TaxTMI 
TaxTMI 
2023 (10) TMI 1313
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....l and gas; generation and distribution of power, 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 Ju....
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....of total expenses of the investment division/unit [based on findings of a study undertaken by an Independent professional Chartered 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 i....
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....rations. 16. Failed to appreciate that the provision of Chapter X of the Act are not applicable to the transaction of share application money paid for subscription of preference shares being equity in nature. 17. Erred in upholding functionally 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....
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....t of total expenses of the investment division/unit [based on findings of a study undertaken by an Independent professional Chartered 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 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....
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....ion for such a procedure has not been made in section 35(2AB) of the Act. Accordingly, it was contended that. since the amendment has been made in Rule 6(7A)(b)(ii) without incorporating enabling provision in the provisions of sec.35(2AB) of the Act, the Rules cannot override the Act. Accordingly it was submitted that the amendment made in Rule 6(7A)(b)(ii) of the Rules should not be taken into consideration. It was further submitted that that DSIR 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 t....
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.... what extent any activity constitutes or constituted scientific research:- 35(3) If any question arises under this section as to whether, and if so, to what extent, any activity constitutes or constituted, or any asset is or was being used for, scientific research, the Board shall refer the question to- (a) the Central Government, when such question relates to any activity under clause (ii) and (iii) of sub-section (1), and its decision shall be final; (b) 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 viola....
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.... assessee. Accordingly he computed disallowance as per Rule 8D(2). We notice that the provisions of Rule 8D has been amended and it reads as under:- "8D(1) Where the Assessing Officer, having regard to the accounts of the assessee of a previous year, is not satisfied with- (a) the correctness of claim of expenditure made by the assessee ; or (b) the claim made by the assessee that no expenditure has been incurred, in relation to income which does not form part of the total income under the Act for such previous year, he shall 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 ....
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....not satisfied with- (a) the correctness of claim of expenditure made by the assessee ; or (b) the claim made by the assessee that no expenditure has been incurred, Hence arriving of satisfaction on the correctness of the claim of expenditure is sin-qua-non for resorting to the provisions of Rule 8D as held by Hon'ble jurisdictional Bombay High Court in the case of Godrej & Boyce Manufacturing Co Ltd vs. DCIT (328 ITR 81)(Bom). Even though the above said decision has been rendered by Hon'ble Bombay High Court in the context of earlier provisions of Rule 8D, in our view, the above said decision 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 staf....
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....e should not any dispute that the dissatisfaction contemplated in sec. 14A of the Act is "objective dissatisfaction". Without examining the workings given by the assessee, it would not have been possible for the AO to arrive at the dissatisfaction in an objective manner. Thus, in our view, the observations made by the AO he was not satisfied with the correctness of the claim of expenditure are only general observations. Since these observations have been made by the AO without examining the workings furnished by the assessee, we are of the view that the AO has not arrived at the objective satisfaction as contemplated in sec. 14A of the 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 e....
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....he relevant Profit and Loss account. Hence the Ld CIT(A) was justified in holding that the disallowance computed u/s 14A of the Act cannot be adopted verbatim for the purpose of clause (f) of Explanation 1 to sec. 115JB of the Act. At the same time, the Ld CIT(A) was not right in law in directing the AO to restrict the addition to be made under clause (f) of Explanation 1 to sec.115JB of the Act to the amount of disallowance computed by the assessee for the purposes of sec.14A of the Act, since the disallowance made by the assessee also u/s 14A could not have been imported in sec.115JB of the Act. Accordingly, following the decision rendered by the 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. Gr....
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....sue has been decided in favour of the assessee by the Co-ordinate bench in AY 2016-17, vide its order dated 14-10-2022 passed in ITA No.579/Mum/2021, wherein it was held as under:- "20. We have considered the submission of both sides and perused the material available on record. During the year under consideration, the assessee has received interest of Rs. 266,45,06,765 on income tax refund which has been reduced from advance Income Tax shown under the head 'loans and advances'. While filing the return of income, the said interest has been offered to tax under the normal provisions of the Act. Interest on income tax refund was revised to Rs. 265,38,24,122 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 cr....
