TaxTMI 
TaxTMI 
2023 (8) TMI 1701
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....sment order passed by the ACIT, Central Circle-3(2), Chennai dated 29.01.2016 u/s 143(3) r.w.s. 92CA(3) & 144C(13) of the Act pursuant to the directions DRP u/s. 144C(5) of the Act dated 23.12.2015. 2. The first common issue in this appeal of Revenue for A.Y 2010- 11 and the appeal of assessee for A.Y 2011-12 is as regards to the issue of adjustment made to Arms Length Price(ALP) on account of corporate guarantee commission whether to be made or not. For this, the Revenue for A.Y 2010-11 has raised following ground No. 2: "2.1 The Hon'ble DRP erred in allowing the claim of Corporation Guarantee amounting to Rs. 3,49,27,400/-. 2.2 It is submitted that the decision of the Hon'ble ITAT in the case of Redington India Limited has not reached finality and further appeal is pending before the Hon'ble High Court." 3. For this, the assessee for A.Y 2011-12 has raised the following Ground No. 3: "3. Additions pursuant to the order of the Learned Transfer Pricing Officer ("Ld. TPO") 3.1 Both the Ld. TPO and Hon'ble DRP have erred in law and on facts in making addition of INR 2.30,12,800 as commission income on the guarantee extended....
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....me as international transaction. Aggrieved, the assessee raised objections before DRP. 7. The DRP deleted the corporate guarantee determined by the TPO as ALP and making upward adjustment accordingly. The DRP deleted by observing as under: "3.5.3. The issue of determining the ALP on corporate guarantee has already been examined by the jurisdictional bench of Chennai ITAT in the case of Redington India Ltd. v. JCIT (ITA No. 513/ Mds/2014). The Hon'ble ITAT has held that since there is no cost involved in extending the corporate guarantee, it will not constitute "an international transaction". The relevant portion of the order of the ITAT of Redington India Ltd. v. JCIT (TA No. 513/Mds/2014 dated 07.07.2014) are as under: 94. The ITAT, Delhi Bench, in the case of Bharti Airtel Ltd. vs. Addl. CIT, 43 Taxmann.com 150, has held that providing of corporate guarantee does not involve any cost to the assessee and, therefore, it is not "an international transaction", even under the definition of the said term as amended by the Finance Act 2012. This is because, the guarantee provided by an assessee does not have any bearing on profits, income, loss or assets o....
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....-allowed. 12. The next issue of Revenue's appeal in ITA No. 953/Chny/2015 is as regards to the order of DRP directing the A.O to treat the royalty payment i.e., onetime payment for use of brand name as capital expenditure. For this, the Revenue has raised following Grounds No. 3.1 to 3.6: "3.1 The Hon'ble DRP erred in directing the AO to treat the Royalty payment as Capital expenditure. 3.2. The Hon'ble DRP failed to appreciate the fact that at the time of entering into agreement, the assessee was not a subsidiary of the Vienna Entity. The said agreement was not given effect to and the assessee continued to use the Wabag Brand Name along with Vatech without making any payment. 3.3. The leaned DRP failed to appreciate that the assessee was known by the name Va Tech Wabag Ltd right from the year 2000 onwards and there has been no change in the name. 3.4. The Hon'ble DRP ought to have appreciated the fact that the agreement entered into in April 2005 when the assessee cases to be the subsidiary of the Vienna entity provided for payment of Rs. 10 lakhs per annum. This agreement was not enforced at all. 3.5. The ....
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....inct second Trade name, other than VA Tech. However, the assessee continued to use 'WABAG' brand name with VA Tech without making any payment as contemplated by the agreement and did not even provide for the same in its books, even though it is an entity following mercantile system of accounting. In November 2007, the assessee acquired 100% stake in VA Tech WABAG GmbH, Vienna through its wholly owned subsidiary VA Tech WABAG (Singapore) P Ltd. In connection therewith a share purchase agreement dated 19.09.2007 was entered into with Siemens (the seller). As part of the terms, the assessee was granted a perpetual, non-exclusive and royalty free license to use the term and the registered trade mark VA Tech, however only together with the term WABAG (This is the name of the assessee right from year 2000 onwards). It is only after a period of two years in September, 2009 that the assessee claimed that another Amendment to the BUNCA dated April, 2005 was entered into whereby the assessee was called upon to make a lump sum one-time payment of Rs. 2 Crores which would cover the rights granted under the agreement in the past and in the future and to use the name and logo in conjunc....
