TaxTMI 
TaxTMI 
2025 (2) TMI 1363
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....scrutiny under CASS and the AO issued statutory notices and pursuant to it, assessee replied and the AO referred certain Specified Domestic Transaction (SDT) to the Transfer Pricing Officer (TPO), who vide order dated 25.10.2017 ordered downward adjustment of Rs. 66,94,650/- on the SDT referred by the AO and based on that, the AO passed the draft assessment order on 29.12.2017. The assessee preferred objections before the Ld. DRP, which passed its directions dated 27.09.2018 and pursuant to it, the AO had passed the final assessment order dated 09.10.2018, determining the total assessed income as under;- - Particulars Rs. Income as per return dated 28/11/2014 1054,17,99,530 1 Transfer Pricing Adjustment 66,94,650 2 Disallowance of depreciation on retention money payable 87,57,934 3 Disallowance excess claim of deduction u/s 80JJAA 3,15,55,429 4 Disallowance of Forward Cover Premium Charges 52,32,74,580 5 Disallowance u/s 14A r.w.Rule 8D 31,10,129 6 Disallowance of expenses incurred on Cricket Pace Foundation 3,89,00,000 7 Disallowance of excess claim of weighted deduction u/s. 35(2AB) 95,....
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.... power unit was not required to factor the same into its transfer rate. Our attention was invited to Section 42 of the Electricity Act, 2003, which permits free access to electricity generated by any person other than the TNEB; and also, Sub-section (2) of 42 of the Electricity Act, which provides for levy of surcharge and wheeling charges that may be collected from the user of the electricity generated by third party. Further, Sub-section (3) of Section 42 of the Electricity Act provides that, when a consumer requires supply of electricity from a generating company (other than the distribution licensee i.e., TNEB), it has to obtain permission from TNEB for wheeling such electricity; Sub-section (4) of Section 42 of the Electricity Act provides that where TNEB permits a consumer to receive supply of electricity from a person other than TNEB, such consumer shall be liable to pay an additional surcharge on charges of wheeling. In the light of these provisions, according to Ld.AR, when a consumer purchase electricity from other generators, TNEB charges wheeling fees for using their transmission and distribution networks to deliver their electricity; and according to him, it is the con....
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....Rs. 5.50/unit, which was used as the basis to benchmark the transfer price of power between the eligible power unit and the manufacturing consuming unit. Hence, as a matter of parity and applying the principles of CUP Method, we are in agreement with the assessee that, when the wheeling charges paid to third party was not included/adjusted for the purposes of arriving at the ALP electricity rate, then, correspondingly, the wheeling charges borne by the consuming unit in relation to the electricity supplied by the eligible unit, was also not required to be adjusted from the transfer price of Rs. 5.50/unit, on the given facts of the present case. According to us therefore, the transfer rate Rs. 5.50 per unit adopted by the eligible unit does not call for any interference. Hence, the impugned transfer pricing adjustment made by the TPO/AO is held to be unjustified and is accordingly directed to be deleted. This ground is therefore allowed. 5. Ground No. 3 to 3.4 - Disallowance of depreciation / expenses in relation to the retention money payable. 5.1 The facts as noted are that, the assessee entered into purchase contracts for both capital goods and revenue items, wherein there ....
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....,65,113/- made by the AO, by allowing the ground of the assessee. 5.4 Per contra the Ld.DR relied on the assessment order of the AO. 5.5 We heard the rival arguments and perused the materials on record. We note that the very same issue has already been dealt by this tribunal in assessee's own case by holding as under: "3.1 We heard the rival contentions, find merit in the submissions made by the AR. Since, the assessee is maintaining mercantile system of accounting, upon the basis of which the profits or gains are computed under the head "Profits and gains of business or profession" for the relevant assessment years and it has been regularly following it, the assessee's claims are in accordance with law and hence the AO is directed to allow depreciation on the retention money on capital account and also allow the retention money with held on revenue account. Corresponding grounds of the assessee are allowed for both these assessment years. " 5.6 In view of the matter and considering the facts and circumstances of the case, by respectfully following the decision of the tribunal(supra) we are of the considered opinion that the assessee's claims are....
