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2017 (4) TMI 862 - ITAT MUMBAI

2017 (4) TMI 862 - ITAT MUMBAI - TMI - Application of correct rate of surcharge on dividend distribution tax [DDT] - assessee proposed dividend in the accounts for the year ended 31/03/2011 - Held that:- As found that in the grounds of appeal, the assessee has attributed the difference to interest u/s 115P and pleaded for deletion of interest on the premises that DDT has been paid by assessee within time. Further, the issue of additional demand does not form subject matter of final assessment or .....

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going concern on slump sale basis for a net consideration of ₹ 186.52 crores. In the absence of specific values being ascribed to the various assets while arriving at the above sale consideration, the net slump purchase consideration of ₹ 186.52 crores was apportioned over various assets and liabilities on fair basis. These values were arrived at on the basis of Technical estimates made by the management in accordance with Accounting Standard-10. The assessee claimed depreciation u/s .....

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wed by Tribunal in AY 1999- 2000. But thereafter, Tribunal in AY 2001-02, relying upon the judgment of Madras High Court in Pentasoft Technologies Ltd. V DCIT [2013 (11) TMI 1057 - MADRAS HIGH COURT ] & CIT Vs Ingersoll Rand International Ltd. [2014 (6) TMI 934 - KARNATAKA HIGH COURT ] and Shreya Life Science [2016 (1) TMI 1094 - ITAT MUMBAI ], allowed the claim of 25% depreciation on noncompete fees being ‘intangible assets’. Further, the issue was again settled in favor of assessee by Tribunal .....

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Further, for AY 1999-2000 Tribunal vide its order dated 16/12/2008 set aside this issue to the file of Ld. CIT(A) for adjudicating the matter by passing a speaking order which is still pending before Ld. CIT(A). For 2006-07, this issue was decided against assessee by DRP directions and appeal against that issue is pending before Tribunal. In the impugned AY, DRP has followed outcome of AY 2006-07 and disallowed the claim of the assessee which has been assailed before us. The Ld. AR has contended .....

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such a scenario, it is to be presumed that the investment made in subsidiary were out of own funds and not out of borrowed funds. Further, the assessee has derived varied incomes by way of dividend, royalty, technical fees, management fees, sale of goods etc. out of these investments. These were primarily old investments which can be gauged from the fact that investment as on 31/03/2010 stood at ₹ 58.95 crores as against ₹ 59.26 crores as on 31/03/2011. We find that on identical set .....

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eceivables’ from subsidiary companies - Held that:- No TP adjustment has been made for the impugned transaction and secondly the outstanding amount represent ‘receivables’ on account of debtors for sales / technical fees as per the contention of the assessee. Therefore, on the facts and circumstances of the case, we deem it fit to restore this issue back to the file of AO for fresh adjudication in proper perspective including benefits derived by AE on account of receivables vis-ŕ-vis normal debt .....

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ame, as per contentions of Ld. DR, we deem it fit to restore the matter back to the file of AO for limited purposes of calculation of appropriate mark up with the help of the said data base. The ground is allowed for statistical purposes. - Corporate Guarantee - Held that:- Hon’ble Bombay High Court in CIT Vs. Everest Kento Cylinders Ltd. (2015 (5) TMI 395 - BOMBAY HIGH COURT ) has observed that issuance of a corporate guarantee are distinct and separate from that of bank guarantee and there .....

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on on account of certain interest income - Held that:- Adequate efforts have been made by assessee and the assessee cannot be asked to prove the negative. We agree with AR’s stand that additions cannot be made solely on the basis of Form 26AS entries only which is well settled by various judicial pronouncements. The revenue has not brought anything on record to substantiate its stand and relied merely upon entries in Form 26AS. It appears that the same is erroneous and has crept in due to quotin .....

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’ and enable to Bank to take steps in rectifying the impugned errors. - Foreign exchange gains arising out of loans given to subsidiaries - Held that:- We fail to understand when the item has not been credited to the Profit & Loss Account, how the deduction thereof could be claimed in the computation of income treating it as capital in nature. Therefore, on the facts and circumstances of the case, we are inclined to dismiss this ground of assessee’s appeal. - Adjustment of provision for .....

