TaxTMI 
TaxTMI 
2023 (7) TMI 1656
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....st the assessment order passed under section 144C (13) of The Income Tax Act, 1961 (The Act) dated 25/1/2015 wherein the return filed by the assessee on 30/11/2012 declaring a total income of Rs. 1,971,204,132 is assessed at Rs. 2,053,640,240 pursuant to the order passed under section 92CA (3) of The Act by The Transfer Pricing Officer 2 (1) (1), Mumbai (The Learned TPO) dated 7/1/ 2015 under section 92CA (3) of The Income Tax Act and the direction of the learned Dispute Resolution Panel [ The ld DRP] dated 9/12/2015. 03. Assessee has raised following grounds of appeal "Ground No. A: Transfer Pricing Adjustments - Rs. 26,78,899/- (i) Based on the facts and in the circumstances of the case the Ld. Transfer Pricing Officer ('TPO') and the Hon'ble Dispute Resolution Panel (DRP) erred in making the adjustment for arm's length price of corporate guarantee. The adjustment is worked out by TPO on assumptions and treating the Appellant at par with Banks. The TPO erred in ignoring the provisions of section 92C(3) and Section 92F(ii) of the Income tax Act, 1961. Hence, said adjustment is invalid and bad-in-law. (ii) Without prejudice to above, (i....
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.... goods to government agencies. The A.O. and DRP erred in ignoring the factual details given by the Appellant explaining the arrangement with dealers and their role in the entire transactions. GROUND F: UNUTILISED CENVAT CREDIT - Rs. 9,32,524/- (i) Based on the facts and in the circumstances of the case the A.O. and the DRP erred in not allowing the unutilized cenvat credit added to closing stock of assessment year 2010-11 as opening stock of assessment year 2011-12. GROUND G: DISALLOWANCE U/S. 14A r.w.r. 8D (i) Considering the free reserves and profit of the Appellant, A.O. and the DRP should not have made disallowance u/s. 14A r.w.r. 8D. (ii) Without prejudice to above, the A.O. and the DRP erred in considering the interest paid, net of interest received for the purposes of working out disallowance of expenditure under rule 8D of the Income Tax Rules, 1962. (iii) Without prejudice to above, the A.O. and the DRP erred in disallowing, under section 14A r.w.r. 8D, in respect of long term strategic investment made by the Appellant in shares of subsidiary companies to have control over them, as such investments does not require any ....
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....mitted a detailed chart stating that even otherwise the arm's- length price of the corporate guarantee would be Nil. The learned transfer pricing officer did not accept the explanation of the assessee and computed the arm's- length price of the guarantee fee holding that the rates charged by the assessee while giving guarantee to a foreign bank for the facilitation of loan taken by the associated enterprises should be higher than the rates charged by the banks. The learned TPO further issued notices under section 133 (6) of the Act to the various banks and obtained the quotes. Based on this information, various judicial precedents adopted the arm's-length price of the guarantee fee commission at the rate of 2.5%. As the outstanding guarantee amount was Rs. 107,155,972 for 12 months, he computed the arm's-length price at the rate of 2.5% per annum on the outstanding corporate guarantee amounting to Rs. 2,678,899/-. Accordingly the above shortfall was adjusted by passing an order under section 92CA (3) of the act on 7/1/2015. 05. The learned assessing officer made the draft assessment order on 13/2/2015 determining the total income of the assessee at Rs. 2,053,740,....
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....see was asked to furnish the relevant documents. The assessee furnished the copy of form number 3CL issued by the Department of scientific and industrial research. The learned assessing officer on the basis of the above form found that assessee has incurred a recurring expenditure of Rs. 26,22,10,418 approved by DSIRC and therefore the excess deduction claimed by the assessee amounting to Rs. 21,396,418 was disallowed and added back to the income of the assessee. v The assessee has paid commission of Rs. 67,707,118 to various parties. The assessee was asked to give the details of the agents to who commission of Rs. 9 lakhs and above was paid. The assessee provided the details of the agents and the details of the corresponding party in whose transaction commission was paid. The learned assessing officer issued notices under section 133 (6) of the act to those parties some of the parties did not respond and some of the parties stated that sales was directly made to them. The assessee was asked to explain the same. Assessee made a detailed explanation with respect to each of the party. The learned assessing officer after considering the parties who have stated that they have ....
