TMI Blog2016 (2) TMI 1335X X X X Extracts X X X X X X X X Extracts X X X X ..... n assessment year 2003-04 has been subsequently followed by the Tribunal in assessment year 2004-05 [ 2010 (12) TMI 1191 - ITAT PUNE] Appeal of assessee allowed. Disallowance u/s 14A r.w.r. 8D - HELD THAT:- The issue arising before us is identical to the issue before the Tribunal for assessment year 2003-04 [ 2009 (8) TMI 810 - ITAT PUNE-A] and in the absence of any contrary material brought to our knowledge by the learned Departmental Representative for the Revenue, we find no merit in the orders of authorities below. The disallowance as made by the assessee under section 14A of the Act at ₹ 49,42,631/- as assessee itself had worked out the expenses disallowable under section 14A is upheld and the balance disallowance worked out by the Assessing Officer and DRP is thus, deleted. The ground of appeal No.2 raised by the assessee is thus, allowed. TDS u/s 195 - Disallowance computed by invoking the provisions of section 40(a)(i) - payment made to Allianz Reinsurance Asia Pacific Branch Singapore (ARAP) on account of re-insurance premium and payment of survey fees was also paid to non-resident surveyors - HELD THAT:- Applying the said ratio laid down by the Hon ble S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... m paid by the assessee to ARAP, we find no merit in the order of Assessing Officer in holding that the assessee should have made the application under section 195(2) of the Act. In order to fulfil the conditions of having PE by an agent acting on behalf of an enterprise of other contracting state, it is provided that such an enterprise would deemed to have PE in the first mentioned state, if this person has habitually exercised an authority to conclude the contracts on behalf of the enterprise and / or maintains stock of goods on merchandise, which he regularly delivers on behalf of the enterprise, in the first mentioned state or habitually secures orders wholly or almost wholly for the enterprise itself or for other enterprises, etc. The assessee claims that it was not acting on behalf of the foreign company. Further, it was not dependent on the foreign company and had no authority to conclude any contract on behalf of the foreign company. Where in such circumstances, there was no merit in the order of DRP in applying the approach of look through . Similar issue of providing re-insurance in India and whether in the absence of any PE in India, the entire business income was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ndertaken by the assessee - assessee had during the year shown international transactions with its associated enterprises on account of provision of software consultancy charges. The TPO while benchmarking the international transactions of the assessee found it not to be at arm s length in view of the arithmetic mean of the comparable companies taken at 42.30% and proposed an addition - HELD THAT:- Admittedly, in case the said receipts are taxed in the hands of assessee for the year under consideration, there is enhancement of income, for which the requirement of law is that enhancement notice should be issued to the assessee before such an addition is made in the hands of the assessee. Further, in the case of the assessee, no such enhancement notice was issued to the assessee either by DRP or by Assessing Officer. Further, the plea of the assessee of recognition of revenue was in respect of determination of arm's length price of international transactions and the same was recognized for working out the margins of the assessee as compared to the margins of comparables. DRP has directed the Assessing Officer not to consider the said revenue of as receipts of assessment year 2009 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Act ). 2. The assessee has raised the following grounds of appeal:- On the facts of the circumstances of the case and in law, the AO and the DRP have : Ground No 1 1.1 Erred in treating profits on sale / redemption of investments (including amortization of securities) of ₹ 53,11,07,601 as taxable. Ground No 2 2.1 Erred in invoking disallowance under section 14A of the Act read with Rule 8D of the Income-tax Rules, 1962 in respect of Profits on sale/redemption of investments claimed as non-taxable by the Appellant. 2.2 Erred in invoking disallowance under section 14A of the Act read with Rule 8D of the Income-tax Rules, 1962 in respect of exempt dividend income. Ground No 3 3.1 Erred in invoking disallowance of ₹ 62,67,76,979 under section 40(a)(i) of the Act in respect of reinsurance premium paid to Allianz Reinsurance Asia Pacific Branch, Singapore ( ARAP ) Ground No 4 4.1 Erred in disallowing Risk Inspection charges of ₹ 11,91,11,201 for want of purchase orders. 