TaxTMI 
TaxTMI 
2022 (12) TMI 168
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....ules, 1962 and conducting a fresh economic analysis for the determination of the arm's length price in connection with the international transaction of Provision of Security support services. (b) Not providing the detailed search process undertaken for identifying comparable companies (c) Considering those companies as comparable that are functionally different from the Appellant for the international transaction of provision of Security support services (d) by erroneously computing the margins of some of the comparable companies identified by the learned TPO (e) By not adding the comparable companies identified by the Appellants with comparable companies identified by the learned TPO (f) By not considering the +/- 5% variation from the arm's length price permitted to the Appellant under the proviso to section 92C(2) of the Act. (g) By ignoring the provisions of Rule 10B(3) of the Income-tax Rules, 1962, which envisage usage of multiple year data of comparable companies for the purpose of determination of the arm's length price and using single year data for computing arms length price. GROUND NO. 2 ....
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....ty on account of pension payable under the erstwhile Voluntary Retirement Scheme of F.Y. 1992-93 (hereinafter referred to as pension) in respect of the workers of the appellants of their erstwhile Bhandup unit in computing the appellants total income. The learned AO erred in invoking the provisions of section 35DDA in disallowing the above amount. (b) Without prejudice the learned AO erred in not allowing deduction for Rs 2,92,95,739/ being the amount of actual payment on account of Pension as consistently done in the past (c) Without prejudice to the above, the appellants submit that the learned AO be directed to allow actual payment out of Rs. 2,92,95,739/- to the extent it relates to the provision created during the year ended 31 March, 1993, but disallowed in assessment as per assessment order for A.Y 1993-94. GROUND NO. 9 (a) The learned AO erred in disallowing amount of Rs. 1,94,42,427/- on the ground that year end estimates of expenses are excess provision. (b) Without prejudice to the above, the appellants submit that consistent with the department's stand, the AO ought to have held that the deduction be allowed in a....
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....while computing the business income. 4. Assessee has further raised modified and additional ground of appeal which are reproduced below: - "On the facts and in the circumstances of the case, the Appellant wishes to raise the following additional ground of appeal which is independent of the other grounds of appeal: Modified Ground No. 1(c) in relation to transfer pricing adjustment in relation to provision of security support services: (c) The learned TPO/ learned AO have erred in law and in facts by including the following additional companies which are not comparable to the Appellant: • Tamil Nadu Ex-Servicemen's Corpn. Ltd; • Apitco Ltd., • Rites Ltd., • Vapi Waste & Effluent Mgmt. Co. Ltd. • WAPCOS Ltd., (Seg) Additional Ground No 16 - Deduction of Education Cess paid on Income-tax: 16. The Appellant prays that the liability for education cess on Income-tax paid for the current year ought to be allowed as business expenditure under Section 37(1) of the Act while computing the business income. 5. Ld. Counsel for the assessee submitted that the above additional g....
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....3 Best Mulakayan Consultants Ltd 12.84% 4 Choksi Laboratories Ltd 29.18% 5 Genins India T P A Ltd 9.11% 6 ICRA Management Consulting Services Ltd 4.18% 7 ICRA Online Limited 26.78% 8 IDC India Limited 15.31% 9 India Cements Capital Ltd 42.46% 10 Indus Technical & Financial Consultants 14.05% 11 Mecon Ltd 11.80% 12 NIS Sparta Ltd 1.84% 13 Informatics Ltd 6.54% 14 Rites Ltd 31 52% 15 Sanco Trans Ltd 20.62% 16 Technicom-Chemie (India) Ltd 13.43% 17 Vapi Waste & Effluent Management Co. Ltd 47.53% 18 WAPCOS Ltd 58.98% Arithmetic mean 22.49% 9. TPO proposed an adjustment of Rs..1,91,754 based on difference between ALP @ 22.49% and entity level margin of the Assessee at 15%. The DRP confirmed the addition proposed by the TPO. Against the final order passed pursuant to DRP directions, the assessee preferred an appeal before the Tribunal. 10. In regard to modified Ground No. 1(c) Ld. AR submitted as under: - "Government Companies accepted by the TPO (to be excluded from the comparable list) as they cannot be compared to e....
