TaxTMI 
TaxTMI 
2022 (4) TMI 1499
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....al and bad in law and the report submitted by the special auditor is illegal, bad in law and without jurisdiction. 2. That the special auditor has erred on facts and in law in scrutinizing and auditing those issues which are not part of the terms of reference and has exceeded his jurisdiction in making observations about those issues in the audit report submitted. 3. That in view of the facts and circumstances of the case and in law the A.O. has erred in completing the assessment U/s 143(3)/l44C at Rs. 10,04,09,220/- as against returned income of Rs. 2,45,71,610/- (after disallowing deduction under chapter VIA). The additions made are unjust, unlawful, bad in law, without jurisdiction and are also highly excessive. On Transfer Pricing 4. That the reference made to the TPO is illegal and bad in law and the order passed u/s 92CA(3) is illegal, bad in law and without jurisdiction. 4.1 That in view' of the facts and circumstances of the case and in law the AO /TPO has erred on facts and in law in making addition of R.s. 64,48,052/- (Rs.9,23.713/- + Rs. 32,86,303/- + 22,38.036/-) on account of adjustment in international transactions carried out with associate enterpri....
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....d personal expenses. Disallowance of Deduction of Bad Debts 8 That in view of the facts and circumstances of the case and in law the A.O./D.R.P has erred in not allowing the deduction of 17,82,951/- claimed as bad debts by the appellant while computing the income under the Income Tax Act, 1961. Disallowance U/s 40a(ia) on Account of Non/Short Deduction of TDS 9 That in view of the facts and circumstances of the case and in law the A.O./DRP has erred in holding that the assessee has not deducted TDS or there is a shortfall in deduction of TDS while making payment to various concerns and further held that the same is to be disallowed under section 40a(ia) to the tune of Rs 2,66,21,033/- (Rs.7,26,890/- + Rs. 2,58,94,143/-) and the addition of Rs. 3,15,46,346/- has been made. 9.1 That the DRP has in view of the facts and circumstances of the case has erred in law and on facts in holding that identical issues has come up for their consideration in appellant's case for A.Y. 2008-09. 9.2 That the addition of Rs. 7,26,890/- on account of short deduction of TDS is illegal, bad in law, unjust and highly excessive. 9.3 That the addition of Rs. 2,58,94,143/- on account of non d....
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....hmarked the said transaction applying TNMM. For application of TNMM profit over sales earned by the assessee from sales made to AE is computed with profit over sales earned from sales made to unrelated third parties in export and domestic market and the same is available at page 59 of the paper book which can be summarized as under: AE/ Non-AE Brands OP/ Sales AE - KUSHA (USA) ROYAL BRAND 16.88% OTHER BRAND 13.51% AE - NICE ALL BRAND 9.24% Average 16.08% NON-AE BASMATI (EXPORT) 10.76% NON-BASMATI (EXPORT) 4.44% DOMESTIC RICE (ALL BRANDS) 2.23% AVERAGE 6.26% 12. On the basis of the above analysis, under TNMM, the said transaction was considered to be at arm's length price by the assessee. 13. We find that during the course of TP assessment proceedings, the TPO required the assessee to provide comparison of price of goods sold to its AE vis-a-vis sales made to unrelated third parties on daily basis. 14. Details were submitted. From the details submitted by the assessee, the TPO picked up three transactions wherein the price charged by the assessee from the AE was lower than the price charged in the sales made to non-AEs. We find that though th....
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....f 5% is required to be computed qua arithmetical mean of the ALP determined by the TPO was changed to arm's length range of 5% required to be computed qua transaction price. 20. Similar view was taken by the coordinate bench in the case of DDIT Vs. Development Bank of Singapore 155 TTJ 265 wherein the coordinate bench has held that benefit of range of +/- 5% is available not only to a situation where more than one price is determined as ALP by the most appropriate method but also where only one price is determined as ALP. 21. In light of the amended provision, let us now consider the transaction of export of rice undertaken by the assessee with its AE and the same is as under: Party Date FOB Val UE (IN RS.) Av. Rate ( In RS/ MT) Uncontr OLLED party date FOB Value (In RS.) Av. Rate (in RS/ MT) Comparison Difference in amounT % OF difference Nice int. 08.03. 2007 1552 14 38803 Palm Rose 17.07. 2007 160764 401 91 -1387 5550 -3.58% Nice Int. 08.03. 20017 8854 1 44270 DashMesh 08.08. 2007 278111 444 97 -227 455 -0.51% khus HA CORP 28.02. 2008 3962 606 47507 Van SILLEVEOldt 0303.2008 573520 0 477 93 -286 17852 -0.60% 22. It can be see....