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....ifferently, the Assessing Officer does not have the jurisdiction to go behind the net profit shown in the profit and loss account except to the extent provided in the Explanation to section 115J." 23. In view of the above, once assessee's accounts have been maintained in accordance with Companies Act and the same have also been scrutinised and audited by the statutory auditor, in absence of any material to negate these facts, the AO has limited power under section 115 JB of the Act to make adjustment to book profit only in respect of the items provided in Explanation 1 to section 115 JB (1) of the Act. As regards the submission of learned DR that the information regarding interest on income tax 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....
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.... 10.2 We heard the parties on the above said plea of the assessee. Having regard to the submissions made by the assessee, we notice that this additional ground is purely a legal ground, which does not require examination of any new facts. Accordingly, following the decision rendered by Hon'ble Supreme Court in the case of National Thermal Power Company Ltd (1998)(229 ITR 383)(SC), we admit this additional ground. 10.3 It is the contention of the assessee that the capital gains arising in both the year on compulsory acquisition of immovable property are not liable to tax both under normal provisions of the Act and u/s 115JB of the Act for the reason that sec.96 of "Right to Fair Compensation and Transparency in 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 profit....
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....on rendered by Hon'ble Karnataka High Court in the case of Wipro Ltd vs. DCIT (382 ITR 179)(Kar.). However, we notice that the AO has not given any reasons for giving short credit. Even though the assessee had placed its reliance before Ld CIT(A) on the decision rendered by Hon'ble Karnataka High Court in the case of Wipro Ltd (supra), yet the Ld CIT(A) has, without distinguishing the said decision, has rejected the claim of the assessee and accepted the alternative claim of the assessee. In our view, the decision rendered by Hon'ble Karnataka High Court in the case of Wipro Ltd (supra) is applicable to the facts of the present case. Accordingly, we set aside the order passed by Ld CIT(A) on the main claim of the assessee and restore 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 ....
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....t invested in FY 2009-10 (upto 29th March 2017) 12,800,000 58.31 363 6.28 3,64,22,277 Amount invested in FY 2010-11 (upto 29 March 2017) 4,438,000 26.59 363 7.47 1,97,55,747 Amount invested in FY 2015-16 (upto 29 March 2017) 223,995,380 1504.93 363 4.84 72,43,96,957 Amount invested in FY 2015-16 (balance 390,097 shares) 106,004,620 712.20 365 4.84 34,47,05,796 Amount invested in FY 2016-17 (Share Application money refunded on 30 June 2016) 6,793,000 45.00 91 4.40 49,37,209 Amount invested in FY 2016-17 (2,21,929 shares) 60,307,000 399.56 365 4.40 17,58,08,173 Total T P Adjustment 130,60,26,158 14.3 The Ld CIT(A), following the decision rendered by the Tribunal in the earlier years, deleted the Transfer 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....
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....ect investments by residents in joint venture and wholly-owned subsidiary abroad are being allowed in terms of section 6(3)(a) of Foreign Exchange Management Act, 1999 read with Foreign Exchange Management (Transfer or Issue of Any Foreign Security) Regulations, 2004. As per the aforesaid Master Direction, share certificate or any other document as an evidence of investment in foreign entity is to be received by the Indian party within 6 months from the date of effective remittance. 30. In the present case, in respect of last remittance on 21/03/2016, for the year under consideration, shares were allotted on 19/09/2016 and excess share application money amounting to Rs. 45,76,26,069 was refunded to the assessee. It is not the case of the Revenue that even after issuance of shares on 19/09/2016 excess share application money was withheld by the AE and was refunded subsequently. In this case, much before the issuance 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 p....
