Demand of differential tax on the goods sold in terms of Section 3(4)(b) of the Tamil Nadu Value Added Tax - payment of concessional rate of tax by availing the benefit of Section 3(4)(a) of the Tamil Nadu Value Added Tax Act, 2006 - HELD THAT:- The court there held that it is well settled that if a statute is curative or merely declaratory of the previous law, retrospective operation is generally intended - It observed that provision for surcharge under the Finance Act, 2002 was in existence since 1995, insofar as levy of surcharge for block assessment was concerned. However, it was introduced by insertion of aforesaid proviso to Section 113 therefore a question arose as to whether this surcharge on block assessment has been levied for the first time by the aforesaid proviso coming into effect from 1-6-2002 or it is only clarificatory in nature because of the reason that the provision for surcharge was made in the Finance Act in the year 1995 and that covered surcharge on block assessment as well.
In the absence of clear words indicating that the amending Act is declaratory, it would not be so construed when the pre-amended provision was clear and unambiguous. An amending Act may be purely clarificatory to clear a meaning of a provision of the principal Act which was already implicit. A clarificatory amendment of this nature will have retrospective effect and, therefore, if the principal Act was existing law which the Constitution came into force, the amending Act also will be part of the existing law.
The amendment to Section 3(4)(b) of the Tamil Nadu Value Added Tax Act, 2006 received the assent of the Governor on 26.09.2011. It was notified vide G.O.Ms.No.135, Commercial Taxes and Registration (B1), dated 31.10.2011 for the purpose of Section 1(2) of Act No.27 of 2011 - Though the said amendment was notified vide G.O.Ms.135, Commercial Taxes and Registration (B1), dated 31.10.2011, the Government appointed the 1st day of April 2012 as the date from which the said amendment was to come into force. It has not declared that the amendment will come into force from an anterior date.
Since the Government has not given the amendment effect from an earlier date during the Assessment Years 2010-2011 & 20112012, it cannot be given effect with retrospective date on an earlier date. This aspect was not brought to the attention of the Court in the two decisions which were cited.
Cases remitted back to the respondents for a limited purpose for passing fresh Revised Assessment Orders by allowing the petitioner to adjust the Input Tax Credit in terms of Section 3(4)(b) of the Tamil Nadu Value Added Tax Act, 2006 which benefit has not been given to the petitioner - petition disposed off.
Addition u/s 68 - Denial of long term capital gain on sale of shares under section 10(38) - A.R. submits that the assessee is a regular investor and makes investments through registered brokers and thus carries out purchase and sale of equity shares on recognized stock exchange on the screen based online platform and all the conditions for claiming exemption u/s 10(38) of the Act are fully satisfied by the assessee - HELD THAT:- We are not in agreement with the conclusion drawn by the Ld. CIT(A) that the long term capital gain made by the assessee from sale of shares is a non genuine transaction and accordingly we set aside the order of Ld. CIT(A) and direct the AO to delete the addition made under section 68 of the Act and direct the AO to grant exemption under section 10(38) of the Act in respect of long term capital gain. The ground no. 1 to 3 are allowed.
Estimation of provision done for warranty - Whether, the Tribunal has committed an error of law in holding that the estimate of provision done by the assessee for warranty is scientific and satisfies the condition set out in M/s. ROTORK CONTROLS INDIA PRIVATE LIMITED [2009 (5) TMI 16 - SUPREME COURT] and by not taking into account the facts enumerated by the assessing officer in the assessment order, from which it is evident that the assessee has done excessive provisioning for warranty for reducing the tax liability? - HELD THAT:- For the reasons assigned by us in the judgment passed today in I.T.A.No.1034/2017, the first substantial question of law is answered against the revenue.
Allowance of additional provision for leave encashment and provision on warranty to the book profit for the purpose of calculating the book profit under Section 115JB - The second substantial question of law has been answered against the revenue in decision of the Supreme Court in Bharath Earth Movers vs. Commissioner of Income Tax [2000 (8) TMI 4 - SUPREME COURT] the aforesaid submission could not be disputed by learned counsel for the revenue.
Maintainability of petition - availability of alternate remedy of appeal - club and association services - applicability of doctrine of mutuality - HELD THAT:- The impugned order is erroneous and that can be set right in a statutory appeal. The petitioner has alternate and most efficacious remedy of appeal in the matter.
