TaxTMI 
TaxTMI 
2022 (3) TMI 1558
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....iries and as such is liable to be quashed. 1.2. The lower authorities have finalized their order with improper adjustments to the reported taxable profits of the Appellant, as a result of misapplying the provisions of the Act and by adopting faulty assessment procedure to finalize the adjustment, such as but not limited to, application of filters, analysis of the functions carried out by the Appellant and those of the comparable companies, analysis of the economic circumstances experienced by the Appellant, selection of comparable companies, computation of profit margins of the Appellant and comparable companies, usage of appropriate adjustments, and consideration of the information, arguments and evidence provided by the Appellant. 2. Disallowance under section 14A of the Act 2.1. The lower authorities have, in the facts and circumstances of the case and in law, erred in disallowing a sum of INR 83,20,451 under section 14A of the Act by applying provisions of Rule 8D of the Income tax Rules, 1962 ("Rules"). 2.2 The lower authorities have, in the facts and circumstances of the case and in law, erred in applying the provisions of under section 14A of the Act read with Ru....
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....AY 2011-12 wherein similar adjustment towards brand adjustment has been deleted. 7.3 The lower authorities have, in the facts and circumstances of the case and in law, exceeded their jurisdiction and erred in making the adjustment towards a fees for a purported brand development service alleged to be provided by the Appellant to its AE, without first establishing that there was any international transaction in this regard between the Appellant and its AE, which can be subject to section 92 of the Act. 7.4 The lower authorities have, in the facts and circumstances of the case and in law, erred in arbitrarily attributing 5% of the Appellant's AMP expenses to the brand building activity, without establishing the existence of an agreement between HMIL and the AE for the provision of AMP services. 7.5 The lower authorities have, in the facts and circumstances of the case and in law, erred in making an adjustment for AMP expenses, without appreciating that such adjustment cannot be made to a full- fledged manufacturer. 7.6 The lower authorities have, in the facts and circumstances of the case and in law, erred in not providing detailed search process conducted for selecting t....
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....ncome Tax Act, 1961. The case was taken up for scrutiny and during the course of assessment proceedings; a reference was made to JCIT (Transfer Pricing) for determination of arm's length price of international transactions of the assessee with its AEs. The learned TPO vide its order dated 31.10.2017 has suggested upward adjustment for brand development services. 5. The Assessing Officer, in pursuant to TPO order, has passed draft assessment order u/s.143(3) r.w.s 144C of the Act on 27.12.2017 and made transfer price adjustments as suggested by the TPO at Rs.209,16,43,935/-. The Assessing Officer had also proposed certain corporate tax adjustments including disallowances u/s.14A, r.w.r 8D of IT Rules, 1962, disallowance of subsidy received towards capital expenditure, disallowance of focus marketing scheme expenses, disallowance of additional depreciation claimed on fixed assets for regional offices, disallowance of bonus / performance reward u/s.43B of the Act, disallowance of guarantee charges paid to HMC and disallowance u/s.32AC of the Act. The assessee has filed objections before learned DRP against draft assessment order, but the learned DRP vide its directions dated 18.09.20....
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....disallowances u/s.14A cannot exceed amount of exempt income. The Hon'ble Supreme Court in the case of Pr.CIT Vs State Bank of Patiala (supra), while dismissing SLP filed by the Revenue against order of the Hon'ble Punjab & Haryana High Court in the case of Pr.CIT Vs State Bank of Patiala, held that disallowance u/s.14A could be restricted to amount of exempt income only. The Hon'ble Jurisdictional High Court of Madras in the case of Marg Ltd Vs.CIT (2020) 120 Taxmann.com 84, has taken a similar view and held that disallowances under Rule 8D r.w.s 14A can never exceed exempt income earned by the assessee during particular assessment year. In this case, admittedly, exempt income for impugned assessment year was Rs.57,826/-, whereas the Assessing Officer has determined disallowance u/s.14A at Rs.86,54,491/- contrary to settled principle of law. Therefore, considering facts and circumstances of this case and also by following the decisions of Hon'ble Supreme Court and Hon'ble Madras High Court, we direct the Assessing Officer to restrict disallowances u/s.14A to the extent of exempt income earned for the impugned assessment year." In this view of the matter and consistent with view t....
