TaxTMI 
TaxTMI 
2022 (7) TMI 1497
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....on ground that certain common issues were arising in the appeals .Therefore all the appeals were taken up together for hearing. We shall first deal with the cross-appeals pertaining to the Asst.Year 2006-07 and our decision rendered therein on common issues will apply mutatis mutandis to the other appeals. 3. Assessee's Appeal : Asst.Year 2006-07 4. At the outset Ld.Counsel for the assessee pointed out that the present appeal had come up in the second round before the ITAT. Giving a brief background of the appeals, Ld.counsel for the assessee began by pointing out that the assessee company was engaged in the business of manufacturing of chemicals comprising of dyes, specialty chemicals, agrochemicals, bulk drugs and commodity chemicals. That the assessment framed for the impugned year u/s 143(3) r.w.s 144C of the Act on 22/10/10 had travelled in appeal to the ITAT via the Dispute Resolution Panel(DRP) route, who vide their order dated 29/10/12 in ITA No.3118/Ahd/2010 set aside the following issues to the AO for reconsideration: i) Transfer Pricing Adjustment a) commission received from Associate Enterprise(AE) of Rs. 2,71,82,980, and b) on account o....
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....9,905/- , and (ii) adjustment for quantity discount ,for difference in price charged to AE's and non-AE's of Rs. 74,59,611/-; both totalling to Rs. 1,74,69,516/-. The ld.counsel for the assessee pointed out that the ld.CIT(A) had upheld the adjustment amounting to Rs. 1,00,09,905/- while he had deleted the other adjustment, and accordingly, the assessee is in appeal against adjustment upheld by the ld.CIT(A). 8. With regard to the same, the ld.counsel for the assessee contended that in the first round it had been demonstrated to the ITAT that the TP study report adopted the CUP method for comparison of sale of goods made to AE and while doing so had made comparison of identical goods sold to non-AE's to justify ALP. But while doing so, he contended it was pointed out to the ITAT, that a mistake had crept in and in one of the cases relating to item with product code-111108, the comparison had been done with an item of different product code i.e. 110308; that before the Tribunal, report from the Chartered Accountant (CA) stating that sale of the said products had been so erroneously compared, was filed, and accordingly, ITAT had sent the matter back to the TPO to deter....
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....trating on one product, i.e. product code number '110308'. In the foregoing paragraph, we have noted that for this product the TPO had made the maximum adjustment. The calculation of the assessee in respect of this product is distinguishable because of the reason that the difference in price after adjustment as per assessee was only 383.4, however, as against that, the difference in price after adjustment as per TPO was 1081.1. Therefore, the assessee has calculated the scope of adjustment of Rs. 35,49,901/-. In this connection, the assessee has sought permission for the production of additional evidence, as discussed supra. It was noted by the assessee on verification of sale transaction that there was a discrepancy, informed through a separate petition seeking permission of admission , quote "3. Re. Summary of comparative data for sales made to AE and non AEs' for Financial Year 2005/06 submitted as part of audited accounts placed @ page 95 of the paper book reproduced as Annexure A of the order of Transfer Pricing Officer, the assessee submits that on verification of the sale transaction with AE / Non AE, discrepancy in the nature of sale of product code 111108 (product name Nov....
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....Olive RPure Novatic Brown R Pure 6559 23-07-05 Dystar TextileFarben GMBH 900 15,58,563 110308-Novatic Olive R Pure 111108-Novatic Brown R Pure 6672 31 -08-05 Dystar Textile GMBH 1925 35,04,032 110308-No vatic Olive R Pure 111108 -Novatic Brown R Pure 6813 24-9-05 Dystar TextiJeFarben GMBH 2900 52,75,467 110308-Novatic Olive R Pure 111108-Novatic Brown R Pure 6829 30-9-05 Dystar TextileFarbenGMBH 1000 18,22,212 110.108-Novatic (Olive R Pure 111108-Novatic Brown R Pure 7073 09-11-05 Dystar TextileFarben GMBH 900 15,76,294 110308-Novatic-Olive R Pure 111108-Novatic Brown R Pure 7167 30-11-05 Dystar TexlileFarben GMBH 900 15,86,016 110308-Novatic Olive R Pure 111108-Novalic Brown R Pure 7200 16-12-05 Dystar TextileFarben GMBH 300 5,29,741 110308-Novatic Olive R Pure 111108-Novatic Brown R Pure 7201 16-12-05 Dystar TextileFarben GMBH 680 11,95,465 110308-Nova lie Olive R Pure 111108-Novaiie Brown ; R Pure 7225 26-12-05 Dyslar TextileFarben GMBH 925 16,32,036 110308-Novalic Olive R Pure 11108-Novati....