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....evious year of employment. The relevant provision reads as under: - "80JJAA(2): (ii) "regular workman", does not include- ... (c) any other workman employed for a period of less than three hundred days during the previous year;" 6.3 The Ld. AR pointed out that the plain language of the above restriction meant that, any new employees recruited/employed after the month of May in any previous year could not be included for the purpose of claiming deduction under section 80JJAA, as he could not have possibly completed 300 days of employment in that year. According to Ld. AR, realizing this lacuna, the Legislature introduced a curative & beneficial amendment in the form of a proviso, by the Finance Act 2018, whereby it was provided that the period of employment of a new employee would also take into account his continuous employment in the immediately preceding previous year. The relevant second proviso to section 80JJAA(2)(ii) [as amended] in 2018, read as under: "80JJAA(2)(ii) ... Provided further that where an employee is employed during the previous year for a period of less than two hundred and forty days or one hund....
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.... service of 300 days across two (2) successive years, starting from the year in which the service of 300 days was completed, and that the benefit of such proviso was available in the years prior to 2018 as well. We note that this decision of the Bangalore Tribunal has since been affirmed by the Hon'ble Karnataka High Court which is reported in 435 ITR 1. The relevant findings taken note of by us is as follows: - "16.8 Admittedly, the provisions concerned, i.e. Section 80JJAA, comes under Chapter-VI-A of the IT Act, which deals with deductions in certain income; this deduction is issued and or permitted as an incentive to the Assessee on fulfilling certain criteria as required under the various provisions under Chapter-VI-A. The incentive of the deduction provided under section 80JJAA is with an intention to encourage the Assessee to employ more and more people, provide employment and, in lieu thereof, permit the employer/assessee to deduct certain amounts from the income when the returns are filed. It is with this object, purport and intent of section 80JJAA of the Act that the present facts and circumstances would have to be considered. It is also required for the Assessi....
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....ear would also be entitled to a deduction for three years therefrom. Thus he submits that the amendment having been brought into force in the year 2018 the present matter relating to the year 2007-2008, the said curative or clarificatory amendment would not come to the rescue of the Assessee and as such, the finding of the Tribunal in this regard is required to be set aside. 16.13 We are unable to agree with such a submission- the amendment of the year 2018 though claimed curative by Sri. Aravind, we are of the considered opinion that the same is more an explanatory amendment or a clarificatory amendment which clarifies the methodology of applying section 80JJAA of the Act. If the submission of Sri. K.V. Aravind is accepted, then no employer/assessee would be able to fulfil the requirement of employing its labour/assessee prior to 5th June of that assessment year so as to claim the benefit of Section 80JJAA. Such a narrow and pedantic approach is impermissible. It also being on account of the fact that section 80JJAA relating to deductions under Chapter is an incentive and, therefore, has to be read liberally. In this aspect, we are also supported by the decision of the Ap....
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....and respectfully follow the ratio laid down by the Hon'ble Karnataka High Court in the case of Texas Instruments (supra), and hold that the assessee was entitled to claim deduction u/s 80JJAA of the Act in respect of the new employees who did not complete continuous employment of more than 300 days during their respective years of joining i.e., FYs 2010-11 & 2011-12, but completed the same only in the succeeding FYs 2011-12 & 2012-13, in light of the curative amendment made by insertion of proviso to Section 80JJAA, by the Finance Act, 2018. 6.8 We now come to the AO's finding that, the relevant AY 2014-15 being the 4th year of claim, the deduction u/s 80JJAA was not allowable. As noted earlier, the assessee had recruited employees in FY 2010-11 and FY 2011-12 in three of its units and these employees did not complete 300 days of employment in that respective year of joining but completed 300 days when taking into account the succeeding FY (i.e., in FY 2011-12 and FY 2012-13 respectively). Having regard to the plain language used in the above referred proviso to Section 80JJAA, the assessee is noted to have rightly considered the 1st year of employment of those employees as FY 2....
