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2018 (1) TMI 1735 - ITAT BANGALORE
Addition u/s 69 - seized material found during the course of survey operations indicating some undisclosed investment - Burden of prove - CIT(A) deleted addition holding that the Assessing Officer, without bringing any corroborative evidence, cannot make any addition based on merely impounded papers - HELD THAT:- It is trite law that the initial burden of proving is always on the assessee to show that the transactions in loose sheets are not in the nature of income and reliance in this regard can be placed on the decision of the Hon'ble Supreme Court in the case of CIT vs. Mussadilal Ram Bharose (1987 (1) TMI 1 - SUPREME COURT]. In the present case, the assessee merely denied it without tendering any credible explanation. In our considered opinion, this does not amount to due discharge of initial burden on the part of assessee and therefore the Assessing Officer was justified in drawing adverse inference and making addition of Rs. 183 lakhs. The ground appeal filed by the revenue is allowed.
LTCG - Deduction u/s 54G - Assessee shifted the industrial unit situated in urban area i.e. Whitefield to non-urban area and investment of a sum towards purchase of land was made - Whether unit sold was situated within notified urban areas? - HELD THAT:- Parliament has enacted the provisions of section 54G with the intention of promoting de-congestion of urban area and also to balance regional growth by exempting capital gains arising on the transfer of plant and machinery and building used for the purpose of industrial undertaking and the capital gains are exempt from tax to the extent capital gains are utilised in acquiring new plant and machinery and building for the purpose of business of undertaking in the area to which it is shifted plus incurring expenses in the purchase of the new plant and machinery etc
It is undisputed fact that factory building sold by the assessee company is not situated in the notified urban area. From the above notifications[No. 9489 on 23/02/1994, second notification was issued on 02/04/1996 and third notification was issued on 20/12/1999] it is clear that Whitefield is not one of the notified urban areas which is eligible for deduction under section 54G. Thus, assessee-company had failed to satisfy the condition that unit sold was situated within notified urban areas. Therefore the assessee-company is not eligible for deduction under section 54G. CIT(A) had failed to consider the relevant provisions of the statute in proper perspective and granted relief. Therefore, we reverse the finding of the ld. CIT(A) on this issue and the grounds of appeal filed by the revenue are allowed.
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2018 (1) TMI 1734 - CESTAT NEW DELHI
Process amounting to manufacture or not (deemed manufacture) - after receiving the bottles of the medicines in the packets, appellant just affix the hologram & bar code to avoid duplicity and put in an outer cover box to ensure safe transportation - HELD THAT:- The purpose of “deeming” processes such packing, re-packing, labeling, relabeling etc. to be processes amounting to manufacture is to capture the value addition.
In the instant case, there is admittedly “no value-addition”. The goods are sold either at or below the MRP to the consumer. More importantly, the goods when received by the vendor are already in a pre-packed form, bear the necessary declarations including the MRP as prescribed by the provisions of the Legal Metrology Act and have already been subjected to excise duty on the basis of value determined under Section 4A i.e. the Retail Sale Price less abatement. The vendor neither re-labels nor alters the retail pack or the declarations affixed therein. Under these circumstances, the activity undertaken in the instant case merely consists of transferring pre-packed duty paid retail goods into another packing.
Thus, it is clarified that in such cases excise duty would not be attracted on the operations or processes carried out by the vendor.
There are no reason to sustain with the impugned order and the same is hereby set aside - the appeals filed by the assessee-Appellants are allowed.
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2018 (1) TMI 1733 - ITAT DELHI
TP Adjustment - TPO justification in treating the outstanding receivables from the overseas AEs as unsecured loans and to impute interest thereon - HELD THAT:- We find that the assessee’s own case for the assessment year 2010-11 [2015 (4) TMI 180 - ITAT DELHI] a coordinate bench of this Tribunal reached a conclusion that if the working capital adjustment takes into account the outstanding receivables, additional imputation of interest on the outstanding receivables is not warranted. This decision of the Tribunal is upheld by the Hon’ble Jurisdictional High Court in assessee’s own case [2017 (4) TMI 1254 - DELHI HIGH COURT] for this same assessment year by holding that no error was found in the order of ITAT giving rise to any substantial question of law for a determination.
We, therefore, hold that in case the working capital adjustment properly takes into account the outstanding receivables, no additional imputation of interest on the same is warranted.
As AR submitted that the working capital adjustment is worked out by properly taking into account the outstanding receivables. However from the order of the TPO, we do not find any mention of the Ld. TPO considering the same. We are, therefore, of the opinion that this fact needs verification at the end of the TPO - we set aside the issue to the file of TPO for verification of the fact, whether while making the working capital adjustment the outstanding receivables are taken into account or not. Appeal of the assessee is allowed for statistical purposes.
