TaxTMI 
TaxTMI 
2022 (1) TMI 1030
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....e directions of the Dispute Resolution Panel (DRP), the Transfer Pricing Order and the Final Assessment order are erroneous in so far as the following issue/adjustment: 2. Transfer Pricing Order is barred by limitation 2.1 The NeAC/DRP failed to appreciate that the order passed by Transfer Pricing Officer (TPO) dated 0 .11.2019 is marred by statutory limitation as prescribed under Section 92CA(3A) of the Act and as such it is bad in law, void ab initio and deserves to be quashed. 2.2 The NeAC/DRP failed to cognizance of Central Action Plan issued by Central Board of Direct Taxes (CBDT) for the guidance of officers in the Income Tax Department wherein in Chapter VII thereof, dealing with International Taxation and Transfer Pricing, the CBDT has explicitly stated that completion of transfer pricing audits gets time barred on 31 October 2019. 2.3 The NeAC/DRP failed to appreciate that the transfer pricing proceedings under section 92CA is an independent assessment akin to a regular assessment proceeding under section 143(3) of the Act. 2.4 The NeAC/DRP has incorrectly interpreted the provisions of section 92CA(3) and concluded that period o....
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.... 3.3 The NeAC/DRP ought to have held that the order of the TPO is vitiated inasmuch since it is based on a show cause notice that is void ab initio, as it has not established a prima facie case of brand promotion activity undertaken by the Appellant. 3.4 The NeAC/DRP ought to have held that the TPO has acted in excess of jurisdiction by suo-motto considering the incurring of advertisement expenses as an "international transaction". 3.5 The NeAC/TPO erred in facts and circumstances of the case and in law by stating that the Appellant failed to report the "Advertisement Marketing and Promotion ("AMP") expenses" in the Form 3CEB when the same is not per se an international transaction as per Section 92B of the Act. Brand promotion is not an international transaction 3.6 The NeAC/DRP failed to appreciate that the Appellant has not rendered any brand building service to its AE (i.e., Hyundai Motor Corporation, Korea) and as such there is no international transaction. 3.7 The NeAC/DRP failed to appreciate that in the absence of contract among the parties (i.e. Appellant and AE) deeming rendition of brand building service is null and void. ....
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.... restricted from creating its own brand through the agreement and it is the prudent business decision of the Appellant to use the Brand name of the AE so as to increase its sales in India. 3.16 The NeAC/TPO failed to appreciate that the AMP expenses incurred by the Appellant is purely to promote the sales of the cars manufactured and not towards promotion of Brand. Economic Ownership 3.17 The NeAC/TPO erred in facts and circumstances of the case and in law in not appreciating that the Appellant is the economic owner of the brand name and uses the brand for its own benefit. 3.18 Without prejudice to the above and assuming without admitting that the Appellant has been providing brand building service, the NeAC/TPO failed to appreciate that the income, if any, can be attributed only when brand is alienated at a future date and as sue h the question of attributing a notional income for the deemed brand biii1ding service does not arise for AY 2016-17. Determination of ALP of alleged brand building service is grossly flawed 3.19The NeAC/DRP erred in facts and circumstances of the case and in law in not appreciating that the TPO has in....
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....wing a sum of Rs. 70,07,153 under section 14A of the Act by applying the provisions of Rule 8D of the Rules. 4.2 The NeAC / DRP ought not to have made disallowance under section 14A of the Act when the Appellant has not claimed any exempt income being dividend income amounting to Rs. 1,11,645, during the year. 4.3 The NeAC / DRP ought to have appreciated that the Assessee has not incurred any expenditure which may be attributable towards earning of exempt income (no exempt income claimed during the subject AY). 4.4 The NeAC, having acknowledged the fact that the Assessee had sufficient surplus funds in earlier AY's to make the investments, ought not to have resorted to making ad hoc disallowance under section 14A r.w.r 8D of the Rules. 4.5 The NeAC / DRP ought to have appreciated that merely because there are investments (for strategic purposes) and payment of interest (towards purchase of fixed assets), it cannot be assumed that loan funds have been utilized for the purpose of making investments. 4.6 The NeAC / DRP erred in presuming that the Appellant had incurred a portion of personnel expenses, rent, salaries, communication, travel, ....
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.... DRP failed to appreciate that in the year of receipt of subsidy, i.e. AY 2003-04 the AO has verified the claim and deleted the disallowance on depreciation by passing the order giving effect to the CIT(A) order and therefore the question of disallowance of depreciation on subsidy in subsequent AY's does not arise. 6 Disallowance of performance reward under section 43B of the Act 6.1 The NeAC / DRP erred in disallowing performance reward amounting to Rs. 1,54,58,594 under section 43B of the Act. 6.2 The NeAC / DRP ought to have appreciated that the expenditure incurred towards performance reward is not in the nature of "bonus" and therefore the provisions of section 43B(c) of the Act is not applicable. 6.3 The NeAC / DRP ought to have appreciated that the performance reward is not on the nature of "commission" since the reward is based on the performance of the employee. 6.4 Without prejudice to the above, the NeAC / DRP ought to have appreciated that the Appellant is not covered by the provisions of Payment of Bonus Act, 1965 and as such no disallowance can be made under section 43B r.w.s. 36(1)(ii) of the Act. 6.5 Without prej....