Disallowance of expenses u/s 14A read with Rule 8D - HELD THAT:- As the submissions before the Assessing Officer was also that there was no exempt income earned during the year and no expenditure was incurred during the year towards exempt income. Thus, the CIT(A) has rightly deleted the addition in light of the decisions of case of Cheminvest Ltd. [2015 (9) TMI 238 - DELHI HIGH COURT] and CIT Vs. Holcim Ltd. [2014 (9) TMI 434 - DELHI HIGH COURT]
CIT(A) has given a detailed finding and there is no need to interfere with the same in light of the decision of the Jurisdictional High Court. In fact, the issue is covered by the decision of the Apex Court decision in case of Maxopp Investment Ltd. [2018 (3) TMI 805 - SUPREME COURT]. Thus, there is no need to interfere with the findings of the CIT(A). Hence, the appeal of the Revenue is dismissed.
Revision u/s 263 by CIT - addition u/s 68 of share capital received along with share premium - HELD THAT:- we follow the order of the ITAT in the assessee’s own case for the Assessment Year 2013-14 [2021 (3) TMI 217 - ITAT KOLKATA], wherein, the ITAT had held his is not a case of non-applicability of mind or non-verification. The Assessing Officer has taken a possible view. When the Assessing Officer follows the direction of the ld. Pr. CIT, in his order passed u/s 263 of the Act, no revision can be done u/s 263 of the Act on the ground that the Assessing Officer has not travelled beyond these directions.
We hold that the exercise of the revisionary powers by the ld. Pr. CIT u/s 263 is bad in law. Hence, we quash the same. Decided in favour of assessee.
TP Adjustment - transaction of providing corporate guarantee - international transaction within the meaning of Section 92B or not? - HELD THAT:- As respectfully following our own decision in the case of EIH Ltd [2018 (1) TMI 1372 - ITAT KOLKATA] and CIT vs. Rohit Ferro Tech Ltd. [2018 (10) TMI 1845 - ITAT KOLKATA] we hold that the corporate guarantee issued by the assessee company to its fully owned subsidiary, is not an international transaction in terms of Section 92B of the Act. Consequently,The adjustment made u/s 92CA of the Act is hereby deleted and this ground of the assessee is allowed.
Deduction of education cess - HELD THAT:- Issue covered in favour of the assessee by the decision of Chambal Fertilizers and Chemicals Ltd [2018 (10) TMI 589 - RAJASTHAN HIGH COURT] - The Hon’ble Bombay High Court in the case of Sesa Goa Ltd. vs. JCIT [2020 (3) TMI 347 - BOMBAY HIGH COURT] held that education cess cannot be disallowed by invoking Section 40(a)(ii) of the Act. Both the Hon’ble High Courts have elaborately discussed this issue, in their judgments.
Entitled to refund on dividend distribution tax (DDT) paid @ 16.22% u/s. 115-O - HELD THAT:- As relying on Devrient [India] Pvt. Ltd. [2020 (10) TMI 750 - ITAT DELHI] we restore the entire issue to the file of the Assessing Officer with a direction that the claim of the assessee may be examined de novo. The assessee is directed to furnish all the necessary details in support of its claim. This ground of the assessee is allowed for statistical purposes.
TP adjustment - international transaction of provision of sales and marketing support services by the Appellant to its associated enterprise (“AE”) - difference between the current assessment year and the subsequent Assessment Years in which the Revenue has accepted the profile of the assessee - HELD THAT:- It can be seen that the company profile has remained intact to that of sales and marketing support services in nature of coordination support and the assessee company is not into advertisement and marketing agency. These aspects were not properly taken cognizance by the TPO/AO and hence the matter is required to be remanded back to the file of the TPO/AO. All the other issues have to be decided once the issue of recharacterization has been determined by the TPO/AO.
Therefore, we are remanding back all the issues to the file of the TPO/AO - Assessee be given opportunity of hearing by following principles of natural justice. Hence, appeal of the assessee is partly allowed for statistical purpose.
Validity of Lookout Circulars (LOC) issued by Bank of Baroda (BOB) and Punjab National Bank (PNB) - prayer to declare the endorsement dated November 14, 2020 by Bureau of Immigration not permitting him to travel to Abu Dhabi, UAE, as illegal - HELD THAT:- No material is produced to show that money lent by BOB and PNB has resulted in any development of this country. On the other hand, as on date, it has become a bad debt and public sector banks are fighting litigations in India as also in UAE to recover the same. It is no doubt true that a citizen of this Country has a right to travel. But I hasten to add that persons who take public money have a sacred duty to repay it too.