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2018 (1) TMI 1732 - ITAT AHMEDABAD
Addition u/s 68 - unexplained cash credits - capital introduction by assessee’s partner - addition made in partner’s hands v/s firm’s case - HELD THAT:- We find no merit in Revenue’s instant argument since hon’ble jurisdictional high court’s judgment in M/s. Odedara Construction [2014 (2) TMI 130 - GUJARAT HIGH COURT] as relied upon by the CIT(A) settles the law that such an addition is to be made in partner’s hands instead of that in a firm’s case. CIT(A) has already issued necessary directions to this effect to the Assessing Officer. We therefore see no reason to accept Revenue’s instant sole substantive grievance.
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2018 (1) TMI 1731 - SUPREME COURT
Principles of res-judicata - Refusal to take cognizance of the complaint - complaint filed under the provisions of Section 354 read with Section 475A(1)(a) of the MMC Act - HELD THAT:- The High Court ultimately dismissed the case on the jurisdictional issue by observing that by no stretch of imagination, the dismissal of the criminal complaint for filing delay may be construed as acquittal so as to invoke the jurisdiction under Section 378 of CrPC, and ultimately held that it did not have jurisdiction to entertain such matter. It can be observed that the High Court at this juncture, recognised the incorrect invocation of the criminal appellate jurisdiction under the aforesaid provision and granted further liberty to move appropriate court if so advised.
There is no dispute that the rule of res judicata in common law, to recent precedents of this Court, has been accepted as a universal rule of law emanating from the public policy1 to limit excessive and unnecessary litigation. It may not be an overstatement to state that the principle of res judicata is as old as the law itself. The extent of application of res judicata in a country, on a comparative analysis of foreign jurisprudence, depends on various considerations such as efficiency, fairness, and substantive policies, but across the board a minimal core seems to be well preserved.
It is apparent from the perusal of the impugned order that the High Court stretched the ambit of ‘finality’ for some observations to the saying (relating to collateral aspects) that every such observation was final unless reversed in appeal, which had an effect of throttling the substantive justice out of life - such reasoning of the High Court that the issue had attained finality, cannot be approved, since the observations were made by a court which went against its own findings that the court did not have any authority/jurisdiction to do so. Once the court concludes that a case is not maintainable under Section 378 of CrPC, it did not have any jurisdiction to make further observations on merits as has been done in this case.
The High Court was not correct in dismissing the case on the threshold without holding a full-fledged enquiry into the issues raised thereunder - the impugned order passed by the High Court is set aside - appeal disposed off.
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2018 (1) TMI 1730 - ITAT MUMBAI
TP Adjustment - issuance of a corporate guarantee - HELD THAT:- We find that in the case of Everest Kento Cylinder Ltd. [2015 (5) TMI 395 - BOMBAY HIGH COURT] the Hon'ble Bombay High Court has dealt the identical issue and had decided it against the revenue as held that considerations which applied for issuance of a corporate guarantee are distinct and separate from those in a case of bank guarantee and, accordingly, the commission charged could not be called in question, in the manner the Transfer Pricing Officer had done. The comparison was not between like transactions but between guarantees issued by commercial banks as against a corporate guarantee issued by holding company for the benefit of its associated enterprise, a subsidiary company. Therefore, no transfer pricing adjustment could be made in respect of the commission charged. - Decided against revenue.
Addition notional interest - Buying back of share at higher rate than the purchase price - TPO had presumed that buy back of shares was not a normal business transaction, that he treated it as advancing of interest free loan by the assessee to the AE, that he charged notional interest not only for the year under consideration but upto the date of remittance - CIT(A) deleted addition - HELD THAT:- Purchasing the share @ 1 pound per share and selling at @ 0.8 pound per share cannot be the basis for presuming that the transaction was not a genuine transaction-especially when the valuation was as per the exchange regulations. Buying back of share at par or at higher or lower rate than the purchase price is one of the very common practice of the business world. Until and unless it is proved that such a transaction was not based on scientific basis or was against the provisions of exchange manual/regulation, it should be accepted. We find that the FAA has given a categorical finding that the TPO had not doubted the valuation. In these circumstances, we hold that there was no justification for the TPO to charge notional interest. As the order of the FAA does not suffer from any legal or factual infirmity, so, confirming the same, we decide ground No. 2 against the AO.
Allocation of R & D expense to the 80-IB and 80-IC qualifying units - HELD THAT:- Identical issue was decided by the Tribunal against the AO while adjudicating the appeal for the A.Y. 2005-06 [2012 (4) TMI 743 - ITAT MUMBAI] wherein held no justification to allocate proportionate expenses incurred on R & D and on interest for the purpose of computing deduction U/s. 80IB. The expenditure on R & D is for a specific purpose and there is no dispute in incurring of expenses for the specific purpose i.e., in the field of medical science etc., The expenditure incurred on R & D were not related to business of any existing units of the company or to the products manufactured by any of its unit in which the assessee has claimed deduction U/s. 80IB. The Research and Development Institute is a statutory institute of the assessee company which is situated at Aurangabad which deals with global research. There is no doubt that assessee's units got benefit from the research work done by the research at Aurangabad. Further the contention of the Assessing Officer that some part of the expenditure are liable to be considered in the units in which the deduction U/s. 80IB has been claimed, in our considered view, is not tenable.