4.2 Without prejudice to the above, the DRP erred in not admitting and allowing relief in respect of additional purchase order ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ficer made a reference under section 92CA(1) of the Act for computation of arm's length price in relation to the international transactions detailed in the audit report in Form No.3CEB. 4. The Transfer Pricing Officer (TPO) noted that the assessee had entered into various international transactions which are enlisted under para 4 at pages 2 and 3 of the TPO s order passed under section 92CA(3) of the Act. After considering the submissions and the documents furnished by the assessee, the TPO made an adjustment in the provision of software consultancy services. The TPO noted that the assessee had rendered certain software development services to its associated enterprises which were not significant in the context of overall business activity of BA General. The TPO further noted that the assessee operated as a routine service provider without undertaking any significant risks. As per the TP study, the Cost Plus Method (CPM) had been considered to be most appropriate method for analysing the arm's length nature of international transactions. The TPO further noted that BA General has earned gross profit margin of 169% from the activity of rendering software consultancy servic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 112,11,625/- is not based on any actual record, instead it is only an adhoc amount computed on proportionate basis as is noted from footnote of Attachment 3 of the submission. iv) Without prejudice, even if assessee s contention is considered to be true, there will be expenditure incurred in AY 2009-10 also which has not been considered in the computation made by assessee. v) Lastly, if expenditure is incurred, then the revenue should have been claimed at a markup that is at arm s length. 5. The TPO thus, proposed an adjustment of ₹ 94,58,807/- on account of arm's length price margin of international transaction. 6. The second objection raised by the assessee before the TPO was that section 92CA of the Act was inapplicable to the insurance business since the profits and gains of insurance were computed in accordance with section 44 read with First Schedule to the Act and as per Rule 5 of the First Schedule. It was further proposed that section 44 overrides section 92CA of the Act and no adjustment to income could be made other than permitted as per Rule 5 of Schedule of Income Tax Act. The TPO was of the view that the Rule only lays down the starting ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he assessee was that as per RBI guidelines, the profit earned in respect of investments should be treated as income earned by the public finance company or a bank, were not applicable to the insurance company, for which the IRDA guide lines and section 44 of the Act were relevant for the purpose of computation of income. In view thereof, the assessee made a claim that the net profit on sale/redemption on investments of about ₹ 50 crores, net on losses / amortization of ₹ 3.10 crores be considered as not taxable in computing the taxable income of BA General for assessment year 2008-09. The Assessing Officer vide para 4.4 of the draft assessment order observed that the submissions of assessee company could not be accepted. The Assessing Officer observed that where the assessee was engaged in the business of general insurance, the profit earned by it on account of sale of investments in shares of the company, was taxable by virtue of statutory provisions. The Assessing Officer further observed that the functions of the company were bifurcated into two distinct activities i.e. one of the insurance business and the other as public financial institution. As per the RBI guidel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t applicable in assessee s case, where income has to be computed under section 44 of the Act. The Assessing Officer was of the view that the expenses attributable to investment activity should be apportioned between taxable and non-taxable income. Further, the assessee itself had worked out the expenses disallowable under section 14A of the Act at ₹ 49,42,631/- in the revised return and also revised computation filed on 19.08.2009 and added back. The Assessing Officer computed the disallowance under section 14A of the Act read with Rule 8D of the Income Tax Rules, 1962 (Rules) at ₹ 7,98,28,536/- and allowing the credit of disallowance made by the assessee at ₹ 49,42,631/- + ₹ 41,101/-, the Assessing Officer proposed an addition of ₹ 7,48,44,804/-. 9. Another addition made in the hands of the assessee was on account of amount collected by the assessee on account of environment fund totalling ₹ 74,03,321/-. Since the assessee had not shown as to when and how the amount collected was ultimately paid out, the same having been received in the course of carrying on of insurance business, and merely because it was credited to a specific fund as per l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 63,38,46,029/- was disallowed and added back to the income of the assessee. 