TaxTMI 
TaxTMI 
2023 (6) TMI 210
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....ar 2016-17 was filed on 28.11.2016 declaring a loss of Rs.45,98,46,394/-. The same was revised on 29.03.20218 declaring total loss of Rs.968,30,88,739/-. The said return of income was selected for scrutiny assessment. The assessee company also reported the following international transactions in its Form No.3CEB :- Sr. No. Nature of International Transaction Amount (in INR) Most Appropriate Method Method as per Form 3CEB 1. Purchase of pharma packaging material 20,10,09,489 CUP Transactional Net Margin Method ('TNMM') 2. Sale of pharma packaging material (finished goods) 15,35,26,251 CUP TNMM 3. Purchase of Non-clonable ID tags, reader and applicator 24,73,743 Other Method TNMM 4. Sale of clinical supplies 18,45,660 Other Method TNMM 5. Lease of PVdC Coating Machine 8,75,00,000 CUP TNMM 6. Loan Guarantee Given Nil Other Method Other Method 7. Performance Guarantee Given Nil Other Method Other Method 8. Reimbursement of expenses 1,60,81,730 CUP TNMM 9. Subscription of shares of step down subsidiary 95,050 3. The assessee company sought to justify the consideration received for the above international ....
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....ormance G) Hitachi Capital Singapore Pte Ltd. USD 7,795,670 USD 7,795,670 -- 3. Bilcare Singapore Pte Ltd. SBLC - Indusind Bank USD 6,500,000 USD 6,500,000 4848.71 4 Bilcare Packaging Ltd. SBLC - The Jammu & Kashmir Bank USD 10,000,000 USD 10,000,000 6603.46 5 Bilcare Packaging Ltd. BPL - The South Indian Bank Ltd. USD 21,700,000 USD 21,700,000 14394.23 6 Bilcare Packaging Ltd. BPL - The Lakshmi Vilas Bank Ltd. USD 10,000,000 USD 10,000,000 6633.29 7 Bilcare Packaging Ltd. BPL - IDBI Bank Ltd. USD 7,333,000 USD 7,333,000 4864.19 77,839.71 6. In respect of corporate guarantee, the assessee company had not received any guarantee commission. The assessee company contended that the transactions of providing the guarantee given by the assessee company to its subsidiary is in the nature of shareholder activities, as all these companies are wholly owned subsidiaries of assessee company. As regards to the guarantee for performance, it does not fall within the definition of international transaction as defined under the provisions of section 92B of the Act. However, rejecting the above ....
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....lowed the claim for allowance of long term capita loss arisen on sale of shares of BSPL, which is wholly owned foreign subsidiary company of the assessee company of Rs.922,33,42,911/- and also for disallowance of depreciation of Rs.27.20 crores on the Coating Line Machine leased to the Bilcare Singapore Pte Ltd.. The factual background leading to the issue is as under :- The assessee company had set-up wholly owned foreign subsidiary company in Singapore in the year 2002-03, namely, Bilcare Singapore Pte Ltd. i.e. BSPL. The said subsidiary company in turned had set-up subsidiaries in various countries such as Brazil, USA, Europe etc. The assessee company also acquired a company in Europe in the year 2010. Thus, the assessee company had two operating subsidiary entities, namely, Bilcare Singapore Pte Ltd. and Bilcare GMBH Germany. The pictorial diagram of Singapore group entities was extracted by the ld. CIT(A) at internal page no.40 of the order of ld. CIT(A). The Singapore entity, namely, Bilcare Singapore Pte Ltd. is 100% of the subsidiary of the assessee company and invested in the form of equity shares of the said company from the year 2002 to 2016 to the tune of Rs.529.72 cro....
