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2015 (7) TMI 116 - ITAT MUMBAI

2015 (7) TMI 116 - ITAT MUMBAI - TMI - Transfer pricing adjustment - the TPO determined the ALP of Royalty and Technical knowhow fee as NIL as the assessee did not furnish the details that were called for - Held that:- The decision of the TPO to determine the ALP as NIL is also not in accordance with the provisions of sec.92C of the Act on the reasoning that the assessee did not furnish relevant details that were called for by him. We notice that the assessee had contended before the TPO/AO that .....

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ow payment requires fresh examination. Accordingly, we set aside the decision rendered by the Ld CIT(A) in respect of the issue relating to Technical knowhow payment and restore the same to the file of the AO/TPO for fresh consideration.

Addition made u/s 145A - adjustment of closing stock value with Excise duty amount - Held that:- the provisions of sec. 145A mandates that the value of purchase and sale of goods and inventory shall be adjusted to include the amount of tax, duty, cess .....

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justed to include the amount of tax, duty etc. Thus, the action of the AO, which was approved by Ld CIT(A), was not in accordance with the mandate of the provisions of sec. 145A of the Act. Compliance of provisions of sec. 145A in part only, would give misleading result. Accordingly, we set aside the order of Ld CIT(A) on this issue and restore the same to the file of the AO with the direction to apply the provisions of sec. 145A of the Act to purchases, sales and inventory and make addition, if .....

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aid contentions, it appears that the assessee did not furnish the relevant details. Since we have rejected the contentions of the assessee, the ALP of the royalty amount is required to be determined as per the provisions of the Act. Accordingly, we are of the view that the issue relating to the determination of ALP requires fresh examination.

Validity of assessment order passed by the AO. - Held that:- Illegality which has occurred after proper initiation of proceedings vitiates the .....

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egality in not following the procedures prescribed under sec. 144C of the Act and hence the said illegality needs to be corrected by restoring the matter to the file of the assessing officer at the stage at which the illegality has occurred. - All the appeals of the assessee are allowed for statistical purpose. - I.T.A. No.6078 and 7160/Mum/2011,I.T.A. No.6079/Mum/2011 - Dated:- 24-6-2015 - S/Shri D. Manmohan and B.R.Baskaran, JJ. For the Petitioner : Shri Mayur Kisnadwala For the Respondent: Sh .....

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he return of income filed for AY 2004-05, the assessee also filed Transfer pricing study report in Form 3CEB, wherein it was reported that the assessee has entered into international transaction in the form of payment of Royalty amount of ₹ 5.76 crores and technical knowhow amount of ₹ 0.79 crores. Hence the AO referred the matter of determination of Arms Length Price (ALP) to the Transfer Pricing Officer (TPO). 3. Before TPO, the assessee relied upon Technical Assistance Agreement e .....

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eriod from September 1998 to March 2002 and the assessee had disallowed the same in the relevant years u/s 40(a)(i) of the Act for non-deduction of TDS. Since the assessee has remitted the TDS during the year under consideration, it has claimed deduction u/s 40(a)(i) of the Act. It was further submitted that the royalty payment pertaining to the year under consideration was not claimed as deduction since the TDS was not deducted from the said payment. With regard to the ALP of the payment, the a .....

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no dispute with regard to the fact that the royalty payment of ₹ 5.76 crores pertain to the period from September, 1998 to March, 2002. The present assessment year is AY 2004-05. It is stated that the assessee has disallowed the royalty expenses of ₹ 5.76 crores in the relevant years as per the provisions of sec/ 40(a)(i), since the assessee did not deduct and remit tax at source in those years. However, the assessee has deducted and remitted the TDS amount during the year under con .....

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tional transaction and further failed to furnish the details that were called for by the TPO. Hence the TPO was constrained to determine the ALP of royalty payment as NIL. 7. As noticed earlier, the royalty payment of ₹ 5.76 crores has been claimed by the assessee u/s 40(a)(i) of the Act on the basis of remittance of TDS during the year under consideration. There should not be any dispute that the reference to the Transfer Pricing Officer is part of assessment proceedings and as per the pr .....

