Validity of enhancement action of the CIT(A) - power on the Commissioner of Income Tax (Appeals) to enhance the assessment u/s 251(1) (a) - unexplained source of income towards investment - new source of income discovered in the enhancement proceedings by the CIT(A) - HELD THAT:- In instant case is not about discovery of new source of income but re-appreciation of seized material placed before Assessing Officer to probe the source of income towards investment claimed by the assessee. Therefore, we find no reason to entertain the plea of lack of jurisdiction towards enhancement raised by the assessee.
We concurrently note that the assessee could not demonstrate on merits by any tangible evidence on record in rebuttal that the purported loans were given to the friends and relatives and were actually recovered in cash to establish the nexus of loans recovered qua the investments toward land acquisition. We accordingly find it difficult to hold the case in favour of the assessee on merits since the primary onus has not been discharged by the assessee at all. In view of the aforesaid reasonings, the plea of the assessee on merits also deserves to be discarded.
We simultaneously notice that the CIT(A) has enhanced the income by ₹ 70 lakhs whereas the controversy revolves around non-availability of ₹ 61.65 lakhs only. The source of balance unaccounted investment of ₹ 8.46 lakhs has already been duly offered and assessed by the Assessing Officer. Thus, the enhancement of assessed income requires to be restricted to ₹ 61.65 lakhs only. Thus, the assessee gets partial relief on this issue on merits.
Condonation of delay in filing the appeal - dismissing the appeal on the grounds of limitation - by mistake instead of the appeal being filed in the office of the CIT(A), it was filed on 8th February, 2008 (within the period of limitation) with the office of the Assessing Officer i.e. Deputy Commissioner of Income Tax - HELD THAT:- As the appeal pertained to the CIT(A) and not its office, the Assessing Officer ought to have immediately returned the appeal which was filed in the office of the Assessing Officer. This would have enabled the appellant to take appropriate steps and file the appeal with the office of the CIT(A).
The appellant should have taken care to ensure that the appeal is correctly filed with the office of the CIT(A). Although, we are satisfied that there was a mistake / error on the part of appellant in filing it with the wrong office, the appellant has not been able to explain the delay between 23rd March, 2010 to 12th May, 2011 i.e. the period when it addressed a communication to the CIT(A) for hearing of its appeal till the date it requested the AO to transfer the appeal to CIT(A). The explanation stated across the bar is that it was pursuing its appeal but no particulars are given. Therefore, although we set aside orders dated 4th September, 2013 of the Tribunal and 4th August, 2011 of the CIT(A) and restore the appeal to the file of the CIT(A) for fresh disposal in accordance with law, it is subject to the appellant paying all tax dues payable for the subject Assessment Year, if not already paid and additionally on payment of costs of ₹ 10,000/by a pay order drawn in the name of “The Principal Commissioner of Income Tax15, Mumbai” within a period of four weeks from today.
Property sold below market price held in stock in trade - section 50C applicability - Difference between the Circle Rate and Contract Value of the flat - assessee had sold the ground floor property after six months of the sale of the first floor property in the same building at a price which was 25% less than the price at which the first floor property was sold six months before - Taking clue from the valuation adopted by stamp valuation authorities AO made addition after rejecting the books of a/c u/s 145 - HELD THAT:- In the relevant assessment year the provisions of section 50C were not applicable in case a property was held as stock-in-trade, because section 43CA has been inserted by the Finance Act, 2013, w.e.f. 1.4.2014. The AO has not pointed out any defect in the books of account and has merely rejected the books of account on the basis of lower sale consideration being received for the ground floor property as compared to first floor property.
This is not permissible in law, because there has to be some concrete evidence to come to the conclusion that assessee has not declared his full sale consideration. Reliance placed by ld. counsel for the assessee on the decision of Hon’ble Supreme Court in the case of A. Raman & Co. [1967 (7) TMI 2 - SUPREME COURT] clearly support the assessee’s contention. - decided in favour of assessee.
