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2021 (11) TMI 1147
TP Adjustment - custom duty adjustment - HELD THAT:- By giving effect to the order of the ITAT the TPO had examined and allowed custom duty adjustment. Thus, respectfully following the above decision of the Coordinate Benches of the Tribunal, for the assessment year under consideration also, we direct the Assessing Officer to give suitable adjustment against the custom duty component while determining the ALP.
Working capital adjustment - Tribunal has considered similar issue in the assessment year 2011-12 [2017 (1) TMI 1690 - ITAT CHENNAI] wherein held, there is necessity for working capital adjustment - thus we direct the Assessing Officer to give suitable adjustment against the working capital component while determining the ALP.
Foreign exchange loss as non-operative expense - TPO held that the forex gain/loss has to be treated as operating in nature, which was confirmed by ld. DRP - HELD THAT:- Similar issue was subject matter in appeal before the Tribunal in assessee’s own case for the assessment year 2012-13 [2017 (8) TMI 1700 - ITAT CHENNAI] wherein held as rightly pointed out by the ld. D.R that earlier year the assessee claimed foreign exchange loss as operating expenditure. This year assessee has shifted its stand and claimed it as non-operating expenditure. There is no consistency in its approach and also no reason has been given for such a change. Being so, in our opinion, foreign exchange loss is to be treated as operating nature only - Respectfully following the above decision in assessee’s own case for the assessment year 2012-13, the ground raised by the assessee stands dismissed for the assessment year 2013-14.
Provision for doubtful debts - With regard to the provision for doubtful debts, recoverability of some receivables may be doubtful although not definitely irrecoverable - HELD THAT:- In consistent with the observations given by the TPO for the assessment year 2014-15 we direct the AO to treat the provision for bad and doubtful debts as non-operating in nature for the assessment year 2013-14 as well. Thus, the ground raised by the assessee is allowed.
Hanon Climate System India Pvt. Ltd. as not a comparable - assessee has excluded the comparable since the RPT was in excess of 25% in respect of Hanon Climate Systems India Pvt. Ltd. - HELD THAT:- We are of the considered opinion that the TPO was not justified for including an incomparable company namely, Hanon Climate Systems India Pvt. Ltd., who’s RPTs exceed 25%. Accordingly, we direct the TPO/AO to exclude the comparable M/s. Hanon Climate Systems India Pvt. Ltd. Thus, the ground raised by the assessee is allowed.
Disallowance of set off of brought forward business losses from the previous years - HELD THAT:- As on perusal of the past assessment records of the assessee, AO noticed that the assessee company was no longer possessing such brought forward losses in view of the additions made as per the assessment orders for those years. Therefore, as it stands, the assessee was not allowed to make any set off of brought forward losses and the whole assessed income has to be fully offered for taxation in the current assessment year 2013-14. AO has taken the brought forward losses adjusted as NIL for the purpose of computation of total income for the assessment year 2013-14. Before us, the assessee has not brought on record any details of possessing such brought forward losses. Thus, the ground raised by the assessee stands dismissed.
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2021 (11) TMI 1146
Royalty Income to be treated as Income from business - whether Royalty Income was not derived from business carried by assessee but was only attributable to business of the assessee? - HELD THAT:- Assessee placing reliance on the judgment of the coordinate bench of this Court passed in the case of very same assessee [2018 (11) TMI 1929 - KARNATAKA HIGH COURT] would contend that the very identical substantial questions of law raised by the revenue were considered and answered by this Court as covered by the judgment of this Court in Motorola India Electronics (P) Ltd. [2014 (1) TMI 1235 - KARNATAKA HIGH COURT] was pleased to dismiss the appeal. Hence, the substantial questions of law raised herein, being identical, the appeal deserves to be dismissed answering the substantial questions of law raised, against the revenue and in favour of the assessee.
It is not in dispute that the judgment of this Court [2018 (11) TMI 1929 - KARNATAKA HIGH COURT] has been carried by the revenue in appeal before the Hon’ble Apex Court [2023 (3) TMI 1328 - SC ORDER] in SLP No.21055/2019 which is pending consideration. In view of the aforesaid, we are not inclined to either differ from the judgment of the coordinate bench or venture to sit in judgment over the said decision to adjudicate upon the issues fully covered and decided, referring to the judgments now cited by the revenue. Substantial questions of law raised herein, against the revenue and in favour of the assessee.
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2021 (11) TMI 1145
Revision u/s 263 - deduction u/s 80P has been granted without much inquiry - HELD THAT:-On perusal of the assessment order passed u/s 143(3) of the I.T.Act dated 30.11.2016, it is clear that there is no discussion by the A.O. and deduction u/s 80P of the I.T.Act has been granted without much inquiry. The assessment order completed without making necessary inquiry rendered the assessment erroneous and prejudicial to the interest of revenue. Therefore, the CIT has correctly invoked the provisions of section 263 of the I.T.Act and we uphold the same.
