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2023 (10) TMI 1313
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....er, Operation of jetties and related infrastructure, Retail marketing of Petroleum products, Fabrication and investment activities. Since the assessee had entered into international transactions with its Associated Enterprises (AEs), the AO referred the matter of determination of Arms length Price of the international transactions to the Transfer Pricing Officer (TPO) in both the years under consideration. After the receipt of order of TPO, the AO passed draft assessment order and the assessee chose not to file its objection to the Dispute Resolution Panel. Hence the AO passed the final assessment order making various additions to the returned income in both the years. The assessee filed appeals before Ld CIT(A) and they were allowed in part by Ld CIT(A) in both the years. Hence both the parties have filed appeals before the Tribunal. APPEALS OF THE ASSESSEE:- 3. We shall now take up the appeals filed by the assessee for AY 2017-18 and 2018-19. The grounds of appeal urged by the assessee in both the years read as under:- (i) ITA No. 2318/Mum/2022 2017-18 : Assessee's appeal :- On being aggrieved by the order dated 25 July, 2022 (received on 01 August, 20 passed by the learned ....
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....red Accountant firm M/s. Ernst & Young LLP (EY)], which a be further apportioned on the basis of the investment giving rise to exempt income to the total investments of the appellant. The appellant submits that the aforesaid study undertaken by EY validates the fact that the suo-moto disallowance made by the appellant is just and proper a further disallowance is warranted. 7. Erred in directing the AO to compute the disallowance under clause (f) of Exp 1 to section 115JB(2) i.e. expenditure relating to exempt income, when no disallowance ought to have been made while computing book profit u/s 115JB the Act, relying on Tribunal decision in appellant's own case for AY 2009-10 vide corrigendum order dated 02.04.2008 Addition of interest on Income Tax Refund while computing Book Profits u/s 115JB 8. Erred in confirming the action of the learned AO of adding interest on income tax refund of Rs 181,17,790/- to the book profit of the appellant u/s 115JB of the Act. The appellant submits that since the interest on income tax refund was not credited to profit and loss account as per the accounting policy consistently followed by the appellant, the learned CIT(A) erred in confi....
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....tionally dissimilar companies selected by the TPO as comparables, in arriving at the ALP of the interest chargeable in respect of share application money refunded by the AE. 18. Erred in upholding the rate of interest determined by the TPO by adopting Libor based spreads, and then in applying the float to fixed swap. 19. Erred in not directing to benchmark the interest basis the comparable furnished by the Appellant for benchmarking interest on loan if share application money is recharacterized into loan. Each of the above Grounds of Appeal are without prejudice to each other. The Appellant craves leave to add, amend, delete, rectify, substitute, modify otherwise, all or any of the aforesaid grounds or add a new ground(s) at any time be or during the hearing of the above appeal. (ii) ITA No. 2317/Mum/2022 - AY 2018-19 - Assessee's appeal :- On being aggrieved by the order dated 25 July, 2022 (received on 01 August, 20 passed by the learned Commissioner of Income-tax (Appeals)-57, Mumbai [herein a referred to as the learned CIT(A)] under section 250(6) of the Income-tax Act, 1961 Act), the present appeal is being preferred on the following grounds which, it is prayed, may....
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....taken by EY validates the fact that the suo-moto disallowance made by the appellant is just and proper a further disallowance is warranted. 7. Erred in directing the AO to compute the disallowance under clause (f) of Exp 1 to section 115JB(2) i.e. expenditure relating to exempt income, when no disallowance ought to have been made while computing book profit u/s 11 the Act, relying on Tribunal decision in appellant's own case for AY 2009-1-10 vide corrigendum order dated 02.04.2008 Addition of interest on Income Tax Refund while computing Book Profits u/s 115JB 8. Erred in confirming the action of the learned AO of adding interest on income tax refund of Rs 246 16,62,026/- to the book profit of the appellant u/s. 115JB of the Act. The appellant submits that since the interest on income tax refund was not credited to profit and loss account as per the accounting policy consistently followed by the appellant, the learned CIT(A) erred in confirming the action of the learned AO in making adjustment to the book profit, which is not enumerated in clause (a) to (k) of Explanation 1 to section 115JB of the Act. Long term capital gain on Sale/Compulsory acquisition of land 9.....
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....R has not given any reason as to why it did not certify the scientific research expenses and the assessee was not given an opportunity of hearing by DSIR. Further, there is no right of appeal against the unilateral decision taken by DSIR. Accordingly, it was contended that there is violation of principles of natural justice and on this count also, the report of DSIR on scientific research expenses should be ignored. The assessee further submitted that the report in Form 3CL is required to be furnished by DSIR directly to PCIT or CCIT. Accordingly, it was contended that the non-approval of the scientific research expenses is not relevant for disallowing deduction u/s 35(2AB) of the Act claimed by the assessee. Accordingly it was contended that the claim of the assessee made u/s 35(2AB) of the Act should be allowed. 5.2 We heard Ld D.R on this issue and perused the record. We notice that the provisions of Rule 6(7A) have been amended w.e.f. 1.7.2016 to enable DSIR to certify Scientific Research Expenses. It is the contention of the assessee that the provisions of sec.35(2AB) of the Act empowers DSIR to approve the Scientific Research facility only and it does not empower certificati....
