TMI Blog2016 (7) TMI 254X X X X Extracts X X X X X X X X Extracts X X X X ..... the determination of ALP with its AE in relation to the export of goods disregarded - Held that:- 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. Benefit of +/-5 % for the computation of ALP disallowed - Held that:- Similar issue was also raised by the assessee in its own appeal in previous ay wherein held that when only one price has been determined under (most appropriate method) for evaluating arms length price, the question of applicability of proviso 2 of section 92C(2) does not arise. Therefore assessee, was not entitled to the concession of plus or minus 5% as prescribed in the said provision - Decided in favour of revenue Addition u/s 41 - CIT(A) confirming the order of the AO by treating the payment of deferral sal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ter to the file AO for fresh adjudication as per law and assessee is also at liberty to file the additional evidences in support of its submissions accordingly.- Decided in favour of revenue for statistical purpose. - ITA No.1460 & 1545/Kol /2009 - - - Dated:- 11-5-2016 - Shri N.V.Vasusdevan, Judicial Member and Shri Waseem Ahmed, Accountant Member For The Assessee Shri K.R.Vasudevan, Advocate For The Respondent Shri G. Mallikarjuna, CIT-DR ORDER PER Waseem Ahmed, Accountant Member:- These cross-appeals by the assessee and Revenue are arising out of common order of Commissioner of Income Tax (Appeals)-XI, Kolkata dated 30.06.2009. Assessment was framed by ACIT, Range-II, Kolkata u/s 143(3) of the Income Tax Act, 1961 (hereinafter referred to as the Act ) vide his order dated 29.12.2006 for assessment year 2004-05. First we take up the assessee appeal ITA 1460/kol/2009 2. Assessee has raised following grounds:- 1. Reference to Transfer Pricing Officer 1.1 On the facts and in the circumstances of the case, the Ld. CIT(A) erred in confirming the action of the Assessing Office (AO) of not informing the Appellant about the reasons for d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aharashtra and circular No.674 issued by CBDT, sales tax shall be treated as actually paid. 4.3 On the facts and in the circumstances of the case, the Ld CIT(A) erred I holding that the remission was pertaining to sales tax and not loan. 4.4 Without prejudice to the above mentioned grounds, on the fact and the circumstances of the case, the Ld. CIT(A) failed to appreciate that the incentive was given for bringing about necessary infrastructure in processing/developing of the backward area and hence capital in nature. 4.5 On the facts and in the circumstances of the case, the Ld. CIT(A) erred in holding that there was notional interest by prepayment of loan at Net Present Value (NPV). 4.6 On the facts and in the circumstances of the case, the Ld. CIT(A) erred in holding the incentive as operational subsidies without giving cognizance to the incentive scheme. Shri K.R.Vasudevan, Ld. Authorized Representative appearing on behalf of assessee and Shri G.Mallikarjuna, Ld. Departmental Representative appearing on behalf of Revenue. 3. The 1st issue raised by the assessee in this appeal is that the First Appellate Authority [CIT(A) for short] erred in confirmin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... port of the computation made by him of the arm s length price in relation to the international transactions [or specified domestic transactions] referred to in sub-section (1). From a plain reading of the Section, we find that there is no requirement for furnishing the reasons to the assessee for referring the matter to the TPO. However, as per Section 92CA(2) of the Act the TPO has served the notice to the assessee before making any adjustment in the ALP. The fact for giving the opportunity of being heard is very much recorded in the order of the TPO. From a plain reading of the Section, we find that the AO for referring the matter to TPO should consider whether it is necessary or expedient so to do and after approval from the competent authority. But it is not AO s obligation to communicate to the assessee what makes AO to make necessary or expedient to refer the matter to TPO. As such we find that there is no requirement for furnishing the reasons to the assessee for referring the matter to the TPO. In this background of the case, we uphold the order of Ld. CIT(A). Hence, this ground of appeal of the assessee is dismissed. 4. The 2nd issue raised by assessee in this appe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ound No.2): Similar issue arose for consideration in course of the appeal in this case for AY 2003-04 in Appeal No.51/CIT(A)-XI/Cir-11/06-07/Kol. After considering the facts and circumstances of the facts, the addition was confirmed. Unless it is shown that the AE would have made less than normal profit, had the goods been exported to it at the same price at which they were sold by the assessee locally, the mischief of transfer pricing cannot be removed that has not been done. Since the factual matrix remains the same as for AY 2003-04, the addition is confirmed. Being aggrieved by this order of Ld. CIT(A) assessee came in second appeal before us. 7. The Ld. AR before us submitted that the turnover of the assessee is of ₹ 688 crores for the year under appeal and the export made to the AE is just approximate of ₹ 2.00 crores only. The Ld.CIT(A) in the previous AY 2003- 04 has deleted the addition on the ground of smallness of amount. As the goods were exported out of the trading business so the RPM method is suitable for determination of ALP and drew our attention on page 11 of the paper book where the details of the OP in percentage terms is given. On the other han ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ropriate method, the ALP would be arithmetical mean of such price or, at the option of the assessee, the price which may vary from the arithmetical mean by amount not exceeding 5% of such arithmetical mean. It is not that, even when the most appropriate method yields only one price, the benefit of 5% variation has to be allowed to the assessee. In this case, according to the most appropriate method adopted by the Transfer Pricing Officer, the price determined was one, and not more than one in each case. Hence there was no occasion to allow 5% variation therein. Hence, this ground is rejected. Being aggrieved by this order of Ld CIT(A) assessee came in second appeal before us. 12. At the outset we observed that similar issued was also raised by the assessee in its own appeal in ITA 1075/Kol/2009 (supra) in identical ground where this Tribunal decided the issue against the assessee by observing as under:- 12. After hearing the rival submissions and on careful consideration of the material available on record including the case laws