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....f the Factual Paper-book) Functionally different- WAPCOS provides consulting in the domestic and international water and power sectors. From the perusal of the website of the company, www.wapcos.gov.in. it can be seen that Wapcos Ltd is a government company with a Mini-Ratna I status. Further the vision statement of the company reads as 'to be a premier consultancy organisation recognized as a brand in water, power and infrastructure development for total project solutions in India and abroad. 11. In this regard, reliance is placed on following decisions, in which it held that Government companies cannot be considered as comparable to entrepreneurial companies like Assessee. • Novartis Healthcare Pvt. Ltd (ITA 7643/M/2012) dated 30 April 2015 (Page no. 566 to 592 of Legal Paper-book dated 2 December 2021) • Thyssen Krupp Industries India (P) Ltd (385 ITR 612) (Bombay HC) [Page no. 593 to 597 of Legal Paper-book dated 2 December 2021) • Jacobs Engineering India (P.) Ltd (109 taxmann.com 298 (Mumbai)) (Page no. 598 to 601 of Legal Paper-book dated 2 December 2021) • International SOS Services India Pvt Ltd (ITA No. 1631....
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....e direct the AO/TPO to compare the assessee's margin at segmental level and not at entity level. The assessee claimed that the segmental level margin is at 15.50%. The assessee has disputed only three comparables selected by the TPO and seeking exclusion of these three from the set of comparables of the TPO. We will discuss these three comparables as under: i) Rites Ltd. The Revenue has not disputed that Rites Ltd. is a government company established under the Ministry of Indian Railways and is providing the services in the field of architecture and planning, bridge and tunnel engineering, construction project, electrical engineering etc. to the government organizations and public section undertakings. The functions performed and carried out by Rites Ltd. are entirely different from the functions and services provided by the assessee to its AE. The assessee is providing the support service in the field of pharmaceutical and medical support service, therefore on the face of it, this company cannot be a functionally comparable with the assessee. An identical issue has come up before Delhi Benches of this Tribunal in the case of "Nortel Networks India Pvt. Ltd." (supra) where....
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....t. Ltd." (supra) Delhi Benches of this Tribunal have considered the functional comparability of this company in para 6.1 as under: "6.1. Coming back to the issue of comparability the inclusion/ exclusion of Vapi and WAPCOS, the ITAT in the cases of M/s MCI Com India P. Ltd. and M/s Verizon India P. Ltd. (supra) has held that companies like EIL, Rites, Wapsos and TCE are engineering companies and provide end to end solutions and therefore they cannot be compared with those assessee who were into providing marketing support services to the parent company. They were held to be functionally not comparable with thee engineering companies. The case of Vapi also falls on the same footing. Therefore, respectfully following the order of the ITAT in the cases of M/s MCI Com India P. Ltd. and M/s Verizon India P. Ltd. (supra) and Estel in ITA no.584/Banglore/06 we are of the view that Vapi and WAPCOS are functionally not comparable to the assessee. Therefore, they are to be excluded. The issue of turn over does not arise in this case. In view of these facts, the matter will go back to the file of AO /TPO who will determine the T.P. adjustments by excluding Vapi and WAPCOS comparables....
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....mparability of the other companies which are not disputed by the assessee before us. 9. In view of the above observations and findings, we direct the TPO/AO to recompute/determine the arms length price after exclusion of three companies as discussed above. The assessee has claimed that after the exclusion of these three companies the mean margin of the remaining comparables comes to 18.03% in comparison to the segmental level margin of the assessee at 15.50% which is in the tolerance range of + 5%, therefore it is claimed that no adjustment is called for. The TPO/AO is directed to consider this aspect at the time of recomputation of the arms length price. 17. Respectfully following the above said decision, we direct the TPO/Assessing Officer to recompute/determine the arms length price after exclusion of three companies as discussed in the above decision. The assessee has claimed that after the exclusion of these three companies the mean margin of the remaining comparables comes to 17.92% in comparison to the segmental level margin of the assessee at 15% which is in the tolerance range of + 5%, therefore it is claimed that no adjustment is called for. The TPO/Assessing ....
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.... below. 21. Considered the rival submissions and material placed on record, we observed that similar issue was considered and adjudicated by the Coordinate Bench in assessee's own case for the Assessment Years 1997-98 to 2001-02. The Coordinate Bench in ITA.No. 3379/Mum/2009 dated 30.04.2021 for the A.Y. 2001-02 decided the issue in favour of the assessee, while holding so the Coordinate Bench held as under: - "3.7 We find that this issue has been adjudicated in Tribunal's order for AY 2000-01, para nos. 22 to 24. In para-24, the bench observed that newly inserted explanation 2A by Finance Act, 1999 w.e.f. 01/04/2000 to Sec. 43(6) was not considered by the lower authorities and therefore the matter was restored to the file of Ld. AO for de-novo adjudication. However, the assessee sought rectification of the directions vide MA No.43/Mum/2018. The Ld. Judicial Member concurred with the submissions that Explanation 2A to Sec. 43(6) would not have any application to assessee's case for the year under consideration since demerger happened in previous year relevant to AY 1997-98 and in the current year, depreciation was to be allowed automatically on the opening written down ....