Assessee has also raised grounds that assessment was selected for limited scrutiny in the Computer Aided Scrutiny Selection (CASS). Therefore, the inquiry in the assessment proceedings was restricted only to the issue which forms the basis of selecting the case for scrutiny as per the Instruction of the CBDT. This ground of the assessee is also devoid of any merit. No doubt, in this case, the assessment was selected for limited scrutiny.
When the potential escapement of income was exceeding Rs.10 lakh, the A.O. has power to convert the limited scrutiny to a complete scrutiny assessment. There is no examination of the issue by the A.O. in the assessment order whether the escapement had resulted in excess of Rs.10 lakh. In this context also, the assessment order is erroneous and prejudicial to the interest of the revenue. Therefore, this ground of the assessee is also rejected.
Whether the assessee is entitled to deduction u/s 80P(2)(a)(i) and 80P(2)(d)? - As recent order of the Tribunal in the case of M/s.Vasavamba Co-operative Society Ltd. v. The Pr.CIT[2021 (8) TMI 706 - ITAT BANGALORE] after considering the judicial pronouncements on the issue held that interest income earned out of investments made from surplus funds would be taxable under the head `income from other sources’ and would not be eligible for deduction u/s 80P(2)(a)(i) of the I.T.Act. It was further held by the Tribunal insofar as deduction u/s 80P(2)(d) only those interest received from investments with co-operative societies alone would be entitled to deduction.
Hon’ble Apex Court in the case of Mavilayi Service Co-operative Bank Ltd. & Ors. v. CIT & Anr. (2021 (1) TMI 488 - SUPREME COURT] had settled various issues for claiming deduction u/s 80P(2)(a)(i) - the matter needs to be examined afresh by the A.O. de hors the observations of the CIT. The A.O. is directed to follow the dictum laid down by the Hon’ble Apex Court in framing the fresh assessment.
Appeal filed by the assessee is allowed for statistical purposes.
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2021 (11) TMI 1144
TP Adjustment - selection of comparables - exclusion of two companies Larsen & Toubro Infotech Limited, and Persistent Systems Limited on account of application of upper turnover filter - HELD THAT:- As decided in Pentair Water Private Limited [2016 (5) TMI 137 - BOMBAY HIGH COURT] as directed the AO / TPO to exclude from the list of comparables, the companies having turnover of more than Rs.200 crore
We direct the AO / TPO to exclude L&T Infotech Limited and Persistent Systems Limited from the list of comparables for having high turnover as compared to assessee providing Software Development (SWD) services to its Associate Enterprises (AEs).
Tech Mahindra Limited is functionally dissimilar to that of the assessee. Tech Mahindra Limited has got multiple segments and on perusal of the segmental details in the consolidated report, it can be seen that the said company is strictly not into software development services, ITES etc. Moreover Tech Mahindra Limited is having turnover far exceeding Rs.200 crore. Therefore, this company gets excluded by application of upper turnover limit also.
ICRA Techno Analytics is excluded from the final list of comparables on account of functional dissimilarity. The said company is engaged in multifarious activities such as web development and engineering services etc. and the segmental details of the company is not available. Therefore, we hold that the CIT(A) is justified in excluding the above company.
Negative Working Capital - HELD THAT:- Since the assessee in this case does not have working capital loans / borrowings and entails no working capital risks, the ratio decidendi in the case of e4e Business Solutions India Private Limited [2020 (12) TMI 1255 - ITAT BANGALORE] directly applies to the assessee and no working capital adjustment should be made. Therefore, the CIT(A)’s conclusion that no negative working capital adjustment is to be made is correct and no interference is called for.
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2021 (11) TMI 1142
Unexplained Investment - appellant has paid “On-Money" - Discharge of onus - HELD THAT:- On money payment added in the hand of the assessee is not based upon any incriminating material found from the assessee or his premises. It is also not the case that any material in assessee or its staff handwriting has been found. It is also not the case that revenue has gotten the value of said premises independently valued to support the case of value more than that reflected in books. Assessee’s plea of crossexamination has also been rejected. It is settled law that in allegation of on many payment , revenue is required to prove the case with convincing material. This proposition is supported by Hon’ble Supreme Court in the case of K. P. Varghese [981 (9) TMI 1 - SUPREME COURT] and Kalyansundaram [2007 (9) TMI 25 - SUPREME COURT] Here revenue has failed to discharge the onus.
In the present case the addition is not sustainable. Hence, set aside the order of authorities below and decide the issue in favour of the assessee.
