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2021 (12) TMI 1447 - MADRAS HIGH COURT
TDS u/s 195 - Income taxable in India - Royalty - amounts paid by the assessee to the foreign company for the use of copyright of 'computer software' - HELD THAT:- Substantial questions of law raised herein have been decided in favour of the assessee, in the decision of Engineering Analysis Centre of Excellence Private Limited [2021 (3) TMI 138 - SUPREME COURT] held amounts paid by resident Indian endusers/distributors to non-resident computer software manufacturers/suppliers, as consideration for the resale/use of the computer software through EULAs/distribution agreements, is not the payment of royalty for the use of copyright in the computer software, and that the same does not give rise to any income taxable in India, as a result of which the persons referred to in section 195 of the Income Tax Act were not liable to deduct any TDS u/s 195 of the Income Tax Act. Decided against revenue.
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2021 (12) TMI 1446 - MADRAS HIGH COURT
Levy of Interest u/s 234D - HELD THAT:- As decided in judgment dated 19.03.2019 [2019 (5) TMI 112 - MADRAS HIGH COURT] though computation of interest will depend upon the appeal effect order to be passed, the quantum of net payment is to be determined accordingly, after allowing weighted deduction under Section 35 (2AB) of the Act, as indicated above. The provisions of Section 234D have been held applicable for Assessment Year 2003-2004 in question in terms of the decision this Court in the case of Fisher Sanmar Ltd. [2014 (4) TMI 236 - MADRAS HIGH COURT] Accordingly, Questions are answered in favour of the Revenue and against the Assessee.
Disallowance of bad debts as conditions laid down in Section 36(1)(vii) r.w.s. 36(2) not satisfied - debts have been taken over from the sister concerns - Tribunal allowed the claim - HELD THAT:- Substantial question of law involved in this appeal has already been considered and decided in favour of the assessee by judgment [2019 (1) TMI 2017 - MADRAS HIGH COURT] as held tribunal has taken note of the position that the Memorandum and Articles of Association permitted the assessee to carry on the business of money lending and the transactions in question have been held to be in the realm of business activity. Decided in favour of assessee.
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2021 (12) TMI 1440 - ITAT HYDERABAD
TP Adjustment - interest payment made by the assessee to its overseas associate enterprises @ 11% while adopting domestic prime lending rate only - HELD THAT:- As held that the currency involved herein is not “Euro” only, alleged “safe harbor” rules also do not pertain to these four assessment years. We thus affirm the TPO’s identical action in all these four assessment years adopting “LIBOR + 200” interest rate coming to 2.9% as against that claimed @ 11% at assessee’s behest.
Addition u/s 14A r.w.Rule 8D - HELD THAT:- Addition restricted to the extent of exempt income only in the CIT (A)’s order in the light of Joint Investment (P) Ltd [2015 (3) TMI 155 - DELHI HIGH COURT]
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2021 (12) TMI 1437 - ITAT CHANDIGARH
Loss in trading of cotton cloth - Classification of sale account of raw cotton - AO was of the view that the assessee had failed to explain the claim of wrongly classified sale of cotton cloth - assessee could not substantiate the wrong posting in the sale account so as to justify the loss in the sale of cotton cloth (as was computed by the AO) - HELD THAT:- It cannot be said that no documents or evidences were furnished by the assessee. We have also gone through the Certificate dated 27.3.2021 issued by M/s S. Karan Shama & Co. , C.As, Ludhiana placed at page 8 of the paper book in which certain quantitative details pertaining to the cotton cloth and raw cotton have been certified. Apparently this Certificate was neither before the Assessing officer and nor before the Ld. CIT(A) and the assessee has filed it in the paper book for the first time before us. We also note that there is no application on behalf of the assessee to admit this Certificate as additional evidence.
Thus in the absence of such application for admitting of additional evidence, the same cannot be admitted for consideration by us.
Thus although the assessee could not explain the claim of wrong posting at the time of assessment proceedings or first appellate proceedings but had duly furnished the relevant documents coupled with the settled principle that tax should be levied only on the correct amount of income, and also in the interest of substantial justice, we restore this appeal to the file of the Ld. CIT(A) with a direct ion to adjudicate the issue afresh - Appeal of the assessee stands allowed for statistical purposes.
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2021 (12) TMI 1435 - ITAT DELHI
Addition on account of consumption debtors - HELD THAT:- This Tribunal in the [2019 (4) TMI 204 - ITAT DELHI] for Assessment Years 2008–09 and 2009–10 has considered a similar quarrel on identical set of facts and has decided the issue in favour of the assessee.