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....e us, the learned counsel vehemently stated that the transaction of issue of loan to the AE is undertaken by the assessee in foreign currency i.e US dollars. Therefore, the rate of interest on such loan for the purpose of application of CUP should be considered to be foreign currency lending by unrelated parties which is LIBOR rate of interest. 31. Strong reliance was placed on the decision of the Hon'ble Delhi High Court in the case of Cotton Naturals (I) Pvt Ltd ITA No. 233/2014. 32. Per contra, the ld. DR strongly supported the findings of the TPO and vehemently stated that since the loan was given by an Indian company, SBI PLR should be adopted. 33. We have carefully considered the rival submissions. The Hon'ble Delhi High Court in the case of Cotton Naturals [supra], while discarding the application of PLR of SBI on foreign currency denominate loan, observed as under: "39. The question whether the interest rate prevailing in India should be applied, for the lender was an Indian company/ assessee, or the lending rate prevalent in the United States should be applied, for the borrower was a resident and an assessee of the said country, in our considered opinion, must be answ....
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....is transaction. Ground No. 8.3 is allowed. 36. Second part relates to receivables against expenses incurred on behalf of Nice International Inc and LT Overseas Inc. While imputing interest rate of 17.26%, the TPO has also applied the same on the receivables outstanding against routine expenses incurred by the assessee on behalf of its AE. 37. Facts on record show that the assessee has given advance to employees/directors travelling abroad and also facilitated payment of certain expenses on behalf of the AE. The said payment of expenses by the assessee were for a very short period of time and were adjusted against similar expenditure incurred by AE on behalf of the assessee. 38. We are of the considered view that such payment of expenses are done under normal business circumstances during regular course of business and should not be considered as loan. Our view is fortified by the OECD guidelines, wherein at para 1.648 has mentioned as under: "1.64 A tax administration's examination of a controlled transaction ordinarily should be based on the transaction actually undertaken by the associated enterprises as it has been structured by them, using the methods applied by the ta....
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.... some time lag, beyond the period agreed to between the parties that is 25 days to 120 days. Such details are at pages 24 to 30 of the TPO order. 42. The TPO recharacterised the delay in receipt of receivables as unsecured loans advanced to the AE and imputed notional interest @ 7.26% and, accordingly, proposed adjustment of Rs.28.57 lakhs which was upheld by the DRP. However, the DRP directed the TPO to consider the rate of interest at 12.72% being PLR of interest by SBI. 43. Pursuant to the directions of the DRP, final adjustment was made at Rs. 21,05,962/-. Before us, the learned counsel placed strong reliance on the decision of the Hon'ble jurisdictional High Court of Delhi in the case of Kusum Healthcare Limited ITA No. 765/2016 and also relied upon the decision in the case of Avenue Asia Advisors 398 ITR 120. 44. The learned counsel further pointed out that interest cost has also been suitably factored in sale price as operating profit margin of the assessee is much higher than operating margin of the comparable companies. 45. The ld. counsel for the assessee further stated that the assessee is also in receipt of remittances against sale of rice from unrelated 3rd parties....
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....t no interest was charged from receivables from non-AES, we are of the considered view that this adjustment is unwarranted and, accordingly, direct the Assessing Officer to delete the addition of Rs. 21,05,962/-. Ground No. 8.4 is, accordingly, allowed. 51. Ground Nos. 8.5 and 8.6 become otiose. 52. Ground No. 9 relates to denial of deduction u/s 80IB(11A) of the Act amounting to Rs.12,34,19,871/-. 53. Facts on record show that this is not the first year of claim, but, in fact, is the fifth year of claim, which means that this claim was allowed/ considered in the earlier Assessment Years. 54. We find that for the first time, claim was made in Assessment Year 2004-05 which was allowed by the Assessing Officer. Thereafter, in the reassessment proceedings, claim was reduced by the Assessing Officer. 55. Similar fate was in Assessment Years 2005-06 and 2006-07. The said assessments were completed u/s 153A of the Act. Assessment orders for Assessment Years 2004-05 to 2006-07 were quashed by the Tribunal as the same were based de hors any incriminating material. 56. However, in Assessment Year 2007-08, this issue has been decided on merits by this Tribunal in ITA No. 4046/DEL/2013 ....
