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TaxTMI 
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2022 (6) TMI 1266
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....rence for higher degrees of comparability and a 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 Ld.CIT(A) was justified in holding that discount of Rs.23,88,025/- received on pre-payment of liability under the 'Sales Tax Deferral Scheme, as not a remission or cessation of liability u/s 41(1)? 4. Whether on the facts and circumstances of the case, the CIT(A) was justified in allowing expenditure of Rs.37,38,703/- incurred on interior work in Bangalore office which is capital in nature & not allowable u/s 30(i) of the IT Act & also the Ld. CIT(A) failed to apply the case of Laxmi Sugar & Oil Mills to this case. 5. Whether on the facts and circumstances of the case, the CIT(A) was justified in restricting the addition made out of miscellaneous expenditure of Rs.2,00,000/- to Rs. 1 lac ....
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....ustrial Tools. The return of income for A.Y. 2011-12 was filed on 29.11.2011 disclosing total return of income of Rs.280,05,60,374/-. The same was revised on 29.03.2013 declaring total income of Rs.278,47,90,766/-. The said return of income was selected for scrutiny assessment. On noticing that the respondent / assessee had reported the international transactions in Form No.3CB, the Dy. Commissioner of Income Tax, Circle - 8, Pune (hereinafter referred as the "Assessing Officer") made a reference to the Addl.Commissioner of Income Tax, Pune, (hereinafter referred as the "Transfer Pricing Officer (TPO)") u/s 92CA(3) of the Act for the purpose of determination of Arms Length Price (hereinafter referred as "ALP") in relation to the following international transactions : l.No. Description Amount (Rs) Method 1 Import of components and Spares 203,06,18,058 TNMM 2 Import of finished goods 247,53,51,918 TNMM 3 Export of Manufactured goods 144,48,44,205 TNMM 4 Import capital goods & spares 2,30,65,662 CUP 5 Payment of royalty 12,19,70,217 TNMM 6 Receipt of Sales commission 34,48,45,112 TNMM 7 Payment o....
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....unt of receipt of commission payment of Rs.8,23,00,000/-, the ld.CIT(A) following his order in respondent / assessee's own case for the earlier assessment years for A.Y. 2008-09, 2009-10 and 2010-11 deleted the T.P. adjustment. As regards to the disallowance of Rs.71 lakhs i.e., difference in prices of the products sold in AE and non-AE, ld.CIT(A) remitted the issue back to the file of Assessing Officer. As regards addition of Rs.23,88,025/- on account of pre-payment of sales tax deferred loan, the ld. CIT(A) following the decision of Hon'ble Bombay High Court in the case of CIT vs. Sulzer India Limited (2014) 369 ITR 717 (Bom) and the Hon'ble High Court of Karnataka in the case of CIT vs. McDowell & Co Ltd (2014) 369 ITR 684 (Kar) held that the provisions of section 41(1) of the Act have no application, accordingly, directed the Assessing Officer to delete the addition. 6. As regards to the disallowance of Repairs and Maintenance Expenses of Rs.37,38,703/-, the ld.CIT(A) following his order in assessee's own case for earlier years i.e., A.Ys. 2009-10 and 2010-11 had directed the Assessing Officer for the deletion of the same. As regards to the disallowance of Miscellaneous Expe....
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.....CIT(A) deleted the addition by holding that the methodology adopted by the TPO in comparing the controlled transaction with another controlled transaction is flawed by placing reliance on his order in assessee's own case for the earlier A.Ys. 2008-09, 2009-10 and 2010-11. 11. Before us, the ld.CIT DR had vehemently contested that the ld.CIT(A) ought not have granted relief to respondent / assessee on the ground that comparison of two controlled transactions cannot be made when no such method is barred by law. 12. On the other hand, Shri R. Muralidhar, learned counsel for assessee contended that the transaction of payment of royalty is at ALP. It is in accordance 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....
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....as per Rule 10A(d) of the Rules. Hon'ble Bombay High Court dismissed the appeal of Revenue on the following question of law by holding as under : "(d) We note that Chapter X of the Act is a special provision relating to avoidance of tax. Section 92 deals with computation of income from international transaction having regard to ALP. It provides any income arising from the international transaction shall be computed having regard to the ALP. The ALP is defined under Section 92F(ii) of the Act to mean a price which is applied or proposed to be applied in transactions between persons other than AE's in uncontrolled transactions. This is further supported by Rule 10A(d) where uncontrolled transaction has been defined as a transaction between enterprises other than with A.E's. whether resident or non-resident. In view of the above clear position in 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/cou....