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.... the prescribed authority , when such question relates to any activity other than the activity specified in clause (a), whose decision shall be final." We notice that the above said provisions of sec.35(3) provides for making a representation to the prescribed authority. In the instant case, the question is about quantifying the expenditure, i.e., whether the expenses incurred in the in-house scientific research facility is would fall under the category of "scientific research expenses" or not as specified in sec.35(2AB) of the Act. Since the DSIR has not certified part of the expenses incurred by the assessee and since it did not furnish any reason for doing so, we are of the view that there is violation of principle of natural justice. Unless the prescribed authority furnishes the reason for not certifying the reasons, it will not be possible for us to adjudicate this issue. Accordingly, we restore this issue to the file of the AO in both the years with the direction to both the assessee as well as the AO to take appropriate action to ascertain the reasons for non-certification. After ascertaining the same, the AO may examine this issue afresh and take appropriate decision in ac....
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....hall determine the amount of expenditure in relation to such income in accordance with the provisions of sub-rule (2). (2) The expenditure in relation to income which does not form part of the total income shall be the aggregate of following amounts, namely:- (i) the amount of expenditure directly relating to income which does not form part of total income and (ii) an amount equal to one per cent of the annual average of the monthly average of the opening and closing balances of the value of investment, income from which does not or shall not form part of total income. Provided that the amount referred to in clause (i) and clause (ii) shall not exceed the total expenditure claimed by the assessee." Accordingly, the AO computed the disallowance as per Rule 8D(2)(ii) @ 1% of annual average of monthly average of opening and closing balances of the value of investment, income from which does not or shall not form part of total income. The amount so computed has exceeded the exempt income in both the years and hence the AO has restricted the disallowance to the amount of exempt income in both the years. 7.2 The Ld CIT(A), however, directed the AO to re-compute the disallowance....
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....ion would apply to the amended provisions of sec. 14A also. 7.6 It is the submission of the assessee that it has identified the expenditure relatable to exempt income by allocating salary and administrative cost of employees working treasury department and disallowed the same u/s 14A of the Act. However, the AO rejected the same by making following observations:- "It is pertinent to mention that every activity of the assessee company has some cost and expenditure involved in it. Whether it is meeting of Board of Directors to decide investment modalities or the staff's involvement and use of logistics to implement the decisions or accounting of such investments or payments etc carried out in relation to such investments and interest etc. Cost and expenditure are attributable to every activity in relation to these investments. It is also understood that in carrying on any activity of investment calls a lot of due diligence in selection of the fund/security and a constant monitoring to decide whether to continue such investment, switch from it to another investment. It cannot be denied that all the above activities call for men hours and expenses which are inherent and imbedded in ....
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....e Act. 7.8 In the case of DCIT vs. Nestle India Ltd (supra), the Delhi bench of ITAT has deleted the disallowance made by the AO u/s 14A of the Act on noticing that the AO did not record his dissatisfaction over the workings furnished by the assessee. The relevant observations made by the Delhi bench of ITAT are given below:- "7.1.1 However, it has further been brought to our notice that in the alternate, the assessee had submitted a computation before the Assessing Officer wherein it was submitted that the disallowance, if any, could not exceed Rs.8,34,934/- being the costs of treasury operations. However, it is seen that neither the Assessing Officer nor the Ld. CIT (A) has commented on this computation of the assessee. Thus, apparently, the satisfaction, as contemplated and laid down by the Hon'ble Delhi High Court in the case of Maxopp Investment Ltd. (supra) to be recorded by the Assessing Officer is completely absent and, therefore, in absence of the required satisfaction, such disallowance could not have been made. However, since, the Ld. AR has argued that the disallowance may be restricted to Rs.8,34,934/-, we, accordingly, restrict the disallowance to Rs.8,34,934/-....
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....Special bench in the case of Vireet Investments P Ltd (supra), we set aside the above said directions given by Ld CIT(A) in both the years. We notice that the assessee itself has made addition under clause (f) of Explanation 1 to sec.115JB of the Act for the purpose of computing book profit and the same has not been examined by the AO. Accordingly, we restore this issue in both the years to the file of AO to examine the addition made by the assessee on the basis of expenses claimed in the Profit and Loss account of the assessee. 9. Ground No. 8 raised by the assessee in both the years relate to the addition of interest on income tax refund to the Net Profit while computing book profit of the assessee under section 115JB of the Act. 9.1 The AO noticed that the assessee has offered "interest on income tax refund" of Rs.1.81 crores and Rs.246.16 crores respectively in AY 2017-18 and 2018-19 while computing total income under normal provisions of the Act. The AO further noticed that the assessee did not credit above cited interest income in the Profit and Loss account of the respective years, meaning thereby, above said interest on income tax refund was not included in the Book profi....
