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2023 (6) TMI 210
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....es. The Return of Income for the assessment year 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 ste....
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....r-2014 Closing balance as on 31-Mar-2015 Closing balance as on 31-Mar-2015 (in INR Lacs) 1 Bilcare Inc & BSPL United Drugs UK & sharp clinical services USD 61,000,000 USD 61,000,000 40,495.83 2 Bilcare Singapore Pte Ltd. (Performance 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 c....
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....ment of Rs.22,76,78,495/-, addition on account of commission expenditure of Rs.16,03,019/- and addition on account of difference in returned loss as per original return of income filed by the assessee company on 28.11.2016. Accordingly, the Assessing Officer assessed total loss of Rs.22,98,86,490/-. Apart from the TP disallowances, the Assessing Officer disallowed 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 Ger....
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....holly owned subsidiary of the assessee company. The transaction of transfer of said shares was completed on 22.10.2015 on payment of the stamp duty as evident from the pages Nos.874 to 876 of the Paper Book. The assessee company also reported the disinvestments of the equity investments by filing Form ODI-3 under the provisions of the Foreign Exchange Management Act, 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 P....
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.... Machine to its wholly owned subsidiary BSPL under agreement of lease rental of the said machine. During the financial year 2015-16, the said Singapore subsidiary company i.e. BSPL went into liquidation. The Hon'ble High Court of Republic Singapore vide order dated 24.06.2015 had directed the disposal of the said machine, as if, all the ownership rights are vested with the subsidiary company, namely, BSPL. The original 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 fall....
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.... allow the same as the ld. CIT(A) felt that the claim is genuine and bona-fide. 21. The alternative plea taken by the assessee company during the course of proceedings before the ld. CIT(A) that the long term capital loss arising on sale of shares of BSPL held by the assessee company should be allowed as business loss was dismissed holding it to be academic. 22. As regards the allowance of depreciation on machine leased out to BSPL, the 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 inte....
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...., amend, or withdraw all or any of the Grounds of Appeal." 28. At the outset, there is a delay in filing the present appeal by the assessee by 79 days. The assessee company filed a petition praying for condonation of delay relying on the decision of the Hon'ble Supreme Court in the case of Cognizance for Extension of Limitation, In re (2022) 441 ITR 722 (SC) dated 10.01.2022, wherein, the limitation prescribed by various statutes was suo motu extended on account of difficulties faced by the citizens 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....
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....curred in furnishing such guarantee. 33. In the result, the appeal filed by the assessee in ITA No.334/PUN/2021 stands partly allowed. 34. Now, we shall take up the Revenue‟s appeal in ITA No.273/PUN/2021. ITA No.273/PUN/2021 - By Revenue : 35. The Revenue is in appeal before us being aggrieved by that part of order of the ld. CIT(A) which is against the Revenue. 36. The Revenue raised the following grounds of appeal :- "1) Whether on the facts and circumstances of the case, the Ld CIT(A) is justified 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 s....
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....ational transaction. The relevant findings of the ld. CIT(A) are set out in para 3.2 at page no.11 of the order of the ld. CIT(A). 38. Before us, both the parties agreed that the issue in the ground of appeal no.1 is covered by the decision of this Tribunal in assessee's own case for assessment year 2015-16 as well as earlier years also, wherein, this Tribunal following the earlier order of this Tribunal in assessee's own case for the assessment years 2013-14 and 2014-15 had reversed the decision of the ld. CIT(A) that the performance guarantee should be excluded and further proceeded 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 ....
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....he rate of guarantee fee from 2% applied by the TPO to 1.75% by the CIT(A) is dismissed. The assessee's ground against the application of corporate guarantee fee at 1.75% by the ld. CIT(A) is partly allowed in above terms." 39. Respectfully following the decision of this Tribunal, this issue is set-aside to the TPO on the similar lines indicated in the order of the Tribunal for the assessment year 2015-16 (supra). Thus, the ground of appeal no.1 stands partly allowed for statistical purposes. 40. Ground of appeal no.2 and 3 challenges the decision of the ld. CIT(A) directing the Assessing 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 ....