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.... 16. The First common issue urged by the revenue in both the years relates to the disallowance of part of depreciation claim, on account of reduction of WDV by thrusting depreciation upon the assessee in the earlier years, when the claim of depreciation in those years was optional in nature. 16.1 The facts relating to this issue are that the assessee had not claimed depreciation on certain assets till AY 2001-02; on the plea that claim of depreciation was optional in those years. The AO did not accept the above said contentions of the assessee in those years and accordingly, in the preceding years, he reduced the value of WDV of assets by the amount of depreciation that should have been allowed in those years. Since the assessee had claimed depreciation on the WDV computed by it, the AO re-computed the WDV of those assets as per the workings made by him in the earlier years. Consequent thereto, the AO reduced the opening WDV of those assets during these two years also and disallowed part of depreciation 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 ....
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.... of discussions made supra, while dealing with the appeal of the assessee on this issue. 19. The next common issue urged by the Revenue in both the years relate to the deduction claimed under section 10AA by computing 'profits and gains' of Refinery SEZ unit and PP SEZ unit as per Chapter VI-D, instead of adopting gross profit of the said units. 19.1 The assessee had claimed deduction u/s 10AA of the Act on the gross profit reasoning that the "Profits and Gains of undertaking" for the purpose of sec. 10AA of the Act should be taken as the gross profits as commercially understood and hence the AO should not resort to the provisions of Chapter IV of the Act for computing "profits of undertaking". In support of this proposition, the assessee relied upon the decision rendered by Hon'ble Supreme Court in the case of Vijay Industries vs. CIT (2019)(412 ITR 1)(SC), wherein it was held that the deduction u/s 80HH should be allowed without deducting depreciation and investment allowance as per Income tax Act. The AO 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....
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....2020 passed in the assessee's own case in ITA No.7299/Mum2017 with regard to the Explanation inserted in Sec. 10AA of the Act w.e.f. 1.4.2018. The said Explanation reads as under:- "For the removal of doubts, it is hereby declared that the amount of deduction under this section shall be allowed from the total income of the assessee computed in accordance with the provisions of this Act, before giving effect to the provisions of this section and the deduction under this section shall not exceed such total income of the assessee." In AY 2013-14, the ld D.R had contended before the Tribunal that the decision in the case of Vijay Industries was rendered in the context of sec. 80HH r.w.s. 80AB of the Act. He further contended that the above said Explanation (supra) inserted in sec. 10AA is pari materia with sec. 80AB of the Act. Accordingly, it was contended that the above said explanation should be applied in AY 2013-14 also. The co-ordinate bench, however, held that the above said Explanation is prospective in nature and shall be 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 Ex....
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.... eligible for deduction under heading "C - Deduction in respect of certain income" in Chapter VIA. The Explanation inserted in sec.10AA of the Act reads as under:- "For the removal of doubts, it is hereby declared that the amount of deduction under this section shall be allowed from the total income of the assessee computed in accordance with the provisions of this Act, before giving effect to the provisions of this section and the deduction under this section shall not exceed such total income of the assessee." A careful perusal of the above said Explanation would show that the deduction to be allowed u/s 10AA of the Act shall be allowed from "the total income" and further the said deduction shall not exceed such total income. Hence there is merit in the contentions of the assessee that 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, we agree with the contentions of the assessee that sec.80AB and Explanation inserted in sec. 10AA operate in different fields. In view of the a....
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....vant findings of the Bangalore Bench are reproduced below: - "9. After hearing both the parties, we find that similar issue came up for consideration before this Tribunal in ITA No.1693/Bang/2019 in the case of Allegis Services (India) Pvt. Ltd. v. ACIT. The Tribunal by its order dated 29.4.2020 held as under:- "10. Section 135 of Companies Act, 2013 requires companies with CSR obligations, with effect from 01/04/2014. Finance (No.2) Act, 2014 inserted new Explanation 2 to sub- section (1) of section 37, so as to clarify that for purposes of sub-section (1) of section 37, 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 be an expenditure incurred by the assessee for the purposes of the business or profession. 11. This amendment will take effect from 1/04/2015 and will, accordingly, apply to assessment year 2015-16 and subsequent years. 12. Thus, CSR expenditure is to be disallowed by new Explanation 2 to section 37(1), while computing Income under the Head 'Income form Business and Profession'. Further....
