TMI Blog2017 (11) TMI 1743X X X X Extracts X X X X X X X X Extracts X X X X ..... ther year. Before the DRP, there was no details provided by the assessee regarding date of installation and only furnished the product sold date for FY 2009-10 and no such details of other years were provided and the assessee failed to substantiate its own claim. AR made a plea that since the invoice has been received from the AE during the assessment year under consideration, it was subject to TDS and it is to be allowed. In our considered opinion, if the expenditure was crystallized and accrued in the assessment year under consideration, the same is to be allowed subject to deduction of TDS as held by Delhi High Court in the case of CIT v. SMCC Construction India [2010 (1) TMI 10 - HIGH COURT OF DELHI]. The assessee has to furnish the details of product sold date and date of completion of installation work with corresponding agreements. The AO/TPO should examine the same and decide the issue in the light of above judgments. This ground is remitted to the file of AO for fresh consideration. Downward adjustment in respect of management fee - Held that:- Regarding copy of correspondence with the AE for allocation of cost, it was observed by the DRP that no such document was furni ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o use during the preceding year - disallowance of spill over of additional depreciation u/s. 32(1)(iia) on plant and machinery put into use during the preceding year - Held that:- Similar issue was considered by the Karnataka High Court in the case of Rittal India (P.) Ltd. [2015 (1) TMI 1248 - KARNATAKA HIGH COURT] as held tribunal has rightly held that additional depreciation allowed under section 32(i)(iia) of the Act is a one time benefit to encourage industrialization, and the provisions related to it have to be construed reasonably, liberally and purposively, to make the provision meaningful while granting additional allowance. We are in full agreement with such observations made by the Tribunal - decided in favour of assessee. - IT Appeal Nos. 376 & 1420 (Mds.) of 2017 - - - Dated:- 13-11-2017 - Chandra Poojari And Duvvuru RL Reddy, JJ. B. Ramakrishnan, FCA and S. Dwarakesh, ACS for the Appellant. Smt. Vijayalakshmi, CIT DR for the Respondent. ORDER Chandra Poojari, These two appeals are filed by the assessee, aggrieved by the order of the ld. Assessing Officer, Chennai, passed u/s. 143(3) read with sec.144C(1) of the Act pursuant to the order of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... propriate method. The TPO in his order has remarked that the PLI of the comparables works out to (-1.53) per cent as against the PLI of the assessee (-0.37 per cent). Further, the assessee submitted before the TPO that if the economic adjustments and extraordinary costs are factored, the PLI of the assessee works out to 4.40%. Thus, it was concluded that Gamesa India's international transactions with AEs was consistent with the arm's length standard from an Indian transfer pricing regulations perspective. 3.2 The assessee entered into Technology Transfer Agreements with Gamesa Innovation and Technology SL Unipersonal ('Gamesa Spain') dated 1st January 2009 and 11th July 2011 for availing technology in relation to AE 59 and G 97 models respectively. As per the agreements, Gamesa India would pay royalty at the rate of 4 per cent and 4.50 per cent respectively on Net Annual Turnover. The assessee has also considered CUP as alternate method for benchmarking the royalty transaction. The assessee has considered certain comparables agreements and the arithmetic mean of the royalty as per the comparable agreements amount to 6.43 per cent. Given that the rate of royalty a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he ld. AR submitted that in the transfer pricing study, the assessee considered TNMM as the most appropriate method For the subject assessment years, the PLI of the assessee is higher as compared to the comparable companies. Further, the assessee considered CUP as the most appropriate method and contended that average rate of royalty as per comparable agreements is higher as compared to the subject royalty rate. Therefore, the assessee arrived at a conclusion that the royalty paid to its AE is at ALP. The assessee submitted that technology is a critical factor for undertaking its operations and therefore, royalty expenditure is inextricably linked to its business. The determination of ALP of royalty on a stand-alone is basis in the first place. The TPO has erred in not appreciating the basic fact that royalty is inextricably linked to business of the assessee and therefore, benchmarking the PLI at entity level is sufficient in order to substantiate that the transactions with AE are at arm's length. Without prejudice to the above submission, the assessee has undertaken supplementary benchmarking under CUP method thereby considering the royalty rate of uncontrolled transactions a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eliance on the judgment of the Delhi High Court in the case of Hive Communication (P.) Ltd. v. CIT [2011] 12 taxmann.com 287/201 Taxman 99/[2013] 353 ITR 200 wherein the Court in the context of sec.40A(2) has clearly held that while examining the reasonableness of an expenditure, the Assessing Office is expected to exercise his conclusion in a reasonable and fair manner. It should be borne in mind that the provision is meant to check evasion of tax through excessive or unreasonable payments to relatives and associate concerns and should not be applied in a manner which will cause hardship in bona fide cases. The ld. AR, also placed reliance on the judgment of the Delhi High Court in the case of CIT v. EKL Appliances Ltd. [2012] 24 taxmann.com 199/209 Taxman 200/345 ITR 241 wherein it has been held that it is not necessary for the assessee to show that any legitimate expenditure incurred by him was also incurred out of necessity. In addition, the Court held that it is also not necessary for the assessee to show that any expenditure incurred by him for the purpose of business carried on by him has actually resulted in profit or income either in the same year or in any of the subseque ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d. AR submitted that the TPO relied on the 'Standard conditions attached to automatic approvals for Foreign Investment Technology Agreement', which emphasizes for calculation of royalty on the basis of net ex-factory sale price of products excluding the excise duty and other taxes, cost of standard bought out components and landed cost of imported components etc. and relying on the conditions, the TPO held that no royalty is permissible under the provisions of FEMA in respect of bought out components. According to the ld. AR, standard conditions form part of Form FC-SIA, which has been withdrawn by RBI, have no relevance for these subject A.Ys. and reliance on the standard conditions by the TPO is baseless. 4.6 The ld. AR further submitted that the rate of royalty prescribed under the provisions of FEMA cannot be regarded as ALP for transfer pricing purposes. To support his view, the ld. AR, relied on the following decisions: 1. CIT v. Oracle India (P.) Ltd. [2016] 386 ITR 1/241 Taxman 253/72 taxmann.com 45 (Delhi) 2. Gruner India (P.) Ltd. v. Dy. CIT [2016] 159 ITD 772/70 taxmann.com 240 (Delhi - Trib.) 3. A.W. Faber Castell (India) (P.) Ltd. v. Dy. CIT [2017 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ers. According to the ld. AR, the intent of FEMA is to curb royalty payment on product in respect of which no value has been added by the assessee company. 