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....ssessment order on this ground. Therefore addition of Rs. 1,00,09,905/- is confirmed." 11. The ld.counsel for the assessee contended that despite clear direction of the ITAT to consider the issue de novo, noting the contention of the assessee that an error had been committed while comparing a product sold by it to its AE, the authorities below had failed to adjudicate the issue in accordance with the directions of the ITAT. The ld.counsel pointed out that certificate of the CA clearly listed all the details relating to impugned transaction in which error had been committed. He contended that the Revenue authorities could very well have enquired into the veracity of the details and adjudicated the issue. 12. The ld.DR however relied upon the orders of the Revenue authorities. 13. We have heard contentions of both the parties and have gone through the orders of the ITAT in the first round and order of the TPO/AO and the ld.CIT(A) passed in the second round. The issue relates to TP adjustment made of Rs1,00,09,905/- on account of sale of products by the assessee to its AE. The contention of the assessee before the ITAT in the first round was that in its TP report, the compari....
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....o its claim of error in the TP report and the Revenue authorities having failed to examine the same, despite two opportunities before them, one by the TPO, the other by the Ld.CIT(A),the adjustment no longer is sustainable. The TP adjustment made on account of sales to AE's of Rs. 1,00,09,905/- is therefore directed to be deleted. 13.3 We may add that our finding as above shall not be treated as a precedent, considering the peculiar facts in which it has been so held. Ground No.1 of the appeal is allowed in the above terms. 14. Ground No.2 of the assessee's appeal reads as under: "The ld.CIT(A) has erred in law and on facts in confirming disallowance by AO of Rs. 47,87,776/- prior period expenditure claimed by the appellant. The ld.CIT(A) ought to have allowed claim of prior period expenses crystallized during the year and correctly claimed by the appellant." 15. The ground relates to disallowance made on account of prior period expenses claimed by the assessee. The facts relating to the issue, as brought out in para-7.1 and 7.2 of the CIT(A)'s order are that the assessee had claimed prior period expenses of Rs. 1,11,31,209/- and after netting off prior period inc....
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....lities on account of prior period expenses in the year under consideration. The Hon'ble Tribunal vide para 9 (Page No. 46 of the order) directed the assesse to substantiate the crystallization of liabilities in the year under consideration and further directed AO to examine the exact nature of liabilities with regards to prior period expenses. AO disallowed the claim after holding that the appellant was not able to substantiate the claim. The appellant before me has argued that the expenses related to previous year were constantly debited by the appellant to prior period expenses account and in many cases the bills were received by the company after the close of accounting year and therefore, the liability was finalized and crystallized during the F. Y. 2005-06. However, the appellant has not substantiated the said claim before AO or before me and thus disallowance of prior period expense is justified and confirmed. 7.4.2. The second issue is with regards to allowing netting off benefit of the prior period income amounting to Rs. 71,74,782/- as against prior period expense. The Hon'ble Tribunal directed the appellant to demonstrate the nature of prior period income....
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....her. However, we have noted that certain enquiry, said to be basic enquiry was not conducted at the assessment stage. The AO is therefore directed to first of all examine the exact nature of the liability and how it related to the business of the assessee. The next step should be to examine the evidence about the crystallization, that too crystallized during the year under consideration. What was that evidence on the basis of which the assessee had claimed that the said liability had in fact crystallized during the year under consideration. We have also noted that there was an alternate plea of assessee that the income which pertained to earlier years was received during the year amounting to Rs. 71,74,782/-. Even in this regard, there is no explanation about the nature of the income. How an income of earlier year had also earned during the year under consideration was to be demonstrated by the assessee. There is no evidence on record about the source of such income and what will be the impact of its taxability during the year under consideration. How it was termed as an income of earlier years if it was earned during the year under consideration. Since all such information is not ....
