.AO. Aggrieved by the view taken by the Ld.CIT(A) revenues in appeal for us now. 14. The Ld.DR pleased reliance on orders passed by the Ld.AO. 14.1 The Ld.AR submitted that on the Hon'ble Karnataka High Court in case of Sabri Enterprises and Ors. reported in 298 ITR 141 and Essea Teraoka(P.) Ltd reported in (2014) 43 taxman.com 33 has held that contributions made by assessee to provident fund and employees State insurance are allowable deductions to assessee even though it is not made in the stipulated period ....
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....hat assessee had allotted 50,000 shares to its employees during the year under consideration on exercising/vesting of rights by the said employees in the scheme of ESOP. It was submitted that as per Accounting Standard 15, assessee is required to create provision in this regard and that expenses will be allowed only when the rights are exercised/vested and shares are allotted to the employees. 15.2 It has been submitted that assessee added that provisions created during the year under consideration, however inadvertently missed to claim the actual expenses incurred on allotment of shares in its return of income, which assessee was eligible for deduction. 15.3 The Ld.AO rejected the claim of assessee on the ground that these claims are to be made by way of revised return of income. On an appeal before the Ld.CIT(A), it was held that any claim based on the return can be claimes at appellate stage even in the absence of revised return. The Ld.CIT(A) placed reliance on judicial precedents in support of this view. 15.4 Aggrieved by the order of Ld.CIT(A) revenues in appeal before us now. The Ld.AR submitted that during the course of assessment proceedings they were these exp....
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....rable price and any basis for estimating the expense to be excessive and unreasonable." 18.1 It is noted that all these grounds are relating to the same issue. It is also submitted that identical ground is discussed hereinabove in assessee's appeal for assessment year 2009-10 & 2011-12 hereinabove. 18.2 The Ld.AR submitted that for this year Ld.CIT(A) observed that, the disallowance under section 40A(2) should be based on well-informed, reasoned and fed working and not only on market rate/benefit test but even the compatibility test. 18.3 He thus submitted that even after such observations the Ld.CIT(A) restricted the disallowance to 50% of the expenses on ad hoc basis. The Ld.AR relied on observations of coordinate bench of this Tribunal in assessee's own case for assessment year 2008-09 and 2010-11 (supra). 18.4 Whereas the Ld.DR relied on arguments recorded hereinabove in identical ground for assessment year 2009-10. 18.5 We have perused submissions advanced by both sides in light of records placed before us. 18.6 It is noted that for your under consideration the Ld.AO removed provisions of section 40(A)(2) and also has held the ALP of the transaction to be at ....