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2021 (11) TMI 1140
Validity of assesment u/s 153A - validity of approval of the draft assessment order u/s 153D - HELD THAT:- Since, the Assessing Officer has sought approval u/s 153D of the Act in the case of assessee from Assessment Years 2005-06 to 2011-12, therefore, in view of our order [2022 (3) TMI 643 - ITAT DELHI] in assessee’s own case for Assessment Year 2009-10 reproduced above, we hold that the assessment orders are vitiated for want of valid approval u/s 153D of the Act and as such no addition could be made against the assessee. We, therefore, quash the assessment orders passed u/s 153A of the Act for both the years, resultantly, all additions are deleted - Decided in favour of assessee.
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2021 (11) TMI 1138
TP Adjustment - Comparable selection - Turnover filter - HELD THAT:- Companies listed whose turnover in the current year is more than ₹ 200 Crores should be excluded from the list of comparable companies.
Also companies dissimilar with assessee captive service provider providing services only to its associated enterprise need to be deselected.
Negative working capital adjustment - HELD THAT:- We find that in the case of Software AG Bangalore Technologies (P.) Ltd.[2016 (3) TMI 1384 - ITAT BANGALORE] passed by this Tribunal, it has been held that negative working capital adjustment shall not be made in case of a captive service provider as there is no risk and it is compensated on a total cost plus basis. Since the issue has not been dealt with by the TPO in proper perspective and since the issue has not been raised before the DRP, we deem it fit and proper to remand this issue to the TPO/AO for fresh consideration in the light of the law on the issue as laid down in judicial decision.
Levy of education cess - HELD THAT:- education cess and secondary and higher education cess is not in the nature of tax which is not deductible expenditure. Following the decisions APTEAN INDIA PVT. LTD. [2020 (11) TMI 958 - ITAT BANGALORE], SESA GOA LIMITED, [2020 (3) TMI 347 - BOMBAY HIGH COURT], RECKITT BENCKISER (I) PVT. LTD. [2020 (6) TMI 474 - ITAT KOLKATA] we allow the additional ground of appeal.
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2021 (11) TMI 1137
Income deemed to accrue or arise in India - Taxability of income generated in India - appellant has received revenue from cinema halls/theatres in India - PE in India under the India-USA Tax Treaty - AO concluding that the income has directly accrued and arisen in India - AO royalty received by the appellant from Warner Bros. Pictures (India) Pvt. Ltd. as business income u/s 9(1)(i) - HELD THAT:- We find the Hon’ble Tribunal in assessee’s own case for the earlier years has allowed the claim in favour of the assessee.
We considered the decision of the Coordinate Bench of this Honble Tribunal for the A.Y 2014-15 [2019 (10) TMI 1543 - ITAT MUMBAI] as rightly held by the CIT (A) even if income arises to the Non-Resident due to the business connection in India, the income accruing or arising out of such business connection can only be taxed to the extent of the activities attributed to permanent establishment. In this case, the assessee does not have any permanent establishment in India. Since the Indian company who obtained the rights is acting independently, Agency PE provisions are not applicable to the assessee company. The assessee relied on the decision of Ishikawajma-Harima Heavy Industries Ltd [2007 (1) TMI 91 - SUPREME COURT] that incomes arising to a Non-Resident cannot be taxed as business income in India, without a PE. As the assessee does not have any permanent establishment in India, the incomes arising outside Indian Territories cannot be brought to tax. Therefore, there is no need to differ from the findings of the CIT (A) and accordingly the Revenue Appeal is dismissed.
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2021 (11) TMI 1135
Validity of assessment order - denial of principles of natural justice and fair play - no opportunity of being heard in the matter given - HELD THAT:- A narration of the facts, would clearly go to indicate that the impugned assessment order has been made in contravention to the basic principles of natural justice and fair play, inasmuch as the petitioner was not granted an opportunity to file its reply on the proposed additions and a further opportunity of being heard in the matter.
Once that be so, obviously, impugned order cannot be sustained. In taking this view, we are duly supported by the judgments rendered in case Deep Gard versus Union of India[2021 (6) TMI 589 - DELHI HIGH COURT] and Zeus Housing Company versus Union of India [2021 (9) TMI 1461 - BOMBAY HIGH COURT]
We find merit in this petition and the same is accordingly allowed and the impugned assessment order alongwith consequential notice of demand and notice for initiating penalty is set aside.
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2021 (11) TMI 1134
Disallowance u/s 14A - AO held that the suo moto disallowance offered by the assessee is not properly explained - HELD THAT:- Disallowance offered by assessee was considered by learned assessing officer. In addition, the same was rejected giving proper reasoning. Therefore it is apparent that the learned assessing officer has recorded proper satisfaction for invoking the provisions of rule 8D of the income tax rules 1962 for working of the disallowance u/s 14 A of the act.
