TaxTMI 
TaxTMI 
2022 (8) TMI 482
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....eturn of income on 26th November, 2013 at a loss of Rs. 335,61,83,066/-, which was picked up for scrutiny and consequently draft assessment order was passed by the learned Assessing Officer, wherein the adjustment proposed by the learned Jt. Commissioner of Income-tax, Transfer Pricing-3(2), Mumbai by order under section 92CA(3) of The Act dated 31st October, 2016, was incorporated. The draft order was objected before Dispute Resolution Panel-3, Mumbai (DRP), who passed direction on 27th September, 2017 and consequently the impugned assessment order was passed wherein the income of the assessee was determined at Rs. 60,32,061/-. 04. Assessee is aggrieved with that order has preferred the appeal before us raising the following grounds of appeal:- Being aggrieved by the order passed by the Deputy Commissioner of Income tax Circle 2 (2) (2) Mumbai (DCIT, for short) the Appellant submits the following grounds of appeal for your sympathetic consideration Expenditure debited to Profit and loss account Rs. 4,78,71,842/ On the facts and in the circumstances of the case and in law the Appellant contends that the learned DCIT erred in proposing and the DRP erred....
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....ive and deleted the disallowance made by D.C.I.T. (Appellate order No. CIT(A)- 5.DIT2(2)/IT-96/2010-11 for Assessment Year 2007- 08 and Appellate order No. CIT(A)-5/JCIT(OSD) 2(2)/IT-252/2011-12 for Assessment Year 2008-9) The addition made by the learned DCIT/Dispute Resolution Panel being contrary to the provisiosn of law be deleted. 3. Disallowance under section 35(1)(i) and 35(1)(iv) of Rs.13,84,28,478/- On the facts and in the circumstances of the case and in law the learned DCIT erred in disallowing expenditure of Rs.13,13,40,403/- claimed under section 35(1)(i) and Rs.70,88,075/- claimed under section 35(1)(iv) rejecting the contention of the Appellant that the said expenditure was indeed incurred on scientific research and instead allowing only depreciation thereon at the rate of 25% resulting in net disallowance of Rs.10,38,21,359/-. The disallowance, based on an incorrect appreciation of facts be deleted. Without prejudice to the above and to similar contentions raised in this regard in earlier assessment years the learned DCIT be directed to allow depreciation at the rate of 25% in respect of the block of assets representing e....
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....entire backward trail of evidences to prove that no mark-up has been charged; commencing from consideration paid by appellant to its related party until the third party vendor cost details (including third party invoices) incurred by the related party for manufacturing of Heavy Commercial Vehicles ('HCVs'); factored in the transfer price. Further, the learned AO / TPO / DRP has erred in not limiting the transfer pricing adjustment to cost elements beyond the material cost, which are purely third party vendor costs charged on a back-to-back basis by MVML to the appellant. The learned AO / TPO / DRP erred in disregarding the entire additional evidence of the appellant and misapprehended the fact that profit before tax of INR 430.53 crores as generated by related party, was after debiting entire costs sustained by it, inclusive of expenses that were being claimed by the appellant on which no mark-up is paid. Incidentally, the learned AO / TPO / DRP failed to acknowledge the fact that the related party is also engaged in another business segment of manufacturing Light Commercial Vehicles ('LCV) which constitutes 90% of its total revenue and the bu....
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....se neither the appellant nor MVML avails tax holiday benefits. Furthermore, with regard to transaction under appeal herein, there were no other tax arbitrage opportunities arising as the appellant was a loss making entity contrary to MVML, a profit making entity. The learned AO/TPO / DRP failed to appreciate the appellant's reliance on principle laid down by the Supreme Court ruling in case of Glaxo Smithkline Asia (P) Ltd (2010/236 CTR (SC) 113). The learned AO / DRP failed to appreciate that the amendment in Section 92BA of the Income Tax Act, 1961, vide Finance Act 2017 (with effect from 1 April 2017, whereby clause (i) of Section 92BA is omitted, is deemed to be omitted from inception and on account of its omission, the impugned transaction would not fall within the definition of specified domestic transactions. The appellant places reliance on the Bangalore Tribunal verdict in case of Texport Overseas Private Limited v. DCIT [IT (TP) A No.1722/Bang/2017] wherein it ruled - "IT would be deemed that clause (i) of section 92BA of the Income Tax Act, 1961 was never on the statute as it has been omitted w.e.f. April 01,2017 vide Finance Act, 2017 and ....
