TaxTMI 
TaxTMI 
2023 (1) TMI 1248
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....ered by the assessee with its Associated Enterprises (AEs) had exceeded the prescribed limit, hence, the matter was referred to the Transfer Pricing Officer (TPO) to determine the Arm's Length Price (ALP) of the said transaction. The TPO passed order u/s 92CA of the I.T.Act on 19.10.2016. In the said order, the TPO had proposed following adjustments:- Manufacturing segment Rs.307,69,14,132 Technical service provided to AEs (ITES) Rs.3,08,20,552 Marketing Service Charges receivable from AEs Rs.1,28,28,101 Warranty charges received / receivable from Dell India Rs.141,37,00,000 Total Rs.453,42,62,785 3. Pursuant to the TPO's order, the draft assessment order was passed u/s 143(3) r.w.s. 144C of the I.T.Act on 23.12.2016. In the said draft assessment order, the assessee incorporated the TP adjustment proposed by the TPO and also made certain corporate tax additions / disallowances. 4. Aggrieved by the draft assessment order, the assessee filed objections before the Dispute Resolution Panel on 24.01.2017. The DRP vide its directions dated 20.09.2017 disposed of the objections raised by the assessee. The DRP granted partial relief to the assessee. The assessee got relie....
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....tters with respect to the ad hoc adjustments proposed for the manufacturing segment and warranty charges. * The order passed by the Ld. AO is bad in law in so far as not following the directions issued by the Ld. DRP, which are binding on the Ld. AO, without considering the provisions of section 144C(10) of the Act. 2.Determination of arm's length price by the Ld. TPO in relation to the Manufacturing Segment * The Ld. DRP and Ld. AO/ Ld. TPO erred in rejecting the value of international transaction of manufacturing activity, as recorded in the books of account, at an arm's length price amounting to INR 160,511,692 on net basis. * The Ld. DRP and the Ld. AO/ Ld. TPO erred in determining a* new arm's length price in substitution of the arm's length price determined by the Appellant, thereby undertaking a transfer pricing adjustment of INR 3,076,914,132 on total turnover of this segment. * The Ld. AO / Ld. TPO erred in adjusting the entire manufacturing segment based on mere surmises and conjectures and completely ignoring the Appellant's submission that the transfer pricing adjustment, if any, should be made only to the international transactions wi....
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....bitrarily proposing an adjustment on account of warranty cost in relation to the marketing support services, to the tune of INR 121.27 Crores, which is one-third of total warranty expenses, without considering the facts of the Appellant. The Ld. DRP erred in confirming the same. * The Ld. TPO and Ld. AO erred in not following the directions of the Ld. DRP for the previous years and arbitrarily applied a mark-up of INR 12.10 Cr to the adhoc warranty cost allocated. The ld.DRP erred in confirming the same. * Without prejudices to the above grounds, the Ld. TPO and Ld. AO did not take cognizance of the details filed by the Appellant in connection to the direct sales made in India by its associated enterprise viz. Dell Global B.V., The Netherlands, Singapore Branch CDGBV'). * The Ld. TPO and Ld. AO further erred in not restricting the TP adjustment in proportionate to the DGBV sales made in India. The Ld. DRP erred in confirming the same. * Without prejudice to the above grounds, the Ld. TPO inadvertently erred in determining the arm's length price of INR 141.37 Cr and made an excess transfer pricing adjustment of INR 8 Cr on account of arithmetical inaccuracy. 4....
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....le DRP and learned AO has erred in upholding that the provisions of section 194H is applicable on such rebate and volume discount. * The Hon'ble DRP and the learned AO ought to have considered the judicial precedents, wherein it has been held that the provisions of TDS are not applicable on rebate and volume discount. * The Hon'ble DRP and learned AO has erred in stating that the transaction is not on principal-to-principal basis merely because the distributor is a reseller. * The Hon'ble DRP and learned AO ought to have appreciated that rebate is offered to distributors who purchase a predetermined quantity and the same is not paid as commission to sales agent. * The Hon'ble DRP and learned AO has also erred in stating that the ownership of the distributor is temporary without appreciating that once the Appellant sells the goods, the title is passed on to the distributor and any unsold goods would not be returned to the Appellant. * The Hon'ble DRP and learned AO has erred in stating that there is a service component in the course of buying and selling of goods for which commission/ rebate is provided. * The Hon'ble DRP and learned AO has ....
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....above contention, we submit that should the said deferred revenue be taxed in the current year, corresponding relief ought to be provided in the future years, wherein the same is offered to tax. 4. Disallowance of claim under section 40(a)(i)/40(a)(ia) of the Act - Rs. 215,109,398 * The Hon'ble DRP and learned AO has erred in disallowing Rs. 51,830,340 under section 40(a)(ia) of the Act on the contention that the Appellant Company has not provided details in respect of deduction of tax at source. * Without prejudice to the above, The Hon'ble DRP and learned AO has erred in not considering the arguments that the provisions of TDS is not applicable on rebate under stock and sell model amounting to Rs. 163,279,058 * The Hon'ble DRP and learned AO has erred in not considering the submission made by the Appellant Company that it had added back the said provision amounts in the computation of income of AY 2012-13 and the same was consequently claimed as a deduction in the computation of income of AY 2013-14 on reversal basis. * The Hon'ble DRP and learned AO has erred in disallowing the expenses without appreciating the fact that the same had already suffer....
