TMI Blog2013 (9) TMI 525X X X X Extracts X X X X X X X X Extracts X X X X ..... tives was not filed before him. In the paper book we do not find any documents related with the incentive scheme. We are of the opinion that matter of incentives allowed by the assessee to its dealers needs to be restored to the file of the AO. He is directed to decide the issue afresh with regard to the provisions of section 194C of the Act. Assessee is directed to furnish the AO details like plan adopted by it, method of calculating the incentives, incentives actually allowed etc. to the AO. - partly decided in favor of assessee. Depreciation of Rs.13,09,000, on intangible assets - evidence regarding use of technical know how - Held that:- The assessee had acquired technology for defence vehicles from one company of Israel. The assessee had acquired IPR of the said technology. We are of the opinion that existence of an agreement is not sufficient to claim depreciation. Neither before the Assessing Officer nor before us the assessee had shown as to how the technical know how was used passively during the year under consideration. - Decided against the assessee. Provisions for medical benefits as prior period expenses - Held that:- this is merely a provision and an unascertai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... onf. Jeco acquisition Media Relation Service 50,21,610 2 21,348 3 Prof. Charges Valuation Report Schoneweiss 1,00,000 4 Jeco Success Fees, Structuring Fees! Drop Dead Fees Out of Pocket 3,38,30,562 5 Legal Professional Fees JECO 57,59,224 6 Project Sunrise Out of Pocket expenses and Due Diligence (DGP Hinoday) 10,12,069 7 Acquisition of Plexion Tech Prof. Charges Due Diligence, Out of Pocket expenses 12,25,258 8 Schoneweiss Structuring fees Out of Pocket Professional Fees 11,481,743 9 Prof. Fees, Due Diligence , Consultancy and Legal Fees for Project Donar 15,110,038 10 Prof. fees, Due Diligence (Donar! Saturn) (Schoneweiss) 4,004,990 11 Professional Fees for Mercury Project 113,449 12 Advisory Fees, Legal Fees Professional Charges of DGP Hinaoday 76,44,941 14 MSA ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... emental CENVAT credit balance of Rs. 10,08,86,220/- (Rs. 52,28,72,706 as on 31-3-2007 as reduced by Rs. 42,19,86,486 as on 313-2006) as revenue income liable to tax be included in the income of the Appellant. The learned Addl C.I.T erred in holding that income had accrued to the Appellant in the form of Cenvat Credit on raw material and hence became liable to tax in view of the mercantile system of accounting followed by the Appellant. The learned Addi C.I.T also erred in holding that the Cenvat Credit represents income chargeable to tax uls 28 of the Act. 5. Provision for Warranties Rs. 22,10,70,000/- On the facts and in the circumstances of the case and in law the Appellant contends that the learned Addl C.I.T. erred in treating the provision for warranties made as at 31-03-2007 as inadmissible expenditure on the ground that this provision is in the nature of contingent liability and hence not an ascertained liability. The learned Addi C.I.T erred in coming to the conclusion that the Appellant had been unable to pass the tests prescribed by the Supreme Court in the case of Rotork India Ltd. The learned Addl C.I.T further erred in holding that the Appellant s line of bus ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... between borrowings and investments. The disallowance be deleted or at least be suitably reduced. Without prejudice, investments from which no tax free income was earned during the year under assessment ought to have been excluded from the exercise of computation of disallowance u/s 14A. 9. Payments to Clubs - Rs. 36,94,311/- On the facts and in the circumstances of the case and in law The Appellant contends that the learned Addl C.I.T. erred in disallowing as capital expenditure a sum of Rs. 36,94,311/- being membership fees paid by the Appellant to various clubs, disregarding the fact that the said payments are in the nature of revenue expenditure and have been made wholly and exclusively for the purposes of business. 10. Adjustment uls 92CA(3) to Arm s Length Price of international transaction adjustment of Rs. 5,94,05,404/-. On the facts and in the circumstances of the case and in law, the learned Addl C.I.T erred in adding to the income of the Appellant comprising of a sum of Rs. 29,18,800 being adjustment for Bank Guarantee and Rs. 5,64,86,604 being notional interest disallowance to the total income of the Appellant , as per the adjustment made in Transfer Pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s and in the circumstances of the case and in law the learned Addl C.I.T erred in not allowing weighted deduction u/s 35(2AB) with reference to expenditure of Rs. 54,11,41,137 incurred on in-house Scientific Expenditure rejecting the contention of the Appellant that it was entitled to the said deduction and also that non-receipt of form 3CL from DSIR was not determinative of the issue. The learned Addi C.I.T ought to have appreciated that submission of report in form 3CL was not neither the obligation of the Appellant nor within its control and therefore cannot be a ground for sustaining disallowance. 