11. Another aspect noted by the Assessing Officer was the bogus risk inspection survey expenses. The Assessing Officer had received a letter dated 30.06.2009 from DDIT(Inv) Unit VIII(1), Mumbai informing that on 22.06.2008, search proceedings under section 132 of the Act were conducted in the case of Shri Sandeep Sitani, CA at Mumbai residence and survey proceedings under section 133A of the Act at his office. In his statement recor ded under section 132(4) of the Act on 24.06.2008, he was confronted with the incriminating documents seized / impounded in the form of loose papers consisting of letter heads, bogus bills raised in the name of various companies/firms. He was also confronted with the statement recorded of Shri Dinanath Yadav, Shri Pradeep Prajapati, his employees on 24.06.2008 . Shri Sitani admitted that he was controlling the bank transactions of more than 25 companies, in which both of his employees were shown as directors for the purpose of issuing bogus bills on commission basis. In reply to question No.8 and then question No.9, Shri Sitani admitted that no books of account or copy of bi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ,58,807/- to ₹ 3,01,25,934/-. The Assessing Officer thereafter, passed the assessment order under section 143(3) r.w.s. 144C(13) of the Act and made the following additions:- Sr. No. Adjustment on account of Amount 1 Profit on sale / redemption of investment claimed exempt by Assessee ₹ 50,00,81,160/- 2 Amortization of security charges ₹ 3,10,26,441/- 3 Disallowance u/s.14A with respect to dividend income ₹ 7,48,44,804/- 4 Environment Relief Fund Liability ₹ 74,03,321/- 5 Disallowance u/s40a(ia) as directed by DRP ₹ 60,167/- 6 Bogus Risk Inspection Survey Expenses ₹ 11,91,11,201/- 7 Income from Software consultancy charges as directed by DRP ₹ 3,01,25,934/- Total ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gains of insurance business, other than the life insurance business, had to be computed. The assessee further pointed out that in view of the amendment in Rule 5 of First Schedule, by which the said Rule was omitted, the profit earned in respect of the investments is not taxable in the hands of assessee. The assessee thus, did not include/reduce the profit on sale / redemption of investment of about ₹ 50 crores and net loss on amortization of ₹ 3.10 crores in the computation of income filed for the year under consideration. The said Rule 5(b) of First Schedule has been re-inserted by the Finance (No.2) Act, 2009 w.e.f. 01.04.2011, which was further substituted by the Finance Act, 2010 w.e.f. 01.04.2011 . Prior to its substitution, clause (b) was omitted by the Finance Act, 1988 w.e.f. 01.04.1989. The year under appeal before us is assessment year 2008-09 i.e. the year in which the said provisions of Rule 5 of First Schedule were not on Statute. Similar claim was made by the assessee that the profit / loss arising on sale / redemption of securities, investment was not taxable and even the loss on account of amortization of securities was to be reduced from the taxable in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... /2012, ITA No.1406/PN/2012 and CO No.42/PN/2013, order dated 23.10.2013 and in assessment year 2006-07 in ITA No.119/PN/2011, order dated 06.05.2013. In view of the issue being decided in favour of the assessee in various assessment years and following the same parity of reasoning, we allow the ground of appeal No.1 raised by the assessee. 19. Now, coming to the issue in ground of appeal No.2 i.e. against disallowance computed under section 14A of the Act read with Rule 8D of the Income Tax Rules, 1962 (in short the Rules ). 20. The Assessing Officer in the draft assessment order passed under section 143(3) r.w.s. 144C(1) of the Act had proposed without prejudice to the finding that the income arising from sale / redemption of investment was taxable in the hands of assessee, the alternate issue was as to why disallowance under section 14A of the Act should not be made keeping in view the findings in the earlier assessment years. The contention of the assessee in this regard was that it was holding the investments which resulted into taxable as well as non-taxable income, hence, the expenses attributable to the investment activity should be apportioned between taxable and non ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wrong figure of Interest and bank charges as noted in schedule IV of Operating expenses related to Insurance Business for the year ended 31st March 2003. It was pointed out that the total amount of interest and bank charges were ₹ 22,41,119/- however, ld. CIT(A) has wrongly taken the figure of service charges which was ₹ 23,81,85,483/-. It was stated that this figure is substituted then the entire approach of the amount of disallowance should get altered. We find force in this argument. Since the grievance related to the ascertainment of certain figures of expenses; as appeared in the books of accounts, therefore we can take the recourse of directing the ld. CIT(A) to verify the same and if found correct must rectify this mistake, however it is also pertinent to observe at this juncture that this direction of ours shall not prejudice in any manner the main grievance of the assessee about the applicability of the provisions of sec. 14A of I.T. Act in the present situation. 