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....back in the computation of income. * Notwithstanding the above, if the above-mentioned expense is held to be disallowed in the current year, the learned AO should be directed to allow the same on payment basis. * The Hon'ble DRP and the learned AO erred in not relying on the judicial precedents put forth by the Appellant in this regard. 8. Short credit of TDS - Rs. 439,706,585 * The learned AO has erred in not following the directions of the Hon'ble DRP vide order dated 20 September 2017, as the Hon'ble DRP has directed the learned AO to verify the latest form 26AS and provide relief accordingly. * The learned AO erred in not considering the submission filed on 19 October 2017, post directions, wherein the Appellant has submitted the copy of form 26AS which reflects TDS credit amounting to 439,706,585. 9. Levy of interest under section 234B of the Act - Rs.504,357,205 * The learned AO has erred in levying interest under section 234B of the Act amounting to Rs. 504,357,205. The Appellant craves leave to add, alter, rescind and modify the grounds provided herein above or produce further documents, facts and evidence before or during the course of h....
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....Private Limited 9.58 11 Sark Synertek Limited 7.36 Arithmetic Mean 4.79 Computation of arm's length price by the TPO and the adjustment made: Taxpayers operating revenue Rs.5434,19,06,540 Taxpayers operating cost Rs.5481,58,43,349 Taxpayers operating profit Rs.(-) 47,39,36,809 OP/OR -0.87% Arm's length OP/OR 4.79% Arm's length OP Rs.260,29,77,323 Arm's length cost Rs.5173,89,29,217 Adjustment u/s 92CA Rs.307,69,14,132 7. Aggrieved by the adjustment made, the assessee filed objection before the DRP. The DRP rejected the assessee's contention seeking restriction of adjustment to the value of international transaction. The assessee's contention seeking grant of adjustment towards under-utilized capacity was also rejected by the DRP. The DRP directed the TPO to verify if certain companies feature in the search matrix and include the same if they so feature. 8. Aggrieved by the directions of the DRP, the assessee has raised this issue before the Tribunal. The assessee in the manufacturing segment, has raised the following issues before us:- (i) TPO erred in not granting under-utilized capacity (Ground 2); (ii) TPO erred in determining an adjus....
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....lso rejected on the ground that the assessee has assumed 100% capacity utilization of the comparables. Further the TPO has stated that while calculating the adjustment of under-utilization of capacity, the assessee has considered all costs and there is no analysis of fixed cost, variable cost and semi variable cost. The DRP confirmed the findings of the TPO and also observed that the assessee, without prejudice, reduced its claim of adjustment from Rs.242.47 crore to Rs.138.84 crore. 9.3.1 From the submissions filed before the lower authorities, it is observed that the assessee has given details of under-utilization of capacity from assessment year 2011- 2012 onwards and all the years have under-utilization of capacity. The assessee was incorporated in the year 2003. From the details available in the record, it is not clear if the installed capacity of 25,92,000 units is from the beginning of incorporation or was enhanced subsequently due to demand conditions. Further, no details are available on the record as to whether the utilization level improved in the subsequent years. No reason are given as to why there is under-utilization of capacity for 3 years. No details are given as ....
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.... companies by exercising his powers under section 133(6) of the Act." 9.3.4 We agree with the above observations that if the assessee has under-utilization capacity during the subject assessment year and it will be factually and legally eligible for an adjustment for the same. However, in the instant case, same is not demonstrated except stating the installed capacity and utilization level. For the aforesaid reasoning, we reject the plea of the assessee as regards the adjustment of under-utilization capacity. It is ordered accordingly. Restriction of adjustment to the value of international transaction: 10. It is submitted that the TPO while determining the adjustment, took into consideration the revenue and the cost of the assessee at entity level without restricting to the value of the international transaction. The learned AR submitted that the TP adjustment is to be confined to the transaction with its AEs and not with its non-AEs. In support of this contention, the learned AR relied on the judgment of the Hon'ble Bombay High Court in the case of CIT v. Pheonix Mecano (India) Pvt. Ltd. in ITA No.1182/2014 (judgment dated 07.06.2017). It was submitted that the Special Leave....
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....s own case for assessment year 2012-2013 in ITA No.2129/Bang/2017 (order dated 17.09.2018). In the light of the aforesaid reasoning and the judicial pronouncements, cited supra, we direct the TPO to compute the TP adjustment restricting the same to the transaction with the AEs. It is ordered accordingly. Exclusion of certain companies from the comparable list 11. The assessee is seeking to exclude three companies from the comparable list, namely, (i) Smart Card IT Solutions Limited, (ii) Sark Synertek Limited and (iii) Electronics Corporation of India Ltd. We shall adjudicate the above three companies as under:- (i) Smart Card IT Solutions Limited 11.1 It is submitted that the above company is engaged in card manufacturing and offers solutions and consulting services. It is claimed that the company manufactures and markets smart cards to customers internationally. It is submitted that the company offers SIM cards, RUID cards, calling cards, ID cards, driving licenses, vehicle registration cards, railway ticketing, RSBY and other insurance cards, loyalty cards, etc. none of which are similar to the product manufactured by the assessee. Therefore, it is submitted that it is fun....
