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Income Tax - Case Laws
Showing 41 to 60 of 687 Records
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2017 (2) TMI 1473 - ITAT MUMBAI
Admission of additional evidences by CIT-A - No opportunity of examination, verification and seeking AO’s comments - denial of natural justice - HELD THAT:- Assessee filed large number of additional evidences to support its contentions before the learned CIT(A) for the first time during appellate proceedings - CIT(A) admitted theses additional evidences filed with respect to all the three afore-stated additions made by the AO to the income, wherein all the three afore-stated additions stood deleted by CIT(A) on appreciation on merits of these large number of additional evidences filed by the assessee with learned CIT(A) vide his appellate order dated 31-03- 2015.
These large number of additional evidences so submitted by the assessee for the first time during the course of appellate proceedings before the learned CIT(A) were admitted by the CIT(A) without giving and specifying any reasoning and justification as to the limbs under which as contemplated under Rule 46A(a) to (d) of Income-tax Rules, 1962 these additional evidences were admitted by him while adjudicating first appeal of the assessee as no justification were given by the assessee for non-filing of these evidences before the learned AO. Further, these large number of additional evidences were also not forwarded by learned CIT(A) to the A.O. for giving an AO an opportunity of examination, verification and seeking AO’s comments as no remand report was called by the learned CIT(A) as contemplated u/r 46A(3) of Income-tax Rules,1962. The ld. CIT(A) has to record reasons in writing before accepting additional evidences filed before him by the assessee for the first time as contemplated u/r 46A(2) of Incometax Rules, 1962, which has not been done by learned CIT(A) in the instant appeal - Decided in favour of revenue for statistical purposes.
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2017 (2) TMI 1472 - ITAT MUMBAI
Penalty u/s. 271(1)(c) - assessee is a trader in fabrics but on survey u/s.133A it was found engaging only in issuing accommodation sale bills - HELD THAT:- We found that the issues in controversy regarding penalty has been decided in the assessee group case in the case of Smt. Hema R. Gupta and Shri Nilesh Rakesh Kumar Gupta [2016 (11) TMI 448 - ITAT MUMBAI] wherein the similar kind of penalty has been deleted by the tribunal and held this is not a fit case where penalty can be imposed under section 271 (1 )(c) of the Act for concealment of income or for furnishing incorrect particulars of income. We, therefore, set aside the impugned order and allow the grounds of appeal of the assessee.
Penalty levied on the alleged unexplained loan - HELD THAT:- As decided in own case [2016 (9) TMI 1243 - ITAT MUMBAI] Assessing Officer has disallowed the deduction on ground that assessee had not substantiated the claim. But, Assessing Officer failed to consider that loans are opening balance which were accepted in 2005-06 - Assessee submitted that assessee had provided all the details available Assessing Officer. Hence, Assessing Officer cannot state that assessee failed to substantiate the claim. So, the deduction claimed by assessee is requested to be allowed. - Decided in favour of assessee.
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2017 (2) TMI 1471 - ITAT HYDERABAD
TP Adjustment - comparable selection - HELD THAT:- TCS e-Serve Limited - Following the turnover filter as well as taking note of the fact that it owns and possesses brand value and intangibles as compared to the assessee which does not own such assets, we direct that this company be excluded from the list of final comparables.
M/s. E-clerx Services Ltd is to be excluded on the ground that it is a KPO.
M/s. Infosys Ltd to be excluded on exceptional circumstance and dissimilar functionality and operating in a different business strategy as relying on M/s Hyundai Motors India Engineering P. ltd [2015 (11) TMI 1648 - ITAT HYDERABAD]
Disallowance of an amount towards TDS payable on contracts and towards salaries invoking the provisions of Section 43B - HELD THAT:- Disallowance made by the AO is not according to the provisions of law. The TDS if any not paid or short paid, the same can be recovered by separate proceedings but the same cannot be disallowed u/s. 43B, as the said TDS is not allowable deduction to assessee. It is out of the payments payable to contractors/salaries, TDS is being deducted on behalf of the government. Since the TDS amount itself is not a claim made u/s. 37(1), disallowance of the same does not arise. AO is directed to delete the same.