Disallowance u/s 14A - HELD THAT:- The undisputed fact is that the assessee has earned exempt dividend income of Rs.18, 521/– only. But when the assessee filed return of income, the decision of the Hon'ble Delhi High Court [2015 (3) TMI 155 - DELHI HIGH COURT] was not available with the assessee. The Hon'ble High Court has restricted the disallowance to the extent of exempt income.
Similar view was taken in the case of Caraf Builders and Construction [2018 (12) TMI 410 - DELHI HIGH COURT]. Since now we have the binding decision of the Hon'ble Jurisdictional High Court of Delhi we direct the Assessing Officer to restrict the disallowance to the extent of exempt income - Ground of the assessee is allowed.
Disallowance towards leave and encashment u/s 43B - assessee claimed that claim of leave encashment on accrual basis - HELD THAT:- We have carefully perused the orders of this Tribunal in [2021 (12) TMI 441 - ITAT DELHI] as relying on Apex Court in case of Exide Industries [2020 (4) TMI 792 - SUPREME COURT] held that the claim with regard to leave encashment has to be allowed on cash basis i.e. actual payment basis and not on accrual basis. we direct the Assessing Officer to verify and allow the deduction u/s 43B on actual payment basis as held in the decision of the Hon’ble Apex Court. Ground allowed for statistical purposes.
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2021 (12) TMI 1434 - ITAT AMRITSAR
Assessment u/s 153A - addition qua unabated assessment - incriminating material found during the course of search and seizure or not? - where no assessment proceeding for the year under consideration is pending, in that eventuality, in the absence of any incriminating material found during the course of search and seizure proceedings, whether the addition can be made qua unabated assessment for the said year? - HELD THAT:- Since, the facts of the instant case are exactly identical to the facts of the Smt. Sanjana Mittal Vs. DCIT [2019 (3) TMI 1757 - ITAT AMRITSAR] hence we hold that in the absence of incriminating material, in the case of the appellant assessee, no addition can be made qua unabated assessment for the year under consideration. Appeal of the assessee is allowed.
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2021 (12) TMI 1433 - ITAT AMRITSAR
Assessment u/s 153A - Valid approval accorded u/s. 153D or not? - HELD THAT:- The Co-ordinate Bench in the case of Sh. Madan Lal. [2021 (8) TMI 1336 - ITAT AMRITSAR] as held that approval which is granted in a mechanical, stereotype manner, without assigning any reasons and without considering the draft assessment order is not sustainable in the eyes of law.
Thus where approval u/s.153D has been given in a mechanical manner and without application of mind in such cases assessment proceedings are to be vitiated. Appeals of the Assessee are allowed.
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2021 (12) TMI 1432 - ITAT BANGALORE
Revision u/s 263 - AO had passed an “Order Giving Effect” (OGE) allowing full relief to the assessee - As per CIT allowing relief to the assessee in the OGE without conducting fresh examination as directed by AO and without passing fresh assessment order has rendered the OGE erroneous and prejudicial to the interests of revenue - HELD THAT:- We notice that the Tribunal, vide its order [2016 (10) TMI 1374 - ITAT BANGALORE] has restored following three issues to the file of AO for examining them afresh on Disallowance u/s 14A of the Act, Whether Royalty income is eligible for computing deduction u/s 10A/10AA of the Act and Whether foreign currency expenses should be reduced from export turnover for computing deduction u/s 10A/10AA.
As observed by the Ld PCIT, the AO has failed to pass a fresh assessment order u/s 143(3) r.w.s. 254 of the Act. Instead, the AO has passed an OGE and granted relief to the assessee in respect of all the three issues mentioned above without examining them at all. Thus, granting to relief to the assessee without examining the issues as directed by ITAT and also failure to pass a fresh assessment order u/s 143(3) r.w.s 254 of the Act would definitely render the OGE erroneous and prejudicial to the interests of revenue. Hence we do not find any infirmity in the impugned revision order passed by Ld PCIT.
We make it clear that while giving effect to the revision order passed u/s 263 of the Act by PCIT, the AO is duty bound to follow the binding decision rendered by the Hon’ble jurisdictional Karnataka High Court for AY 2010-11 - Appeal filed by the assessee is dismissed.
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2021 (12) TMI 1428 - ITAT DELHI
TP Adjustment - Corporate Guarantee Fee - assessee had charged guarantee fee of 0.25% - HELD THAT:- We find that identical issue arose in assessee’s own case in A.Y. 2010-11 [2018 (2) TMI 2030 - ITAT DELHI] and the Co-ordinate Bench of Tribunal decided the issue in favour of the assessee.