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....or period expenditure. The Tribunal reversed the findings of the Revenue authorities primarily on two grounds. Firstly, that the assessee being a company was charged uniformly for all years and would therefore, have no revenue implication of whether the expenditure was recognised in this assessment year or earlier year. The second ground was that in any case, the Revenue had recognised the prior period income. If that be so, according to the Tribunal, it would be unfair not to recognise the expenditure also of the prior period. 3. Having heard learned counsel for the parties and having perused the documents on record, we see no reason to interfere. Firstly, the expenditure of Rs. 67.881acs is a fraction of the total income of the assessee company declared at Rs. 105.88 crores. Further, even the Revenue does not dispute that the company would be taxed at the same rate in the present assessment year or during earlier year. It is also not disputed that prior period income was declared by the assessee during the current year which is also accepted by the Revenue. No question of law therefore, arises." 19. The ld.counsel for the assessee therefore contended that entire prior....
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....n upholding that the alleged receipt of commission from Atul Europe Ltd., of Rs. 1,21,60,877/- is a notional income and not taxable under the Income-tax Act and thus, deleting the same." 24. The facts relating to this ground are that during the course of original transfer pricing proceedings it was noted by the TPO from the audited financial statements of the Associated Enterprise(AE) of the assessee , Atul Europe Ltd., that it had paid commission of GBP 1,54,530/- to the assessee which was added by the TPO in absence of any benchmarking/TP study. The assessee claimed that instead of receipt of commission, it was required to pay such commission to its AE, however, as the said liability was not honored by the assessee, the said commission was reversed by its Associated Enterprise. During proceedings before the ITAT,in the first round, the assessee placed its statement of account in the books of AE, Atul Europe Ltd., as evidence and the ITAT set aside the matter to the AO for re-examination. Thereafter, the AO made a reference u/s 92CA of the Act for computation of Arm's length price and asked the assessee to substantiate its claim. In response the assessee reiterated that it ....
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....s commission for the simple reason that according to the appellant, such commission was not at all due and payable. For the year under consideration, it was finally decided that such commission is not at all required to be paid. Consequently, the said AEL has expensed off commission shown as income in earlier year. However, the appellant having not booked the original commission as expenditure did not pass any entry for write back of the non-payment of commission. In the books of the appellant, such commission was not at all accounted for. Even if accounted, over a period of time the same would have been revenue neutral as originally in earlier years it would have been shown as expenditure and for the year under consideration, the same would have been shown as income. For the year under consideration, AO has only added commission income only on the basis of accounting entry passed by the AEL which is not correct indication of commission income in the hands of the appellant. At original stage, the complete ledger accounts and certificate from AEL were not placed on record. However, the same were placed on record and therefore, Hon'ble ITAT had set aside the matter back to the fi....
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....on in its books of accounts and upon detection of this fact by the departments-such a claim is being made. Further even if such claim is assumed to be correct, then the assessee has not provided any justification for non inclusion of such commission payment by it to the AE in the & in the form 3CEB reports submitted for relevant F.Ys. In addition the assessee has not given any justifiable reason for non production of the evidence earlier especially in light of the fact that the associated enterprise is a wholly owned subsidiary of the assessee. 5.2 Further it can be seen that the purported additional evidence produced by the assessee is a mere statement of account signed by the General Manager of the AE on 29/07/2011. It is very surprising to note that the assessee could not produce even such statement of account earlier even though it pertains to its AE which is a wholly owned subsidiary of the assessee. The additional evidence is neither an extract of the ledger account from the books of the AE nor it is verified by independent auditor. Considering the above there is a big question mark on the documents produced by the assessee of even being evidence, leaving alone the q....