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....t, 1973. The said investments were shown as a part of non-current investments in the fixed assets at the relevant page of the financial statement which is placed at page no.35 of Paper Book details of the investments are mentioned at page no.44 of the Paper Book. 11. However, for the reasons best known to the assessee company, it had not reflected the said disinvestments i.e. sale of shares in BSPL in books of account or audited financial statements. But the assessee company had sought to claim the deduction of long term capital loss arising on sale of shares of BSPL held by the assessee company in the revised return of income filed on 29.03.2018 though omitted to claim in the original return of income. The statement of computation of loss arising on sale of the said shares of BSPL is enclosed in the page no.4 of the Paper Book. 12. The Assessing Officer had denied the claim for deduction of long term capital loss arising on sale of shares of BSPL citing the following reasons :- (i) The claim for deduction of loss on sale of shares in the revised return of income is not valid in law, as the necessity for filing the revised return of income is not on account of any omission or w....
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....inal value of the asset was Rs.51,33,74,830/- on which accumulated depreciation was of Rs.24,13,14,850/-, thus written down value asset comes to Rs.27,20,59,980/-. This amount was shown as debited to subsidiary company‟s account. At the time of filing the original return of income, the assessee company was stated to be under the misconception that since the assessee company ceased to be owner of the said asset, it does not qualify for the depreciation, therefore, no depreciation was claimed in the original return of income. However, during the course of assessment proceedings, the assessee company made a claim for allowance of depreciation on the net block of asset of Rs.27,20,59,980/- since the block of plant and machinery under which these plant and machinery falls still exist in the depreciation schedule placing reliance on the following two judicial precedents :- (i) CIT vs. Yamaha Motor India (P.) Ltd., 183 Taxman 291 (Delhi) (ii) CIT vs. Oswal Agro Mills Ltd., 197 Taxman 25 (Delhi). 16. However, the above-said claim was rejected by the Assessing Officer only on the ground that the claim for depreciation was not made either in the original return of income or in t....
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....he ld. CIT(A) held that since the assessee company did not receive any consideration on the cessation of ownership rights of the assessee company over the machine leased to BSPL, the same should not be reduced from opening value of WDV of the block of assets, under which leased asset falls. 23. Being aggrieved by that part of order of the ld. CIT(A), wherein, the ld. CIT(A) held that the transactions of corporate guarantee should be benchmarked adopting the commission at the rate of 1.75%, the assessee is in appeal before us in ITA No.334/PUN/2021. 24. Being aggrieved by that part of the order of the ld. CIT(A), which is against the Revenue, wherein, the ld. CIT(A) held that the (i) performance guarantee does not come within purview of international transactions, (ii) the transactions of purchase and sale of pharma products with its AEs, be benchmarked by adopting internal TNMM as the most appropriate method, (iii) the long term capital loss of Rs.922 crores arising on sale of shares of BSPL held by the assessee company is allowable as a long term capital loss, (iv) the depreciation on opening WDV block of assets under which the leased assets falls be allowed without reducing the....
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....zens of the country on account of Pandemic Covid-19. Considering the averments made in the condonation petition, we are of the considered opinion that the appellant is prevented by sufficient and reasonable cause in filing the appeal within due date and hence, we condone the delay of 79 days. 29. The issue raised by the assessee company in the present appeal is regarding the quantum of TP adjustments made in respect of corporate guarantee. The assessee company took a plea that the transactions of providing guarantees by the assessee company to its subsidiary is in the nature of shareholders activity, as the bank guarantee was given only to one of the subsidiary companies. The TPO as well as the ld. CIT(A) held that the transaction of bank guarantee is international transaction should be benchmarked by adopting the commission at the rate of 1.75%. 30. Being aggrieved by the direction of the ld. CIT(A) i.e. transaction of bank guarantees provided by assessee company should be benchmarked by adopting commission @ 1.75%, the assessee company is in appeal before us in the present grounds of appeal. 31. The issue of TP adjustments on corporate guarantee was decided by this Tribunal i....