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....ating to the tax holiday provided by the Legislature, we find that the deductions are available under various provisions when the assessee has contributed something towards the infrastructure development of the country, but the main purpose of bringing this provision is construction of godowns specifically for stocking food grains for greater efficiency in the grain management system and minimize post-harvest food grain losses. XXXXX XXXXX 39. In this context, it is necessary to look at the activities conducted by the assessee in their integrated business of handling, storage and transportation of the food grains in furtherance of the above object of enhancing the food security by achieving the greater efficiency in the grain management system and minimizing the post-harvest food grain losses. If the unit of the assessee at Bahalgarh strives to achieve these objectives, it would certainly be entitled to the benefit of deduction under section 80IB(11A) of the Act. We are of the considered opinion that for this 27 purpose we will have to keep it in mind that the incentive is provided for the integrated business of handling, storage and transportation of food grains with this....
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....st losses, developed huge storage capacity to handle paddy stock of more than 1,50,000 Metric Ton (MT) and 70,000 MT of rice in order to bring efficiency in the grain management system and incurring significant expenditure to facilitate transportation of food grains by way of acquiring trucks, tractors and trolleys and has also hired trucks for the purposes of carrying food grains from the farmers and mandis to its storage blocks and thereafter to the markets, followed by upgradation and modernization of infrastructure for handling of food grains in order to bring greater efficiency in the storage and grain management system and minimize postharvest food grain losses. Assessee also brought it to the notice of the learned Assessing Officer that the special auditors in the report at pages number is 30 and 31 part II volume 5 observed that the condition that the assessee should be engaged in the business of handling, storage and transportation of food grains was fulfilled. 42. Revenue does not dispute any of the activities carried by the assessee or installing the machinery Per treatment and processing of the 29 Paddy, setting up of storage facilities or hiring of trucks for transp....
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....h handling includes any process not amounting to manufacture of the treatment of the product with a view to deal with the 31 same to achieve a desired purpose. In a sense it includes all the activities preparatory and axillary in nature. Merely because the word processing is occurring in 80IB(11A) of the Act in respect of the fruits or vegetables, it does not exclude all the processes from meaning of "handling". As stated supra, there are various steps involved in minimizing the post-harvest losses as per the recommendations of the Agricultural Marketing Information Network. If we exclude the specific activities like storage and transport, all other activities which are preparatory, axillary and sundry in nature, but in furtherance of the avowed object of better grain management and minimizing the post-harvest losses to achieve food security would naturally fall within the category of handling otherwise, such an expression will remain redundant. It cannot be said that the intermediary processes undertaken by the assessee in clearing, steaming, soaking, drying, polishing and grinding besides de-husking the paddy would significantly enhance the life of the food grain , reduces the lo....
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....e benefit under section 80IB(11A) of the Act and such a view is consistent so far. Without mincing many words, while following the ratio of those cases, we are of the considered opinion that the activities involving the cleaning, steaming, soaking, drying, polishing, grinding etc.are covered by the expression "handling" and the assessee is certainly conducting such activities which would entitle to the benefit of deduction under section 80IB(11A) of the Act. XXXX XXXX 53. As we have stated above, we will have to test the expression "handling", occurring in section 80IB(11A) of the Acton the touchstone of the object sought to be achieved through such incentive, namely, achieving the enhanced food security by way of greater efficiency in the grain management system by minimizing the post-harvest food grain losses. It is an undeniable fact that traditionally pounding was the way in which the paddy was converted to the form of rice by separating the husk and brawn. It is also common knowledge that that in that process there used to be quantitative and qualitative losses, caused by the breaking of the grains etc. By dehusking the paddy and converting it into rice, no new articl....