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....de u/s 92CA (3) of the Act in in arm's-length price of Rs. 2,196,447,328/- of specified domestic transactions. She submitted that there is no provision which provides for determination of Arm's length price [ ALP] of the specified Domestic Transaction covered u/s 40 A (2) now as clause 92BA (i) is omitted By The Finance Act 2017 without any savings clause , total addition deserves to be deleted on this ground only. Therefore, she submitted that without going into the merits of the addition issue is squarely covered in favour of the assessee by the several judicial precedents. She submitted that decision of SMR Automotive Systems India Ltd versus Asst Commissioner of income tax in ITA number 6614/Del/2017 dated 30 June 2021 covers all those decisions. She referred to paragraph number 15 of the decisions wherein the issue first arose before the Bangalore bench in ITA (TP) number 1722/2017. She referred to paragraph number 16 further where the decision of the coordinate bench was confirmed by the honourable Karnataka High Court in ITA number 392/2018. She further referred to the decision of the coordinate bench in Amman India (private) Ltd versus ACIT (2022) 134 taxmann.com 10. The cr....
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....her provision dealing with the same contingency is introduced without a saving clause in favour of pending proceedings then it can be reasonably inferred that the intention of the legislature is that the pending proceedings shall not continue but fresh proceedings for the same purpose may be initiated under the new provision." 6. In fact, Co-ordinate Bench under similar circumstances had examined the effect of omission of sub-section (9) to Section 10B of the Act w.e.f. 01.04.2004 by Finance Act, 2003 and held that there was no saving clause or provision introduced by way of amendment by omitting sub-section (9) of section 10B. In the matter of General Finance Co. v. ACIT, which judgment has also been taken note of by the tribunal while repelling the contention raised by revenue with regard to retrospectivity of section 92BA(i) of the Act. Thus, when clause (i) of Section 92BA having been omitted by the Finance Act, 2017, with effect from 01.07.2017 from the Statute the resultant effect is that it had never been passed and to be considered as a law never been existed. Hence, decision taken by the Assessing Officer under the effect of section 92BI and reference made to the ....
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....ncement of the act, such amendment would not affect the ongoing investigation or legal proceedings. She submitted that coordinate bench ruled that the word 'repeal' includes 'ommission' and there is no merit in the objection raised by the taxpayer. She heavily relied on paragraph number 13 - 21 of that decision and submitted that the additional ground raised by the assessee may be dismissed. 014. Alternatively, she submitted that, if the decision of the honourable Karnataka High Court is followed, even then the provisions of Section 40A (2) of the act still exist on the statute book and therefore , transactions which are covered by the above provisions should be examined according to the rules of provisions of Section 40A (2) of the act. For this proposition she relied on the decision of M/s Sobha City (2021) 127 taxman.com 39 (Bangalore). Therefore, the issue needs to be remitted back to the file of the learned assessing officer to examine these transactions in accordance with provisions of Section 40A (2) of the act. 015. In response to that, the learned authorised representative submitted that decisions relied upon by the learned departmental representative are distinguish....
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....Texport overseas (supra) in favour of the assessee holding that as the provisions of Section 92BA (i) has been omitted from the Income Tax Act without any saving clause therefore the natural corollary would be that it did not exist at all in the statute book. Accordingly, we allow the additional ground of appeal and hold that the impugned transfer pricing adjustment of Rs. 2,196,447,328/- made by the learned assessing officer is not sustainable. 018. However we are also conscious that the provisions of Section 40A (2) of the act still exists in the statute book. The decision of the Texport overseas Ltd of the coordinate bench, which was partly challenged by the revenue before the honourable High Court, also held so. In that case, the coordinate bench held that the adjustment on account of examination of the arm's-length price of the specified domestic transactions is not valid because of deletion of the provisions of Section 92BA (i) of the act with effect from 1/4/2017 without any saving clause, but it held that provisions of Section 40A (2) of the act governs the allowability of those expenditure and therefore coordinate bench set-aside the matter back to the file of the learn....
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....unt of Rs. 4, 78,71,842/- as capital expenditure whereas the assessee says that expenses were incurred wholly and exclusively for the purposes of the business of the assessee, are revenue in nature and therefore are allowable as deduction u/s 37 (1) of the act. The learned assessing officer allowed the depreciation thereon at the rate of 25% and thereby disallowed Rs. 35,903,881/-. Assessee has incurred certain development expenditure, which was claimed as revenue expenditure. The justification given by the assessee during the course of assessment proceedings was that assessee company has set up a manufacturing facility for production of commercial vehicle across various tonnage category by setting up of a complete assembly line for rollout of vehicles comprising of 9 tons to 49 tons. In 2005, assessee has entered into the Master Service agreement wherein Mahindra and Mahindra Ltd and International truck and engine Corporation would be providing various services to the assessee. During the previous year assessee incurred expenditure of Rs 4,78,71,842 in the nature of research and development expenditure, personal cost, professional fees, rent charges and other administrative expens....