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....22 due to orders passed subsequently and same was assessed to tax under the normal provisions of the Act. However, since the said interest was not routed through the profit and loss account, the same was not offered to tax under section 115 JB of the Act. As per the assessee since corresponding appeals, relating to the income tax refunds on which interest has been received, are pending at different forums, therefore, there is no finality as to the assessed income of the assessee. Thus, interest on income tax refund is not crystallised and accordingly the same was not credited to the profit and loss account as per the policy consistently followed by the assessee. Further, the said financial statement has been prepared as required under Companies Act. The assessee further submitted that the financial statement of the assessee has been duly scrutinised and audited by the statutory auditors and have also been approved in the annual general meeting. The said financial statement has also been filed with ROC and other statutory authorities. 21. We find that following issue came up for consideration before the Hon'ble Supreme Court in Apollo Tyres Ltd (supra): S "Can an the Assessing O....
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.... refund being not included in the profit and loss account has not been disclosed by the assessee in its annual accounts and thus could not be said to be approved in the AGM or filed with the ROC and other statutory authorities, we find that no evidence has brought on record to the effect that because of such non-disclosure the accounts of the assessee were not maintained as per the provisions of Companies Act and other relevant rules and regulations. Further, no such objection by the statutory auditor or ROC or other statutory authority has been brought to our notice. In the present case, there is no dispute on the fact that assessee has offered interest on income tax refund to tax while filing its return of income and same has also been assessed under the normal provisions of the Act. Accordingly, we find no merits in addition of interest on income tax refund for computing the book profit under section 115 JB of the Act and the AO is directed to delete the same. As a result, ground No. 5 raised in assessee's appeal is allowed." Consistent with the view taken by the co-ordinate bench in the assessee's own case in AY 2016-17, we set aside the order passed by Ld CIT(A) on this issue....
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.... Land Acquisition, Rehabilitation and Resettlement Act, 2013" overrides the provisions of Income tax Act. The Ld A.R placed his reliance on the decision rendered by Hon'ble Bombay High Court in the case of Seema Jagdish Patil vs. National High Speed Rail Corporation Ltd (2022)(288 Taxman 26) in support of his contention that the capital gains is not liable to tax under normal provisions of the Act. With regard to the claim that it is not liable to be included in book profits computed u/s 115JB of the Act, the Ld A.R contended that an item, which is not liable to tax under normal provisions of the Act, cannot be subjected to tax u/s 115JB also. In support of this contention, the Ld A.R placed his reliance on the following decisions:- (a) PCIT vs. Ankit Metal and Power Ltd (2019)(416 ITR 591)(Cal) (b) CIT vs. Metal & Chromium Plater (P) Ltd (2019)(415 ITR 123)(Mad). The Ld A.R further submitted that the co-ordinate bench of the Tribunal has held in the assessee's own case for AY 2014-15 and 2015-16 that the Notional Sales tax incentive (subsidy) though credited to Profit and Loss account, is not liable to tax u/s 115JB of the Act, as the same is a capital receipt. The Ld A.R sub....
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....the same to the file of AO for examining the above said main claim of the assessee afresh in accordance with the decision rendered by Hon'ble Karnataka High Court in the case of Wipro Ltd (surpa). 12. With the adjudication of above grounds, the appeal of the assessee filed for AY 2018-19 stands disposed of. However, in AY 2017-18, the assessee has raised certain more grounds. We shall deal with the same now. 13. Ground No. 11 to 13 raised by the assessee in A.Y. 2017-18 relates to validity of reference made to Transfer Pricing Officer. At the time of hearing, the Learned AR did not press these grounds. Accordingly these grounds are dismissed as not pressed. 14. Ground No. 14 to 19 raised by the assessee in A.Y. 2017-18 relates to ALP adjustment on share application money returned back, by re-charcterising the same as loan. The assessee had made investment in preference shares issued by its subsidiary company located in Middle East named M/s Reliance Industries Middle East DMCC (RIME), UAE. The TPO re-characterised the above said investment as Loan and made transfer pricing adjustment by imputing interest thereon. 14.1 The TPO has described the transactions as under in AY 2017-1....