Disallowance u/r 8D (2)(i) - The total investment made by the assessee in which tax-free income could have been earned is ₹ 1343 crores as on that date. Further, that investment from which exempt income has been actually earned during the year is only ₹ 605 crores. Furthermore, the investment made by the assessee is out of the mixed funds, as it did not maintain the books of account of the earning exempt income as well as taxable income separately - we hold that there cannot be any interest disallowance in the case of the assessee. Accordingly, the interest disallowance made under rule 8D (2) (i) of the act of ₹ 24,657,534/– deserves to be deleted, hence, we direct the learned assessing officer to delete the same.
Disallowance under rule 8D (2) (iii) the amount equal to ½% of the average value of the investment Income from which does not or shall not farm part of the total income as appearing in the balance sheet of the assessee on the first day and the last day of the previous year - The claim of the assessee is that the opening balance and closing balance of the investments on which exempt income is received during the year is Rs Nil. The assessee has submitted the various accounts of such investments before us. In case if the opening balance and the closing balance of such investments from which exempt income is received during the year is rupees nil, naturally the average of such investment would also be Nil and therefore the consequent disallowance would also be Nil.
We hold that there cannot be any disallowance under rule 8D (2) (iii) of the act is also Nil. Accordingly, we direct the learned assessing officer to delete the disallowance under rule 8D (2)(iii) of the act. Accordingly we direct the learned assessing officer to delete the disallowance under that sub rule amounting to Rs 1 71,87,853/–.
Accordingly we direct the learned assessing officer to delete the disallowances confirmed by the learned CIT – A being the interest expenses stated by the learned assessing officer to be directly attributable to the earning of the exempt income as well as a sum being 0.5% of the average value of investment on the opening and closing day of the previous year. Appeal of the assessee is allowed.
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2021 (11) TMI 1132
TP adjustment - international transaction pertaining to purchase of traded goods - selection of MAM - HELD THAT:- We have also perused the order of the coordinate bench in assessee’s own case in earier years. We appreciate the arguments of the parties with respect to the risk assumed by the normal distributor as well as the risk assumed by the assessee. However we find that the issue is squarely covered by the decision of the coordinate bench in assessee’s own case [2018 (7) TMI 2083 - ITAT DELHI] findings returned by TPO/DRP that the taxpayer being a full-fledged risk bearing distributor performing numerous functions, RPM is not the MAM, is not sustainable for the reason that in a comparable uncontrolled transaction, normally distributor requires to carry out all the functions necessary to enhance the sales like market research, inventory risk, credit risk etc.. In such circumstances, no comparable instances have been brought on record by the TPO/DRP.
When finished goods purchased by the taxpayer are resold in the market without any value addition, then gross margin earned on such transaction is the only determinative factor to analyse gross compensation after the cost of sale. So, we are of the considered view that RPM in this case is the MAM to bench mark the international transactions. In these circumstances, addition made by the TPO/AO merely by disputing the method applied by the taxpayer is not sustainable in the eyes of law. Method for benchmarking the international transaction cannot be changed merely because of the fact that the taxpayer has suffered loss at the net level but has positive gross profit in trading segment as it depends on host of circumstances.
We allow ground of the appeal of the assessee and direct the ld TPO to adopt the resale price as the most appropriate method and compute the difference in ALP thereafter. TPO is directed to examine the transfer pricing analysis and decide the issue afresh.
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2021 (11) TMI 1131
Depreciation on assets leased to others - HELD THAT:- Substantial question of law No.1 raised by the revenue, the issue is no more res integra in view of the ruling of this Court in the assessee’s own case [2020 (11) TMI 344 - KARNATAKA HIGH COURT] wherein the order of disallowing depreciation of asset had been answered in favour of the assessee.
MAT applicability u/s 115JB on banking companies - HELD THAT:- Substantial question of law which has been admitted by this Court as aforesaid, the Co-ordinate Bench of this Court in M/s.ING Vysaya Bank Limited[2020 (1) TMI 1116 - KARNATAKA HIGH COURT] has categorically held that the provisions of Section 115JB(2) of the Income Tax Act, 1961 do not apply to the Banking Companies. We have no reason to differ from the same. Accordingly, we answer the said substantial question of law in favour of the assessee and against the revenue
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2021 (11) TMI 1129
TP Adjustment - comparable selection - assessee in engaged in the business of provision of Software Development Services (SWD services), to its wholly owned holding company - HELD THAT:- Companies functionally dissimilar with that of assessee is directed to be deleted.