Nothing has been brought on record that borrowed funds by the Head Office were transferred to the units on which the deduction U/s. 80IB has been claimed by the assessee. The onus lay upon the AO to discharge it by bringing some positive evidence to establish that some part of the expenditure on account of R & D and on account of interest has been incurred on these units because Assessing Officer, who is alleging that some part of expenditure incurred on R & D and interest are related to the units on which deduction U/s. 80IB has been claimed. This onus has not been discharged, therefore, allocation of the proportionate expenses at the end of the Assessing Officer, in our considered view were not justified. Decided against revenue.
Claim of weighted deduction made u/s. 35(2AB) - assessee placed reliance on the orders of the FAA for the earlier years, wherein the FAA had directed the AO to delete the disallowance where Form 3CL was issued by the Deptt. of Science and Industrial Research (DSIR) was received by the assessee after completion of the assessment order - DR stated that the Tribunal had decided the issue against the assessee in the earlier year holding that deduction was available for in house trials and RD research only - HELD THAT:- We are of the opinion that matter needs further verification. Therefore, we are remitting back the issue to the file of AO for deciding the issue afresh. He is directed to afford reasonable opportunity of hearing to the assessee and after considering the case laws relied upon by the assessee before us. Ground No. 4 is partly allowed.
TDS u/s 195 - Addition u/s. 40(a)(i) - AO found that the assessee was making payment to non residents on account of pilot-bio study and clinical research without deducting TDS - HELD THAT:- We find that the Tribunal vide its order [2012 (4) TMI 743 - ITAT has dealt the issue and decide it in favour of the assessee held assessee paid charges for testing at laboratories of CRO which used their own skills and equipments etc., to prepare the report. The Tribunal came to conclusion that there is no parting of skills or know-how by CRO and hence the service is not technical in nature, but was only a commercial service. Ground of appeal against the AO.
Disallowance of weighted deduction u/s. 35(2AB) - Form 3CL was not submitted by the assessee - HELD THAT:- We find that DSRI had not issued the Form 3CL in time, that the assessee could not file the same before the AO during the assessment proceedings, that the Form was submitted before the AO after DSRI issued the same, that AO himself had mentioned in the order deduction would be allowable on production of Form 3CL. In these circumstances, we are of the opinion that he was not justified in rejecting the application filed by assessee u/s. 154 - Decided against revenue.
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2018 (1) TMI 1729 - ALLAHABAD HIGH COURT
Enhancement of retirement age of its employees to 60 years in a Board meeting - HELD THAT:- The Government Order dated 30.9.2012 was arbitrary inasmuch as it increased the age of retirement from 58 to 60 with effect from 30.9.2012 and did not increase the age of retirement for such employees who had retired before 30.9.2012. In the first place, the Government should have acted instantly when the resolutions were received by it from the Noida Authorities and secondly we see no reason why it had refused to give the advantage of extension in age retrospectively when the Resolution was received by it more than three years back. Definitely clause 1(2) of the Government Order dated 30.9.2012 appears to be absolutely arbitrary inasmuch as it has prospectively applied the order dated 30.9.2012 by which it had allowed the Noida Authorities to extend the age of retirement.
There are no reason why the clause 1(2) of the Government Order dated 30.9.2012 should be retained.
Clause 1(2) of the Government Order dated 30.9.2012 is struck down and the Government Order dated 30.9.2012 shall apply retrospectively i.e. from the date the Resolution dated 29.6.2002 was passed. The petitioners shall be deemed to have worked with the Noida Authorities till the age of 60 years. They shall be given their arrears of salary which shall be calculated deeming that they had worked till the age of 60 years. Retirement benefit shall also be accordingly calculated.
The writ petition is allowed.
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2018 (1) TMI 1728 - MADRAS HIGH COURT
Validity of reassessment after a period of four years - reasons to believe - reliance on statement recorded in the course of survey u/s 133A of a partner as stated that there is an understatement of the cost of construction of a commercial building - power to examine a person on oath - HELD THAT:- As decided in S.Khader Khan Son [2007 (7) TMI 182 - MADRAS HIGH COURT] the statement recorded during the course of survey action u/s 133A of the Act shall not have any evidentiary value and solely based on the said statement given by one of the partners of the firm, the question of reopening cannot be done. Further, after taking note of the decision in the case of Dr.S.C.Gupta [1999 (11) TMI 9 - ALLAHABAD HIGH COURT] the Court held that the power to examine a person on oath is specifically conferred on the authorities only under Section 132(4) of the Act in the course of any search or seizure and Section 133A does not empower any income-tax officer to examine any person on oath.