Deduction u/s 24 - income from house property or business asset - AO has disallowed the deduction u/s 24 on the ground that this property is business asset and the assessee has claimed depreciation thereon - HELD THAT:- Though the assessee has claimed that deduction u/s 24 of the Act should be allowed as he has claimed income from house property, but in the light of the fact that when the assessee has claimed depreciation on this business asset, it is of the view that the assessee cannot claim the property to house property as well as the business assets. Once it is an house property, the depreciation cannot be allowed but the assessee claimed depreciation on this property. Therefore, the deduction u/s 24 of the Act cannot be allowed as it can only allowed against the income from house property and not against the business income of the assessee. - Decided against assessee.
Adhoc additions made by the AO without pointing out any specific defect in the maintenance of account. Since the addition on account of adhoc disallowances are not sustainable in the eyes of law, we delete the same after setting aside the order of the CIT(A). - Decided in favour of assessee.
Bogus purchases - CIT(A) upholding the disallowance of 25% - HELD THAT:- CIT(A) had not given any basis for upholding the addition of 25% of the purchase amount treated as bogus by the AO. However, trading results of the assessee have not been disturbed nor books of accounts have been rejected. The GP rate disclosed by the assessee in the assessment year 2009-2010 was 4.73%, wherein assessment year 2010-11 was 3.72. There is increase of 33% in the sales amount during the year under consideration. The sales has increased from 16.62 crores to 21.83 crores during the year. Increase in sales reduces the net profit margins slightly , therefore, keeping in view the GP rate of 3.72% in earlier year as well as increase in turn over during the year under consideration, we direct the AO to restrict the addition by applying the GP rate of 3.50% in place of 3.44% shown by the assessee. - Decided in favour of assessee partly.
Admitting of additional evidences under Rule 46D r.w.s. 250(4) by CIT-A - whether CIT-A has not given an opportunity to the Assessing Officer? - HELD THAT:- We noted from the order of CIT(A) that in this case the assessee made the written submissions before the CIT(A) and the CIT(A) asked for the remand report of the Assessing Officer. The Assessing Officer has given the remand report dated 16/072014. The said remand report has been produced by the CIT(A) under para 6.1 page 13 of his order. In view of this fact, it is not the case where the CIT(A) has not given an opportunity to the Assessing Officer. We, therefore, dismiss ground No. 1 taken by the Revenue.
Bogus purchases - quantitative reconciliation has been filed about the purchase and sales - tax on the real income - HELD THAT:- This is a case where the AO has not rejected the books of account of the assessee. The assessee has submitted all the details of the purchases and the sales. All the quantitative details of purchase and sales were filed. The books were duly produced before the Assessing Officer which were not rejected. The sales has been accepted by the Assessing Officer during the year. It is also not denied that the purchases have been made by the assessee for the purpose of sales. If the sales has been accepted by the Assessing Officer and quantitative reconciliation has been filed about the purchase and sales, the assessee cannot make the sales without making the purchase.
The Revenue has to levy the tax on the real income. The income has to be computed only by deducting out of the gross receipt the expenses incurred by the assessee including the purchases. The assessee has made purchases not only from M/s Annapurna Trading Co. but from 13 parties. None of the parties were held to be bogus. If the purchases are to be recorded to be bogus, the assessee, in our opinion, cannot make the sales. Without purchase being made, the sales cannot be made. This is not the case where the assessee has not given quantitative details in respect of purchase and sales and quantitative details are not tallied. In view of this fact, we do not find any infirmity or illegality in the order of CIT(A) in deleting the addition - Decided against revenue
Challenge of order of settlement commission - Condonation of delay - Partially Waiver of interest chargeable u/s. 234A, 234B and 234C granted by the Settlement Commission in original order - Rectification filed - Rectification of above order was allowed by commission - Assessee challenged before High Court - High Court held that no rectification is permissible in view of decision of Supreme Court in case of Brij Lal and ors [2010 (10) TMI 8 - SUPREME COURT] - department, thereupon, filed the present petitions challenging original order - HELD THAT:- Settlement Commission having accepted substantially the application of the rectification filed by the department in the year 2002, the department had no cause or grievance against the rectified order of the Settlement Commission. Once the Settlement Commission accepted the rectification prayer of the department, there was no order adverse to the department which could have been challenged. It was only by virtue of the High Court judgement dated 03.03.2014 that such order of the rectification came to be set aside thereby reviving the original unrectified order of the Settlement Commission dated 11.08.2000. The very right of the department to challenge the order of Settlement Commission therefore arose after 03.03.2014 by virtue of the judgement of the High Court. Till then, the department had no cause to feel aggrieved by the order of Settlement Commission. If there was no order adverse to the department, the department could not have challenged the same. Soon after the High Court passed the said order dated 03.03.2014, the department filed the present petitions.