Deduction u/s 80JJAA - AO denied the claim of the assessee for deduction as that persons working in software units cannot be regarded as workmen as contemplated by the provisions of section 80JJAA AND Deduction under section 80JJAA cannot be allowed in respect of additional wages paid to employees who are working in 10A units because under the provisions of 80A(4) of the Act, the assessee cannot enjoy benefits both under sections 10A and 80JJAA of the Act in respect of the same income. - DRP also took the view that, the assessee has not given Form 10DA for each 10A unit separately - HELD THAT:- As assessee has accepted the decision of the DRP in so far as ground No.6.1 is concerned and is willing to give the details as per each unit. The deduction can therefore be considered for each 10A unit separately. The assessee is directed to furnish the necessary details in this regard and the AO may examine the same in accordance with law.
As in assessee’s own case for Assessment Year 2007-08 [2016 (6) TMI 1333 - ITAT BANGALORE] sub-section 1 of 80JJAA clearly show that the deduction is given on profits and gains derived from industrial undertaking engaged in manufacture of production of article or thing. It is only for quantification of the amount that 30% is applied. In our opinion the deduction is very much linked to the profits of the undertaking. We are therefore unable to accept this line of argument taken by the counsel. In the result, we hold that assessee is not eligible for deduction u/s.80JJAA of the Act, in respect of its units 2 , 3 and 4. However, denial of such claim in respect of unit-1, where it was not claiming any deduction, in our opinion is incorrect. We, therefore set aside the orders of authorities below for the limited purpose of quantifying the eligible deduction u/s.80JJA in respect of Unit-1.
Employees engaged in software industry cannot be regarded as workmen for the purpose of section 80JJAA - Thus ground should be decided in the light of the directions given above by the AO afresh after affording opportunity of being heard to the assessee.
Adjustment made under section 40(a)(ia) in arriving at the profits from business eligible for a deduction under section 10A - HELD THAT:- There is no dispute regarding genuineness of the expenditure that was disallowed and the fact that the said expenditure is otherwise allowable as deduction in computing income from business. In such circumstances, even if the expenditure is disallowed u/s.40(a)(i) of the Act, the result will be that the disallowance will go to increase the profits of the business which is eligible for deduction u/s.80-IC of the Act and consequently the deduction u/s.10A of the Act should be allowed on such enhanced profit consequent to disallowance u/s. 40(a)(i) of the Act. In this regard, we find that two High Courts viz., in the case of CIT v. Gem Plus Jewellery India Ltd.[2010 (6) TMI 65 - BOMBAY HIGH COURT] and ITO vs. Kewal Construction[2013 (7) TMI 291 - GUJARAT HIGH COURT] have taken the view that when disallowance u/s. 40(a)(ia) of the Act goes to enhance the profits that are eligible for deduction under Chapter VIA of the Act, the deduction under Chapter VIA should be allowed on such increased profit. This position has also been now confirmed by the CBDT in its Circular No.37/2016 dated 02.11.2016.
In view of the aforesaid decisions and the CBDT Circular No.37/2020, we are of the view that there is no merit in ground no.4 raised by the revenue.
Exclusion of expenses incurred in foreign currency from total turnover and export turnover while computing deduction u/s.10A - HELD THAT:- Taking into consideration the decision rendered in the case of CIT v. Tata Elxsi Ltd [2011 (8) TMI 782 - KARNATAKA HIGH COURT] we are of the view that communication charges and expenses incurred in foreign exchange should be excluded both from export turnover and total turnover. We are of the view that as of today, law declared by the Hon'ble High Court of Karnataka which is the jurisdictional High Court is binding on us. Moreover, the order of the Hon’ble Karnataka High Court has been upheld in the case of CIT v. HCL Technologies Ltd. [2018 (5) TMI 357 - SUPREME COURT] The ground of the revenue is therefore dismissed.
Allowance of deductible expenses education cess - HELD THAT:- This issue is settled by APTEAN INDIA PVT. LTD. VERSUS THE DY. COMMISSIONER OF INCOME TAX, CIRCLE-1 (1) (2) , BENGALURU. [2020 (11) TMI 958 - ITAT BANGALORE] wherein it was held that education cess and secondary and higher education cess is deductible as business expenditure under section 37 (1) of the Act for determining the assessed income. As per TATA STEEL LIMITED case [2019 (12) TMI 750 - ITAT MUMBAI]education cess and secondary and higher education cess is not in the nature of tax which is not deductible expenditure. Following the decisions referred to above, we allow the additional ground of appeal.
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2021 (11) TMI 1128
Reopening of assessment u/s 147 - applicability of the provisions of sections 148 and 148 A - 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:- We have heard the learned advocate, Mr.Sudhir Mehta for the petitioner. It is urged fervently that even the Revenue Authorities could not have extended the operation of repealed provision of section 148 beyond 31.03.2021 under the guise of a clarificatory explanation in the notifications.