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.... in considering Performance Guarantee and Corporate Guarantee separately ? 2) Whether on the facts and circumstances of the case, the Ld CIT(A) is justified in directing TPO to adopt Internal TNMM as most appropriate method for benchmarking international transactions related with sales and purchase of the assessee in place of TNMM adopted by the TPO? 3) Whether on the facts and circumstances of the case, the Ld CIT(A) is justified in directing TPO to adopt Internal TNMM as most appropriate method for benchmarking international transactions related with sales and purchase of the assessee in place of TNMM adopted by the TPO when there are significant differences in AE and Non AE segment with respect to low volume sales within Indian market and sales to different geographical location, having incomparable economic and political risks ? 4) Whether on the facts and circumstances of the case, the Ld CIT(A) erred in allowing the claim of capital loss of Rs. 922 Crores made through a revised return not claimed in its original return ? 5) Whether on the facts and circumstances of the case, the Ld CIT(A) erred in treating the loss of Rs.922 crores as genuine loss and failed to app....
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....eeded to hold that the performance guarantee should be benchmarked on par with financial guarantee. The relevant paragraphs of the decision of this Tribunal for the assessment year 2015-16 are extracted as under:- "8.2 Having heard the rival submissions and gone through the relevant material on record, it is seen that the issue of transfer pricing adjustment on corporate guarantee fee came up for consideration before the Tribunal in the assessee's own case for the A.Yrs. 2013-14 and 2014-15. The lead order was passed for the A.Y. 2014-15 in ITA No.1693/PUN/2018 holding that guarantee fee should be charged at 0.5%, which should be further increased by any expenditure actually incurred by the assessee in furnishing the guarantee. This order was followed for the A.Y. 2013-14 as well. Both the sides are in agreement that the facts and circumstances of the respective grounds for the instant year are similar. We, therefore, set-aside the impugned order and remit the matter to the file of the AO/TPO for computing the ALP of the transaction under consideration by firstly, ascertaining the amount of expenditure actually incurred by the assessee in furnishing the seven loan guarantees and ....
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....g Officer/TPO to adopt the internal TNMM as the most appropriate method for the purpose of benchmarking the international transactions of purchase and sale of pharma products from its AEs. This issue also came up before this Tribunal for the assessment year 2015-16 in assessee's own case, wherein, this Tribunal held that the external TNMM as the most appropriate method for the purpose of benchmarking the above international transactions in the given facts of the case. 41. Before us, both sides had agreed and are in agreement with the decision of this Tribunal for earlier years (supra). The relevant portion of the decision of the Tribunal in assessee's own case for the assessment year 2015-16 is extracted below :- " 5.2. There can be no doubt that ordinarily the internal TNMM gets precedence over the external TNMM because it takes care of differences between the material factors, conditions and features of products of the assessee vis-a-vis of comparables and dispenses with the need to make adjustments for bringing such varying factors, conditions and features at a common pedestal. Howbeit, the essential requirement for resorting to the internal TNMM is that no differences, havin....
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.... 7 and 8 challenges the decision of the ld. CIT(A) in holding that the long term capital loss arising on sale of shares of BSPL held by the assessee company is allowable as deduction and allow to be carried forward the said loss for set off against profits in the subsequent years. The factual matrix of the claim is discussed (supra). The Assessing Officer disallowed the claim of loss arising on sale of shares of BSPL held by the assessee company, sold to its another wholly owned subsidiary foreign company holding the same to be non-genuine. While holding so, the Assessing Officer had made the following observations:- (i) The assessee company had not made the claim for allowance of capital loss in the original return of income filed on 28.11.2016. (ii) The claim made in the revised return of income is not valid for the reason that the revision of return of income was not warranted on account of bona-fide mistake or omission in the original return of income. (iii) The transaction was carried out between the assessee's company and another wholly owned foreign subsidiary company of the assessee company i.e. Bilcare Packaging Ltd. (Mauritius Entity). There is complete unity of c....