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....Pricing adjustment made on Share Application money against which Preference Shares had been allotted. He noticed that the assessee has got back part of share application money to the tune of Rs.45.00 crores on 1st July, 2016. The Ld CIT(A) further noticed that the TPO, while giving effect to the order of Ld CIT(A) for AY 2016-17 had computed interest for 90 days. Accordingly, he confirmed the transfer pricing adjustment for balance period of 11 days. 14.4 The Ld A.R submitted that the assessee has been allotted Preference shares to the tune of around 98% of the share application money. The refund received by the assessee constituted only 1.71% of total share application money. The Ld A.R further submitted that the T.P adjustment upto 90 days made in AY 2016-17 has been deleted by the ITAT. Accordingly, the Ld A.R submitted that the adjustment made for balance 11 days may also be deleted. 14.5 We heard Ld D.R on this issue and perused the record. We notice that the transfer pricing adjustment made by imputing interest on share application money has been deleted by ITAT in assessee's own case in A.Y. 2016-17 (supra). We find that the Tribunal has decided this issue in favour of the....
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....suance of shares on 19/09/2016, in respect of remittance made on 21/03/2016, excess share application money was refunded to the assessee in July 2016. These facts are also not disputed by the Revenue. Thus, in view of the above, when the transaction of subscribing to preference shares was itself not found to be bogus or sham, we do not find any merits in findings of learned CIT(A) in upholding levy of interest on excess share application money refunded, by treating the same as loan. Therefore, we direct the AO/TPO to delete the adjustment on account of levy of interest on excess share application money refunded. As a result, grounds No. 11 - 16 raised in assessee's appeal are allowed." We notice that the Tribunal has held that there is no merit in the transfer pricing adjustment made by imputing interest on share application money refunded to the assessee on the reasoning that (a) the amount was refunded before the allotment of preference shares and (b) when the transaction of subscription of preference shares itself is not found to be bogus or sham Accordingly, it was held that there is no merit in imputing interest thereon by way of transfer pricing adjustment. Since the tr....
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....ciation claimed by the assessee, as done by him in the earlier years. The Ld CIT(A) noticed that Tribunal had, in the earlier years, deleted such kind of depreciation disallowance made in the earlier years. Following the decisions rendered by the Tribunal in the earlier years, the Ld CIT(A) deleted the disallowance of part of depreciation made in both the years under consideration. The revenue is aggrieved. 16.2 At the outset, learned Counsel of the assessee submitted that this issue is squarely covered in favour of the assessee by decision of ITAT in assessee's own case in earlier orders for A.Y. 2006-2007 to 2016-17. The Ld D.R, however, supported the order of the AO. 16.3 We find that learned CIT(A) has granted relief to the assessee on this issue following earlier orders of ITAT, wherein it was held that the depreciation, which was not claimed by the assessee in the earlier years when the claim was optional in nature, cannot be thrust upon the assessee so as to reduce the WDV of assets. We notice that the disallowance of depreciation made by the AO in both the years under consideration are consequential to the stand taken by him in the earlier years, which has since been reje....
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....O did not accept above said contentions of the assessee. The AO noticed that the decision in the above said case has been rendered by Hon'ble Supreme Court in the context of sec. 80HH of the Act for AY 1979-80 and 1980-81. Accordingly, the AO held that the above said decision would not apply to the claim made u/s 10AA of the Act. 19.2 The Ld CIT(A) noticed that an identical claim made by the assessee in AY 2013-14 and AY 2015-16 has been allowed by ITAT holding that the language used in sec. 80HH and sec. 10AA are pari materia with each other and accordingly held that the ratio of decision rendered by Hon'ble Supreme Court in the case of Vijaya Industries (supra) could be applied to the deduction claimed u/s 10AA of the Act. He further held that the Explanation introduced to sec. 10AA(1) by Finance Act, 2017 w.e.f. 1.4.2018, which provides that deduction u/s 10AA would be allowed after set off of losses u/s 70 to 72 of the Act and Chaper VI-A deduction, does not deal with the manner of computation of qualifying amount eligible for deduction u/s 10AA of the Act. Accordingly, the Ld CIT(A) directed the AO to compute profit and gains of undertaking as interpreted by Hon'ble Supreme C....
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....e applicable from AY 2018-19 only. While holding so, the Tribunal had also expressed the view that the provisions of sec.80AB and the above said Explanation are pari materia with the above said Explanation inserted in sec. 10AA. 19.6 The Ld A.R submitted that the assessee did not contest above said observation made by the Tribunal in AY 2013-14, since it had already held that the Explanation inserted in sec. 10AA will not apply in that year, i.e., it is prospective in nature. The Ld A.R submitted that the above said observation of the Tribunal was not made in right perspective. He submitted that the provisions of sec.80AB and the Explanation inserted in sec. 10AA operate in different field and hence not pari materia. Explaining it further, the Ld A.R submitted that sec. 80AB is concerned with the "quantum of income" that is eligible for deduction under heading "C - Deduction in respect of certain income" in Chapter VIA, whereas the above said Explanation specifies "the stage" at which the deduction u/s 10AA of the Act should be allowed (i.e. from the total income) and also states that quantum of deduction should be restricted to the amount of Total income. Accordingly, the Ld A.R ....