Interest on short term deposit - contention of the Ld. Counsel that the amount as shown in Form 26AS was only ₹ 4,05,38,239/-, whereas assessee offered ₹ 4,09,27,183/- which was more than amount shown in Form 26AS - HELD THAT:- We have examined the petition u/s. 154 filed before the AO as well as the contentions before the DRP and the copy of the Form 26AS filed before us at page 76. The basis for the AO’s observation of higher amount is not forthcoming from the record. In spite of direction from the DRP, AO has not followed the verification or the petition u/s. 154 was disposed-off. We are of the opinion that there is no basis for making such addition, after verification of the details filed by the assessee. Accordingly, AO is directed to delete the amount.
Short TDS credit - HELD THAT:- Assessee claimed an amount of ₹ 67,79,643/- in the return of income, whereas the AO allowed only ₹ 63,27,723/- in the final order without giving any basis for the same. AO is directed to verify the record and allow the claim after due verification. Ground is allowed for statistical purposes.
Disallowing the claim of set off of brought forward losses - HELD THAT:- There is no discussion in the order about the set off of losses and inspite of directions from the DRP, the same were not allowed. Ld. Counsel fairly admitted that these losses are subject to the orders in earlier years, accordingly, we direct the AO to verify the past record and determine the losses to be brought forward and allow the set off as per the provisions of law. Ground is considered allowed.
Levy of tax and interest on distributable profit u/s. 115-O - HELD THAT:- There is no basis for levy of interest on the amount as was done by the AO. Even if one day is excluded, then, the period of payment will be within the statutory provisions as provided. Further, as seen from the part B of Form 26AS placed on record, it indicate that amount of ₹ 5,77,830/- pertains to dividend tax was remitted on 6th January, 2010 itself. Since the payment was within the limits as provided, question of levy of interest does not arise. Accordingly, ground of assessee is allowed. AO is directed to withdraw the levy of taxes and interest.
Levy of interest u/s. 234A, 234B & 234C - HELD THAT:- Inspite of specifically bringing it to the notice of the AO by way of an application u/s. 154 filed on 28th January, 2015, AO has not taken any steps to examine nor withdraw the interest so levied. Since the return filed was with in the due date, we are of the opinion that interest u/s. 234A is not leviable. With reference to other interests, AO is directed to examine whether any interest is leviable as per the provisions of the Act, after giving due credit to the taxes paid/claimed. This aspect should be examined by the AO in detail and if any interest is to be levied, the working should be provided so that assessee can have knowledge of the same, so as to contest if required. With these observations, the ground is considered allowed for statistical purposes.
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2017 (2) TMI 1470 - ITAT DELHI
Revision u/s 263 - assessee submitted that a reasonable and proper opportunity of being heard was not provided by the ld. CIT - HELD THAT:- CIT in the body of the impugned order categorically stated that the assessment order passed by the Assistant Commissioner, Circle-2, Meerut appears to have been passed without proper investigation and inquiry from that observation.
From the said observation of the ld. CIT, it is clear that he was not sure how and in what manner the assessment order passed was without investigation and inquiry done by the AO, the word “it appears” used by him shows that he was not sure. CIT stated that Sh. Rajiv Jain, CA attended on behalf of the assessee with whom the issues were discussed. Nowhere it is stated that what were the submission of the assessee and why those were not accepted.
CIT admitted that the assessee had furnished the details relating to admissibility of expenses on foreign tour, repairs & maintenance, account of vehicles but no findings have been given on the said details, neither any remand report was sought, it is also not directed which inquiry was to be made by the AO. He simply directed the AO to examine the issue again and to pass a fresh order. In our opinion, the order passed by the ld. CIT is a non-speaking order. We, therefore, deem it appropriate to set aside the impugned order to the file of the ld. CIT for deciding the issue afresh in accordance with law - Appeal of the assessee is allowed for statistical purposes.
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2017 (2) TMI 1469 - ITAT MUMBAI
Disallowance of data processing cost u/s.40(a)(i) - CIT(A) deciding the issue in favour of the assessee - HELD THAT:- Findings of CIT(A) and relying on the decision of the Tribunal in assessee’s own case, we do not find any reason to interfere in the order of CIT(A) for deleting disallowance of data processing cost.