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....CIL and the transacting AE, and generally depends on the size of the order procured as well as the price which the AE is able to negotiate with the customer, The consideration due to ACIL is mutually agreed between ACIL and the transacting AE, and generally depends on the size of the order procured as well as the price which the AE is able [Q negotiate with the customer." The appellant received commission of Rs.34.73 crores for rendering the indenting / marketing services to its A.E. The respondent / assessee applied the TNMM method in respect of this international transactions and sought to justify the transaction of receipt of commission is at ALP by applying the TNMM separately. There is no dispute as to the computation of the total profit arrived at Rs.230.02 crores attributed to both the manufacturing functions and marketing functions. However for the purpose of allocation of profits so arrived at Rs.230.20 crores between two segments i.e., manufacturing and marketing function, the depreciation and cost of material consumed were excluded from total 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 sinc....
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....annot be compared with the integrated marketing function of a fully integrated manufacturer. But the TPO had aggregated both the functions, however proceeded to benchmark the marketing function separately. We need not examine propriety of aggregating both the functions as the respondent / assessee is not objecting the same. The only bone of contention between the Department and the assessee is exclusion of the cost of material consumed and the depreciation in the total cost for the purpose of determining the percentage of marketing cost to the total cost. The reasoning given by the TPO that these two segments of the cost does not contribute to profit does not stand to any reason, in as much as the depreciation and the material actually contributes to the profits in the manufacturing segment. An identical issue was examined by the Co-ordinate Bench of this Tribunal in assessee's own case for A.Y. 2010-11 in ITA No.1353/PUN/2015, wherein the Tribunal following the decision in assessee's own case for earlier year i.e. A.Y 2005-06 allowed the claim by holding as under: "21....The identical issue was examined by the Co-ordinate Bench of the Tribunal in assessee's own case (ITA ....
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....se (f) of clause (1) of Rule 10(b) prescribing any other method was inserted with retrospective effect from 01.04.2013 is not applicable for the year under consideration. Therefore, the ratio of the jurisdictional Bombay High Court in the case of CIT Vs. Kodak India (P) Ltd., reported in (2017) 79 taxmann.com 362 (Bombay) is applicable in the present set of facts. In the case of CIT Vs. Kodak India (P) Ltd. (supra), the Hon'ble Bombay High Court has held as under : "10. We must also record the fact that the ALP was arrived at by the Transfer Pricing Officer (TPO) by not adopting any of the methods prescribed under Section 92C of the Act. The method to determine the ALP adopted was not one of the prescribed methods for computing the ALP. It was not even any method prescribed by the Board. At the relevant time, i.e. for A.Y. 2008-09 Section 92C of the Act did not provide for other method as provided in Section 92C(1)(f) of the Act. The impugned order of the Tribunal holds that the method adopted by the Revenue to determine the ALP was alien to the methods prescribed under Section 92C of the Act. In the above circumstances, the Tribunal declined to restore the issue to the As....
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....tax liability at Net Present Value (NPV) and during the year relevant to the year under consideration, the appellant made an application to the Dy. Commissioner of Sales Tax for prepayment of sales tax liability of Rs.1,89,66,384/- and the same came to be approved by the said authority vide letter dated 23.12.2010. The said difference between the sales tax liability and NPV of the said sales tax liability of Rs.23,88,025/- was not offered to tax claiming to be capital receipt. However, the Assessing Officer was of the opinion that the provisions of section 41(1) and 28(iv) of the Act have application to the facts of the case and accordingly, brought the difference amount of Rs.23,88,025/- to tax. However, on appeal, the ld. CIT(A) applying the ratio laid down by the Hon'ble Bombay High Court in the case of CIT vs. Sulzer India Limited (2014) 369 ITR 717 (Bom) and the Hon'ble High Court of Karnataka in the case of CIT vs. McDowell & Co Ltd (2014) 369 ITR 684 (Kar) held that when net value of the difference of sales tax had been paid, then the benefit is not arising from the business on account of statutory provisions and therefore, the provisions of section 28(iv) have no applicatio....