14. Disallowance u/s. 40a(ia) of Dealer Incentive Rs. 87.57,85,000/- and Service Coupon Rs. 35,49,01,000/- On the facts and in the circumstances of the case and in law the learned Add! C.I.T erred in disallowing u/s 40a(ia) Dealer Incentive Rs.87,57,85,000 Service Coupon 35,49,01,000 aggregating to Rs. 123,06,86,000 rejecting Appellant s contention that tax was not deductible on dealer incentive service coupon under Section l94H 194C respectively. The finding of the learned Addl C.I.T. that the transactions between the Appellant and its dealers were not on principal to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at any subsequent point of time. 17. Disallowance of Provision of Medical benefits of Rs. 3,07,84,564/- On the facts and in the circumstances of the case and in law the Appellant objects to the proposed action of the learned Addl C.I.T. of disallowing amount of Rs.3,07,84,564 as medical benefits to the employees without accepting the contention of the Appellant that the liability has accrued during the financial year 2006-07 and should be allowed as business expenditure. 18. Disallowance of deduction of Octroi Incentive of Rs. 6289 Lakhs On the facts and in the circumstances of the case and in law the learned AddL. C.I.T. erred in not accepting the contention of Appellant that Octroi Incentive of Rs. 6289 lakhs was not taxable on the ground that it was a capital receipt. 19. Disallowance of deduction of Part reversal of FCCB premium of Rs. 918.92 lakhs On the facts and in the circumstances of the case and in law the Learned Add!. C.I.T. erred in not accepting the Appellant s claim for excluding from its income Rs. 918.92 lakhs being part reversal of premium payable on FCCB which was provided in the previous year relevant to AY 2005-06 AY 2006-07 but was di ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... made under Voluntary Retirement Schemes in earlier years, to which payments the Department had applied the provisions of the said section. 25. Short Credit of TDS of Rs.62,74,153/ On the facts and in the circumstances of the case and in law the learned Addl. C.I.T. erred in not allowing credit for TDS of Rs. 14,61,370 Rs. 48,12,783/-. During the hearing before us Authorised Representative (AR) of the appellant company as well as the Departmental Representative (DR) agreed that Ground of Appeal Nos.1,2,3,4,5,6,7,8,9,11, 12,13, 18,19,20 and 25 for the assessment year under consideration were same as the grounds for the earlier assessment year i.e. A.Y. 2006-07.They agreed that the issues involved are same, only difference is of figures of expenditure / disallowances and that number of ground of appeal for the current year may have different number as compared to last assessment year. Vide our order dated 06.06.2012(ITA No.8597/Mum/2010) for the last assessment year(AY2006-07) we have decided various issues and following the same we hold as under 2. Ground no.1-Expenditure incurred for acquisition of Indian and overseas entities and matters related with such acquisi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed in this regard is rejected for the current year also. Ground no.12 pertains to disallowance made by the Assessing Officer under section 40(a)(ia) in respect of year end provisions amounting to ₹ 9.42 lakhs. Last year, same issue was decided in favour of the assessee. As the facts and circumstances remain the same, we allow the appeal of the assessee with reference to ground no.12. Ground no.13 pertains to section 35(2AB) of the Act. It is found that, this year, the approval for Nasik Unit was not received from the DSIR. The Assessing Officer is to allow the expenditure under section 35(2AB) for Kandivali Unit and for Nasik Unit, the same should be allowed as and when the approval is produced by the assessee. Similar directions were issue last year also. Ground no.18 Issue of Octroi incentives, was dealt by us in the earlier assessment year also. Following the same, we direct the Assessing Officer to allow the claim for capital goods only. Ground no.19 is about deduction for write back during the year of excess provisions of premium payable on FCCB. We have held in the order for the last assessment year that income should not be taxed twice. The Assessing Office ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is, that the TPO had based his exercise on half baked the information and had benchmarked the working that was applicable only to a small fraction of the venture balance, that advance of Rs. 111.87 crores was towards share application money and that same was not alone transaction, that the average rate of interest was 1.21%. He relied upon the case of Four Soft Limited (ITA No.1495/Hyd/l0) decided by the Hyderabad bench of ITAT. Departmental representative (DR) submitted that assessee was not in business of giving loans, that opportunity cost principles should be applied, that weighted average rate should be taken for adjustments. In the rejoinder AR submitted that argument of opportunity cost was taken by the Department before the Hyderabad bench. 