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....ficate of Atul Ltd (AEL) certifying these facts. The Revenue ,we find, does not contest the factum of these evidences . But has opposed considering them since they were not originally produced .We find that the Ld.CT(A) has rightly dealt with this aspect pointing out that taking note of these very evidences the ITAT had in the first round restored the matter to the AO to consider the issue in the light of the explanation of the assessee. The Ld.CIT(A) ,we agree ,has rightly held that these evidences therefore could not be rejected merely for the reason they were not produced earlier. No other infirmity being pointed out in the evidences ,we agree with the Ld.CI(A) that the assessee has duly substantiated his explanation that the alleged commission income recorded in the name of the assessee in the Books of Atul Ltd.(AEL) was in fact only a reversal of earlier commission expenses booked by it on account of the same no longer being required to be paid. We therefore see no reason to interfere in the order of the Ld.CIT(A) deleting the adjustment on account of determination of ALP of commission allegedly paid by the AE to the assessee amounting to Rs. 1,21,60,877/-. Ground of app....
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.... para 5.19.2 (Page. No. 28 of the order) directed the appellant to place its commercial policy on record. The appellant was further directed to demonstrate the basis of applying such policy. The appellant has placed before me letter dated 21/04/2014 wherein the appellant has produced its commercial policy along with comparative data of sales to its AEs and non-AEs which has been placed at page no. 148 to 151 of the P/B. The appellant has further demonstrated that it provided volume discount and adjustment to arm's length price were carried out ranging from 0 to 20%. The appellant has further produced working of such adjustments to it Arm's Length Price. In my opinion, the approach adopted by the appellant is reasonable and further the appellant has effectively demonstrated its commercial policy substantiating it with its sales to AE's and A/on AE's. It has been observed that the TPO has rejected this adjustment of the appellant merely because there was not written agreement to this effect. As stated earlier, the appellant has not executed any written agreement for quantity discount but the same is duly documented in the form of a commercial policy which is the pract....
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....In the result, the appeal of the Revenue for A.Y 2006-07 is dismissed. 35. Revenue's appeal in IT(TP)A No.1108/Ahd/2017 (Asst.Year 2007-08) 36. At the outset, it was pointed out that the present appeal was also in second round before us, as in Asst.Year 2006-07 dealt with by us hereinabove, following the directions of the ITAT on certain issues in the first round. 37. Ground No.(a) & (b) raised by the Revenue reads as under: (a) That the ld.CIT(A) erred in law and on facts in deleting the addition of Rs. 1,37,33,547/- u/s.92CA(3) of the Act on account of "Transfer pricing" (b) That the ld.CIT(A) has erred in law in directing the TPO to give volume (i.e. quantity discount on the basis of artificial segmentation of the customers into five categories with discount ranging from 0 to 20% without backed by any actual data) 38. It was common ground that the issue raised by the Revenue in this ground related to block discount given by the assessee to its AE pertaining to which adjustment had been made by the AO/TPO amounting to Rs. 1,37,33,547/- which in turn was deleted by the ld.CIT(A) following his order in the preceding year i.e. Asst.Year 2006-07. It was ....
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....to earning of exempt income as per the provisions of section 14A of the Act. 45. The facts relating to the issue being that in the original proceedings, the AO found that the assessee had earned dividend of Rs. 5,02,97,065/-, however, no disallowance under section 14A was made, and therefore, the AO made disallowance of Rs. 2,44,30,000/- under section 14A of the Act 1961 read with Rule 8D of the Rules, 1962. On appeal, the Tribunal set aside the matter to the AO to be decided in line with the decision of Hon'ble Bombay High Court in the case of Godrej & Boycee Mfg. Co. Ltd. (supra) wherein it was held that method laid down under Rule 8D was applicable for Asst.Year 2008-09 and thus the AO was directed to re-work the disallowance by adopting reasonable method; that accordingly the AO in compliance of the direction of the Tribunal has given opportunity to the assessee to furnish details and evidences to prove that the investments in shares were made out of interest free funds and also requested the assessee to work out the disallowance under section 14A of the Act. In response thereto, the assessee furnished a report demonstrating availability of interest free funds and re-worked ....