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nt year which is before the AO. Accordingly, we are of the view that the AO cannot refer the international transactions that were carried on in any of the past years, whose assessments have already been completed. 8. Further, there is no dispute with regard to the fact that the above said royalty amount of ₹ 5.76 crores pertained to the period from Sep. 1998 to March, 2002. Hence the said payment does not pertain to the international transaction entered during the year under consideration. .....

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ride the provisions of the Act and further it is an established principle of law that there is no estoppels against the law. Accordingly, we are not in agreement with the view expressed by the tax authorities on this issue. Accordingly, we set aside the decision rendered by Ld CIT(A) in respect of Royalty payment and direct the AO to allow the deduction of ₹ 5.76 crores u/s 40(a)(i) of the Act after making due verification thereof. Accordingly, the alternative contention of the assessee wi .....

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expression International Transaction has been defined in sec. 92B of the Act in a wide manner and it includes every kind of transaction having a bearing on the profits. A careful perusal of the definition would show that the same does not make any difference in the line of revenue transaction and capital transaction. Hence, the contention of the assessee is not acceptable. 11. At the same time, the decision of the TPO to determine the ALP as NIL is also not in accordance with the provisions of s .....

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owhow payment is required to be determined as per the provisions of the Act. Accordingly, we are of the view that the issue relating to the determination of ALP of Technical knowhow payment requires fresh examination. Accordingly, we set aside the decision rendered by the Ld CIT(A) in respect of the issue relating to Technical knowhow payment and restore the same to the file of the AO/TPO for fresh consideration. 12. We shall now take up the appeal filed for AY 2005-06, wherein following issues .....

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the amount of duty related to it. The Ld CIT(A) also confirmed the same, but gave a partial relief with regard to some computational error. 14. We heard the parties on this issue. According to the assessee, it has followed Exclusive method for accounting the Excise duty, which means that the Excise duty account shall be maintained as a Balance Sheet item, wherein the collection and remittance shall be accounted for and the remaining balance shall be taken to the Balance sheet as an item of Paya .....

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andates that the value of purchase and sale of goods and inventory shall be adjusted to include the amount of tax, duty, cess or fee actually paid or incurred by the assessee to bring the goods to the place of its location and condition as on the date of valuation. Hence, for the purposes of Income tax, an assessee is required to follow only inclusive method of accounting the tax, duty etc. In the instant case, we notice that the AO has adjusted the value of closing stock only, to include the am .....

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of sec. 145A of the Act have not been applied in entirety, we are of the view that this issue requires fresh examination at the end of the AO. Accordingly, we set aside the order of Ld CIT(A) on this issue and restore the same to the file of the AO with the direction to apply the provisions of sec. 145A of the Act to purchases, sales and inventory and make addition, if any, is found to be made. The assessee is also directed to prove to the satisfaction of the AO that both the inclusive method an .....

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al nullity and accordingly it was contended that there was no requirement of determining ALP. In our view, any future event should not influence the current transaction. Even the accounting standards provide that the contingencies and events taking place in the subsequent period could be recognized only if it is ascertained before the finalization of accounts and further the controversy relating to the said contingency or event should be subsisting as on the date of preparation of the financial .....

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ion of ALP in the current year. 19. The Ld A.R also has taken a stand that it has disallowed the royalty payment u/s 40(a)(i) of the Act and hence the T.P adjustment would result in double addition. We notice that the Ld CIT(A) has given relief to the assessee with regard to the addition made u/s 40(a)(i) of the Act. Since, we are restoring the issue relating to T.P adjustment to the file of the AO/TPO, the issue relating to sec. 40(a)(i) disallowance would also resurrect. However, we may clarif .....

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e with an example. Let us assume that a company has made royalty payment of say ₹ 10.00 lakhs and did not deduct tax at source thereon. Let us assume that the TPO determines the ALP of the same at ₹ 3.00 lakhs. The AO would automatically disallow ₹ 7.00 lakhs. Hence the disallowance to be made u/s 40(a)(i) of the Act would be restricted to ₹ 3.00 lakhs only. This example would make it clear that the disallowance to be made u/s 40(a)(i) is influenced by the T.P adjustments .....