Transaction of corporate guarantee fee charged at 0.25% by the assessee from its AEs to be at Arm’s Length rate and accordingly deleted the addition made by TPO. Revenue has not pointed to any distinguishing feature in the facts of the case in the year under consideration and that of the earlier years. Revenue has also not placed any material on record to demonstrate that the aforesaid decision of the Co-ordinate Bench of Tribunal in assessee’s own case for A.Y. 2010-11 & 2012-13 has been stayed/ set aside/ overruled by higher judicial forum. On relying on the decision of the Co-ordinate Bench of Tribunal for A.Y. 2010-11 in assessee’s own case, we hold that the AO was not justified in making adjustment.
Adjustment on account of interest on foreign currency loan u/s 92CA(3) - assessee had advanced loan to its AEs and had charged interest @LIBOR + 224 bps on the advance provided to the AEs - HELD THAT:- We find that identical issue arose in assessee’s own case in A.Y. 2010-11 [2018 (2) TMI 2030 - ITAT DELHI] and the Co-ordinate Bench of Tribunal in assessee’s own case decided the issue LIBOR rate should be used while undertaking the benchmarking analysis in respect of foreign currency loans extended to AE. Well the assessee has charged 250 basis points over an above such benchmark viz. LIBOR. No addition is justified and the entire addition.
Adjustment on account of reimbursement received by the assessee from its AEs - HELD THAT:- It is an assessee’s submissions that the expenses which were reimbursement of all expenditure which were inter alia incurred by the assessee on behalf of the AEs and the same have been reimbursed to the third parties and for which no value addition has been done by the assessee. It is further assessee’s submissions that the reimbursement are on cost to cost basis and transactions were undertaken for commercial expediency and not intended with the expectation of return.
The aforesaid contentions of the AR have not found to be false. We find that in the case of Vedanta Ltd. [2020 (9) TMI 1010 - ITAT DELHI] has held that no mark up is warranted on pass through costs which are inter alia incurred by the assessee and are reimbursement of primary third party expenses initially incurred by the assessee for which no value addition is done by the assessee and which are subsequently reimbursed by the AEs on cost to cost basis. Before us no material has been placed by Revenue to demonstrate that value addition has been done by the assessee and is not in the nature of reimbursement of primary third party expenses which were initially incurred by the assessee. As in the case of Vedanta Ltd. [2020 (9) TMI 1010 - ITAT DELHI] we are of the view that no addition is called for in the present case. Thus the grounds of assessee is allowed.
Disallowance on brought forward Business Losses - HELD THAT:- The issue in the present ground is with respect to disallowance of brought forward business losses A.Y. 2013-14. Before us, AR has submitted that the appeal for A.Y. 2013-14 is listed before the Tribunal and the decision of the Tribunal is thus awaited. Considering the aforesaid facts, we direct the AO to allow the claim of the losses when the same is finally determined and in accordance with law. Thus the Ground of the assessee is allowed.
Disallowance of depreciation on Goodwill - HELD THAT:- We find that issue of depreciation on goodwill also arose in assessee’s own case in A.Y. 2012-13 [2020 (2) TMI 1485 - ITAT DELHI] and the Co-ordinate Bench of Tribunal by relying on the decision of Hon’ble Apex Court in the case of Smifs Securities Ltd. [2012 (8) TMI 713 - SUPREME COURT] held that assessee is eligible to claim depreciation on goodwill. However in that order since the claim of depreciation was made as an additional claim before the Tribunal, the matter was remitted to the AO for examination. In the year under consideration, we are of the view that since the claim was already made in the return of income and was denied by AO and DRP, we are of the view that ratio of the decision rendered by Hon’ble Apex Court in the case of Smifs Securities is squarely applicable to the facts of the case. We are therefore direct the AO to grant the depreciation of such goodwill. Thus the ground of assessee is allowed.
Incorrect computation of Book Profit under MAT - disallowance of depreciation on goodwill amounting to Rs.25,53,577/- to work out the adjusted Book Profit - HELD THAT:- We have herein while deciding the Ground have held the depreciation on goodwill as an allowable expenditure. Therefore in such a situation, we are of the view that once the depreciation is held to be an allowable expenditure, same cannot be added to the book profit more so as u/s 115JB the depreciation which is required to be added back to compute book profits is the depreciation as per the books of account and not as per the Income Tax Act. We are of the view that AO was not justified in making addition of depreciation on goodwill to compute the book profits. We accordingly direct the AO to delete the addition made to book profit u/s 115JB - Thus the ground of assessee is allowed.