Thus here is absolutely no basis for reopening of the assessment. That apart, though the second respondent seeks to bring out a case of underestimation in the cost of construction by referring to the statement of the partner, the second respondent himself called for a valuation report from the Public Works Department and find that the cost of the construction as disclosed in the return for the assessment year 1999-2000 and the valuation, which was done by the Public Works Department officials in the year 2003 has only marginal difference and the variation appears to be around Rs.1,00,000/-. Thus, on his own showing, the second respondent was not able to bring out a case of underestimation of the cost of construction. Thus, impugned reopening proceedings are wholly without jurisdiction and illegal. Thus the impugned reopening proceedings are quashed. Decided in favour of assessee.
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2018 (1) TMI 1727 - SUPREME COURT
Criminal conspiracy - facts of the case do not disclose an offence of cheating and there was no offence of criminal breach of trust - framing charges Under Section 227 of the Code of Criminal Procedure - HELD THAT:- It is well settled that a court while framing charges Under Section 227 of the Code of Criminal Procedure should apply the prima facie standard. Although the application of this standard depends on facts and circumstance in each case, a prima facie case against the Accused is said to be made out when the probative value of the evidence on all the essential elements in the charge taken as a whole is such that it is sufficient to induce the court to believe in the existence of the facts pertaining to such essential elements or to consider its existence so probable that a prudent man ought to act upon the supposition that those facts existed or did happen. However, at this stage, there cannot be a roving enquiry into the pros and cons of the matter and weigh the evidence as if he was conducting a trial.
It cannot be said that no case can be made out against the Accused--Appellants. Allegedly, the Notifications dated 15-5-1996 and 1-8-1996 were issued without the approval of Cabinet and by violation of rules. Looking at the facts of the case in a holistic manner, it is not necessary to go into the aspect of thorough examination of merits of the case, particularly when the issue is still at the stage of framing of charges only. There is no error in framing charges, as suggested by the High Court, when presumably the material on record obligated the Court to do so.
There are no illegality in the impugned order - there are no reason to interfere with the order passed by the High Court - appeal disposed off.
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2018 (1) TMI 1726 - PUNJAB AND HARYANA HIGH COURT
Exemption u/s 11 - Charitable activity - Whether benefit of Section 11 should be granted to the assessee in view of the proviso to Section 2(15) of the Income Tax Act, 1961? - HELD THAT:- As decided in favour of the assessee in view this Court to which one of us was a party in The Tribune Trust Vs Commissioner of Income Tax and another and in Commissioner of Income Tax (Exemption) Vs Improvement Trust, Moga [2017 (1) TMI 53 - PUNJAB AND HARYANA HIGH COURT]
We are informed that the revenue has challenged the judgement before the Supreme Court and that leave has been granted in those cases. The appeal is accordingly disposed of in terms of the aforesaid judgement.
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2018 (1) TMI 1725 - BOMBAY HIGH COURT
Winding up of company - Service of SCN - HELD THAT:- The company has neither filed any affidavit in reply opposing the petition nor anyone entered appearance. The averments in the petition are, therefore, not controverted. The company has also not responded to the statutory notice. It is settled law that where no response to a statutory notice has been made, the court may pass a winding up order on the basis that amount claimed has not been denied by the company and there is a presumption of inability to pay by the company.
Where no response has been made to the statutory notice, the respondent company runs a risk of winding up petition being allowed. By virtue of Section 434 of the Companies Act 1956 a presumption of the indebtedness can be legitimately drawn by the court where no reply to the statutory notice is forthcoming.
This Court while admitting the petition, in its order dated 25th April, 2017 has expressed a view that the company is unable to pay its debts and is commercially insolvent.
It id ordered that the respondent company, namely M/s. Dharmraj Aluminum Industries Pvt. Ltd., having its registered office at B/2, Devprayag, Bhaktimandir Marg, Opp. Thanawala Automobiles, Thane – 400 602, Maharashtra, be wound up by and under the orders, direction and supervision of this Hon'ble Court.
Petition disposed off.
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2018 (1) TMI 1724 - ITAT AHMEDABAD
Disallowance u/s 14A r.w.r.8D - CIT(A) confirmed addition as assessee had not been able to demonstrate to have invested in the above tax free investments from its interest free funds only - HELD THAT:- AR states very fairly that the impugned disallowance ought not to have exceeded the entire exempt income amount as per judgment Joint Investments Pvt. Ltd. vs. CIT [2015 (3) TMI 155 - DELHI HIGH COURT
Revenue on the other hand strongly supports both the lower authorities’ action invoking the impugned disallowance, but however fails to rebut the above legal proposition as per hon’ble Delhi high court’s recent decision.
We therefore partly accept assessee’s grievance to restrict the impugned disallowance to the extent of exempt income figure - assessee submits that the instant concession of challenging the quantum of impugned disallowance instead of its correctness on merits be not taken as precedent in any preceding or succeeding assessment year. We accept the same to make it clear that our instant order shall not be treated as a precedent against the assessee. Assessee’s appeal is partly allowed.