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....ther relies on ratio of the decision of the Hon'ble Supreme Court in the case of PCIT vs. Wipro Ltd., 446 ITR 1 (SC) drawing our attention to para 9 of the said judgement of the Hon'ble Supreme Court (supra). 47. On the other hand, ld. AR submits that the ratio of decision of the Hon'ble Supreme Court in the case of Wipro Ltd. (supra) have no application to the facts of the case, as the issue before the Hon'ble Supreme Court was regarding interpretation of the provisions of sub-section (8) of section 10B of the Act. He further submits that the claim of the present assessee's case are totally different from the facts in the case of Wipro Ltd. (supra). Therefore, the ratio of the decision of the Hon'ble Supreme Court in the case of Wipro Ltd. (supra) cannot be applied to the facts of the present case. He submits that the material on record clearly shows that after meeting the liabilities of creditors of Singapore company, there remains nothing to be distributed amongst the shareholders. Therefore, the intrinsic value of shares is "Nil" and, there cannot be any dispute with regard to the consideration received on sale of shares. He further submits that the Rule 11UAA have no applicat....
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....eference to two years from the end of the relevant assessment year." 49. There is no dispute that the original return of income was filed within the due date for filing the return of income u/s 139(1) of the Act. Even the revised return of income was filed within the period prescribed under the provisions of section 139(5) of the Act. A mere reading of provisions of sub-section (5) of section 139, it would reveal that a revised return of income can be filed in a situation, where an assessee discovers any omission or any wrong statement made in the original return of income. 50. In the present case, the circumstances, which led the assessee company not to claim the long term capital loss in the original return of income were explained before the Assessing Officer, such explanation remains uncontroverted. Therefore, it cannot be said that it is not a bona-fide omission made in the original return of income. Therefore, it cannot be said that the assessee company had failed to satisfy the conditions prescribed under the provisions of sub-section (5) of section 139 of the I.T. Act for filing the revised return of income. Therefore, we hold that the Assessing Officer was not justified ....
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....omitted to claim a genuine loss arising on sale of shares and, therefore, filed a revised return of income u/s 139(5) within the prescribed time limit claiming the determination and carry forward losses. It is a valid revised return of income filed u/s 139(5) of the Act. Therefore, the findings of the Assessing Officer as well as the ld. CIT(A) to the extent that the revised return of income is not valid one are reversed. 53. In this connection, we must refer to the submissions made by the ld. CIT-DR that the findings of the ld. CIT(A) that the revised return of income is not valid, is accepted by the assessee company, as this issue was neither raised in the cross appeal nor in the cross objection. This objection cannot be accepted in view of fact that the a respondent to an appeal can always support the order of the ld. CIT(A) on the ground decided against him under the provisions of Rule 27 of the Income Tax (Appellate Tribunal) Rules, 1963. 54. Even otherwise, it is a settled position of law that in a case where the assessee files return of loss within the prescribed time u/s 139(1) of the Act, there is no bar under the provisions of the Income Tax Act to claim higher loss dur....
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.... in the case of CIT vs. Pruthvi Brokers and Shareholders Pvt. Ltd. (2012) 349 ITR 336 (Bom), since the issue had become academic in view of our findings in the foregoing paragraphs that the revised return of income filed by the assessee is valid in law. 58. Next, we proceed to deal with the reasoning of Assessing Officer that since the transaction of sale of shares was not reflected in the books of account, the loss arising on sale of such shares cannot be allowed as deduction. It is settled position of law that whether an assessee is entitled to a particular deduction or not will depend upon the provisions of law relating thereto and not on the treatment given in the books of account. It is also equally settled that the presence and absence of entries in the books of account is not decisive or conclusive on the issue. In this connection, useful reference can be made to landmark judgments of Hon'ble Supreme Court in CIT vs. Parakh & Co. India Ltd. 29 ITR 661 (SC) and Kedarnath Jute Manufacturing Co. Ltd. vs. CIT 82 ITR 363 (SC). Thus, the reasoning of the Assessing Officer that in the absence of entries in the books or balance sheet reflecting the sale of shares, loss cannot ....
