TaxTMI 
TaxTMI 
2022 (6) TMI 1266
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.... 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 on adhoc basis, when the onus to prove the genuineness of the expenses was not d....
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....f 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 of commission 2,64,67,023 TNMM 8 Provision of on-site engineering 29,86,247 TNMM 9 Provision of Administrative support services 98,65,458 TNMM 10 Provision of Pr....
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....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 Expenditure of Rs.2,00,000/- on adhoc basis, ld.CIT(A) confirmed the disallowance only to the extent of Rs.1,00,000/-. Regarding to the disallowance of commission expenditure of Rs.42,53,300/-, ld.CIT(A) following his own order in respondent / assessee's own case for the earlier assessment years 2010-11 and 2012-13 had deleted the addition. On the issue of addition u/s 14A, the ld. CI....
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....ssessee 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 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....
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....on 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/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 assess....
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....nting / 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 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 7.38%. Then TPO proceed....
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....he 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 No.736/PUN/2011 dt.05.08.2019) for A.Y. 2005-06 wherein it was held as under : "14.......As the transaction is that of earning commission, ideally, the benchmarking 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 assesse....
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....lso 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 Assessing Officer for re-determining the ALP by adopting one of the methods as listed out in Section 92C of the Act. This finding of the Tribunal has also not been challenged 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 9....
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....s 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 application. It was further held that the same does not fall within the ambit of cessation of liability thereby coming within purview of provisions of section 41(1) of the Act in view of the decision of Hon'ble Bombay High Court in the case of CIT vs. Sulzer India Limited (supra) and in the case of CIT vs. Colgate Palmolive (India) Limited (159 taxmann.com 139) and accordingly, directed the Assessing Officer to delete the addition of the same. 23. Having aggrieved by the decision of ld. CIT(A), the Revenue is in appeal....
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....t 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 determined as 1.4.2002 to 31.3.2017, thereby the assessee could retain the amount of sales tax collected to the extent of Rs.13,78,41,600/- up to 31.3.2017. Accordingly, a certificate of entitlement was issued by the Deputy Commissioner of Sales Tax (Incentives and Enforcement) dated 1.4.2002. consequent to the assessee opting for the scheme of deferment of sales tax, an amount of Rs.13,78,41,600/- was deemed to have been paid for the purpose of Section 43B of the Act and, therefore, while concluding the assessment for the assessment year 2003-04, ....
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....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 attracted to the facts of this case. Hence, the Tribunal was justified in holding that there is no liability to pay tax. Under these circumstances, we do not see any error committed by the Tribunal in passing the impugned order. The substantial question of law is answered in favour of the assessee and against the revenue." 46. We respectfully concur with the above view of the High Court of Karnataka. 47. Once we concur, then, we do not deem it necessary to deal with the other Judgments cited by Mr. Dastur. They are essentially cited so as to urge that what has taken ....
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....ation 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 on behalf of the Department that in this case waiver constituted remission of trading liability and, therefore, section 41(1) stood attracted. We do not find any merit in this argument. Firstly, in the present case, the prerequisite of section 41(1) is not applicable. In order to apply section 41(1), an assessee should have obtained a deduction in the assessment for any year in respect of loss, expenditure or trading liability incurred by the assessee. In this case, the assessee has not obtained such allowance or deduction in respect of expenditure or trading liability. It is not disputed that the assessee has paid i....
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....1(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 favour of the assessee and against the Department. This disposes of Reference Application No. 1709 of 1982 filed by the Department." 51. In the final analysis, we find that Mr. Gupta can derive no assistance from the Judgment of Polyflex India (P.) Ltd. (supra). There, the Assessee paid excise duty on certain goods. Pursuant to the decision of the Customs, Excise and Gold Control Appellate Tribunal, a sum of Rs.9,64,206/- was refunded in September, 1988. The Excise Department filed an Appeal to the High Court but it was dismissed. A Petition for special leave to Appeal before the Hon'ble Supreme Court was filed, but fate of t....
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....ses 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 legislative intent as noted above. In such circumstances, a proper understanding of all this by the Tribunal cannot be termed as perverse. The view taken by it is imminently possible. Once this conclusion is reached, the other Judgments cited by the Revenue are obviously distinguishable and on facts. 53. As a result of the above discussion, we find that the questions of law formulated by us and termed as substantial will have to be answered in favour of the Assessee and against the Revenue. Those are answered accordingly. The Appeals are dismissed. Insofar as Income Tax Appeal No. 909 of 2012 is concerned, at page 4 of the paper book in that Appeal, t....
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....epted 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 bringing a particular receipt as "income" within the ambit thereof and found that those conditions are not satisfied in the present case. The High Court also repelled the contention of the Revenue that the assessee obtained the benefit of reduction of sales tax liability under Section 43B of the Act as per the CBDT Circular No. 496 dated 25th September, 1987. The relevant portion of the discussion in this behalf reads as under: "It is not possible to agree with Mr. Gupta. Because, premature payment of Sales Tax already collected but its remittance to the Government, as Mr. Gupta envisages, is not covered by this provision else the subsections and particularly section 43B(1) would have....
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....uirement 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 proviso to section 38 of the Bombay Sales Tax Act, 1959, the Assessee accepted the offer of SICOM, the implementing agency of the State Government, paid an amount of Rs. 3,37,13,393/- to SICOM, which, according to the Assessee, represented the NPV of the future sum as determined and prescribed by the SICOM. In other words, what the Assessee was required to pay after 12 years in 6 equal installments was paid by the Assessee prematurely in terms of the NPV of the same. That the State may have received a higher sum after the period of 12 years and in installments. However, the statutory arrangement and vide section 38, 4th proviso does not amount to remission or cessation of the Assessee'....
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....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 items like painting, flooring etc. 32. We have heard the rival submissions and perused the material on record. The issue in the present ground of appeal relates to the allowability of expenditure incurred on items interior decoration, etc on the rented premises which are used for the business purpose of the assessee. The 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 (AM was author of the said order), wherein after making reference to the provisions of Explanation (1) to section 32 and the decisions of Hon'ble Madras High Court in the cases of CIT Vs. ETA Travel Agency Pvt. Ltd., reported in (2019) 109 taxmann.com 66 (Madras) and....
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....vidence, 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 Revenue challenges the decision of ld.CIT(A) deleting the addition of commission expenditure of Rs.42,53,300/-. 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.19,51,19,803/-. Out of which, the assessee could not furnish the confirmations from the parties to the extent of Rs.42,53,300/-. Therefore, the Assessing Officer dismissed the same. 41. On appeal before ld.CIT(A), ld.CIT(A) following his earlier decision for the assessment years 2008-09 and 2010-11 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....