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....ions of the assessee that sec.80AB and Explanation inserted in sec. 10AA operate in different fields. In view of the above, the decision rendered by Ld CIT(A) on this issue does not require any interference. 20. The next common issue urged by the revenue in both the years relates to the disallowance of deduction claimed u/s 80G of the Act in respect of donations given under Corporate Social Responsibility. 20.1 The assessee had incurred expenses under "Corporate Social Responsibility" (CSR) scheme and the same was disallowed while computing business income. However, certain payments made under CSR were eligible for deduction u/s 80G of the Act. Accordingly, the assessee claimed a sum of Rs.320.14 crores and Rs.387.89 crores u/s 80G of the Act out of the above CSR expenses. The AO disallowed the same. The Ld CIT(A) allowed the claim following the decision rendered by Mumbai bench of ITAT in the case of Naik Seafoods P Ltd vs. PCIT (2021)(ITA 490/Mum/2021). 20.2 We heard the parties on this issue and perused the record. In the case of Naik Sea foods P Ltd (supra), the co-ordinate bench has followed the decision rendered by Bangalore bench of Tribunal in the case of M/s FNF India P....
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.... under the Head 'Income form Business and Profession'. Further, clarification regarding impact of Explanation 2 to section 37(1) of the Income Tax Act in Explanatory Memorandum to The Finance (No.2) Bill, 2014 is as under: "The existing provisions of section 37(1) of the Act provide that deduction for any expenditure, which is not mentioned specifically in section 30 to section 36 of the Act, shall be allowed if the same is incurred wholly and exclusively for the purposes of carrying on business or profession. As the CSR expenditure (being an application of income) is not incurred for the purposes of carrying on business, such expenditure cannot be allowed under the existing provisions of section 37 of the Income-tax Act. Therefore, in order to provide certainty on this issue, it is proposed to clarify that for the purposes of section 37(1) any expenditure incurred by an assessee on the activities relating to corporate social responsibility referred to in section 135 of the Companies Act, 2013 shall not be deemed to have been incurred for the purpose of business and, hence, shall not be allowed as deduction under section 37. However, the CSR expenditure which is of the na....
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....sponsibility, not eligible for deduction u/s80G. 14. In our view, expenditure incurred under section 30 to 36 are claimed while computing income under the head, 'Income form Business and Profession", where as monies spent under section 80G are claimed while computing "Total Taxable income" in the hands of assessee. The point of claim under these provisions are different. 15. Further, intention of legislature is very clear and unambiguous, since expenditure incurred under section 30 to 36 are excluded from Explanation 2 to section 37(1) of the Act, they are specifically excluded in clarification issued. There is no restriction on an expenditure being claimed under above sections to be exempt, as long as it satisfies necessary conditions under section 30 to 36 of the Act, for computing income under the head, "Income from Business and Profession". 16. For claiming benefit under section 80G, deductions are considered at the stage of computing "Total taxable income". Even if any payments under section 80G forms part of CSR payments(keeping in mind ineligible deduction expressly provided u/s.80G), the same would already stand excluded while computing, Income under the head, "In....
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....claimed, which included expenses of Rs.748.51 crores incurred for KG-DWN- 98/3 block and Rs.949.76 crores incurred for CBM (Coal Bed Methane), Sohagpur block. The AO allowed only 10% of the above said expenses and disallowed the remaining amount of 90%. The reasoning given by the AO is that, as per PSC), the assessee has an option to exercise either Article 17.2.3 or Article 17.2.4 of PSC to compute correct profits of KGD6 and CBM units. The Ld CIT(A), however, deleted the disallowance. 21.2 We heard the parties and perused the record. Section 42 of the Income tax Act is a special provision for deductions in the case of business for prospecting etc., for mineral oil. If an agreement is entered by any person with Central Government for the association or participation (which agreement has been laid on the Table of each House) for prospecting for or extraction or production of mineral oils, there shall be made in lieu of, or in addition to, the allowances admissible under this Act, such allowances as are specified in the agreement. Further such allowances shall be computed and allowed in the manner specified in the agreement. Accordingly, the other provisions of the Act shall be dee....