Claim of deduction u/s 80-IA in respect to Wind Power Plant (WPP) and Captive Power Plant (CPP) - HELD THAT:- We are also find in the case of Mitesh Impex [2014 (4) TMI 484 - GUJARAT HIGH COURT] has held that if a claim though available in law is not made either inadvertently or on account of erroneous belief of complex legal position, such claim cannot be shut out for all times to come, merely because it is raised for the first time before the appellate authority without resorting to revising the return before the Assessing Officer. It has further held that any ground, legal contention or even a claim would be permissible to be raised for the first time before the appellate authority or the Tribunal when facts necessary to examine such ground, contention or claim are already on record.
We are of the view that the claim of the assessee of the deduction u/s 80IA merits consideration and adjudication by the AO. We therefore set aside the issue back to the file of AO to consider the same on merits after considering the submissions made by assessee and in accordance with law. AO shall be free to call for such information and explanations as he deems fit to adjudicate the claim of the assessee. Needless to state that AO shall grant adequate opportunity of hearing to the assessee and the assessee shall also be at liberty of file such documents, explanations and submissions as deemed fit in respect of its claim. Thus the ground of assessee is allowed for statistical purposes.
Additional depreciation u/s 32(1)(iia) - HELD THAT:- It is the case of the assessee that it did not claim the additional depreciation in the return of income but was claimed before the AO but however AO did not discuss the issue and when the matter was carried before the DRP, DRP also did not allow the claim of additional depreciation. We find that identical issue arose in assessee’s own case in A.Y. 2010-11, the claim was allowed in A.Y. 2012-13 - following the reasoning of the Co-ordinate Bench for A.Y. 2010-11 and for similar reasons set aside the issue back to the file of AO to consider the same on merits after considering the submissions made by assessee and in accordance with law. The AO shall be free to call for such information and explanations as he deems fit to adjudicate the claim of the assessee.
TDS and self assessment tax which was not claimed in the return of income - HELD THAT:- Before us, assessee is seeking the credit for TDS amounting to Rs.2,70,000/- deducted on sale of immovable property and the claim of self assessment amounting to Rs.47,61,334/- which was inadvertently claimed as TDS. Assessee has furnished the copy of the self assessment tax challan in the paper book and the copy of Form 26QB evidencing the deduction of TDS - We find merit in the prayer of Ld AR. We therefore considering the submissions of the Learned AR restore the matter to AO to examine the same as per record and if the claim of the assessee is found to be in order, to allow the claim. Thus the ground of assessee is allowed for statistical purposes.
Deduction of education cess - HELD THAT:- Since the issue being identical to the issue in the case of ExLServices.com (India) Pvt. Ltd [2021 (9) TMI 361 - ITAT DELHI] we therefore for similar reasons hold the expenses on education cess to be allowable and accordingly direct the AO to allow its deduction. Thus the ground of assessee is allowed.
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2021 (12) TMI 1427 - BOMBAY HIGH COURT
Characterization of receipts - entrance fees received from its member - capital receipts or revenue receipts - whether facilities that are made available to the members are done in normal course of its business as the assessee is engaged in the business of race course? - HELD THAT:- ITAT held that there is no dispute to the fact that right from practically the date of incorporation i.e., 1925 onwards, the entrance fee from the members was treated as capital in nature and majority of these orders were passed under Section 143(3) of the Income Tax Act, 1961 - ITAT also relied upon the judgment of this court in CIT vs. Diners Business Services Pvt. Ltd [2003 (4) TMI 56 - BOMBAY HIGH COURT] and held that any sum paid by a member to acquire the rights of a club is a capital receipt. The ITAT has relied upon various receipts and loopholes that the view of the Assessing Officer to treat the entrance fee as revenue receipt and not capital receipt was incorrect.
Tribunal has not committed any perversity or applied incorrect principles to the given facts and when the facts and circumstances are properly analysed and correct test is applied to decide the issue at hand, then, we do not think that question as pressed raises any substantial question of law.
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2021 (12) TMI 1425 - ITAT CUTTACK
Bogus LTCG - Capital Gains Generated on Sale of Penny Stock - realince on third party information - A.O. has accepted the statements recorded by some other officers of the Department in some unconnected proceeding and believed it as a gospel truth against the Appellant and relying on it proceeded to draw inference against the Appellant - genuineness of claim of Long Term Capital Gain u/s 10(38) of the Act for sale of equity shares of listed companies denied - HELD THAT:- AO failed to perform his twin duties that of the investigator and adjudicator resulting in the additions being vitiated in the process.