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....lifies for deduction. In-house R&D is eligible for deduction, under this section. * Section 35CCD provides deduction for skill development projects, which constitute the flagship mission of the present Government. * Section 36 provides deduction regarding insurance premium on stock, health of employees, loans or commission for employees, interest on borrowed capital, employer contribution to provident fund, gratuity and payment of security transaction tax. Income Tax Act, under section 80G, forming part of Chapter VIA, provides for deductions for computing taxable income as under: * Section 80G(2) provides for sums expended by an assessee as donations against which deduction is available. a) Certain donations, give 100% deduction, without any qualifying limit like Prime Minister's National Relief Fund, National Defence Fund, National Illness Assistance Fund etc., specified under section 80G(1)(i) b) Donations with 50% deduction are also available under Section 80G for all those sums that do not fall under section 80G(1)(i). Under Section 80G(2) (iiihk) and (iiihl) there are specific exclusion of certain payments, th....
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....es below have erred in denying claim of assessee under section 80G of the Act. We also note that authorities below have not verified nature of payments qualifying exemption under section 80G of the Act and quantum of eligibility as per section 80G(1) of the Act. 20. Under such circumstances, we are remitting the issue back to Ld.AO for verifying conditions necessary to claim deduction under section 80G of the Act. Assessee is directed to file all requisite details in order to substantiate its claim before Ld.AO. Ld.AO is then directed to grant deduction to the extent of eligibility. Accordingly grounds raised by assessee stands allowed for statistical purposes." We notice that the decision rendered by Ld CIT(A) on this issue is consistent with the view taken by various benches of Tribunal. Accordingly, we uphold the same. 21. The next common issue relates urged by the revenue in both the years relates to disallowance made under section 42(1)(b) in respect of KG-DWN- 98/3 (KGD6 bloc) and Coal Bed Methane Sohagpur (CBM). 21.1 The assessee had entered into "Production Sharing Contracts" (PSC) with Government of India for exploration and production of mineral oil. Dur....
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....OCK:- 15.4.2 All allowable expenditure incurred prior to the Year in which Commercial Production commences shall be aggregated and the assessed loss for that Year as well as the assessed loss, if any, incurred in the assessment Year relevant to the Year in which Commercial Production commences, or in any subsequent assessment year, shall be carried forward to succeeding assessment Years and set off as provided in the Income tax Act, 1961." Placing reliance on clause 17.2.4 of PSC of KGD-6 Block, the AO allowed 10% of expenses claimed by the assessee and accordingly disallowed 90% of expenses in both the blocks cited above. 21.4 We notice that the option to claim expenses incurred prior to the date of commercial production in ten instalments is available only in KGD-6 Block, vide clause 17.2.4 and not in CBM Block, i.e., as per PSC in CBM block, expenditure incurred prior to the commercial production shall be aggregated and the loss so assessed as well as loss, if any, incurred in the assessment year relevant to the year in which Commercial production commences or in any subsequent assessment year shall be carried forward to succeeding assessment years for being set o....
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....at the ITAT, in AY 2016-17, has upheld the ALP working of assessee adopting interest rate at LIBOR plus 200 basis points. Accordingly, he deleted the transfer pricing adjustment made by the TPO. 23.2 We heard the parties on this issue and perused the record. It was submitted by Ld A.R that the rate of interest chargeable by the assessee from its AE would depend upon the credit rating of the AE. Hence the assessee has taken AEs as tested parties and has done benchmarking on the basis of agreements entered between AEs and third parties. Accordingly, the interest charged has been benchmarked with the interest payable by the AE to the third parties in comparable circumstances adopting internal CUP. 23.3 We notice that the ALP adopted by the assessee at LIBOR plus 200 basis points has been accepted by the Tribunal in the earlier years. No distinguishing feature was pointed out by the revenue in these two years, which may compel us to take a different view. Accordingly, we uphold the view taken by Ld CIT(A) on this issue in both the years. 24. The next common issue urged by the revenue in both the years relate to the transfer pricing adjustment by re-characterising the preferenc....