4.8 According to the ld. AR, for example if a company engaged in manufacture of laptop procures web camera from a third party vendor and sells both the products to end customers as a combined product, royalty should be confined only to the selling price of laptop (thereby excluding the cost of web camera from the overall selling price). Whereas, in the instant case, the components procured by the assessee are processed further and therefore, the same cannot qualify to be 'standard bought out components' in order to be excluded from turnover for the purpose of computation of royalty. Further, it is submitted that the components procured from its AEs have been processed further for completing the end-product and delivering to its customers. In other words, the same does not constitute bought out components that are ready for assembling, which issue has been discussed in detail by the Pune Bench, Tribunal in the case of Akzo Nobel Chemicals (India) Ltd. (supra). Therefore, the ld. AR, submitted that the TPO has erred in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... AR, the contention of the TPO that the ALP of royalty in relation to wind farm development activities, erection and- commissioning is Nil is not tenable. The ld. AR further submitted that the copy of sample reports provided by its AE in relation to wind farm development and sample mail correspondences evidencing the fact that the assessee has sought the inputs from its AE are also provided. In view of the above, the ld. AR, submitted that robust technology and knowledge support is required for the purpose of executing the wind farm development, erection and commissioning activities and the contention of the TPO and DRP that no technology from its AE for undertaking such activities is required, is factually incorrect. 5. The ld. DR, submitted that the TPO has not determined the ALP for the royalty paid by the assessee to its AE based on FEMA Regulations instead he has substantiated his point of view that no royalty can be paid on the bought out components using the method of calculation of royalty provided in FEMA. According to the ld. DR, it is pertinent to note that almost all the companies operating in India and paying royalty to its foreign AEs for the technology provide ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t the case here. Moreover 'aggregated approach to transfer pricing analysis is the exception rather than the norm. This issue has been dealt with extensively by the DRP of its order dated 24.03.2017 The DRP has quoted case laws to reject the assessee's objection in this regard. The OECD Guidelines of 2010 has also taken the view that as far as possible, transactions are to be evaluated separately. Considering this, according to the ld. DR, the action of the TPO is in order. 5.2 Further, the ld. DR submitted that the commercial expediency may not be questioned if the transactions carried out between uncontrolled parties. If the transactions between the two parties are controlled then the nature of transactions should be analyzed including the commercial expediency. Needless to say the comparability study which forms the basis of Transfer Pricing proceedings requires an analysis of the need for such a transaction and the benefit derived by the assessee from that transaction. The TPO has not sought to question the commercial expediency of the royalty. What has been done is to compare the circumstances surrounding the payment and the services said to have received with an in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 7593481 74327804 May 3421868459.14 266548375 693651740 2461668344 73850050 June 3405444134.38 214242332 706660060 2484541742 74536252 July 3132628736.49 278692197 651524555 2202411985 66072360 August 3493824299.49 215174696 683986456 2594663147 77839894 Sept 3431848518.09 183107653 661691049 2587049816 77611494 Oct. 3562398246.85 176505491 814222529 2571670227 77150107 Nov. 3330501933.26 153164362 708028323 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... both the parties and perused the material on record. In this case, under the technology transfer agreement dated 01.01.2009 and 11.07.2011 with Gamesa Innovation and Technology SL (Gamesa Spain), for availing technology in relation to A.E 59 and G 97 models respectively, the assessee agreed to pay royalty @ 4%/4.50% respectively on net amount of annual turnover on sale of Wind Energy Generators (WEG) to its customers including charges for development of land, substation, and erection commissioning. The assessee aggregated the royalty payment which is being international transaction with AE and benchmarking it by using Net Present Cost (NPC) on Revenues as PLI with TNMM method as most appropriate method. The assessee's NPC on revenue was claimed to be at 1.49% with three year weighted margin on revenue of comparables of 0.07% and therefore, the AE transactions were claimed to be at arm's length. According to TPO, the assessee's approach of computation of Royalty and Managerial services by benchmarking them on an aggregation basis was not accepted by TPO/AO. According to TPO, no royalty payable on the standard bought out components and thereby reduced the cost of standa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... method and made adjustment on account of nine services on average basis. (para 24.6) Agreement listed certain services on which the Assessee requires guidance/assistance from time to time. The Assessee was thus entitled to any of the services as and when required. Therefore, applying CUP method to the service not availed by the Assessee during the year is not justified. It would have been appropriate if the AO had applied CUP method to the payment made during the year by the Assessee for the three services and compared with similar payment for such services by an independent party. No efforts have been made by TPO/AO to determine the market value of services received by the Assessee during the year relating to SAP implementation and quality control to show that the Assessee had paid more compared to any independent party for the same services. The Assessee had submitted that in case the Assessee had paid to the AE at man hour rate for the technical services provided during the year in relation to SAP implementation, the fees payable would have been significantly higer There is nothing produced before ITAT to controvert the said claim. The Assessee has applied TNMM which shows ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... methods can be adopted. This would spell chaos and be detrimental to the interests of both the assessee and the revenue. The second question is, therefore, answered in favour of the assessee; the TNMM had to be applied by the TPO/AO in respect of the technical fee payment too. 6.3 Similar view was taken by co-ordinate Bench of Hyderabad Tribunal in the case of Air Liquid Engg. India (P.) Ltd. (supra) wherein held that:- '20. Furthermore, we are of the opinion that once TNMM has been applied to the assessee company's transaction, it covers under its ambit the Royalty transactions in question too and hence separate analysis and consequent deletion of the Royalty payments by the TPO in the instant case seems erroneous. We draw support from the Hon'ble Mumbai ITAT decision in Cadbury India Ltd. v. ACIT (ITA No. 7408/Mum/2010 and ITA No.7641/Mum/2010 dated 13-11-2013) wherein the Hon'ble ITAT upheld the use of TNMM for Royalty as well as relied on many of the above decisions to hold adjustment by TPO was erroneous: 33. The TPO has made the disallowance in question mainly on the basis of the benefit test. In this regard, it is seen that the payment of royalty ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... per the FEMA Regulations, royalty can be paid on net sales @ 5% on domestic sales and @ 8% on export sales. The royalty payment by the assessee falls within these limits. It also falls within the limits of payment of royalty in the automobile sector, as per the market trend. This payment of royalty is at the same percentage as that paid by other auto ancillaries in the automotive industry. Then, in 'Ekla Appliances' (supra) and in 'Ericsson India Pvt. Ltd. v. DCIT, 2012-TII-48-ITAT-Del-TP, it has been held that royalty payment cannot be disallowed on the basis of the so-called benefit test and the domain of the TPO is only to examine as to whether the payment based on the agreement adheres to the arm's length principle or not. That being so, the action of the TPO in the present case, to make the disallowance mainly on the ground of the benefit test, is unsustainable in law. 36. Keeping in view all the above factors, the disallowance made on account of royalty is found to be totally uncalled for and it is deleted as such.... . 