3.2 We have heard the rival submissions and perused the material before us. We find that the Hyderabad bench has dealt that the issue about the rates to be adopted for transfer pricing adjustment in great detail. We like to reproduce relevant portion of the said judgment that reads as under: 18.Now, we will take up the next issue [Ground No.13] relating to loan to its subsidiary company, 4S By, Netherlands. The learned counsel f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 5.78% approved by the DRP, we find it proper to restore this issue to the file of the assessing officer, to verify the correctness of the claim made by the assessee company. In view of this matter, we remit this matter to the file of the assessing officer to verify the actual average LIBOR prevailed in the financial year relevant to the assessment year under consideration and adopt the interest rate 4.42% if the claim of the assessee is found correct. The ground raised by the assessee on this issue is partly allowed for statistical purpose. Following the above mentioned judgment we remit back the matter to the file of the assessing officer to decide the issue in light of the above discussion. LIBOR rate prevalent at the relevant point of time should be considered for adjudicating the issue under consideration. As a result ground number 10 stands remitted back to the AO. 4. Ground number 14 is about disallowance of Dealer Incentive and Service Coupons. AO disallowed dealer incentive amounting to Rs. 87.57 crores and service coupon of Rs. 35.49 Crores under section 40 (a)(ia) r.w.s. 194 H and 194C of the act respectively. From page number 49 to 55 of the assessment order the i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he said mechanism ensured that dealers undertook services of the vehicles for the customers and also that the customers take the vehicle for periodic services, that the AO had ignored payment of Rs. 8.22 Crores for the financial subvention charges on which TDS had already been deducted. Referring to the dealers agreement (page 124 of the paper-book) that was handed over to the AO during the course of assessment proceedings AR submitted that from the terms and conditions of the agreement one could easily see that the relationship between the assessee and its dealers was not of agency. He referred to various pages of the paper-book to support his case. He relied upon the judgments of Bhopal Sugar Industries Ltd.,[1977-(003)-0147-SC],Rowers Chemicals(Pvt.)Ltd.(4CTR111),Vijay Traders (1995 Scale(6),150, Moped India Ltd.[1986-(001)SCC-0125-SC],DCM Textiles[2006-(1950-ELT- 0129-SC].On the other hand, DR submitted that the dealers incentives were covered under section 194 H of the Act, that prices were finalised by the appellant company, that company decided the duties of the dealers, that appellant compelled the dealers to maintain a minimum stock, that after sales and service were provi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... one person is vested with the authority or capacity to create a legal relationship between person referred to as a principal and an outside third party. Therefore, the basic and essential requisites of an agency ordinarily would be that :The agent makes the principal answerable to third persons whereby the principal can sue third parties directly and renders him-self, that is, the principal, liable to be sued directly by the third parties. 4.3. Various courts have enumerated principals about sale and agency. A few of them are reproduced herei) Following factors would not be relevant to determine as to whether an agency exists or not : -the fact that the distributor is subject to operational control by his principal ; -the fact that the distributor is subject to geographical controls by his principal -the fact that the distributor has to maintain detailed records and accounts -the fact that the distributor has to submit accounts to the principal. (ii) The person who purports to enter into a transaction on behalf of the principal would have the power to create, modify or terminate contractual relationship between his principal, that is, the person whom he represents, a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... other taxes levied either by the Central or state government or local authority is all bodies shall be charged extra as and when applicable....... the point of sale for such interstate dispatches from the plant of the company shall be when such vehicles are delivered to the transporters. As the plant, as the property in the vehicles shall pass to the concerned dealer at that point. 