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....ed transaction cannot be termed as dubious. Therefore the reliance by Assessing Officer on the decision of McDowells & Co. Ltd. (supra) is highly misplaced. Further, it must be stated that in the later decision of Hon'ble Supreme Court in Union of India & Anr vs. Azadi Bachao Andolan & Anr 263 ITR 706 (SC), the Hon'ble Supreme Court held that the citizen is free to carry on the business within four corners of law and further proceeded to observe that mere tax planning without any motive to evade the tax through colourable device is not frowned upon even by the Hon'ble Supreme Court in the case of McDowells & Co. Ltd. (supra). Even in the subsequent decision of Hon'ble Supreme Court in the case of CIT vs. Walfort Share and Stock Brokers Ltd. 326 ITR 1 (SC), applying the decision of Hon'ble Supreme Court in the case of Union of India & Anr vs. Azadi Bachao Andolan & Anr (supra) held that the transaction of dividend stripping held to be is not a sham and bogus and ratio of the Hon'ble Supreme Court in the case of McDowells & Co. Ltd. (supra) cannot be applied. Similarly, after referring to the judgments of Hon'ble Supreme Court in McDowells & Co. Ltd. (supr....
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....mount charged to secured creditors and debenture holders is $ 0.00 as evident from page 1005 which means that intrinsic value of share is Nil. 64. Without prejudice to the above, we are of the considered opinion that the AO cannot disturb the apparent consideration by substituting the agreed consideration by fair market value of the subject asset. The provisions of sec.48 of the Income-tax Act which deal with the computation of income chargable under the head "Capital Gains" reads as under : 'The income chargeable under the head "Capital gains" shall be computed, by deducting from the full value of the consideration received or accruing as a result of the transfer of the capital asset the following amounts, namely :- (i) expenditure incurred wholly and exclusively in connection with such transfer; (ii) the cost of acquisition of the asset and the cost of any improvement thereto:' The provisions of sec.48 of the I.T. Act refers to the term 'full value of consideration' received, accrued as a result of transfer of the capital asset. The term Fair Market Value had come up for interpretation before the Hon'ble Supreme Court in the case of CIT v. George Hen....
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....res determined in accordance with the prescribed manner, fair market value shall be deemed to be the full value of consideration for the purposes of computing income under the head "Capital Gains". The CBDT vide circular No.2/2018 dated 15.02.2018 had clarified that this amendment takes effect only from 01.04.2018, accordingly applied for A.Y. 2018-19. 65. Thus, we find that the reasons assigned for disallowing the claim for determination and carry forward of long term capital loss on the sale of shares of Bilcare Singapore PTE Ltd. held by the assessee sold to its another wholly owned foreign subsidiary company Bilcare Packaging Ltd. (Mauritius Entity) cannot be sustained in the eyes of law. Though the order of the CIT(A) is bereft of detailed discussion on facts and law, we are in agreement with the conclusion reached by the CIT(A) that loss arising on sale of BSPL shares is allowable as Long term capital loss. We do not find any merit in the grounds of appeal nos. 4 to 8 filed by the Revenue, accordingly stands dismissed. 66. Ground of appeal no.9 challenges the decision of CIT(A) in directing the Assessing Officer not to deduct sum of Rs.27,20,59,980/- from the value of openi....
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.... (11 of 1922), the provisions of sections 48 and 49 shall be subject to the following modifications :- (1) where the full value of the consideration received or accruing as a result of the transfer of the asset together with the full value of such consideration received or accruing as a result of the transfer of any other capital asset falling within the block of assets during the previous year, exceeds the aggregate of the following amounts, namely :- (i) expenditure incurred wholly and exclusively in connection with such transfer or transfers; (ii) the written down value of the block of assets at the beginning of the previous year; and (iii) the actual cost of any asset falling within the block of assets acquired during the previous year, such excess shall be deemed to be the capital gains arising from the transfer of short-term capital assets; (2) where any block of assets ceases to exist as such, for the reason that all the assets in that block are transferred during the previous year, the cost of acquisition of the block of assets shall be the written down value of the block of assets at the beginning of the previous year, as increased by the actual cost of any....