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....t is the external TNMM which should prevail for determining the ALP of the international transaction in the manufacturing activity." 42. Therefore, respectfully following the decision of this Tribunal in assessee's own case for earlier assessment year 2015-16, we remand the matter to the file of the Assessing Officer/TPO to adopt external TNMM as the most appropriate method for the purpose of benchmarking the international transactions of purchase and sale of pharma products from its AEs. Thus, the ground of appeal nos.2 and 3 stands partly allowed for statistical purposes. 43. Ground of appeal nos.4, 5, 6, 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 O....
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.... the ld. CIT-DR submits that the ld. CIT(A) had failed to examine the colourful device adopted by the assessee company and the transactions of sale of shares of BSPL to its another wholly owned foreign subsidiary company, namely, Bilcare Packaging Ltd. (Mauritius Entity) was not at arm‟s length price. The assessee company accepted that the findings of the ld. CIT(A) that the revised return of income is not valid in law, as the assessee had chosen not to challenge this finding before the Tribunal. The ld. CIT-DR further submitted that the ld. CIT(A) had failed to take cognizance of provisions of section 139(3) r.w.s. 80 of the Act. He further 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 th....
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....ted below :- "139(1) ...... .......... (5) If any person, having furnished a return under sub-section (1) or in pursuance of a notice issued under sub-section (1) of section 142, discovers any omission or any wrong statement therein, he may furnish a revised return at any time before the expiry of one year from the end of the relevant assessment year or before the completion of the assessment, whichever is earlier.: Provided that where the return relates to the previous year relevant to the assessment year commencing on the 1st day of April, 1988, or any earlier assessment year, the reference to one year aforesaid shall be construed as a reference 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 omis....
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....) and section 80 were not before the Hon'ble Supreme Court in the case of Wipro Ltd. (supra). It is settled legal position that every interpretation made by the Hon'ble Judges does not constitute the ratio decidendi, in any event, the observations made by the Hon'ble Supreme Court vide para 9 have no application to the facts of the present case, as the assessee company had filed the original return of income showing the loss within the time prescribed under the provisions of section 139(1) of the Act. Thus, the decision of Hon'ble Supreme Court in Wipro Ltd. (supra) is distinguishable on facts. 52. The above discussion clearly brings out that the assessee company had discovered, 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 ....
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....ied forward and set off against the subsequent profits. 56. In the light of above legal position, it cannot be said that the conditions prescribed u/s 80 were present so as to disentitle the assessee to carry forward and set off of the losses against subsequent profits. Thus, this reasoning of the AO that loss not claimed in the original return of income, but claimed in the revised return of income cannot be allowed, cannot be sustained in the eyes of law. 57. It is not necessary for us to delve into the issue of acceptance of fresh claim during the assessment proceedings, though such claim was not made in the return of income on the strength of the decision of Hon'ble Bombay High Court 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....
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....made use of said provisions of the Act. This cannot be called either abuse of law nor can it impeach the genuineness of the transaction. There is nothing on record to show that the impugned transaction is either sham or bogus. The Assessing Officer had merely given ipse dixit findings. 61. With regard to invoking of ruling of the Hon'ble Supreme Court in McDowells & Co. Ltd. (supra), no doubt the Assessing Officer can invoke the ruling of the Hon'ble Supreme Court in the case of McDowells & Co. Ltd. (supra) in case the transaction entered into by an assessee is found to be dubious and adopted the colourable device to evade the taxes. In view of the observations made by us (supra) that the impugned 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 ....
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....ent man would act. The assessing authorities must not look at the matter from their own view point but that of a prudent businessman. As already stated by us (supra), the transaction of sale of shares of Bilcare Singapore PTE Ltd to its another wholly owned foreign subsidiary is a genuine one and the assessee cannot be faulted with for arranging its affairs in such a manner so as to minimize its tax liability. 63. Another aspect that is required to be dealt with by us is whether or not the impugned transaction was undertaken at arm's length price. From the material available on record at pages 997 to 1006 of paper book, it would be clear that the value of assets of BSPL company after deducting the amount 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" re....