21. Hence, following the ratio of the Honb'le Delhi High Court in EKL Appliances (supra) and various other decisions as noted above ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... change Management Act (FEMA), 1999 - Current Account Transactions - Liberalisation Attention of Authorised Dealer Category-I (AD Category-I) banks is invited to Foreign Exchange Management (Current Account Transactions) Rules, 2000 notified vide Notification No.G.S.R.381(E) dated 3rd May 2000, as amended from time to time. 2. In terms of Rule 4 of the Foreign Exchange Management (Current Account Transactions) Rules 2000, prior approval of the Ministry of Commerce and Industry, Government of India, is required for drawing foreign exchange for remittances under technical collaboration agreements where payment of royalty exceeds 5% on local sales and 8% on exports and lump- sum payment exceeds USD 2 million [item 8 of Schedule ii to the Foreign Exchange Management (Current Account Transactions) Rules, 2000]. The Government of India has reviewed the extant policy with regard to liberalization of foreign technology agreement as it was decided to omit item number 8 of Schedule II to the Foreign Exchange Management (Current Account Transaction) Rules, 2000, and the entry relating thereto. 3. Accordingly, AD Category-I banks may permit drawal of foreign exchange by persons for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of India issued a Press Note on 16.12.2009. Hence, the rule shall be deemed to have come into force with retrospective effect, i.e. from 16.12.2009. 1. It is certified that no person will be adversely affected by giving retrospective effect to these rules. 6.6 In view of this, there is no merit in applying the provisions of FEMA as indicated by the TPO and placing reliance on the provision of FEMA is incorrect. 6.7 Further, it is to be noted that there cannot be any restriction on payment of royalty on bought out components which were subject to further processing by the assessee and which was not sold on as is basis to end customers. This view of ours is fortified by the decision of the Tribunal in the case of Akzo Nobel Chemicals (India) Ltd. (supra) wherein held in para -23 that what is liable to be considered as standard bought out components are such material on which no further processing is required and are directly fitted into the final product; and, cost of such material only needs to be deducted from the sale price to compute the royalty payable. Applying the said clarification to the present situation, considering the manufacturing process explained, it canno ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ting the expression Net Sales , contained in the Foreign Technology Collaboration agreement approved by the Govt. of India, differently from what has been understood by the assessee is justified and falls within the exceptions provided in the OECD guidelines which permit the TPO to rewrite the transaction or to disregard actual transactions. Considered in the context of the OECD guidelines which have been exhaustively referred by the Hon'ble Delhi High Court in the case of EKL Appliances Ltd. (supra), the impugned situation does not fit into the two exceptions. Firstly, neither the Revenue has alleged and nor is there any material on record to suggest that the economic substance of the impugned transaction differs from its form. Secondly, there is no material on record to suggest that there is an arrangement between assessee and the AE made in relation to the impugned transaction which would differ from those which would have been adopted by independent enterprises behaving in a commercially rational manner. We say so for the reason that the entire gamut of royalty payment by the assessee to the AE is in terms of the Foreign Technology Collaboration agreement, which is duly ap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ught to have appreciated that WEG is not a standard product to be manufactured based on a tailor made technology. In other words, it requires detailed examination right from soil testing, examining the appropriateness of wind direction etc. which requires cumbersome technology failure of which the entire product would be of no use to the customers. Therefore, the action of the TPO and DRP in holding that no royalty is required on allied activities such as development of land, erection and commissioning etc. is not tenable on the first place. The ld. AR further submitted that the copy of sample reports provided by its AE in relation to wind farm development and sample mail correspondences evidencing the fact that the assessee has sought the inputs from its AE are also provided. 10. The ld. DR's submitted that the assessee had claimed royalty on substation development charges, development revenues and revenue on erection and commissioning of Wind Turbine Generators (WTGs). This issue has been discussed in paras 9.7 to 11.2 by the TPO, who has after a perusal of the agreements relating to the above activities, held that what was being done under these categories did not involve ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... technical assistance was available on a continuing basis even after the period of agreement (c) No minimum guaranteed royalty would be allowed. 3. The lump sum shall be paid in three instalments as detailed below, unless otherwise stipulated in the approval letter:- First 1/3rd after the approval for collaboration proposal is obtained from the Reserve Bank of India and collaboration agreement is filed with the Authorized Dealer in Foreign Exchange. Second 1/3rd on delivery of know-how documentation. Third and final l/3rd on commencement of commercial production, or four years after the proposal is approved by the Reserve Bank of India and agreement is filed with the Authorised Dealer in Foreign Exchange, whichever is earlier. 3.2 Thus the royalty was required to be calculated by the assessee on the basis of the net ex-factory sale price of the product, exclusive of excise duties, minus the cost of the standard bought out components and the landed cost of imported components, irrespective of the source of procurement, including ocean freight, insurance, custom duties, etc. However, the assessee has not done so. The assessee has claimed that the above conditions no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ot explained as to how the technology could have been transferred without technical documents, drawings, type certificates etc. So reliance of the assessee on these words in the agreement to support its claim, is totally misplaced. The action of the TPO is found to be correct and the objection of the assessee on this issue is not accepted.' 