14. Reverting back to the grievance, the issue of the applicability of sec. 44 has already been settled by the Hon ble Apex Court in the case of General Insurance Corporation of India vs. C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n income not forming part of the total income so the expenditure related to such an exempted income be disallowed by invoking the provisions of sec. 14A of I.T. Act. 16. On plain reading of sec. 14A it is explicit that an expenditure claimed by the assessee as deduction against income which is not chargeable to tax then the expenditure claimed has to be disallowed to that extent. An interesting argument was raised that provisions of sec. 14A apply only to income which are not includible in total income in terms of Chapter III of I.T. Act. It is more interesting that for this proposition Ld. AR has placed reliance on Wallfort Shares Stock Brokers Ltd. 96 TTJ 673. Strange enough, the verdict of the respected Special Bench was not correctly interpreted because in para 108, as quoted to us, the respected Bench has clearly expressed its disagreement with the argument of the assessee that provisions of sec. 14A applies to the income contained in Chapter III of I.T. Act. The confusion had cropped up only because of the way a quotation was made within inverted comas but in the very next lines that was not confirmed. The factual position is that while dealing with this issue the res ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e been incurred in relation to income exempt under Chapter III shall be disallowed by virtue of the provisions of s. 14A. In the instant case, the assessee has claimed expenditure on purchase of the units of Chola Mutual Fund and Sun F C Fund against subsequent sale of those units. Those sale proceeds are income chargeable to tax under Chapter IV and are not exempt under any provision of Chapter III. Purchase price of units is an expenditure to which disallowance provision of Chapter IV would squarely apply. Reference in this respect may be made to the judgment of Hon ble Supreme Court in the case of Attar Singh Gurmukh Singh, Etc. vs. ITO (1991) 97 CTR (SC) 251 : (1991) 191 ITR 667 (SC). We, therefore, do not accept the arguments based on Chapter III. We do not see any conflict between Chapter III and s. 14A and even if there is one, the meaning of the provisions of s. 14A being unmistakably clear, the provisions have to be given effect to by way of harmonious construction. Provisions of s. 14A cannot be considered defunct or redundant for the reason only that these provisions should have been inserted in Chapter III and not Chapter IV. After all both Chapter III and Chapter IV ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e First Schedule. It is not the case of the Revenue that the assessee has not computed the profits and gains of its insurance business in accordance with the said rules. Reliance was placed on the scope of section 144, as held in the case of General Insurance Corpn. Of India Vs. CIT (1999) 240 ITR 139 (SC), wherein Their Lordships of the Apex Court have categorically held that the provisions of section 44 being a special provision govern computation of taxable income earned from business of insurance. It mandates the tax authorities to compute the taxable income in respect of insurance business in accordance with the provisions of the First Schedule to the Act. In the light of these, their Lordships of Delhi High Court have held that no question of law, much less a substantial question of law survives for their consideration. In other words, order of the Tribunal has been affirmed. Following the same reasoning, addition made by the AO is deleted. 18. The next common dispute relates to the order of the CIT(A) in sustaining the action of AO in allowing only 50% of the management expenses by invoking the provisions of Sec. 14A of the Act. The addition is made by the AO on the pl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... visions of section 14A of the Act. 22. We have considered the rival contentions and gone through the records. The provisions of section 44 read as under: Insurance business. 44, Notwithstanding anything to the contrary contained in the provisions of this Act relating to the computation of income chargeable under the head interest on securities . Income from house property , Capital gains or Income from other sources , or in section 199 or in sections 28 to 43B, the profits and gains of any business of insurance, including any such business carried on by a mutual insurance company or by a co-operative society, shall be computed in accordance with the rules contained in the First Schedule. 23. The above provision makes it very clear that section 44 applies notwithstanding anything to the contrary contained within the provisions of the Income-tax Act relating to computation of income chargeable under different heads. We agree with the learned counsel that there is no requirement of head-wise bifurcation called for while computing the income u/s 44 of the Act in the case of a insurance company. The income of the business of insurance is essentially to be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the absence of any contrary material brought to our knowledge by the learned Departmental Representative for the Revenue, we find no merit in the orders of authorities below. The disallowance as made by the assessee under section 14A of the Act at ₹ 49,42,631/- is upheld and the balance disallowance worked out by the Assessing Officer and DRP is thus, deleted. The ground of appeal No.2 raised by the assessee is thus, allowed. 