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....spect of any previous year relevant to the assessment year commencing on or after the 1st day of April, 1989, the written down value of that block of assets in the immediately preceding previous year as reduced by the depreciation actually allowed in respect of that block of assets in relation to the said preceding previous year and as further adjusted by the increase or the reduction referred to in item (i). 70. The Central Board of Direct Tax vide Circular No.469 dated 29.09.1986 had explained the new scheme of depreciation which reads as under :- "12. The Court thereafter took into consideration the Direct Taxes Circular no. 469 issued on 23.09.1986. The same reads as follows: "6.3 As mentioned by the Economic Administration Reforms Commission (Report No. 12, para 20), the existing system in this regard requires the calculation of depreciation in respect of each capital asset separately and not in respect of block of assets. This requires elaborate bookkeeping and the process of checking by the Assessing Officer is time consuming. The greater differentiation in rates, according to the date of purchase, the type of asset, the intensity of use, etc., the more disaggregated h....
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....that the Revenue is not put to any loss by adopting such method and allowing depreciation on a particular asset, forming part of the "block of assets" even when that particular asset is not used in the relevant assessment year. Whenever such an asset is sold, it would result in short term capital gain, which would be exigible to tax and for this reason, we say that there is no loss to Revenue either. 34. The upshot of the aforesaid discussion is that though we are not entirely agreeing with the reasoning of the Tribunal contained in the impugned judgment, we are upholding the conclusion of the Tribunal based on the "block of assets" as discussed above. The consequence would be to dismiss these appeals. However, there will be no order as to costs."" 72. The ratio that can be discerned from the above decision is that once a particular asset, forms a part of particular block of assets in respect of depreciation was allowed, even when that particular asset is not used in the relevant assessment year, the depreciation on that particular block of asset on WDV of that particular block of asset in which this asset falls is still allowable. There is no finding by the Assessing Officer t....
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....rse proceedings and income should be computed in accordance with the provisions of law and further held that the decision of Hon'ble Supreme Court in the case of Goetze (India) Ltd. (supra) does not put any fetters on the powers of Appellate authorities in entertaining a new claim. The relevant paragraphs of the decision are extracted below: "33. In case of Goetze (India) Ltd. (supra) the Supreme Court distinguished the judgment in the case of National Thermal Power Co. Ltd. (supra) on the ground that the same pertained to the power of the Tribunal under section 254 of the Act to entertain a point of law for the first time and commented that such decision does not relate to the power of the assessing officer to entertain a claim for deduction otherwise than by filing a revised return. In the process the Supreme Court recognized that a new claim could not be entertained by the assessing officer without the assessee revising the return. While doing so it was clarified that:- "4. . . However, we make it clear that the issue in this case is limited to the power of the assessing authority and does not impinge on the power of the Income-tax Appellate Tribunal under section 254 of the....
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....to the power of Appellate Commissioner or the Tribunal, the Courts have recognized their jurisdiction to entertain a new ground or a legal contention. A ground would have a reference to an argument touching a question of fact or a question of law or mixed question of law or facts. A legal contention would ordinarily be a pure question of law without raising any dispute about the facts. Not only such additional ground or contention, the Courts have also, as noted above, recognized the powers of the Appellate Commissioner and the Tribunal to entertain a new claim for the first time though not made before the assessing officer. Income-tax proceedings are not strictly speaking adversarial in nature and the intention of the Revenue would be to tax real income." 74. Thus, it is clear that the decision of Hon'ble Supreme Court in Goetz (India) Ltd. (supra) had no application on the power of the appellate authorities in view of the decision of the Hon'ble Bombay High Court in the case of CIT vs. Pruthvi Brokers & Shareholders, 349 ITR 336 (Bom.), decision of the Hon'ble Delhi High Court in the case of CIT vs. Jai Parabolic Springs Ltd., 306 ITR 42 (Delhi), decision of the Hon'ble Gujarat ....