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....n CBM block, the AO was not justified in restricting the deduction to 10% of expenses claimed by the assessee. Accordingly, we are of the view that the Ld CIT(A) was justified in directing the AO to allow entire expenses claimed in CBM block. 21.5 In respect of KGD-6 block, we notice that the Ld CIT(A) has given a categorical finding that all the expenses claimed by the assessee have been incurred post Commercial production. As per clause 17.2.4 of PSC of KGD-6 block, the option to claim expenses in installments is available to the expenses incurred prior to the date of Commercial Production. Since the impugned expenses are Post Commercial production expenses, the clause 17.2.4 of PSC will not apply. Accordingly, we are of the view that the Ld CIT(A) was justified in directing the AO to allow entire expenses claimed in KGD-6 block. 22. The next common issue agitated by the revenue in both the years relates to the disallowance of foreign tax credit u/s 90(1)(a)(ii) relating to income eligible for deduction u/s 10AA of the Act. The assessee had also raised a ground in both the years challenging the decision of Ld CIT(A) in not allowing Foreign tax credit. We noticed earlier that th....
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....stries (Middle East) DMCC (hereinafter referred to as "RIME"). The AO characterized the same as Loan and made transfer pricing adjustment. It is stated by the revenue that the grounds raised by the revenue pertains to the facts relating to subscription of NCCCPs of another AE named M/s Reliance Global Business B V, Netherlands (RGBV). It was further stated that the assessee had already liquidated the NCCCPs of RGBV in the earlier assessment year. Accordingly, it is contended that the ground raised by the revenue is infructuous. 24.2 Be that as it may, the fact is that the ld CIT(A) partially deleted the adjustment so made and sustained the addition to the extent of the amount refunded by the above said AE. While considering the appeals filed by the assessee challenging the addition to confirmed by Ld CIT(A), we have deleted the addition so confirmed by the Ld CIT(A). With regard to the relief granted by Ld CIT(A), we notice that the Ld CIT(A) has followed the decision rendered by him in AY 2016-17, which has since been upheld by ITAT. Since the decision rendered by Ld CIT(A) on this issue in this year is identical with the view taken by the Tribunal in the earlier years, we uphold....
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....al loss declared by the assessee on sale of NCCCPs cannot be disallowed. Accordingly, it was contended that the short term capital loss declared by the assessee in the current year should be allowed. 26.3 Since an identical issue has been decided in favour of the assessee by the Tribunal in AY 2016-17 and since the decision rendered by Ld CIT(A) on this issue is identical with the view taken by the Tribunal, we uphold the view taken by Ld CIT(A) on this issue in AY 2017-18 also. 27. The next individual issue urged by the revenue in AY 2017-18 relates to the deletion of addition made under section 50C of the Act on the basis of information not shared with the appellant. The assessee sold a property for a consideration of Rs.25.91 crores on 07.01.2016. According to the AO, the Stamp duty valuation of property was Rs.28.18 crores and accordingly, he added the difference amount of Rs.2.27 crores to the total income of the assessee u/s 50C of the Act. 27.1 The Ld CIT(A) deleted the addition on the reasoning that the said addition was made on presumptions, since no information was provided by the AO to the assessee. 27.2 It is settled principle of law that the AO is required to confr....
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....td (h) Retail Scan Management Services P Ltd (i) Turner & Townsend P Ltd The average mean margin of above said companies was 7.72%, which was lower than the margin earned by the assessee. Accordingly, the Ld CIT(A) held that the international transactions of this segment is at arms length and accordingly deleted the transfer pricing adjustment of Rs.1,64,46,083/-. 28.3 The revenue is agitating inclusion/exclusion of following companies by Ld CIT(A):- (A) These companies ought not to have been Excluded:- (i) JPS Associates P Ltd (ii) ANJ Power Technologies P Ltd (iii) 1 to 1 Help.Net P Ltd (iv) Inmacs Management Services P Ltd (B) These companies ought not to have been Included:- (i) MCI Management India P Ltd (ii) ICRA Management Consulting services Ltd (iii) Spectrum Business Solutions Ltd (iv) Allsec Technologies Ltd. 28.4 The Ld A.R submitted that the Tribunal may initially adjudicate the claim of revenue (a) for inclusion of ANJ Power Technologies P Ltd, 1 to 1 Help P Ltd and Inmacs Management Services Ltd. (3 companies) (b) for exclusion of Spectrum Business Solutions Ltd and All sec Technologies Ltd. (2 companies) He submitted that the claim of r....
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....are. No segmental result is given. Further, the turnover of this company is Rs.1.34 crores only, where as the assessee's turnover is Rs.13.99 crores. Hence, it fails in turnover filter of 10% also. Accordingly, we are of the view that the Ld CIT(A) was justified in excluding this company. (d) Spectrum Business Solutions Ltd:- The contention of the assessee is that this company is engaged in the business of providing market research and surveys, updating of data bases and admin support services. Accordingly, it was contended that this company is functionally comparable. It is further submitted that this company has been accepted as comparable company by the TPO in the years relevant to AY 2013- 14 to 2016-17. We notice that the TPO has rejected this company on the reasoning that it is not functionally comparable and further it fails in turnover filter. However, the description of nature of services provided by this company would show that it is functionally comparable. Further, the turnover of this company is Rs.5.53 crores, while the transaction value of the assessee company is 13.99 crores. Hence it would not fail in turnover filter of (+)/(-) 10%. Accordingly, we are of the vie....