25. The assessee has made a request for the admission of additional ground of appeal No.2.3 which is without prejudice to grounds of appeal No.2.1 and 2.2 raised by the assessee i.e. computation of disallowance under section 14A of the Act. In view of our allowing the claim of assessee, the additional ground of appeal No.2.3 raised by the assessee is of academic nature since the issue has been decided in favour of the assessee. Hence, the additional ground of appeal No.2.3 raised by the assessee is dismissed. 26. The issue vide ground of appeal No.3 is with regard to disallowance computed by invoking the provisions of section 40(a)(i) of the Act. 27. The Assessing Officer and DRP had made the disallowance on account of payment made to Allianz ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t year 2008-09 passed in the case of Allianz SE, copy of the said order is placed at pages 150 to 155 of the Paper Book. Our attention further was drawn to the assessment order passed in the case of Allianz SE, relating to assessment year 2009-10 under section 143(3) r.w.s. 144C(13) of the Act, wherein the assessee had declared total income at ₹ 1.85 crores on account of royalty income and the Assessing Officer noted that the Allianz SE had received payments from BA life and BA general in respect of re-insurance transactions and transactions under software licence agreement. Though the receipts on account of two transactions were considered by the Assessing Officer, but finally the addition was made in the hands of assessee on account of licence charges of ₹ 4.27 crores only and in other words, the total taxable income was determined at ₹ 6.12 crores. The copy of the said order is placed at pages 160 to 162 of the Paper Book. The learned Authorized Representative for the assessee pointed out that the Assessing Officer had made the said disallowance under section 40(a)(i) of the Act merely because no application was filed under section 195(2) of the Act. He placed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rd General Insurance Co. Ltd. Vs. ACIT (2015) 152 ITD 855 (Mumbai Trib.). With regard to DRP approach of look through , the learned Authorized Representative for the assessee pointed out that Hon ble Supreme Court in Vodafone International Holdings B.V. Vs. Union of India and Another (2012) 341 ITR 1 (SC) has stressed that same should be provided in the Statute itself. 31. The learned Departmental Representative for the Revenue placing reliance on the order of Assessing Officer and DRP, pointed out that there was an assumption by the DRP that Allianz SE had PE in India. 32. We have heard the rival contentions and perused the record. The issue raised vide ground of appeal No.3 is in respect of re-insurance transaction entered into by Allianz SE through its Singapore Re-insurance Branch Allianz Reinsurance Asia Pacific Branch Singapore (ARAP) with the assessee before us. During the financial year 2007-08, Allianz SE through ARAP had entered into separate re-insurance arrangement with Bajaj Allianz Life Insurance Company Ltd. and with the assessee Bajaj General. As per explanation filed by Allianz SE during the course of assessment proceedings relating to assessment year 2008 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ncome received or deemed to be received in India or in respect of the income accruing or arising or deemed to accrue or arise in India. Further, section 9 of the Act include the taxability of income earned by non-resident in India i.e. under section 9 of the Act, a non-resident was taxed on income received, accrued, arising, deemed to be received or deemed to accrue or deemed to arise in India. Section 9 of the Act, inter-alia, provides that the income shall be deemed to accrue or arise in India if it accrue or arises, directly or indirectly from any business connection in India. In view of the above said provisions of the Act and various judicial precedents, the claim of Allianz SE during the course of assessment proceedings, was first that the transaction between BA life and BA general and ARAP were undertaken under principal to principal basis i.e. the activities of BA life and BA general did not part take the character of agent or representative of ARAP. Further, it was pointed out that ARAP does not carry out any activities or operations in India and also did not have any business connection in India. As per provisions of section 9(1)(i) of the Act, it was also pointed out tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Act at ₹ 11.69 crores. The copies of both the orders passed by the Assessing Officer are placed at pages 150 to 155 of the Paper Book. The perusal of the said orders reflect that the income on account of re-insurance business which has been received by the said foreign company though considered by the Assessing Officer, but has not been added as income arising in India, in the hands of the said foreign company. Further, the assessment order for assessment year 2009-10 has also been passed under section 144C r.w.s. 143(3) of the Act and in which, it was noted that Allianz SE had received payments from BA Life and BA General in respect of re-insurance transactions and transactions under software licence agreement. The payments which were received under software licence agreement were added in the hands of assessee and the total income was computed in the hands of assessee at ₹ 6.12 crores and taxed @ 10% being royalty / fees for technical services as per DTAA between India and Germany, was charged. 