TMI Blog2018 (3) TMI 423X X X X Extracts X X X X X X X X Extracts X X X X ..... above two items while computing book profit as per Explanation (1) to section 115JB which were brought on the statute book with retrospective effect from 01.04.2001 by the Finance Act, 2008 and 2009 respectively and that after filing of the return of income. The assessee cannot be held as a defaulter of payment of advance tax on account of a subsequent amendment which came into force retrospectively after filing of the return. So far as the decision relied on by the ld. DR in the case of Rolta India Ltd. (2011 (1) TMI 5 - SUPREME COURT OF INDIA) is concerned, the same relates to the levy of interest u/s 234B on the tax calculated on book profit u/s 115JA. There is no dispute to the fact that the assessee is liable to interest u/s 234B on the tax calculated on book profit u/s 115J/115JA. The question before the Hon’ble Supreme Court was as to whether the assessee which is a MAT company was not in a position to estimate its profit for the current year prior to the end of the financial year on 31st March. However, in the instant case the amendments which got the assent of the President were brought into the statue book after the end of the financial year. Therefore, the assessee wa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on (1) to section 115JB of the I.T. Act. The Hon’ble Bombay High Court in the case of CIT v. Echjay Forgings Private Limited[2001 (2) TMI 56 - BOMBAY High Court] has held that since provision for gratuity was made on the basis of actuarial valuation, it was an ascertained liability and the said amount would not be added to the net profits. - Decided against revenue - ITA No.1637/Del/2014 And ITA No.2183/Del/2014 - - - Dated:- 26-2-2018 - SHRI R. K. PANDA, ACCOUNTANT MEMBER AND MS. SUCHITRA KAMBLE, JUDICIAL MEMBER For The Assessee : Shri Sandip Sapra, Adv. For The Department : Shri Kumar Parnav, Sr. DR ORDER R. K. PANDA, AM : These are cross appeals. The first one is filed by the assessee and the second one filed by the Revenue and are directed against the order dated 27.01.2014 of the CIT(A)- XX, New Delhi relating to assessment year 2007-08. For the sake of convenience, these were heard together and are being disposed of by this common order. ITA No.1637/Del/2014 (By Assessee) : 2. Ground of appeal no.1 reads as under :- 1. That the learned CIT(A) erred on facts and under the law in upholding the action of the assessing officer and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... owance is called for. 5. However, the ld. CIT(A) was not fully satisfied with the explanation given by the assessee. Observing that the top management of the assessee company is involved in making decisions for investments in shares and securities, he held that the estimation of 0.5% of the average value of investment should be considered as administrative cost for earning exempt income during the year. He accordingly estimated such disallowance at ₹ 3,07,500/-. However, proportionate disallowance of interest was computed by him of ₹ 9.68 lakhs. He accordingly directed the Assessing Officer to restrict the disallowance u/s 14A at ₹ 12,75,500/- as against ₹ 14,72,158/-made by the Assessing Officer. He directed the Assessing Officer to add the amount of ₹ 12,75,500/- instead of ₹ 14,72,158/- as expenditure in relation to exempt income. 6. Aggrieved with such order of ld. CIT(A), the assessee is in appeal before the Tribunal. 7. Ld. counsel for the assessee strongly objected to the order of the ld. CIT(A). He submitted that the provisions of Rule 8D are not applicable to the assessee company since the assessment year involved is assessment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ome reasonable basis. In view of the judgment of the Hon ble jurisdictional High Court on the point, we cannot approve the view taken by the AO in computing the disallowance u/s 14A as per the mandate of Rule 8D of the Income-tax Rules. Accordingly, the impugned order is set aside on this issue and the matter is restored to the file of the AO for making disallowance u/s 14A on some reasonable basis as has been held by the Hon ble jurisdictional High Court in the afore noted case. 10. Respectfully following the decision of the Tribunal in assessee s own case in assessment year 2006-07, we deem it proper to restore the issue to the file of the Assessing Officer for adjudication of the issue afresh in the light of the decision of the Tribunal and in accordance with law after giving due opportunity of being heard to the assessee. We hold and direct accordingly. The ground no.1 by the assessee is accordingly allowed for statistical purposes. 11. Original ground no.2 by the assessee reads as under :- 2. That the learned CIT(A) erred on facts and under the law in not allowing interest charged u/s 234B in respect of disallowances on account of Provision for bad and doubtful d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... page 26 to 41 of the Paper Book and since the same has not been adjudicated by the ld. CIT(A), therefore, this ground needs to be adjudicated here itself instead of restoring it to the file of the ld. CIT(A). 