relied upon by the assessee we are of the considered opinion that when only one price has been determined under (most appropriate method) fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Thus, it got benefit of ₹ 7,92,43,000/- which was recognized as income in the accounts but the same was claimed to be nontaxable in the return of income. According to the assessee the amount of deferred tax was first converted into a loan by the Government of Maharashtra and accordingly the sales tax itself was deemed to have been paid. Subsequently, instead of recovering the loan at the future date, the Government allowed it to prepay the same at the discounted value. Thus, according to the assessee, the remission that it got was in the loan liability and not in the tax liability. As the deferred loan liability was not allowed as deduction in the first place, the remission therein was not taxable u/s. 41 of the Income-tax Act. In fact the GOM allowed the remission of the loan liability raised by the assessee from SICOM, therefore the question for taxing the remission amount u/s 41(1) of the Act does not arise. 14. Now coming to the specific issue of the case, the AO during the year observed that the assessee prepaid a loan under the scheme of sales tax deferral loan at its NPV. As a result there arose a difference amount of ₹ 7,92,43,000/- which was credited in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ported the order of the lower authorities. 16.1 We have heard the rival parties and perused the materials available on record. From the facts of the case we find that the assessee claimed that the sales tax liability first was converted into loan from SICOM and thereafter it was allowed to repay at NPV after giving the discount. The assessee claimed the discount as remission of loan liability but the lower authorities claimed the same at remission of sales tax liability and therefore as such it is liable to tax under section 41(1) of the Act. The ld. CIT(A) also observed that the loan from SICOM was not raised by the assessee but it was the arrangement to provide the relief to the beneficiaries of the scheme from the provision of section 43B of the Act. Now the question emerges before us are as under : 1. Whether sales tax liability was converted into loan from SICOM. 2. If yes, whether the prepayment to SICOM and availing discount on the same is subject to tax under section 41(1) of the Act. If no, whether the prepayment sales tax deferral loan and availing discount on the same is subject to tax under section 41(1) of the Act. In this factual background, it would be im ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rnataka High Court in the case of McDowell Co. Ltd. (supra) assessee s appeal is allowed. 17. In the result, assessee s appeal partly allowed for statistical purpose. Now coming Revenue s appeal ITA 1545/kol/2009. 18. Grounds raised by Revenue are reproduced as under:- 1. On the facts and in the circumstances of the case, Ld. CIT(A) erred in deleting the addition of payment of IT services whereas the Transfer Pricing Officer had suggested adjustment after adopting third party quotation as to Arm s Length Price and by applying third party quotes for benchmark the payment given by the assessee himself. 2. On the facts and in the circumstances of the case, Le. CIT(A) has erred in deleting the addition of ₹ 50 lakhs towards deduction as lease rental on cars whereas it was correctly concluded by the AO on verification of agreement that the assessee became the actual owner and the expenditure was capital one instead of revenue as claimed by the assessee. 3. On the facts and circumstances of the case, the learned CIT(A) has erred in deleting the addition of ₹ 2,80,00,000/- being the bad debt of which no details were filed by the assessee during the asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s were worked out as under : S/W Comp unit price user total price WIN 2K Client 1275 1572 2004300 MS Office professional 12000 1572 18864000 Notes Client 5000 1328 6640000 VISIO Profit 16416 150 24622400 MS Project 19625 300 5887500 MCA fee Anti Virus 1250 1572 1965000 MS Front Page 4656 100 465600 Total in INR 3,88,28,800 Accordingly the AO worked out the ALP for IT charges to be paid to AE on the basis of actual users which is coming ₹ 3,88,28,800/- but in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... total income of the assessee. 24. Aggrieved, assessee preferred an appeal to ld. CIT(A) who has deleted the addition by observing as under:- This issue arose for consideration in course of the appeal for AY 2003- 04. After elaborate discussion of the facts and circumstances of the case, it was held that the deduction should be allowed and the addition was deleted. 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 Ld CIT(A) Revenue is in appeal before us. 25. At the outset we observed that similar issue for the AY 2003-04 was allowed in favour of revenue by this Hon ble Bench of Kolkata in assessee s own case in ITA No.1075/Kol/2009. The relevant extract of the order is reproduced below:- 16.5 On the basis of above, the A/R submitted before the Bench that the CIT(A) has rightly directed the AO in deleting the disallowance and allowing the lease rental of ₹ 7,000,000/- and the same may be upheld. He further pointed out that this is the only year in which such issue arose as sin the subsequent years as late as AY 2007-08 the issue was consistently allowed by the AO. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the AO disallowed the bad debts on the ground that the assessee failed to provide the details when such bad debts were taken in the income of the assessee. But the Ld. CIT(A) has given the relief to the assessee on the basis of first appellate order of the immediately preceding assessment year i.e. 2003-04. However the same order was challenged and restored to AO for fresh adjudication. The relevant extract of the order in ITA no. 1075/Kol/2009 dated 11.10.2011 of this Tribunal is reproduced as under:- 28. After hearing the rival submissions and keeping in view of the arguments made by the ld. counsel on behalf of assessee, we are of the view that these submissions require fresh verification. Therefore, in the interest of justice we consider it fit to restore this issue to the file of AO for fresh verification and decide the same as per law after giving a reasonable opportunity of being heard to assessee. The assessee is also at liberty to file the additional evidences in support of his submissions. The decision of the AO as discussed aforesaid for restoring the matter has not been brought to our notice. Besides for the year under consideration, the assessee has s ..... X X X X Extracts X X X X X X X X Extracts X X X X
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