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....not chargeable to tax. 8.2 The NEAC/DRP ought to have appreciated that the object of the subsidy (refund of VAT) was for the purpose of setting up the plant and not to enhance the profitability of the Appellant or to fund the cost of fixed assets and as such the said subsidy should be treated as a 'capital receipt' not chargeable to tax. 8.4 Without prejudice to the above, the Hon'b1e Tribunal should consider and allow the claim of the Appellant in light of the Supreme Court decision in Goetze (India) Limited vs CIT (TS-21-SC-2006-O) (SC) since the details are already available on record. 9. Export incentives under the Focus Market Scheme is a capital receipt not chargeable to tax 9.1 The NeAC/DRP ought to have appreciated that the export incentives under the FMC earned during the year is a capital receipt not chargeable to tax. 9.2 The NeAC/DRP ought to have appreciated that it is a well settled principle that the "purpose" for which an incentive is granted should be considered to determine whether the nature of subsidy / incentive is revenue or capital and as such the nature of export incentive cannot be determined based on the item of....
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....essee M/s. Hyundai Motor India Ltd., is wholly owned subsidiary of M/s. Hyundai Motor Company Ltd., South Korea. The assessee is engaged in the business of manufacturing and selling passenger cars in domestic and export market. The assessee company has filed its return of income for assessment year 2016-17 on 29.11.2016 admitting total income of Rs. 1865,03,71,585/- under normal provisions of the Act and book profit u/s.115JB of the Act at Rs. 1918,63,89,313/-. The assessee had entered into various international transactions with its AEs and international transactions were duly reported in Form 3CEB filed in accordance with provisions of Indian Transfer Pricing Regulations contained in section 92, 92A to 92F of the Income Tax Act, 1961. The case was taken up for scrutiny and during the course of assessment proceedings; a reference was made to JCIT (Transfer Pricing) for determination of arm's length price of international transactions of the assessee with its AEs. The learned TPO vide its order dated 01.11.2019 has suggested upward adjustment for brand development services. 5. The Assessing Officer, in pursuant to TPO order, has passed draft assessment order u/s.143(3) r.w.s 144....
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....e issue is identical to earlier years and accordingly deleted the brand fee adjustment. 7.2 The ld. DR on the other hand, fairly agreed that this issue is covered in favour of the assessee. But strongly supported ld. TPO/DRP order. 7.3 We have heard both the parties, perused material available on record and gone through orders of the authorities below. An identical issue has been considered by Tribunal in assessee's own case for the assessment year 2015-16 in IT(TP) No.10/CHNY/2020, dated 17.09.2021, wherein the Tribunal following the earlier decision in assessee's own case for assessment year 2013-14 in ITA No.3192/Chny/2017, dated 01.09.2021, held that learned TPO as well as learned DRP were erred in making transfer pricing adjustments towards brand services by adopting Spearman's Rank Correlation method and concluded that there is positive accretion between brand value and market capitalization of HMC Korea and hence, directed the AO/TPO to delete transfer pricing adjustment made towards brand development services. Therefore, consistent with the view taken by the coordinate Bench, we direct the AO to delete addition made towards brand fee adjustment. 8. The next issue t....
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....e Hon'ble Jurisdictional High Court of Madras in the case of Marg Ltd Vs.CIT (2020) 120 Taxmann.com 84, has taken a similar view and held that disallowances under Rule 8D r.w.s 14A can never exceed exempt income earned by the assessee during particular assessment year. In this case, admittedly, exempt income for impugned assessment year was Rs. 57,826/-, whereas the Assessing Officer has determined disallowance u/s.14A at Rs. 86,54,491/- contrary to settled principle of law. Therefore, considering facts and circumstances of this case and also by following the decisions of Hon'ble Supreme Court and Hon'ble Madras High Court, we direct the Assessing Officer to restrict disallowances u/s.14A to the extent of exempt income earned for the impugned assessment year." In this view of matter and consistent with view taken by the Co-ordinate Bench, we direct the AO to restrict disallowance u/s.14A to the extent of exempt income earned for the impugned assessment year. 9. The next issue that came up for our consideration from ground no.5 of assessee appeal is disallowance of depreciation on capital subsidy. During the financial year 2002-03, the State Industrial Promotion Corporation of....
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....T. 10. The next issue that came up for consideration from ground No.6 of assessee appeal is disallowance u/s.43B(c) of the Act, in respect of performance incentive paid to employees. Facts with regard to impugned dispute are that for the financial year relevant to the assessment year 2016-17, the assessee has paid performance reward to employees in the cadre of executives and senior executives. The assessee has provided for expenses for the year ended March, 2016. However, payment was made only after due date of filing return of income for assessment year 2016-17. The Assessing Officer has disallowed performance incentive paid to staff u/s.43B(c) r.w.s. 36(1)(ii) of the Act, amounting to Rs. 1,54,58,594/- on the ground that as per section 43B(c), any sum referred to in clause (ii) of sub-section (1) of section 36, shall not be allowed as deduction, unless the same is paid on or before due date for furnishing return of income u/s.139(1) of the Act. The Assessing Officer further noted that as per section 36(1)(ii), any sum paid to an employee as bonus or commission for services rendered, where such sum would not have been payable to him as profit or dividend, if it had not been pa....