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....ed to these companies to be taken as comparables, as they have low profits. As mentioned earlier, the test of functionality should be applied consistently to all the company by the TPO and assessee. There cannot be cherry picking by both the assessee as well as the TPO. Therefore, we are of the view that the matter needs to be examined afresh by the AO / TPO to apply the test of functionality consistently. (iii) Electronics Corporation of India Limited 13. The DRP rejected the assessee's submission to exclude the above company from the list of comparables by stating that it was one of the comparables selected by the assessee in its TP study. 13.1 It is submitted that the above company is functionally dissimilar, and therefore, ought to be excluded. It was submitted that during the relevant under consideration, the company had effected sales of control and instrumentation systems for the prototype unit of 700MW, radiation detection equipment for seaports, C4I systems for missiles, communication radio, jammers, artillery fuzes, security systems for the Indian embassy, etc. which are different from the products manufactured by the assessee. More importantly, it is submitted that t....
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.... made any recovery towards warranty services and the out of pocket warranty charges paid to third parties. The DRP had issued certain directions, however, in the impugned final assessment order, the adjustment made under the segment was retained. 14.2 Aggrieved, the assessee has raised this issue before the Tribunal. It is submitted that the assessee had recovered expenditure incurred in respect of the warranty services, with a mark up of 5%, and therefore, no further adjustment is warranted. It was submitted that the above issue was considered by the Tribunal in assessee's own case for assessment year 2009-2010 in ITA No.269/Bang/2014 (order dated 18.03.2022) and also for assessment year 2010-2011 in IT(TP)A No.562/Bang/2015 & Ors. (order dated 18.08.2022). 14.3 The learned DR supported the order of the TPO. 14.4 We have heard rival submissions and perused the material on record. We find that an identical issue was considered by the Tribunal in assessee's own case for assessment years 2009-2010, 2010-2011 and also for assessment year 2012-2013. The issue raised in the above ground 3 of the transfer pricing segment was restored to the AO / TPO to examine whether the assesee had ....
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....eration, the assessee had deducted tax at source on certain payments made to GT Enterprises u/s 194J of the I.T.Act. There was a short deduction of tax to the extent of Rs.4,18,320. The A.O. disallowed the amount u/s 40(a)(ia) of the I.T.Act by following the judgment of the Hon'ble Kerala High Court in the case of CIT v. PVS Memorial Hospital Limited reported in (TS-439- HC-2015). The view taken by the A.O. was upheld by the DRP. 15.1 Aggrieved by the directions of the DRP, the assessee has raised this issue before the Tribunal. The learned AR submitted that short deduction of tax would not attract disallowance u/s 40(a)(ia) of the I.T.Act. In this context, the learned AR relied on the judgment of the Hon'ble jurisdictional High Court in the case of CIT v. Kishore Rao & Others (HUF) reported in (2017) 79 taxmann.com 357 (Karnataka). 15.2 The learned DR supported the orders of the AO and the DRP. 15.3 We have heard rival submissions and perused the material on record. The Hon'ble jurisdictional High Court in the case of CIT v. Kishore Rao & Others (HUF) (supra) had held that short deduction of tax would not attract disallowance u/s 40(a)(ia) of the I.T.Act. The Hon'ble jurisdicti....
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....y of tax at source on commission and rebate was picked up for scrutiny during the assessment proceedings for assessment year 2015-2016 and upon considering the submissions filed by the assessee, the A.O. accepted the position that tax is not required to be deducted at source. 16.2 The learned DR supported the findings of the AO and the DRP. 16.3 We have heard rival submissions and perused the material on record. The Tribunal in assessee's own case for assessment year 2010-2011 (supra) had considered an identical issue and restored the same to the files of the A.O. The Tribunal directed the A.O. to consider various clauses of the distribution agreement entered by the assessee with its distributors and to determine whether the payments made is a rebate / discount on a principal to principal basis or whether it is a principal to agent basis. The relevant contentions raised before the Tribunal and the findings rendered on the contentions are detailed below:- "54. The ld AR submitted that the sum of Rs. Rs.20,37,71,038 represents rebate payment to distributors on which the provisions of TDS are not applicable. It was further submitted that the Assessee is in the business of manufact....
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....)) - CIT v. Ahmedabad Stamp Vendors Association (Reported in [2012] 25 taxmann.com 201 (SC - Bharti Airtel Ltd. v. DCIT (Reported in [2014] 52 taxmann.com 31 (Karnataka) - CIT v. United Breweries Ltd. (Reported in [2017] 80 taxmann.com 123 (Andhra Pradesh and Telangana) - CIT v. Intervet India (P.) Ltd. (Reported in [2014] 49 taxmann.com 14 (Bombay - ACIT v. Acer India (P.) Ltd. (Order dated 05.10.2018 passed by this Hon'ble Tribunal in ITA No.1940/Bang/2018) 56. The ld. DR relied on the orders of the lower authorities. 57. We have considered the rival submissions and perused the material on record. The assessee is distributing the products under two models i.e. Sales through distributors who act as agents and gets compensated on a commission basis. The second model is where the products are sold to the distributor and the distributer get a rebate in the products purchased based on the business volume. When the relationship between the assessee and the distributor is on a principal to principal basis, the rebate /volume discount given by the assessee on the price of products sold to distributer cannot be characterized as commission in order to attract section 194H....