10.2 Further, ld. D.R submitted that during the year under consideration, the issues regarding royalty payment on bought out components, royalty on substation development charges, royalty on development revenue and royalty on erection commission charges remain same as for the AY 2012-13. Since the facts remain the same, there is no reason to differ with the order on the same issues for AY 2012-13 and the DRP concurs with the reasoning given by the DRP for AY 2012-13 for rejecting the objections of the assessee. In addition to the reasoning of DRP for AY 2012-13, as regards the issue of Royalty payment on bought out components, the assessee was asked (order sheet entry 23.02.2017) by the Panel to explain as to whether any Royalty is paid by the various group companies to Gamesa Innovation Tech (GIT), the owner of IPR, as such companie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... espect and scope of work agreed to perform by the assessee to its customers, was of the opinion that it does not involve any application of technology transferred to the assessee by the AE for which the assessee is depending on the AE as part of the Technology Transfer Agreement. Therefore, the claim of arm's length price on royalty claimed on development of revenue was determined as 'Nil'. Before us, the assessee explained the activities, which involved high degree of expertise and cannot be undertaken directly by semi-skilled or unskilled workmen, which is as follows:- Wind farm development Erection Commissioning Environmental sustainability - Visual aspects - Ecology/architectural protection - Providing guidelines to use tools - Validation of foundation designs - Training to personnel of Gamesa India at the time of development of new prototypes. - Supervisory control and Data acquisition (SCADA) - for monitoring WTG throughout the year on remote basis. Process explained in detail in pages 425 to 428 of paper book volume-2 Technic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fine the control activities for the design and validation of foundations and to develop, in detail, the activities to be carried out for the execution of the slab or pile cap at the wind farm. This instruction applies to all shallow or deep foundations with piles in situ or micorpiles of Gamesa 850 dw and Gamesa 2.0 MW standard type wind turbines (with welded foundation section) and for those in which the farm is supplied concrete from a factory. Construction Operations: Erecting wind turbines requires the efforts of many skilled construction workers. The work begins before the turbine components arrive on site: construction labourers and construction equipment operators are responsible for building local access roads and the foundations that support the turbines. Based on the experience Gamesa-Spain provide know-how on, how to build the access roads, transport the wind turbine blades across remote places which more challenging. They also provide the technical feasibility to approach the site. After the turbine components arrive, crane operators set the first tower segment vertically on to the ground, where other workers secure it to the foundation. The remaining tower seg ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d general shop can be helpful to prepare for the apprenticeships. Many construction labourers' skills are learned on the job and by assisting more experienced workers. Local contractors may or may not have worked with wind turbines before. However, construction workers and wind turbine service technicians employed by companies specializing in wind farm development handle the more technical operations and usually have extensive experience in the wind industry. Construction equipment operators and crane operators learn their skills through on-the-job training, apprenticeships, or, for some, union instruction. In addition, the operators are expected to be certified to operate their equipment. Crane operators need to be highly skilled, especially when handling large, expensive cargo like wind turbine components. Most electricians learn their trade through apprenticeship programs that combine on-the-job training with related classroom instruction. Apprenticeship programs usually last 4 years, and, in them, electricians learn skills such as electrical theory, blueprint reading electrical code requirements, and soldering. Depending on the State, electricians might have to pass a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... management, business management, or engineering. Advanced degrees, such as an MBA, are becoming more common. Because experience is so important for these positions, years of experience may substitute for some educational requirements. However, this is becoming increasingly rare, as projects grow more complex and employers place more emphasis on specialized education. New graduates from construction management or engineering programs may be hired as assistants to project managers to gain experience. Towards empowering the project managers, Gamesa-Spain helps the company in providing suitable training to the staff. Gamesa Guideline Short-circuit calculations Code: GDE-TEC-004 Previous code: N/A Edition: 1 Date: 14/02/2012 Language: Security : Public Rating Page:1 of 133 The above guidelines are explaining how to proceed with the calculations of short-circuits currents and its connection with cable sizing and protective devices sizing documents. It is important to know the correct application of the various short-circuit ratings by the circuit designer, in order ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... action and it covered under its ambit the royalty transaction in question. A separate analysis and consequent deletion of royalty payment is unwarranted. Placing reliance in the case of Magneti Marelli Powertrain India (P.) Ltd. (supra) wherein held that:- 17. As far as the second question is concerned, the TPO accepted TNMM applied by the assessee, as the most appropriate method in respect of all the international transactions including payment of royalty. The TPO, however, disputed application of TNMM as the most appropriate method for the payment of technical assistance fee of ₹ 38,58,80,000 only for which Comparable Uncontrolled Price ( CUP ) method was sought to be applied. Here, this court concurs with the assessee that having accepted the TNMM as the most appropriate, it was not open to the TPO to subject only one element, i.e payment of technical assistance fee, to an entirely different (CUP) method. The adoption of a method as the most appropriate one assures the applicability of one standard or criteria to judge an international transaction by. Each method is a package in itself, as it were, containing the necessary elements that are to be used as filters to judg ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... royalty. The TPO worked out the difference in the PU of the outside party (the assessee) at 4.09% and the comparables at 7.05%. This has not been shown to fall outside the permissible range. 34. The decision of the Tribunal in 'Ekla Appliances', 2012- TH-01-HCDel- TP, has been sought to be distinguished by the TPO, observing that the facts in that case are not in pari materia with those of the assessee's case. However, therein also, the benefit test had been applied by the TPO, as in the present case. The matter was carried in appeal before the Hon'ble High Court. The Hon'ble Delhi High Court has held that the so-called benefit test cannot be applied to determine the ALP of royalty payment at nil and that the TPO could apply only one of the methods prescribed under the law. A similar view has been taken in 'Sona Okegawa Precision Forgings Ltd.' case (supra) and in 'KHS Machinery Pvt. Ltd. v. ITO' 53 SOT 100 (Ahm) (URO). 35. It is, thus, seen that the royalty payment @ 3% by the assessee is at arm's length. The Technical Collaboration Agreement stands approved by the Government of India. The royalty payment has been accepted by the depar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng by the rational business behaviour of economic activities, no royalty would have been otherwise paid to an unrelated party. No business entity would wilfully impose on itself any financial obligation for a period for which there was no legal obligation. 14. The ld. AR submitted that the Technology Transfer Agreement has been signed on 1st January, 2009. Further, the ld. AR submitted that the TPO has not disputed the fact that the assessee utilized the technology of the AE during the preceding year. Further, the expenditure has not been booked during the preceding year on account of the fact that the invoice has been received from its AE only during the subject asst. year. Therefore, according to the ld. AR, the contention of the TPO that such expenditure is unwarranted is baseless. 