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ination of ALP requires fresh examination. Accordingly, we set aside the decision rendered by the Ld CIT(A) in respect of this issue and restore the same to the file of the AO/TPO for fresh consideration in accordance with the law. 20. We shall now take up the appeal filed for AY 2006-07, where in following issues are urged by the assessee:- (a) Validity of assessment order passed by the AO. (b) T.P. adjustment made u/s 92CA(3) of the Act. (c) Additions made u/s 145A of the Act. (d) Interest cha .....

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f October 2009, proposes to make any variation in the income or loss returned by the eligible assessee. The Ld A.R submitted that the expression Eligible assessee is defined in sec. 144C(15)(b) of the Act, according to which it means any person in whose case the variation referred to in sec. 144C(1) arises as a consequence of the order of the Transfer Pricing Officer passed u/s 92CA(3) of the Act. The Ld A.R submitted that the assessing officer has passed the final order for the year under consi .....

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ition, the AO placed reliance on the decision of Hon ble Madras High Court rendered in the case of Vijay Television (P) Ltd Vs. Dispute Resolution Panel (2014)(270 CTR 505), wherein it was held that the assessment order passed in violation of statutory provisions prescribed by the statute is liable to be quashed. He further submitted that the Hon ble High Court of Andhra Pradesh has also taken identical view in the case of Zuari Cement Ltd Vs. ACIT (Writ petition No.5557 of 2012 dated 21-02-2013 .....

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ry contained in this Act, in the first instance, forward a draft of the proposed order of assessment (hereafter in this section referred to as the draft order) to the eligible assessee if he proposes to make, on or after the 1st day of October, 2009, any variation in the income or loss returned which is prejudicial to the interest of such assessee . The CBDT issued a Circular No.5 of 2010 dated s3.6.2010 (2010)(324 ITR (St.) 293 @ 340), wherein it expressed the view that the new amendments will .....

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th the procedure prescribed in sec. 144C would not make the assessment order a nullity. In this regard, he placed reliance on the decisions rendered by the Hon ble Supreme Court in the cases of Guduthur Bros Vs. ITO (1960)(40 ITR 298)(SC) and Kapurchand Shrimal Vs. CIT (131 ITR 451). 23. We heard the parties on this legal issue. The year under consideration is AY 2006-07 and the assessee filed its return of income o 30-11-2006. Hence the AO should have initiated assessment proceedings by 30-11-2 .....

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assessment order to the assessee, if he proposes, on or after 1st October, 2009, to make any variation to the income as suggested by the TPO. However, the CBDT has taken the view that the new provisions of sec. 144C shall have application in relation to AY 2010-11 and subsequent assessment years and it has been so expressed by the CBDT in its Circular No.5/2010 (supra). In the said Circular, it is also stated that the Dispute Resolution Panel Rules have been notified by S.O. No. 2958(E) dated 20 .....

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n 30-12-2009, since the applicability and impact of new provisions of sec. 144C were unclear. Further, the view of the CBDT/Circular of CBDT is binding on the assessing officer. The Ld A.R brought to our notice that the CBDT has issued another Circular on November 19, 2013 (2013)(350 ITR (St.) 0007), where in the CBDT has modified its earlier Circular No.5 of 2010 (supra) and stated that the provisions of section 144C is applicable to any order which proposes to make variation in income or loss .....

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said case, the assessment year involved was AY 2009-10 and the TPO order was passed on 30th Jan., 2013 and the assessing officer passed the assessment order on 26-03-2013. The AO, subsequently, realized his mistake and accordingly issued a Corrigendum on 15th April, 2013 modifying the assessment order passed on 26-03-2013 and stated that the assessment order passed on 26-03-2013 should be read as Draft assessment order purported to have been passed u/s 144C of the Act. It is also pertinent to no .....