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....H Austria, as per which the assessee is permitted to use the "WABANG" throughout the world for which the assessee is required to pay a onetime royalty of Rs. 2,00,000/- which includes the arrears of Rs. 45,00,000/- for the period April 2005 to September 2009. Thus there is a justification in the assessee's payment of royalty to M/s. VA Tech Wabag GmbH Austria, for using the brand name "WABAG". Aggrieved, now the Revenue is in appeal before the Tribunal. 15. We have heard the rival contentions, perused the materials available on record. We noted that the assessee entered into a brand usage agreement dated 07.04.2005 with VA Tech, Austria which was restrictive and applicable only to select countries. This agreement was amended vide an amending agreement dated 21.09.2009, VA Tech, Austria granted the right to use the brand tag and Logo in conjunction with any other name prefixed and suffices to the extent that said use of the name is as per legal position of the country. Admittedly, there is no dispute about the genuineness of the payment but only the A.O has questioned the commercial wisdom of the assessee to make the payment. We noted that the DRP has rightly held th....
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.... Rotork Controls India (P.) Ltd, v. CIT(180 TAXMAN 422)/SC)/(314 ITR 62)(SC) Section 37(1) of the Income-tax Act, 1961 - Business expenditure - Allowability of - Assessment years 1991-92 to 1994-95 - Whether for a provision to qualify for recognition, there must be a present obligation arising from past events, settlement of which is expected to result in an outflow of resources and in respect of which a reliable estimate of amount of obligation is possible - Held, yes - Whether if historical trend indicates that in past large number of sophisticated goods were being manufactured and defects existed in some of items manufactured and sold, then provision made for warranty in respect of army of such sophisticated goods would be entitled to deduction from gross receipts under section 37(1), provided data is systematically maintained by assessee - Held, yes 3.4.3 Similar issues of provisions for warranty have also been decided by the Hon'ble Madras High Court, in favour of the assessee, in the case of M/s. Hyundai Motors Indias Ltd, Vide TCA No. 629 of 2013 dated 29.10.2013. Based on the said decision this panel, vide directions in FNo.DRP/CHE/59/2014-1....
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....y became an integral part of sale price, in other words, the warrant stood attached to the sale price of the product. Warranty provision had to be recognized because, the assessee had a present obligation as a result of past events resulting in an outflow of resources and a reliable estimate could be made of the amount of obligation. The value of contingent liability like warranty expenses, if properly ascertained and discounted on accrual basis, can be an item of deduction U/s. 37 of the Act. Since the assessee estimated the warranty and made a provision on a scientific basis the assessee is eligible to claim as revenue expenditure. Furthermore, the assessee reverses any excess provision made in the earlier year(s) and hence, it is clear from this that there is no excess claim by the assessee with regard to warranty. Hence we find no infirmity in the claim of assessee and the same has rightly been allowed by DRP. We uphold the same. 20. Similar issue for provision for warranty is raised by assessee in its appeal in ITA No. 807/CHNY/2016 for assessment year 2011-12 and the facts are exactly identical in this year also what was in assessment year 2010-11 in ITA No. 953/....
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....All these services are availed and utilized in foreign countries for erecting the water treatment plants in respective countries. There are no disputes in these facts. Recently, a similar issue came up before the Chennai bench of ITAT for adjudication in the case of DOCIT v. Ajapa Integrated Project Management Consultants P. Ltd. In this case, the company paid consultancy fee to non-resident consultants for carrying out consultancy services in Nigeria. These consultants were used in business of the company abroad. The Hon'ble bench held that income of such non-residents could not be deemed to accrue or arise in India, and, therefore, section 9(1)(vii) (b) would not apply. The relevant portion of the decision is as under: DCIT V. Ajapa Integrated Project Management Consultants P Ltd [2011] 16 taxmann.com 269 (Chennai)/ (2012| 49 SOT 37 (Chennai)(URO) 16. We have perused the orders and heard the rival contentions. This issue is slightly different from the issue raised by the Revenue in its ground No. 2. Here, the payments made by the assessee were to nonresidents Indian who were working abroad. Assessee had made no deduction of tax at source whatsoever. As ....