During the course of hearing, this Court called upon the learned advocates for the Banks to explain on what security the Banks permitted such large exposure. The answer given was, the Companies to which loans are advanced were 'listed companies' in London Stock Exchange and the share value had shown that the said Companies had high net worth. Tangible assets, if any, mortgaged in favour of Banks and their valuation is not forthcoming. If Public Sector Banks are permitting such large exposure without adequate securities, it is a matter of great concern and it shall have serious adverse impact on the economy of this Country. It is time, the law makers and Reserve Bank of India re-visit the lending guidelines and the procedures and take necessary remedial measures to ensure that public money is well secured before disbursement.
In view of the liberty available to the petitioner to approach the Bank authorities and explain that LOCs have been wrongly issued, petitioner is not entitled for relief in these writ petitions.
The Supreme Court of India dismissed the Special Leave Petition, but left the question of law open. The pending application was disposed of and the delay was condoned.
Disallowance u/s 14A r.w.Rule 8D - assessee during the year under consideration had earned tax free interest income from various tax free bonds - HELD THAT:- We are of the considered view that no part of the interest expenditure could have been attributed to the earning of the exempt income by the assessee during the year in question. Our aforesaid view is fortified by the judgment of CIT Vs. HDFC Bank Ltd. [2014 (8) TMI 119 - BOMBAY HIGH COURT]. Accordingly, in terms of our aforesaid observations, we herein vacate the disallowance made by the A.O under Sec. 14A r.w Rule 8D(2)(ii).
As regards the disallowance made by the A.O under Sec. 14A r.w. Rule 8D(2)(iii) we find substantial force in the claim of the ld. A.R that the investments which had not yielded any exempt income during the year under consideration were liable to be excluded for the purpose of computing the 'average value of investments‘ within the meaning of Rule 8D(2)(iii). Our aforesaid view is supported by the order of the ‘Special bench’ of the ITAT, Delhi in the case of Vireet Investments [2017 (6) TMI 1124 - ITAT DELHI]. As such, we herein restore the issue for the limited purpose of computing the disallowance under Sec.14A r.w Rule 8D(2)(iii) to the file of the A.O in terms of our aforesaid observations. The Ground of appeal No. 1 is partly allowed.
Disallowing expenditure w.r.t travel, hotel and food expenses incurred by the assessee company treated as an unexplained expenditure - HELD THAT:- We have given a thoughtful consideration and are of the considered view that as the aforesaid expenses were incurred by an employee of the assessee company viz. Mr. George Joseph, sales manager, by purportedly using the credit cards of the assessee company, the same, thus, could not have been summarily discarded by the lower authorities. Although, we are not oblivious of the fact that the assessee could not substantiate that the expenses in question were incurred wholly and exclusively for the purpose of its business, but then, we also cannot shut our eyes to the fact that the documentary evidence produced by the assessee before the DRP were considered by the panel with a half hearted approach.
On the one hand the panel had declined to admit the documents produced by the assessee as 'additional evidence‘, while for at the same time it had given general observations as regards the same. Be that as it may, in our considered view the matter in all fairness requires to be restored to the file of the A.O for fresh adjudication. Needless to say, the A.O shall in the course of the 'set aside‘ proceedings afford a reasonable opportunity of being heard to the assessee who shall remain at a liberty to substantiate its aforesaid claim on the basis of fresh documentary evidence. The Ground of appeal No 2 is allowed for statistical purposes.
Deduction u/s 80IC - including only 75% of the income from scrap sales while quantifying its claim of deduction raised under Sec. 80IC - HELD THAT:- We are unable to persuade ourselves to subscribe to the view taken by the lower authorities, and thus, direct the A.O to include the entire amount of scrap sales in the eligible profits of the assessee for the purpose of quantifying its claim for deduction under Sec. 80IC of the Act. The Ground of appeal No. 3 is allowed.
TP Adjustment - addition towards advertisement, marketing, sales promotion expenditure ( 'AMP expenses') for the reason, that by incurring the said expenses it had benefitted its Associated Enterprise - HELD THAT:- On a perusal of the order passed by the Tribunal while disposing off the assessee‘s appeal for A.Y. 2005-06 and A.Y. 2007-08 [2018 (5) TMI 1790 - ITAT MUMBAI], respectively, we find, that the Tribunal had struck down the TP adjustment that was made w.r.t AMP expenditure - we, thus, finding no reason to take a different view and adopting a consistent approach therein respectfully follow the same herein vacate the TP adjustment made by the A.O/TPO w.r.t the AMP expenditure.