35. The first aspect of the issue arising before us is in respect of payment of aforesaid re-insurance premium by the assessee to Allianz SE. Where the said receipt was not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or can take into consideration the effect of the DTAA in respect of payments of royalties and technical fees while deducting tax at source. The expression chargeable under the provisions of the Act in section 195(1) shows that the remittance has got to be of a trading receipt, the whole or part of which is liable to tax in India. If tax is not so assessable, there is no question of tax at source being deducted. 36. Applying the said ratio laid down by the Hon ble Supreme Court in GE India Technology Centre P. Ltd. Vs. CIT and Another (supra), we hold that merely because remittance has been made to a foreign company, the same would not be liable to tax deduction at source, where the whole or part of the said payment is not liable to be taxed in India in the hands of recipient nonresident company. The provisions of section 195(1) of the Act postulates that the remittance should be chargeable under the provisions of the Act and where the same is not liable to tax in India, there is no requirement for tax deduction at source and the provisions of section 195(1) of the Act are not attracted and further the provisions of section 40(a)(i) of the Act are not to be applied. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent years 2005-06 to 2009-10, wherein it was concluded that the taxes were required to be withheld only on payment of certain survey fees paid to the non-residents. In view thereof, where the Revenue authorities have given a finding that no tax was required to be deducted out of reinsurance premium paid by the assessee to ARAP, we find no merit in the order of Assessing Officer in holding that the assessee should have made the application under section 195(2) of the Act. 39. Now, coming to the stand of the DRP in disallowing the claim of the assessee on the proposition contained in paras 2.4.15 and 2.4.16 at page 18 of the order, wherein it was observed vide para 2.4.17, that if look through approach is adopted, the Singapore Branch had business connection in India and the assessee company was to be treated as dependent agent PE of German company, therefore, the aforesaid payments were taxable in India and the assessee ought to have deducted tax on it. The DTAA entered into between India and Germany lays down the conditions for avoidance of double taxation with respect to taxes on income. Article 5 dealing with Permanent Establishment and under para 5 lays down as under:- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was made to the OECD guidelines. It was observed that in the absence of any business connection and in the absence of any agency, it was held that the said foreign entity had no PE in India. The relevant observations of the Tribunal vide para 5.5 are as under:- 5.5 Considering the services rendered by SRSIPL in the light of the OECD commentary, SRSIPL cannot be considered as PE of the assessee. The decision relied upon by Ld. DR do not support the Revenue on the facts of the present case, like in the case of Delhi Bench of the Tribunal in the case of Motorola Inch. Vs. DCIT (2005) 95 ITD 269 (Delhi Trib.), the facts were that the employees of the assessee had worked both for the assessee as well as its Indian subsidiary. The employees also had the right to enter the office of the Indian subsidiary either for the purpose of working for Indian subsidiary or for the purpose of working for the assessee and the Indian subsidiary provided perquisite to the employees of the assessee and the assessee paid salaries to the employees, on these facts the Indian subsidiary was considered as place of business. However, facts of the case in hand clearly show that the employees of the SRSIPL ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Act, dated 20.11.2012 rectifying addition of ₹ 62,67,76,979/-. In view thereof, we direct the Assessing Officer to delete addition of ₹ 62.67 crores. The ground of appeal No.3 raised by the assessee is thus, allowed. 44. The issue in ground of appeal No.4 raised by the assessee is disallowance made of ₹ 11.91 crores claimed on account of risk inspection charges. 