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2018 (1) TMI 1723 - ITAT MUMBAI
TP Adjustment - comparable selection - assessee had adopted TNMM as the most appropriate method to determine the arm’s length nature of its IT's - DRP observed that Resale Price Method (RPM) would be appropriate to determine as to whether the AE transactions were at ALP, that the mean of GP realised in the non-AE transactions would be appropriate benchmark to examine arm’s length price of each of the AE transactions, that GP realised on non-AE exports would be an appropriate internal cup for the AE exports - HELD THAT:- The method adopted by the TPO was faulty from the very beginning. The TIPS data contained price of iron ore exported from Vishakhpatanm port for two categories- i. e. having iron content 62% and having iron content 62% or less. The assessee had exported iron ores to its AE's having FE contents of 63. 01%, 63. 38%, 60. 16% and 50. 60%. Export details clearly show that in three consignments FE content was less than 62% and only in on consignment FE was more than 62%.
Even in three consignments having FE content less than 62% in one case iron ore content is 50. 60%. There is no need to quote any authority to hold that market value of the ore having 50. 60% FE would be less than the ore having 62% FE. Besides, price of iron ore, like any other exported commodity, is highly sensitive and has wide fluctuation depending upon demand and supply. Considering these peculiar facts, we are of the opinion that the DRP had rightly held that TIPS data was not a reliable tool to determine the ALP of the IT's of the assessee.
TP provisions try to bring parity between the controlled and uncontrolled IT. s of similar nature. For that matter some methods have been incorporated in the IT Rules, 1962. The method is procedural part of the TP exercise, but the substantive law is Chapter X of the Act. What has to be seen in such proceedings that IT. s are valued in a reason ably fair manner. TP provisions are not based on some arithmetic or scientific formulas that would always give similar results in similar conditions. They find place in statute to take care of various and different situations and circumstance of dynamic business world. The method adopted by the DRP, in our opinion, was quite appropriate considering the peculiarities of the facts of the case. It did not result in deleting the entire adjustment proposed by the TPO/AO-it resulted in lower adjustment.
AO had used the TIPS data but it had so many lacunas. The DRP, therefore, after obtaining details of all the seven AE and non-AE transactions, directed the AO to follow a particular method. Thus, there is no basic difference in the approach of the TPO and DRP. Certain modifacations, were made by it and we hold that same were required to decide the ALP.
We would also like to mention that the cases relied upon by the DR are not relevant to decide the issue before us. Considering the above, we confirm the directions of the DRP and hold that same are not suffering from any legal or factual infirmity. Effective ground of appeal, filed by the AO, is decided against him.
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2018 (1) TMI 1722 - ITAT MUMBAI
TP Adjustment - Comparable selection - HELD THAT:- We find that the assessee is a wholly own entity of Singapore base parent company, that the AE was providing CRS for Airline ticket bookings, that CRS was being used by the Travel Agents for booking of Air Tickets, that the main source of income of the AE was the commission received by it from Airline companies whose tickets were booked using the CRS.
Thus we are of the opinion that all the five comparables-i.e. AL,CLL, GITL, Rites and WL, selected by the TPO for benchmarking the IT's of the assessee are not providing MSS, that there functionally dissimilar, that they have to be excluded from the final list of the valid comparables. There is nothing on record to prove that support services provided by the above five comparables were also associated with marketing function. There is no doubt that the support services provided by the assessee were directly associated with marketing. We find that if these five comparables are excluded from the list the valid comparables, the assessee will be in the safe zone of +/- 5% the OP to OC of the assessee is 5.18% whereas OP to OC of the remaining comparables is 3.01%. In the circumstances, we hold that the IT's entered into by the assessee with its AE was at arm’s length. Decided in favour of the assessee.
Addition made on account of mismatch in AIR data - AO observed that data available with the Department indicated that the assessee had not shown income received by it from Yatra Online.com and Arzoo.com respectively - HELD THAT:- We find that rectification application was filed before the AO by the assessee stating that there were certain mistakes in his order, that Yatra had filed a fresh statement of tax deducted at source, that the AO had not passed the rectification order in that regard. Therefore in our opinion, the addition made by him in respect of Yatra Online.com cannot be endorsed. Reversing the order of the FAA, we allow ground number 3.1.
Income from Arzoo.com we find that the assessee had claimed that there was dispute about the sum, that Arzoo had disputed the liability. The AO is directed to pass order u/s.154 of the Act within a month of receipt of this order. If he finds that claim made by the assessee about Arzoo.com is not supported by documentary evidences, he can add the disputed amount i.e. for Rs. 6.64 lakhs to the income of the assessee. But he will give credit to the taxes deducted at source as per AS 26.GOA 3.2 is allowed partly.
Disallowance of Foreign exchange loss - We find that the AO on one hand would tax gain on FE earnings but would not allow loss arising on FE loss. In our opinion, the stand taken by the AO is not justified in any manner. If the gains of FE fluctuation had to be taxed then the loss arising out of such fluctuation has to be allowed. We find that in the case of Oil and Natural Gas Corporation [2010 (3) TMI 81 - SUPREME COURT] has held that the loss claimed by the appellant on account of fluctuation in the rate of FE as on the date of the balance-sheet was allowable as expenditure u/s 37(1).