Issue NOTICE to the respondents, returnable on 22.11.2021. 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 17(e) till the returnable date.
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2021 (11) TMI 1126
Reopening of assessment u/s 147 - Denial of natural justice - necessity to provide sufficient opportunity to the petitioner to respond - AO proceeded to assess the assessee by the orders impugned in this case when they failed to respond within 48 hours of serving the show cause notice - HELD THAT:- Consideration of the objections raised by an assessee is the platform from which the rights and obligations of the asses plicit provisions of Section 144(B) (1)(xxii) of the Act, the assessee will be put to prejudice.
It is clear from the circumstances that have transpired in the instant case, from the time of show cause notice till the date of assessment, for both the assessment years, that the show cause notices failed to privide sufficient opportunity to the petitioner to respond. The violation of principles of natural justice in the orders impugned is manifest.
Accordingly the orders of assessment produced shall stand set aside and the 1st respondent is directed to pass fresh orders of assessment after granting a reasonable opportunity of being heard after granting it sufficient time to file an objection to the petition to show cause notice. The objections, if any, to the show cause notices shall be filed by the petitioner within a period of 15 days from the date of receipt of a copy of this judgment and the assessing authority shall thereafter, fix a date for hearing of the petitioner.
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2021 (11) TMI 1125
Assessment of Income of assessee - gross profit rate shown by the assessee is 29.29% as compared to the gross profit fate of 27.87% shown in the immediately preceding year - technical mistakes in maintaining the books of accounts - HELD THAT:- ITAT has found that during the year under consideration, the gross profit rate shown by the assessee is 29.29% as compared to the gross profit fate of 27.87% shown in the immediately preceding year. The ITAT is of the opinion that the gross profit rate shown during the very year is much better than the gross profit of preceding year and, in such circumstances, there is justification for complete decline of contract expenditure claimed by the asssessee, which goes to constitute the gross profit rate.
ITAT has further taken into consideration the profit and loss accounts of the assessee for comparison of expenses and found that the same are in order. After finding the gross profit shown by the assessee as reasonable, the ITAT has found that the assessee’s claim of interest expenditure and depreciation is required to be allowed.
In our opinion, the ITAT after thoroughly examining the material available on record has assessed the income of the assessee and according to us, the same is essentially a question of fact and appreciation of evidence. After going through the entire material available on record, the ITAT has come to the conclusion, which in our view is not liable to be interfered with. Learned counsel for the Revenue has failed to point out any perversity in the finding of fact recorded by the ITAT. No substantial question of law requiring adjudication by this Court under Section 260-A
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2021 (11) TMI 1124
TP Adjustment - upward adjustment in respect of advertisement and marketing ('A&M') expenses - existence of international transactions - TPO as well as the Hon’ble DRP inferred the existence of international transactions on noticing that the appellant had incurred excess expenditure on A&M expenses as compared to the expenses incurred by the comparables chosen by the TPO and then proceeded to make adjustments of difference in order to determine the value of such A&M expenses incurred by the AE - HELD THAT:- main contention advanced by the appellant is that the existence of international transaction cannot be inferred by the TPO in the absence of any actual transactions and the presumption by the lower authorities that the benefit had enured to its foreign AE is merely based on the conjectures. In the absence of any agreement between the assessee and its foreign AE to incur any A&M expenses to the benefit of its foreign AE, the presumption of existence of international transaction is incorrect.
An identical issue was considered by the Co-ordinate Bench of Tribunal in assessee’s own case for immediately preceding A.Y. 2009-10 wherein the Co-ordinate Bench of the Tribunal after making reference to the decision of Sony Ericsson India Pvt. Ltd. [2015 (3) TMI 580 - DELHI HIGH COURT] and in the case of Maruti Suzuki India Ltd. [2015 (12) TMI 634 - DELHI HIGH COURT] and placing reliance on Essilor India Pvt. Ltd. [2016 (3) TMI 959 - ITAT BANGALORE] held that in the absence of agreement between the assessee and its foreign AE to incur the advertising and marketing expenses to the benefit of foreign AE, no inference can be drawn as to the existence of international transaction on mere incurring excess expenses on the marketing and advertisement as compared to the expenditure incurred by the comparables. It was further held that in the absence of any machinery provisions to compute arm's length price provision, the provisions of Chapter X cannot be invoked and bright line test cannot be used either to determine the existing international transaction or its arm's length price -ground of appeal No.1 filed by the Revenue is devoid of merit and stands dismissed.