The entire disallowances in this case is based on third party information gathered by the Investigation Wing of the Department which have not been independently subjected to further verification by the A.O., who has not provided the copy of such statement to the Appellant, thus denying opportunity of cross-examination to the Appellant, who has prima facie discharged the initial burden, the impugned addition made by the A.O. is not sustainable, thus is directed to be deleted.
In the fact of the present case, save and except relying on the statement of so called entry operators, the Revenue could not bring on record any credible evidence which could show that, the Appellant has routed his unaccounted money in the form of bogus capital gain. The A.O. never examined any one of these persons, whose statement relied upon by him in the Assessment order nor did he grant an opportunity for cross-examination except the bald references to the recorded statement. The Revenue could not bring on record any material which could link the Assessee with any wrong doing. When the learned CIT(A) found that, the A.O. has not followed the due procedure of law as stated in the above paragraph, he rightly deleted the impugned additions.
Assessee should be assessed for the correct income and ignorance if any made by the assessee in filing the return but brought to the notice of the Ld. AO before the conclusion of the assessment proceedings should be entertained and also as per the principle of natural justice if any addition is made on the basis of statement of 3rd party, a proper opportunity of cross examination should be given to the affected party and if the same is not done, action of the Ld. AO making additions cannot be held to be justified.
Exemption u/s 10(38) - As assessee has fulfilled necessary conditions to claim the exemption u/s 10(38) of the Act for the Long Term Capital Gain earned from sale of equity shares of M/s Kailash Auto Finance Ltd. and M/s Lifeline Drugs & Pharma Ltd. Therefore, we hold that the assessee has rightly claimed the exemption u/s 10(38) of the Act before the conclusion of assessment proceedings. We, therefore, find no reason to interfere in the finding of ld. CIT(A) and the same is confirmed.
Assessee appeal allowed.
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2021 (12) TMI 1423 - ITAT DELHI
TP Adjustment - exclude M/s. Karvy Consultants Limited from the final list of comparables - HELD THAT:- When the Tribunal had given a specific direction in the first round of litigation to exclude all comparables having annual turnover of less than Rs.5 crores in ITeS segment, in our view, the TPO has exceeded his brief in including M/s. Karvy Consultants Ltd. as comparable in spite of the fact that its turnover from ITeS segment is below the threshold limit of Rs.5 crores.
Pertinently, while deciding assesse’s appeal in assessment year 2002-03, the Tribunal [2012 (3) TMI 208 - ITAT DELHI] had excluded M/s. Karvy Consultants Ltd. as a comparable since its turnover from ITeS segment was less than Rs. 5 crores. Thus, in view of the aforesaid, we do not find any infirmity in the decision of the Commissioner (Appeals) in excluding M/s. Karvy Consultants Ltd. as a comparable. Ground raised is dismissed.
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2021 (12) TMI 1422 - ITAT PUNE
TP Adjustment - comparable selection - HELD THAT:- Companies functionally dissimilar with that of assessee as engaged in the business of providing Software Development Services, Provision of Technical Support Services and Provision of Sales and Marketing support services to its Associate Enterprises (AEs) need to be deselected.
Amortization of goodwill as operating expenses while computing the operating margin of provisions of sales and marketing - contention of the appellant before DRP that amortization of goodwill is treated as operating cost depreciation on the same should be allowed as a deduction u/s 32 - HELD THAT:- DRP rejected the claim by returning finding that the amortization of goodwill debited to P&L account was allowed as a deduction and no claim u/s 32 was made in the return of income. No fallacy in the findings of the Hon’ble DRP as the claim for deduction of depreciation only on AO being satisfied with the fulfillment of the condition laid down u/s 32 of the I.T. Act. Thus, we do not find any merit in the ground of appeal no.5 and 6. Accordingly, the ground of appeal no.5 and 6 stands dismissed.
Denying grant of risk adjustments - HELD THAT:- The assessee has not demonstrated as to how the difference in risk undertaken by a bank in advancing a loan to a borrower as compared to the risk involved in a loan advanced by RBI to a bank or by a bank to another bank is similar to the difference between the risk undertaken by the comparable company and the risk undertaken by the assessee. Hence, the difference between the Prime Lending Rate and the Bank Rate cannot be considered as a reliable and accurate measure of the Risk adjustment required to be made. In the absence of a reliable and accurate measure of the risk difference between the assessee and the comparables, no risk adjustment can be granted.