Addition made on account of Marketing Service Fee (MSF) - assessee had claimed an expenditure under the head payment of dealer incentive, that it had claimed receipt as additional Marketing Service Fees(MSF)from its parent company, that the figures included amounts pertaining to period 01.01.2008 to 31.12.2008 - whether the transaction in question was at arm’s length? - HELD THAT:- In our opinion, it was a clear case of reimbursement by the AE of the expenditure incurred by the assessee. For the incentive scheme it should have charged full amount to its AE i.e.Rs.34.61 crores. If the agents would use the software of the AE it would result in higher income for the AE to the extent of 75% , whereas the assessee would get 25% of the booking. Thus, the direct and major beneficiary is AE. Because of proximity between them the AE and assessee could enter in to an agreement to suit their requirements. But, that would not take away the right of the TPO to determine the ALP of the transaction considering the market value of such a transaction. He had considered all the aspects of the transaction and had held that the assessee should have received Rs.2 crores more from the AE.
Here,an incentive scheme was introduced by the assessee and the AE makes part payment for the expenditure incurred by the assessee for the scheme. Advertisement expenditure cannot be compared with introduction of an incentive schemes that would increase the revenue of the AE. Here it is not a case of incidental benefit to AE-it is a case of major benefit to the AE and fringe benefit to the assessee.TP provisions were introduced to take care of such eventualities i.e. determine the market value of transactions had they been entered in by two independent entities. Therefore, in our opinion, the order of the DRP does not require any interference from our side. Main argument of the assessee stands dismissed.
Disallowing the expenditure while computing the taxable income of the assessee - As we would like to hold that the DRP was not justified in disallowing the same. There is no doubt about incurring of expenditure by the assessee, as stated earlier. The assessee had introduced an incentive scheme and had incurred the expenses - Whether the money received from AE was at arm’s length or not is a separate issue. But, incurring of expenditure was never in doubt. So, in our opinion, the alternate argument raised by the assessee has to allowed.
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2018 (1) TMI 1721 - ITAT RAIPUR
Assessment u/s.144 - disallowance at 10% of the total receipts, relying on tax audit report and copies of some alleged accounts - CIT(A) has reported that during remand proceedings, the books of account were not called for verification and directed the AO to apply net profit at 3.5% of the total receipts and deleted the disallowance made by the AO - HELD THAT:- Before us, D.R. could not point out any specific mistake in the order of the CIT(A) - we find no good reason to interfere with the order of the CIT(A), which is hereby confirmed. Ground No.1 of appeal is dismissed.
Addition u/s 68 - assessee has failed to substantiate the identity and creditworthiness of the creditors and genuineness of transaction, the AO disallowed the same - CIT(A) observed that the assessee has furnished compete postal address and PAN particulars of the creditors and address of the creditors to the Assessing Officers with whom the creditors are assessed to tax, thus deleted addition - HELD THAT:- We find that the assessee has furnished the details of the income tax returns alongwith PAN. It has also been informed that the lenders have given confirmation. Therefore, the assessee has complied with the conditions prescribed in the provisions of Sec. 68 of IT Act. Considering all especially when no adverse remarks is on record, we find no reason to reverse the findings of the ld CIT(A). Hence, we reject the ground of appeal taken by the revenue.
Appeal filed by the revenue is dismissed.
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2018 (1) TMI 1720 - ITAT RAIPUR
Disallowance on account of expenses claimed in P&L account - assessee has failed to produce books of account but the assessee has claimed to have audited the books of account - CIT(A) relying on various judgements held that the accounts are audited to which, AO ought to have given due consideration but to meet the ends of justice he estimated the net profit @ 2.75% of gross contract receipts and sustained addition - HELD THAT:- Before us, ld D.R. could not point out any mistake in the order of the CIT(A). We find that the books of account of the assessee are audited and the assessee has furnished the tax audit report to which no adverse inference was drawn by the AO. We find that the CIT(A) has dealt on the issue and relied on various judicial pronouncement on this matter and estimated the net profit @ 2.75% of gross contract receipts and sustained addition - Hence, we uphold his order and dismiss the ground of appeal of the revenue.
Disallowance out of interest expenses made by the AO on account of interest on fund diverted for non-business purposes - assessee firm has advanced various amounts to different parties, therefore, the assessee was required to explain the mode of advance - CIT(A) deleted the disallowance by observing that the AO has not brought on record any evidence to demonstrate nexus of the assessee with five parties - HELD THAT:- IT(A) has relied on various judicial pronouncements including the decision of Hon’ble Supreme Court in the case of S.A. Builders, [2006 (12) TMI 82 - SUPREME COURT], wherein, it was held that interest on borrowed funds cannot be disallowed if the assessee has advanced interest free loan to a sister concern as a measure of commercial expediency. The assessee has adopted the alternative of borrowing money from the market instead of liquidating its own assets.
We find that except relying on the order of the Assessing Officer, ld .D.R. could not point out any specific error in the order of the CIT(A) and could not controvert the findings of the CIT(A) by bringing any positive material on record that the advances were not made to five parties for normal course of business. In view of above, we confirm the order of the CIT(A) in deleting the addition.