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....ered the contention of the assessee that the entire machinery used the as eligible unit at Bahalgarh was new one and not old machinery was used and observed that the learned Assessing Officer , without mentioning the instances of old plant and machinery being used by Bahalgarh unit, presumed that the plant and machinery for Bahalgarh unit used prior to 1/4/2001 and was transferred such old machinery for the new unit. Ld. CIT(A) also referred to the special audit report wherein it was observed that for the purpose of examining the question whether the unit at Bahalgarh had started with effect from October 2002, examination of the stock registers, unit-wise books of accounts and sales tax 45 registration certificate in respect of Bahalgarh unit took place, and it was only after examination of all these things the special auditors concluded that the assessee was engaged in the business of handling, storage and transportation of food grains and such business was eligible for a deduction under section 80IB(11A) of the Act. 58. It is, therefore, clear that there is no material was either examined by the Learned Assessing Officer before reaching the conclusion as to the uses of old mac....
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.... 14A of the Act r.w.r 8D of the Rules, the Assessing Officer disallowed Rs. 53,26,986/- after deducting suo moto disallowance of Rs. 16,13,813/- by the assessee. 61. In so far as the share of profit from partnership firm is concerned, in Assessment Year 2007-08, this Tribunal in ITA No. 4164/DEL/2013 vide order dated 30.09.2020 has deleted the disallowance. The relevant findings read as under: "95. We have gone through the record, in the light of the submissions made on either side. It could be seen from the assessment order, vide paragraph number 11, there were made the report of the special auditor as the basis for the disallowance, special auditor worked out the total disallowance under section 14A of the Act read with Rule 8D of the Rules at rupees, 41, 80, 208/-, but in view of the provisions of section 14A of the Act, he restricted the disallowance to the exempt income and determined the same at Rs.18,18,915/-. Nowhere in the order, assessing officer had considered the accounts of the assessee as to what could have been the expenditure, that has to be allocated for earning the exempt income. 96. Even otherwise, we find strength in the ornament of the Ld. AR that in order....
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....s of directors is concerned, we find that the DRP has made the following observations: "We have carefully considered the issue, the reasoning of the AO for making the disallowance and the submissions of the ARs. The expenditure on travel of the wives and the directors abroad when they have accompanied the directors in business towards is an allowable expenditure. The AO is directed to allow the expenditure on the travel of the wives of the directors when they have accompanied the directors on foreign visits after verification........" 68. The Assessing Officer is bound to follow the directions of the DRP. We, accordingly direct the Assessing Officer to follow the directions of the DRP and decide the issue accordingly. The Assessing Officer is further directed to consider the decision of this Tribunal in assessee's own case in ITA No. 4164/DEL/13 for AY 2007 - 08. Ground No. 11 is partly allowed. 69. Ground No. 12 relates to the disallowance of expenditure holding same as capital expenditure and not allowing deduction of Rs. 1,96,66,561/- 70. The underlying facts relating to this issue are that during the year under consideration, the assessee incurred expenditure aggregating ....
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....d the target company Kusha Inc for acquisition to help expand export sales of the assessee in USA. 77. Facts on record show that the assessee made total export sales of Rs. 48,94,90,338/- to USA out of which substantial sales to the tune of Rs. 28,56,81, 443/- was made to Kusha Inc. 78. We find from the record the export sales of the assessee company increased threefold as under: Sl. No. F.Y Total Sales in USA Total; Sales to Kush Qty (MT) Amt (Rs.) Qty (MT) Amt (Rs.) 1. 2005-06 6,045 22,14,30,118 - - 2. 2006-07 8,660 23,31,44,515 - - 3. 2007-08 10,517 48,94,90,337 5,382 28,56,81,443 4. 2008-09 30,302 214,15,16,554 30,043 212,27,95,268 5. 2009-10 34,712 197,97,79,599 34,672 197,65,64,872 6. 2010-11 28,392 145,17,32,209 28,372 145,01,47,997 79. In our considered opinion, the impugned expenditure was incurred by the assessee for the purpose of running business more efficiently with a view to enhance profit in regular course of business. It would be pertinent to mention here that the impugned expenditure was not incurred by the assessee for acquisition of Kusha Inc. But, the expenses....