Deduction u/s 80IC w.r.t the foreign exchange gain on raw and packing material - HELD THAT:- We are of the considered view that the foreign exchange gain on raw and packing material credited by the assessee before us in its profits and loss account can safely be held to be eligible for deduction under Sec.80IC of the Act. Accordingly, we concur with the claim of the assessee that the foreign exchange gain on raw and packing material was duly eligible for deduction u/s 80IC of the Act. We, thus, direct the A.O to allow the asessee‘s claim for deduction u/s 80IC w.r.t the foreign exchange gain on raw and packing material - The Ground of appeal No. 2 is allowed in terms of our aforesaid observations.
Adjustment to the income of the assessee w.r.t the provision of the research and development/testing services - Comparable selection - HELD THAT:- Exclude Alphageo (I) Ltd. from the final list of comparables as functionally not comparable.
PCG Life Sciences ltd - On a perusal of the order of the TPO and that of the DRP, we find, that neither of the said authorities had given any cogent reason for including/upholding the inclusion of the aforementioned company as a comparable in the final list of the comparables for benchmarking the international transactions of the assessee before us. Admittedly, as is discernible from the financial statements of the aforementioned company, we find that it is inter alia engaged in the business of selling chemical compounds, which as observed by us hereinabove constitutes 1/3rd of its total turnover - no segmental information w.r.t the aforementioned company was available, the same, thus, could not have been adopted as a comparable for benchmarking the international transactions of the assessee for the year under consideration - we are of a strong conviction that the lower authorities had erred in including the aforesaid company as a comparable for benchmarking the international transactions of the assessee for the year under consideration.
Clinsys Clinical Ltd - TPO/DRP had without giving any cogent reason excluded the aforesaid comparable of the assessee from the final list of comparables. We are unable to concur with such non-speaking observation of the lower authorities, and in all fairness and in the interest of justice restore the matter to the file of the A.O/TPO for deciding the aforesaid issue afresh.
Fortis Clinical Research Limited -Admittedly, it is a matter of fact borne from the record that the TPO/DRP had not given any cogent reason for excluding the aforementioned company selected by the assessee as a comparable from the final list of comparables. In our considered view, the matter in all fairness requires to be revisited by the TPO, who is thus directed to re-adjudicate the same after affording a reasonable opportunity of being heard to the assessee.
Correct head of income - Interest on fixed deposits - taxable under the head "Other sources" as the appellant did not commence business activity - HELD THAT:- We find no substance in the assessee’s foregoing grievance. Case records indicate hat the assessee had to commence its commercial operations for the project(s) in issue from December 31st, 2013 relevant to AY.2014-15 whereas we are in AYs.2012-13 & 2013-14 only. The clinching fact as emerges therefore is that the assessee has sought the assessment of its interest income as ‘business income’ without having commenced its corresponding actual business activity at all in these two assessment years. We therefore find no reason to interfere with detailed reasoning extracted from the CIT(A)’s order in the preceding paragraphs. We thus decline assessee’s solitary grievance.
Computation on netting basis - Assessee another plea that both the lower authorities ought to have adopted netting method by following the decision of ACG Associated Capsules Pvt. Ltd [2012 (2) TMI 101 - SUPREME COURT] than assessing the entire interest income u/s.57 of the Act - HELD THAT:- The fact remains that this issue has neither been examined in the course of assessment nor in the CIT(A)’s order. We therefore draw support from their lordships’ above decision and direct the Assessing Officer to finalise necessary computation on netting basis. No other ground has been pressed before us.
TP Adjustment - interest on overdue receivables at LIBOR +350 basic points - HELD THAT:- As decided in assesee own case [2018 (8) TMI 2105 - ITAT DELHI] submitted by the Ld. AR that the impact of the outstanding receivables has been factored in the working capital adjustment. This aspect also requires verification. We also note that the Ld. CIT (A) did not have the benefit of this judgment of the Hon’ble Delhi High Court when he passed the impugned order. On an overall view of the facts of the case and respectfully following the ratio of Kusum Health Care Pvt. Ltd [2017 (4) TMI 1254 - DELHI HIGH COURT] we restore this issue to the file of the AO/TPO for the purpose of re-examining and re-considering the issue.