Appeal filed by the revenue is dismissed.
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2018 (1) TMI 1719 - ITAT DELHI
Provision of warranty expenses - Lesser amount of warranty claims registered on the assessee - provision of warranty expenses have been made by the assessee @0.75% in earlier years, however, in Assessment Year 2010-11 and 2011-12 it was reduced to 0.5% - HELD THAT:- In the present case as per annexure- A it seems that assessee has made ad hoc provision on the sales as a fixed percentage. The ld CIT (A) has also allowed the claim of Rs 3.5 lakhs without giving any cogent reason. Further looking at the chart titled as Annexure A by the Ld. CIT (A) which shows that the amount claimed by the assessee in the profit and loss account is a net result of opening balances of the provision for warranty added thereto amount credited in provision for warranty account during the year and reduced by the provision utilized during the year for meeting the expenditure out of the opening balances and actual warranty expenses incurred during the year over and above provision utilization.
Assessee is entitled to the deduction of warranty expenses provided for, if it is made based on history and some scientific methodology but not on ad hoc basis. Therefore, we set aside the whole issue back to the file of the Ld. assessing officer with a direction to the assessee to provide the methodology of making provision of warranty expenditure which should be based on some scientific and historical basis and then grant deduction of the appropriate amount to the assessee in terms of the decision of Rotorok Controls India Pvt. Ltd. [2009 (5) TMI 16 - SUPREME COURT] In the result ground No. 1 of the appeal of the assessee is allowed with above direction.
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2018 (1) TMI 1718 - SUPREME COURT
Prayer to take any action taken by the Respondents or any order passed by the National Company Law Tribunal - HELD THAT:- Our present order does not debar the Petitioner to challenge the validity of composition of the National Company Law Tribunal and the validity or the constitutionality of the Insolvency and Bankruptcy Code, 2016 before this Court Under Article 32 of the Constitution.
SLP disposed off.
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2018 (1) TMI 1717 - SUPREME COURT
Prohibition on the exhibition of the film, namely, Padmavat - seeking stay on notifications/orders prohibiting the exhibition of the film - When once a Certificate has been issued by the CBFC, the States can issue notifications or orders prohibiting exhibition of film in theatres? - HELD THAT:- The creative content is an insegregable aspect of Article 19(1) of the Constitution. Needless to emphasise, this right is not absolute. There can be regulatory measures. Regulatory measures are reflectible from the language employed Under Section 5B of the Act and the guidelines issued by the Central Government. Once the parliamentary legislation confers the responsibility and the power on a statutory Board and the Board grants certification, non-exhibition of the film by the States would be contrary to the statutory provisions and infringe the fundamental right of the Petitioners.
It has to be borne in mind, expression of an idea by any one through the medium of cinema which is a public medium has its own status under the Constitution and the Statute. There is a Censor Board under the Act which allows grant of certificate for screening of the movies - As advised at present once the Certificate has been issued, there is prima facie a presumption that the concerned authority has taken into account all the guidelines including public order.
It is directed that there shall be stay of operation of the notifications and orders issued by the Respondent-States and the other States are also restrained to issue notifications/orders in any manner prohibiting the exhibition - there are no hesitation in stating by way of repetition and without any fear of contradiction that it is the duty of the State to sustain the law and order situation whenever the film is exhibited, which would also include providing police protection to the persons who are involved in the film/in the exhibition of the film and the audience watching the film, whenever sought for or necessary.
Let the matter be listed on 26th March 2018 for final disposal.
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2018 (1) TMI 1716 - ITAT DELHI
TP Adjustment - determining of ALP of transaction of payment of trademark fees paid by the taxpayer to its AE - HELD THAT:- We are of the considered view that since there is a direct nexus between the revenue earned by the taxpayer and the payment made by the taxpayer on account of royalty, the transaction of payment of royalty cannot be analyzed in isolation. Furthermore, the doctrine of benefit test applied by the TPO cannot be invoked as it is prerogative of the businessman to see if any service is beneficial to the promotion of its business or not. So, consequently, the AO is directed to delete the adjustment made on account of ALP of international transaction of payment of trademark fees.
TP adjustment of Advertisement, Marketing and Sales Promotion (AMP) - HELD THAT:- As it is not in dispute that there is no change in the business model of the taxpayer so far as AMP expenses are concerned since AYs 2007-08, 2008-09 & 2009-10. The coordinate Bench of the Tribunal in taxpayer’s own case (supra) proceeded to hold that incurring of AMP expenses by the taxpayer is not an international transaction of brand building of Goodyear brand undertaken by the taxpayer with AE and as such, no adjustment can be made.
Netting off of export incentive from the cost of goods sold and set aside the issue of netting off of rebate/ discount from the cost of goods sold to the file of AO/TPO for verification of the claim in view of the decision rendered by the Tribunal for AY 2006-07 [2012 (12) TMI 1166 - ITAT DELHI] by providing an opportunity of being heard to the taxpayer.