45. The Assessing Officer had treated the claim of the assessee as bogus. During the course of assessment proceedings, a letter dated 30.06.2009 was received from DDIT(Inv) Unit VIII(1), Mumbai informing that search proceedings under section 132 of the Act were conducted in the case of Shri Sandeep Sitani, CA at his Mumbai residence and survey proceedings under section 133A of the Act at his office. In the statement recorded under section 132(4) of the Act, he was confronted with the incriminating documents seized / impounded in the form of loose papers, letter heads, bogus bills raised in the names of various companies / firms and the statements of his employees recorded on 24.06.2008. He admitted that he was controlling the bank transactions of more than 25 companies for the purpose of issuing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... spection charges. Further, the claim of the assessee was that the risk inspection reports obtained from external parties were more reliable than the internal documents including the purchase orders, generated during the course of entering into transactions or availing any services. The claim of the assessee was that the purchase orders could not constitute as the only conclusive evidence for determining the allowability of expenses. Without admitting to the disallowance, the assessee furnished additional submissions before the DRP i.e. evidence of purchase orders amounting to ₹ 68,07,042/- and claimed that the same should be allowed. The DRP noted that the additional evidence was filed on 27.08.2012 and the DRP order was getting time barred by 30.09.2012 and in the absence of sufficient time available for verification, the same was not admitted. With regard to the claim of assessee, the DRP observed that the purchase orders and the Surveyors inspection report were necessary for finalizing the insurance policy and for payment of insurance claims as and when they arise. Since the assessee had failed to furnish purchase orders and the assessee having failed to fully discharge th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... see having filed return of income on 29.09.2008 and revising the claim of commission on 25.08.2009 where the notice under section 143(2) of the Act was issued on 19.08.2009. The additional evidence was filed on 27.08.2012 and it does not emanate from the record that it was filed on first hearing. The learned Departmental Representative for the Revenue stressed that the evidence filed by the assessee was additional evidence and recourse had to be made to Rules 29, 30 and 31 of ITAT Rules. 49. We have heard the rival contentions and perused the record. In the facts relating to the issue, during the course of search on one Shri Sandeep Sitani, CA carried out on 22.06.2008 and survey under section 133A of the Act carried out on his official premises, various documents including bills, etc. were found from his premises. When he was considered the said documents, he explained the modus operandi of the transactions, under which he admitted that he was controlling the transactions of more than 25 companies for the purpose of issuing bogus bills on commission. From the details given in the statement and the accounts of the assessee and bank account with Corporation Bank, Bhayander Branch ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... insurance, is allowable in the hands of assessee. The risk inspection reports are claimed to have been procured from independent parties, who are not relatable to the assessee and were necessary part of carrying on the business of insurance. The Assessing Officer had received information in respect of payments totalling ₹ 1.08 crores. However, no other information was received by the Assessing Officer and on the basis of the said information of ₹ 1.08 crores, balance claim was disallowed in the hands of assessee on the premise that the assessee has not produced the purchase orders. After considering the explanation of the assessee, we are of the view that there is merit in the plea of the assessee to the extent that each of the risk inspection reports received by the assessee may not have resulted in the business being allotted to the assessee or after considering the profile of the companies against whom the assessee has received risk inspection reports, the assessee itself takes a view that it was not worthwhile to offer insurance services to such companies whose risk inspection reports were received by it. Admittedly, the onus was higher upon the assessee to establis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hed evidence of ₹ 68,07,042/-. The Assessing Officer shall verify the additional evidence filed by the assessee and if the same is found to be in order, the said expenditure would be allowed in the hands of the assessee. Then out of balance remaining, the Assessing Officer shall disallow 25% of the expenditure. The ground of appeal No.4 raised by the assessee is thus, partly allowed. 50. The issue in ground of appeal No.5 raised by the assessee is against the addition on account of income from software consultancy charges of ₹ 3,01,25,934/-, which was offered by the assessee to tax in assessment year 2009-10. Without prejudice to the said claim, the assessee has also raised an alternate plea that the Assessing Officer has erred in not allowing foreign tax credit of ₹ 11,97,670/- relating to the aforesaid software consultancy charges. 51. As referred to by us in the paras hereinabove, the assessee during the year under consideration had entered into an international transaction with its associated enterprises and the issue was referred to the TPO, who in turn, proposed an addition of ₹ 94,58,807/- on account of international transaction. 