Home Case Index All Cases Income Tax Income Tax + AT Income Tax - 2014 (11) TMI AT This
Forgot password New User/ Regiser ⇒ Register to get Live Demo
2014 (11) TMI 146 - AT - Income TaxTaxability of export incentive u/s 80HHC - DEPB Credit short received disallowed and written off in the profit and loss account - Held that:- Following the decision in aseessee’s own case as decided in DSM Anti Infectives India Ltd. Versus Deputy Commissioner of Income-tax [2013 (11) TMI 1239 - ITAT CHANDIGARH] - The assessee had paid interest on the borrowings made from its parent company in the earlier years and no fresh borrowings had been made during the year - The interest expenditure had been allowed in the hands of the assessee from year to year - Further the advances to M/s Hindustan Max G.B. Ltd. were also made in the earlier years and the balance is brought forward from the preceding year on which in the earlier years the assessee was charging interest - However, the interest on the loan had not been recognized during the year – thus, the matter is remitted back to the AO for verification – Decided in favour of assessee. Finance expenses disallowed – Nexus or diversion of funds to HMGB or not - Whether assessee had utilized borrowed funds for giving interest free advances to its joint venture company i.e. Hindustan Max-GB Ltd. (‘HMGB’) without appreciating that no advances have been made by the appellant company to HMGB during the year – Held that:- Following the decision in aseessee’s own case as decided in DSM Anti Infectives India Ltd. Versus Deputy Commissioner of Income-tax [2013 (11) TMI 1239 - ITAT CHANDIGARH] - The advances to joint venture company were made in the earlier years on which the assessee in the earlier years was earning interest income but because of the said joint venture company filing petition before BIFR, no interest was charged by the assessee company on the advances – there was no merit in the order of the AO in disallowing part of the expenditure being relatable to such advances made by the assessee interest free to it is joint venture company and the same is deleted – Decided in favour of assessee. Commission expenses charged to the P&L Account disallowed - Export sales invoiced to those parties and liability to pay commission to those parties or not - Held that:- Following the decision in aseessee’s own case as decided in DSM Anti Infectives India Ltd. Versus Deputy Commissioner of Income-tax [2013 (11) TMI 1239 - ITAT CHANDIGARH] – the commission included both commission paid on account of exports and also the commission paid on domestic sales - The two transactions were claimed to be different and without any connection to each other - The assessee is engaged in the manufacture of intermediaries and bulk drugs, which in turn are utilized by other concerns for the preparation of the final products - The assessee, through the commission agents had sold the items manufactured by it to different concerns - the assessee had made sales to the parties on which commission had been paid – thus, the matter is to be remitted back to the AO for verification of the claim of the assessee that the commission paid to the said concern had no connection with the sales made to the said concerns and if the contention of the assessee is found to be correct. Commission paid on domestic sales – Held that:- The restriction made by the AO observing that the rate of commission paid by the assessee was 6.6% whereas the assessee claims that it had paid commission @ 4.48% - The other two parties to whom commission had been paid by the assessee and the same has been restricted by the Assessing Officer are Integrated Technology and Aakaar Engineering & Manufacturing Co. – there was no merit in the disallowance made by the AO restricting to rate of commission to 3% as against the rates agreed upon between the parties – Decided in favour of assessee. Disallowance u/s 14A – Income on investment earned or claimed to be exempt during the year or not – Held that:- Following the decision in aseessee’s own case as decided in DSM Anti Infectives India Ltd. Versus Deputy Commissioner of Income-tax [2013 (11) TMI 1239 - ITAT CHANDIGARH] - the assessee was receiving interest on the advances - The investment was made for business purposes i.e. for the purchase of raw material from the concern - However, as the concern was in financial constraint, the application was made before the BIFR by the said concern and thereafter, no interest was being charged by the assessee on the advances – the investment was not made during the year under consideration, as is apparent from the fact that the issue of disallowance of interest u/s 36(1)(iii) of the Act in relation to the advance - no disallowance is warranted under section 14A, read with Rule 8D of IT Rules as the investment had been made by the assessee in a joint venture for business expediency – Decided in favour of assessee. Transfer pricing adjustment – Determination of arm’s length price of the international transactions with associated enterprises - Disallowance of intra group services - Whether the assessee should have benchmarked each of the transactions separately – Held that:- The assessee had entered into series of transactions with its AE i.e. purchase of raw material, consumables, finished goods, etc, export of material, corporate services, reimbursement of expenses and interest paid on loan, which it had aggregated in order to determine the arm’s length price of the transactions except interest on loan – in UCB India (P.) Ltd. v. Asstt. CIT [2009 (2) TMI 237 - ITAT BOMBAY-L] it has been held that for determining the arm’s length price each of the assessee’s independent activities have to be segregated - the TPO is empowered to apply appropriate method for each of the international transactions and as the service fee paid by the assessee was a separate class of transactions, the same is to be analyzed separately, then from the other related party transactions. The total cost incurred by various entities of the group incurred in relation to services rendered has been allocated amongst the group companies in systematic manner - Under the formula agreed upon between the parties, costs were charged to various members, depending on their contribution to the invested capital and gross value added and appropriate share of cost to be borne by each entity was worked out - This practice was adopted to achieve business efficiency in order to meet the demands of customers and to run basic operations more efficiently in globalized and competitive market. There is nothing to show that the transactions entered into by the assessee were not at arm’s length price - It is irrelevant as to what benefit the assessee eventually derived from the said services but what was actually determinative factor, so far as ALV adjustment is concerned, as to what the assessee would have paid for these services in a situation in which these services were rendered by a non-AE - the services were indeed rendered by AE as in earlier year, in respect of which no adjustment was made in the earlier years by the TPO himself - The action of the TPO in applying CUP method without there being any valid comparable was thus patently incorrect. It is very imperative on the part of the assessee to establish before the TPO that the payments were made commensurate to the volume and quality of services and such costs are comparable - The payment terms as pointed out by the TPO are independent of the nature or volume of services - The assessee has defeated in this primary examination itself - The TPO is also justified in making a pertinent observation that the expenses are apportioned by Singapore affiliate among different country centers on the basis of their own agreements and not on the basis of the actual services rendered to the individual units - It is in addition to the above fundamental flaw, that the TPO has made a clear findings that there are no details available on record in respect of the nature of services rendered by Singapore affiliate to the assessee company – there was no merit in the adjustments made by the TPO - the assessee has transferred 100% of the benefits to the AE by way of paying the Corporate Service Charges - the TPO/A.O is directed to disallow 50% of the benefits arising on account of guarantee fee and interest cost as being not on arm’s length and the balance payment is allowable in the hands of the assessee as being on arm’s length against which no adjustment is to be made – Decided partly in favour of assessee.
|