TMI Blog2017 (5) TMI 1491X X X X Extracts X X X X X X X X Extracts X X X X ..... inding of fact that the sale proceeds were never treated as revenue receipt in books of accounts. Nothing was brought over notice to controvert the fact. Therefore, in our opinion the amount should be added back to the WDV and the assessee should be allowed depreciation accordingly. Fourth effective ground of appeal (GOA-9 and 18) is allowed, in part. Addition of liquidated damage - Held that:- Liquidated damage received by the assessee were penal in nature and has been rightly assessed under the head income from other sources. - Decided against the assessee. Allowability of unabsorbed depreciation and un-utilised scientific research allowance of the amalg-amating company and set off and carry-forward of business losses and unabsorbed depreciation of the earlier years in case of amalgamated company - Held that:- We decide the issue of carry forward of losses/unabsorbed depreciation of the AY. s. 1997-98 to AY. 2001-02 in favour of the assessee. Similarly, we hold that losses of the amalgamated company for the preceding eight assessment years has to be allowed as per the law and the unabsorbed depreciation is to be allowed as per amended provision of section 32 (2) and in lin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ₹ 6,20,84,68,000/- 4 Operating Expenses ₹ 10,00,06,68,000/- 5 Operating Profit ₹ 83,09,95,000/- 6 ALP Margin 9.974% 7 ALP Profit ₹ 99,74,66,626/- 8 ALP Revenue ₹ 10,99,81,34,626/- 9 ALP of AE Revenue ₹ 4,78,96,66,626/- 10 Adjustment ₹ 27,48,45,626/- 2.1. During the course of hearing before us, the AR argued that even if the above working of TP adjustment made by the TPO was considered as it was no addition could survive after applying the principle of Alstom Projects India Ltd. (APIL) in the ITA No. 362 of 2014 of the Hon ble Bombay High Court, that the Hon ble court had held that TP adjustment had to be done only in respect of IT. s with the AE and not at the entity level, that if the adjustment was made that the entity level the variati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee had not complied with the documentation requirement prescribed by law, that by claiming proportionate adjustment it was making an inherent adjustment, that in the entity level profitability the profit aunts on the AE segment as well as the non-AE segment was same, that the argument of the assessee could be accepted provided it had furnished the relevant data for both the segments, that if separate profitability of the AE transactions was not furnished and the assessee would use entity level profits for compatibility the submission made by the assessee about the segment results would be devoid of any evidences, that the assessee had disclosed IT. s of export of tractors and other parts for which external TNMM was considered as the most appropriate method and was applied to determine the ALP, that it had not worked out separate profit from the IT as per the mandate of Rule 10 D and Rule 10 B of the Rules, that by claiming proportionate adjustment on the basis of AE sales to total sales the assessee was claiming that entity level that could be segregated into AE and non-AE segments, that the claim made by the it was erroneous, fallacious and untenable, that it had failed to p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stion as raised herein was raised by the Revenue in Pedro Aradlite Pvt. Ltd (supra). The question raised therein was as under : Whether on the facts and law the Tribunal was justified in directing AO/TPO to benchmark as AE transactions without appreciating (a) the Assessee itself in its transferpricing study report (TPSR) has chosen entity level PLI to benchmark the AE transactions; (b) the Assessee had itself failed to furnish audited segmental accounts and therefore, the TPO had s rightly applied revised PLI at the entity level to determine the ALP ? At the above hearing, the Revenue accepted that even in the absence of segmental accounts, the adjust-ment has to be done only in respect of the international transactions with Associated Enterprises. This is so recorded in the order dated 24 November 2015. Therefore, on the above ground, the question as proposed does not give rise to any substantial question of law. 10. We may once more note that the Income Tax Department within the jurisdiction of this Court must adopt a consistent view on the issue of law. In this case, we find that the Revenue urges the absence of segmental accounts would warrant ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... te to that extent could be made. In short, in our opinion both the arguments, raised by the DR, before us, stand already negated by the Hon ble courts. He had argued that if the assessee had not prepared segmental accounts and had computed the PLI at entity level then it could not take the benefit of the principles laid down in Alstom s case. The second argument of the DR was that the working proposed by the assessee on proportionate basis was based on an erroneous exemption that AE and non-AE had earned the same percent is of profit. After considering the above and respectfully following the judgments of the Hon ble Bombay and the Delhi High Courts relied upon by us in the earlier paragraphs, we hold that the proportionate adjustment, as presented before us during the hearing of appeal, is within permissib-le limits of 5% and hence no TP adjustment is required to be made. Accordingly, we decide the first effective ground of appeal in favour of the assessee. As we have decided the basic issue in favour of the assessee, so in our opinion, GOA 3 to 5 and 16 have become academic in nature and require no adjudication. 