Looked from such angle, we do not find any delay or laches on part of the department in moving these petitions. Delay, if any, is duly explained. Had the department delayed filing these petitions after the High Court reversed the rectification order of the Settlement Commission by the judgement dated 03.03.2014, we would have certainly considered the opposition of the assessees.
We must clarify that to the extent, the Settlement Commission in the order of rectification had turned down the prayers of the department, such issue cannot be re-agitated in the present petitions. In other words, the department not having challenged the order dated 11.10.2002 by which the rectification application of the department came to be partially disallowed, it cannot now reopen the same question after long gap of time in the present petitions, taking cue from the observations made by the High Court in the said judgement dated 03.03.2014.
Under the circumstances, we direct modification of the order of Settlement Commission dated 11.08.2000 by reversing the waiver of interest in terms of Settlement Commission's directions contained in its order dated 11.10.2002. We adopt the same directions for modification of the Settlement Commission's original order dated 11.08.2000.
It is undisputed position that as held by the Supreme Court in case of Brij Lal and ors vs. Commissioner of Income Tax [2010 (10) TMI 8 - SUPREME COURT] the Settlement Commission could have charged interest only upto the stage of passing order under Section 245D(1) of the Act. If the Settlement Commission had directed levy of such interest post the stage of Section 245D(1) in its order dated 11.08.2000, we clarify that beyond the said stage no interest shall be collected from the assesses.
Power of CIT(A) u/s 251(1)(a) for enhancement of income - addition on account of new source of income - AO adopted GP @17% on suppressed sales - CIT(A) reduce GP @12% on the amount of suppressed sales - CIT(A) made new addition enhancing income regarding additional capital required for suppressed sales - HELD THAT:- Commissioner of Income Tax (Appeals) has wide powers under section 251(1)(a) of the Act but his powers are restricted and he has no power to assess a new source of income in the hands of the assessee. Followed Hon'ble Delhi High Court in CIT Vs. Union Tyres [1999 (9) TMI 81 - DELHI HIGH COURT] - Decided in favour of assessee.
CENVAT Credit - common input used in dutiable as well as exempt goods - iron ore fines - Rule 6(3)(b) of the Cenvat Credit Rules, 2004 - iron ore fines, exempt gods or not? - Held that:- In the process of screening and handling of iron ore, some fines generated, which the appellant sold to its customers. Generation of iron ore fines cannot be considered as separate excisable commodity, since no manufacturing activity is involved for emergence of the same out of iron ore by the appellant - Further, iron ore fines is not exempted from payment of duty in terms of notification issued by the Central Govt.
Thus, iron ore fines will not be considered as “exempted goods” and the embargo created in Rule 6(3)(b) of the Cenvat Credit Rules, 2004 will not apply for removal of iron ore in fines form from the factory - appeal allowed - decided in favor of appellant.
Implementation of Scheme of High Security Registration Plates (HSRP) - Rule making power Under Section 64 of the MV Rules - Held that:- M/s. Utsav Safety Systems Pvt. Ltd. (M/s. Utsav) has got a tender for manufacturing HSRPs at least in seven states by entering into Special Purpose Vehicle (SPV) either with M/s. Linkpoint or with M/s. Rosmerta - As per the report of the inspecting team dated 29.11.2013, M/s. Rosmerta-Assam Plant had manufactured a total number of 5725221 blank HSRPs and distributed to consortium partners of all States. However, M/s. Rosmerta has not been granted the CoP certificate from the testing agency, evidently the HSRPs manufactured at M/s. Rosmerta Assam Plant could not have been verified by the testing agency.
There seems to be prima facie violation of Rule 50 of CMV Rules and orders passed by this Court. The question is whether the Respondents/officials are to be proceeded against for wilful disobedience of the various orders passed by this Court. In the facts and circumstances of the case, we are not inclined to initiate contempt proceedings against the Respondents. M/s. Utsav has given an undertaking to the effect that in future it shall not outsource the blank plate manufacturing as jobwork and that the HSRP scheme will be implemented as per the terms and conditions of the contract.