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..... The first individual issue urged by the revenue in AY 2017-18 relates to the disallowance of long term and short term capital loss on sale of Noncumulative compulsorily convertible preference shares (NCCPS) of M/s. RGBV by re-characterising the same as loan. During the year under consideration, 8,24,303 non-cumulative compulsory convertible preference shares (NCCCPS) held by the assessee were cancelled and accordingly, the assessee declared short term capital loss of Rs.51,21,51,467/-. The AO noticed that the TPO had characterized the above said investment as loan in the earlier years and hence held that the loss is not allowable as deduction. The AO further noticed that a similar claim made in AY 2016-17 was disallowed. Accordingly, the AO disallowed the claim of Short term capital loss. 26.1 The Ld CIT(A) noticed that his predecessor and the ITAT had held in AY 2010-11 that the re-characterisation of investment into loan is not permissible and accordingly deleted the transfer pricing adjustment made by the TPO. 26.2 We heard the parties on this issue. The Ld A.R submitted that the issue of re-characterisationof NCCCPs as loan has been decided in favour of the assessee by ....
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....nd charged them at cost plus 10%. For this segment, the assessee selected itself as Tested party and adopted TNM method as most appropriate method. It selected 7 set of comparable companies. However, the TPO rejected 6 companies and accepted 1 company only. The TPO introduced 9 comparable companies and accordingly finalized following set of 10 comparable companies:- (1) JPS Associates P Ltd (2) ANJ Power Technologies P Ltd (3) 1 to 1 Help.Net P Ltd (4) Inmacs Management Services P Ltd (5) Retail Scan Management Services P Ltd (6) Turner & Townsend P Ltd (7) Laurent and benon Management Consultants Ltd (8) Right Management India P Ltd (9) Fleet Management Services Ltd (10) HDFC Capital Advisors Ltd. The median margin of above set of comparables was 22.55%. Accordingly, the TPO proposed transfer pricing adjustment of Rs.1,64,46,083/-. 28.2 The Ld CIT(A) finalized 9 set of comparables, which consisted of 6 comparables selected by the assessee and 3 comparable companies selected by the TPO. The details of those companies are listed below:- (A) Selected by the Assessee:- (a) Murug....
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....at it is not functionally comparable. No material was placed before us to contradict above said finding of Ld CIT(A). Accordingly, we are of the view that the Ld CIT(A) was justified in rejecting this company. (b) 1 to 1 Help P Ltd:- The contention of the assessee is that this company is engaged in the business of providing psychological assistance and counseling to the employees in the areas of prevention sexual harassment, lifestyle management for shift employees, 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. No material was placed before us to contradict the findings given by Ld CIT(A). 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 ....
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....years relevant to AY 2012-13 to 2015-16 by the Tribunal. In AY 2016-17, the TPO has accepted this company as good comparable. It was submitted that there is no change in facts in this year also. In view of the foregoing discussions, we are of the view that the Ld CIT(A) was justified in directing the AO/TPO to include this company. 28.6 Since we have rejected the claim of the revenue in respect of above said five companies, the assessee does not have objection in inclusion/exclusion of remaining three companies, i.e., the assessee does not object to the exclusion of two other companies (MCI Management India P Ltd and ICRA Management Consulting Services Ltd) and inclusion of M/s JPS Associates P Ltd. 28.7 Accordingly, we restore this issue to the file of AO/TPO for redetermining the ALP of this international transaction in the light of discussions made supra. 29. The next individual issue contested by the revenue in AY 2017-18 relates to the transfer pricing adjustment in respect of Guarantee commission given to the Associated Enterprise (AE). 29.1 The assessee had given Corporate guarantee to its AEs for availing loans from financial institutions. The assessee followed ....
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....terest in the ratio 50:50 between the assessee and its AE. Hence, we do not find any reason to interfere with the decision rendered by the learned CIT(A) on this issue. 30 The next individual issue urged by the Revenue in A.Y. 2017-18 relates to the transfer pricing adjustment in respect of the business support services availed from its AE. This adjustment relates to "Specified domestic transactions" (SDT). The assessee has availed business support services from M/s. Reliance Corporate IT Park Ltd. (RCITPL) for its undertaking, which is eligible for deduction under section 80IB of the Act. Broad scope of services rendered consisted of - back office support for transaction processing and analysis, - maintenance of accounting in ERP system, - support of functional and technical aspects, - support by way of evaluation and recommendation of procurement contracts, - support in the matters relating to accounting, taxation, insurance and HR, administration, - system network management services, - telecommunication system operation and maintenance, - infrastructural support services, - operational or admini....