15. The ld. DR submitted that the assessee had claimed royalty on substation development charges, development revenues and revenue on erection commissioning of wind turbine generator (WTG5). This issue has been discussed by the TPO in paras 9.7 to 11.2 of his order. He has after the perusal of Agreements relating to the above activities, held that what was being done under these categories did ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t to TDS and it is to be allowed. In our considered opinion, if the expenditure was crystallized and accrued in the assessment year under consideration, the same is to be allowed subject to deduction of TDS as held by Delhi High Court in the case of CIT v. SMCC Construction India [2010] 320 ITR 534/[2011] 198 Taxman 181. Similar view was taken by Tribunal in the case of (i) Termo Penpol Ltd. v. Asstt. CIT [2015] 59 taxmann.com 90 (Cochin - Trib.) and ACIT v. Ennore Coke Ltd. [IT Appeal No.1921/Mds./2015, dated. 22-1-2016]. The assessee has to furnish the details of product sold date and date of completion of installation work with corresponding agreements. The AO/TPO should examine the same and decide the issue in the light of above judgments. This ground is remitted to the file of AO for fresh consideration. 17. The next common ground in these appeals is with regard to downward adjustment in respect of management fee. 17.1 The assessee filed the following additional evidences for A.Y 2012-13 and submitted that the assessee could not foresee the requirement of the tax authorities and DRP, therefore the assessee did not specifically submit the details of allocation of manageme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fer pricing proceedings before the TPO, especially when sufficient opportunity of being heard was given to it by the TPO. The onus was on the assessee, to produce all such relevant documents before the TPO, which in its opinion could support its case. However, the assessee failed to do so. The assessee has not brought anything on record to show that the documents could not have been produced by it before TPO despite its best efforts Admission of the additional evidence cannot be claimed as a matter of right and it is the duty of the assessee to explain the circumstances which prevented it from submitting such documents before the lower authorities. Since the assessee failed to provide sufficient cause to furnish these, documents before the TPO, the same cannot be admitted at this stage. 17.3 The ld. DR, by placing reliance in the judgment of ITAT, Bangalore in case of Anupam Kothar IT Appeal No. 837 (Bang.) of 2012] held that for admission of additional evidence, it is required for the assessee to show that authorities had decided its grounds without giving sufficient opportunity to adduce evidence. Considering above the request of assessee for admission of additional evidences ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ss-objections before the Tribunal. Tribunal should not be prevented from considering questions of law arising in assessment proceedings although not raised earlier.-Jute Corporation of India Ltd. v. CIT [1990] 88 CTR (SC) 66 : (1991) 187 ITR 688 (SC) : TC 7R.343 applied; CIT v. Anand Prasad (1981) 128 ITR 388 (Delhi) : TC 8R.1021, CIT v. Karamchand Premchand (P.) Ltd. (1969) 74 ITR 254 (Guj.) : TC 8R.547 and CIT v. Cellulose Products of India Ltd. (1985) 44 CTR (Guj.) 278 (FB) : (1985) 151 ITR 499 (Guj.)(FB): TC 8R.965 overruled. (Para 3) The view that the Tribunal is confined only to issues arising out of appeal before the CIT(A) takes too narrow a view of the powers of the Tribunal. Undoubtedly, the Tribunal will have the discretion to allow or not allow a new ground to be raised. But where the Tribunal is only required to consider a question of law arising from the facts which are on record in the assessment proceedings such a question should be allowed to be raised when it is necessary to consider that question in order to correctly assess the tax liability of an assessee. Hence, it is appropriate to admit the same as additional evidence for adjudication for the asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion that the AEs exist for the benefit of the affiliates. The costs are allocated to all affiliates principally on the basis of 'revenue which is based on the principle of capacity to pay' rather than on the basis of the need and extent of services available by the affiliates. A multinational enterprise functioning globally may like to co-ordinate with the affiliates taking into account the principle of optimization of profits. But such an exercise is not necessarily comparable to a service provided by a third party professional service provider. In the instant case, the ultimate holding company either by itself or through step down subsidiaries have stakes in affiliates and in pursuit of such investment interest, constantly exercise control, direction, supervision and hold over the affiliates. Such a monitoring is not necessitated by the needs of the affiliates, rather they stem from the inherent interest of the holding company in the affiliates and the resulting costs need not be passed on to the affiliates. 18.4 The TPO relied on the following decisions without mentioning the citations and held that the ALP of the management fee is NIL; a. Gemplus In ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... In the instant case, the TPO has merely held that the ALP of the transaction is Nil without even identifying comparables which is not in accordance with the methodologies provided in the Rules. The ld. AR, also relied on the following judgments, wherein it has been held that no transfer pricing adjustment is warranted in a scenario where the officer has not taken any step to identify a comparable to determine the ALP: a. Merck Ltd. (supra) - upheld by Bombay High Court [ITA 272 of 2014] b. Dy. CIT v. Flakt India Ltd. [2016] 70 taxmann.com 342 (Chennai - Trib.) c. Sabic Innovative Plastics India (P.) Ltd. v. Asstt. IT [IT Appeal No. 1125 of 2014 - Ahmedabad ITAT] Applying the above principles to the current fact pattern, the assessee submitted that the action of the TPO in determining the ALP to be Nil without even identifying a comparable transaction is inappropriate. Therefore, the ld. AR submitted that the transfer pricing adjustment in this regards needs to be set aside. 19.1 The ld. AR argued that there is no transfer pricing adjustment in a scenario where the transactions are at arm's length in accordance with the methods prescribed under Rule 10B. Without ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion to question the commercial expediency of the transactions. In other words, the TPO has the limited responsibility of computing the arm's length price of the transactions consideration the methods prescribed in the Act read with Rules. The said principle has been laid down in the following decision: a. Hive Communication (P.) Ltd. (supra) b. EKL Appliances Ltd. (supra) c. Computer Graphics Ltd. (supra) d. Showa India (P.) Ltd. (supra) Therefore, the ld. AR submitted that the jurisdiction of the TPO does not extend to stepping into the shoes of the assessee and determining the necessity of incurrence of expenditure and the contention of the TPO that there is no necessity on the part of the assessee to avail the management fee is unwarranted in the first Place. 