Though we are not inclined to initiate the contempt proceedings yet in order to enable the statutory authorities to keep a control over the implementation of the scheme, it is necessary to issue directions/guidelines for proper implementation of the HSRP Scheme - contempt petitions are disposed of.
The Gujarat High Court granted the petitioner's request for an adjournment to be heard on August 9, 2016. The respondent did not receive the notice. The case was presided over by Justice S.R. Brahmbhatt and Justice A.Y. Kogje.
Penalty u/s 271(1)(c) - non specification of charge - defective notice - Held that:- Notice issued by the Assessing Officer under Section 274 read with Section 271(l)(c) to be bad in law as it did not specify which limb of Section 271(l)(c) of the Act, the penalty proceedings had been initiated i.e., whether for concealment of particulars of income or furnishing of inaccurate particulars of income. The Tribunal, while allowing the appeal of the assessee, has relied on the decision of the Division Bench of this Court rendered in the case of COMMISSIONER OF INCOME TAX -VS- MANJUNATHA COTTON AND GINNING FACTORY (2013 (7) TMI 620 - KARNATAKA HIGH COURT). Also see NEW SORATHIA ENGINEERING CO. VERSUS COMMISSIONER OF INCOME-TAX. [2006 (1) TMI 71 - GUJARAT HIGH COURT] - Decided in favour of assessee.
Transfer pricing adjustment incorporated in the assessment order is on account of fees for guarantee issued by the assessee in favour of its Associated Enterprise - Held that:- The issue under consideration is squarely covered by the decision of ITAT Mumbai in the case of Everest Kento Cylinders Ltd. [2015 (5) TMI 395 - BOMBAY HIGH COURT] wherein the Tribunal held that guarantee commission rate of 0.5% can be said to be at arms length. This decision of Tribunal has been upheld by Hon’ble Bombay High Court, which is reported at [2015 (5) TMI 395 - BOMBAY HIGH COURT]. Thus we direct the AO to restrict bank guarantee commission at 0.5%.
Transfer pricing adjustment made in the assessment order on account of interest on advances given by the assessee to its AE - Held that:- The assessee had given advances to its Associate Enterprise Grabal Alok International Ltd ('GAlL') of ₹ 81,08,748/-. The said advance were given in the normal course of business and adjusted against payables. Based on the various precedents of Courts and Tribunals, it has been held that ALP interest in the case of foreign currency loans should be arrived on the basis of LIBOR. Thus we direct the AO to restrict the disallowance in respect of notional interest adjustment towards advance granted to AE, on the basis of LIBOR. We direct accordingly.
Disallowance of expenses u/s.14A - Held that:- In the appellate order passed for AY 2008-09 and AY 2009-2010, the CIT(A) has accepted the fact of the investments (including share application money) being funded through own funds of the assessee and has deleted the disallowance of interest expenditure. Further the assessee had sufficient owned funds of ₹ 144.1 crores for making incremental investments during the year of ₹ 5.24 crores in Alok Industries Limited (excluding share application money converted into shares during the year. In view of the decision of Hon’ble Jurisdictional High Court in the case of HDFC Bank Ltd. [2014 (8) TMI 119 - BOMBAY HIGH COURT] and Reliance Utilities & Power Ltd. [2009 (1) TMI 4 - BOMBAY HIGH COURT] as well as various judicial pronouncements referred by ld. AR, no disallowance on account of interest is to be made u/s.14A, when the investments are made from own funds. Accordingly, we direct the AO not to make any disallowance on account of interest.
Since the assessee has suo-moto disallowed ₹ 8,10,663/- in its Return of Income. The additional disallowance under Section 14A should be ₹ 4,33,544/-.
Treating interest subsidy received under Technology Upgradation Fund (TUF) Scheme as revenue receipt - Held that:- DEPUTY COMMISSIONER OF INCOME TAX VERSUS M/S GLOSTER JUTE MILLS LTD [2014 (7) TMI 172 - ITAT KOLKATA] held that in order to sustain competitiveness in the domestic as well as international markets and overall long-term viability of the industry, the concerned Ministry adopted the TUFS scheme envisaging Technology Upgradation of the Industry. Hence the subsidy received in this regard falls into capital field.