In the circumstances, where of the considered opinion that this issue needs to be considered by the learned Assessing Officer in the light of the submissions now made by the Ld. AR in consonance with the view that is to be taken on this aspect for the earlier assessment years also.
Non-grant of depreciation on Plant & Machinery - HELD THAT:- There is no denial of the fact that there is no change in facts and circumstances as well as law on this issue from the earlier assessment years and the facts and circumstances remain the same, rule of consistency demands that similar relief as has been allowed to the assessee in A. Y. 2010-11[2018 (8) TMI 2105 - ITAT DELHI] by the Tribunal has to be followed and relief has to be granted to the assessee.
Insurance expenses - AO does not dispute the fact of assessee incurring the same and also the fact that in the earlier years it was neither disputed nor disallowed. Since the asset belongs to the assessee, the assessee was justified in claiming the insurance expenses because assets being Plant & Machinery and Moulds and risks of losses, if any, against which insurances had been taken by the assessee is to the account of assessee. We are, therefore, of the considered opinion that the amount paid towards insurance expenses were legally and properly allowable to the assessee as having been incurred wholly and exclusively for the purpose of business of the assessee. Order of the Ld. CIT(A) is, accordingly, upheld and both the grounds of appeal of the Revenue are dismissed.
TP Adjustment - ALP of the international transaction undertaken by the assessee with its AE - HELD THAT:- The Tribunal in assessee’s own case for assessment year 2013-2014 [2020 (4) TMI 909 - ITAT BANGALORE] had restored the entire transfer pricing issue to the AO/TPO to arrive at fresh ALP of the international transaction undertaken by the assessee with its AE.
In view of the above order of the Tribunal, the entire issue raised in this appeal are restored to the files of the AO/TPO to arrive at fresh ALP of the international transaction undertaken by the assessee with its AE.Appeals filed by the assessee is allowed for statistical purposes.
TP Adjustment - comparable selection - HELD THAT:- Assessee carries on IT enabled services[ITes] in the form of research activities according to the terms of its agreement with its AE which is driven by business information, market research and intellectual property research, thus companies functionally dissimilar with that of assessee need to be deselected.
Working capital adjustment - CIT-A directed AO/TPO to grant working capital adjustment based on the OECD formula and by taking the PLR as adopted by the Slate Bank of India in FY 2008-09 for working capital loans - HELD THAT:- We are of the considered opinion that no interference is required and while upholding the same, we reject the challenge of the Revenue on this aspect.
Jurisdiction - parallel proceedings - with respect to one subject matter two authorities are conducting the inquiry - power to summon any person under Section 70 of the CGST Act lies with a “proper officer” or not - stance of the respondents is that the impugned summons issued by the DGGSTI has no relevance or any bearing with the writ-application filed by the writ-applicant before the High Court of Delhi.
Whether we should interfere at the stage of issue of summons under Section 70 of the CGST Act, 2017? - HELD THAT:- The judgment of the Supreme Court in the case of COMMISSIONER OF CUSTOMS, CALCUTTA VERSUS MM EXPORTS [2007 (3) TMI 265 - SUPREME COURT], takes the view that the High Courts should not interfere at the summons stage except in exceptional cases, the reason being that the department has not decided and taken a firm opinion whether or not to issue a show-cause notice.
One more decision of the Supreme Court is in the case of Union of India vs. Rajnish Kumar, Tuli, [2010 (1) TMI 1248 - SUPREME COURT]. In the said case, the appeal arose out of the order passed by the Punjab and Haryana High Court, directing the concerned officers of the Directorate of Revenue Intelligence to examine and record the evidence of the respondent therein at their office at Ludhiana - A case was registered by the Ahmedabad Zonal Unit, DRI, on the allegation of misuse of the advance licence scheme and summons were issued under Section 108 of the Customs Act, 1962. The Supreme Court took note of the decision in the case of Dukhishiyam Benupani, Asstt. Director, Enforcement Directorate (FERA) vs. Arun Kumar Bajoria, [1997 (11) TMI 428 - SUPREME COURT], and held that the learned Single Judge of the Punjab and Haryana High Court could be said to have passed the order without properly appreciating the decision of the Supreme Court in the case of Arun Kumar Bajoria.