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....le in 2017, calculated the same and treated it as payment of deferred tax. 45. In dealing with the rival contentions, the High Court framed one identical substantial question of law as was dealt with by the Tribunal in the present case before us and held as under: "8. As per the incentive scheme announced by the Government of Maharashtra, the assessee entered into an agreement with the Governor of Maharashtra to avail the benefits under deferral/1993 scheme which provides for deferment of payment of taxes. This agreement not only determines the eligibility of the assessee but also lays down the terms and conditions under which the agreement exists. The quantification of this deferment was made by Sicom Limited, a Government of Maharashtra Undertaking, which was an agent for the package scheme of incentives. M/s. Sicom Limited quantified the entitlement of deferral of sales tax to the assessee. As against the total amount of Rs.20,21,64,149/- collected by the assessee towards Bombay Sales Tax and Central Sales Tax, the maximum entitlement of sales tax incentives by way of deferment was determined at Rs.13,78,41,600/-. The validity period of the deferral was determi....
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....d accordingly chargeable to income tax as the income of the previous year. Therefore, the assessee should obtain benefit, before it is deemed to be profits and gains of business or profession. 12. In the instant case, as per the scheme he was allowed to retain the sales tax as determined by the competent authority and pay the same 15 years thereafter. The tax collected was deemed to have been paid and, therefore, the tax so collected cannot be construed as income in the hands of the assessee. The tax so retained by the assessee is in the nature of a loan given by the Government as an incentive for setting up the industrial unit in a rural area. The said loan had to be repaid after 15 years. Again it is an incentive. However, by a subsequent scheme, a provision was made for premature payment. when the assessee had the benefit of making the payment after 15 years, if he is making a premature payment, the said amount equal to the net present value of the deferred tax was determined at Rs.4,25,79,684/- and on such payment the entire liability to pay tax/loan stood discharged. Again it is not a benefit conferred on an assessee. Therefore, Section 41(1) of the Act is not attract....
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....he decision of this Court in the matter of Solid containers Limited (supra) will have no application to the facts of the present case and the matter stands covered by the decision of this Court in the matter of Mahindra & Mahindra Limited (supra). The alternative submission that the amount of loan written off would be taxable under Section 28(iv) of the Act also came up for consideration before this Court in the matter of Mahindra & Mahindra Limited (supra) and it was held therein that Section 28(iv) of the Act would apply only when a benefit or perquisite is received in kind and has no application where benefit is received in cash or money. **" "** ** **" 49. These observations of the Division Bench have been reproduced only to distinguish the Judgment of an another Division Bench of this Court in the case of Solid Containers Ltd. (supra), which is relied upon by Mr. Gupta. 50. Further, our view finds support from the above observations. In Mahindra & Mahindra Ltd. (supra), the Bench speaking through His Lordship the Hon'ble Mr. Justice S. H. Kapadia, as his Lordship then was, held as under: " Alternatively, it was argued o....
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....eduction in earlier years they cannot be treated as trading liability. In the circumstances, section 41(1) was not applicable. This case applies to the facts of our case also. In the case of CIT v. A.V.M. Ltd. [1984] 146 ITR 355 (Mad), it has been held by the Madras High Court that every deposit money does not constitute trading receipt. That, although such a receipt may be in connection with business, it could not be dealt with by the assessee as a receipt of its trade. Therefore, the amounts referable to loans received for purchase of capital asset would not constitute a trading liability and accordingly section 41(1) was not attracted. In our case, the most fundamental fact which is required to be borne in mind is that there was no deduction given to the assessee in earlier years and, therefore, Rs.57,74,064 could not be include as income under section 41(1) of the Act. Lastly, it is important to bear in mind that the toolings constituted capital asset and not stock-in-trade. Therefore, taking into account all the above facts, section 41(1) of the Act is not applicable. In the circumstances, the above questions are all answered in the affirmative, i.e., in favo....
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....orresponding benefit to the state. That opportunity is granted by deferring the remittance of the Sales Tax collected by the unit like the Assessee. In that regard, we have perused the compilation of admitted documents placed on record by Shri. Dastur. From a perusal thereof, it is apparent that the Government Resolution dated 4th May, 1983 evolves a package of incentives to disperse the industries from BombayThane-Pune belt and to attract them to underdeveloped and developing areas of the State of Maharashtra. This package evolves several measures to achieve this object. Then, there is a New Package Scheme of incentives, 1988. Both Schemes have clauses and paras containing Sales Tax deferral incentives. To carry this object further and also to achieve the purpose of early remittance of deferred Sales Tax collected by the units availing of the Schemes, the statutory option was incorporated in section 38 by substituting the 4th proviso to subsection 4 of section 38 of the Bombay Sales Tax Act, 1959. That is informed by the Trade Circular dated 12th December, 2002 issued by the Commissioner of Sales Tax, Maharashtra. A combined reading of the Schemes and this Circular reveals the leg....
