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M/s. Zuari Cement Limited Versus Asstt. Commissioner of Income Tax Circle 1 (I/c) Kadapa

TPA - MAM - Held that:- We remand the issue of “most appropriate method” to be adopted for the determination of the transfer pricing adjustment and also the various adjustments to be made for determination of Arm’s Length Price to the file of the Assessing Officer. - Disallowance of additional claim of depreciation on goodwill - Held that:- The goodwill amounting to ₹ 17975.03 lakhs arose as a result of merger and subsequently, the amount was increased by ₹ 16.95 lakhs as additi .....

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SUPREME COURT ], DRP has directed the Assessing Officer to allow the same after verification of the claim of goodwill. This being a factual finding we do not see any reason to differ from the directions of the Dispute Resolution Panel. However, it is seen that the Assessing Officer, while giving effect to the directions of the DRP, has not allowed the additional depreciation. In fact, there is no discussion about the same in the assessment order. The Assessing Officer is, therefore, directed to .....

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his ground is also treated as allowed for statistical purposes. - Claim of additional depreciation on the plant and machinery - Held that:- Assessing Officer has allowed normal depreciation on the very same assets, and has thus impliedly accepted that the said assets were acquired and put to use before the end of the relevant financial year. That being so, the Assessing Officer cannot take a contrary view, while considering the claim of additional depreciation. In view of the same, we deem i .....

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ent year 2010-11. In this appeal, assessee is aggrieved by the order passed by the Assessing Officer under S.143(3) read with S.144C of the Income Tax Act,1961. 2. Assessee has raised as many as 19 grounds of appeal and also additional grounds of appeal Nos.20 and 21. At the time of hearing, learned counsel for the assessee submitted that grounds No.1 and 2 are general in nature and need no specific adjudication. 3. As regards grounds No.3 and 4, it is submitted that they relate to the transfer .....

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that similar issue had arisen in assessee s own case for the assessment year 2009-10 and this Tribunal in ITA No.471 /Hyd/2014, vide order dated 17.4.2015, has considered the issue at length and had remanded the issue of determination of the Arm s Length Price to the Transfer Pricing Officer with certain directions. He submitted that following the same, for this year also, assessment needs to be remanded to the file of the Transfer Pricing Officer with similar directions. 5. The Learned Departm .....

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luding the documents placed on the Paper Books. We are of the opinion that the approach of the TPO is not correct. Even though the payments made by assessee to the AEs are just a fraction of the total turnover of assessee, these transactions are invariably inter-linked to the manufacturing and trading of cement by the assessee-company. Therefore, the approach of the TPO in considering the CUP method for analyzing independent transactions is not fully justifiable. Apart from that, the methodology .....

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ained as the subsidiary company was a sick company and in the process of reviving the company, assessee has not charged any royalty to its subsidiary company. Therefore, on FAR analysis, SVSL's past record with that of present transactions of assessee-company is not correct. Then, coming to external comparables, we were surprised to note that the TPO considered the technical fee payments without analyzing the nature of the payments. In some cases, it is royalty for acquiring the lime stone f .....

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even the sub license fee for the use of trade mark is also faulty. Under the guise of TPO provisions, the TPO cannot determine the ALP at NIL as held by the Hon'ble Delhi High Court in the case of CIT Vs. EKL Applicances Ltd., (supra). Therefore, rejecting the entire payment without there being any analysis on the CUP method cannot be accepted. In the guise of analyzing the transactions in the CUP method, the TPO has not brought any evidence on record to reject the 1% payment made to Italcem .....

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rrect. Even though Italcementi Group was being used from earlier years, AMP expenses of current year also included in this, which is not correct. Moreover, Italcementi Group itself is a 50% shareholder in the assesseecompany from the beginning. Therefore, it cannot be stated that 'Zuari Cements' is exclusive brand owner of the Birla Group in exclusion of Italcementi Group. The entire approach by the TPO is biased and cannot be justified on the facts of the case. Therefore, we are not in .....

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see. In view of this, without deciding the merits of various issues, we set aside the orders and direct the TPO to re-consider the entire order and analyse them in fresh, first by determining the most appropriate method and then analyzing the transactions under the provisions of the TP. The orders of the TPO/DRP on the TP issues are therefore set aside and the entire issue on TP analysis is restored to the file of AO for fresh consideration. The grounds raised are accordingly allowed for statist .....

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rds grounds No.14 to 16, they are against disallowance of community development expenses, giveaways and contribution to Zuari School. Learned Counsel for the assessee submitted that these issues also had arisen in assessee s own case for the assessment year 2009-10 and the Tribunal, vide paras 4 to 6 of its order, cited supra, dated 17.4.2015 has dealt with the same. 8. The Learned Departmental Representative however supported the orders of the authorities below. 9. Having considered the rival c .....

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f ₹ 76,36,096/- being contested in Ground No.13. 4.1 Assessee-company had incurred expenses of the above amount towards special activities like medical camps, installing water bores and bore-wells and carrying out infrastructure development in villages etc. AO disallowed the entire expenditure on the reason that: a) The expenditures were not supported by any concrete evidence; b) The business necessity was also not proved beyond doubt; c) Identity of payee was not established. 4.2 It was s .....

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ns and are incurred wholly and exclusively for the purpose of business. It was further submitted that assessee has maintained proper bills and documentation in support of the expenditures and AO has incorrectly disregarded sample voucher copies submitted. Assessee places reliance on the following judicial precedents wherein it has been held that expenditure incurred on various 'corporate social responsibility' is allowed as business expenditure. i. CIT Vs. Madras Refineries Ltd., [266 IT .....