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....or a agreed consideration. It is submitted that the entire sale price for the warranty is invoiced to customers along with sale of products during the previous year. However, the obligation to provide services and outflow of resources (cost of spares, labour and logistics) would happen over a period of time. Therefore, it was submitted that in line with the matching principles of accounting the revenue for the same would be recognized proportionately in the year of providing the services. It is stated that following the matching concept, the cost to provide such services would also recognized in the same year. 17.1 The A.O. has in line with the assessment order for assessment year 2010-2011, brought to tax deferred revenue of Rs.100,30,45,893 by stating that the Income-tax Act, 1961 does not provide for concept of deferred revenue. 17.2 The DRP by placing reliance on the directions in assessee's own case for assessment years 2009-2010 and 2010-2011, rejected the objections of the assessee and upheld the order of the A.O. 17.3 Aggrieved, the assessee has raised this issue before the Tribunal. The submission made by the learned are briefly recapitulated as under:- * At the....
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....nths) and 13- 14 (8 months). Thus, the contracts which are extending beyond the current financial year, the consideration towards such contracts should also be assessed to tax on annual basis in which the services are provided. Until such consideration is recognized as revenue, the same shall be classified under other liabilities. * Under the Act, income accrues or arises when the Assessee acquires a right to receive the same. The right to receive is coupled with the liability on the other party to make the payment. In the Assessee's case, in relation to contracts for services extending beyond the financial year 2012-13 under consideration, the Assessee is under a contractual obligation to render the service to the customer in the subsequent years and the same would involve outflow of cost/resources for the Assessee. Further, in case the contract is cancelled, the Assessee is liable to refund the consideration received originally, less cost of services already rendered. * It is submitted that as and when the services are rendered in a particular year, the revenue deferred to such year is recognized as revenue during such year (amortised) and offered to tax. The move....
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....ts to cancel using the service being offered by assessee, the unutilized balance was not refundable. Thus, the amount paid was for outright purchase of services and not an advance to be appropriated against future use of the service. The assessee acquires the absolute right to utilize the amount so received. Thus, the income crystallizes as soon as a customer makes payment. The right to receive the income vests with the assessee as soon as the services are purchased by customers. Since, the assessee employed mercantile system of accounting, income would accrue with receipt and it cannot be considered as advance income, which could be deferred for tax purpose." 32. However it is submitted that upon cancellation of the contract, the Assessee has to refund the entire consideration less cost of services already rendered. On perusal of a sample warranty terms (pages 2527- 2540, relevant page 2537, Volume 6 of the paperbook) we notice that the assessee would refund the money upon premature cancellation of warranty service. The extract of the clause in the agreement is reproduced below for reference:- "Cancellation. Subject to the applicable product and services return policy for Cu....
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....n the other party to make the payment. Further in relation to contracts for services extending beyond the financial year 2009-10 under consideration, the Assessee is under a contractual obligation to render the service to the customer in the subsequent years and the same would involve outflow of cost/resources for the Assessee. It is also important to note that, in case the contract is cancelled, the Assessee is liable to refund the consideration received originally, less cost of services already rendered. From the detailed working and sample invoices submitted before the DRP (pages 2294 and 2541 to 3192 of Volume 6 of the paperbook) that the when the services are rendered in a particular year, the revenue deferred to such year is recognized as revenue during such year (amortised) and offered to tax and therefore it is clear that the Assessee has been recognizing the revenue periodically on the basis of accrual and offered them to tax. 34. The coordinate bench of the Tribunal in the case in SchneiderElectric IT Business India Pvt. Ltd. v. JCIT, LTU [ITA Nos. 299/Bang/2014 and 218/Bang/2014) dated 30.04.2019] has considered a similar issue and held that - "91. We have carefull....
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....ncome Account during the quarter in which the work of repairs and services was done, and included the amount so adjusted as income of the relevant year. Out of the aggregate amount shown in PWS Advances Account, the Assessing Officer treated proportionate sum for the period covered as the assessee's income for the assessment year in question. The Commissioner invoked section 263 and held that the entire amounts received in the previous year towards PWS Advances were trading receipts of the year directly connected with the business of servicing and repairs of tractors. He, accordingly, set aside the assessment. On appeal, the Tribunal upheld the Assessing Officer's action disagreeing with the finding of the Commissioner. On reference, the Hon'ble Punjab &Haryana High Court held as follows: "The taxability of income normally depends upon the system of accounting followed by the assessee. Even in the case of an assessee following the mercantile system of accounting, a mere claim, by the assessee in respect of an amount without the right to claim cannot form the basis for taxability. Where the assessee follows the cash system of accounting, the taxability is to be based ....
