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2012 (12) TMI 458 - AT - Income TaxArm's length price (ALP) - international transactions (TP) - assessment order in pursuance of the directions given by the Dispute Resolution Panel (DRP) - violation of natural justice - the operating margin of the comparables - within the safe harbour of +/- 5% - held that:- What is to be compared is the international transactions of the assessee with its related parties and not for its entire transaction with non-related parties also. Therefore, ALP has to be seen only with regard to international transaction with A.Es and not on the entire turnover/sales. From the working also, at the entity level, the assessee's transactions falls within the range of +/- 5%. Therefore, in our conclusion, by whatever approach, bench marking is done, the entire adjustment made by the TPO falls within the safe harbour of +/- 5%. Insofar as the calculation furnished by the learned Departmental Representative is concerned, we do not find any merit in the said calculation in view of our analysis given above. Thus, at the very thresh hold level itself, the entire adjustment made by the TPO stands deleted. Deduction u/s 80IB / 80IC - AO was of the view that for the purpose of sections 80-IB & 80-IC, the profits derived from the industrial undertaking are to be worked out by reducing certain common expenses incurred at the head office and the central departments such as audit, legal, secretarial, shares department, selection and training, accounting, treasury which cannot be identified with any of the industrial undertakings of assessee. - Held that:- AO directed not to allocate the expenses of chairman, company secretaries and public relation department - salary, wages and staff welfare expenses relating to financial controller, chief medical officer cannot be allocated. - these four operations at the head office are in no way connected to the running of the units. It must be appreciated that each of the units has their own departmental head including financial controller and medical officer. These four operation centres at the head office are more concerned with the managerial issues, they are not connected either with production or sale of these units. With reference to the research expenses - held that:- the research expenditure cannot be allocated to the units claiming deduction unless it has a nexus. Therefore, AO is directed to exclude the same. With reference to the interest expenses - held that:- the expenses attributable to any other unit or the head office expenses which have no relevance to the industrial undertaking cannot be deducted in respect of the said undertaking while computing the profits and gains of the undertaking. Capital expenditure versus revenue expenditure - payment made to the suppliers for termination of arrangement for supply of Sugar Candies - AO was of the opinion that the expenditure was capital in nature. - held that:- assessee has claimed the amount of Rs. 4.60 crores as Revenue expenditure as no right has been acquired by terminating the conversion agreement entered with the said company. It is a business decision and since assessee is still in the business of food and beverages the expenditure is rightly claimed as revenue expenditure. The principles laid down by the Hon'ble Supreme Court in the above referred four judgments equally apply to the facts of the case. Therefore, AO is directed to allow the amount of Rs. 4.6 crores claimed. Relied upon decision - (1) Empire Jute Co. Ltd. v. Commissioner of Income-tax. (1980 (5) TMI 1 - SUPREME COURT), (2) CIT v. Rajaram Bandekar (1994 (3) TMI 73 - BOMBAY HIGH COURT), (3) Commissioner of Income-tax v. Madras Auto Service (P.) Ltd. (1998 (8) TMI 1 - SUPREME COURT) and Bikaner Gypsums v. CIT (1990 (10) TMI 2 - SUPREME COURT). Disallowance u/s 40(a)(ia) - non deduction of TDS - held that:- Assessee has indeed deducted tax under section 192 and so we are of the opinion that provisions of section 40(a)(ia) also do not apply as the said provision can be invoked only in the event of non-deduction of tax but not for lesser deduction of tax. - there is no merit in Revenue's contention that the amount paid to the employees should be disallowed as provisions of section 194J would attract. Taxability of Interest received u/s 244A - held that:- interest on refund under section 244A(1) granted to the assessee in the proceedings under section 143(1)(a) would be assessable in the year in which it is granted and not in the year in which proceedings under section 143(1)(a) attain finality. Brought forward depreciation of amalgamating company - held that:- the restriction of 8 years for carry forward and set off of unabsorbed depreciation had been dispensed with, the unabsorbed depreciation from A.Y.1997-98 upto the A.Y.2001-02 got carried forward to the assessment year 2002-03 and became part thereof, it came to be governed by the provisions of section 32(2) as amended by Finance Act, 2001 and were available for carry forward and set off against the profits and gains of subsequent years, without any limit whatsoever Expenditure versus Donation - deduction u/s 37(1) or 80G - held that:- In fact, the whole amount of Rs. 10,000 could have been claimed as deduction as an advertisement under section 37(1). However, assessee restricted the same to an amount of Rs. 5,000 being the donation under section 80G. We do not see any reason to disallow the amount as the amount has been paid by the assessee company by way of cheque and there is no dispute with reference to the eligibility under section 80G. Accordingly, AO is directed to allow the amount of Rs. 5,000 as claimed. Appeal decided partly in favor of assessee.
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