52. Before t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed an adjustment of ₹ 94,58,807/-. 53. The assessee before the DRP objected to the observations of the TPO and pointed out that the segmental profitability was drawn in view of the fundamental accounting principle of matching concept as per Indian Accounting Standards. It was argued by the assessee that either the revenue of ₹ 3.01 crores reported as income in the subsequent year should be taken as operating revenue for assessment year 2008-09 or alternatively, the cost of ₹ 1.12 crores should be excluded, which was being reported as expenditure in assessment year 2008-09. In respect of the observations of TPO, the assessee further explained that there was nothing in the audited accounts to support the claim that the amount to be deferred was not based on actual record, but was computed on proportionate basis. The assessee reiterated that the provision of software consultancy segment was insignificant activity as compared to the insurance business of the assessee. Further, the assessee claimed that the adjustment permissible under Rule 10B(1)(c) of the Act, in view of the facts of the case, could not be denied only because the assessee had not recorded specific ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssee company where compared with the companies following percentage completion method. He fairly admitted that the assessee had not recognised work-in-progress in its financial. He further submitted that the DRP though says no enhancement, but the Assessing Officer in final order enhanced and made an addition of ₹ 3.01 crores. He further stressed that the determination by the DRP or the adjustment as so made was for determining the TP adjustment for both the years and once the transaction of the assessee was accepted to be at arm s length, no further addition was to be made in the hands of assessee. He further stressed that in any case, where no enhancement notice was given to the assessee, there was no merit in any addition in the hands of assessee. Without prejudice to the above said arguments, the learned Authorized Representative for the assessee pointed out that the assessee was paying taxes overseas on the revenue receipts and in case the same is brought to tax in this year, corresponding tax benefit should be given to the assessee. 56. The learned Departmental Representative for the Revenue pointed out that the perusal of the order of DRP reflects that spirit was fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d to increase the assessee s income and the said income was only re-adjusted according to the matching principle as argued by the assessee. It was further pointed out that since the adjustment does not enhance the assessee s income, no enhancement notice was issued by the DRP. The Assessing Officer while passing the assessment order under section 143(3) r.w.s. 144C(13) of the Act, noted that the DRP while disposing of the objection No.8 had deleted the addition made by the Assessing Officer at ₹ 94,58,807/- and at the same time, directed the Assessing Officer to consider ₹ 3.01 crores as income from software charges in addition to income sown by the assessee. Consequently, income from software consultancy charges was added in the hands of the assessee by the Assessing Officer, observing as directed b y DRP . The assessee has objected to the aforesaid addition, where the assessee was following the project completion method and the revenue in respect of the said projects was recognized by the assessee in the succeeding year. The first issue raised by the assessee before us is that once the transaction of the assessee was accepted to be at arm s length, no further additio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent year 2009-10 for the purpose of TP adjustment, if any, to be made in assessment year 2009-10. The said amount does not result in addition of ₹ 3.01 crores as income in the hands of assessee for the captioned assessment year. Accordingly, we find no merit in the order of Assessing Officer in this regard and the addition of ₹ 3.01 crores is deleted. Before parting with the issue, we may also mention that the said receipts have been shown as part of the income of assessee in assessment year 2009-10. The ground of appeal No.5 raised by the assessee is thus, allowed. 58. The issue in ground of appeal No.6 raised by the assessee is against the claim of deduction in respect of amount collected towards environmental relief fund of ₹ 74,03,321/-, which was disallowed under section 43B of the Act. 59. The learned Authorized Representative for the assessee after taking us through the factual aspects of the case and referring to the provisions of The Public Liability Insurance Act, 1991, pointed out that the said amount was not collected by the assessee and was also not the liability of the assessee. Further, reliance was placed on different decisions of Benches of ..... X X X X Extracts X X X X X X X X Extracts X X X X
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