Deduction u/s 80P(2)(a)(i) in respect of bank interest income - Held that:- An identical issue of claim of deduction under section 80P(2)(a)(i) of the Act in respect of interest income earned by a credit co-operative society had arisen before the Tribunal in ITO Vs. M/s. Kundalika Nagari Sahakari Patsanstha Maryadit (2016 (2) TMI 879 - ITAT PUNE) and the Tribunal after considering the ratio laid down by the Hon’ble Supreme Court in Totgars Co -op. Sale Society Ltd. Vs. ITO [2010 (2) TMI 3 - SUPREME COURT] held assessee is entitled to the claim of deduction under section 80P(2)(a)(i) of the Act. The additional interest income of ₹ 33,810/- is also arising on account of interest due on FDs and on the said amount also, the assessee is entitled to claim the deduction under section 80P(2)(a)(i) of the Act. Accordingly, the Assessing Officer is directed to allow the same. The grounds of appeal raised by the assessee are thus, allowed.
TPA - determining the ALP of management fees - benchmarking technique - Held that:- We find that the assessee bench marked its international transactions by computing the operating margin at entity level which is not as per the provisions of Transfer Pricing because the international transactions has to be tested by comparing with uncontrolled and unrelated price.
When the assessee earns the revenue of more than 50% from the non-AE clients then the bench marking of the international transactions by taking the results at entity levels is not appropriate therefore we do not approve such methodology applied by the assessee in bench marking the international transactions. TPO has segregated the ITES from management fees and found that the international transactions of ITES exclusive of management fees at arm’s length. The action of the TPO in determining the ALP of management fees at NIL is not justified because the assessee has paid the management fees under the agreement wherein the services provided by the AE has been enlisted.
Though the price accepted by the department under said agreement are not applicable for the year under consideration however, on principle the management fees is accepted along with the other service and the ALP for ITES as well as other services including the payment of management fees has to be determined on composite transaction basis. The TPO has not examined the matter by considering the management fees as part of the operating cost for the purpose of testing the ITES as per provisions of section 92 of the Act. Accordingly, we set aside the matter to the record of the TPO/A.O for reconsideration of the same afresh in terms of the above observations. - Appeal of the assessee is allowed for statistical purposes.
Revision u/s 263 - rectification of mistake u/s 154 - Held that:- The proceedings u/s 154 were dropped on account of a reply to the notice u/s 154. AO in this respect is placed. Therefore, from the above facts it is apparent that the Revenue Authorities first tried to reopen the case u/s 154, which on a replay filed by assessee were dropped and thereafter, the learned CIT took up the same issue by assuming jurisdiction u/s 263. Moreover, we find that the proceedings u/s 263 has been initiated in view of the audit objection raised by Income Tax officer (Audit) which is not permissible as per the settled position of law. - Decided in favour of assessee.
TPA - Comparability selection - clubbing of the investment advisory service and investment banking services for the purpose of comparative analysis assessee's functions are basically in the nature of merchant banking service for the Associate Enterprise (A.E) - Held that:- Investment advisory service segment cannot be clubbed with investment banking service for the purpose of bench marking the margin. Bench marking of the price charged for investment advisory service segment should have to be independently undertaken. As the Transfer Pricing Officer has not undertaken such exercise, we are inclined to restore the issue back to the file of the Transfer Pricing Officer to undertake such exercise by treating investment advisory service as a separate segment. The Transfer Pricing Officer must carefully examine the comparables selected by the assessee in its transfer pricing study and decide whether they are functionally similar, hence, suitable to be selected as comparable in respect of investment advisory segment. In case, the Transfer Pricing Officer finds them not to be comparable to the assessee, he may conduct a search process himself to find out comparables in the aforesaid category.