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.... the risk of exposing to the fluctuations in the foreign currency exchange rates, the assessee company entered in to hedging contracts with the banks. These contracts are entered in to keeping in mind the possible future fluctuations....." With these observations, the AO however is noted to have concluded that, the forward contracts though for the purpose of protecting the assessee from exchange fluctuation risk, was speculative in nature and hence, retained the disallowance. Aggrieved by the final order of the AO, the assessee is now in appeal before us. 7.2 We have heard both the parties and perused the records. We note that this issue is no longer res integra, since the same issue had come up before the Tribunal in assessee's own case in AY 2017-18, supra, wherein the Co-ordinate Bench of the Tribunal held as under: - "6.3 We heard the rival arguments and perused the materials on record. We note that the very same issue has already been dealt by this tribunal in assessee's own case by holding as under: "5.1 We heard the rival submissions. Since, the assessee pleads that the foreign currency loan was used for the purpose of acquiring the assets in India, it i....
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....ce of Rs. 31,10,129/- u/s 14A r.w. Rule 8D both while computing income under normal provisions as well as book profit u/s 115JB of the Act. The Ld. DRP is noted to have principally upheld the disallowance, but directed the AO to re-compute the disallowance u/s 14A read with Rule 8D after excluding the investments in debt-oriented funds which were not capable of yielding exempt income. Aggrieved by the aforesaid order, the assessee is now in appeal before us. 8.2 We have heard both the parties and perused the records. We note that assessee has earned exempt income of Rs. 15,36,383/- and the AO has disallowed an amount of Rs. 31,10,129/- u/s.14A r.w. Rule 8D, which action per-se cannot be accepted because the disallowance u/s.14A should not exceed the exempt income received by the assessee, as held by the Hon'ble Madras High Court in the assessee' own case in Tax Case Appeal No. 217 of 2021, wherein the Hon'ble High Court held as under:- "5. The Tribunal, after taking note of the submissions made by the assessee and also the decision in the case of Joint Investments Pvt. Ltd. Vs Commissioner of Income Tax [372 ITR 694 (Delhi)], had noted that the assessee earned dividend ....
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....artly allowed. 9. Ground Nos. 7 to 7.1 :- Disallowance of expenditure incurred on brand promotion and advertising by promoting Cricket pace foundation 9.1 The facts as noted are that, the assessee had incurred expenditure in relation to brand promotion and advertising by promoting Cricket Pace Foundation. The AO is noted to have disallowed the expenditure on the ground that the same was not incurred for the purpose of business as the Assessee does not get any publicity out of the same. The reasoning given by the AO is noted to be on the same lines as set out in the assessment orders for AYs 2006-07 & 2007-08. On appeal, the Ld. DRP following the decision of this Tribunal in assessee's own case for AY 2003-04, AY 2006- 07 and AY 2007-08 vide order in ITA No.1374 to 1377/Mds./2010 dated 11.03.2011 upheld the disallowance. Aggrieved, the assessee is now in appeal before us. 9.2 We have heard both the parties and perused the records. We note that this issue is no longer res integra as, the Hon'ble Madras High Court in assessee's own case in TCA No 1024 and 1025 of 2019 dated 29.03. 2021 has decided the issue in favour of assessee and allowed the deduction for the expenditu....
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....appeals filed by the Revenue were allowed. Challenging the same, the assessee is before us by way of these appeals. 14. Before we examine the correctness of the reasons assigned for reversing the order passed by the CIT(A), we need to take note of the legal position as to how and in what manner, business decisions can be taken by the assessee and whether the Assessing Officer would be justified in deciding what would be best for the assessee and for the health of its business. We are guided by a few decisions, which were relied on by Mr.Vikram Vijayaraghavan. 15. In CIT vs. Dalmia Cement (Bharat) Ltd. [(2002) 254 ITR 0377 (Del)], it was pointed out that the term commercial expediency" is not a term of art; it means everything that serves to promote commerce and includes every means suitable to that end. Further, it was held that the Revenue cannot justifiably claim to put itself in the armchair of a businessman or in the position of the Board of Directors and assume the said role to decide how much is a reasonable expenditure having regard to the circumstances of the case. 16. The said decision was approved by the Hon'ble Supreme Court in Hero Cycles (P) ....