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....lier years, the CIT(A) has allowed claim of the assessee and the AO has accepted decision of the CIT(A) and deleted additions, while passing order giving effect to the order of the CIT(A). Therefore, consistent with the view taken by the coordinate Bench, we direct the AO to delete addition made towards disallowance of depreciation on capital subsidy received from SIPCOT. 9. The next issue that came up for our consideration from ground No.4 of assessee appeal is disallowance u/s.43B(c) of the Act, in respect of performance incentive paid to employees. Facts with regard to impugned dispute are that for the financial year relevant to the assessment year 2014-15, the assessee has paid performance reward to employees in the cadre of executives and senior executives. The assessee has provided for expenses for the year ended March, 2014. However, payment was made only after due date of filing return of income for assessment year 2014-15. The Assessing Officer has disallowed performance incentive paid to staff u/s.43B(c) r.w.s. 36(1)(ii) of the Act, amounting to Rs.37,94,474/- on the ground that as per section 43B(c), any sum referred to in clause (ii) of sub-section (1) of section 36, s....
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....s covered u/s. 36(1)(ii) of the Act, and thus, if such payment is not made on or before due date of filing of return of income u/s.139(1) of the Act, then same cannot be allowed as deduction, as per section 43B(c) of the Act. The relevant findings of the Tribunal are as under:- "23. We have heard both the parties, perused materials available on record and gone through orders of the authorities below. Admittedly, none of the employees of the assessee are covered under payment of Bonus Act, because all employees' salary is above threshold limit fixed under payment of Bonus Act. It is also an admitted fact that the assessee is paying performance incentive/reward to employees regularly and such incentive has been paid for services rendered by the employees. Therefore, it is necessary to examine performance incentive paid to employees in light of provisions of section 36(1)(ii) read with section 43B(c) of the Income Tax Act, 1961. As per section 36(1)(ii) of the Act, any sum paid to an employee as bonus or commission for services rendered, where such sum would not have been payable to him as profits or dividend, if it had not been paid as bonus or commission is allowable as deduction.....
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....ll as directions of learned DRP and reject ground taken by the assessee." In this view of the matter and consistent with view taken by the Co-ordinate Bench, we are inclined to uphold the order of the AO as well as the directions of ld.DRP and reject ground taken by the assessee. 10. The next issue that came up for our consideration from ground no.5 of assessee appeal is addition towards VAT incentive received from Government of Tamil Nadu. During the year under consideration, the assessee has received refund of output VAT amounting to Rs.32,24,91,983/- from Govt. of Tamil Nadu and credited to profit and loss account under the head income from other sources. The assessee has treated above incentive as revenue receipt both for its books of account and its tax returns. However, during the course of assessment proceedings, the assessee has raised a fresh claim to treat incentive as capital receipts not chargeable to tax. The AO has not adjudicated fresh claim made by the assessee. The learned DRP has rejected objections filed by the assessee without giving any specific direction. 10.1 The learned AR for the assessee submitted that this issue is also covered in favor of the assesse....
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.... acquired and installed new asset after 31.03.2013, but before 01.04.2015, then it is eligible for investment allowances @ 15% on said plant or machinery. The assessee never disputed fact that out of total investments made in new plant or machinery, a sum of Rs.1041.32 crores was acquired and installed during previous financial year 2012-13. According to the assessee, the term 'acquire' as defined under the provisions of Section 32AC of the Act, should be given wider meaning so as to include any plant which is under construction, but installed during relevant financial year, even though certain installed assets were acquired during the earlier financial year, because a plant is a continuous process which cannot be completed during the same financial year. The assessee has also explained the term 'acquire' in light of certain judicial precedents and argued that acquisition of any asset or plant is not limited to purchase, but also includes creation or formation of asset by taxpayer on his own. Therefore, claimed that total amount invested in plant and machinery of Rs.17,95,41,84,175/- is eligible for investment allowance of 15% as per provisions of section 32AC (1) of the Income Tax....
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....of economy and boost employment after the specific date in time i e, 01-04 2013. As per the deposition given above, out of the overall eligible acquisition and installation of the assets of Rs.1795,41,84,175, a sum of Rs. 1041,32,14,382 was kept as WIP as on 01.04.2013. This means that the sum of Rs.1041,32,14,382 was not acquired during the period commencing from 01-04.2013. To qualify for the claim of investment allowance, two conditions namely, acquisition and installation are to be fulfilled. As these two conditions are referring to two different activities, which can be rarely completed on the same day, there will be some time lapse between these two activities. Usually the process commences with the project report and the bill of materials and services and other payments are mostly identified before commencement of the project. The supply of materials and other services for erection etc are made available as and when the same are needed as per thercj.ect plan. The assets may be simple items such as drilling machine which can be installed within days of supply while another could be any item that is forming part of a bigger structure such as furnace fitting, gauges, conveyo....