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....ing sufficient own funds ranging from 20,593 lacs to 20,011 lacs which was more than sufficient for making the impugned investments of Rs. 6902 lacs . Since these facts have remained uncontroverted by the Ld. CIT(A) as also the fact that the investments have been made out of mixed funds, we have no hesitation in holding that no disallowance of interest u/s.14A was warranted in the impugned case. 21.1 As for disallowance of administrative expenses the assessee has contended that other than depositing cheques of dividend earned no other expense was incurred by the assessee. The counter of the Revenue to the same we find does not address this contention of the assessee and is purely presumptive, that considering the huge amount of administrative expenditure incurred some amount must relate to the earning of exempt income. But at the same time considering the quantum of investment made, some amount of expenses must have been incurred in relation to maintaining the same and earning income therefrom. Considering the entire facts and circumstances therefore the disallowance of expenses with respect to administrative expenses is restricted to Rs. l,00,000/-The balance disallowance....
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....eleted disallowance appreciating that foisting of depreciation not claimed is not permissible under law. It be so held now." 53. The ld.counsel for the assessee fairly admitted that the issue stands covered against it by the order of the ITAT in the case of assessee for Asst.Year 2005-06. Thereafter, drawing our attention to the facts relating to the issue, the ld.counsel for the assessee pointed out from orders of the authorities below that in Asst.Year 2001-02, depreciation though not claimed by the assessee, had been thrust upon it by the AO and in subsequent years, therefore, the assessee's claim of depreciation accordingly was revised and reduced and the difference added back to the income of the assessee in all the years, and it was on account of this re-working and adjustment of depreciation that the addition of Rs. 85,11,361/- had resulted in the impugned year. The ld.counsel for the assessee pointed out that the ld.CIT(A) upheld the addition noting that ITAT in Asst.Year 2006-07, 2008-08 and 2009-10 had held against the assessee on the same issue. Before us, the order of the ITAT for Asst.Year 2005-06 was also placed pointing out from para-9 to 13 thereby identical issu....
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....s after compliance of direction of Hon'ble ITAT as given is appellant's case for A.Y.06-07. This ground is allowed for statistical purpose." 59. The ld.DR contended that the ld.CIT(A) had no power of restoration. The ld.counsel for the assessee, on the other hand stated that the issue was identical to that raised by the assessee in Asst.Year 2006- 07 which has been dealt by us above. 60. We have heard both the parties and we have noted that the ld.CIT(A) had restored the matter to the AO to adjudicate it afresh. We agree with the ld.DR that the ld.CIT(A) has no such power, but we have noted that restoration was in view of the order of the ITAT in Asst.Year 2006-07 in the first round before it. In Asst.Year 2006-07, the AO had complied with the directions of the ITAT and confirmed the additions to certain extent on this issue and matter had ultimately come up before us in ground no.2 raised by the assessee in its appeal in ITA No.823/Ahd/2016 for Asst.Year 2006-07. We have also noted that identical issue has been adjudicated by us in Asst.Year 2006-07 at para-20 above wherein we have allowed the claim of the assessee to prior period expenses. We therefore direct the AO to a....
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.... power to restore the issue to the file of the AO, but noting that this issues already stands adjudicated in Asst.Year 2007-08 in the case of the assessee at para-48, and admittedly, facts are identical in this year also, We direct the AO to apply the decision of the ITAT in the said year to the present case also. Ground No.2 is adjudicated as above. 65. Ground No.3 reads as under: "(3) The Id. CIT(A) has erred in directing to recomputed the disallowance Of Rs. 21,42,48,271/- u/s 80IA of the Act in respect of all three units on the ratio and direction of Hon'ble ITAT order in the case of the assessee for A.Y.2001-02 as well as for A.Y.2006-07 whereas the Hon'ble ITAT had set aside the issue with a direction to examine/verify specific facts. The Id. CIT(A) has not appreciated the fact that the facts of the year under consideration and the facts of A.Y.2006-07 may differ." 66. The issue relates to disallowance of deduction under section 80IA of Rs. 21,42,48,271/- on the new power plant of the assessee. 67. The ld.counsel for the assessee reiterated that the ld.CIT(A) has no power in restoring the issue to the file of the AO. Our attention was drawn to para-4....