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....xpansion, as the expenditure incurred may or may not result in the acquisition of the capital asset itself, it is for the very purpose of finding out the prudence or feasibility of acquiring the asset, the assessee seeks an expert opinion on that and an expenditure incurred for such purpose and, therefore, in our considered view, this expenditure can never partake the character of 'capital expenditure' but is only a 'revenue expenditure' and the Tribunal has rightly allowed this amount as 'deductible expenditure' though has not spelt out the reason either elaborately or succinctly in its order. Be that as it may, we answer question No. 9 relatable to paragraph No. 37 of the memorandum of appeal in ITA No. 492 of 2001 in favour of the assessee and against the revenue" (emphasis supplied). 82. From the above mentioned judgement, it can be seen that any expenditure incurred on obtaining professional advice/consultancy which is inherently nature in nature, is allowable, as business deduction, even if such professional services have been obtained in connection with acquisition of a capital asset. 83. The Hon'ble Karnataka High Court in the case of Senapati Whi....
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....e or have the share allotted to the petitioner in lieu of the transfer of assets, these assets would have continued with the assessee as the business assets of the assessee. Therefore, the answer to the question referred to us has to be necessarily in the affirmative. It is also clear that mica paper is a product consumable by the assessee or could be marked along with other articles produced by the assessee and mica paper belonged to the broad group of those other articles manufactured by the assessee. The test of interconnection between the two businesses is satisfied here." 85. Considering the facts in totality, we are of the considered view that the expenditure amounting to Rs. 1,71,61,328/- incurred on due diligence and advisory reports prior to acquisition of Kusha Inc deserves to be allowed as revenue expenditure. We, accordingly, direct the Assessing Officer to allow the same. 86. Second part of the disallowance is of Rs. 25,05,323/- which is ground 12.2. 87. The underlying facts are that the assessee had business relations with M/s Lucky House, Hyderabad and Lucky House Hyderabad started using 'Daawat' trademark which resulted in dispute between the assessee and the....
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....ssessee filed complete documentary evidence in support the impugned amount which were sought to be disallowed under section 40(a)(ia) of the Act. Detailed breakup of the expenditure is as per the following chart: Sl. No Nature of payment As per AO Remarks 1. Freight 1,54,78,051 Reimbursement of freight Charges of paddy paid by party on behalf of assessee - Amount paid is below taxable limit. 2. Labour Charges 12,68,886 Reimbursement of Labour Charges of Paddy Season Purchase for Loading/Unloading paid by party on behalf of assessee to various labour contractors in mandi - Amount paid is below taxable limit 3. Market Development Charges 8,38,180 Payment was made to non-resident as market development charges. No income deemed to accrue or arise in India as per section 9 of Act, since Asian Television Network Inc. does not have any permanent establishment in India. 4. Rail Freight 10,55,582 Payment made to Container Corporation of India Limited towards rail freight - Section 194C not applicable. Similar disallowance made in AY 2007-08 deleted by CIT(A) and not further appeal preferred by Revenue. 5. Steamer Freight 25,91,443 Steamer freight charges paid ....
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....curred towards purchase of powder used for fire extinguisher and since it is a purchase item there is no liability for TDS. 107. Disallowance on clearing and forwarding charges of Rs. 7,65,850/- and bonus paid to farmer of Rs. 6,06,576/- are confirmed. 108. In so far as legal and professional charges of Rs. 9,91,621/- is concerned, the same is set aside to the file of the AO. The assessee is directed to furnish details and demonstrate that the recipients have shown the income in their respective returns of income and the AO is directed to verify the same and decide the issue afresh. 109. Similarly, expenses incurred for service charges, AMC etc amounting to Rs. 4,59,658/- is also set aside to the file of the Assessing Officer with similar directions. Rs. 84,758/- has been claimed as casting error. There is no liability of TDS on such accounting error. With the above observation Ground No. 13 with all sub- grounds is partly allowed. 110. Other grounds relates to charging of interest under section 234A, 234B and 234D of the Act. Since there is no delay in filing of returns, there cannot be any levy of interest for delay in filing of returns. Advance tax has to be considered on th....