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....ehicles. It is setting up assembly line for manufacture of different models of the commercial vehicles. The assessee has sold vehicles of Rs. 651 crores during the year. It is just an expansion of the existing line of manufacturing of commercial vehicles. It is not the case that assessee has started a new business. The disallowance by the learned assessing officer is only because of matching principle, as revenue did not come from the setting up of new assembly line. However, the learned AO lost sight of the fact that assessee is showing substantial sales of heavy vehicles. Further, there is nothing, which has resulted into an enduring benefit to the assessee. In the present world, automobile companies are introducing 5 - 6 variants of different types of vehicles every year , due to frequent changes in the consumer demands as well as change in technology. Ld AO also incorrectly applied matching principle for making disallowance, as he over looked the same line of business of the asessee where sales of vehicles are shown. In view of this, expenditure incurred by the assessee on setting up of a new line of assembly for manufacturing of commercial vehicle when assessee is already enga....
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....the coordinate bench on identical facts and circumstances has held that No tax is required to be deducted on dealer's incentive. This decision of ITAT has been confirmed by honourable High Court vide order dated 6/2/2017. As revenue has filed a special petition before the honourable Supreme Court, which is pending for disposal, therefore panel upheld the action of the AO. Therefore, this is challenged as per ground number 2 of the appeal. 026. The learned authorised representative submitted that now the SLP filed by the Commissioner of income tax against the decision of the honourable High Court has been dismissed, therefore now the argument of the learned dispute resolution panel also does not survive. 027. The learned CIT DR supported the orders of the lower authorities. 028. We find that on identical facts and circumstances the honourable Bombay High Court in case of Mahindra and Mahindra Ltd [Income Tax Appeal Number 1148 of 2014 dated 6 February 2017] has while deciding the question number 2 (e) , that whether on the facts and in the circumstances of the case and in law, the tribunal was correct in holding that the dealers incentive is not covered by Section 194H as t....
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....s. 131,340,403/- Under the provisions of Section 35 (1) (i) and Rs. 7,088,075/- Under the provisions of Section 35 (1) (iv) of the act. The assessee stated that assessee has incurred product development expenditure during the year, which includes activities of comprising of concept and visibility, business case, design development validation, product readiness, customer trials, freeze development and start of production. To carry out these activities pertaining to product development a lot of application of basic engineering knowledge such as design, CAD CAM, validation etc is carried out. Assessee claims that it involves extension of knowledge in applied science for facilitating the business and therefore it qualifies as a 'scientific research' u/s 43 (4) of the Act. Therefore, it is allowable as deduction under the provisions of Section 35 (1) of the act. 030. The learned assessing officer held that the activities carried on by the assessee is not scientific research as assessee has failed to brought on record evidences to qualify the same for scientific research. Further, the assessee has failed to bring on record as to what research it is carrying on for the purposes of the ....
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....e expenditure is not capital in nature as per the finding of the learned DRP as it is small, these are otherwise allowable u/s 37 (1) of the act. In view of this, without going into the controversy whether the expenditure incurred by the assessee is on scientific research or not, the expenditure is allowable to the assessee either u/s 37 (1) of the act or u/s 35 (1) (i) of the act to the extent of expenditure incurred. Explanation of assessee shows that it is carrying on product development activities. It is also an activity for the extension of knowledge in the field of manufacturing of vehicles. In fact, the activities carried out by the assessee are activities for extension of knowledge in the field of the business of the assessee company. It is also not the case of the revenue that it is not related to the business of the assessee. Hence, these are expenditure incurred by assessee on scientific research in the field of manufacturing of vehicles . Therefore, we do not find any reason to uphold the action of the learned assessing officer. Accordingly we direct him to allow deduction u/s 35 (1) (i) of the act of Rs. 131,340,403/-. 035. Coming to the deduction u/s 35 (1) (iv) of th....
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....and stated that according to the decision of the honourable Supreme Court in case of Ponni sugar and chemicals Ltd [174 taxmann 87 ] 'purposes and object' of the scheme is required to be seen. However, the learned assessing officer rejected the contention of the assessee and held that the incentives given to assessee for the purpose of compensating for working in the backward areas and not for creating any capital asset. He further held that as assessee is not required to pay the amount of sales tax and assessee is not receiving any subsidy. He was also is of the view that as the benefit is available to assessee only on affecting the sales and therefore assessee is not entitled to any benefit merely because it has made investment in the plant in the backward areas but because of sale. Accordingly, he rejected the claim of the assessee and held that sales tax incentive received by the assessee is a revenue receipt and is chargeable to tax as business income. On objection before the learned DRP, wide para number 11.2, it upheld the view of the learned that AO. The learned DRP further held that assessee has also relied on the decision in the case of special bench however, the judgment....