Selection / rejection of comparable in the investment banking service segment and certain adjustments for computing the margin as proposed by assessee - we must observe, in the earlier part of the order, we have disapproved the approach of the Transfer Pricing Officer in rejecting the transfer pricing analysis of the assessee without proper application of mind and clubbing the investment advisory and investment banking services and treating it as investment banking segment for bench marking the price charged to A.E. For this reason alone, the transfer pricing adjustment by the Transfer Pricing Officer and confirmed by the DRP even in respect of investment banking services needed to be set aside. However, as learned Counsels appearing for the respective parties were heard at length on investment banking issues, it is necessary to deal with the submissions made on behalf of the parties with regard to certain adjustments claimed by the assessee in the investment banking segment while computing the margin of the assessee / comparables as well as also issues relating to selection / rejection of comparables. \
As not disputed that the assessee is in the start–up mode as the impugned assessment year is the first full year of operation as far as investment banking segment is concerned. Whereas, the comparable companies no doubt have established themselves in the investment banking segment as they are in operation for substantial period. It is the submission of the assessee that the employee cost of the assessee was 71.5% of the total operating cost, whereas, the average employee cost of the comparable companies selected by the Transfer Pricing Officer is 29.43%. In this context, a reference can be made to a working of the average employee cost of comparables at Page–47 of the paper book. The assessee has also submitted a working as per which if employee cost is taken at 29% then assessee’s margin would be 110% which is more than the margin of 105% computed by the Transfer Pricing Officer. In our view, the aforesaid contention of the assessee needs to be examined in detail after verifying the employee cost of both the assessee and comparable companies. It is evident from the order of the Transfer Pricing Officer and DRP, they have not examined the issue of adjustment towards employee cost in a proper perspective
As far as use of multiple year data is concerned, in our view, one has to adhere to provisions of rule 10B(4) and proviso thereunder. As per the aforesaid provision use of multiple year data is not entirely prohibited. However, it is for the assessee to establish on record by bringing sufficient fact and material to show that data related to earlier years reveal certain factors which can have influence on the determination of margin in relation to the transactions being compared. If the assessee is able to establish this with relevant facts, then the Transfer Pricing Officer certainly has to consider them.
As far as Chartered Capital and Investment Ltd. is concerned, , assessee’s contention with regard to the comparability of this company needs to be examined afresh by examining / analysing the impact of non–provision of liability for gratuity on the margin of the company. It is the further contention of the assessee that the employee cost of this company is only 19.54% compared to employee cost of 71% of the assessee. This aspect has also not been examined by the Departmental Authorities. Necessary facts have to be examined to find out whether the low employee cost is due to out sourcing of activities or any other factor and necessary adjustment accordingly is to be made to the margin of the comparable / assessee.The assessee has also raised issue of super normal profit earned by the company. This factor, in our view, also requires examination as to whether there is any special reason for earning such profit may be as a result of merger or acquisition or due to any other factor.
EDELWEISS CAPITAL LIMITED - RPT filter of 25% applied by DRP is reasonable and hence, needs no interference. If Edelweiss Capital Ltd. is functionally similar to the assessee, only because it has started its operation earlier compared to the assessee, it cannot be excluded for that reason alone. Of–course, necessary adjustment can be made to the margin of the comparable / assessee keeping in view relevant factors which might have influenced the margin of the comparable. However, it is for the assessee to establish such facts with cogent evidence. With the aforesaid observations, we restore the issue to the file of the A.O. / Transfer Pricing Officer for fresh consideration.
L&T CAPITAL LIMITED - DRP has directed the Assessing Officer to verify the RPT of the company whether exceeds the threshold limit of 25%. In addition to the aforesaid direction of the DRP, we further direct the Assessing Officer / Transfer Pricing Officer to also examine the factors which have resulted in lower employee cost of this comparable and make necessary adjustment if need be. Similarly, the Assessing Officer / Transfer Pricing Officer should also ascertain any extra ordinary reasons for earning of high margin of 91%. If there is any extraneous circumstances which impacted the margin earned by the comparable, compared to the assessee then this company should not be included as a comparable.
CENTRUM CAPITAL LIMITED and KEYNOTE CORPORATE SERVICE LIMITED - we have noted that the DRP has not dealt with assessee’s objection in respect of these two companies merely for the reason that they were selected by the assessee itself. The aforesaid approach of the DRP is not correct. Though, it may be a fact that the assessee had selected these two companies as comparable on the basis of multiple year data, however, that cannot prevent the assessee from objecting to the comparable selected even by him on some valid reasons. As the Departmental Authorities have not dealt with assessee’s objection with regard to selection of these two companies, we are inclined to restore the issue to the file of Assessing Officer / Transfer Pricing Officer for examining afresh after providing due opportunity of being heard.