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of filing the revised return of income. The assessee took support of CBDT circular No. 14 (XL-35) dated 11/04/1955 to assert that it was the duty of AO to grant the admissible reliefs, although not claimed by the assessee due to oversight / inadvertent mistake. AO was duty bound to assess the correct income of the assessee. But DRP and AO rejected the same relying upon Apex Court decision in Goetz India Ltd. Vs CIT(Supra). Before us, the Ld. AR has raised similar contentions. As the factual matr .....

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at ₹ 104.23 crores, the set off of which was not allowed to assessee. DRP concluded that since the issue was consequential, AO was directed to consider the said claim. However, in the final computation of income, we find that credit thereof was not granted to the assessee. Therefore, reiterating the stand of DRP, AO is directed to verify the claim of assessee in this respect and allow the same as per statutory provisions. - I.T.A. No. 157/Mum/2016 - Dated:- 4-1-2017 - SHRI AMIT SHUKLA, JM .....

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efly stated, the assessee, being resident corporate assessee, was engaged in the business of manufacturing of glass bottles, glass containers and vials for pharma and non-pharma purposes. It belongs to M/s Nicholas Piramal India Ltd. [NIPL] group of company and also having business of generating power and investment activity for its surplus funds. The assessee e-filed its return of income for impugned AY on 30/11/2011 declaring Nil income which was picked up for scrutiny assessment u/s 143(3). S .....

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nal assessment order was passed by AO u/s 143(3) r.w.s. 144C(13) of the Income Tax Act on 30/11/2015 determining total income at ₹ 1,15,32,71,020/- under normal provisions and ₹ 1,09,85,13,266/- under MAT provisions. 3. The assessee has assailed various issues arising out of AO s final order by raising eighteen grounds of appeal out of which Ground Nos. 1, 3 4 & 5 are not pressed during proceedings before us. Ground No. 18 is general in nature. Hence, we are left with Ground Nos. .....

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Education Cess (3% of 15.75%) 0.4725% Effective Rate 16.2225% The assessee declared dividend of ₹ 28,15,21,576/- and worked out DDT liability @16.2225% which amounted to ₹ 4,56,69,838/-. However, AO following Finance Act, 2010, worked out effective rate as follows:- Particulars Rate Tax 15% Surcharge (7.5% of 15%) 1.125% Education Cess (3% of 16.125%) 0.48375% Effective Rate 16.60875% The difference in rate resulted into additional demand of ₹ 10,87,377/- (Rs.4,67,57,215/- S .....

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emises that DDT has been paid by assessee within time. Further, the issue of additional demand does not form subject matter of final assessment order assailed before us. Rather, the demand has been raised in Notice of Demand u/s 156 and Income Tax Computation Form . Therefore, the proper course of action, in such a case, would be to file rectification application before the AO. Therefore, this ground requires no adjudication / direction at our end and the same is accordingly, dismissed. 5. Groun .....

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186.52 crores was apportioned over various assets and liabilities on fair basis. These values were arrived at on the basis of Technical estimates made by the management in accordance with Accounting Standard-10. The assessee claimed depreciation u/s 32 on values recorded in the books of assessee Company. In the alternative, the assessee claimed depreciation @25% on non-compete fees being intangible assets . But DRP following Tribunal s order in assessee s own case for earlier years, decided both .....

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xmann 176 and Mumbai Tribunal in Shreya Life Science ITA No. 7071/Mum/2010, allowed the claim of 25% depreciation on noncompete fees being intangible assets . Further, the issue was again settled in favor of assessee by Tribunal in AY 2006-2007. The Ld. DR fairly conceded the settled position. We have perused various orders of Tribunal in assessee s own, the details of which are as follows:- i. ITA No. 4842/M/04 order dated 05/04/2013 AY 1999-2000 ii. ITA No. 9645 & 9498/M/04 order dated 02/ .....

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allowed. 6. Ground No. 9 is related with value of assets acquired by assessee in pursuance of Scheme of arrangement. Since assessee acquired glass division from NIPL on slump sales basis, he considered fair value of the depreciable assets of the transferred business as actual cost to the assessee and claimed deprecation thereupon. AO treated the transaction as amalgamation and took WDV of the transferred assets as it stood in the books of the transferor company as actual cost to the assessee. Be .....