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....osition of the assets within the block. This exercise has to be done every assessment year. In the given case, it is fact on record that the impugned assets are not in existence with the organization. The ITAT has come to the conclusion in A.Y.2000-01 interpreting the provisions as applicable at that point of time. In our view the assets in the block has to be evaluated every assessment year and as per provision 43(6)(C)(B), it clearly indicates that the value has to be reduced of the moneys payable in respective of any assets falling within that block which is sold/discarded/demolished or destroyed. In the given case, the block does not consist the assets, which are transferred in the demerger in the A.Y. 1997-98. However, these particular assets are not in existence in the beginning of the year and it can be considered as discarded in the provisions with "NIL" value. This issue needs to end some point of time. In that case, the value of the assets has to be written off this year and to be claimed as loss in the statement of income (instead of depreciation). Therefore, we are inclined to direct the Assessing Officer to treat the opening balance of the assets to the extent of asset....
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.....No. 3379/Mum/2009 dated 30.04.2021. For the sake of clarity, relevant ratio is reproduced below: - "4.3 We find that this issue has been adjudicated in paras 26 & 27 of Tribunal's order for AY 2000-2001 order dated 07/07/2017. The bench, noting the decision of Hon'ble Bombay High Court in assessee's own case for AY 1997-98, decided this issue in assessee's favor. Facts being identical, respectfully following the consistent stand of Tribunal, we dismiss ground no.2 of revenue's appeal which makes ground no.1 of assessee's cross-objection as infructuous." 27. On a careful reading of the above order of the Tribunal, we observe that Coordinate Bench decided the issue in favour of the assessee by following the decision of the Hon'ble Bombay High Court in the case of Geoffrey Manners & Co. Ltd. (supra). Since the issue is exactly similar and grounds as well as the facts are also identical, respectfully following the above decision in assessee's own case for the A.Y. 2001-02, we allow the ground raised by the assessee. 28. Coming to Ground No. 4 which is in respect of disallowance of expenditure incurred on computer software/license fees for an amount of Rs..46,92,440/....
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....4.2021. For the sake of clarity, relevant ratio is reproduced below: - "8.1 The assessee incurred an amount of Rs.27.31 Lacs towards purchase of various computer software packages as detailed in the assessment order. Majority of the expenses consisted of license fee or use of Microsoft packages (excel sheet, word document, power point presentation etc.) and Oracle software for developing accounting software at C & F locations. The assessee submitted that software expenses were for software packages which get frequently outdated and have to be replaced and therefore, the expenditure was revenue in nature. The assessee further stated that operating software is treated as capital expenditure whereas application software which gets outdated early, is revenue in nature. However, following the stand taken in AYs 1995-96 to 2000-01, the expenditure was said to be enduring in nature and thus capital expenditure. Accordingly, depreciation of 25% was allowed against the same. The action of Ld. AO resulted into an addition of Rs.20.48 Lacs. Consequently, similar depreciation of earlier years for Rs.18.98 Lacs was allowed to the assessee disregarding the depreciation on assets pertain....
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.... part of valuation of closing stock, Ld. AR relied on various orders of ITAT in assessee's own case for the Assessment Years 1997-98 to 2001-02. 35. Ld.DR vehemently supported the orders of the authorities below. 36. Considered the rival submissions and material placed on record, we have perused various orders of the Coordinate Bench in assessee's own case for the Assessment Years 1992-93 to 2001-02. We further observe that on identical issue Coordinate Bench decided the issue in favour of the assessee in assessee's own case for the A.Y. 2001-02 in ITA.No. 3379/Mum/2009 dated 30.04.2021. For the sake of clarity, relevant ratio is reproduced below: - "5.3 We find that this issue is squarely covered in assessee's favor by the various decisions of Tribunal right from AYs 1992-93 to AY 2000-01. The Ld. CIT(A) has also followed the appellate orders of earlier years. Therefore, this adjudication in the impugned order, on this issue, would not require any interference on our part. Ground No.3 of revenue's appeal stand dismissed which render ground no.2 of assessee's cross objections infructuous." 37. On a careful reading of the above order of the Tribunal, we observe tha....