Determination of arm's length price with regard to the transaction of import of raw materials - HELD THAT:- It is settled position of law that comparison should be between the tested party and the controlled transaction. A controlled transaction has been defined to mean that a transaction entered into between two associated enterprises and therefore, we are of the considered opinion that the lower authorities were justified in not giving any credence to the certificates issued by deemed AEs. However, in the light of additional evidence filed before us in the form of price list obtained from the third parties, we remit the matter back to the file of AO / TPO with a direction to undertake the exercise of benchmarking the transaction of import of raw material taking cognizance of price list furnished by the assessee from the third party vendors and to restrict any TP adjustment only in respect of AE transactions as following case of (i) CIT vs. Hindustan Unilever Ltd. [2016 (7) TMI 1245 - BOMBAY HIGH COURT] and (ii) CIT vs. Ratilal Becharlal & Sons[2015 (11) TMI 1524 - BOMBAY HIGH COURT] - Thus, this ground of appeal stands partly allowed.
TDS u/s 194J - Addition on account of management cost - AO disallowed the expenditure for non-deduction of tax at source treating the same as expenditure under the provision of managerial services - HELD THAT:- There is no material on record to show that the HUL had provided any services like technical or managerial in nature to the appellant company. Mere reimbursement of salary of employees does not constitute provision of managerial services. When the expenditure is a mere reimbursement of salary of employees deputed, the question of deduction of tax at source does not arise in the light of the decisions of Siemens Aktiongesellschaft, [2008 (11) TMI 74 - BOMBAY HIGH COURT] (ii) CIT vs. Industrial Engineering Projects (P.) Ltd.[1992 (7) TMI 38 - DELHI HIGH COURT] ; and, (iii) CIT vs. Dunlop Rubber Co. Ltd.,[1982 (2) TMI 24 - CALCUTTA HIGH COURT]. Therefore, we are of the considered opinion that the provisions of section 194J of the Act have no application to the subject payment. Accordingly, the Assessing Officer is not justified in invoking the provisions of section 40(a)(ia) - Decided in favour of assessee.
TDS u/s 194H - Disallowance on account of selling discount given to HUL - As submitted that the HUL is the distributor of products of the appellant company and selling discount was given to the HUL towards the sale cost - HELD THAT:- The expenditure in question was incurred towards the selling discount given to the distributor stockists. The relationship between the appellant and the distributor was that of the principal to principal. No services were rendered by the distributor to the appellant company and what was offered to the distributor was discount under the sales promotion schemes and, therefore, it cannot be said that the discount is in the nature of commission within the meaning of Explanation 1 to section 194H of the Act as held in the case of Intervet India Pvt. Ltd.[2014 (4) TMI 353 - BOMBAY HIGH COURT] and CIT vs. Piramal Healthcare, [2015 (1) TMI 873 - BOMBAY HIGH COURT] - we are of the considered opinion that the Assessing Officer is not justified in invoking the provisions of section 40(a)(ia) of the Act while disallowing the selling discount.
Disallowance u/s 40(a)(ia) being the payment made to Star India Pvt. Ltd. towards advertisement charges - AO disallowed the expenditure on the ground that no TDS was made on said payment - HELD THAT:- We find force in the alternative submission made on behalf of the appellant that the benefit of second proviso to section 40(a)(ia) of the Act be examined by the Assessing Officer after due verification of the evidence in support of the same. In the circumstances, we remit this ground of appeal back to the file of the Assessing Officer for limited purpose of examining the applicability of second proviso to section 40(a)(ia) of the Act. Thus, the ground of appeal no.10 stands partly allowed for statistical purposes.
Denial of credit for dividend distribution taxes paid by the appellant - HELD THAT:- On perusal of the assessment order, we find that the Assessing Officer had not granted credit for dividend distribution taxes paid by the appellant without assigning any reason. In these circumstances, this ground of appeal is also remitted back to the file of the Assessing Officer with a direction to grant a credit for dividend distribution taxes paid by the appellant after due verification.
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2021 (11) TMI 1123
Benefits of principle of mutuality - As per AO activity carried out by the assessee is not a charitable one and the assessee is earning heavy surplus by charging the members as per its discretion and is indulged in transactions with non-members which vitiates the principle of mutuality on the first place - HELD THAT:- AO denied the benefit of concept of mutuality by taking view that the department has already filed against the earlier decision of Tribunal in various years. CIT(A) allowed relief to the assessee by following the decision of Tribunal in assessee’s own case for earlier year - We note that assessee’s own case for AY 2010-11 [2018 (3) TMI 1983 - ITAT SURAT] the co-ordinate bench of Tribunal while following the order in earlier year accepted the status of assessee as a mutual association in order [2018 (3) TMI 1983 - ITAT SURAT] - No contrary facts or law is brought to our notice to take other view. Thus, we affirm the order of Ld. CIT(A) - ground No.1 raised by Revenue is dismissed.