Taxability of interest paid to Head Office - HELD THAT:- CIT(A) while deciding the issue in favour of the assessee for the year under consideration has relied on the Order passed by the Tribunal in the assessee’s own case for the Assessment Year 2003-04.
Disallowance u/s.14A for earning exempt income - Contention of assessee that no expenditure has been incurred or claimed by the Indian Branch in respect of interest earned by the Head Office (which is not taxable)HELD THAT:- The issue has been decided in assessee’s favour by the Mumbai ITAT, in assessee’s own case for Assessment Years 2004-05, 2005-06, 2007-08 and 2009-10. The Indian Branch has not received / earned any interest income from its Head Office or other foreign branches and hence there can be no question of the interest expense in question being incurred to earn any exempt income and hence the same cannot be disallowed u/s.14A. The proposition that no disallowance can be made u/s.14A of the Income-tax Act,1961 in case there is no exempt income is now well settled and one can refer to the following cases wherein the said proposition has been upheld in CIT v/s. Delite Enterprises [2009 (2) TMI 498 - BOMBAY HIGH COURT].
We restore the matter back to the file of the AO to find out if assessee was in receipt of any exempt income vis-à-vis interest paid to head office. If the AO found that assessee was not in receipt of any exempt income, no disallowance is to be made. Accordingly AO is directed to decide afresh after verification.
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2017 (2) TMI 1468 - MADRAS HIGH COURT
Broken period interest - ITAT treated it as revenue expenditure - substantial question of law - HELD THAT:- The question is a substantial question of law that merits consideration. Accordiongly, we admit the same. The finding of fact is to the effect that securities are held as stock-in-trade and that the income from sale therefrom is offered to tax as revenue. In the light of the admitted facts as seen from the order of the authorities, the expenditure incurred by the assessee towards broken period is liable to be allowed as revenue expenditure. There is no infirmity in the order of the Tribunal in this regard.
Question stands answered in favour of the assessee, following the judgment of the Bombay High Court in American Express International Banking Corporation Vs. CIT [2002 (9) TMI 96 - BOMBAY HIGH COURT ] -The appeals are dismissed.
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2017 (2) TMI 1467 - ITAT MUMBAI
Correct head of income - premium received on account of the tenancy rights - capital gain v/s income from other sources - AO taxed the premium on transfer of tenancy rights as capital gains and also allowed deduction u/s 54EC - LD THAT:- Respectfully, following coordinate Bench decision in assessee’s own case [2016 (5) TMI 1532 - ITAT MUMBAI] and considering the facts of the case, we are of the view that the CIT(A) has rightly directed the AO to assess this receipt of premium as capital gain taxable in the hands of the assessee. Even otherwise, this issue is covered in favour of assessee by the principle of consistency in view of the decision of Radha Soami Satsang [1991 (11) TMI 2 - SUPREME COURT] and Gopal Purohit [2010 (1) TMI 7 - BOMBAY HIGH COURT]. We find no infirmity in the order of CIT(A) and hence the same is confirmed. These four appeals of Revenues are dismissed.
Reopening of assessment u/s 147 - return was processed under section 143(1) - HELD THAT:- Admittedly, the reopening was beyond four years and no assessment was framed under section 143(3) of the Act. The only processing was done under section 143(1) of the Act for these assessment years. Accordingly, we are of the view that no opinion was formed and assessee case does not fall under the proviso of section 147 of the Act. Accordingly, we confirm the finding of CIT(A) and this issue both the appeals of assessee is dismissed. The appeals of assessee are dismissed.
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2017 (2) TMI 1465 - SC ORDER
Rejection of application u/s 245R(2) - advance ruling - When can a question be stated to be 'pending'? - HELD THAT:- Special Leave Petition against the relied upon judgment has been dismissed by the order of HYOSUNG CORPORATION & ANR. [2016 (12) TMI 1725 - SC ORDER]. Thus the present Special Leave Petition is also dismissed.
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2017 (2) TMI 1463 - KARNATAKA HIGH COURT
Sanction of Scheme of Amalgamation recalled - Revenue will suffer loss as it cannot recover tax on the income of the Transferor Company - Both the companies suffering losses - Provisions relating to carry forward and set off of accumulated loss and unabsorbed depreciation allowance in amalgamation or demerger u/s 72A - HELD THAT:- No bar either in the Companies Act, or in the Income Tax Act, which prevents the two companies, which are suffering losses, from amalgamating.