Insofar as five other companies selected by the assessee viz. Aryaman Financial Services Ltd., Excess India Advisors India Ltd., ICRA Management Consulting Services Ltd., ICRA On–line Limited, Kinetic Trust Ltd., on a perusal of the order of the Transfer Pricing Officer, we find, he has neither made any discussion on these companies nor has assigned any reason why they are not comparable to the assessee. DRP’s order is also totally silent on this issue. In the aforesaid view of the matter, we direct the Assessing Officer / Transfer Pricing Officer to examine the comparability of these five companies while considering the issue of comparability of other comparables objected by the assessee.
Transfer pricing adjustment with regard to ITES segment - Comparable selection - Held that:- As assessee is into performing ITES / BPO functions thus companies functionally dissimilar with that of assessee need to be deselected from final list.
Disallowance of cost relating to ESOP - Held that:- As decided in assessee's own case [2015 (12) TMI 966 - ITAT MUMBAI] we hold that discount on issue of employees stock options is allowable as deduction in computing the income under the head profits and gains of business of profession
Deduction claimed of an amount paid to Bombay Stock Exchange and National Stock Exchange - Deduction u/s 37 - Held that:- As decided in assessee's own case [2015 (12) TMI 966 - ITAT MUMBAI] payment made by the assessee to stock exchanges were not for infraction of any law in view of the judgment of in the case of Angel Capital & Debitt Market Ltd. [2014 (5) TMI 584 - BOMBAY HIGH COURT] deleted the addition.
Computing deduction under section 10A - treatment to telecommunication charges - Held that:- This issue is no more res integra, as different High Courts including the Hon'ble Jurisdictional High Court in CIT v/s Gem Plus Jewellery India Ltd., [2010 (6) TMI 65 - BOMBAY HIGH COURT] as well as different benches of the Tribunal including Mumbai Benches have held that telecommunication charges have to be excluded both from export turnover as well as total turnover for computing deduction under section 10A.
Deemed dividend u/s 2(22)(e) - assessee had shown amount as unsecured loan from Oxford Securities Private Ltd.(OSPL),that one of the partners of the assessee firm was holding 10% of the shares in the company - Held that:- AO was not justified in invoking the provisions of section 2(22)(e) of the Act without establishing the basic fact as to whether the assessee was a shareholder of OSPL or not. As decided in UNIVERSAL MEDICARE PRIVATE LIMITED [2010 (3) TMI 323 - BOMBAY HIGH COURT] The advance or loan has to be made, as the case may be, either to a shareholder, being a beneficial owner holding not less than ten per cent. of the voting power or to any concern in which such a shareholder is a member or a partner and in which he has a substantial interest. Section 2(22)(e) defines the ambit of the expression “dividend”. All payments by way of dividend have to be taxed in the hands of the recipient of the dividend namely the shareholder. The definition does not alter the legal position that dividend has to be taxed in the hands of the shareholder. - decided against revenue
Addition under the head unaccounted profits on sale - mismatch in consumption of electricity and production of goods - Held that:- The assessee had filed a letter addressed to the State Electricity authorities informing them of malfunctioning of meter for two-three months. It is quite common feature that electricity meters in some cases do not function properly and electricity boards takes time to rectify the defects. Thus, a plausible and reasonable explanation was filed by the assessee about the discrepancy in electricity bill. But, the AO without making any inquiry in that regard, jumped on a final conclusion. Besides even if there was no malfunctioning of the meters, there can be many a reasons for mismatch in consumption of electricity and production of goods. The assessee is not manufacturing only one type of wires or not using one kind of raw material. The variation in the final product and the raw material will affect the consumption of electricity. Other factors mentioned by the assessee for variation in power consumption before the FAA, were also not considered by the AO.It is pertinent to note that the AO has not commented upon the documents maintained by the assessee for the purposes of excise duty or sales tax department. No evidence has been brought on record about unrecorded purchases of raw material. - decided against revenue
Disallowance u/s 10A - splitting up or reconstruction of the existing unit - Held that:- DRP directed the Assessing Officer to consider the claim of the assessee in the light of the CBDT Circular No.1 of 2013 dated 17.1.2013. A similar direction was given by this Tribunal in assessee’s own case for assessment year 2007-08. CIT(A), for the assessment year 2007-08, in fact, examined this issue and found that there was no case for splitting up or reconstruction, and accordingly, allowed the claim of the assessee u/s 10A. The order of the CIT(A) for the assessment year 2007-08 is dated 3.2.2016. It is not known whether the Revenue has filed any appeal before this Tribunal against the order of the CIT(A) for assessment year 2007-08. However, for the sake of consistency, this Tribunal is of the considered opinion that the DRP has rightly directed the Assessing Officer to consider CBDT Circular No.1 of 2013 and adjudicate the claim of the assessee u/s 10A of the Act.