3. Next effective ground (GOA-6, 7 17) is about disallowan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o Mobiles India Private Ltd(FIAPL), that it had not detected tax at source while making the payment, that it was claimed that payment was on account of reimbursement of expenses to FIAPL. After calling for explanation in this regard from the assessee, the AO disallowed the expenditure holding that it had not detected tax. 4. 1. Before the DRP, the assessee argued that it had transferred a substantial portion of its plant from Mumbai to Ranjangaon (near Pune), that it had to relocate some key staff members from Mumbai to new place, that out of business expediency it asked its sister concern to advance lump sum amounts to its employees towards cost of expenses, that it reimbursement of expenditure to its sister concern, that it was a pure reimbursement of expenses, that assessee was not supposed to deduct tax. The DRP held that assessee had made payment to its sister concern, that it had not detected tax at source, that the AO was justified in disallowing the claim. 4.2. Before us, the AR contended that the DRP had accepted the fact that amounts paid by the assessee to sister concern were in fact reimbursements, that on reimbursements no tax is to be deducted at source. It ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... block of asset, that not allowing the claim would amount to double jeopardy. Alternatively, it was argued that amount should be added back to the WDV and the corresponding depreciation should be granted to the assessee. The DR stated that matter could be decided on merits. 5. 2. We have heard the rival submissions. The AO had given a finding of fact that the sale proceeds were never treated as revenue receipt in books of accounts. Nothing was brought over notice to controvert the fact. Therefore, in our opinion the amount should be added back to the WDV and the assessee should be allowed depreciation accordingly. Fourth effective ground of appeal (GOA-9 and 18) is allowed, in part. 6. Fifth effective ground(GOA-10) deals with liquidated damage, amounting to ₹ 8.20 crores. During the assessment proceedings, the AO found that the assessee had agreed to sell the property to Gorakhpur Expressed Ltd. for ₹ 598 crores, memorandum of understanding was executed on 28/07/2006 in that regard, that later on it entered into a supplementary MOU on 16/10/2007 wherein it was to receive additional income of ₹ 1.80 crores as compensation towards interest for the period ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the assessee itself had offered the interest portion as income from other sources. In the rejoinder, the AR submitted that the assessee had made a mistake by offering the interest portion to tax under wrong head of income, that later on the AO assessed it as income from other sources, that he did not tax at under the correct head of income i. e. capital gains, that the mistake committed by the assessee cannot be used against it by the AO, that the liquidated damages should be treated as part of full value of consideration and had to be charged under the head capital gains. 6.3. We have heard the rival submissions. We find that the assessee itself had included the disputed amount a part of total consideration and had increased the sale figure from ₹ 598 crores ₹ 606.2 crores, that during the assessment proceedings it was claimed that liquidated damages should be assessed under the head income from other sources. We find that the assessee had received sale consideration and interest as per the sale deed and first MOU whereas liquidated damage as per the later MOU. The assessee has claimed that sums received by it under all the three heads should be taxed unde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... land Fiat India Private Ltd. ,that it claimed set off/carry forward of three items in respect of amalgamating company, namely brought forward (B/F) business loss (Rs. 22.83 crores), unabsorbed appreciation (Rs. 111.79 crores) and un-absorbed scientific research expenses (Rs. 4.85 crores). 7.1. During the assessment proceedings, the AO did not allow the claim made by the assessee, as claimed by it, in the draft assessment order. The DRP did not issuing direction on the subject is the issue did not pertain any variation to the income of the assessee. While completing the assessment the AO allowed partial relief as under: Nature Amount Assessment Years Amounts Allowed/Disallowed B/F business loss 22.83 lakhs AY. 02-03 to 04-05 22.83 lakhs Unabsorbed Dep. 111.79 crores Allowed for AY. s. 02-03 to 04-05 Disallowed for the AY. s. 97-98 to 2001-02 Allowed ₹ 39.98 lakhs, disallowed ₹ 71.81 lakhs Unabsorbed scientific research exp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rbed depreciation for the Assessment Year 1997-98 upto Assessment Year 2001-02 could be allowed to be set off, if it was still unabsorbed on 1st April, 2001. The above decision also placed upon the CBDT circular No. 14 of 2001 dated 22nd November, 2001 to hold that any unabsorbed depreciation which is available on 1st day of April, 2001 would be dealt with in accordance with the provisions of Section 32(2) of the Act as amended by the Finance Act of 2001. Moreover, the Circular No. 14 of 2001 issued by the CBDT clarifies that restriction of eight years to carry forward and set off the unabsorbed depreciation has been dispensed with. Consequently, unabsorbed depreciation for the intervening periods between assessment 1997-98 upto 2001-02, if available in the assessment year 2002-03 would be allowable as part of carried forward depreciation from Assessment Year 2002-03 onwards. No decision contrary to the decision of the Gujarat High Court has been shown to us. It is clarified that although the decision of the Gujarat High Court was rendered in context of re-opening notice it has also examined the issue on merits and drew support from the CBDT circular which is beneficial to the asse ..... X X X X Extracts X X X X X X X X Extracts X X X X
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