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.... and exclusively for the purposes of the business. The learned dispute resolution panel held that assessee failed to produce the relevant details to show that the expenditure has been incurred for the purposes of the business. Further the assessee has merely made general statement that the expenditure is allowable. v On the issue of Research and Development expenditure the learned dispute resolution panel directed that disallowance of Rs. 21,396,408 has been made by the learned assessing officer correctly. The learned dispute resolution panel noted that assessee has claimed an expenditure of Rs. 283,606,836/- being 200% of revenue expenses towards scientific research and Rs. 35,694,680/- towards capital expenditure on scientific research being 200% of Rs. 17,847,340/-. The assessee furnished the form number 3CL issued by the Department of scientific and industrial research which worked out the deduction. Accordingly assessee was allowed deduction towards revenue expenses amounting to Rs. 262,210,418 and therefore excess expenditure claimed by the assessee of Rs. 21,396,418 is correctly disallowed. vi With respect to the commission expenditure the learned dispute r....
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....by the learned assessing officer on 25/1/2015 determining the total income of the assessee at Rs. 2,053,640,239/-. Assessee is aggrieved and is in appeal before us. 09. Ground of appeal [A] is against transfer pricing adjustment of Rs. 2,678,899/- on account of corporate guarantee fee. Argument of the assessee is that corporate guarantee given to the bank for giving financial facility to an associated enterprise [which is an ultimate subsidiary of the appellant] is beneficial to the appellant therefore, nothing was charged by the assessee. So it is at arm's- length as clarified in written submission given during the assessment proceedings. The learned authorized representative submitted that identical issue arose in case of the assessee for assessment year 2010 - 11 wherein based on the decision of the coordinate bench in assessee's own case for assessment year 2008- 2009, coordinate bench has considered the arm's-length price of the corporate guarantee fee at the rate of 0.5%. Therefore, this issue is covered in favour of the Assessee. The learned authorized representative also submitted that honourable Bombay High Court in case of Everest Kanto containers Ltd 375 I....
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.... of bank guarantee charges of 6 different banks is 0.91%. The above bank guarantee commission rate was further adjusted that had the assessee not given the guarantee to its associated enterprises, the AE who have been granted the loan at the interest rate of 3 - 4% would have been given loan at the rate of 12 to 13%. Therefore on the basis of this analysis, interest saving is 9% in the hands of the associated enterprises. This is the benefit available to the associated enterprises in form of interest savings. It was further stated that as the associated enterprises is regular in payment of interest and repayment, the risk element is nil. AE being 100% subsidiary and giving assistance for export promotion services and further providing engine technology to the assessee, this factor is also required to be discounted. The assessee also stated that the loan taken by the associated enterprise is used for the purchase of assets which are collateral security if guarantee invoked. The total assets fully cover loan amount, hence no further risk is required. The assessee also stated that allocation fee charged by the bank recovered from the associated Enterprises 0.75%. Assessee allocated 0.....
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.... as well as the learned transfer pricing officer is incorrect. The assessee has earned interest saving of 9% as stated by assessee itself. The above benefit is to be necessarily shared between the assessee and the associated enterprises. This has not been done by the assessee. This itself shows that the benchmarking made by the assessee at Rs Nil is not appropriate benchmarking. 016. Further the learned assessing officer has compared the bank guarantee rates with the corporate guarantee rates given by the assessee to its wholly owned subsidiary. This comparability is not justified. The learned dispute resolution panel has also followed its own direction for assessment year 2010-11. Mandate with the learned TPO and the learned DRP is to compute the arm's-length price by adopting the most appropriate method under section 92CA (3) of the act and adopting one of the methods. Thus, both the revenue authorities and assessee has failed to show the most appropriate method as well as computation of ALP as per provisions of the Act. Provisions of the act do not allow anybody to accept what has been held in the earlier years in case of the assessee or any other assessee for any other a....