This writ-application need not be entertained - application dismissed.
Reopening of assessment u/s 147 - assessment which was processed u/s 143(1) on the ground that the assessee had an exclusive agent in India in the form of M/s ZTL which is soliciting advertisement on its behalf and collecting advertisement revenue in India - contention of the AO that M/s ZTL was held to be dependent agent of the assessee and also held to be constituting a PE of the assessee in India under Article 5(4)/5(5) of the DTAA between India and UK - HELD THAT:- As mentioned earlier, in the order u/s 92CA(3) TPO was concerned with sale of TV programs and films which ZEEL has shown at Rs.83.78 crores. In the instant case, we are concerned with the gross revenue received by the appellant from advertisement from India. The above order passed by the TPO does not deal with the gross revenue received by the assessee from advertisement from India.
It is not the case of the revenue authorities that the gross revenue received by the assessee from advertisement from India is not at arm’s length remuneration. Therefore, once we hold that in the light of present legal position, existence of dependent agency permanent establishment is wholly tax neutral, the question regarding existence of DAPE is a wholly academic in question. We need not therefore deal with the question about the existence of the DAPE, as it is an academic exercise with not tax effect involved.
Section 92F(ii) of the Act defines arm’s length price as a price which is applied or proposed to be applied in the transaction between persons other than associated enterprises (‘AE’) in uncontrolled transactions.
As rightly held in E-Funds [2017 (10) TMI 1011 - SUPREME COURT] that “where transactions between assessees (two US Companies) and Indian entity where at arm’s length price, no further profits could be attributed even if they are existed a PE in India.
It is aptly held in Set Satellite (Singapore) Pte. Ltd.[2008 (8) TMI 96 - BOMBAY HIGH COURT] “if the correct arm’s length price is applied and paid, then nothing further would be left to be taxed in the hands of the foreign enterprise”.
Similarly, in Asia Today Ltd. [2021 (2) TMI 95 - ITAT MUMBAI] it is held that “in the light of Hon’ble Jurisdictional High Court’s judgment in the case of Set Satellite (supra), so far as profit attribution of a DAPE is concerned, the legal position is held as long as an agent is paid an arm’s length remuneration for the services rendered, nothing survives for taxation in the hands of the dependent agency permanent establishment. Viewed thus, the existence of a dependent agency permanent establishment is wholly tax neutral - Appeal allowed.
TP Adjustment - Re-characterization of the assessee as a high-end information technology enabled service (ITES)/knowledge process outsourcing (KPO) service provider - TPO has re-characterized the assessee as a KPO service provider - HELD THAT:- Assessee has drew our attention to the Safe Harbour Rules, 2017 issued by the Central Board of Direct Taxes (CBDT) ON 07-06-2017, wherein, various services have been classified under ITeS and KPO categories. As contention of assessee, the services provided by the assessee are coming under the ITeS category even under the Safe Harbour Rules, 2017 of the CBDT, all the aspects have not at all been examined either by the TPO or by learned DRP while re-characterising the assessee as a high-end ITeS/KPO service provider.
We restore the issue to the AO for considering assessee’s claim that it is a low end ITeS service provider and not a KPO service provider. While doing so, the Assessing Officer must verify all the documentary evidences furnished by the assessee to demonstrate the exact nature of services provided to the AEs. Further, the Assessing Officer will also examine assessee’s claim that there is no change in the nature of service provided in earlier years, wherein, it has been accepted as a low end ITeS provider. Needless to mention, the Assessing Officer must provide reasonable opportunity of being heard to the assessee before deciding the issue. Assessee’s appeal is partly allowed for statistical purpose.
TP Adjustment - most appropriate method to benchmark the transaction with the AE - applicability of internal TNMM as opposed to external TNMM - HELD THAT:- Tribunal in assessee’s own case for Assessment Year 2011-12 [2017 (5) TMI 1795 - ITAT MUMBAI] has held that internal TNMM as adopted by the assessee is the most appropriate method to benchmark the transaction with the AE.
Following the aforesaid decision,while deciding assessee’s appeal for AY 2012-13 in [2019 (11) TMI 1774 - ITAT MUMBAI] has reiterated that internal TNMM is the most appropriate method to benchmark the transaction with AE. Thus, following the consistent view of the Tribunal in assessee’s own case, as referred to above, we hold that the international transaction with the AE has to be benchmarked by applying internal TNMM as adopted by the assessee.