Section 72A of the Act deals with the post-amalgamation scenario. By no stretch of imagination, does Section 72A of the Act debar two companies from amalgamating. In fact, Section 72A of the Act deals with the relationship between the Income Tax Department, and the assessee in the post-amalgamated period. Therefore, the contention being raised by the learned counsel for the Revenue that under Section 72A of the Act, amalgamation between two companies suffering from losses is prohibited, the said argument is highly misplaced.
Since Section 72A of the Act does entitle the amalgamated company to claim set off and carry forward of losses and allowance depreciation, therefore, if any benefit accrues to the amalgamated Company, that benefit cannot be denied ostensibly on the ground that it is the Revenue Department that would suffer. Hence, the contention being raised by the learned counsel for the Revenue that in case the amalgamation were allowed, it is the Revenue Department that would suffer, as it would not be able to recover the tax, as it will be entitled to, even the said argument is unacceptable.
Almost three years have gone by since the amalgamation was permitted by this Court. To turn the historical clock back to the year 2014, may cause injustice to the amalgamated Company. Therefore, it is too late for the Revenue Department to argue that the order dated 4.4.2014 should be recalled by this Court.
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2017 (2) TMI 1461 - ITAT MUMBAI
Penalty u/s. 271(1)(c) - assessee has suppressed its income by not considering specific provisions of section 50C for computation of capital gains - HELD THAT:- Assessee has furnished the registered sale deed. The assessing officer has made the addition by invoking deeming provisions of section 50C. No case has been made out of any incriminating document etc. being found. In such situation assessee cannot be held guilty of furnishing of inaccurate particulars of income or concealment of income. Further more the conduct of the assessee cannot be held to be contumacious so as to warrant levy of penalty. This proposition is also supported by the decision rendered in the case of Hindustan steel Ltd vs state of Orissa [1969 (8) TMI 31 - SUPREME COURT] - Decided in favour of assessee.
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2017 (2) TMI 1460 - ITAT BANGALORE
TP Adjustment - comparable selection - Functional similarity - HELD THAT:- Alpha Geo India Ltd. - Since the profile of this company is not similar to the assessee's profile, this company cannot be called a good comparable for determining the ALP. Therefore, we are of the view that this company has to be excluded from the list of comparables on account of functional difference.
Celestial Labs Ltd. - Since this company is also functionally different from the assessee company, it can also not be compared as a good comparable. Accordingly, this company has to be excluded from the list of comparables.
Vimta Labs Ltd. - This company offers wide spectrum of services and in the absence of proper revenue/segmental break-up, the company should not be considered as a comparable. The bifurcation of revenue is not available and for reference, our attention was invited to page 496, where the profile and services of this company was mentioned and from a careful perusal of these details of profile and services, we are of the view that this company is also functionally different, therefore cannot be taken as a good comparable. We accordingly direct the TPO/AO to exclude this company from the list of comparables.
Comparables Research Support International Ltd., Neeman Medical International Ltd., Pfizer Ltd. (Seg.), Choksi Laboratories Ltd. and Tata Life Sciences Ltd. - Though assessee has contended that these comparables are functionally similar and can be called to be good comparables, but it requires a proper verification by the TPO. Accordingly, we restore the matter to the AO/TPO to examine these comparables and if they are found to be good comparables, they can be considered for determining the ALP of the international transactions. The TPO is also at liberty to search more comparables which are similar to assessee's profile in order to determine the ALP of international transactions. Appeal of the assessee stands allowed for statistical purposes.
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2017 (2) TMI 1458 - ITAT CHENNAI
Validity of Reopening of assessment u/s 147 - objection raised by the Revenue Audit regarding the allowability of loss on forward contract due to trade in foreign exchange derivatives - independent application of mind or not? - whether recording of the reasons and consequent issuance of notice u/s.148 was on the basis of an independent opinion of the Assessing Officer on the question of law and facts which may have been brought to her notice by the audit party ? - HELD THAT:- There is no other material in the hands of AO to reopen the assessment after concluded the assessment u/s.143(3) of the Act and to issue of notice u/s.148 of the Act on 214.03.2014.