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....nfosys Technologies Ltd. [(2012) 349 ITR 588 (Karnataka)] can never be of any assistance to the case of the Revenue. 19. Mr.T.Ravikumar, placed reliance on the decision in Malayalam Plantations Ltd. (supra) more particularly, the observations in paragraph 8 of the said decision. In fact, the legal issues, which should be culled out from the observations are that the expression "for the purpose of business" is wider in scope than the expression "for the purpose of earning profits". It was further held that the range, for the purpose of business, is wide, it may take in not only the day to day running of a business, but also the rationalization of its administration and modernization of its machinery; it may include measures for preservation of the business and for protection of its assets and property from expropriation, coercive process or assertion etc. The decision explains the scope of the expression "for the purpose of business". Therefore, we could safely use the said decision to support our above conclusion. On facts, the case was totally different and cannot assist the Revenue. 20. In Atofina Peroxides India Ltd. vs. Deputy Commissioner of Income Tax, Chenn....
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....is confined only to examine the purpose of genuineness of the expenditure and not the expediency or the quantum. Nowhere there is any observation either made by the Assessing Officer or the Tribunal that the expenditure was not genuine. In fact, Mr.T.Ravikumar would fairly submit that all other expenditure, which have been claimed by the assessee towards sponsorship, advertisement, have been allowed in its entirety. The Tribunal fell in error in coming to a conclusion that donations were extended towards the Pace Foundation, when the fact remains that the assessee has established the foundation and it is part and parcel of the assessee themselves and not a separate entity to draw any such inference of donation. 23. Thus, for the above reasons, we hold the Tribunal committed an error in reversing the order of the CIT(A). 24. In the result, the tax case appeals are allowed, the order passed by the Tribunal is set aside and the order passed by the CIT(A) is restored. The substantial questions of law are answered in favour of the assessee. No costs." 9.4 In the light of the Hon'ble High Court's decision on this issue (supra), we, respectfully follow the same, and d....
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....Part-B of Form 3CL. Hence, the position prevailing prior to amendment of the Rule was that, the Form 3CL issued by DSIR was not relevant to ascertain the claim of weighted deduction u/s 35(2AB) of the Act. Accordingly, having regard to the foregoing, in our considered view therefore, the requirement to claim weighted deduction u/s 35(2AB), prior to AY 2017-18, was (a) entering into an agreement between the facility and the DSIR and (b) recognition of the R&D facility by DSIR in Form 3CM, and once these two conditions are met, the expenditure set out in separate audited accounts of the R&D facility i.e. Form 3CLA, will qualify for weighted deduction u/s 35(2AB) of the Act. We further note that the impugned issue stands squarely covered in assessee's favour by the decision rendered by this Tribunal in the case of Ashok Leyland Ltd Vs DCIT (ITA Nos. 361- 362/Chny/2024) wherein at Para 3.4, it was held as under: "3.4. We have heard both the parties and perused the material available on record....... It is noted that DSIR is an authority for approval of R&D facility. And once facility is approved, expenditure incurred by it qualifies for deduction u/s.35(2AB), irrespective of D....
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....ted to have allowed the claim for provision for warranty expenses by holding as under:- "8.4 We have observed that, the AO has accepted the methodology adopted by the assessee for claiming the provision for warranty expenses and deleted the addition in the A.Ys.2011-12, 2012-13 &2013-14 as per the directions of the co-ordinate bench of this Tribunal's decision(supra).Since, methodology for provision for warranty is adopted by the Assessee historically including the relevant A.Y. in appeal without any change which has been verified and accepted by the AO for the AYs 2011-12, 2012-13 & 2013-14 and considering the facts and circumstances of the case, by respectfully following the decision of this tribunal in assessee's own case(supra), we are of the considered view that the AO has erred in disallowing the provision for warranty and hence we direct the AO to allow the expenditure of provision for warranty and to re-compute the income of the assessee accordingly. Thus, we allow the ground Nos.15 to 19 taken by the assessee." 11.3 Respectfully following the decision of this Tribunal in assessee's own case (supra) and finding no change in facts or law, we allow the claim of as....