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....ose as the project is a large one and this can hardly be completed in a single financial year. In a typical scenario, any manufacturing business takes long periodtq acquire and install the assets The whole plant and machinery could be of various items and they are likely to be acquired and installed on a continuous basis and in sequential order, but the plant itself would be available for production at a later date. The principal requirements that are laid out in the section for eligibility conditions are acquiring and installing and not others such as put to use or commence production. This is distinct from the operation Section 32(1) where depreciation is allowed only when the asset is put to use. Certain deductions envisaged in Sections 801A and 80IC are allowable on condition of commencement of commercial production. In all such cases i.e 801A and 801C, the eligibility conditions are for the entire undertaking in contrast with claim of depreciation where the items falling under various blocks of assets that are allowed depreciation commencing from the date such asset is put to use. All these various assets could be part of a plant or machinery and many such complex items could ....
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....t that are still not completed, are kept in the books as Capital Work in Progress (CWIP). The investment allowance is to be allowed on assets that are acquired and installed after 31-03-2013 and the assets that are in CWIP as on 01-04-2016 are not eligible for the claim of investment allowance. In contrast to this, in section 32 the section, the assets eligible for depreciation are those wholly or partly owned by the assesse and used for the purpose of the business, that is put to use. Here the ownership of the asset was already passed on to the assesse. In the case of claim of depreciation, the determinant factor is the date when the asset was put to use. But in the case of additional depreciation, Section 32(u) mentions "acquired and installed" and again the additional depreciation can be claimed only for the assets that were put to use. Thus the claim of depreciation claim cannot be made on assets that are not owned or not put to use. Whereas in the case of section 32AC of the Act, the principal conditions are "acquire and install". As explained by the Hon'ble Finance Minister, for the purpose of allowing incentive of investment allowance, the asset should have been acquired wit....
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.... assessee the following table is prepared: S.No. Additions made during F.Y. 2013-14 Capital work in progress During FY 2013-14 Total 1. Rs.754,09,69,793 Rs.1041,32,14,382 179541,84,175 In the instant case of the assesse, many of the assets that were in CWIP as on 31-03-2013 may have been installed already even though they may not have been put to use. Accordingly, a sum of Rs.156,19,82,157 being 15% of the CWIP (Rs.1041,32,14,382) that is cost to the assessee of the eligible assets cannot be allowed and therefore not allowed. The balance of Rs.113,11,45,469 being 15% of the assets (Rs.754,09,69,793) acquired and installed during the FY 01-04- 2013 to 31-03-2014 is allowed." 11.3 Being aggrieved by draft assessment order, the assessee filed its objections before the learned DRP-II, Bangalore, in terms of section 144C(5) of the Income Tax Act, 1961 . The assessee has challenged disallowance of investment allowance on capital work in progress u/s.32AC of the Act. The assessee has filed detailed written submissions on the issue, which has been reproduced at para 7 on pages 13 to 16 of the learned DRP order. The sum & substance of arguments of the assessee before the learne....
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....and to quicken implementation of new projects, proposed investment allowance was brought into statute. Therefore, from the above, what is clear is that investment allowance prescribed u/s.32AC(1) of the Act, is applicable not only to new plant or machinery acquired or installed during specified period, but also those plant or machinery which were already initiated, but completed installation during the relevant financial year. Therefore, he submitted that the Assessing Officer is incorrect in disallowing investment allowance on capital work in progress by holding that asset acquired and installed prior to 31.03.2013 and 01.04.2014 is only eligible for investment allowance, but not assets already acquired prior to said date. 11.4 The learned DRP, after considering relevant submissions of the assessee and has also taken note of provisions of section 32AC of the Act, rejected arguments taken by the assessee and sustained additions made by the Assessing Officer towards disallowance of investment allowance on capital work in progress by holding that as per provisions of section 32AC of the Act, the assessee who acquires and installs new asset after 31.03.2013, but before 01.04.2014 alo....
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....ase has not made investment in the relevant previous year but the investments are made in earlier years. Considering the above the arguments of the assessee are not accepted. The assessee produced certain additional documents which are in the nature of additional evidence on 12/07/2018. Since the assessee has not produced these evidences before the AO, the same are rejected by the Panel. After careful consideration the Panel is in agreement with the TPO that the assessee is not eligible for the investment allowance. Ground rejected." 11.5 The learned A.R for the assessee submitted that the learned DRP has erred in rejecting arguments taken by the assessee on investment allowance claimed towards capital work in progress amounting to Rs.1041.32 crores, without appreciating fact that investments made by the assessee was in a plant and said plant was completed in assessment year 2014-15. The learned A.R further submitted that the learned DRP has erred in not appreciating fact that new engine plant was installed and put to use during relevant assessment year 2014-15 and hence, even if, certain individual machinery or tools acquired before specified date, but because the term 'plant' i....