It is well settled principle that the AO can form an independent opinion on an issue which may have been brought to his notice by Audit Party and seek to reopen the assessment , provided it is AO’s independent belief that income chargeable to tax has escaped assessment. Reference in this aspect may be made to the decision of Adani Exports [1998 (12) TMI 51 - GUJARAT HIGH COURT] that though the audit objection may serve as information, the basis of which the Income-tax Officer can act, the ultimate action must depend directly and solely on the formation of belief by the Income- tax Officer on his own where such information passed on to him by the audit that income has escaped assessment.
AO has explained before the Audit party that loss and cancellation of forward contract is an allowable expenditure ad not a speculation loss. Later on the same reason, when the audit party did not accept the version of the AO, the AO opted to reopen the concluded assessment. This is nothing but there is no independent formation of opinion by the AO and it is only on account of compulsion exerted by the Revenue Audit Party. It cannot be a reason for reopening of the assessment. In other words, in the absence of independent belief of AO to hold that, income chargeable to tax has escaped assessment, no assessment can be re-opened at the instance of the audit party. See C. SESHACHALAM CHETTY (DECD) [1999 (11) TMI 49 - MADRAS HIGH COURT] - Decided in favour of assessee.
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2017 (2) TMI 1456 - ITAT KOLKATA
Subsidy receipt - Addition on receipts of Industrial Promotion Assistance(IPA) - revenue or capital receipts - whether sum received by the assessee as Industrial Promotion Assistance under the West Bengal Incentive Scheme 2000 for establishing the industry in the state of West Bengal which is disbursable by way of sales tax paid is a capital receipt not chargeable to tax? - HELD THAT:- As decided in S M/S. BUDGE BUDGE REFINERIES LTD. [2016 (10) TMI 1307 - ITAT KOLKATA] - Keeping in view the objects of the West Bengal Incentive Scheme 2000 and various judicial precedents relied upon hereinabove, we hold that the subsidy is to be treated as capital receipt not chargeable to tax in the hands of the assessee and not in the years under appeal
Sole purpose behind the grant of assistance is to tide over the financial crisis and promotion of industries and that both these activities are related to capital field and cannot be linked up with day to day operations of the appellant in any manner. Respectfully treat WBIPA as a capital receipt and direct the A.O to delete the addition - Accordingly, the grounds raised by the revenue dismissed.
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2017 (2) TMI 1455 - ITAT BANGALORE
TP Adjustment - adjustment to the transfer price of the Appellant in respect of its IT enabled support services in the nature of back office and customer support services - rejection of comparability analysis of the Appellant in the TP documentation and accepting the comparability analysis performed by the learned TPO in the TP Order - Disregarding application of multiple year/prior year data - HELD THAT:- Order on TP issue is very cryptic and not a speaking and reasoned order. Therefore, We feel it proper to restore the matter regarding TP issue to his file for a fresh decision. We order accordingly. The TP issue is restored back to his file with a direction that he should pass a speaking and reasoned order after affording adequate opportunity of being heard to both sides.
Interest income earned from debts - CIT(A) not considering the income from services in the nature of interest on the delayed payments made by associated enterprises for the provision of IT enabled services as an operating income and hence erred in computing the effective mark-up on total, cost earned by the Appellant - HELD THAT:- Delhi Bench rendered in the case of EFunds International (P.)Ltd. v. Dy. CIT [2008 (4) TMI 354 - ITAT DELHI-F] wherein it was held by the Tribunal that the assessee was not eligible to claim deduction u/s 10A of the IT Act, 1961 on the interest income earned by the assessee from the housing loans advanced to its employees because it did not form part of the business of the assessee. CIT(A) as noted by him in his order, we find no infirmity in the order of the ld. CIT(A) on this issue and since the working capital adjustment has already been allowed by the TPO, we are of the considered opinion that non interference is called for in the order of the ld. CIT(A) on this issue. Accordingly, ground no.5 of the assessee is rejected.