Deduction of education cess from computation of taxable income - HELD THAT:- we note that the assessee paid Education Cess while computing the taxable income under normal provision of the I.T. Act. The Hon’ble High Court of Bombay in the case of Sesa Goa Ltd. [2020 (3) TMI 347 - BOMBAY HIGH COURT] was pleased to hold that the Education Cess is an allowable expenditure as per the provision of the I.T. Act.
Thus the issue of “education cess‟ is an allowable expenditure as per provisions of Section 40(a)(ii) of the Act and placing reliance on the decision (supra.), we direct the Assessing Officer to allow deduction in respect of Education Cess paid by the assessee. Accordingly, the additional ground of appeal no.1 raised by the assessee is allowed.
Levy of interest u/s 234C - HELD THAT:- This additional ground of appeal is consequential in nature. Once the default within the meaning of section 234C takes place, levy of interest is automatic and mandatory, is not open to challenge in the appeal proceedings. Hence, we do not find any merit in the said additional ground of appeal no.2 and the same is dismissed.
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2021 (12) TMI 1421 - ITAT BANGALORE
TP Adjustment - Comparable adjustment - application of turnover filter - HELD THAT:- We hold that the 8 companies listed in Sl.No.(a) to (i) in paragraph -13 of this order, which the assessee seeks exclusion and whose turnover in the current year is more than Rs.200 Crores should be excluded from the list of comparable companies. This Tribunal in the case of Barracuda Networks India Private Limited [2022 (5) TMI 322 - ITAT BANGALORE] has also reiterated the application of turnover filter on the same lines as indicated above.
This Tribunal in the case of Barracuda Networks India Private Limited [2022 (5) TMI 322 - ITAT BANGALORE] has excluded R.S.Software (India) Ltd., from the list of comparable companies on the ground that the related party transaction of this company was above 15%. Following the said decision, we direct exclusion of R.S.Software (India) Ltd. from the list of comparable companies.
Determining the ALP, the TPO did not allow proper adjustment towards Risk Adjustment, Capacity utilization adjustment and working capital adjustment - We find that identical reasons assigned by the TPO for not allowing working capital adjustment was a subject matter of consideration by this Tribunal in the case of Barracuda Networks India Private Limited [2022 (5) TMI 322 - ITAT BANGALORE] and this Tribunal following the decision in case of Huawei Technologies India Pvt. Ltd. [2018 (10) TMI 1796 - ITAT BANGALORE] held that working capital adjustment has to be allowed to the assessee and directed the TPO/AO to examine the claim of the assessee in the light of the details of working capital adjustment furnished by the assessee which is given as annexure to this order.
Grant of risk adjustment - Though the assessee has given a general note with regard to assessee’s right to claim risk adjustment while computing ALP, no specific details have been given with regard to allowing risk adjustment. In this scenario, we are of the view that it would be just and appropriate to remand the issue to AO/TPO with a direction to the assessee to furnish computation of risk adjustment and the basis of claim for deduction on account of risk adjustment. The TPO will consider the same after affording the assessee opportunity of being heard and allow adjustment on account of risk, in accordance with law. In this regard, we find that the DRP has not called for the computation of manner of risk adjustment and has merely proceeded to hold that the risk adjustment cannot be granted unless it is established that differences has a material effect on the margin of the comparable companies and computation can be made on reliable data without calling for working of risk adjustment. Such conclusions in our view cannot be sustained.
Adjustment towards capacity utilization - In case appropriate adjustments cannot be made to the uncontrolled transaction, due to lack of data, then in order to read the provisions of transfer pricing regulations in harmony, the adjustments should be made on the tested party. On the question of the data and method of computation of under utilization capacity adjustment, the tribunal held that the claim depends on acceptability of such adjustments being concerted, being reasonably accurate in mechanism for such adjustments, and as long as such an adjustment mechanism can be found, no objection can be taken to the adjustment. The tribunal held that once it is accepted that the assessee has underutilized capacity during the subject AY and is accordingly factually and legally eligible to an adjustment for the same, such a benefit cannot be denied to the assessee only for the reason that the data about comparable companies is not available. Requiring the assessee to produce such a data which is not available in public domain would tantamount to requiring the Appellant to perform an impossible task. The only way to get the data in the current case, would be where the TPO collates the same from the comparable companies by exercising his powers under section 133(6)
We are of the view that it would be just and appropriate to set aside this issue to the AO/TPO by directing the assessee to furnish required details and in the event of the assessee not being in a position to get the required details, request the TPO to exercise his powers under section 133(6) of the Act and call for the required details form the comparable companies and if he finds that the capacity utilization differs between the assessee and the comparable companies, to allow appropriate adjustment as per the relevant provisions of law and in accordance with the guidelines laid down above.