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....on of the courts for assessment year 2007 - 08 in some other entities case i.e. Everest Kanto Ltd, ALP of international transaction in case of assessee for assessment year 2011-12 can be decided for altogether different year. The assessee submits that order of ITAT in case of assessee should be followed in this year also. Therefore the logic of the assessee is that what is considered to be arm's-length for assessment year 2007 - 08 in case of somebody else should be considered also at arm's-length for assessment year 2011 - 12 in case of assessee. We do not agree with same, as it will violate all the principles of transfer pricing. Method of determination of the arm's-length price of an international transaction is to be computed according to section 92C (1) & (3) of the act. Special bench in this case in Aztec Software & Technology Services Ltd. [2007] 107 ITD 141 (BANG.)(SB) affirmed by honourable Karnataka High Court in [2012] 23 taxmann.com 413 (Karnataka)/[2012] 209 Taxman 187 has clearly held as under :- "133. Having regard to the statutory provisions, particularly the mandate of sections 92(1) and 92D read with relevant rules, we hold that it is obligato....
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....has compared the bank guarantee rates with bank guarantee rates which cannot be upheld for the obvious reasons that there is a basic difference between both these instruments. Learned dispute resolution panel has followed its direction for earlier year, the learned authorized representative has also pressed into service the decision of the coordinate bench in assessee's own case wherein we are impressed upon to adopt the corporate guarantee rate decided in somebody else case for assessment year 2007-08 to be imputed for assessment year 2011 - 12, we find that all the above arguments and facts fails for the simple reason that the arm's-length price of an international transaction is required to be determined on the basis of the economic conditions, commercial factors, the relationship and the benefit between the two parties of the international transaction existing for each year. Corporate guarantee fee international transaction is required to be determined by adopting one of the methodologies as provided by the OECD Transfer Pricing Guidelines [2017] such as (1) Comparable Uncontrolled Price [ D.2.1] (2) Yield Approach (Interest saving approach)[ D.2.2] (3) Cost Approach, [....
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....he spare funds the assessee invested in the mutual fund and earns capital gain on the same. The learned assessing officer held that same is business income of the assessee. The claim of the assessee is that it is chargeable to tax under the head capital gains. The main reason for disallowance is that assessee has set of the above capital gain on sale of units of mutual fund against the short-term capital loss brought forward. The learned dispute resolution panel has also upheld the same. 023. The learned authorized representative has merely relied upon the decision of the honourable Punjab and Haryana High Court in case of puja investments private limited ITA number 39 of 2012 dated 11 April 2014. The learned departmental representative vehemently supported the order of the lower authorities. We have carefully considered the rival contention and perused the orders of the lower authorities. In the present case assessee has earned capital gain of Rs. 35,472,992 which included short-term capital gain of Rs 2, 38,70,858. Out of this, the learned assessing officer has considered the short-term capital gain of Rs. 23,870,858 on purchase and sale of mutual funds as business income. ....
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....n careful hearing of both the parties, we find that there is no justification for disallowance of the above sum at the same is in expenditure incurred by the assessee as an annual subscription and expenditure incurred at clubs by the senior employees of the assessee for business purposes. Perhaps the minute detail as desired by the learned assessing officer may not be available however the learned assessing officer should have taken a holistic view of the whole issue looking at the nature of the business and the volume of the business carried on by the assessee. It is not in dispute that assessee has incurred this expenditure. Accordingly we direct the learned assessing officer to delete the disallowance of Rs. 636,373/- on account of club expenditure. Ground number C of the appeal is allowed. 026. Ground number D is with respect to the disallowance of deduction under section 35 (2AB) of Rs. 21,396,418/-. The facts of the case are that the assessee has claimed deduction of Rs. 283,606,836 being 200% of revenue expenses towards scientific research under section 35 (2AB) and further Rs. 35,694,680 towards capital expenditure on scientific research being 200% of 1,78,47,340/-. The ....
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....earch and development. The assessee has submitted the respective details before the DSIR. On the basis of the assessment, it has reduced the amount of expenditure incurred by the assessee. The coordinate bench ACIT V Crompton Greaves Ltd. [2019] 111 taxmann.com 338 (Mumbai - Trib.) has held that Mandate of approval of quantum of expenditure had been put in place only with effect from 1-7-2016, hence, non- approval of quantum of expenditure for assessment year 2009-10 did not entitle Assessing Officer to make disallowance under section 35(2AB). The assessment year involved before us is assessment year 2011-12. Therefore respectfully following the decision of the coordinate bench, we direct the learned assessing officer to delete the disallowance of deduction under section 35 (2AB) of the act of Rs. 23,096,418/-. Ground number D of the appeal is allowed. 030. Ground number D is with respect to the disallowance of commission. The fact shows that during the year the assessee has paid brokerage and commission of Rs. 67,707,118 to various parties. The assessee was asked to give the details of the agent and corresponding sales made to the various parties. The assessee provided certain ....