Working capital adjustment - HELD THAT:- Working of risk adjustment claimed by the assessee is not available in the TP study and is not made available before the TPO or before the ld. CIT(A) or before us. This is also true that apart from various risk faced by uncontrollable comparables, the assessee providing services to AE is also having risk of single customer and, therefore, in the absence of any scientific working in respect of the claim for risk adjustment, the same cannot be considered and allowed and therefore, we are of the considered opinion that the ld. CIT(A) was not justified in holding that the assessee is entitled to risk adjustment as per prevailing- norms which shall be worked out by the TPO and granted to the assessee. If such adjustment was possible to be worked out in the facts of the present case, the ld CIT(A) should have worked out himself instead of asking the TPO to work it out. Such working is not made available before us also by the ld. AR of the assessee and therefore, we reverse the order of the ld. CIT(A) on. this issue and restore the order of the AO. Accordingly, ground no.2 of the revenue is allowed.
Deduction u/s 10A - computation of deduction - HELD THAT:- This issue is fully covered in favour of the assessee by the judgment of the Hon'ble Karnataka High Court rendered in the case of CIT v. Tata Elxsi Ltd. [2011 (8) TMI 782 - KARNATAKA HIGH COURT] wherein it was held that Total Turnover is sum total of Export Turnover and Domestic Turnover and therefore, if an amount is reduced from export turnover then total turnover also goes down by the same amount automatically. - Decided against revenue
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2017 (2) TMI 1454 - RAJASTHAN HIGH COURT
Reassessment proceeding - HELD THAT:- Appeal is admitted on the following substantial questions of law:
“(a) Whether under the facts and circumstances of the case the ld. Tribunal was justified in not declaring the reassessment proceedings and the consequential assessment order passed thereto as nullity?
(b) Whether under the facts and circumstances of the case the ld. Tribunal has not committed grave legal error in setting aside the entire quantum proceedings?”
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2017 (2) TMI 1453 - MADHYA PRADESH HIGH COURT
Deposit of Provident Fund under the Employees Provident Fund Scheme - additions made by the Assessing Officer have been interfered with by the Appellate Authority and, therefore, this appeal by the department - HELD THAT:- We find that the learned tribunal [2015 (7) TMI 1350 - ITAT JABALPUR] of the aforesaid order had given reasons for allowing the appeal. Today before us an order of assessment dated 30.12.2010 is produced, whereby in a proceeding held under Section 143(3) for the year 1.4.2003 to 31.03.2014 also the Assessing Officer has accepted the same principle and has decided the assessment order in favour of the respondent assessee.
No substantial question of law involved, warranting consideration, the appeal is, therefore, dismissed.
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2017 (2) TMI 1452 - ITAT INDORE
Addition on account of interest payments - borrowed funds have been diverted for non business purposes - Whether the assessee had sufficient capital and interest-free funds? - AO found that the assessee has advanced interest bearing funds to some of persons from which either no interest is charged or the same is charged at lesser rate whereas the assessee has paid interest @ 12% on loan taken - HELD THAT:- A.O. has failed to establish that interest free advances to above stated parties were out of interest bearing funds. It is the contention of the assessee that it had sufficient non-interest bearing funds to the tune of ₹ 34.42 crores as per balance sheet as on 31.03.2010 as against interest bearing funds offered at ₹ 10.74 crores. Hence, interest-free funds of ₹ 34.52 crores have been utilised for giving interest-free advances to aforesaid above parties on which no interest was charged. Thus interest-free advance were given out of interest-free funds available with the assessee during the year for which sufficient interest-free funds were available. Therefore, we are of the view that the Ld. A.O. has failed to establish that interest free advances to above stated four parties were out of interest bearing funds.
We find that the AO has not been able to establish the nexus between interest bearing funds utilized for non business purpose as held in SA BUILDERS LTD. VERSUS COMMISSIONER OF INCOME-TAX [2006 (12) TMI 82 - SUPREME COURT].
In CIT vs. Reliance Utilities & Power Ltd. [2009 (1) TMI 4 - BOMBAY HIGH COURT]wherein it was held that if there was funds available both, interest-free and overdraft and or/loans taken, then a presumption would arise that investments would be out of the interest-free funds generated or available with the company, if the interest free funds were sufficient to meet the investments. In the present case, the sufficient interest free funds were available at the disposal of the assessee. Therefore, presumption would go in favour of the assessee that the interest free funds were given out of interest free funds available at the disposal of the assessee as per balance sheet of the assessee. - Decided in favour of assessee.