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....atement of consideration. Subsequently, the same ratio was followed by the Hon'ble Supreme Court in the case of CIT v. Shivakami Co. (P.) Ltd. [1986] 25 Taxman 80K/159 ITR 71. The Parliament in view of the judgment of Hon'ble Supreme Court in the case of K.P. Varghese (supra) omitted the provisions of sec.52 by the Finance Act, 1987 w.e.f. April, 1988. Therefore, the said provision was not applicable from the A.Y. 1999-2000 onwards. It is only from assessment year 2018-19, the Legislature had enacted provisions of section 50CA of the Income-tax Act by the Finance Act, 2017 so as to provide that where the consideration for transfer of shares of a company (other than quoted share) is less than fair market value of such shares 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 forwar....
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....is to be allowed u/s 32(1)(ii) on block of assets at such percentage of WDV as may be prescribed. The term "block of assets" is defined u/s 2(11) to mean a group of assets falling within a class of assets in respect of which same percentage of depreciation is prescribed. The other provisions of law which are relevant to decide the issue in appeal are the provisions of section 50, and 43(6) of the Act, which reads as under :- "Special provision for computation of capital gains in case of depreciable assets. 50. Notwithstanding anything contained in clause (42A) of section 2, where the capital asset is an asset forming part of a block of assets in respect of which depreciation has been allowed under this Act or under the Indian Income-tax Act, 1922 (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 aggreg....
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....the amount of the scrap value, if any, so, however, that the amount of such reduction does not exceed the written down value as so increased; and (C) in the case of a slump sale, decrease by the actual cost of the asset falling within that block as reduced- (a) by the amount of depreciation actually allowed to him under this Act or under the corresponding provisions of the Indian Income-tax Act, 1922 (11 of 1922) in respect of any previous year relevant to the assessment year commencing before the 1st day of April, 1988; and (b) by the amount of depreciation that would have been allowable to the assessee for any assessment year commencing on or after the 1st day of April, 1988 as if the asset was the only asset in the relevant block of assets, so, however, that the amount of such decrease does not exceed the written down value; (ii) in respect 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 precedi....
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....h asset separately and in the absence of such particular, it cannot be ascertained whether on sale of any asset, there was any profit liable to be taxed under section 41(2) or terminal loss allowable under section 32(1)(iii). This amendment also strengthen the claim that now only detail for "block of assets" has to be maintained and not separately for each asset. 33. Having regard to this legislative intent contained in the aforesaid amendment, it is difficult to accept the submission of the learned counsel for the Revenue that for allowing the depreciation, user of each and every asset is essential even when a particular asset forms part of "block of assets". Acceptance of this contention would mean that the assessee is to be directed to maintain the details of each asset separately and that would frustrate the very purpose for which the amendment was brought about. It is also essential to point out 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 i....
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.... opening WDV of block of assets in the return of income, can be a bar to claim the higher depreciation during the course of assessment proceedings. Admittedly, in the present case, under wrong notion, the assessee company had reduced the WDV of the assets leased to BSPL from the opening value of the block of assets under which it falls. However, during the course of assessment proceedings, it sought to rectify this mistake by claiming the higher depreciation without such reduction. The CBDT vide Circular No.14/1995 had clarified that while computing the taxable income of an assessee should be computed in accordance with the provisions of law, even a fresh claim made during the course of assessment proceedings in the absence of any statutory bar should be considered by the Assessing Officer. The Hon'ble High Court of Gujarat in CIT vs. Mitesh Impex 367 ITR 85 held that the income tax proceedings cannot be treated as adverse 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 entertaini....
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.... of the assessee on the ground that no revised return was filed. 37. In case of CIT v. Cellulose Products of India Ltd. [1985] 151 ITR 499 (Guj), Full Bench of this Court held that merely because a ground has not been raised though it could have been raised in support of the relief sought in the appeal, it cannot be said that such ground cannot be raised before the Tribunal. Such ground can be raised provided it falls within the contours of the subject matter of the appeal. 38. It thus becomes clear that the decision of the Supreme Court in the case of Goetze (India) Ltd. (supra) is confined to the powers of the assessing officer and accepting a claim without revised return. This is what Supreme Court observed in the said judgment while distinguishing the judgment in the case of National Thermal Power Co. Ltd.(supra) and that is how various High Courts have viewed the dictum of the decision in the case of Goetze (India) Ltd.(supra). When it comes 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 ....