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....llowing the decision rendered in A.Y. 2013-14 to 2016-17. On perusal of the functions performed by the AE to the assessee, which is narrated in an earlier paragraph, it can be noticed that they are in the nature of core business support services provided by the AE, i.e., many works related to day to day carrying on of the business of the assessee have been outsourced to its AE. On the contrary, the functions provided by this comparable company are in the nature of low end support services, basically maintenance of infrastructure and related services. Further, this company also provides beautification services like garden development, land scaping. It also implements engineering projects like rural electrification. Accordingly, we are of the view that functions of this company cannot be compared with the functions carried on by the AE. We also noticed that this company has been excluded by the ITAT in A.Y. 2013-14 to 2016-17. Accordingly, we hold that this company functionally not comparable with the AE. Accordingly, we are of the view that the learned CIT(A) was justified in excluding this company. b) ANJ Powers Technology Pvt. Ltd. :- (Excluded by CIT(A)) ....
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....e business of providing research/management consulting/advisory services to its clients. According to the assessee, the services provided (functions of) by RCITPL is broadly comparable with that of the assessee company. It was also submitted that this company has been accepted as comparable by the learned CIT(A) in A.Y. 2014-15 to 2016-17. No contrary decision was shown to us by the revenue. In view of the above, we are of the view that the Ld CIT(A) was justified in including this company as comparable one. e) Spectrum Business Solutions Ltd :- The TPO has rejected this company as it failed turnover filter. Since we have applied turnover filter in respect of other comparable companies, we are of the view that the learned CIT(A) was not justified in directing for inclusion of this company. Accordingly, we set aside the order passed by the learned CIT(A) and direct for inclusion of this company. 30.4 Accordingly, this issue is restored to the file of the TPO/Assessing Officer for determining the ALP of the transaction in the light of the discussion made supra. 31 The last individual issue agitated by the revenue in AY 2017-18 relates to the Arms Length price ....
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....vices and Business support services (BSS) rendered to AE. b) Transfer pricing adjustment in respect of Guarantee commission given to the Associated Enterprise (AE). c) Transfer pricing adjustment in respect of Business support services availed from AE - RCITPL (Specified Domestic Transaction). 33 The first individual issue urged by the revenue in AY 2018-19 relates to Transfer pricing adjustment in respect of Management Consultancy Services (MCS), technical services and Business support services (BSS) rendered to AE. 33.1 The assessee has provided MCS, Technical Services and BSS to its AE and charged them at cost plus 10%. For this segment, the assessee selected itself as Tested party and adopted TNM method as most appropriate method. It selected 8 comparable companies. However, the TPO rejected all of them and brought in 9 comparable companies. Accordingly, the TPO made transfer pricing adjustment of Rs.65,89,399/-. 33.2 The Ld CIT(A) finalized 10 comparable companies, which consisted of 7 companies selected by the assessee and 3 companies selected by the TPO. Since the transaction was at arms length, the Ld CIT(A) deleted the addition. The revenue is ag....
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....e assessee is that this company is engaged in the business of providing lifecycle management and human resources support services. It also provides data verification, processing of orders, telemarketing, monitoring quality of calls and call centers, payroll processing etc. It is the submission of the assessee that the services provided by this company is akin to the services provided by it. Accordingly, it was contended that the TPO was not justified in rejecting the company holding that it is a BPO company providing ITes services. It was further submitted that this company has been accepted as comparable in the years relevant to AY 2012-13 to 2015-16 by the Tribunal. In AY 2016-17, the TPO has accepted this company. It was submitted that there is no change in facts in this year also. In view of the foregoing discussions, we are of the view that the Ld CIT(A) was justified in directing the AO/TPO to include this company. (iii) ANJ Power Technologies P Ltd (Excluded by CIT(A)) The contention of the assessee is that as per website of the above said company, it is engaged in the business of manufacture of electrical equipments. Hence it is submitted that it is functionally diffe....