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2017 (2) TMI 1449 - ITAT CHENNAI
TP Adjustment - comparable selection - Functional dissimilarity - HELD THAT:- Assessee company is engaged in the manufacture of tube pipes automatic components and tubular products primarily in the auto industry thus companies functionally dissimilar with that of assessee need to be deselected from final list.
TPO not considered the Forex loss as non-operative in nature while calculating the operative margin of the company - HELD THAT:- Foreign exchange loss or gain due to reinstatement of balance outstanding at the end of the year cannot be held as operating profit/loss since the same is on account of notional loss to comply with the accounting standards. With regard to the foreign exchange loss incurred in business operations for purchase of materials or for international transaction do not give any extra benefit to the AE who supplies the material, since the AE receives the payment in foreign exchange and the assessee also makes the payment in foreign exchange. The loss was due to exchange difference between the foreign currency and the Indian currency. Therefore, while computing the PLI, operating income for the purpose of PLI, both foreign exchange loss or gain should be excluded from the operating income. The DRP has allowed loss on Forex to exclude from the operating income, relying on the safe Harbour Rules which provide for exclusion of Forex loss from operating expenses. Therefore, we do not find any infirmity in the directions given by the DRP to exclude both foreign exchange loss or gain of the tested party as well as comparables from the operating income. This ground of Revenue is dismissed.
Working capital adjustment - Assessee has not furnished the pricing model and reasons for extending extraordinary credit to its clients. Similarly the assessee did not furnish the pricing models of the comparable companies as well as the AE. The terms and conditions of sale and interest clause if any require verification - HELD THAT:- The issue of working capital adjustment requires verification of facts from the assessment records of the assessee and the data of comparables companies in the light of discussion made above. Therefore, we remit the matter back to the file of the AO to examine the assessee’s claim of working capital adjustment on facts and make appropriate adjustment on facts and merits. It is needless to say that the Assessing Officer should give opportunity to the assessee to present the case. This ground of the assessee is allowed for statistical purposes.
Idle capacity utilization - HELD THAT:- The assessee has not furnished the details of installed capacity and capacity utilized and the reasons for non-utilization of the installed capacity and resources available and utilized by the assessee. Similarly, the assessee has also not furnished the details of the comparable companies installed capacity and utilized capacity and the levels of break even. In the absence of reasons for non-utilization of installed capacity the claim for capacity adjustment is unfounded. The assessee claimed to be in the second year of operation but furnished the details in respect of sales to fixed costs which is insufficient information to decide whether installed capacity was due to start ups or not. The assessee did not explain the reasons for non-utilization of optimum capacity and therefore, this objection of the assessee cannot be accepted and the decision of the Co-ordinate Bench in the case of M/s.Mando India Steering Systems Pvt. Ltd., [2015 (4) TMI 176 - ITAT CHENNAI] is not applicable and this ground is dismissed.
Selection of Armtek Ltd as comparable - HELD THAT:- In the instant case, the assessee is following accounting year from April to March and the comparable company M/s.Amtek Ring Gears Ltd., is following June, 2008 to June, 2009. Once, the company is following a different accounting year, there will be a wide range effects in the operating results and the company seized to be a good comparable. The AO has not reconciled the financials of the comparable company to the corresponding period of the tested party by collecting necessary information and re-casted the financials. Therefore, we direct the AO to exclude the M/s.Amtek Ring Gears Ltd., as comparable. This ground of Cross-Objection of the assessee is allowed.
RPT filter - HELD THAT:- TPO has applied the RPT filter of 25% and the assessee objected for restricting it to 25%. The DRP has rejected the assessee’s objection on the ground that the 25% has become more or less acceptable and it gets support from the fact that 26% is a threshold limit for treating the company as AE u/s.92A. Similarly, Sec.40A(2)(b) treats 20% as the threshold limit for having substantial interest in the company. Therefore, the DRP held the application of 25% is reasonable. No argument has been made by the assessee on this ground and we consider that as per the reasoning given by the DRP for application of 25, application of RPT appears to be reasonable and this ground is dismissed.