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.... by the assessee, therefore in process, the assessee has to purchase various machineries and deploy resources in order to complete acquisition of new engine plant. Therefore, he submitted that although, the assessee has purchased certain individual machinery and tools prior to 31.03.2013, but whole plant for manufacturing of engines has been completed and installed during the financial year relevant to assessment year 2014- 15, and thus, the assessee has rightly claimed investment allowances on total amount invested in new plant or machinery and thus, the Assessing Officer as well as learned DRP has erred in restricting investment allowances to the extent of amount invested during specified period. The learned A.R referring to decision of the ITAT., Mumbai in the case of JCIT Vs. Lotus Energy India Ltd.(2016) 68 taxmann.com 364 submitted that although, said decision was rendered in the context of depreciation u/s.32(1)(iia) of the Act, but ratio laid down by the Tribunal is that word 'acquire' & 'install' are used in the section are similar to assessee's case and thus, even if certain machinery or tools are acquired prior to 31.03.2014, but said machineries to be put together forms....
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....bay High Court in the case of Lotus Energy India Ltd. 14. ITAT., Pune in the case of Dia Aluminium India Pvt.Ltd. vs.DCIT in ITA No.1374/Pune/2016 15. ITAT., Pune in the case of Bekaert Industries P.Ltd. vs. ACIT 94 taxmann.com 120 16. Hon'ble Supreme Court in the case of Bajaj Tempo Ltd. vs. CIT 196 ITR 188 (SC) 17. Hon'ble Supreme Court in the case of McGregor and Balfour Ltd. vs.CIT 36 ITR 65 18. Hon'ble Supreme Court in the case of CIT Vs. Mir Mohammed Ali 53 ITR 165 19. Madras High Court in the case of CIT vs. Sri Rama Vilas Service P. Ltd. 38 ITR 25 20. Hon'ble Supreme Court in the case of CIT Vs. Taj Mahal Hotel 82 ITR 44 21. ITAT., Pune in the case of ACIT Vs.Aurgangabad Holiday Resorts P.Ltd. 118 ITD 1 11.7 The learned DR, on the other hand, supporting order of the learned DRP submitted that in order to claim investment allowance u/s.32AC of the Act, law is very clear, as per which new asset should have been acquired between 01.04.2013 and 31.03.2015 and new asset should have been installed during the same period. Unless, the assessee satisfies above condition, it cannot claim deduction u/s.32AC(1) of the Income Tax Act, 1961. In this case, there is no dis....
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....nd consequently, allowed the assessees to set up new plant and machinery or plant within specified period. Further, said plant and machinery should be acquired and installed between 01.04.2013 to 31.03.2015 . The term 'acquisition of asset' cannot be limited to purchase alone, if the assessee constructed larger plant which consists of various plant and machinery & process, then acquisition of smaller plant and machinery prior to that date, but, installed during specified period also needs to be considered as acquired and installed for deduction u/s.32AC(1) of the Income Tax Act, 1961. 11.9 We have given our thoughtful consideration to the reasons given by the learned Assessing Officer in light of various arguments advanced by the learned A.R for the assessee and we ourselves do not subscribe to the arguments taken by the learned A.R for simple reason that provisions of section 32AC(1) has been introduced specifically with a view to promote new investments in manufacturing sector. As per said provision, where an assessee being a company engaged in the business of manufacture or production of any article or thing acquires or installs new asset after 31st March, 2013, but before 1st ....
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.... investments in the manufacturing sector, a new provision has been inserted to statute to provide for additional investment allowance, if conditions prescribed therein are satisfied. In the speech of the Hon'ble Finance Minister, it was categorically stated that to accelerate investments and to attract new investments, new provision has been inserted so as to make entities eligible for claiming investment allowances on the new asset acquired and installed between 01.04.2013 and 31.03.2015 . The speech of the Hon'ble Finance Minister clearly explains intention of the legislature as per which it was intended to promote, growth, and create jobs by giving incentives on investments made within the specified period . If you see key words in the Memorandum explaining Finance Bill, to attract new investments and to quicken implementation of the project during the period between 01.04.2013 and 31.03.2015, it is very clear that only investments made in acquiring and installing asset between 01.04.2013 and 31.03.2015 is eligible for investment allowances. Therefore, we are of the considered view that in order to eligible for benefit of investment allowance u/s.32AC(1) of the Act, the assessee....