Disallowance of depreciation by not reducing the contribution of members for acquisition of assets while computing depreciation - We find that in earlier year on similar submission of parties the authorities below recorded that the assessee is also getting services from nonmembers which has to be taxed accordingly. However on disallowance of depreciation, it was held that there is principle of mutuality in case of assessee, therefore, the allowance of depreciation has no bearing as the principle of mutuality was accepted by Tribunal. However, the issue was remitted back for limited purposes with the following direction in [2018 (3) TMI 1983 - ITAT SURAT] - ground No.2 raised by Revenue is allowed for statistical purposes in above terms.
Disallowance of loss on sale of fixed asset and deleting the addition on account on account of late payment of TDS and penalty charges respectively - HELD THAT:- We find that Assessing Officer disallowed the expenses on account of loss on sale of fixed asset and interest on late payment of TDS and penalty charges. CIT(A) allowed relief to the assessee by taking view that the assessee has not claimed deduction of such items. We find that assessee has not claimed deduction of such claim on the basis of principle of mutuality. The Ld. CIT(A) accepted the contention of assessee that once the expenses is not claimed as the deduction of no disallowance is sustainable. Ld. CIT(A) has accepted the contention of the assessee that no disallowance was claimed is permissible. Thus, we find that order of Ld. CIT(A) is affirmed.
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2021 (11) TMI 1122
TP Adjustment - international transaction entered into by the assessee with respect to management services fees paid by the assessee to its Associated enterprises - assessee benchmarked the same under the Transactions Net Margin Method clubbing the same with other transactions - Arms’ length price of the same is determined by the ld TPO at Rs. Nil as assessee failed to satisfy Need test, benefit Test, Rendition test etc. the ld CIT(A) confirmed it - only objection of the ld TPO which is threshold of examination of any services rendered is only whether the services have been rendered or not - HELD THAT:- The details of number of test is devoid by them is also tabulated and same is multiplied by the rate of services each day. This is the supporting attached with the bills of services. Coming to the agreement which is placed at page No. 242 to 249 of the Paper Book. The clause NO. 2 shows that the rate of compensation which would be @ times spent by the service provider employeed in rendering the service. It has also given the charge out rate as per annexure B. However, as the charge out rate are attached for the period April 2002 to March 2006. No such charge out rates are available for FY 2011-12. In view of this the supporting of rendition of the service required verification along with rates for this year.
It was also not known whether the services are rendered from Hong Kong or from US. This, is so because the rate of the employees are different for this region. Further, merely the annexure at page No. 252 onwards does not show evidence of the rendition of the services, it is merely a breakup of the invoice. In view of this fact, we set aside the whole issue back to the file of the ld TPO with a direction to the assessee to show the actual data, person involved, actual rate as per agreement, rate paid by the assessee as per invoices, technological competence of the persons rendering services to show that services were actually rendered and benefit derived by the assessee.
The assessee is also required to show that 3rd party would pay for such services and they are not duplicative in nature. On assessee providing all these details, the ld TPO is directed to examine the same and decide the arms length price of such transaction afresh. The need and benefit test should be left to the wisdom of the assessee. In the result ground No. 1 and 2 of the appeal are allowed with above direction - Appeal of the assessee is partly allowed for statistical purposes.
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2021 (11) TMI 1121
Deduction u/s 80P(2)(d) - income received from cooperative banks - AO as well as CIT(A) was of the opinion that the same does not call for exemption u/s 80P(2)(d) of the Act as they were received from a cooperative bank - HELD THAT:- The reasoning of the lower authorities cannot be sustained in the eyes of law as the cooperative banks also the spies of the cooperative societies and continue to be cooperative society despite the fact that they enjoy the licence from Reserve Bank of India to carry out the business of the banking.
Whether the cooperative banks is also cooperative society or not? - This issue was considered in the case of CIT vs. Totagars Cooperative Sale Society [2017 (1) TMI 1100 - KARNATAKA HIGH COURT] wherein referring to the Hon’ble Supreme Court in the case of Totgars Co-operative Sales Society Ltd. [2010 (2) TMI 3 - SUPREME COURT] held that the exemption is not to be denied in respect of interest income on investment as same falls under the provisions of section 80P(2)(d) and not u/s 80P(2)(a)(i) of the Act.
Thus we hold that the interest income earned by the appellant society on investment made with the cooperative bank which are also cooperative societies is exempt from the Income Tax Act u/s 80P(2)(d) of the Act. Therefore, we hold that the lower authorities was not justified in denying the claim of deduction u/s 80P(2)(d) - Decided in favour of assessee.
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