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....section 38 of the Sales Tax Act was amended which provides that where the NPV of deferred tax as may be prescribed was paid, the deferred tax was deemed to have been paid. Taking advantage of this Scheme, the assessee made repayment of Rs. 3,37,13,393/- against the total liability of Rs. 7,52,01,378/-. In this manner, the assessee could save a sum of Rs. 4,14,87,985/-. The issue is as to whether this amount, which the assessee could save, is to be treated as 'income' by applying the provisions of Section 41 of the Act. The Assessing Officer treated it as the revenue receipt and thereby income. Contention of the assessee is that it is a capital receipt, which is accepted by the High Court. 9. In a very detailed and exhaustive judgment rendered by the High Court, it has discussed the view taken by the Assessing Officer, which was confirmed by the Commissioner of Income Tax (Appeals). Thereafter, the High Court noted in detail the manner in which the Tribunal has dealt with the issue. A perusal of the judgment would show that the High Court took into consideration the provisions of Section 41 of the Act and the conditions which are required to be satisfied for bringin....
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.... Assessee can be said to have been benefited and as claimed by the Revenue. The argument of Mr. Gupta is not that the Assessee having paid Rs. 3.37 crores has obtained for himself anything in terms of section 41(1), but the Assessee is deemed to have received the sum of Rs. 4.14 crores, which is the difference between the original amount to be remitted with the payment made. Mr. Gupta terms this as deemed payment and by the State to the Assessee. We are unable to agree with him. The Tribunal has found that the first requirement of section 41(1) is that the allowance or deduction is made in respect of the loss, expenditure or a trading liability incurred by the Assessee and the other requirement is the Assessee has subsequently obtained any amount in respect of such loss and expenditure or obtained a benefit in respect of such trading liability by way of a remission or cessation thereof. As rightly noted by the Tribunal, the Sales Tax collected by the Assessee during the relevant year amounting to Rs. 7,52,01,378/- was treated by the State Government as loan liability payable after 12 years in 6 annual/equal installments. Subsequently and pursuant to the amendment made to the 4th pr....
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....ident that the expenditure is incurred on interior work, electrical work and painting etc. The Assessing Officer capitalized this expenditure and allowed the depreciation at 5% and the balance amount of Rs.96,776/- was disallowed. 28. On appeal before ld.CIT(A), the ld.CIT(A) deleted the addition by holding that no new asset was brought into existence and no enduring benefit was accrued to the assessee as a result of this expenditure. 29. Being aggrieved by the order of ld.CIT(A), the Revenue is in appeal before us. 30. Before us, the Ld. CIT DR vehemently contested that the decision of the ld.CIT(A) holding the expenditure incurred on rented premises as revenue in nature is contrary to the Explanation 1 of Sec.32 of the I.T. Act and submitted that in view of the plain provisions of the Act, the expenditure cannot held to be revenue in nature. 31. On the other hand, the learned counsel for the assessee submitted that no new asset came into existence as a result of this expenditure and the expenditure incurred is only revenue in nature and Explanation 1 to Sec.32(1) was inserted by the Finance Act has no application to the expenditure as it was incurred only on revenue i....
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..... 35. On appeal before ld.CIT(A), ld.CIT(A) following his order in assessee's own case in the earlier years in A.Ys. 2008-09 and 2009-10, restricted the disallowance to Rs.1,00,000/-. 36. Being aggrieved by the order of ld.CIT(A), the Revenue is in appeal before us. 37. Before us, the learned CIT DR vehemently contested that there is no basis to restrict the disallowance to Rs.1,00,000/-. 38. On the other hand, the learned counsel for the respondent / assessee contested that no disallowance can be made on adhoc basis without rejecting the books of accounts. 39. We heard the rival submissions and perused the material on record. During the course of assessment proceedings, the respondent / assessee company could not furnish the evidence, bills, vouchers etc to the extent 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. 40. In ground No.6, the Rev....