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.... a. The CIT(A) erred in disallowing Rs.41,14,400/- being 20% of total foreign traveling expenses. b. Without prejudice to above, the appellants submit that in case foreign travel expenses are held as capital in nature, depreciation should be allowed on such expenditure." 7. At the outset, the learned Counsel for the assessee took us through the Para 9 of the assessment order which reads as under: - "9. The assessee has claimed foreign travelling expenses as part of its total travelling expenditure. In the assessment orders for A.Y 93-94 onwards, 25% of foreign Travelling expenses incurred by the assessee have been disallowed on the ground that the assessee has not proved that the time and energy spent by the Directors and executives on the foreign tour was devoted wholly and exclusively for assessee's business and not in connection with the business of the parent foreign company or the foreign shareholders. In A.Y 91-92, 94-95 & 95-96 addition on the above issue was also confirmed by the CIT(A) at 20% of the total foreign tour expenses. Considering the above, and on the facts for this year. 25% of foreign travel expense claimed at Rs.2,05,72,000/- ....
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....following the above decision in assessee's own case for the A.Y. 2000-01, we allow the ground raised by the assessee. 43. Coming to Ground No. 7 which is in respect of disallowance of hotel and air fare expenses of foreign visitors for an amount of Rs..3,91,564/-. Ld. AR submitted that the assessee receives foreign visitors coming to India for attending board meetings, management specialists, etc. These personnel are either from group companies or are third parties who come to India in order to conduct discussions on the company's business, finance, technical matters, etc. However, since AY 1995-96 and onwards, said expenses have been disallowed by the Assessing Officer during the assessment proceedings on the grounds that such visits are in connection to the business of the parent company and not the Assessee's. The same position has been followed for the captioned assessment year wherein the Assessing Officer has disallowed the hotel and air fare expenses of foreign visitors. 44. In support of the assessee contention that expenses on Foreign visitors is incurred for purpose of business and hence, allowed as revenue expenses, Ld. AR relied on various orders of ITAT in as....
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....rlier years, in view of the fact that the assessee has not proved that the expenses were wholly and exclusively for the purpose of its business and considering the reasons recorded in earlier assessment years, the total amount of Rs.1,54,201/- is disallowed as being non-business expenditure." 12. The learned Counsel for the assesse, in view of the above observation of the AO argued that this being a historic issue, the revenue is consistently disallowing this expense from AYs 1995-96 to 1999-2000 and the Tribunal allowed the claim of foreign visitors expenses consistently in all these years and he similarly referred to the order of Tribunal in ITA No.498/Mum/2003 whereby vide Para 40 & 41 of the Tribunal's order the issue was allowed as under: - "40. Ground no. 9 relates to the disallowance of total air fare expenses incurred on foreign visitors, this issue has been discussed by the AO at page 36 vide para 17 of his order. The AO has followed the findings of A.Y. 1994-95 and disallowed the entire expenditure incurred on foreign visitors. When this addition was challenged before the CIT(A), the CIT(A) considered the grievance of the assessee at para 17 of page 36 o....
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....submitted that during the captioned assessment year, the assessee has claimed incremental VRS pension liability of Rs..22,17,950 in connection with its Bhandup unit. Payments made in relation to the VRS Scheme during the captioned AY amounted to Rs.2,92,95,739. The claim of the assessee is being disallowed by the Assessing Officer during the assessment proceedings since A.Y. 1993-94 onwards on the ground of it being an unascertained contingent liability. The same position has been followed for the captioned assessment year wherein the Assessing Officer has disallowed the Assessee's claim for incremental VRS pension liability. The Assessing Officer has further made reference to the provisions of section 35DDA of the Act, introduced with effect from 1st April 2001, and observed that claim for expense is possible only in case of payment under a VRS Scheme and not at the time of creation of a provision. The Assessee's argument that the provisions of section 35DDA of the Act are applicable only to VRS Schemes instituted after 1 April 2001 has also been rejected by the Assessing Officer. However, the Assessing Officer has allowed claim of Rs..1,94,75,823 being 1/5th of the payments made ....
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.... is reproduced below: - "6.1 The assessee claimed an amount of Rs.253.73 Lacs towards incremental VRS (Voluntary Retirement Scheme) for Bhandup unit which was on the basis of actuarial valuation. As held in earlier years, the liability was a contingent liability. Similar disallowance made in AY 199394 was confirmed by Ld. CIT(A). Similar disallowance was in assessment order for AYs 1994-95 to 2000-01. However, actual payment of VRS payment made during relevant year was to be allowed. In this year, assessee made payment of Rs.417.76 Lacs which was to be allowed whereas the claim of Rs.253.72 Lacs as per actuarial valuation was to be disallowed. The said adjustment resulted into net relief of Rs.164.04 Lacs to the assessee. 6.2 The Ld. CIT(A) noted that in appellate order for AYs 1998-99 to 2000-01, Ld.AO was directed to allow the deduction of incremental liability of VRS and also allow that part of actual payment made during the year relating to the provision created during financial year 1992-93 but disallowed in AY 1993-94. Similar directions were given by Ld. CIT(A) for this year, against which revenue is in further appeal before us. 6.3. We find that t....