Accordingly, we restore the issue back to the AO for examining assessee’s benchmarking under internal TNMM and in case the assessee is able to justify its own benchmarking, then it has to be accepted. Of course, the AO while deciding the issue must provide due opportunity of hearing to the assessee.
TP Addition - Admissibility of additional evidences by CIT-A - HELD THAT:- On perusal of the order sheet of transfer pricing proceedings, it is undisputed that query regarding the comparable M/s Alta Moda was made only one day prior to the passing of the order by the TPO and thus it is evident that no sufficient opportunity was provided to the assessee to adduce evidence in support to challenge of the comparable, namely, M/s Alta Moda. Thus, we do not find any error in the finding of the Ld. CIT(A) that the assessee is eligible for filing additional evidences under Rule 46A(1)(d) of the Rules.
In view of the decision of the Hon’ble Delhi High Court in the case of Manish Buldwell Private Limited 2010 (12) TMI 760 - ITAT - DELHI (E) the Ld. CIT(A) was required to forward the additional evidences for the comment of the Learned AO/TPO on merit.
The assessee has produced additional evidence before the Ld. CIT(A), which were forwarded to the Learned TPO. The Ld. CIT(A) in the impugned order has reproduced the comment of the TPO on the issue of selection of comparable M/s Alta Moda and reimbursement of expenses.
On perusal of the above comments of the Learned TPO, we find that that there is no violation on the part of Ld CIT(A). He had duly forwarded all evidences for the comment of the Ld. TPO, but the Ld. TPO consciously did not give any comment on the evidences related to reimbursement of expenses. The Ld. CIT(A) can’t be faulted in such circumstances for the inaction of the Ld TPO. In view of above facts and circumstances, we don’t find any violation on the part of Ld. CIT(A) in admitting additional evidences under Rule 46A of the Rules. The ground no. 1 of the appeal is accordingly dismissed.
Exclusion of comparable M/s Alta Moda -. As far as contention of the learned Counsel that the company, M/s Alta Moda is engaged in construction, we find that under the clause of general information (schedule -13) to the significant accounting policies and notes of account.
The remark of business of construction may be with reference to construction of the store, however, for verifying this fact beyond doubt, we feel it appropriate to set aside the finding of the Learned CIT(A) on the issue in dispute and restore the matter back to the AO/TPO for ascertaining the functions of the company during relevant year from the company itself using authority under section 133(6) of the Act.
As to whether the company is in retailing through its own shop or though ‘Franchise’ model is concerned, on perusal of chart of financial statement of the company for financial year 2008-09 (i.e. assessment year under consideration) available in impugned order, we find that in financial year 2008-09, no franchise commission has been shown as received.
As far as the ground that while computing margin of the Company, the custom duty paid on import of products has been excluded, is concerned, we are of the opinion that for comparability gross profit margin of both the company and the assessee has to be computed in similar manner. Both in the case of assessee as well as in the comparable company treatment of the custom duty has to be given in the similar manner. If the custom duty is part of the trading account then same is to be treated in identical manner while computing the gross profit margin of the company as well as the assessee. Since we have already rendered the issue of verifying the function of the company to the Ld AO/TPO, so if the company is found to functionally similar to the assessee, the Ld AO/TPO, shall compute the margin of the company in view of our direction above. Appeal of the Revenue is accordingly allowed for the statistical purposes
Adjustment to the international transaction of reimbursement of expenses to Associated Enterprises (AEs) - HELD THAT:- There is no dispute on the fact that only sample bills of expenses reimbursed to the AEs were produced before the learned TPO during original transfer pricing proceedings and therefore the learned TPO proposed adjustment in respect of the expenses for which bills/invoices were not produced before her. During appellate proceedings before the CIT(A), the assessee has produced entire details of expenses reimbursed along with bills/invoices as additional evidence, which were forwarded by the Learned CIT(A), to the learned TPO for his comments.
TPO objected to the admission of the additional evidences and abstained from giving his comments on the evidences of expenses, which shows that he was unable to point out any defect in the evidences of the assessee. Before us, the Ld DR has also not pointed out any defect or irregularity in analysis of the CIT(A) on the issue of expenses reimbursed. In such circumstances, no useful purpose will be served by sending the matter back to Ld. TPO. We, accordingly reject the arguments of the Ld. DR and dismiss the ground No. 3 of the appeal.
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