Transfer pricing adjustment - assessee submitted assessee-company do not have any controlling interest in respect of the so called concern with which the assessee entered into international transaction - Held that:- This Tribunal is of the considered opinion that since the assessee claims to have less than 26% interest in the Associated Enterprise and not holding any controlling interest in the management and finance, the matter needs to be reexamined by the Assessing Officer. In other words, whether the non-resident company to which the assessee has transaction is an Associated Enterprise within the parameters of law needs to be examined. Since such an exercise was not done either by the TPO or DRP, this Tribunal is of the considered opinion that the matter needs to be reexamined. Accordingly, the orders of the lower authorities are set aside and the entire issue is remitted back to the file of the Assessing Officer. The Assessing Officer shall reexamine the issue afresh after referring the matter once again to the TPO and thereafter decide the same in accordance with law after giving a reasonable opportunity to the assessee.
Domestic transaction entered into by one of the comparable company viz. Dun & Bradstreet Information Services India Pvt. Ltd (DB India) - Held that:- As rightly submitted by the ld. Counsel and the ld. DR, when transfer pricing adjustments were made in respect of the international transaction, the domestic transaction has to be excluded. However, the matter needs to be verified whether DB India has any transaction in the domestic market as claimed by the assessee. Since nobody has examined the transaction of DB India with its non- Associated Enterprise, this Tribunal is of the considered opinion that the matter needs to be reexamined as claimed by the ld. DR. Accordingly, the orders of the lower authorities are set aside and the issue with regard to transfer pricing adjustment is remitted back to the file of the Assessing Officer.
Reimbursement in the cost and revenue base while computing the entity level margins and also TDS credit - Held that:- This Tribunal is of the considered opinion that when the tax was deducted, credit shall be given while computing the tax liability of the assessee. Therefore, the Assessing Officer shall verify the TDS credit in respect of the assessee and give necessary credit while determining the tax liability of the assessee.
Treatment of profit arising out of the sale of shares - correct head of income - short term capital gains or business income - Held that:- The intention of the assessee at the time of the purchase of shares is paramount. If the assessee has clear intention of being an investor and showing the shares as investment, we do not find any reason to disturb the intention of the assessee. The assessee under consideration is investor and, therefore, any gain arising out the transfer of shares should be treated as capital gains be it short term or long term.
Addition made u/s. 68 on account of unexplained cash credit - Held that:- We find that the assessee has successfully discharged the onus cast upon him by virtue of Section 68 of the Act. Documentary evidences on record show that the identity of the creditor, genuineness of the transaction and the capacity of the lender have been successfully established by the assessee. The First Appellate Authority have thoroughly examined the evidences on record and the ld. D.R. could not point out any fallacy/flaw/error in the findings of the First Appellate authority, therefore, no interference is called for.
Surplus on sale of shares of IDFC - Held that:- There is nothing on record brought by the revenue authorities which could suggest that the assessee was actually trading in the shares of IDFC. There is no evidence with the Revenue to establish the nexus. There is no evidence on record which can demonstrate that the assessee has colluded with Smt. Rupal Naresh Panchal in a manner that would indicate that shares were acquired for the purpose of trade. Such nexus has not been established. The observations of the revenue authorities are only inferential without any concrete material in the possession of the A.O.
The activity of the assessee by virtue of mode of acquisition of shares cannot be segregated into two parts. The First Appellate Authority has erred in creating an artificial distinction only on the basis of mode of acquisition - no hesitation in setting aside the findings of the ld. CIT(A) and directing the A.O. to tax the surplus on sale of shares of IDFC under the head short term capital gains. - Assessee appeal allowed.
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