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.... of the Hon'ble Gujarat High Court in the case of IDMC Ltd. Vs. JCIT (93 ITR 441) and in the case of CIT vs. Mohanbhai Pamabhai (91 ITR 393) cannot be applied to the facts of the present case, because those cases are rendered in the context of allowing depreciation as per provisions of section 32(1) of the Income Tax Act, 1961. Insofar as other case laws relied upon by the assessee, including decision of the ITAT., Mumbai in the case of JCIT Vs. Lotus Energy India Ltd. (2016) 68 taxmann.com 364, we are of the considered view that said judgement was rendered in the context of depreciation allowance u/s. 32(1)(iia) of the Act, and not in the context of investment allowance as provided under section 32AC of the Act, and thus, words 'acquired & installed' are used in section 32(1)(iia) is different from the provisions of section 32AC of the Act. Therefore, case laws relied upon by the assessee are rejected as not applicable to the facts of the present case. 11.12 In this view of the matter and considering facts & circumstances of the case, we are of the considered view that there is no error in the reasons given by the Assessing Officer as well as learned DRP to sustain additions made....
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....s positive accretion between brand value and market capitalization of HMC Korea and hence, directed the AO/TPO to delete transfer pricing adjustment made towards brand development services. Therefore, consistent with the view taken by the coordinate Bench, we direct the AO to delete addition made towards brand fee adjustment. 13. The next issue that came up for our consideration from Additional ground no.1 of assessee appeal is amount received from Focus Market Scheme to be treated as capital in nature and exclude from total income. Facts with regard to impugned dispute are that Government of India with an intention to promote exports to certain regions / countries introduced Focus Market Scheme which provides incentive of 2.5% of FOB value for each licensing year commencing from 1st April, 2006. The export of products to those countries which are covered under list of countries in Schedule 37C would be entitled for duty credit scrip equivalent to 2.5% of FOB value of exports. During the year under consideration, the assessee was eligible for above scheme, as it has export sales to specified markets. Accordingly, the assessee has received an amount of Rs.209,06,24,730/- as incenti....
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.... as per the said policy, it has announced a scheme for exporters of certain goods to certain regions called Focus Market Scheme . As per said scheme, export of products to those countries which are covered under list of countries in Schedule 37C would be entitled for duty credit scrip equivalent to 2.5% of FOB value of exports. The assessee being eligible exporter had received licenses/duty credit scrip/ market linked focus scrips amounting to Rs.150.57 crores for the year under consideration. The assessee has considered amount received under focus market scheme as revenue receipt and offered to tax. However, based on some subsequent decisions of appellate authorities has filed an additional claim seeking exclusion of said receipt from taxation on the ground that it is in the nature of capital receipt and not exigible for tax. Therefore, in order to understand whether amount received from Focus Market Scheme is revenue in nature or capital receipt, which is exempt from tax, one has to understand objectives of Focus Market Scheme announced by Govt. of India. As per Foreign Trade Policy document, the objective of the scheme is to offset high freight cost and other disabilities to sel....
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....uction and therefore, such subsidy could only be treated as assistance given for the purpose of carrying on business of the assessee. It is well settled principles of law that any subsidy given for the purpose of offsetting part of cost of setting up of new industry, as per industrial policy of various State Governments or Govt. of India is considered as part of capital contribution and capital in nature, whereas subsidy given after commencement of production of products and further for enhancing profitability of the assessee is certainly in the nature of assistance given for running of business of the assessee more profitable and hence, it is definitely revenue in nature. 34. In this case, on perusal of facts available on record including foreign trade policy of Government of India, it is very clear from documents that main objective of Focus Market Scheme is to offset high freight cost and other disabilities of exporter to select international market with a view to enhance our export competitiveness to these countries. The expenditure incurred by the assessee under this scheme for exploring new market across the globe is mainly freight cost and other recurring expenses like sa....
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.... from Govt. of India under Focus Market scheme is revenue in nature and further, same was given to offset higher cost of freight and other disabilities of exporters to be more competitive in exports to certain regions. Thus, the same cannot at any stretch of imagination be considered as capital in nature. Hence, we reject the ground taken by the assessee." In this view of the matter and consistent with view taken by the Co-ordinate Bench, we are of the considered view that subsidy received from Govt. of India under Focus Market scheme cannot be considered as capital in nature and hence, we reject ground taken by the assessee. 14. The next issue that came up for our consideration from additional ground no.2 of the assessee appeal is deduction towards education and secondary education cess u/s.37(1) of the Act. 14.1 The ld.AR for the assessee submitted that this issue is covered in favor of the assessee by the decision of ITAT., Chennai in assessee's own case for 2015-16 in IT(TP)A No.10/Chny/2020, wherein the Tribunal by following the earlier Tribunal order for assessment year 2013-14 in ITA No. 3192/Chny/2017, where under identical circumstances, the Tribunal has remanded the m....