19.3 Without prejudice to the submission that the assessee has availed substantial benefits on account of management service, the ld. AR submitted that the assessee has entered into agreement with GCT Spain for the purpose of availing services in the avenues of finance, legal assistance, advisory, operations management, business development etc. It is pertinent to note that all the operating companies ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sary, GCT obtains the assistance of third party vendors in providing the central services in the nature of management activities. The affiliates companies (which include the assessee) obtain advice and assistance from GCT and the cost incurred (GCT owns cost and cost charged by third party vendors) were charged to all the group companies. GCT has tremendous managerial talent and experience in the field of Wind Turbine industry. It has senior professionals with lots of years of experience in the field. As a new player in India, there was a critical need for the assessee to draw managerial services from this entity to face the challenges in the emerging market like India, where the market is very early phase of development and challenging. With further expansion of manufacturing operations and globalization of customer activities, it was essential for the assessee to adopt a global approach for its own activities to serve its global customer base and maintain competitive position in the market. It would have been difficult for the assessee to procure the services from third party service providers which are group and product specific. Therefore, the assessee availed the services from ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s cannot be a factor to propose transfer pricing adjustments. In the transfer pricing order, the TPO remarked that the costs are allocated to all affiliates principally on the basis of 'revenue' which is based on the principle of 'capacity to pay' rather than on the basis of the need and extent of services availed by the affiliates. In this regard, the ld. AR, submitted that under the provisions of sec.92CA of the Act, the TPO has the authority to determine the ALP of the transactions undertaken by the assessee. The jurisdiction of the TPO cannot extend to decide the basis of charge/allocation of expenses. In the instant case, the TPO ought to have confined his jurisdiction in determining whether the costs allocated by GCT Spain are at arm's length or not. For the purposes of benchmarking the profits the assessee considered TNMM as the most appropriate method and the PLI of the assessee is higher than that of the comparable companies. Recently, in the case of Durr India (P.) Ltd. v. Asstt. CIT [2017] 78 taxmann.com 50 (Chennai - Trib.), the co-ordinate Bench of the Tribunal held that allocation of cost partly on the basis of turnover and net profit cannot be con ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r tax deduction certificate has been availed. 20. The ld. DR submitted that the basic issue before the TPO was to determine ALP of the fee paid by the assessee. For determining the ALP of the transaction, a proper show-cause notice was issued and served upon the assessee. The assessee has only referred to the service agreement, summary of the cost allocation among various services provided and copy of the various invoices/debit notes/credit notes raised during the relevant year under consideration; however the queries of the TPO still remained unanswered. When the assessee is paying on cost to cost basis to AE, then where are the actual details of the cost, how assessee has calculated that the invoice raised by AE is correct, when details of costs are not available to it? Where such a transaction at arm's length, the assessee would have asked for the complete details of the cost incurred by the AE before accepting the amount claimed by AE from it. However, assessee has not brought on record any such details to satisfy the TPO. Documents relied upon by the assessee are thus just unsupported piece of papers, without any evidentiary value. So there doesn't appear to be any ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ately. In any case, the assessee could not substantiate the need-benefit analysis before the TPO as a result of which downward adjustments were proposed in respect of royalty and management service fee. The transactions can be aggregated only if they are intricately intertwined and cannot be separately analyzed. This is not the case here. Moreover, aggregated approach to transfer pricing analysis is the exception rather than the norm. This issue has been dealt with extensively by the DRP in its order dated 24.3.2007. The DRP has quoted the case laws to reject the assessee's objections in this regard. The Guidelines of 2010 has also taken the view that as far as possible, transactions are to be evaluated separately. 20.2 The ld. DR, further submitted that the TPO has not sought to question the commercial expediency of the management fee. What has been done is to compare the circumstances surrounding the payment and the services said to have received with an independent party in the uncontrolled situation. After analyzing the agreement and other documents in this regard, the TPO has come to the conclusion that the transaction was not at arm's length as an independent entit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hareholder. This type of activity would not justify a charge to the recipient companies assumes significance. The European Union Joint Transfer Pricing Forum (JTPF), in their summit at Brussels on 04.02.2010 on the Guidelines on low value adding Intra-Group Services has discussed this issue elaborately. It says that Costs of managerial and control (monitoring) activities related to the management and protection of the investments in participations are of shareholders activities only and these costs are to be classified as shareholders cost only. 20.4 Hence, the ld. DR, submitted that the benefit received from such stewardship services can only be considered as 'incidental benefits' as per the OECD guidelines and do not require a separate payment. The relevant para No.7 of OECD guidelines states that: The incidental benefits ordinarily would not cause these other group members to be treated as receiving on intra-group service because the activities producing the benefits would not be ones for which an independent enterprise ordinarily would be willing to pay . The ld. DR further submitted that it is the responsibility of the assessee to prove the receipt of s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n international transaction by each method is a package in itself, as it were, containing the necessary elements that are to be used as filters to judge the soundness of the international transaction in an ALP fixing exercise. If this were to be disturbed, the end-result would be distorted and within one ALP determination for a year, two or even five methods can be adopted. This would spell chaos and be detrimental to the interests of both the assessee and the revenue. The second question is, therefore, answered in favour of the assessee, the TNMM had to be applied by the TPO/AO in respect of the technical fee payment too. 20.5.1 In the case of Air Liquide Engg. India (P.) Ltd. (supra) held that:- 33. The TPO has made the disallowance in question mainly on the basis of the benefit test. In this regard, it is seen that the payment of royalty cannot be examined divorced from the production and sales. Royalty is inextricably linked with these activities. In the absence of production and sale of products, there would be no question arising regarding payment of any royalty. Rule 10A(d) of the ITAT Rules defines 'transaction' as a number of closely linked transactions. Ro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... auto ancillaries in the automotive industry. Then in 'Ekla Appliances' (supra) and in 'Ericsson India Pvt. Ltd. v. DCIT 2012-TII-48-ITAT-Del-TP, it has been held that royalty payment cannot be disallowed on the basis of the so-called benefit test and the domain of the TPO is only to examine as to whether the payment based on the agreement adheres to the arm's length principle or not. That being so, the action of the TPO in the present case, to make the disallowance mainly on the ground of the benefit test, is unsustainable in law. 36. Keeping in view all the above factors, the disallowance made on account of royalty is found to be totally uncalled for and it is deleted as such 21. Hence, following the ratio of the Hon'ble Delhi High Court in CIT v. EKL Appliances (supra) and various other decisions as noted above and given the facts and circumstances of the instant case, we hold that the addition made by the TPO and upheld by the DRP is unsustainable and is to be deleted. Hence Ground No. 2 is held in favour of the assessee. Hence, the appeal of the Revenue ITA. No. 1040/Hyd/2011 is dismissed and Assessee's appeal in ITA. No. 1159/Hyd/2011 is allowe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... method