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....customer required. So, it is highly uncertain as to whether it would at all remain as income of the assessee. Only when the service is done the assessee has a right over the amount that was deposited. Till then, he has no right over the same. It is in that sense till then, it cannot be considered as an income of the assessee and is not eligible to tax. 95. The Mumbai ITAT in the case of IOT Infrastructure & Energy Services Ltd. (supra) had to deal with identical case. The facts of that case were that the Assessee had not offered for tax an amount being difference between progress billing as on 31-3-2007 and cumulative revenue booked as per accounts as on 31-3-2007 in respect of three contracts. The assessee explained to Assessing Officer that progress billing was inclusive of advances received from customers which amount did not reflect work performance. It was also explained that progress billing was done not only for amount of work done but also for mobilisation and other advances receivable by it as per terms of relevant contract and that mobilisation and other advances received by assessee by raising progress billings did not represent income of assessee at time of raising p....
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.... Rs.36.66 crore as amount admissible u/s 40(a)(ia) and section 40(a)(i) of the I.T.Act, respectively, which were disallowed in the earlier years. The A.O. during the course of assessment proceedings, called for the details of tax deducted at source and the remittance during the year. The payment in respect of the details sought for was an amount of Rs.16,32,79,058. It was claimed that it is in the nature of rebate given to the customers under stock and sell model, on which taxes were not liable to be deducted at source. The assessee was able to furnish the details of the TDS u/s 40(a)(ia) to the extent of Rs.153,06,91,293 out of Rs.158,25,21,633. Therefore, the A.O. made disallowance of Rs.5,18,30,340 (158,25,21,633 - 153,06,91,293) on the ground that the nature of the expenditure and details of the TDS were not provided by the assessee. Secondly, as regards the sum of Rs.16,32,79,058, the A.O. held that the TDS ought to have been deducted on rebate as such payments are covered u/s 194H of the I.T.Act, and hence, the same is to be disallowed u/s 40(a)(ia) of the I.T.Act. The DRP rejected the objections of the assessee and upheld the disallowance of Rs.21,51,09,398 (16,32,79,058 + 5....
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.... decision of this Hon'ble Tribunal in the Appellant's own case for the assessment year 2011-12, wherein this Hon'ble Tribunal accepted the Appellant's claim that in view of the size of the company, substantial compliances having been made, the claim ought to be allowed). Disallowance to the extent of Rs. 16,32,79,058 - It is submitted that the above amount represents provision created in FY 2011-12 towards rebate for stock and sell model of distribution. The invoice wise listing of the expenses were furnished by Annexure 9 at page 2033-2038. As submitted earlier under Ground II.2, on these payments, provisions of Section 194H have no applicability, and therefore tax is not liable to be deducted at source." 18.2 Further, the learned AR submitted that on identical issue, the Tribunal for assessment year 2010-2011 had restored the matter to the files of the A.O. to re-examine the issue. 18.3 The learned DR supported the orders of the AO / TPO. 18.4 We have heard rival submissions and perused the material on record. The assessee has filed additional evidence just like the A.Y. 2010-2011, explaining the difference of Rs.3,42,48,397 (out of addition of Rs.5,18,30,340). On id....
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.... 68. The ld AR also submitted additional evidence with the breakup of the provisions and the subsequent payments / reversals along with the listing of invoices and the tax deducted at source. The ld AR prayed for the admission of the additional evidence. 69. The ld. DR supported the orders of the lower authorities. The ld DR submitted that the additional evidences should not be admitted as the assessee had sufficient opportunity to submit the supporting evidence to substantiate the claim of deduction which the assessee failed to furnish and therefore prayed that the additional evidences should not be accepted. 70. With regard to the disallowance made towards the provisions made the additional evidences now produced goes the root of the issue and the core reason for not allowing the deduction by the lower authorities. For a proper adjudication of the issue and for substantial cause, the additional evidence is admitted and taken on record 71. We heard the rival submission and perused the materials on record. The chart showing details of the section 40(a)(ia) allowance claimed in the year under consideration which is submitted as additional evidence is extracted below Sl.No....
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....) and hence the authorities disallowed the claim as the assessee did not produce the details of tax deducted. However the deduction as per the ld AR is done based on the fact that the provisions which are already disallowed in the previous assessment year is reversed and to avoid double disallowance the same is claimed as deduction in the computation. This fact has not been properly presented before the lower authorities. The lower authorities have to examine whether the year-end provision made on 31st March 2009 is fully reversed on 1st April 2009 and the expenses against which the provision was created is debited to the profit and loss account on payment after deducting TDS. This verification need to be carried out based on the journal entries and ledger copies produced by the assessee for the year under consideration which are submitted now in the form of additional evidence. If the accounting practice of the assessee to reverse the expenses on the 1st day of April of the year under consideration is substantiated by the evidences submitted by the assessee whereby it is demonstrated that there is no doubt allowance expenditure then the assessee would be entitled to claim the amou....
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.... open exclusive shops / stores for sale of its products. In order to maintain the uniform standard and to ensure all the franchise stores required furnishing of interiors, the assessee incurs certain expenditure on behalf of the franchises. It was submitted that such expenditure was neither recoverable nor gives the assessee any kind of ownership. Sample copy of the franchisee agreement entered into by the assessee is placed on record as Annexure 2 to the submission dated 07.09.2017 (pages 1927 to 1942 - Volume 3 of the paper book). It is submitted that the said expenditure has not resulted in bringing into existence any asset or advantage to the assessee, but only facilitates the business operations of the assessee efficiently by maintaining uniform standards across all franchisee stores. Hence, it was brayed that the same may be allowed as revenue expenditure. The learned AR submitted that the issue in question is squarely covered by the order of the Tribunal in assessee's own case for assessment year 2012-2013 in IT(TP)A No.2834/Bang/2017 (order dated 11.11.2022), wherein the Tribunal held that the said expenditure incurred is revenue in nature. 19.4 The learned DR, on the othe....