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....ses in view of order u/s 92CA(3) of the Transfer Pricing Officer I (3) and DRP has erred in not deleting the said adjustment. 8.2 That the addition of Rs. 23,857/- on account of export of goods is illegal, bad in law, unjust and highly excessive. 8.3 That the addition of Rs. 5,48,065/- on account of arm's length interest on loans to AE's is illegal, bad in law, unjust and highly excessive. 8.4 That the addition of Rs. 21,05962/- on account of interest on account receivables from AE's is illegal, bad in law, unjust and highly excessive. 8.5 That without prejudice and in the alternative the A.O. ' T. P. O. and subsequently D.R.P. has erred in law and on facts in not allowing/directing the deduction / adjustment to the arm's length price of 5% range as the assessee has the right to exercise this option u/s 92C. 8.6 That without prejudice the interest on loans to AE's already charged in the books of accounts has not been considered by the A.O. / T.P.O. and the same has not been reduced while making the addition / adjustment. Disallowance of Deduction U/s 8016(11 A) 9. That in view of the facts and circumstances of the case and in law the A.O. has erred in holdi....
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....5,323/- paid to lucky house was to eliminate the competition. 12.4 That without prejudice and in alternative the AO/D.R.P. has erred in not allowing depreciation on Rs. 1,96,66,651/- (Rs. 1,71.61,328/- + Rs. 25,05,323/) which is alleged to be expenditure of capital in nature. Disallowance U/s 40a(ia) on Account of Non/Short Deduction of TPS 13. That in view of the facts and circumstances of the case and in law the A.O./DRP has erred in holding that the assessee has not deducted TDS or there is a shortfall in deduction of TDS while making payment to various concerns and further held that the same is to be disallowed under section 40a(ia) to the tune of Rs 3,15,46,346/- (Rs. 18.44,145/- + Rs. 2,97,02,201/-) and the addition of Rs. 3,15,46,346/- has been made. 13.1 That the DRP has in view of the facts and circumstances of the case has erred in law and on facts in holding that TDS was deductible from payment of room rent to the hotels and covered by the definition of rent for the purpose of deduction of TDS. 13.2 That the addition of Rs. 2.92,02,201/- on account of non deduction of TDS is illegal, bad in law, unjust and highly excessive. 14. That the explanations giv....
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.... For our detailed discussion therein, the Assessing Officer is directed to allow the claim of deduction u/s 80IB(11A) of the Act. Ground No. 5 with sub-grounds is allowed. 120. Ground No. 6 relates to disallowance made u/s 14A r.w.r 8D of the Rules. 121. The underlying facts in this issue are that during the year under consideration, the assessee has received income aggregating to Rs. 4,60,06,679/- in respect of which exemption was claimed u/s 10 of the Act. The said income comprises of : i) Share of profit in partnership firm M/s Raghunath Agro Industries, Amritsar -Rs. 1,22,40,470/- ii) Dividend income from shares of listed companies - Rs. 3,37,66,209/- 122. The assessee suo moto disallowed Rs. 1,00,52,604/- u/s 14A r.w.r. 8D. Disallowance has been computed by the assessee as under: S. No. Particulars Amount 1 Direct expenditure - 2 Interest expenditure incurred during the year attributed in the ratio of average value of investments resulting in exempt income to average value of total assets [35,03,43,431 * 18,49,67,190/ 7,09,94,39,881] Rs.91,27,768 3 'A % of average value of investments [0.5% * 18,49,67,190] Rs.9,24,836 Total Rs.1,00,52,694 123....
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....e value of investment is concerned, since the assessee has suo moto disallowed Rs. 1,00,52,694/-, further disallowance is not necessary and the Assessing Officer is directed to delete the disallowance of Rs. 20,47,187/-. Ground No. 6 is, accordingly, allowed. 131. Ground Nos. 7 and 8 are not pressed. The same are dismissed as not pressed. 132. Ground No. 9 relates to disallowance made u/s 40A(ia) of the Act. 133. The underlying facts in this issue are that the Assessing Officer disallowed a sum of Rs. 2,58,94,143/- on account of non deduction of TDS and Rs. 7,26,890/- on account of short deduction of TDS. 134. The break-up of the disallowance made by the Assessing Officer can be understood from the following chart: Sl. No. Nature of payment As per AO Remarks 1 Freight charges paid on purchase of Paddy & Rs.1,66,40,816 Reimbursement of freight Charges of paddy paid by party on behalf of assessee - Amount either paid is below taxable limit. 2 Labour Charges Rs.9,58,753 Only reimbursement of labour charges to Aarthiyas. TDS provisions are not applicable 3 Steamer Freight Rs.31,95,770 No expenditure is booked in our books, payment made on behalf of third party. Acco....