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....ent of 50%. It was stated that there is no infirmity in the order of the lower authorities. 033. We have carefully considered the rival contention and perused the orders of the lower authorities. The assessee has shown the payment of commission to various dealers and also justified the payment of dealers supported with the agreement and the invoices. The substantial activity is required to be performed as has been stated by the assessee, which was not denied by the assessing officer. Further the response received under section 133 (6) of the various parties i.e. buyers was received at the last movement of completion of the assessment and therefore it was not confronted to the assessee. Identical payments have been allowed to the assessee in earlier years as well as in subsequent years. Therefore there is no reason to deviate from the same. Further the learned assessing officer is also allowed 50% of such expenditure holding it to be for the purposes of the business, there is no sanctity involved in allowing 50% of this expenditure in disallowing 50% of the same. If the learned assessing officer was not satisfied with the explanation of the assessee total hundred percent of such ....
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....ut of the disallowance, but now it has been pointed out to the authorities and therefore it should have been corrected. 037. The learned departmental representative relied upon the order of the lower authorities. 038. We carefully considered the rival contention and perused the orders of the lower authorities. The assessee itself has disallowed a sum of Rs. 2,060,500 under section 14 A of the act read with rule 8D. Now the assessee wants to submit that the interest disallowance made by it while working out the sumo to disallowance is not proper. We find that correct disallowance is required to be made if it is found at any stage of the assessment proceedings or appellate proceedings that same needs to be rectified. Accordingly we direct learned assessing officer to delete the disallowance of indirect interest expenditure as assessee has capital and free reserve amounting to Rs. 526 crores whereas the investment is only 83 crores while working out disallowance under section 14 A read with rule 8D. Accordingly ground G of the appeal is allowed. 039. Ground number H is with respect to the short credit for tax deduction at source allowed to the assessee. The claim of the asses....
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.... GROUND C: CLUB EXPENSES - Rs. 2,53,452/- (i) Based on the facts and in the circumstances of the case, the A.O. and the DRP erred in disallowing the annual subscriptions and expenditure incurred at clubs by senior employees of the Appellant as non- business expenditure. GROUND D : DISALLOWANCE OF DEDUCTION U/S 35(2AB) - Rs. 74,53,064/- (i) Based on the facts and in the circumstances of the case, the AO and the DRP erred in not allowing relief under section 35(2AB) as certified by Tax Auditors in Tax Audit Report and restricting the allowance to Rs. 14,37,10,000/-. (ii) Without prejudice to above, the A.O. and the DRP erred in not mentioning in the assessment order to revise the deduction allowed as and when the Appellant submits rectified Form 3CL that will be issued by DSIR in response to application already filed by the Appellant with DSIR. GROUND E: DISALLOWANCE OF COMMISSION - Rs. 3,78,62,418/- (i) Based on the facts and in the circumstances of the case and A.O. and the DRP erred in disallowing 50% of commission paid to dealers as non-business expenditure. (ii) Without prejudice to above, the A.O. and DRP er....
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....penses which is identical to ground number C in appeal of the assessee for assessment year 2011-12. Identical ground has raised for assessment year 2012-13 and ground number B for assessment year 2013-14. For assessment year 2011-12 we have allowed that particular ground. Therefore, for the similar reasons, we also allow ground number C for assessment year 2012-13 and ground number B for assessment year 2013-14 directing the learned assessing officer to delete the disallowance of club expenses. 046. Ground number D is with respect to the disallowance of research and development expenditure under section 35 (2AB) of the act for assessment year 2012-13 based on form number 3CL issued by DSIR. Similar is ground number C for assessment year 2013-14. The facts and circumstances are stated to be identical to the ground decided by us in case of the appeal of the assessee for assessment year 2011-12 wherein we have held that for the impugned assessment year such disallowance cannot be made. We have deleted the disallowance of research and development expenditure for that year. For the similar reasons, as there is no change in the facts, circumstances and law for this year as well as for....