8.Method of consignment: b). Ex plant billing -In case of tax plan billing the company shall handover vehicles to transporters along with the invoice copy and other relevant documents of company's plan itself, and therefore the title in the vehicles shall be deemed to be transferred from the company to the dealer at the plant. (l) Comply with conditions of purchase will be bound by the company's conditions of sale in force. While purchasing the said products and selling the same to its own customers, and will abide by such other terms, as the company will impose, from time to time..... 19. Return of company property and disposal of stocks b) if upon expiry or termination of this agreement, the dealer shall offer for sale to the company all the Central Acts in possession of the dealer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of section 194H, commission must have been received by a person who is acting on behalf of another. In other words, he must be acting as an agent to another person. The Commissioner of Income-tax (Appeals) had also noticed that the assessee as well as the distributor are showing their respective sale invoices and are assessed to sales tax, which was evidenced by the respective sales bills and sales tax orders. With these observations, and in the light of each and every clause of the agreement, the Commissioner of Income-tax (Appeals) held that the arrangement between the assessee and the distributor was that of principal-to-principal and not of principal-agent. The Income-tax Appellate Tribunal held that it was the case where two parties to a contract had taken a conscious decision to transact between each other on principal-to-principal basis and it would not be open to the Revenue to read into such contract and treat the same as being on principal-agent basis. Before the Hon ble High Court counsel appearing for the Revenue relied upon the case of CIT v. Idea Cellular Ltd. (325 ITR 148). It was held that the facts of CIT v. Idea Cellular Ltd. were entirely distinguishable from t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essee to the distributor were incentives and discounts and not commissions. We find no infirmity in the findings of the Commissioner of Income-tax (Appeals) and also the Income-tax Appellate Tribunal. Keeping in view the abovementioned facts and circumstances of the case, the present appeal has no merit and is hereby, dismissed. 4.6. Considering the ratio of the case of Jai Drinks (supra) and the terms and conditions mentioned at paragraph 4.4we are of the opinion that provisions of 194 H are not applicable in this case. We are of the opinion that transaction between the assessee and the dealers were on principal to principal basis. In other words there are certain terma and conditions in the agreement that are clearly indicative of the fact that the transactions were between principal and principal and that even in the matter of sales that were effected by the dealer it did not act as an agent of the assessee company. In this behalf the first significant aspect which noteworthy is that pursuant to indents placed by the dealer the products were not merely supplied by the assessee company to the dealer, but were actually sold to the dealer at certain prices. In other words, what ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cquired technology for defence vehicles from one company of Israel. The assessee had acquired IPR of the said technology. We are of the opinion that existence of an agreement is not sufficient to claim depreciation. Neither before the Assessing Officer nor before us the assessee had shown as to how the technical know how was used passively during the year under consideration. Under these circumstances, we uphold the decision of the Assessing Officer. The case laws relied upon AR do not endorse his arguments. In the case of Mahindra Kotak Finance Ltd.(supra) of machinery was leased before end of accounting year by the assessee. Lessee installed the said machinery after end of accounting year. It was held by the court that action of the lessee was not at all relevant for allowing the claim of the assessee. It was held that the assessee was entitled to depreciation. Mcorp Global P. Ltd.(supra)is about a sham lease transaction. In the case of Dineshkumar Gulabchand Agrawal Hon ble Bombay HC has held that the word used in section 32 of the Income-tax Act, 1961, denotes that the asset has been actually used and not that it is merely ready for use. The expression used means actually u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Considering the nature of the claim, we agree with the AO that this is merely a provision and an unascertained liability. The claims also do not relate to the year under consideration. Further we also find that there are no specific approved funds for the provisions. The claim is also against the matching principle. The important fact also to be noted is that this amount has neither been paid to the employees during the year nor it has been deposited in a separate fund. In line with the foregoing, the disallowance is upheld. Unascertained liabilities cannot be allowed u/s.37 of the Act. We have gone through the paper book pages 165 to 181 and after perusing the same we are of the opinion that the claim made by the assessee is not allowable.We have also perused the case of Bharat Aluminum (Supra). It is about ascertained liability with regard to leave encashment. As the facts and circumstances of the case under consideration are different we hold that the case relied upon by the assessee is of no help. Ground no.17 is decided against the assessee. 8. Ground no.21 is about not allowing deduction amounting to ₹ 81,69,000, for expenditure incurred on building made for R D ..... X X X X Extracts X X X X X X X X Extracts X X X X
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