16. So far as merit of the case is concerned, he submitted that the assessee filed its return of income on 30.10.2007 and paid tax u/s 115JB as per computation of income, the details of the same are placed at pages 45 - 46 of the Paper Book. He submitted that as per such computation of income, the assessee did not offer deferred tax liability amounting to ₹ 19,96,77,375/- and provision for bad and doubtful debts amounting to ₹ 75,00,000/- under the MAT provision i.e. u/s 115JB of the I.T. Act. He submitted that the explanation (1)(h) to section 115JB was inserted by the Finance Act, 2008 with retrospective effect from 01.04.2001 whereby deferred tax liability was to be added to the book profit under the MAT provision. Referring to 300 ITR (Statutes) page 17, he submitted that the Finance Act, 2008 received the assent of the President on 10.05.2008. Accordingly, the Assessing Officer vide order dated 28.01.2011 added ₹ 19,96,77,375/- on account of deferred ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the decision of the Hon ble Supreme Court in the case of JCIT v. M/s Rolta India Ltd. vide Civil Appeal No.135 of 2011 order dated 07.01.2011, he submitted that the Hon ble Supreme Court in the said decision has held that interest u/s 234B and 234C shall be payable on failure to pay advance tax in respect of tax payable u/s 115JA and 115JB. He submitted that the provisions of section 115J, 115JA and 115JB are special provision. For purpose of advance tax the evaluation of current income and determination of the tax thereon had to be made in terms of the statutory scheme comprising section 115J and 115JA. Hence, levy of interest was inescapable. The assessee was bound to pay advance tax under the scheme of the Act. Referring to the provisions of section 234B, he submitted that it is clear that it applies to all companies and there is no exclusion of section 115J and 115JA in levying of interest u/s 234B. He accordingly submitted that the grounds raised by the assessee should be dismissed. 21. We have heard the rival contentions made by both the sides, perused the materials available on record and the Paper Book filed on behalf of the assessee. We have also considered the vari ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed that the additional ground taken by the appellant before it to be a question of law and goes to the root of the matter vide order dated 05.05.2009 (Annexure-8) directed the learned D.R. to produce the records of search to examine as to whether search warrant was issued in the name of the assessee or not and adjourned the case to 06.05.2009. At this stage, there is no reason as to why the Tribunal being the final fact finding authority could not have recorded its finding on aforesaid vital jurisdictional issue when consciously the Tribunal called for the record of search. This action of the learned Tribunal, in our view, seems to be unjust. 22. The specific stand of the appellant is that pursuant to order dated 05.05.2009 (Annexure-8) passed by the learned I.T.A.T. directing learned D.R. to produce the records of the search to examine whether search warrant was issued in the name of the assessee, the Revenue produced the search records and the I.T.A.T. after examining the relevant records was satisfied that no such search warrant was issued against the appellant-Society under Section 132(1) of the I.T. Act, 1961. In spite of the same, the I.T.A.T. vide its order dated 27.07 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt, the learned I.T.A.T. should have recorded its findings vis- -vis the stand taken by the appellant. If the relevant records were not produced by the Revenue pursuant to order of the Tribunal dated 05.05.2009, the Tribunal should have insisted upon production of the search records in view of the specific stand of the appellant that there was no search warrant in the name of the appellant-assessee, which was the foundation of jurisdictional issue. After verifying the relevant search records, learned Tribunal should have taken a decision on the additional ground and should not have remitted the matter to the C.I.T.(A) for adjudication on the additional ground that goes to the root of the case. 24. In view of the decision cited (supra) the amended ground raised by the assessee is not only admitted but we proceed to adjudicate the same on merit as well since the relevant facts are available on record and no further investigation of the facts are required. 25. Now coming to the merits of the case, it is the submission of the ld. counsel for the assessee that since Explanation (1)(h) to section 115JB was inserted by the Finance Act, 2008 with retrospective effect from 01.04.20 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e established that the assessee had the liability to pay advance tax as provided in Sections 207 and 208 of the Act within the time prescribed under Section 211 of the Act. Those provisions are quoted below: 207. Liability for payment of advance tax.-Tax shall be payable in advance during any financial year, in accordance with the provisions of Sections 208 to 219 (both inclusive), in respect of the total income of the assessee which would be chargeable to tax for the assessment year immediately following that financial year, such income being hereafter in this Chapter referred to as current income . 208. Conditions of liability to pay advance tax.-Advance tax shall be payable during a financial year in every case where the amount of such tax payable by the assessee during that year, as computed in accordance with the provisions of this Chapter, is [five thousand rupees] or more. 211. Instalments of advance tax and due dates.