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letion of the assessment. Once the assessment order is passed, the assessing officer shall become functus officio and hence he could not have issued Corrigendum. 27. On the contrary, in the instant case, the AO has passed the final assessment order on 30-12-2009 on a bonafide belief that the provisions of sec. 144C shall apply from AY 2010-11 onwards and hence there was no attempt on his part to correct the same by issuing a corrigendum. Hence, we are of the view that the assessing officer has c .....

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to levy penalty without affording a hearing to the assessee. The penalty order of the ITO was set aside by Appellate Assistant Commissioner, since no opportunity of being heard was given to the assessee. Thereupon, the ITO issued notice calling upon the assessee to appear before him so that it might get an opportunity of being heard. Before the ITO could decide the case, the assessee filed a petition under article 226 of the Constitution for the issuance of the writs against the ITO, but the sai .....

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tion (1) of section 28. We say nothing as to that. Sub-section (3) of section 28, however, requires that the penalty shall not be imposed without affording to the assessee a reasonable opportunity of being heard. This opportunity was denied to the appellants and, therefore, the order of the Income-tax officer was vitiated by an illegality which supervened, not at the initial stage of the proceedings, but during the course of it. The order of the learned Appellate Assistant Commissioner pointed o .....

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Ernakulam Circle, in which, in similar circumstances, it has been held that since an appeal was not taken by the Commissioner of Income-tax to the Appellate Tribunal under sub-section (2) of section 33, the order of the Appellate Assistant Commissioner became final and the Income-tax Officer could no longer proceed to reassess the penalty. The reason given is, in our opinion, beside the point. What the Appellate Assistant Commissioner did was to vacate the order and direct refund of the penalty .....

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the appellants to show cause why penalty should not be imposed on them did not cease to be operative because the Appellate Assistant Commissioner pointed out an illegality which vitiated the proceeding after it was lawfully initiated. That notice having remained still to be disposed of, the proceedings now started can be described as during the course of the assessment proceedings, because the action will relate back to the time when the first notice was issued. In our opinion, the Income-tax O .....

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r u/s 25A of 1922 Act (corresponding 171 of the 1963 Act). However, the ITO passed assessment order on the HUF without holding an enquiry as contemplated u/s 25A of the Act. In the appeal filed before the AAC, the Appellate Assistant Commissioner held that the partition has taken place on a particular date. However he did not agree with the contentions of the assessee that the assessment order should be quashed. The Tribunal held that the assessments made without conducting an enquiry into the c .....

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nts in the light of sec. 25A(2). The assessee preferred further appeal before the Hon ble Supreme Court. The Hon ble Apex Court held as under:- From a fair reading of s. 25A of the Act it appears that the ITO is bound to hold an inquiry into the claim of partition if it is made by or on behalf of any member of the HUF which is being assessed hitherto as such and record a finding thereon. If no such finding is recorded, sub-s. (3) of s. 25A of the Act becomes clearly attracted. When a claim is ma .....

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ribunal ends with making a declaration that the assessments are illegal and it has no duty to issue any further direction. It is well known that an appellate authority has the jurisdiction as well as the duty to correct all errors in the proceedings under appeal and to issue, if necessary, appropriate directions to the authority against whose decision the appeal is preferred to dispose of the whole or any part of the matter afresh unless forbidden from doing so by the statute. The statute does n .....

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quence that may ensue in case where the claim of partition is made at a very late stage where it may not be reasonably possible at all to complete the inquiry before the last date before which the assessment must be completed. In the instant case, however, since it is not established that the claim was a belated one the proper order to be passed is to set aside the assessments and to direct the ITO to make fresh assessments in accordance with the procedure prescribed by law. The Tribunal, theref .....

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the matter satisfactorily. The question may have to be read as including a further question regarding the nature of the orders to be passed by the Tribunal if the orders of assessments are held to be contrary to law. In the light of the above, we hold that the orders of assessments are liable to, be set aside but the Tribunal should direct the ITO to make fresh assessments in accordance with law. 30. In both the decisions discussed above, the Hon ble Supreme Court has made it clear that the ille .....

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