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....dmittedly, none of the employees of the assessee are covered under payment of Bonus Act, because all employees' salary is above threshold limit fixed under payment of Bonus Act. It is also an admitted fact that the assessee is paying performance incentive/reward to employees regularly and such incentive has been paid for services rendered by the employees. Therefore, it is necessary to examine performance incentive paid to employees in light of provisions of section 36(1)(ii) read with section 43B(c) of the Income Tax Act, 1961. As per section 36(1)(ii) of the Act, any sum paid to an employee as bonus or commission for services rendered, where such sum would not have been payable to him as profits or dividend, if it had not been paid as bonus or commission is allowable as deduction. The provisions of Section 43B(c) provides that any sum referred to in section 36(1)(ii) will not be allowed as deduction, unless actually paid. Therefore, from a combined reading of provisions of section 36(1)(ii) read with section 43B(c), it is seen that provisions of section 36(1)(ii) is not only covers for payment of bonus to staff, but it also applies to commission paid to the employees for services....
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....towards education and secondary education cess u/s.37(1) of the Act. 11.1 The ld.AR for the assessee submitted that this issue is covered in favor of the assessee by the decision of ITAT., Chennai in assessee's own case for 2015-16 in IT(TP)A No.10/Chny/2020, wherein the Tribunal by following the earlier Tribunal order for assessment year 2013-14 in ITA No. 3192/Chny/2017, where under identical circumstances, the Tribunal has remanded the matter to the file of the AO to consider the issue in accordance with law. 11.2 The learned DR, on the other hand, fairly agreed that this issue has been set aside to the file of AO for earlier years and hence, this year also the issue may be remanded back to the file of Assessing Officer. 11.3 Having heard both the parties and considered material on record, we find that the Tribunal had considered an identical issue for assessment year 2015-16 in IT(TP)A No.10/Chny/2020, wherein the Tribunal by following the earlier Tribunal orders 2013- 14 in 3192/Chny/2017, where the issue has been remanded back to the file of AO to consider the issue denovo on merits in accordance with law, set aside issue to the file of Assessing Officer. Facts being....
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....of Tribunal in assessee's own case for assessment year 2015-16, we set aside the issue to file of the AO and direct him to reconsider the issue in accordance with law. 13. The next issue that came up for our consideration from ground no.9 of assessee appeal is amount received from Focus Market Scheme to be treated as capital in nature and exclude from total income. Facts with regard to impugned dispute are that Government of India with an intention to promote exports to certain regions / countries introduced Focus Market Scheme which provides incentive of 2.5% of FOB value for each licensing year commencing from 1st April, 2006. The export of products to those countries which are covered under list of countries in Schedule 37C would be entitled for duty credit scrip equivalent to 2.5% of FOB value of exports. During the year under consideration, the assessee was eligible for above scheme, as it has export sales to specified markets. Accordingly, the assessee has received an amount of Rs. 1,74,21,68,524/- as incentive from Govt. of India. The license under the scheme was given only for exports to potential new markets / specified products and not for all exports or all products t....
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....of products to those countries which are covered under list of countries in Schedule 37C would be entitled for duty credit scrip equivalent to 2.5% of FOB value of exports. The assessee being eligible exporter had received licenses/duty credit scrip/ market linked focus scrips amounting to Rs. 150.57 crores for the year under consideration. The assessee has considered amount received under focus market scheme as revenue receipt and offered to tax. However, based on some subsequent decisions of appellate authorities has filed an additional claim seeking exclusion of said receipt from taxation on the ground that it is in the nature of capital receipt and not exigible for tax. Therefore, in order to understand whether amount received from Focus Market Scheme is revenue in nature or capital receipt, which is exempt from tax, one has to understand objectives of Focus Market Scheme announced by Govt. of India. As per Foreign Trade Policy document, the objective of the scheme is to offset high freight cost and other disabilities to select international market with a view to enhance our competitiveness to these countries. On the basis of objectives of the scheme alone, it can be easily con....
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....ed principles of law that any subsidy given for the purpose of offsetting part of cost of setting up of new industry, as per industrial policy of various State Governments or Govt. of India is considered as part of capital contribution and capital in nature, whereas subsidy given after commencement of production of products and further for enhancing profitability of the assessee is certainly in the nature of assistance given for running of business of the assessee more profitable and hence, it is definitely revenue in nature. 34. In this case, on perusal of facts available on record including foreign trade policy of Government of India, it is very clear from documents that main objective of Focus Market Scheme is to offset high freight cost and other disabilities of exporter to select international market with a view to enhance our export competitiveness to these countries. The expenditure incurred by the assessee under this scheme for exploring new market across the globe is mainly freight cost and other recurring expenses like sales promotion expenses, including manpower cost of staff employed in marketing department. Those expenses are generally in the nature of revenue....