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TMI Blog2016 (7) TMI 254X X X X Extracts X X X X X X X X Extracts X X X X ..... ice computed by the Appellant and referring the computation of arm' s length price to the leaned Transfer Pricing Officer (Ld. TPO) 1.2 The Appellant prays that the transfer pricing analysis conducted by the Appellant be accepted as the reference made by the AO to the Ld. TPO is invalid and bad in law. 2. Export of Finished goods in CE Division 2.1 On the facts and in the circumstances of the case, the Ld. CIT(A) erred in confirming the addition to income on account of transfer pricing adjustment for export of consumer electronics products. 2.2 On the facts and in the circumstances of the case, the Ld. CIT(A) in concluding that the appellant did not have surplus stock as there is no material on record with the Appellant to demonstrate the excess capacity. 2.3 On the facts and in the circumstances of the case, the Ld. CIT(A) erred in comparing the export profitability with the profitability of the 'Other' segment of CE Division to benchmark the Appellant's Arm's Length Price. 2.4 On the facts and in the circumstances of the case, the Ld. CIT(A) failed to appreciate that for the said export, the appellant did not have t incur indirect overheads like advertisement, selling ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fficer (TPO for short) without furnishing the reason for disregarding the ALP computed by the assessee. 3.1 The facts in brief as culled out from the records are that the assessee in the present case is a subsidiary of Royal Philips Electronics, N.V. and engaged in the business of manufacture and sale of electronic goods. The AO has made the various additions including the adjustments under Section 92CA(3) of the Act for transfer pricing by rejecting the ALP of the assessee. The adjustments for transfer pricing under Section 92CA(3) of the Act include the following : 1. Export of finished goods in consumer electronics division. 2. payment for IT charges In this ground of appeal the assessee has challenged the validity of the assessment proceedings by the AO with regard to the International Transaction with Associated Enterprises (AE for short) on the ground that the reasons for disregarding the ALP worked out by the assessee were not furnished. According to assessee the reasons for referring the matter to the TPO by the AO were not furnished. Therefore the order passed by the AO/TPO for making the adjustment in ALP was invalid and bad in law. However from the provisions of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n to the export of goods. 5. The assessee has exported the finished goods to its AE for a value of Rs. 2,02,32,909/- and claimed to have exported the goods to AE to utilize the excess stock and excess capacity. The assessee further claimed that the goods were exported to AE at marginal costing i.e. at a price which covers a margin on variable cost and earned contribution margin of 2.44% on sale of exports and 2.50% on cost. However the AO referred the matter to TPO for valuing the above International transactions at Arm's Length Price. Accordingly the TPO valued the ALP of Rs. 2,37,71,676/- for export of finished goods. The assessee regarding the ALP of export of finished goods submitted that the activity for the export of goods to the AE was undertaken to utilize the excess capacity. However, assessee failed to substantiate its claim that it really had actually excess capacity. Accordingly the TPO disregarded the claim of the assessee for the ALP of the finished goods. The TPO also observed that similar adjustment was also made on this account in the immediate previous year for the determination of the ALP. Accordingly the TPO determined the ALP by the using the gross profit marg ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the assessee in its appeal in ITA 1075/Kol/2009 for the assessment year 2003-04 dated 11.10.2011 where this Tribunal restored the file to AO with a direction to adjudicate the matter as per law by observing as under:- "6. After hearing the rival submissions and on careful consideration of the materials available on record we have observed that the Transfer Pricing Officer has taken sufficient time while preparing arms length price in respect of the enterprise transaction. Since the main contention of the assessee is that the Transfer Pricing Officer has not given sufficient opportunity we are of the considered view that the matter may be set aside to the file of the AO with the direction to obtain fresh report from the TPO and the TPO is directed to re-compute the transfer price after giving reasonable opportunity of being heard to the assessee." Before us neither ld. AR nor ld. DR brought anything to the notice of the Bench about the outcome of the assessee's appeal in ITA No1075/Kol/2009. Therefore relying in the aforesaid decision of the Bench, we restored the file to AO for fresh adjudication as per law. Accordingly, assessee's ground is allowed for statistical purpose. 9 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the AO by treating the payment of deferral sales tax loan at its Net Present Value (for short NPV) as remission of trading liability and treated the same as income by an amount of Rs. 7,92,43,000/- under Section 41(1) of the Act. Before carving out the specific issue, a brief note about the background of the case is reproduced below. The assessee during the year has credited its profit & loss account by an amount of Rs. 7,92,43,000/- as income which arose on account of difference between the amount of actual loan and discount availed for the prepayment of sales tax deferred loan. This amount was claimed as non-taxable and was deducted in the computation of income. The assessee, as per the 'Package Scheme of Incentives, 1993' (for short PSI), announced by Government of Maharashtra (for short GOM), was permitted to defer its sales tax liability for the AYs 2001-02 and 2002-03 for Rs. 11,63,61,000/-. The GOM also arranged that the State Investment Corporation of Maharashtra (for short SICOM) would raise loan liability in order to enable the assessee/ other beneficiaries of the scheme to avail the benefit of deduction u/s. 43B of the Income-tax Act in respect of such unpaid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... without any discussion or assigning any reason. As a result the AO did not allow the deduction of the aforesaid amount from the total income of the assessee at the time of framing the assessment. 