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.... any asset or advantage to the Assessee but only facilitates the business operations of the Assessee efficiently by maintaining uniform standards across all Franchisee stores. Hence, the expenditure is revenue in nature and deductible under Section 37(1) of the Act as the same is laid out wholly and exclusively for the business of the Assessee. Reliance was placed on the following case laws:- i. Empire Jute Co. Ltd. v. CIT [Reported in [1980] 3 Taxman 69 (SC)] at para 11; ii. CIT v. Geoffrey Manners & Co. Ltd. [Reported in [20090] 180 Taxman 87 (Bombay) at paras 3-5; iii. CIT v. Asian Paints (India) Ltd. [Reported in [2016] 75 taxmann.com 152 (Bombay)] at para 5(e); iv. CIT v. IBM India Ltd. [Reported in [2014] 43 taxmann.com 470 (Karnataka)] at para 10; v. DCIT v. Jubilant Foodworks Ltd. [Reported in [2022] 137 taxmann.com 345 (Delhi-Trib.) at para 11. 41. The ld. DR relied on the orders of lower authorities. 42. We have considered the rival submissions and perused the material on record. We notice that the coordinate bench of the Tribunal in the case of M/s. NIKE India Pvt.Ltd vs DCIT (IT(TP)A No.202/Bang/2021 dated 26.07.2022) has considered a similar issue ....
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....d counsel for the assessee (cited supra), it has been held that when any expenditure is incurred by an assessee on leasehold premises, even though it may give an enduring benefit, it would not amount to capital expenditure as no capital asset is being created in favour of the assessee. In some of the cases, the expenditure is on civil and electrical works also. In the case before us, we find that the AO has erroneously held that there was no termination clause in the agreement of lease and that the lease is permanent. We find that the lease is for a period of 4 years only and the assessee was to pay for lease rental as well interest-free security deposit for the lease and also that the assessee is required to incur the expenditure for interior and exterior works for carrying on the business as per 'brand' specifications. In such a situation, it cannot be said that the assessee is deriving an enduring benefit nor can it be said that any capital asset has been created in favour of the assessee. The quantum of expenditure cannot determine the nature of the expenditure. Therefore, respectfully following the decisions relied upon by the learned counsel for the assessee we hold t....
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....signboard & fixing etc. The assessee is required to incur the expenditure for interior and exterior works for carrying on the business as per 'brand' specifications. The agreement entered into by the assessee with franchise is not perpetual agreements and is entered into for a period of two years (refer clause 7 of the franchise agreement in page 236 of paper book) and the agreement also has clauses for termination under certain circumstances. Given this it cannot be said that the assessee is deriving an enduring benefit nor can it be said that any capital asset has been created in favour of the assessee. In assessee's case, the expenses are incurred for the purpose of refurbishing the showroom which provides the customers an environment where these products are sold in Dell exclusive stores. In view of these discussion and respectfully following the decision of the coordinate bench of the Tribunal in the case of Nike India (supra) we hold the expenses incurred by the assessee towards fixture and stores interiors expenses is an allowable expenses and the claim made by the assessee is directed to be accepted. This ground is allowed in favour of the assessee." 19.6 In view ....
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....not be regarded as a compensatory payment as contended by learned counsel for the assessee. 15. Counsel for the assessee in support of his submission that the interest paid by the assessee was merely compensatory in character besides relying on the case of Makalakshmi Sugar Mills Co. also relied on the decision of the apex court in the cases of Prakash Cotton Mills Pvt Ltd. v. CIT [1993] 201 ITR 684; Malwa Vanaspati and Chemical Co. v. CIT [1997] 225 ITR 383 and CIT v. Ahmedabad Cotton Manufacturing Co. Ltd. [1994] 205 ITR 163. In all these cases, the court was concerned with an indirect tax payable by the assessee in the course of its business and admissible as business expenditure. Further liability for interest which had been incurred by the assessee therein was regarded as compensatory in nature and allowable as business expenditure. 16. The ratio of those cases is not applicable here. Income- tax is not allowable as business expenditure. The amount deducted as tax is not an item of expenditure. The amount not deducted and remitted has the character of tax and has to be remitted to the State and cannot be utilised by the assessee for its own business. The Supreme Court in....
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....e addition made by the A.O. 21.2 Aggrieved, the assessee has raised this issue before the Tribunal. It is submitted that CST amount was not routed through the profit and loss account, hence, there is no occasion to make the disallowance on that count. The learned AR relied on the judgment of the Hon'ble Delhi High Court in the case of Noble & Hewlett (I.) (P.) Ltd. v. CIT reported in (2008) 305 ITR 324 (Del). 21.3 The learned DR supported the orders of the AO and the DRP. 21.4 We have heard rival submissions and perused the material on record. We find on identical issue the Tribunal in the case of Smt.Husna Parveen v. CIT(A) reported in (2022) 142 taxmann.com 2 (Varanasi-Trib.) by following the judgment of the Hon'ble Apex Court in the case of Chowringhee Sales Bureau (P.) Ltd. v. CIT reported in (1997) 87 ITR 542 (SC) had decided the issue against the assessee. The relevant finding of the Tribunal reads as follows:- "6. I have considered the submissions of the assessee made before the authorities below as well as the submissions of the learned Sr. DR. There is no dispute that the assessee has not paid the GST within the time limit as prescribed under section 43B and shown in ....