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....s, Annual Awards Function, etc. Payments against the provisions during the captioned AY amount to INR 18,76,66,388. From the balance, excess provision for Central Sales Tax/ VAT expenses, provident fund contribution and bonus amounting to Rs..1,51,22,225 have been suo-moto disallowed by the assessee. The remaining excess provision of Rs..1,60,35.464 (representing meager 7.33% of the total provisions) has been disallowed by the Assessing Officer during the assessment proceedings. Further, the Assessing Officer has allowed relief of Rs..2,39,05,469 being excess provision disallowed in AY 2007-08 reversed in the captioned AY and made further disallowance of Rs..48,269 being short provision of AY 2007-08 paid in the captioned AY but allowed in AY 2007-08. The Assessing Officer has failed to appreciate that the adjustments made in relation to the year-end provision are tax neutral since disallowance/ allowance for year 1 is allowed/ disallowed in year 2. 56. In support of contention that provisions on best estimate should be allowed as deduction Ld. AR relied on following case laws: - (i). Rotork Controls India (P) Limited (314 ITR 62)(SC) (ii). JCIT vs ITC LTD (112....
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....ranty. Therefore, the warranty became an integral part of the sale price; in other words, the warranty stood attached to the sale price of the product. In this case the warranty provisions had to be recognized because the assessee had a present obligation as a result of past events result ing in an outflow of resources and a reliable estimate could be made of the amount of the obligation. Therefore, the assessee had incurred a liability during the assessment year which was entitled to deduction under section 37 of the Income-tax Act, 1961. The present value of a contingent liability, like the warranty expense, if properly ascertained and discounted on accrual basis can be an item of deduction under section 37. The principle of estimation of the contingent liability is not the normal rule. It would depend on the nature of the business, the nature of sales, the nature of the product manufactured and sold and the scientific method of accounting adopted by the assessee. It would also depend upon the historical trend and upon the number of articles produced. A provision is a liability which can be measured only by using a substantial degree of estimation. A provision i....
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.... contention: (i). Maxopp Investment Limited (402 ITR 640) (SC); (ii). Godrej & Boyce Manufacturing Company Ltd. (394 ITR 449) (SC); (iii). Reliance Capital Asset Management Ltd. (ITA No 487 of 2015) (dated 19 September 2017) (Bombay HC) affirmed by SC (98 Taxmann.com 361 (SC); (iv). Sociedade De Fomento Industrial (P.) Ltd. (ITA No 34 of 2014); (v). Bombay Stock Exchange Ltd. (ITA No 1017 of 2017) (Bombay HC); (vi). Tata Industries Limited (ITA 67, 68, 278 and 299/Mum/2018) (Mumbai Tribunal) 64. Ld. AR further submitted that no additional disallowance under section 14A is warranted, since, Assessing Officer has failed to record satisfaction for making disallowance under section 14A of the Act. 65. Ld.DR vehemently supported the orders of the authorities below. 66. Considered the rival submissions and material placed on record, we observe that Ld. AR submitted that Assessing Officer has not recorded satisfaction even though assessee has suomoto disallowed certain expenditure. However, we observe from the Assessment Order that Assessing Officer has clearly considered the submissions of the assessee relating to the 14A and....
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.... 14A disallowance and discussed specifically why he has imposed 14A in this case. There is no specific format for recording satisfaction. However, the Hon'ble Supreme Court in the case of Mak Data P. Ltd., v. CIT [(2013) 358 ITR 593 (SC)] held that Assessing Officer is not required to record his satisfaction in a particular manner or reduce it with writing (even though on the issue of section 271(1)(c) of the Act). In our considered view, as per the Assessment Order, the reasons recorded by the Assessing Officer in Para No. 11.3 and 11.4 for invoking Rule 8D are proper satisfaction and the cases relied by the assessee are distinguishable. Accordingly, this ground is dismissed. 68. Coming to Ground No. 11 of grounds of appeal which is in respect of addition of unutilized CENVAT credit to the closing stock u/s. 145A of the Act for an amount of Rs..1,16,67,603/-. At the time of hearing, Ld.AR submitted that this ground is not pressed. In view of the submissions of the Ld. AR, this ground is dismissed as not pressed. 69. Coming to Ground No. 12 of grounds of appeal which is in respect of short grant of TDS Credit, Ld.AR submitted that assessee has filed rectification applicat....