Selecting foreign AE as a tested party was an appropriate method of determining ALP and the Revenue authorities were not justified in rejecting the plea of the assessee - The facts of the Assessee’s case is similar to the case decided by the Hon’ble Madras High Court Virtusa Consulting Services Pvt. Ltd [2021 (2) TMI 378 - MADRAS HIGH COURT] in as much as the Assessee had in its Transfer Pricing Study chosen the foreign AE as a tested party and the TPO refused to examine the said claim. The decision of the Hon’ble Madras High Court being the only decision available on the issue of a High Court, judicial discipline requires us to follow the same in preference to the decisions of Tribunal to the contrary. Following the aforesaid decision of the Hon’ble Madras High Court, we remand the issue with regard to foreign AE being chosen as a tested party to the TPO for fresh consideration. The relevant ground of appeal of the assessee in this regard is treated as allowed for statistical purposes.
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2021 (12) TMI 1420 - ITAT BANGALORE
Validity of draft assessment order passed in violation section 144C - AO treating the draft order as final order by issuing the notice of demand under section 156 the Act and notice initiating penalty proceeding under section 271(1)(c) - HELD THAT:- As per section 144C of the Act, it is mandatory for the Ld.AO to pass Draft Assessment Order in accordance with the procedure laid down therein. We have noticed that the coordinate Bench in the case of Suretex Prohphylactics (India) Ltd., [2021 (4) TMI 120 - ITAT BANGALORE] considered similar issue.
In the present case, the AO passed the draft assessment order u/s. 143(3) r.w.s. 144C(13) of the Act on 21.12.2016 which is accompanied with demand notice issued u/s. 156 of the Act dated 21.12.2016 and it is also noticed that in the draft assessment order itself, the AO recorded the statement as stating that Demand notice issued accordingly. Penalty proceedings u/s. 271(1)(c) are initiated separately for the additions made.
Being so, it is observed that the draft assessment order passed by the AO is without following the due process of law as enumerated in the judgment in the case of Vijay Television [2014 (6) TMI 540 - MADRAS HIGH COURT]
Since the order passed by the AO is without following the due process of law and it cannot survive in the eyes of law, accordingly we quash the impugned assessment order before us. Appeal by the assessee is allowed.
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2021 (12) TMI 1418 - ITAT DELHI
Income deemed to accrue or arise in India - receipts of the appellant are in the nature of "Royalties" within the ambit of Explanation 2 to section 9(i)(vi) and Article 12(3) of the India-USA Double Taxation Avoidance Agreement ("DTAA") - HELD THAT:- We find force in the contention of the ld. counsel for the assessee. A similar quarrel was considered and decided by this Tribunal [2021 (10) TMI 1389 - ITAT DELHI] we direct the Assessing Officer to treat the income of the assessee as not liable to tax in India. Appeal of assessee allowed.
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2021 (12) TMI 1415 - KARNATAKA HIGH COURT
Validity of Assessment Order - Necessity of following the mandatory procedure prescribed u/s 144C and 144C(5) to C(13) and without awaiting directions from the DRP - HELD THAT:- The material on record indicates that the year 2021 being a non-leap year comprising of only 28 days and the Draft Assessment Order having been issued on 16.02.2021, the petitioner had time upto a period of 30 days i.e., upto 18.03.2021 to file objections as required u/s 144C(2)(b) - petitioner filed objections before both the DRP as well as the Assessing Officer on 16.03.2021 i.e., within the prescribed period of 30 days.
Respondent No.1 – AO clearly fell in error in neither considering the objections nor awaiting directions from the DRP and has erroneously proceeded to pass the impugned Assessment Order dated 26.04.2021, which is clearly in violation and contravention to the mandatory procedure prescribed under Section 144(C)5 to (C)13 of the IT Act and without awaiting further directions from the DRP and as such, the impugned Assessment Order dated 26.04.2021 deserves to be quashed.
Petitioner is also right in his contention that during the pendency of the present petition, the DRP has passed the impugned order at Annexure – Q dated 24.11.2021 disposing of the case on the sole / simple ground that the matter is pending before this Court, which is clearly erroneous in as much as in view of my finding above that the impugned Assessment Order itself is illegal, arbitrary and deserves to be quashed, the subsequent order at Annexure – Q passed by the DRP also deserves to be quashed and DRP be directed to proceed further in accordance with law as contemplated under Section 144(C)5 to (C)13 of the IT Act by considering the objections dated 16.03.2021 filed by the petitioner.
