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2016 (6) TMI 632 - ITAT MUMBAI

2016 (6) TMI 632 - ITAT MUMBAI - TMI - Transfer pricing adjustment - DRP determining the arm's length price of the international transaction pertaining to management charges (Area Management Cost/Corporate Management Cost) at Nil - Held that:- The assesse has fairly accepted that the assessee could not lead the necessary evidence, in support of rendition of services, at the assessment stage, and it was only before the DRP that the assessee could produce the evidence. He submits that this was the .....

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n appropriate cases, calls for the comments from the assessment stage. We donot want to conduct this exercise of appreciating the evidence, for the first time in the case of the assesse, at this level. Learned Departmental Representative has also not seriously opposed this suggestion of the matter being remitted to the assessment stage. In this view of the matter, and with the consent of the parties, the matter stands restored. As the matter is being remitted to the assessment stage, it will be .....

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nt does not actually yield any tax exempt income - Held that:- There is no dispute that gains on redemption of this investment has been offered to tax, and that no tax exempt income was earned by this investment. On these facts, and bearing in mind the fact that the issue is covered, in favour of the assessee, by decision of the coordinate bench in assessee’s own case for the assessment year 2008-09, we uphold the grievance of the assesse and direct the Assessing Officer to modify the disallowan .....

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in the source country i.e. Zambia in this case, double taxation relief is very well admissible under section 90 read with Article 24 of India Zambia Double Taxation Avoidance Agreement. Just because an assessee does not claim double taxation relief in respect of an income, it does not entitle the assessee to exclude that income from taxable income. Nothing, therefore, turns on not claiming double taxation relief on an income, so far as taxability of that income is concerned. As for the relief u .....

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ure. We have noted that out of a total expense of ₹ 5,88,62,091, an amount of ₹ 5,29,32,320 is aid to the Aker Norway for actual use of software. Since the amount is paid on the basis of actual use of software, and not for acquisition of software, there cannot be any occasion for treating the same as capital expenditure. As regards the remaining amount also, as evident from the copies of invoices before us, the payment is for the licence fees on annual basis, and not for the entire p .....

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as revenue expenditure in nature.

Expenses on sale of capital asset disallowed - Held that:- Wwe find that the expenses pertains to legal expenses in connection with structuring of the transaction and related aspects. These expenses were incurred in the course of the business and for its operations, though the specific issue on which advice was sought pertained to the sale transaction. Merely because the transaction in question is a capital asset, the legal expenses will not also beco .....

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correctness of the directions dated 26th November, 2013, issued by the Dispute Resolution Panel -I, Mumbai, in the matter of assessment under section 143(3) r.w.s. 144C of the Income Tax Act, 1961, for the assessment year 2009-10. 2. We will first take up the appeal filed by the assessee. 3. Ground no. 1 is not pressed by the assessee, and is, as such, dismissed for want of prosecution. 4. In the second ground of appeal, the assessee has raised the following grievance Transfer pricing adjustment .....

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respect the appellant's transactions with its associated enterprise in relation to management charges. 2.4 The learned Addl. CIT/DRP erred in disregarding the cost allocation on the basis that no services were provided to the appellant. 2.5 The learned Addl. CIT/DRP erred in not taking cognizance of the various evidences submitted by the appellant to prove the rendition of services and the benefit received in the right perspective. 2.6 The learned Addl. CIT/DRP erred in disregarding the eco .....

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erred in not considering the services agreements entered into between the appellant and its associated enterprise pertaining to the allocation of the management charges in a correct perspective. 2.9 The learned Addl. CIT/DRP erred in concluding that the appellant was working as an Aker Solutions group entity from 1973. 5. The relevant material facts are like this. During the course of proceedings before the Transfer Pricing Officer noticed that the assessee has paid management fees of ₹ 1 .....

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providing useful and beneficial management services to Aker that requires these services and that Aker receives assistance in the area of business services, finance function, marketing and market research, technical support and human resources from personnel of AKAS . It was also noted that, according to the assessee, the services are rendered by the overseas office personnel who have rendered the same by coming down to India, through video conferencing and telecom and, in many instances, person .....

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at the assessee has failed to furnish the documentary evidence that it has actually received the services envisaged under the agreement. He was apparently of the view that though the very fact that the assessee is doing business in India for last 38 years and no such services are required shows that the claim is not bonafide. It was in this backdrop and having held that no services were rendered by the AE, the TPO determined the arm s length price of the services as NIL. Aggrieved, assessee rais .....

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assessee could produce the evidence. He submits that this was the first year for payment of management services and that there were genuine difficulties preventing the assessee from submission of these details at the assessment stage. He has now submitted voluminous evidences before us but, in our considered with you, the right course of action will be that all these evidences are examined at the assessment stage. The examination of basic evidence at the appellate stage or even at the stage of .....

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the matter is being remitted to the assessment stage, it will be open to the assessee to take all such pleas, as he may be advised, and the TPO shall adjudicate upon the same in accordance with the law, by way of a speaking order and after giving yet another fair opportunity of hearing to the assessee. Ordered accordingly. 9. Ground no. 2 is thus allowed for statistical purposes. 10. In ground no. 3, the assessee has raised the following grievance: 3. Disallowance of expenses under section 14 A .....

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thout appreciating that part of the investments made in Mutual Funds (with Growth Scheme) will not generate any tax-free income and therefore the same ought to have been reduced in the computation. 11. As regards this ground of appeal, the short issue that is required to be adjudicated is whether the investment of ₹ 8,00,00,000 in Mutual Funds (growth scheme) will be included in the assets yielding tax exempt income, for the purpose of computing disallowance under section 14A r.w.r. 8D, wh .....