to the payment made during the year by the assessee for the three services and compared with similar payment for such services by an independent party. No efforts have been made by TPO/AO to determine the market value of services received by the assessee during the year relating to SAP implementation and quality control to show that the assessee had paid more compared to any independent party for the same services. The assessee had submitted that in case the assessee had paid to the AE at man hour rate for the technical services provided during the year in relation to SAP implementation, the fees payable would have been significantly higher. There is nothing produced before us to controvert the said claim. The assessee has applied TNMM which shows that the margin shown by the assessee was higher than the comparable companies. The case of the assessee is also supported by the decision of Tribunal in case of Mc Can Erricson India Pvt. Ltd. (supra) in which the decision of TPO to take the value of certain services at nil has not been upheld. Considering the entirety of facts and circumstances, the adjustment made by TPO which is nothing but disallowance of expenses cannot be u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ved that TPO has benchmarked intangible transactions by using CUP, but, the order passed by TPO does not support such conclusion. It is an accepted principle of law that TPO has to determine the ALP by adopting any one of the methods prescribed u/s 92C of the Act. Mode and manner of computation of ALP under different methods have been laid down in rule 10B. Even, assuming that TPO has followed CUP method for determining ALP of royalty payment, as held by ld. DRP, it needs to be examined if it is strictly in compliance with statutory provisions. Rule 10B(1)(a) lays down the procedure for determining ALP under CUP method. As per the said provision. TPO at first has to find out the price charged or paid for property transferred or services provided in a comparable uncontrolled transaction, or a number of such transactions. Thereafter, making necessary adjustments to such price, on account of differences between the international transaction and comparable uncontrolled transactions or between the enterprises entering into such transactions, which could materially affect the price in the open market, TPO will determine the ALP. It is patent and obvious from TPO's order, the determin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t which is not sustainable either in law or on the facts of the case. She has neither rejected the method followed by the assessee to benchmark the transaction in respect of payment of royalty nor has been adopted any recognized method to determine the ALP of the said transactions. The approval of SIA adopted by the TPO as basis to make TP adjustment in respect of royalty payment was untenable and even going by the said basis wrongly adopted by the TPO, no TP adjustment in respect of royalty payment was liable to be made. As per the said basis, the net sales of the assessee after excluding export sale and other income were to the extent of ₹ 1118.70 crores and the royalty paid thereon at ₹ 24.38 crores being less than the rate of 3.5% approved by SIA, there was no case of any excess payment made of royalty by assessee than approved by SIA to justify its disallowance by way of TP adjustment. In our opinion, the ld. CIT (A) could not appreciate these infirmities in the order of the TPO despite the same were specifically brought to his notice on behalf of the assessee and confirmed the TP adjustment made by the TPO in respect of royalty payment which was totally unjustifie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... steps into assessee's business premises and observes the role of these companies/assessee's business transactions, it will be difficult to place on record the sort of advice given in day-to-day operations. What sort of evidence satisfies the AO also not specified. Assessee has already placed lot of evidence in support of claims. Therefore, on that court, we are not in agreement with the Assessing Officer and TPO that services were not rendered by the group companies to assessee. 16.1. Even otherwise, the role of transfer pricing Officer is to determine the arm's length price of a transaction. He cannot reject the entire payment under the provisions of sec. 92CA as held by the Hon'ble Delhi High Court in the case of EKL Appliances Ltd. (supra) wherein the Hon'ble Delhi High Court, on similar facts where the TPC also determined the ALP at Nil, has held as under: 21. The position emerging from the above decisions is that it is not necessary for assessee to show that any legitimate expenditure incurred by him was also incurred out of necessity. It is also not necessary for assessee to show that any ITA Nos. 944/H/07, 194 74/H/08, 793/H/09, 654, 655/H/10 7 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... upported by facts and figures have been given to demonstrate that the increase in the employees cost, finance charges, administrative expenses, depreciation cost and capacity increase have contributed to the continuous losses. The comparative position over a period of 5 years from 1998 to 2003 with relevant figures have been given before the CIT (Appeals) and they are referred to in a tabular form in his order in paragraph 5.5.1. In fact there are four tabular statements furnished by assessee before the CIT (Appeals) in support of the reasons for the continuous losses. There is no material brought by the revenue either before the CIT (Appeals) or before the Tribunal or even before us to show that these are incorrect figures or that even on merits the reasons for the losses are not genuine. 24. We are, therefore, unable to hold that the Tribunal committed any error in confirming the order of the CIT (Appeals) for both the years deleting the disallowance of the brand fee royalty payment while determining the ALP. Accordingly, the substantial questions of law are answered in the affirmative and in favour of assessee and against the Revenue. The appeals are accordingly dismissed wit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the case of Durr India (P.) Ltd. (supra) the co-ordinate Bench of Tribunal held that allocation of cost partly on the basis of turnover and net profit cannot be considered as a factor to propose transfer pricing adjustment. Further, it was held that where the PLI of the Appellant under TNMM is at arm's length and it is not possible on the part of the department to identify a comparable, which is rendering similar services, the question of considering CUP method would not arise at all. 20.13 The Appellant remitted service tax under reverse charge mechanism in respect of the said management fee. Further, the Appellant has obtained a certificate under section 197 of the Act from the Deputy Director of Income Tax, International Taxation, Chennai in relation to the management fee. Recently, in the case of Aban Offshore Ltd. (supra), the Co-ordinate bench has held that any payment which is systematically subject to deduction of tax at source cannot be said to be non-genuine and further held that- 6. We have heard both the parties and perused the material on record. Admittedly, this expenditure was incurred in terms of agreement entered into by the assessee and India Offshor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in transfer pricing proceedings TPO could not sit in judgment on business and commercial expediency of assessee company so as to conclude that payment of royalty made by assessee to its AE was unreasonable and thus ALP of said payment was to be taken as nil. 6.3 It is to be noted that in the case of DCIT v. Sona Okegawa Precision Forgings Ltd. in IT Appeal No. 5386/Del/2010 dated 16-12-2011, the Tribunal held that the assessee entered into an international transaction with its overseas associates and paid royalty @ 3% which was considered as excessive by TPO did not bring any material on record which could suggest that payment of royalty as excessive order of TPO was to be dismissed and a collaboration agreement had been approved by the Ministry of Industries, Department of Industrial Policy and Promotion. 