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2014 (11) TMI 552 - ITAT AHMEDABADAddition of interest received on income tax refund – Held that:- As decided in assessee’s own case for the earlier assessment year, the decision in Avada Trading Co. (P.) Ltd. Versus Assistant Commissioner of Income-tax, Spl. Circle 18(1) [2006 (1) TMI 465 - ITAT MUMBAI] relied upon wherein it has been held that the interest on refund under section 244A(1) would be assessable in the year in which it is granted and not in the year in which proceedings under section 143(1)(a) attain finality – the order of the CIT(A) is upheld – Decided against assessee. Treatment of repairing expenses – Capital expenses or not – Held that:- As decided in assessee’s own case for the earlier assessment year, it has been decided that certain explanations were furnished before the AO but those were not supported by the requisite evidences - assessee has furnished certain details of the bills of repairs and details of replacement of furnace - The assessee was under strict obligation to furnish the proof and evidences in support of the repairs and replacement of furnace - the natural justice demands to provide an opportunity to this assessee to furnish full details along with bills and vouchers to demonstrate the nature of expenditure incurred, before the AO, so that after proper investigation about the nature of expenditure can be determined – thus, the matter is remitted back to the AO for fresh consideration – Decided in favour of assessee. Treatment of software expenses – capital expenses or not – Held that:- The fact of incurring of expenditure for SAP on account of user licencee fee and on account of reimbursement is not in dispute – in CIT vs. Asahi India Safety Glass Ltd. [2011 (11) TMI 2 - DELHI HIGH COURT] it has been concluded that the expenditure incurred by assessee on software is allowable as Revenue expenditure more so as the expenditure acquired by the assessee was an application software which enable it execute tasks in the field of accounting, purchases and inventory maintenance – also in IBM India Ltd. vs. ACIT [2006 (3) TMI 196 - ITAT BANGALORE-B] the same is held that the expenditure on purchase of application software is allowable as revenue expenditure as it is an aid in manufacturing process rather than the tool and though there is an enduring benefit there is no acquisition of capital asset - the expenditure incurred by the assessee has to be allowed as revenue expenditure – Decided in favour of assessee. Lump sum payments on account of know how fees – Capital expenses or not – Held that:- As decided in assessee’s own case for the earlier assessment year, it has been held that the know-how as such was not the property of the assessee - The know-how remained the property of the said "Collaborator" because the "Indian Company" was not permitted to make use of know-how other than the purpose for which it had intended in terms of the agreement - the know-how was not the property of the assessee - Rather, the said Collaborator has imposed a condition of confidentiality and secrecy which leads to an inference that the property belonged to the said Collaborator - the transfer of know-how was restricted for the use rather than its acquisition - the payment of ₹ 43.10 lacs was in the nature of revenue expenditure – Decided in favour of assessee. Transfer pricing adjustment – International transaction of Royalty and fees for technical services paid – invocation of section 40A(2)(b) – Held that:- The Artificial Bifurcation of DTA and EOU is de hors the provisions of Law, DTA Segment has no exports but comparable companies has exports and incorrect computation by the CIT(A) - the TPO artificially divided the manufacturing segment into two sub-segments, i.e. for exports and for domestic sales, but however kept the set of comparable companies same for both EOU and DTA - There is no fault can be found from the order of the CIT(A) so far as restricting the addition on account of differential operating margin to the international transactions is concerned - the figure as worked out by the CIT(A) is not correct, therefore this issue is required to be restored to the file of CIT(A) for re-computation of the international transactions – Decided in favour of assessee. CIT(A) in its order has held that royalty @ 1.5% only represent reasonable royalty - This finding is on the basis of the appellate order pertaining to AY 2001-02 - It is also held that the benchmarking of royalty is to be done for EOU as well as DTA - The contention of the assessee is that the fundamental principle of CUP is that the comparable transaction has to be “uncontrolled Transaction”, meaning thereby that it has to be a transaction between two parties who are not related to each other. SKF transaction is not eligible to be treated as CUP as it is with related party - The another contention of the assessee is that the TPO and CIT(A) has relied upon the rates of royalty paid by the assessee during the earlier years - this transaction is also with related parties as it is given to a related party of the assessee for the earlier period - no material is available on record that any enquiry of any nature has been carried out by any person including TPO to conclude that the transactions of SKF and for the earlier years for the assessee were the correct ALP or were done in circumstances so as to be at the ALP - The contention is that the only available option is to adopt TNMM as the method for determination of the ALP - CIT(A) and TPO were not justified in adopting the CUP method and the CIT(A) is upheld to adopt the method of TNMM for determination of the ALP and recompute the ALP in respect of the royalty – Decided in favour of assessee. Expenses incurred on repairs to building – Held that:- Following the decision in B.V.Ramachandrappa & Sons [1991 (1) TMI 67 - KARNATAKA High Court ] wherein it was held that Tribunal was right in holding that expenditure incurred on replacement of the barbed wire fence with compound wall was revenue expenditure - sustenance of shed or building, etc. is definitely in the nature of “current repairs” as prescribed u/s. 31 – Decided in favour of assessee. Interest expenses paid in foreign supply credit – TDS not deducted u/s 195 – Held that:- As decided in assessee’s own case for the earlier assessment year, it has been held that the conditions for supply of goods by the non-resident to the assessee in that case were that the payment of purchase price in instalments was to be made with the condition that the assessee will compensate the supplier by means of interest on the unpaid instalments - the unpaid instalment was not the same as loan and therefore, interest paid could not be treated as paid on-the loan and hence, deduction of tax at source was not attracted - the interest as defined u/s 2(28A) of the Act was paid in foreign currency on foreign suppliers' credit - There is nothing to suggest that payment of purchase price has been made in installments nor it has been brought to our notice there was any such condition that the assessee will compensate the supplier by means of interest on the unpaid installments - There is no material before us suggesting that amount was paid to the bank nor any such findings has been recorded in the impugned orders – thus, the order of the CIT(A) is upheld – Decided against assessee.
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