-1[(1) Advance tax on the current income calculated in the manner laid down in Section 209 shall be payable by- (a) all the companies, who are liable to pay the same, in four instalments during each financial year and the due date of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ecified in subsection (1), the appropriate part or, as the case may be, the whole of the amount of the advance tax specified in such notice shall be payable on or before each of such of those dates as fall after the date of service of the notice of demand. (Emphasis supplied by us). A mere reading of those provisions leaves no doubt that the advance tax is an amount payable in advance during any Financial Year in accordance with the provisions of the Act in respect of the total income of the assessee which would be chargeable to tax for the Assessment Year immediately following that Financial Year. Thus, in order to hold an assessee liable for payment of advance tax, the liability to pay such tax must exist on the last date of payment of advance tax as provided under the Act or at least on the last date of the Financial Year preceding the Assessment Year in question. If such liability arises subsequently when the last date of payment of advance tax or even the last date of the Financial Year preceding the assessment year is over, it is inappropriate suggest that still the assessee had the liability to pay advance tax within the meaning of the Act. 10. In the case befo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uld arise only on default and is really in the nature of quasi-punishment and thus, although the liability to pay tax arose due to retrospective effect of law, same should not entail the punishment of payment of interest. 13. Although Mr. Nizamuddin, the learned Counsel appearing on behalf of the Revenue, in this connection, strongly relied upon the decision of the Supreme Court in the case of Joint Commissioner of Income Tax vs. Rolta India Ltd., reported in (2011) 330 ITR 470, we find that in that case the question was whether interest under Section 234B of the Act could be charged on the tax calculated on the book profit under Section 115JA and in other words, whether advance tax was at all payable on book profits under Section 115JA of the Act. The Supreme Court answered the said question in the affirmative and further held that the provisions of interest on default as provided in Sections 234B and 234C would also apply. We have already pointed out that Mr. Bajoria, at the very outset, conceded that the said decision should be applied for answering the first question formulated in this appeal against his client. In our opinion, the said decision is not relevant for consid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lt in payment of advance tax. It directs payment of simple interest and in terms of this provision provided any assessee who is liable to pay advance tax under section 208 has failed to pay such tax or where the advance tax paid is less than 90% of the assessed tax. Thus, this is a provision whereunder interest could be recovered wherein advance tax for the assessment year fails to take note of the amendment to the Income Tax Act which is brought in subsequently. When the Parliament stepped into to amend the Act though with retrospective effect but in 2008, then, there is no default in payment of advance tax for the assessment year 2006-07. The computation of income based on which the advance tax was paid was in tune with the law prevailing on the date on which tax was due and payable. Any further addition in the income by way of amended provisions and which were incorporated subsequently, therefore, does not attract payment of interest as there is no default. 13. Mr. Kaka also invited our attention to section 115JB and particularly, insertion of clause (h) in Explanation (1). That clause reads as under : (h) The amount of deferred tax and the provision therefor. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s, clause (h) which is reproduced above having been brought in with retrospective effect but by Finance Act 2008, the advance tax computation by the assessee for the year 2006-07 cannot be faulted and it cannot be said that the assessee is in default and therefore, there is any liability to pay interest in terms of section 234B of the Income Tax Act, 1961. 18. In the case of Star India (P.) Ltd. v. CCE[2006] 280 ITR 321/150 Taxman 128 the Hon ble Supreme Court held that the service of broadcasting was made a taxable service with effect from July 16, 2001, by the Finance Act, 2001. The appellant disputed its liability to make any payment for service tax on the ground that it did not broadcast. The Commissioner, however, held against the appellant. The matter was carried before the Commissioner of Income Tax (Appeals) and during pendency of appeal the Finance Act, 2001 was amended by the Finance Act, 2002. The effect of amendment, inter alia, was to make an agent, such as the appellant, before the Supreme Court, liable to pay service tax as broadcaster. 19. The Supreme Court noted that the Appellants appeal pending before the Commissioner was rejected by him on the bas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... terms of section 234B, once the explanation was introduced or brought in with retrospective effect but by Finance Act, 2008. Then, there was no liability to pay interest in terms of this provision. That was because the assessee cannot be termed as defaulter in payment of advance tax. The advance tax computation on the basis of the unamended (sic) provision therefore could not have been entertained. 