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....ssociated with non-deduction of tax at source on such payments. In these circumstances, application of Section 40(a)(i) of the Act was not called for. ...." Further, the Chennai "A" bench of ITAT in the case of Aqua Omega Services (P.) Ltd. v. ACIT, held that fee for technical services paid to non-residents for providing underwater diving services in Saudi Arabia under a contract, is not liable for TDS. since the services of nonresidents, to whom technical fee was paid by assessee, were utilized for business carried on outside India for earning income from a source outside India. The relevant portion (Head-note) of the decision is as under: Aqua Omeqa Services (P.) Ltd. D. ACIT[2013] 31 taxmann.com 179 (Chennai-Trib.)/2013] 23 ITR (T) 191 (Chennai - Trib.) Head-note: Section 9, read with section 40(a)(i), of the Income-tax Act, 1961 - Income - Deemed to accrue or arise in India Fees for technical services - Assessment year 2008-09 - Assessee was in business of providing underwater diving services in Saudi Arabia under contract and paid fees to non-resident divers there - Whether, since services of non-residents, to whom technical fee was paid by assessee,....
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....rried on by such person outside India or for the purpose of making or earning any income from any source outside India. Since the technical services provided by VA Tech Wabg GmbH, Austria, were utilized for the purpose of making or earning any income from any source outside India, the technical charges paid by VA Tech India to VA Tech Wabg GmbH, Austria is not an income earned in India and the question of deduction of tax does not arise. The engineering/ technical services paid to VA Tech Wabg GmbH, Austria by VA Tech India were utilized by VA Tech India in respect of project executed by it at Indonesia and Muscat. Since the engineering services provided by VA Tech Wabg GmbH, Austria were utilized by VA Tech India at Indonesia and Muscat for the purpose of making or earning any income from a source outside India, it is not an income earned in India as per section 9(1)(vi) of the Act and hence the question of deduction of tax does not arise. The transmission Corporation of India case applies to those situations where any sum is paid to nonresident which is chargeable to tax U/s. 4 of the Act. Since the technical fee paid to non-resident is not earned in India as per section 9(1)(vi)....
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....laimed that the assessee has fulfilled all the conditions as stipulated in Section 80IA(4) of the Act in regard to that the assessee enterprise is carrying on business of developing infrastructure facilities, which is owned by the assessee and it has entered into an agreement with local authorities for developing infrastructure facilities and hence, the assessee has claimed deduction u/s. 80IA(4) of the Act. The A.O relying on the decision of Hon'ble Supreme Court in the case of CIT vs. Sterling Foods 237 ITR 579 (SC) has not allowed the claim of the assessee and also held that the assessee is actually is a contractor, therefore, the A.O disallowed the claim of deduction by observing as under: "Hence, based on the above facts and circumstances of the case and the detailed examination of the contract agreements, it is concluded that the assessee is not eligible to claim deduction u/s. 80-IA for the following reasons: (1) The income was not derived from the development of infrastructural facilities as discussed. (2) The assessee is not the developer of the project but is a mere contractor (3) The assessee is not the owner of the project (4....
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....t undergone substantial amendment by way of insertion of explanation to this section by Finance Act 2009 with retrospective effect from 01.042000. As per the explanation, nothing contained in this section shall apply in relation to a business referred to in sub section 4 which is in the nature of work contract awarded by any person including the Central or State Government and executed by the undertaking or enterprise referred to in sub section 1. The DRP did not discuss any of the facts in its direction dated 26.12.2014. It had simply followed the earlier year decisions pertaining to A.Y. 2003-04, 2004-05, 2006-07 and 2007-08. The discussion of DRP was cryptic in paragraph 3.1.2 and 3.1.3 without appreciating the legislative amendment. In this connection, the Ld. CIT-DR stated that the following evidences were available from the assessment record: 1. Attention is drawn to auditor's report at page no. 4 to 5 of the paper book at paragraph-4, the statutory auditor has given categorical qualification that the appellant company is not entitled for 80-IA deduction on account of the amendment made in Finance Act 2009. 2. As per the audited financials in page no.6 t....
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....e decision of Hon'ble Madras High Court in assessee's own case dated 07.03.2019, wherein the Tribunal has considered the issue of developer or contractor vide Question No. 1 that "whether the ITAT is right in law in holding that the assessee is eligible for deduction u/s. 80IA(4) of the Act? And Question NO.2 "whether the ITAT is correct in law in holding that the assessee is a "Developer" and not "contractor" and therefore, is eligible for deduction u/s. 80IA(4) of the Act". The Ld. counsel then, drew our attention to the findings of Hon'ble High Court given in para 6 as under: "6. Having heard the learned counsel for the parties, we are satisfied that the findings of facts rendered by the learned Tribunal as well as the First Appellate Authority do not deserve any interference by this Court under Section 260A of the Act and no Substantial Question of Law arises in these Appeals filed by the Revenue. Since the Assessee admittedly entered into contract with Local Bodies or Municipal Bodies for undertaking the contract works for developing the infrastructure-sewage system, he is directly entitled to get the benefit of such deductions under Section 80IA (4) of the Act. ....