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2021 (12) TMI 1414 - ITAT SURAT
Assessment u/s 153C - sufficient incriminating material seized during the search action - During the search, various evidences were collected, which explained inter alia, the modus operandi of the "business of providing accommodation entries in the nature of bogus sales and unsecured loans" - HELD THAT:- Admission was given when corroborative evidence was unearthed during the course of search. All these clinching and corroborative evidences along with the statements given during the search constitute incriminating evidence against the appellant. Even the appellant, Shri Anoop Y. Jain (part of statement reproduced by AO in para 5 of the assessment order), Shri Manish S Jain and Shri Sachin Pareek had accepted the entire modus operandi during the course of search in statement recorded u/s. 131 of the Act.
In this case, therefore, there are ample incriminating evidences/documents recovered during the course of search. Even otherwise, the Hon'ble Delhi High Court in the case of M/s. Nau Nidh Overseas Pvt. Ltd. [2017 (3) TMI 108 - DELHI HIGH COURT] has held that statement of a third party recorded during course of search proceedings u/s 132(4), constitutes 'material on record' for purposes of section 153C of the Act. This way, ld DR reiterated the findings of ld CIT(A).
We note that issue under consideration is squarely covered against the assessee by the judgment of Division Bench in 1, in the case of Shri Rajendra Sohan Lal Jain [2021 (12) TMI 867 - ITAT SURAT] whereby the issue relating to Commission @ 0.02%, Commission on import @0.20% and Commission on loan @ 0.50% were adjudicated by upholding the order of ld CIT(A) as held no evidence is filed by the assessee on record to prove the fact that the assessee entered into hedging contract with the Banker, the evidence found in the form of e-mail and other evidences show the facts otherwise. Therefore, the submissions made by the assessee do not inspire confidence. None of the case laws relied by the ld AR for the assessee is helpful to the assessee as there was sufficient incriminating material seized during the search action on the assessee on the basis of which it is clearly proved that the assessee is in the business of entry provider.
Thus we dismiss the appeal of the assessee.
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2021 (12) TMI 1411 - GUJARAT HIGH COURT
Reopening of assessment - applicability of the provisions of sections 148 and 148 A of the Income Tax Act, the new provisions which have been inserted by Finance Act 2021 with effect from 01.04.2021 - According to the petitioner, the Financial Act has substituted the provision of section 147 with effect from 01.04.2021 and the time limit has been set to issue the notice under section 148 which is extended by Notification No.20 of 2021 and 38 of 2021, there cannot be two parallel provisions applicable simultaneously - validity of Notification No.20 of 21 issued by the CBDT by purportedly exercising the powers conferred by section 3 (1) of the Taxation and Other Laws (Relaxation and Amendment of Certain Provisions) Act, 2020.
HELD THAT:- Issue NOTICE to the respondents, returnable on 03.01.2022. Pleadings be completed and office of learned Additional Solicitor General shall be served through e-mail as well as speed post.
As the petitioner has made out a prima facie case, ad-interim order in terms of paragraph 7(d) till the returnable date.
Direct service is permitted. Service be effected directly by the petitioner through speed post. Soft copy shall be served upon the offices of the learned senior advocate, Mr.Manish Bhatt and learned Additional Solicitor General of India.
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2021 (12) TMI 1410 - GUJARAT HIGH COURT
Reopening of assessment - applicability of the provisions of sections 148 and 148 A of the Income Tax Act, the new provisions which have been inserted by Finance Act 2021 with effect from 01.04.2021 - According to the petitioner, the Financial Act has substituted the provision of section 147 with effect from 01.04.2021 and the time limit has been set to issue the notice under section 148 which is extended by Notification No.20 of 2021 and 38 of 2021, there cannot be two parallel provisions applicable simultaneously - validity of Notification No.20 of 21 issued by the CBDT by purportedly exercising the powers conferred by section 3 (1) of the Taxation and Other Laws (Relaxation and Amendment of Certain Provisions) Act, 2020.
HELD THAT:- Issue NOTICE to the respondents, returnable on 03.01.2022. Pleadings be completed and office of learned Additional Solicitor General shall be served through e-mail as well as speed post.
As the petitioner has made out a prima facie case, ad-interim order in terms of paragraph 7(d) till the returnable date.
Direct service is permitted. Service be effected directly by the petitioner through speed post. Soft copy shall be served upon the offices of the learned senior advocate, Mr.Manish Bhatt and learned Additional Solicitor General of India.
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