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produced before him, it directed assessee to produce Books of Accounts including bills and vouchers and AO is directed to decide the issue on the basis of examination of the Books of Accounts. 4.4 As seen from the order, AO has examined few of the vouchers and came to conclusion that it does not contain proper invoices or vouchers and payee details are not available and in one case, even the amount of ₹ 5 Lakhs was paid to Kadapa Ratnalu Trust. AO was of the opinion that the Trust was not .....

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t proved beyond doubt. This issue was also decided by the DRP, so AO cannot again come to the same point which was held in favour of assessee. In view of this, we in the interest of justice, restore the issue to the file of AO to examine the vouchers only along with other Books of Accounts and other details to verify whether the expenditure was spent for the purpose of 'corporate social responsibility' of assessee-company which was allowed as a business expenditure u/s.37(1) by the DRP i .....

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expenditure was incurred for purchase of gifts to advocates marriages, purchase of coolers gifted to Joint Director (Mines), purchase of gifts to M.V.Mysoora Reddy's son's marriage function, purchase of silver plate gifted to Inspector of Factories, purchase of gifts to Railway employees, purchase of gift for ESI official daughter's marriage, purchase of gifts to other Govt. employees etc. Except the purchase of gold coins from Corporation Bank, Bangalore on 16-02- 2008 for ₹ .....

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partly allowed. Contribution to Zuari School: 6. The last item is the expenditure incurred in the nature of contribution to Zuari School amounting to ₹ 13,43,496/-. As per the copy of the MOU entered between assessee and DAV College Trust and management society, New Delhi, assessee-company was required to reimburse the expenditure on running the school after deducting the income realized as fees etc., from the students. AO, however, noticed that 'school' was not defined in the MOU .....

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This was being contributed earlier by SVCL which was later merged with assessee company. In both the places of Yerraguntla and Sitapuram, the school is being run mainly for the benefit of employees. Since, the DRP already decided to allow the expenditure u/s.37(1) and assessee furnished the vouchers, the reasons assigned by AO to disallow the expenditure cannot be accepted. We direct the AO to allow the expenditure. In the result, this ground is allowed. Respectfully following the same, in this .....

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t of the Hon'ble Supreme Court in the case of Smif Securities Ltd. (348 ITR 302) has directed the Assessing Officer to arrive at the correct value of goodwill in the light of the judgment of the Tribunal at Mumbai in the case of DCIT Vs. Toyo Engineering India Ltd. in ITA No.3279/Mum/2008, if the fair value of assets of the SVCL is less than the consideration of amalgamation, the difference between the two should be considered as the amount incurred for goodwill , and accordingly, the correc .....

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and subsequently, the amount was increased by ₹ 16.95 lakhs as additional purchase consideration was paid. The assessee has recognized such goodwill in its books of accounts with effect from 1.1.2007 and claimed depreciation on such enhanced goodwill. We find that the DRP has taken into consideration the fact that the assessee had not claimed depreciation on such goodwill, while filing return of income from 2007-08 to 2011-12, but since the law is clear by virtue of the judgment of the Ho .....

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l depreciation. In fact, there is no discussion about the same in the assessment order. The Assessing Officer is, therefore, directed to give effect to the directions of the DRP. This ground of the assessee is accordingly treated as allowed. 11. Grounds no.18 and 19, being against levy of interest under S.234B, we find that these two grounds are consequential and the Assessing Officer is directed give relief, if any, to the assessee in accordance with law. 12. Additional grounds no.20 and 21 rai .....

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of 2015 had clarified the position that additional depreciation on plant and machinery used for less than 180 days or more has to be allowed, if it has not been allowed in the year of acquisition and installation of such plant and machinery, in the immediately succeeding previous year. In view of the provision introduced under S.32(1)(iia) of the Act by the Finance Bill of 2015, the assessee is now claiming additional deprecation by way of filing this additional ground of appeal 14. Though the .....

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tion and installation. Therefore, we see no reason for denying the admission of the ground. We, therefore, admit the additional ground and remit the same to the file of the Assessing Officer with a direction to verify the facts as to the percentage of depreciation allowed in the year of acquisition and installation and if the assessee is eligible for the additional depreciation of 50% by virtue of the Finance Bill of 2015, the same may be allowed. This ground is accordingly treated as allowed fo .....

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e however, objected to the admission of this additional ground as well on the ground that the assessee has not made any claim with regard to such fund in the return of income and therefore, it cannot be raised at this stage. We find that this additional ground of appeal also deserves to be admitted in view of the decision of this Tribunal in the case of NMDC reported in 68 SOT 199. However, the issue involved in this ground, not being before the authorities below, needs verification as to facts. .....

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order under S.144C of the Act, wherein he observed that the assessee has produced books of account, vouchers and on perusal of which, it was found that out of the additions made to the fixed assets of ₹ 764,59,36,549, the assessee has furnished supporting evidences to the tune of ₹ 185,27,31,474 only and that vide letter dated 24.3.2014, assessee s representative has produced sample copies of the invoices. The Assessing Officer asked the assessee to submit complete invoices but the a .....

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sessing Officer, in the assessment order passed under S.143(3) read with S.144C of the Act, had considered the issue of disallowance of depreciation of ₹ 11,404,26,479 and observed that the assessee has claimed additional depreciation at the rate of 20% on the assets acquired during the year less than180 days and out of the additions made, the assessee acquired assets worth ₹ 527,71,05,271 on 30th and 31st March, 2010. He observed that the additional depreciation is available only on .....

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