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....0% of the interest rate differential. The TPO, even though accepted the yield spread method, proceeded to compute the guarantee commission by adopting Moody's analytics "Riskcalc plus" and WRDS-Thomson-Reuters LPC Deal Scan data bases for Corporate guarantee transactions and "Loss Given Default" approach using "Riskcalc Plus" for Performance guarantee". The TPO also allocated 60% of the rate differential to the assessee. He accordingly made the transfer pricing adjustment at Rs. 25.08 crores. 29.2 Before the learned CIT(A), the assessee made submissions pointing out the defects in the approach adopted by the TPO i.e. the TPO has failed to consider appropriate criteria for determining the credit ratings of AEs on whose behalf the guarantees were given by the assessee. The Learned CIT(A) also noticed that the assessee has been following Yield spread approach based on bank letters and further splitting the interest differential equally between the assessee and AE since A.Y. 2011-12 onwards. He noticed that this approach of the assessee has been accepted by the Tribunal in A.Y. 2011-12 to 2013-14. He also noticed that the TPO has himself accepted this method in AY 2014-15 to 2016-17, ....
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....ee companies was 3.42%, which was less than the profit earned by the AE. Accordingly the assessee claimed that the payment made its AE is at arms' length. 30.1 The TPO, however, rejected all the three companies mentioned above and selected following two companies : i) BVG India Ltd. ii) ANJ Powers Technicalities Pvt. Ltd. The arithmetic mean of above said two companies worked out to 25.69%. Accordingly, the TPO made the transfer pricing adjustment (SDT) of Rs.45.72 crores for business support services availed by the assessee from its AE. 30.2 The ld. CIT(A) rejected both the comparables selected by the TPO and accepted all the three comparables selected by the assessee. The Revenue is agitated the decision rendered by the CIT(A) in respect of all the five comparable companies mentioned in the preceding paragraph. 30.3 We have heard the parties and perused the record. We shall deal with each of the comparable companies below. a) BVG India Ltd. :- (Excluded by CIT(A)) The Learned AR submitted that the BVG India Ltd. is engaged in the business of providing facility management services, mechanised housekeeping, emergency medical services (Ambulance), emergency police servic....
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....company is liable to be excluded on application turnover filter. Accordingly we uphold exclusion of this company by the learned CIT(A). C) Empire Industries Ltd. :- (Included by CIT(A)) The TPO has rejected this comparable company holding that it is functionally not comparable, since it is engaged in the business of manufacture of machine tools, industrial equipments, real estate and glass containers. The TPO also noted that this company was rejected by him in A.Y. 2013-14 to 2016-17. The Learned AR submitted that this company is having different segments and it has considered relevant segment, viz., "trading, business support services, consultancy and commission" for benchmarking purposes. The Learned AR further submitted that all other dissimilar business segments were not considered by the assessee. The Learned AR also submitted that this company has been accepted as comparable company by the Tribunal in A.Y. 2013-14 to 2016-17. We noticed that the learned CIT(A) has also directed for inclusion of this company on the basis of the decision rendered by the Tribunal in assessee's own case for A.Y. 2013-14 to 2016-17. Thus we noticed that the assessee has considered relevant b....
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....d claimed the same to be at arms' length. However, the AO adopted external CUP, i.e., the price charged by third party named Gujarat State Electricity Corporation, which was less than the price charged by the assessee. Accordingly, the AO made Arms length price adjustment of Rs. 63.09 crores in respect of transfer of power u/s 80IA of the Act. 31.1 The learned CIT(A) noticed that the Tribunal has accepted the internal CUP in A.Y. 2013-14 to 2015-16. Accordingly, he reversed the order of AO and deleted the addition. 31.2 We have heard the parties on this issue and perused the record. We noticed that the internal CUP adopted by the assessee has been upheld by the ITAT in assessee's own case relating to A.Y. 2013-14 to 2016-17. The Learned AR also submitted that an identical issue arose in assessee's own case in A.Y. 2006-07 wherein also the assessee had adopted the rate charged by the Dakshin Gujarat Vij Ltd., in order to benchmark its transactions. He submitted that the Tribunal has upheld the adoption of internal CUP and the same has since been upheld by Hon'ble Bombay High Court. 31.3 Since the Tribunal is consistently upholding the practice of adopting internal CUP in resp....