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wance accordingly. As for the small amount of ₹ 1,307, no arguments were advanced in respect of the same. It is treated as abandoned in view of the smallness of the amount. 12. Ground no. 3 is thus allowed in the above terms. 13. In ground no. 4, the assessee has raised the following grievance: 4. Taxing foreign receipts on gross basis 4.1 The learned Addl. CIT/DRP erred in making addition of tax withheld of ₹ 85,22,657 by Konkola Copper Mines PLC in Zambia. 4.2 The learned Addl. CIT .....

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received a net amount of ₹ 4,33,07,781 from Konkolka Copper Mines PLC Zambia, while the total income in respect of the same was ₹ 5,09,50,332 on which the local income tax, amounting to ₹ 76,42,550 was levied in Zambia. The contention of the assessee was that the real income of the assessee, from Konkolka Cooper Mines PLC Zambia, was only ₹ 4,33,07,781 and its only on this income that he has claimed double taxation relief under section 90 was claimed by the assessee. None .....

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ly considered facts of the case in the light of the applicable legal position. 16. We are of the considered view that there is no ambiguity on the aspect whether it is the gross amount of foreign income, or the amount net of tax in respect of foreign income, which is to be brought to tax. The tax is on the income, and, as for the tax imposed in the source country i.e. Zambia in this case, double taxation relief is very well admissible under section 90 read with Article 24 of India Zambia Double .....

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the same, double taxation relief is to be given in respect of the same. To that extent, grievance of the assessee is justified. 17. With the observations as above, ground no. 4 is dismissed. 18. In ground no. 5, the assessee has raised the following grievance: 5. Disallowance of software expenses 5.1 The learned Addl. CIT/DRP erred in disallowing computer software expenses of ₹ 5,82,62,091, which are revenue expenses, by treating the same as capital in nature. 5.2 The learned Addl. CIT err .....

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is concerned, the relevant material facts are as follows. During the course of assessment proceedings, the Assessing Officer noticed that the assessee has claimed a deduction of ₹ 5,82,62,091 as expenditure on the software. The Assessing Officer was of the view that this software was used in certain projects, running for a period of 1-3 years, it should be treated as a capital expenditure. The Assessing Officer extensively quoted from the special bench decision in the case of Amway India .....

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he view that the AO has correctly treated the software expenditure as capital in nature, as it gave enduring benefit. It may be noted that from assessment year 2003-04, computer software has been specially included in the depreciation table, on which depreciation is to be allowed. Hence, this objection of the assessee is rejected. 20. The assessee is not satisfied and is in appeal before us. 21. We have heard the rival contentions, perused the material on record and duly considered facts of the .....

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re cannot be any occasion for treating the same as capital expenditure. As regards the remaining amount also, as evident from the copies of invoices before us, the payment is for the licence fees on annual basis, and not for the entire project period. The fact that the licence is used in a project which has a life span of over one year does not mean that the benefit from the licence fees was more than one year. In our considered view, in the light of these facts evident from material on record, .....

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incurred in connection with sale of capital asset. 6.2 Without prejudice to the above, in case the expenses are held to be capital in nature and disallowed in the current year, the same ought to be (a) reduced from the capital gain arising to the assessee in the subsequent year on sale of office building; (b) and/or added to the block of assets of building. 25. So far as this grievance of the assessee is concerned, it is sufficient to take note of the fact that the said amount of ₹ 8,30,0 .....

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nses in connection with structuring of the transaction and related aspects. These expenses were incurred in the course of the business and for its operations, though the specific issue on which advice was sought pertained to the sale transaction. Merely because the transaction in question is a capital asset, the legal expenses will not also become capital expenditure. As we deal with this aspect of the matter, we are reminded of very well articulated views of Hon ble Madras High Court, in the ca .....

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which are entitled to be judged in their own character. This line of approach may be said to have been firmly established as part of the law relating to allowance of expenditure, by the decision which the Supreme Court rendered in India Cements Ltd. vs. CIT (1966) 60 ITR 52 (SC). In that case, a company went in for a substantial loan of ₹ 40 lakhs from a financial house for a major expansion of its undertaking. The loan was secured by a charge on the company's fixed assets. The amount .....

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s can be allowed as revenue items. The stand taken by the IT Department. was that since the sum of ₹ 40 lakhs was obtained as a loan for the expansion of the company's business, the expense by way of legal fees, stamps and the like must also be similarly regarded as on the capital account, not allowable in the computation of the company's business profits. This contention, however, was negatived by the Supreme Court. They referred to an express provision in the IT Act under which i .....

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ple thus : "On the facts of this case, the money secured by the loan was the things for the use of which this expenditure was made. In principle, apart from any statutory provisions, we see no distinction between interest in respect of a loan and an expenditure incurred for obtaining the loan." 7. This decision of the Supreme Court has been followed in innumerable decisions of the Courts since then. As an example may be cited a decision of a Bench of this Court in CIT vs. Kisenchand Ch .....

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Court rejected that contention, following the decision of the Supreme Court in India Cements Ltd. vs. CIT (1966) 60 ITR 52 (SC). The Court held that the money was spent only for the purpose of the business and there was no capital element in the expenditure. They took the view that merely because the fees paid to the Registrar of Companies related to a raising of the company's capital, the amount could not be classified as capital expenditure 28. In view of the above discussions, as also be .....

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