6.4 The Tribunal also held in the case of Abhishek Auto Industries Ltd. in IT Appeal No.1433/Del/2009 dated 12-11-2010, that it is a settled proposition of the law that legally binding agreements between unrelated parties cannot be disregarded without assigning any cogent reasons thereto. In this case, it has agreements that are duly approved by RBI and other regulatory ag ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ments in its wholly owned subsidiaries i.e. GM Navarra Wind Energy Pvt. Ltd. RSR Power Pvt. Limited and Kintech Santalpur Pvt. Ltd. amounting to ₹ 12,25,00,000/-. The assessee had also submitted the Tax Audit Report in Form 3CA and 3CD, which clearly indicates that the Company had not incurred any expenditure towards maintenance of the aforesaid investments or for earning any exempt income from the said investment. The assessee claimed that no expenditure is required to be disallowed u/s. 14A of the Act. However, the AO modified the facts that there is a direct nexus between increase in investments and borrowed capital and as per the given portfolio of investment; the assessee should have incurred minor expenditure embedded in the indirect expenditure of the assessee towards maintaining these investments. 24. The ld. AR submitted that sec.14A of the Act cannot be applied if there is no exempt income earned during the year. The ld. AR, further submitted that the AO erred in not considering the fact that no exempt income had been earned during the said financial year and no expenditure has also been incurred towards earning exempt income. Therefore, disallowance u/s. 14A of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ting that only interest free funds in the form of share capital has been invested in subsidiaries. Therefore, the AO has factually erred in not appreciating the same. The ld. AR relied on the decision in the case of Beach Minerals Co. (P.) Ltd. v. Asstt. CIT [2015] 64 taxmann.com 218 (Chennai - Trib.), wherein the Tribunal, Chennai Bench upheld the above principle. 24.3 On the other hand, the ld. DR relied on the orders of the DRP. 25. We have heard both the parties and perused the material on record. It was submitted before us that there was no exempted income; hence, Sec.14A read with Rule 8D cannot be applied. In our considered opinion, this issue came for consideration before the jurisdictional High Court in the following cases and held as follows:- (i) Chettinad Logistics (P.) Ltd. (supra) where-in-held that:- In our opinion section 14A, can only be triggered, if, the Assessee seeks to square off expenditure against income which does not form part of the total income under the Act. The legislature, in order to do away with the pernicious practice adopted by the Assessees', to claim expenditure, against income exempt from tax, introduced the said provision. In ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .1 of the Income-tax Act, of an amount of ₹ 55,00.000/- in relation to assessment year 2007-2008? 14. Nothing much turns on the use of the word 'includable' and the phrase 'under the act' in s. 14A and we are not persuaded to accept emphasis laid or the interpretation of the same by the Revenue. An assessment in terms of the Income-tax Act is specific to an assessment year and the related previous year. S. 4 of the Act, which imposes the charge to tax reads thus: Charge of income-tax 4. (1) Where any Central Act enacts that income tax shall be charged for any assessment year at any rate or rates, income-tax at that rate or those rates shall be charged for that year in accordance with and subject to the provisions (including provisions for the levy of additional income-tax) of, this Act in respect of the total income of the previous year of every person: Provided that where by virtue of any provision of this Act income tax is to be charged in respect of the income of a period other than the previous year, income-tax shall be charged accordingly. Thus, where the statute indented that income shall be recognized for taxation in respect of any previ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 0). The AO disallowed the expenditure citing that under the provisions of sec. 37(1) of the Act, any expenditure for any purpose in the nature of offence which is prohibited by law shall not be eligible for deduction. 28.2 The ld. AR submitted that as per the Explanation to sec. 37 of the Act, allowability of any expenditure would depend on whether the expenditure incurred is penal or compensatory in nature. Where the expenditure incurred is compensatory in nature, the same should be allowed as deduction. It is pertinent to note that any interest payment is compensatory in nature and therefore cannot be said to be a penal expenditure. The ld. AR relied on the decision of the Tribunal, Delhi Bench in the case of Dy. CIT v. Messee Dusseldorf India (P.) Ltd. [2010] 129 TTJ 81 (UO) (Delhi) regarding the interest on service tax. He also relied in respect of interest on TDS, on the decision of the Bombay High Court in the case of Arthur Anderson Co. v. Asstt. CIT [2016] 190 Taxman 279/324 ITR 240. 29. On the other hand, ld. D.R relied on the order of DRP. 30. After hearing both the parties with regard to deduction of interest on TDS and service tax and TDS, this issue is squar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s expenditure. The same view was taken by the Kerala High Court 128 in the case of CIT v. Pachi Phillip Co. 212 ITR 75 (Kerala). Further, the Tribunal in the case of Remfry Sagar Consultants (P.) Ltd. v. ACIT (34 CCH 131 (Delhi) wherein it has been held that interest paid for delayed payment of service-tax is allowable. However, in respect of payment of interest on delayed TDS payment it cannot be allowed in view of the judgment of Supreme Court in the case of Bharat Commerce Industries Ltd. v. CIT (230 ITR 733). Further, the Kolkotta High Court in the case of East India Pharmaceutical India Ltd. v. CIT 114 ITR 423 wherein it was held that interest paid on money borrowed for the payment of income-tax could not be allowed as a business expenditure. In view of the above discussion, we are of the opinion that interest on delay in payment of service tax, which is only compensatory nature paid on account of delay in these payments and to be allowed as business expenditure. However, interest paid for delay in payment of TDS cannot be allowed as business expenditure. This ground raised by assessee in its appeal for the assessment year 2011-12 is partly allowed. 32. The next groun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... financial year 2015-16. Thus, it was never the intention of the legislature to allow the claim of balance 50% additional depreciation in the immediately subsequent year in case of financial years prior to 2015-16. The issue also has been decided by the Tribunal, Chennai Bench in the case of Brakes India Ltd. (supra), where the Tribunal did not allow the balance additional depreciation in subsequent financial year. 34. After hearing both the parties, we find that similar issue was considered by the Karnataka High Court in the case of Rittal India (P.) Ltd. (supra) wherein held that:- 'It has been consistently held by this Court, as well as the Apex Court, that beneficial legislation, as in the present case, should be given liberal interpretation so as to benefit the assessee. In this case, the intention of the legislation is absolutely clear, that the assessee shall be allowed certain additional benefit, which was restricted by the proviso to only half of the same being granted in one assessment year, if certain condition was not fulfilled. But, that, in our considered view, would not restrain the assessee from claiming the balance of the benefit in the subsequent assessm ..... X X X X Extracts X X X X X X X X Extracts X X X X
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