21. We do not see any broader or wider question arising for our determination as the view taken even on this question is neither perverse or neither vitiated by any error of law apparent on the face of the record. 31. In view of the decisions of the Hon ble Calcutta High Court and the Hon ble Bombay High Court cited (supra), we are of the considered opinion that no interest u/s 234B and 243C could have been levied consequent to inclusion of the above two items while computing book profit as per Explanation (1) to section 115JB which were brought on the statute book with retrospective effect from 01.04.2001 by the Finance Act, 2008 and 2009 respectively and that after filing of the return of income. The assessee cannot be held as a defaulter of payment of advance tax on accou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nery spares - 1 .08 TNMM Fee for Technical consultancy services 0.44 16.50 TNMM Royalty for use of technical know-how 3.30 1.83 CUP TOTAL 58.97 44.87 10.3.84 35. The Assessing Officer referred the matter to the TPO for determination of the arm s length price of the international transactions entered into by the assessee. The TPO observed that the assessee has adopted the TNMM on an entity level basis to determine the arm s length price of all its international transactions except for the payment of royalty for use of technical know-how. He observed that the assessee has applied CUP method to benchmark the payment of Royalty to its AEs. While doing so, the assessee has relied on the rates charged in case of Sona Koyo Steering Systems Limited as an effective CUP for royalty payments made to its AEs. The TPO disregarded the analysis carried out by the assessee and analyzed the margins of the automotive glass divisio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ional transactions in the Float Glass division. The Assessing Officer, thereafter, in the assessment order made addition of ₹ 4.09 crores to the total income of the assessee. 40. Before the ld. CIT(A), the assessee submitted that it has paid on amount of ₹ 3.62 crores as royalty for technical know-how in the Automotive Glass division and ₹ 4.09 crores in the Float Glass division. Thus, the total royalty of ₹ 7.71 crores paid by the assessee to its AEs amounted to 0.98% of its net sales. It was submitted that the royalty paid by Sona Steering Systems Limited was considered as an appropriate CUP for benchmarking the royalty payments of the assessee since in either case, the technology was ultimately used to cater to OEMs. Accordingly, the Sona Steering agreement was submitted before the TPO during the course of assessment proceedings. It was submitted that as per agreement, Sona Steering paid royalty to its foreign collaborator at 3% of the turnover. Since the total payment of royalty made by the assessee amounted to only 1.91% of its turnover, which is lower than the royalty paid by Sona Steering, it substantiates the arm s length nature of its royalty tra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h were forwarded to the TPO for a remand report. The TPO in his report objected to the admission of the additional evidences filed before the ld. CIT(A) and justified its earlier action. The ld. CIT(A) confronted to the assessee to the remand report made by the Assessing Officer. After considering the contents of the remand report and the rejoinder of the assessee to such remand report, the ld. CIT(A) directed the TPO to delete the addition of ₹ 4.09 crores on account of TP adjustment in respect of royalty by observing as under :- 10.4 I have carefully considered the submissions of the appellant and also the remand report dated 01/01/2013. In the TP study the royalty paid by Sona Steering Systems Limited was considered by the appellant as an appropriate Comparable Uncontrolled Price ( CUP ) for benchmarking the royalty payments of the appellant. During the appellate proceedings the appellant had undertaken a search of independent agreements over global royalty database namely, RoyaltyStat database, to identify comparable uncontrolled agreements to compare royalty rates paid by appellant to its AEs with the rates charged between independent third parties for use of simila ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... an be seen from the table below: Turnover of Asahi India over the years Company Name Sales (in Rs. Lakhs) Mar-05 Mar-06 Mar-07 Mar-08 Asahi India Glass Ltd. 67,606 68,283 87,830 111,382 Y.o.Y growth in sales 1% 29% 27% 10.6 The appellant has further submitted that approximately 80% of the sales revenue of the appellant represents sales made to global customers of the Asahi Group and these sales would not have been possible in absence of the technical and brand affiliation with the Asahi Group. The appellant has also argued that the majority of the benefit derived by the appellant includes retention of its customer base who may be lured by competitors unless the appellant constantly evolves its product portfolio. The royalty payments were made by the appellant for availing patented technology. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... CIT(A) should be reversed and that of the Assessing Officer be restored. 