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....in respect of following five comparable companies, then the assessee will not have grievance in excluding/including remaining four companies:- (i) Spectrum Business Solutions Ltd (Revenue seeks exclusion) (ii) Allsec Technologies Ltd (Revenue seeks exclusion) (iii) ANJ Power Technologies P Ltd (Revenue seeks inclusion) (iv) 1 to 1 Help P Ltd (Revenue seeks inclusion) (v) Inmacs Management Services P Ltd (Revenue seeks inclusion) 33.3 We shall deal with the above said five companies first. (i) Spectrum Business Solutions Ltd (Included by CIT(A)) The contention of the assessee is that this company is engaged in the business of providing market research and surveys, updating of data bases and admin support services. Accordingly, it was contended that this company is functionally comparable. It is further submitted that this company has been accepted as comparable company by the TPO in the years relevant to AY 2013-14 to 2016-17. We notice that the TPO has rejected this company on the reasoning that it is not functionally comparable and further it fails in turnover filter. However, the description of nature of services provided by this company would show that it is functio....
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....loyees, healthy maternity program etc, i.e., the services are in the nature of helping employees to maintain emotional well being and good mental health. The business of the assessee, however, is in the nature of providing services to carrying on business of AEs. We notice that the TPO has simply mentioned that the business of this company is comparable with that of assessee. On the contrary, the ld CIT(A) has noticed that the functions of this company is not comparable at all with the assessee. In view of the above said discussions, we are of the view that this company's functions are not comparable with that of the assessee. Accordingly, we are of the view that the Ld CIT(A) was justified in excluding this company. (v) Inmacs Management Services P Ltd (Excluded by CIT(A)) The contention of the assessee is that this company is mainly engaged in the business of development of specialized software and its turnover was only Rs.1.90 crores. We notice that the TPO has considered the description of services provided by this company, but ignored the fact of development of specialized software. This company also holds inventories of Rs.1.12 crores, meaning thereby, it is also a product ....
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....management India Pvt. Ltd. ii) CMS Computers Ltd. iii) DCM Ltd. (Segmental) 35.2 The TPO rejected first two companies and accepted DCM Ltd. (segmental). The TPO also introduced following two companies :- i) ASA Business Services Pvt. Ltd. ii) Omega Heath Care Management Services Pvt. Ltd. Accordingly three companies were taken as final comparable companies by the TPO in respect of IT support services provided by the AE. The arithmetic mean of three companies was 13.45%. Accordingly he made the transfer pricing adjustment of Rs. 9.13 crores. 35.3 The learned CIT(A) held that the two comparable companies introduced by the TPO, viz., ASA Business Services Pvt. Ltd. and Omega Heath Care Management Services Pvt. Ltd. are not good comparables and accordingly rejected them. He further held that two comparable companies selected by the assessee, viz., Altruist Customer management India Pvt. Ltd. and CMS Computers Ltd. are good comparable companies. Aggrieved the order so passed by the learned CIT(A) the Revenue has filed the appeal in respect of two comparables of the assessee, that were accepted by the learned CIT(A). 35.4 We heard the parties and perused the record, we shall ....
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....ssessee claimed that the payment made by it to its AE was at arms' length. The TPO rejected all nine comparable companies selected by the assessee and introduced following two comparables : i) BVG India Ltd. ii) ANJ Power Technologies Ltd. The three years weighted average margin of the above said two companies was 29.07%. Accordingly the TPO made transfer pricing adjustment was Rs. 60.40 crores. 36.1 The learned CIT(A) rejected both comparable companies introduced by the TPO and accepted eight comparable companies selected by the assessee. Aggrieved, the Revenue has filed appeal before the Tribunal challenging rejection of two comparable companies and acceptance of eight comparable companies, aggregating to 10 companies. The Ld A.R submitted that if the Tribunal upholds the order of Ld CIT(A) in respect of following three comparable companies, then the assessee will not have grievance in accepting the prayer of the revenue in respect of remaining 7 companies:- (a) BVG India Ltd (b) ANJ Power Technologies P Ltd (c) Empire Industries Ltd. 36.2 We shall deal with the above said three companies first. a) BVG India Ltd. :- (Excluded by CIT(A)) The Learned AR submitted tha....
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....was Rs. 232.04 crore. Accordingly it was submitted that this company would fail under turnover filter and also functional filter. We noticed that the learned CIT(A) has also observed that this company is engaged in diversified business activity. In any case this company is liable to be excluded on application turnover filter. Accordingly we uphold exclusion of this company by the learned CIT(A). C) Empire Industries Ltd. :- (Included by CIT(A)) The TPO has rejected this comparable company holding that it is functionally not comparable, since it is engaged in the business of manufacture of machine tools, industrial equipments, real estate and glass containers. The TPO also noted that this company was rejected by him in A.Y. 2013-14 to 2017-18. The Learned AR submitted that this company is having different segments and it has considered relevant segment, viz., "trading, business support services, consultancy and commission" for benchmarking purposes. The Learned AR further submitted that all other dissimilar business segments were not considered by the assessee. The Learned AR also submitted that this company has been accepted as comparable company by the Tribunal in A.Y. 2013-14 t....