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e Tribunal. In the impugned AY, DRP has followed outcome of AY 2006-07 and disallowed the claim of the assessee which has been assailed before us. The Ld. AR has contended that, following Tribunal s directions in 1999-2000, the issue may be sent back to lower authorities for fresh adjudication. Therefore, in view of the factual situation, the matter is restored back to AO for fresh adjudication with a directions to decide the same on the basis of outcome of Ld. CIT(A) decision in assessee s case .....

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onal Inc. USA Share Capital 12.10 3. Gujarat Glass USA Inc. Share Capital 2276.10 4. Piramal Glass (UK) Ltd. Share Capital 115.90 5. Piramal Glass Europe SARL Share Capital 31.30 6. Other Investments Share Capital 10.00 Total 5926.30 AO computed estimated cost of borrowing @5.98% on share capital investment which came to ₹ 353.79 Lacs and disallowed the same u/s 36(1)(iii) on the ground that the same was not used for business purpose. Before DRP, the assessee contended that investment form .....

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DRP directions, made impugned disallowance. Before us, the Ld. AR has made various contentions, the foremost being that the assessee has sufficient owned funds to make these investments and investments are made to acquire controlling interest in subsidiary and out of the said investment, the assessee has derived multiple benefits which are duly offered to tax. Thus the investments have been made out of commercial expediency. Further, these were old investments only and no new fresh investment h .....

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ITA No. 9645 & 9498/M/04 order dated 02/03/2016 ii. Assessee s own case for AY 2006-07 ITA No. 8360/M/10 order dated 16/12/2016 iii. S.A.Builders Vs. CIT [Supreme Court 288 ITR 1] iv. CIT Vs Reliance Utilities [313 ITR 340 Bombay High Court] v. CIT Vs Reliance Communication Infrastructure [207 Taxmann 219 Bombay High Court] vi. CIT Vs. Phil Corp. Ltd [244 CTR 226 Bombay High Court] vii. CIT Vs Shristi Securities [321 ITR 498 Bombay High Court] Per Contra, Ld. DR supported the stand lower au .....

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s 13.516 Net Current Assets 316.194 TOTAL 1028.103 1028.103 It can be observed that against Share Holders funds of ₹ 437.248 crores, the impugned investments stood at ₹ 59.263 crores and hence owned funds are sufficient to cover the said investments. It is well settled by catena of judgments that in such a scenario, it is to be presumed that the investment made in subsidiary were out of own funds and not out of borrowed funds. Further, the assessee has derived varied incomes by way o .....

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investment in subsidiary company for acquisition of shares form integral part of assessee s business and hence interest thereupon is allowable. Keeping all these factors in mind, we are inclined to delete impugned additions. Ground No. 10 relating to allowability of interest u/s 36(1)(iii) is allowed whereas Ground No. 11 is alternative ground and therefore, the same becomes infructuous and hence dismissed. 8. Ground No.12 assails additions of proportionate interest on borrowed funds for ₹ .....

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/ technical fees 12,35,43.056/- Nil 73,87,875/- 2. Gujarat Glass International USA (now known as Piramal Glass USA Inc) 47,03,07,000/- 9% to 11% Nil 3. Piramal Glass UK Ltd. 5,10,18,240/- Nil Nil Total 73,87,875/- Qua party No. 1, AO noted that these amounts were pending since a long time and details like outstanding period, the terms of contract and credit period etc. could not be submitted by assessee which justified impugned additions. No adjustment was required against Party No.2 as the fun .....

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ar end. AO treated the same as interest free loans to sister concerns and disallowed proportionate interest thereupon @5.98% which amounted to ₹ 73.87 lacs. Our attention has been drawn to P-284 of the paper-book to show the details / nature of income earned by assessee out of transactions undertaken with CGPL. Moreover, even assuming that these were loans to subsidiaries yet the similar issue was covered in assessee s own favor by Tribunal s decision for AY 2006- 07. Although, AR fairly c .....

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377; 12.35 crores, which prima facie reveals that the receivables represent outstanding for more than one year. Further, clause (i)(c) of explanation to Section 92B covers receivables as international transaction w.e.f. 01.04.2002. Therefore, we are of the view that benchmarking of the same could have been done by comparing credit period allowed by assessee for other receivables i.e. internal CUP could have been used to benchmark this transaction. The assessee has relied upon the order of Tribun .....