44. Ld. counsel of the assessee on the other hand heavily relied on the order of the ld. CIT(A). He submitted that the ld. CIT(A) has given justifiable reasons while deleting the addition made by the Assessing Officer. He submitted that the assessee company in the instant case has paid royalty of ₹ 4.09 crores on net sales of float glass of ₹ 238.61 crores to its AEs which works out to only 1.71% of sales. Therefore, the same deserves to be allowed because due to the licensed technology made available by the AEs, the assessee company was able to cater to the changing needs of its customers, maintain quality and was also able to increase its sales over the years and smooth functioning of its business. He submitted that since the assessee company does not undertake any research and development activity on its own and totally depends upon its AEs for technology, therefore, without such technology the assessee would not have achieved such higher turnover. He submitted that no independent third party will let any other entity to use its licensed technology without charging a fee/royalty. Since the fl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s namely Gujarat Guardian Ltd., Hindustan National Glass and Industries and Saint Gobain Glass India Ltd.. However, the TPO excluded two companies namely Bharat Glass Tube Ltd. and Triveni Glass Ltd. as comparables. On appeal by the assessee, the Tribunal vide order 06.04.2016 directed the TPO to include Bharat Glass Tube Ltd. and Triveni Glass Ltd. as comparables. Consequently, pursuant to the order of the Tribunal, the TPO worked out the average/mean operating margin by including Bharat Glass Tube Ltd. and Triveni Glass Ltd. as comparables. Therefore, Bharat Glass Tube Ltd. and Triveni Glass Ltd. ought to be considered as comparables for the year under consideration for working out the average/mean operating margin of Float Glass Division. He submitted that Gujarat Guardian Ltd. and Sejal Architectural Glass Ltd. could not be considered as comparable because Gujarat Guardian Ltd. was engaged in the manufacture of float glass and mirror glass and Sejal Architectural Glass Ltd. was engaged in the manufacture of toughened glass and laminated glass. Before the TPO the said companies were given as comparables because the assessee company is engaged in the manufacture of both toughened ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 5.11 10.92% (4) Saint Gobain Glass India Ltd. 854.28 783.12 71.16 8.33% (5) Sejal Archtiectural Glass Ltd. 43.87 39.04 4.83 11.01% (6) Triveni Glass Ltd. 106.23 112.07 -5.84 -5.50% Mean/Average 8.66% 47. The operating margin of the assessee company for float glass division was shown at 6.02% which the TPO has reproduced at page 4 of his order. We find the TPO in the order rejected three comparables namely Bharat Glass Tubes Ltd., Hindustan National Glass Inds. Ltd. and Triveni Glass Ltd. as comparables and worked out the average/mean operating margin of three comparables at 15.99%. After comparing the operating margin of the float glass division of the assessee company at 6.02%, the TPO made addition of ₹ 4.09 crores on the ground that the assessee company had not derived any benefit from payment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... been demonstrated to have been incurred or laid out for the purpose of business; it was no concern of the TPO to disallow it on any extraneous reasoning. He was expected to examine the international transaction as he actually found them and then make suitable adjustment but a wholesale disallowance of the expenditure is not warranted. It has further been held that it is not open to the TPO to question the judgment of the assessee as to how it should conduct its business and regarding the necessity or otherwise of incurring the expenditure in the interest of its business. It is entirely the choice of the assessee as to from whom it contemplates to source its technology or technical knowhow and as to what steps should be taken to meet the competition prevalent in the market and to stave off the competitors. This is the domain of the businessman and the TPO has no say in the matter. The Revenue cannot justifiably claim to place itself in the arm chair of businessman or in the position of the Board of Directors and assume the role to decide how much is the reasonable expenditure having regard to the circumstances of the case. In view of the above discussion and in view of the detailed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... this account. The assessing officer has also observed that the provision for gratuity has been made on the basis of actuarial valuation. During the course of the appellate proceedings, the Appellant has explained that this provision is not an unascertained liability instead it has been created on the basis of the actuarial valuation. Thus, the clause (c) of the explanation (1) does not apply in the instant case. The appellant has also relied on various case laws. In the case of DCIT Vs. Inox Leisure (supra) the Hon ble High Court of Gujarat has held Considering the above judicial pronouncements and the facts on hand, we have no hesitation in upholding the Tribunal s view that though actual payment of gratuity may be made at a later point of time upon periodical release of the employees from service, it is provision having been made on actuarial basis it cannot be stated to be an uncertained liability so as to add it back in terms of Clause (c) to Explanation 1 to section 115JB. Respectfully following the decision of the Hon ble High Court of Gujarat in the case of DCIT Vs. Inox Leisure (supra), the assessing officer is directed to exclude the provision for gratuity amounting to ..... X X X X Extracts X X X X X X X X Extracts X X X X
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