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....existing in the balance sheet of the assessee, amounting to Rs. 2221.501/-. The said GST liability remained unpaid even till the due date of filing ITR for the A.Y. under consideration. The auditor reported the same in column 26(1)(b) of tax audit report in form No. 3CD. The AO, CPC, invoked the provisions of s.43B and disallowed the said unpaid GST liability and added to the total income of the assessee. 6.2 In the written submissions, the assessee has objected to the disallowances made by AO, CPC and has submitted that AO has incorrectly invoked provisions of s.43B. The main argument of the assessee has been that the GST liability was not routed through profit and loss account, ie was not debited in profit and loss account, therefore it should not be disallowed as it was never claimed as an allowable expenditure. In this regard, the assessee has explained the manner in which GST collected by him from the customers, which is finally required to be credited/paid to the Central Govt, is accounted for. The assessee has submitted that assessee is maintaining a separate GST account in his ledger book without debiting the amount of the said GST in profit and loss account. As and when....
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....as collected an amount of Rs. Rs. 3,52,69,463/- for the assessment year 2012-13 and Rs. 2,42,72,852/- for the assessment year 2014-15 as service tax and not remitted the same to the Government exchequer, before the due date of filing of the return of income. As such, the issue whether the provisions of section 43B of the I. T. Act applies to service tax, which is not paid before the due date of filing of the return. It was considered by the co-ordinate Bench of the ITAT, Hyderabad Benches in the case of M/s. Bartronics India Ltd. v. ACIT [ITA No. 2188 and 2189/Hyd/2011 vide order dated 31-5-2012 that when the assessee has not paid the service tax as required under the provisions of section. 43B, which is also very much covered u/s 43B of the I. T. Act. The provisions of section 438 of the Act is very clear and it states that "any sum payable by the assessee by way of tax, duty, cess or fee, by whatever name called, under any law for the time being in force". Therefore, even the service tax is liability which covers u/s 43B of the Act and non-payment of the same within the stipulated time as specified u/s 43B of the Act attracts disallowance. Now the question is that when the assess....
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....ment. The amount of service tax included in bills issued but not received. Accordingly, the Hon'ble Tribunal had recorded its findings that As per s. 68 of Finance Act, 1994 read with rule 6 of Service Tax Rules, 1994, the service tax becomes payable only on receipt of service tax from the client. Therefore, the amount of service tax included in bills but not received could not be disallowed under s. 43B'. After analysing the relevant provisions of Income-tax Act as well as Service Tax Act, the Tribunal had, further, recorded its findings as under: "12. From a plain reading of the above provision it becomes clear that the rigour of this provision would be attracted only in a case where an item is allowable as deduction but because of the failure to make payment such deduction will not be allowed. It can be argued that in the case of ST also the assessee does not claim deduction since it has been held that non-payment of Sales-tax would attract provisions of section 43B, but that is being done on the basis of the principles laid down by the Hon'ble Supreme Court in the case of Chowranghee Sales Bureau Ltd. v. CIT 110 ITR 385 that Sales-tax is part of the trading recei....
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....sessee's bank account. Therefore, to arrive at the professional income, the service tax realized should have been included in the gross receipts unless paid to Government exchequer within the due date of filing of return. Since service tax realised is included in the total income, the same is to be allowed as a deduction in the year it is paid to the Government account. In the instant case, this is what has been done by the learned CIT(A). The CIT(A) had allowed the alternative plea of the assessee and had directed the Assessing Officer to deduct the service tax when the payment is made to the Govt. account in the subsequent year. Therefore, we find there is no merit in the contention raised on behalf of the assessee and this issue is decided against the assessee. It is ordered accordingly." 4.1 Further, in the case of M/s. Hemkunt Infratech (P.) Ltd. v. DCIT [ITA No. 6683/De1/2017 - order dated 23-3-2018, the Delhi Benches of the Tribunal held as under: - "6. After hearing both the sides and perusing the entire material available on record, we observe that there is a credit balance of Rs. 1,16,09,924/- at the end of the year towards expenses payable. The assessee submitt....
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....the amended provisions of the Act, which came into effect from 1-4-1999 for valuing the purchases and sales of goods and also for valuing the inventory, while determining the income chargeable under the head profits and gains of business or profession, it has been provided that the said valuation would be in accordance with the method of accounting regularly employed by the assessee i.e. either mercantile or cash. Further, adjustment is to be made to include the amount of any tax, duties, cess or fees, by whatever name called, actually paid or incurred by the assessee to bring the goods to the place of its location and condition, as on the valuation date. In other words, where any expenditure is actually paid or incurred by the assessee by way of any tax, duties, cess or fees, by whatever name called, then adjustment is to be made both in the valuation of purchase and sale of goods and also in the valuation of inventory to include the aforesaid amounts while determining the income chargeable under head profits and gains of business or .profession. The assessee has separately accounted for the service tax collected is also the indirect part of turnover because it is received along w....