Disallowance of provision made by the taxpayer for replacement loss - taxpayer has not incurred expenditure on account of replacement of goods in the subsequent years; that the same is not ascertained and is contingent in nature - HELD THAT:- The taxpayer has filed complete details on the basis of past trends and experience of actual guarantee claims on a scientific and actual basis, we are of the considered view that provision for warranty made by the taxpayer is allowable one.
Disallowance being 30% of the total expenditure - taxpayer has incurred the said advertisement and publicity expenditure for brand building for the entities owning the brand - HELD THAT:- We are of the considered view that when the Bench has already held that the taxpayer has incurred advertisement expenses wholly for the purpose of business and profession, the same are required to be allowed in full. So, in the given circumstances, ad hoc disallowance of advertisement expenses incurred by the taxpayer is not permissible under law. So, AO is directed to delete the same accordingly.
Disallowance on account of shortfall on interest of provident fund - failure of the taxpayer to file clarification or supporting documents - HELD THAT:- When the provident fund dues are not deposited by the employer in time, the interest payable thereon would become part of the provident fund dues and section 43B of the Act would be attracted. However, when the taxpayer has actually paid the interest, section 43B would not be attracted and the taxpayer is entitled to claim deduction thereof. So, we are of the considered view that AO/DRP have erred in making disallowance allegedly on account of shortfall of interest of provident fund. Consequently, the AO is directed to allow the same after verifying the facts as to the payment of dues paid along with interest by the taxpayer.
Addition being the misc. charges and service tax written off out of misc. expenditure - expenditure were not supported by vouchers and the taxpayer has failed to prove that the expenditure were incurred wholly and exclusively for the purpose of business; that the taxpayer has failed to deduct tax at source on certain expenditure and that some of the expenditure are in the nature of capital expenditure - HELD THAT:- Undisputedly, accounts of the taxpayer are audited by the statutory auditor, tax auditors as well as cost auditors which are substantiated with necessary documents. When the accounts of the taxpayer are duly audited by the statutory auditors and proves to be supported with documents discussed in preceding paras, the Income-tax authorities are not only required to accept auditor’s report but also to draw the proper inference from the same. Reliance in this regard is placed on the decision rendered in the case of Jay Engineering Ltd. [1978 (2) TMI 94 - DELHI HIGH COURT]
When the taxpayer raised specific objection before the ld. DRP qua disallowance of the aforesaid expenses, the ld. DRP has issued specific direction to the AO to allow these expenses if the same are found to be genuine on filing necessary evidence in support of its claim by the taxpayer. When the accounts are audited and duly supported with evidences discussed in the preceding paras, the AO is to allow the same after verifying its genuineness and to proceed accordingly. Decided in favour of the taxpayer.
Disallowance being the provision for obsolete stocks and spares - it was only a provision and not an actual write off and on the ground that the taxpayer has failed to provide the basis and working of the provision of the obsolete stores and spares - HELD THAT:- The taxpayer has brought on record the complete details of obsolete stocks and spares, available - DRP directed the AO to allow the provision of obsolete stocks and spares in case the same has been scientifically worked out. However, the AO proceeded to disallow the same on the ground that the taxpayer has failed to produce the details of the stocks and spares written off. When the taxpayer has brought on record details of amount and items of slow moving article and the Revenue has not disputed that this system is being followed bonafidely by the taxpayer, the AO was required to follow the rule of consistency. So, in view of the matter, AO is directed to delete the disallowance on account of stores and spares written off after verifying the documents available.
Ad hoc disallowance being 50% of the salary of administrative staff of the taxpayer - as attributed to capital work-in-progress and was required to be capitalized along with capital work-in-progress - HELD THAT:- As taxpayer carried out the expansion of the existing business for which services of Managing Director and Plant Supervisor who have also monitored and ensured day-to-day running of the factory and production along with capital work-in-progress for expansion of the same unit were availed of, which satisfies the test of unity of control, interlacing of funds, common management etc. and as such, their salary to the extent of 50% capitalized because the salary drawn by them is revenue expenditure. Consequently, we order to delete the disallowance made by the AO and determine this ground in favour of the taxpayer.
Disallowance on account of stores and spares written off - details and supporting evidences of the written off stores and spares have not been furnished and the same was not verifiable with reference to physical disposal - HELD THAT:- When we examine profit and loss account of the taxpayer, it shows that the taxpayer is a growing company having gross sale of Rs. 1167 crores as on March 31, 2010 as against Rs. 980 crores in the earlier years with gross profit of Rs. 734 crores as against Rs. 329 crores in the previous year and in the given circumstances, to write off useless stores is a business decision of the management which cannot be questioned particularly when the accounts of the taxpayer are audited one with supporting evidence. The taxpayer has brought on record the complete details of the written off stores and spares,. So, disallowance made by the AO on account of stores and spares written off is not sustainable, hence disallowance is ordered to be deleted - Decided in favour of assessee.
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