Not considering the fresh set of comparables submitted by the assessee for bench marking the margins - HELD THAT:- DRP has rejected the objection of the assessee stating that the additional set of companies were nothing but cherry picked by the Ld.AR without proper objectives and analysis. During the appeal hearing, the Ld.AR did not place any additional information except reiterating the submissions made before the DRP. The Ld.AR has not placed TP analysis and the FAR analysis and the financials of the additional comparables before the tribunal. Therefore, we uphold the directions of the DRP and this ground of the appeal is dismissed.
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2017 (2) TMI 1447 - ITAT CHENNAI
Disallowance on account of replacement of machineries and parts of the machineries - current repairs - HELD THAT:- Assessee admittedly incurred an expenditure in replacement of blow room machinery, carding machinery, draw frame, speed frame and compressor. The Apex court while considering the case of the spinning mill in Saravana Spinning Mills [2007 (8) TMI 16 - SUPREME COURT] found that the machineries in a segment of textile mill has an independent role to play. Therefore, it has to be construed as independent machinery.
The question arises for consideration is when there was a replacement of certain machinery in the textile mill, can we say that there was a enduring benefit to the assessee especially when the production activity remains as such. As rightly submitted by the assessee, the production capacity of the spinning mill would always depending upon the number of spindles installed in the spinning mill. In the case before us, no spindles were replaced. What was replaced is only blow room machinery, carding machine, draw frame, speed frame and compressor. Therefore, we can safely conclude that there was increase in production capacity of the spinning mill after the replacement of the above machinery.
Merely because certain machineries were replaced, it could not automatically result in increase in production capacity. It has to be demonstrated that due to change of machinery or replacement of machinery, the production capacity in fact actually increased. Merely because there was efficiency in running the machinery, this Tribunal is of the considered opinion that alone cannot be a reason to disallow the claim of the assessee. Unless and until, the assessee replaces the machinery, it may not be able to run the spinning mill at all. Maintenance of machinery in the course of manufacturing activity is one of the requirements, if the assessee intends to continue in the business. Therefore, this Tribunal is of the considered opinion that unless and until the production capacity was increased, the expenditure incurred by the assessee has to be allowed as current repair. Decided in favour of assessee
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2017 (2) TMI 1446 - ITAT KOLKATA
TP Adjustment - transfer price determined by the TPO as per Cost Plus Method and in its place applying the Resale Price Method - HELD THAT:- There is merit in the submissions of the assessee that method adopted by the ld. CIT(A) to compute ALP neither falls in CPM Method nor in RPM Method. The Hon'ble Income Tax Appellate Tribunal-Kolkata, in the appeal No. [2008 (4) TMI 340 - ITAT CALCUTTA-A] in the case of the assessee for assessment years 2003-04 & 200405, had concluded that in relation to the engineering drawing and design services rendered by the assessee to its associated enterprise DClL, the DClL should retain the gross margins as determined through the benchmarking exercise.
In any event the ld CIT(A) can not apply his own method except the method given in Rule 10B (1) (b) of the I.T. Rules. However, for difference in accounting period the TPO/AO may examine the figures for the period January 2005 to March 2005.
As per the additional evidence produced by the ld AR for the assessee, before us, (financials of DCIL from January 2005 to March 2005), since these figures of financials of DCIL from January 2005 to March 2005 were not available before the TPO/AO. Therefore, for difference in accounting period, the TPO/AO may examine the figures for the period January 2005 to March 2005 of DCIL. Therefore, we direct the TPO/AO to examine the figures of the financials of DCIL for the period January 2005 to March 2005 and compute the ALP as per the method suggested by the Hon`ble ITAT in assessee`s own case and submitted by the assessee before us. We direct TPO/AO only to examine the figures of the financials of DCIL from January 2005 to March 2005, and if he finds the figures of the financials of DCIL true and correct, he should accept the computation of the assessee as furnished by the assessee before us, which is reproduced by us above.
Therefore, based on the factual position, we direct the AO/TPO to accept the computation as given before us, (after verification of figures of January 2005 to March 2005), which is based on the method accepted by the Hon`ble ITAT, Kolkata in assessee`s own case.
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