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....eld that since the Assessee was recognised as contractor for these railway sidings, which undoubtedly fell under the definition of "infrastructure facility", it was entitled to the said benefit under Section 80IA of the Act. The grounds on which the Assessing Authority denied the said benefit to the Assessee ignoring the effect of Provisos to Section 80IA(4), therefore, could not be sustained. The learned Tribunal, in our opinion, has rightly held that the Proviso does not require that there should be a direct agreement between the transferee enterprise and the specified authority for availing the benefit under Section 80IA of the Act. There is no dispute before us that the Assessee was duly recognised as transferee or assignee of the principal contractor M/s.ST-CMS Company Private Limited and was duly so recognised by the Railways to operate and maintain the said railway sidings at Vadalur and Uthangalmangalam Railway Stations. The findings of fact with regard to the said position recorded by the learned Tribunal are, therefore, unassailable and that clearly attracted the first Proviso to Section 80IA(4) of the Act. 10. The learned counsel for the Revenue relied upon a de....
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....as inserted by the Finance Act, 2009 w.e.f 01.04.2000 and the relevant explanation to Section 80IA reads as under: "Explanation.- For the removal of doubts, it is hereby declared that nothing contained in this section shall apply in relation to a business referred to in sub-section(4) which is in the nature of a works contract awarded by any person (including the Central or State Government) and executed by the undertaking or enterprise referred to in subsection(1)." We noted that this explanation has not at all been examined whether the assessee falls as a work contractor in this case in term of assessee's contracts and agreements entered into with various Municipalities for water treatment plants. Hence, this needs to be examined. Hence, we remit this issue back to the file of the A.O to examine this explanation with the facts of the case of the assessee and re-decide the issue accordingly. This issue of Revenue is remanded back to the file of A.O. Hence, this issue of Revenue's appeal is allowed for statistical purposes. 32. Similar issue in regard to claim of deduction u/s. 80IA of the Act was raised by assessee in this year, assessment year 2011-12 in ITA No.&nb....
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....When these facts were confronted to Ld. CIT-DR, he could not controvert the same, but objected for allowing the claim. 36. After hearing both sides and going through the facts of the case, we set aside this issue to the file of the A.O, who will examine the claim of the assessee in detail and then, decide the claim according to law. 37. Similar issue is raised by assessee in its appeal for assessment year 2011-12 in ITA No. 807/CHNY/2016, as the facts are identical what was in assessee's C.O. No. 50/CHNY/2016 arising out of ITA No. 953/CHNY/2015 and hence, taking a consistent view, we set aside this issue to the file of the AO and the appeal of the assessee is allowed for statistical purposes. 38. The next issue in assessee's appeal in ITA No. 807/Chny/2016 for A.Y 2011-12 is as regards to the disallowance of depreciation of ERP implementation. For this, the assessee has raised following Ground No. 5 as under: "5. Disallowance of depreciation ERP implementation costs - INR 2,81,43.042 5.1 Both the Ld. AO and Hon'ble DRP have erred in regarding the cost to cost reimbursement towards costs of ERP implementation made to the AE of the....
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....e revenue was unable to substantiate that in the absence of any requirement of law for making deduction of tax out of the expenditure on technical know-how which was capítalized and no amount was claimed as revenue expenditure, the deduction could be disallowed under Section 40(a)(i) of the Act. Accordingly, no infirmity could be found in the order passed by the Tribunal which may warrant/ interference by this Court. Thus, both the questions are answered against the revenue and in favour of the assessee." 41. As the issue is now covered in favour of the assessee, we direct the A.O to allow depreciation on the amount capitalized in regard to payment made for ERP implementation. This issue of assessee's appeal is allowed. 42. The next issue in this appeal of assessee is as regards to disallowance of expenses relatable to exempt income by invoking the provisions of Section 14A of the Act. At the outset, the Ld. counsel for the assessee has not pressed this ground. Hence, the same is dismissed. 43. The next issue in this appeal of assessee is as regards to disallowance of market fee. For this the assessee has raised following Ground No. 7: 7. Disallowance ....