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S.A.Builders Vs. CIT 288 ITR 1. But the facts are different here. No TP adjustment has been made for the impugned transaction and secondly the outstanding amount represent receivables on account of debtors for sales / technical fees as per the contention of the assessee. Therefore, on the facts and circumstances of the case, we deem it fit to restore this issue back to the file of AO for fresh adjudication in proper perspective including benefits derived by AE on account of receivables vis-&agra .....

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d TP adjustment of ₹ 7,86,52,228/- against the same. We take up the same one by one. Interest Free Loan to Subsidiaries The assessee advanced interest free loans to one of its subsidiary namely M/s Piramal Glass UK Ltd. for ₹ 5.10 Crores. The assessee contended that the advances have been made to meet working capital requirements of the AE and with a view to expand its operations in foreign markets. Applying internal CUP of USA AE, TPO determined the ALP rate of interest @10% and mad .....

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tricted to LIBOR only without any mark up. Per Contra, Ld. DR asserted that to determine the appropriate mark up, the matter may be remanded back to AO as the department has procured a sophisticated Bloomberg database which scientifically calculates the applicable interest rate and mark up. We have heard the rival contentions. In principal it is agreed that LIBOR rate plus some mark-up shall apply to the transaction. To calculate the appropriate mark-up on the same, as per contentions of Ld. DR, .....

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ch quarter end, TP adjustment thus got worked out to ₹ 7.35 Crores. Before DRP, the assessee contested that guarantee is not international transaction and without prejudice, contested the benchmarked rate of 3% and relying upon various judicial pronouncements, pleaded to restrict the same to maximum of 0.5%. But rejecting the same, DRP confirmed the said benchmarked rate. Before us, Ld. AR raised similar contentions but fairly conceded that in view of amendment in Section 92B and jurisdict .....

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verest Kento Cylinders Ltd. (supra) has observed that issuance of a corporate guarantee are distinct and separate from that of bank guarantee and therefore, no TP adjustment can be made in respect of guarantee commission by making comparison between guarantees issued by commercial banks as against a corporate guarantee issued by holding company for benefits of its AE, a subsidiary company. Further, in the said case, the Hon ble court has affirmed guarantee adjustment of 0.50% upheld by the Tribu .....

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entries do not belong to assessee and erroneously being reflected in Form 26AS. It also stated that it has requested the Bank of America to rectify their TDS returns vide letters dated 26/11/2012 and 18/11/2015. AO rejected the contentions of the assessee and added impugned amount to the income of the assessee. Before us, Ld. AR has asserted that the assessee has not entered into any transaction with Bank of America which can give rise to interest income. The assessee has twice requested the con .....

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ong PAN by the Bank in their TDS returns and therefore, at least addition, in such a scenario, in the hands of assessee could not be in made. Thus, we are inclined to delete the impugned addition. The bench was informed that similar entries are appearing in Form 26AS of the assessee for other assessment years also. Therefore, the assessee is directed to pursue the correction thereof forthwith with due diligence. The revenue is also directed to scrutinize the TDS return of Bank of America and ena .....

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Solid Containers Ltd. Vs. DCIT 308 ITR 417, AO and DRP found the gain to be revenue in nature and concluded the same to be taxable in the hands of the assessee. Before us, the primary contention of the AR is that it incurred losses on this account in AY 2010-11 but it did not claim the same as allowable expenditure. It has consistently followed accounting policy regarding treatment of foreign exchange on loans. The loans advanced to subsidiary are capital in nature and therefore, the same are n .....

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and perused the relevant material including cited case laws. We find that foreign exchange gain or loss on acquisition of assets is covered by Section 43A whereas all the other foreign exchange gains / losses are covered by general accounting principles. Further, the assessee all along has assailed TP adjustment and interest adjustment u/s 36(1)(iii) on the ground that transactions with subsidiary companies are out of commercial expediency and with a view to derive varied revenue benefits from t .....

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he Profit & Loss Account, how the deduction thereof could be claimed in the computation of income treating it as capital in nature. Therefore, on the facts and circumstances of the case, we are inclined to dismiss this ground of assessee s appeal. 12. Ground No. 16 is related with certain adjustment of provision for bad and doubtful debts from book profits u/s 115JB. While calculating book profit u/s 115JB, the assessee, due to oversight, did not reduced an amount of ₹ 6.88 crores as p .....

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