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....such in the same financial year: Provided further that the CENVAT credit of the additional duty leviable under sub-section (5) of section 3 of the Customs Tariff Act, in respect of capital goods shall be allowed immediately on receipt of the capital goods in the factory of a manufacturer: Provided also that where an assessee is eligible to avail of the exemption under a notification based on the value of clearances in a financial year, the CENVAT credit in respect of capital goods received by such assessee shall be allowed for the whole amount of the duty paid on such capital goods in the same financial year. Explanation.-For the removal of doubts, it is hereby clarified that an assessee shall be "eligible" if his aggregate value of clearances of all excisable goods for home consumption in the preceding financial year computed in the manner specified in the said notification did not exceed rupees four hundred lakhs. (b) The balance of CENVAT credit may be taken in any financial year subsequent to the financial year in which the capital goods were received in the factory of the manufacturer, or in the premises of the provider of output service, if the capital goods, other t....
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.... sent by a manufacturer of final products to,- (i) another manufacturer for the production of goods; or (ii)a job worker for the production of goods on his behalf, according to his specifications. (6) The Deputy Commissioner of Central Excise or the Assistant Commissioner of Central Excise, as the case may be, having jurisdiction over the factory of the manufacturer of the final products who has sent the input or partially processed inputs outside his factory to a job-worker may, by an order, which shall be valid for a financial year, in respect of removal of such input or partially processed input, and subject to such conditions as he may impose in the interest of revenue including the manner in which duty, if leviable, is to be paid, allow final products to be cleared from the premises of the job-worker. (7) The CENVAT credit in respect of input service shall be allowed, on or after the day which payment is made of the value of input service and the service tax paid or payable as is indicated in invoice, bill or, as the case may be, challan referred to in rule 9. 9. As per Rule 6(1) of the Service Tax Rules, 1994, in case of company, service tax is to be paid on a mon....
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.... determined. (5) The amount paid to the credit of the Central Government under sub-section (1) or sub-section (2) or subsection (4), shall be adjusted against the service tax payable by the person on finalisation of assessment or any other proceeding for determination of service tax relating to the taxable service referred to in subsection (1). (6) Where any surplus amount is left after the adjustment under sub-section (5), such amount shall either be credited to the Consumer Welfare Fund referred to in section 12C of the Central Excise Act, 1944 or, as the case may be, refunded to the person who has borne the incidence of such amount, in accordance with the provisions of section 118 of the said Act and such person may make an application under that section in such cases within six months from the date of the public notice to be issued by the Central Excise Officer for the refund of such surplus amount] 12. We further observe that the point of taxation as per rule 3 of Point of Taxation Rules, 2011 is as under: RULE 3. Determination of point of taxation.-(Notification No. 18/2011-ST dt. 1-3-2011 as amended). For the purposes of these rules, unless otherwise provided,....
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....return of income. As per method of accounting, the assessee has also not included the service tax received by him in the turnover. In fact, the assessee was legally obliged to declare its turnover inclusive of service tax received. The assessee cannot be exonerated from its liability by saying that he accounted for the service tax received separately. Since the assessee did not pay service tax as contemplated u/s. 43B(a) and as per above provisions of Service Tax Act within the stipulated time, therefore, the Id. CIT(A) has rightly disallowed the same u/s. 43B of the IT Act. The case laws relied by the assessee are based on different footings as in all the decisions it was held that Service Tax was not at all payable because the service Tax was not received from the customer. The 'aw prevailing at that particular time was that Service Tax was to be paid to the L3overnrnent only when Service Tax is received from the service receiver to the service provider. Subsequently, there is change in the law which provides that Service Tax is to be deposited by the service provider even if service tax is not paid by the service receiver to the service provider. Therefore, in all those deci....
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....lated time as specified u/s 43B of the Act attracts disallowance. Afterwards, Hon'ble ITAT considered the second issue, that when the assessee has not claimed it as expenditure in the profit and loss account, could it be disallowed u/s 43B of the Act. Hon'ble ITAT observed that this issue was considered by the Hon'ble Apex Court in the case of Chowringhee Sales Bureau (P.) Ltd. v. CIT [1973] 87 ITR 542 (SC). in which it was held that the sales tax collected by the assessee is revenue receipt even if it is shown by the assessee under non-revenue head and such treatment by the assessee is not decisive. Thereafter, Hon'ble ITAT relied upon the comprehensive judgement delivered by Hon'ble ITAT, Bangalore in the case of M/s. Jain Christopher v. DCIT in ITA No. 855/Bang/2012 - order dated 12-4-2013, where various previous judgments were considered and distinguished by Hon'ble ITAT, Bangalore. These were: (i) ACIT v. Real Image Media Technologies (P.) Ltd. (ITAT Chennai): (ii) CIT v. Noble and Hewitt India (P.) Ltd. (Del) (iii) DCIT v. Manish M Chheda 29 SOT 138 - Mumbai ITAT Thereafter, Hon'ble ITAT relied upon the judgement delivered by Hon'....