15. Aggrieved assessee preferred an appeal to ld. CIT(A) where the assessee submitted that there were two transactions involved in the sales tax loan deferral scheme. The first was that of collection of sales tax by it from its customers and its deemed payment to the Government, as discussed above. The second was that of raising of loan liability in lieu of the deferral sales tax liability and pre-payment of the same at NPV. The assessee submitted that the two transactions should be treated as separate and the second transaction should be considered in isolation while determining whether the benefit of remission in liability gave rise to a taxable event under the Income-tax Act or not. However the ld. CIT(A) observed that in fact no loan was actually granted by SICOM to the assessee as claimed by it. In course of the appeal, the assessee was asked specifically to submit documentary evidence to substantiate the contention that SICOM had actually raised a loan liability against the sales ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in respect of such trading liability by way of remission or cessation thereof, the amount obtained by such person or the value of benefit accruing to him shall be deemed to be profits and gains of business or profession and accordingly chargeable to incometax as the income of that previous year, whether the business or profession in respect of which the allowance or deduction has been made is in existence in that year or not; From the provisions of Section, we find that the provisions of Section 41 apply with regard to the trading liability where the assessee has claimed the deduction/ allowance in the earlier years. In the instant the assessee claimed no such deduction/ allowance in the earlier years. Therefore, in our considered view the provisions of Section 41(1) of the Act does not attract to the assessee. In the instant case, as per the scheme he was allowed to retain the sales tax as determined by the competent authority and pay the same 15 years thereafter. The tax collected was deemed to have been paid and, therefore, the tax so collected cannot be construed as income in the hands of the assessee. The tax so retained by the s is in the nature of a loan given by the Gover ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on the basis of actual cost plus 5%. The assessee has many product divisions and profitability for each division is separately bench marked and that too at arm's length. So accordingly the IT charges for each division to determine the ALP need to be worked out separately. 20.1 The assessee for the year under consideration has incurred a sum of Rs. 6,11,98,127/- as IT charges for all its product divisions by using the Comparable Uncontrolled Price (CUP for short) method to determine the ALP of the IT charges with its AE. For the use of CUP method it was submitted that the assessee obtained quote from the companies providing the IT services and that quote was considered as bench mark for the payment made to AE to determine the ALP for aforesaid IT services. Accordingly the assessee has worked out the cost of IT charges per person per month as euro 98.00 based on the quote of the company and worked out the actual cost of IT charges per person of euro at 25.00 only based on the payment to AE. Accordingly the assessee submitted that payment made to the AE is quite less in comparison to the quote of the company. The assessee submitted the cost per person was worked out on the basis of a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for the assessment year 2003-04 dated 11.10.2011 where this Tribunal restored the file to AO with a direction to adjudicate the matter afresh as per law. Before us neither ld. AR nor ld. DR brought anything to the notice of the Bench about the outcome of the assessee's appeal in ITA 1075/Kol/2009. Therefore relying in the aforesaid decision of the Bench, we restored the file to AO for fresh adjudication as per law. Accordingly, Revenue's ground is allowed for statistical purpose. 23. The 2nd issue raised by Revenue in this appeal is that Ld CIT(A) erred in deleting the addition made by AO for Rs. 50 lacs on account of treating the lease rental as capital in nature. 23.1 The assessee during the year has claimed the deduction of lease rentals expenses incurred for the purchase of motor cars. The AO during assessment proceedings observed that in the immediate preceding year it was established that lease rentals were nothing but the installments paid for the purchase of motor cars which are capital asset. Accordingly the lease rentals were not treated as revenue expenditure. Therefore the AO disallowed the deduction and made the addition to the total income of the assessee. 24. Aggr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the facts and circumstances of the case, it was held that, in the facts of the case, deduction for bad debts written off should be allowed to the assessee. Since the factual matrix of the issue is the same, the same reasoning is followed and the addition is deleted." Being aggrieved by this order of learned CIT(A) Revenue is in appeal before us. 28. Before us Ld. DR submitted that for the assessment year 2003-04, the ld. CIT(A) allowed the deduction but Revenue went into appeal against that order and Hon'ble Tribunal of Kolkata restored the issue to the AO for fresh adjudication. The ld. DR further submitted that the bad debts written off should be allowed only in accordance with the provisions of the Act and relied on the order of AO. On the other hand the Ld. AR drew our attention on pages from 191 to 197 of the PB where the party wise details of the bad debts were placed. The Ld. AR also further drew our attention on pages 200 to 231 where the details of the write- off applications were placed with regard to the parties and their Invoice details. 28.1 From the aforesaid discussion, we find that the AO disallowed the bad debts on the ground that the assessee failed to provid ..... X X X X Extracts X X X X X X X X Extracts X X X X
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