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....3.5 Accordingly, this issue is restored to the file of the TPO/Assessing Officer for determining the ALP of the transaction in the light of the discussion made supra. 34. The next individual issue urged by the revenue in AY 2018-19 relates to transfer pricing adjustment in respect of Guarantee commission given to the Associated Enterprise (AE). 34.1 Identical issue has been examined by the assessee in the appeal of revenue relating to AY 2017-18 in the preceding paragraphs, wherein we have upheld the order passed by Ld CIT(A) on this issue. Since the facts relating to this issue are identical in this year also, following our decision rendered in AY 2017-18, we uphold the order passed by Ld CIT(A) on this issue. 35. The next individual issue urged by the revenue in AY 2018-19 relates to transfer pricing adjustment in respect of Business support services availed from its domestic AE - RCITPL (Specified Domestic Transaction). The services so availed consisted of two types, viz., (a) IT Support Services and (b) Business support services. 35.1 We shall first deal with IT support services. The assessee has availed IT support services from one of its AE named Reliance Corporat....
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....ess of providing low end IT enabled services. Accordingly, the learned CIT(A) has held that this company should not be excluded. We noticed that the TPO has not given any reason for holding that this company is not functionally comparable. On the contrary, the learned CIT(A) has noticed that this company is providing low end IT enabled services, which is comparable with the functions of the assessee company. Accordingly, we are of the view that the learned CIT(A) was justified in including this company. b) CMS Computers Ltd. The TPO has excluded this comparable holding that it is functionally not comparable. However, it was pointed out to the learned CIT(A) that this company is engaged in the business of providing low end IT enabled services. Accordingly the learned CIT(A) has held that this company should not be excluded. We noticed that the TPO has not given any reason for holding that this company is not functionally comparable. On the contrary, the learned CIT(A) has noticed that this company is providing low end IT enabled services and hence it is comparable with the assessee company. Accordingly, we are of the view that the learned CIT(A) was justified in including this....
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....transportation, plant reallocation, attendance services and labour supply. Further this company also undertakes work for garden development, land scaping beautification project, engineering and other contract for government and private organizations. There is also sale of goods during this year. Accordingly, learned AR submitted that this company is functionally different from functions carried on by the assessee. He further submitted that this company has been held to be not comparable functionally by the ITAT in A.Y. 2013-14 to 2016-17. He also submitted that the learned CIT(A) has rejected this company by following the decision rendered in A.Y. 2013-14 to 2016-17. On perusal of the functions performed by the AE to the assessee, which is narrated in an earlier paragraph, it can be noticed that they are in the nature of core business support services provided by the AE, i.e., many works related to day to day carrying on of the business of the assessee have been outsourced to its AE. On the contrary, the functions provided by this comparable company are in the nature of low end support services, basically maintenance of infrastructure and related services. Further, this company ....
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....we noticed that the assessee has considered relevant business segment for the purpose of benchmarking analysis. However, the TPO has missed this vitas aspect. Further this company has been accepted as comparable company by the ITAT in A.Y. 2013-14 to 2016-17. Accordingly, we do not find any infirmity with the decision of the learned CIT(A) in including this company as comparable one. 36.3 Since we have upheld the order passed by Ld CIT(A) in respect of above said three companies, there is no necessity to adjudicate the remaining 7 companies, as the Ld A.R submitted that they can be decided in favour of the revenue. Accordingly, this issue is restored to the file of the TPO/Assessing Officer for determining the ALP of the transaction in the light of the discussion made supra. 37. The assessee has filed Cross objections ( C.O. No. 137/Mum/2022 ) in AY 2018-19 on the following issues:- a) Disallowance of depreciation by thrusting depreciation of earlier assessment year. b) Disallowance under section 14A r.w. Rule 8D. c) Disallowance of deduction under section 10AA in respect of Refinery SEZ. d) Disallowance of deduction under section 10AA in r....