TMI Blog2018 (5) TMI 797X X X X Extracts X X X X X X X X Extracts X X X X ..... et it right so that assessee could upload the entire data - Held that:- The reasoning for delay given is supported by a certificate from a computer specialist, who attended to the problem. Since the audit was completed on 02-09-2008 which was not doubted by the Revenue, there is no reason why assessee should postpone the uploading of the return, when all the information was ready. Therefore, the explanation given that the computers got infected is a reasonable explanation given in the circumstances. We are of the opinion that the delay in filing the return is not an intentional delay but beyond the reasonable control of assessee. Also assessee was also claiming deduction in earlier years and following the principles laid down in the case of Visu International Limited Vs. DCIT [2011 (7) TMI 1161 - ITAT HYDERABAD], the deduction u/s. 10B cannot be denied in the subsequent year without a valid reason. - Decided in favour of assessee. Disallowance u/s 36(1)((v)/(va) - contribution to PF - Held that:- There is no distinction between employee’s and employer’s contribution to PF/ESI, when the total contribution is deposited on or before the due date of furnishing of return of income ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... esh examination. Disallowance of depreciation on computers - Held that:- Since the evidence was not furnished before the AO/DRP to establish that assessee has purchased computes and software, it is necessary to examine the transaction of purchase and sale in the hands of those companies, stated to be group concerns by the AO and clear finding should be given whether these transactions of sale of computer software are recorded by those companies and if so, the nature of purchase of computers and software by that company. Therefore, we are of the opinion that this issue also required to be examined by the AO afresh. - I.T.A. No. 1732/Hyd/12, I.T.A. No. 520/Hyd/16, I.T.A. No. 383/Hyd/15 And I.T.A. No. 521/Hyd/16 - - - Dated:- 4-5-2018 - SHRI B. RAMAKOTAIAH, ACCOUNTANT MEMBER AND SHRI V. DURGA RAO, JUDICIAL MEMBER For The Assessee : Shri P. Murali Mohan Rao, AR For The Revenue : Shri Peeyush Sonkar And Shri R. Laxman, CIT-DRs ORDER PER BENCH: These are assessee s appeals against the orders of the AO, as confirmed by the Dispute Resolution Panel [DRP]. Since common issues are involved in these appeals, we have heard them together and disposed of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es were for the purpose of acquisitions and expansions of business outside India. 4. Before the TPO, assessee submitted that advances given to subsidiaries were interest free and they were given for the purpose of expansion of business activities of its AEs. Assessee did not charge any interest on the advances given to its subsidiaries. The TPO was of the opinion that since assessee has obtained bonds with interest, assessee should have charged interest on advances given to the subsidiaries. After detailed discussion and rejecting the assessee s contentions, the TPO determined the yield on B rated bonds at 20% and taking that as basis, assessee s bonds were rated BB rated bonds and arrived at the interest rate of 17.26% which assessee should have charged on the advances given to the subsidiaries. Accordingly, the TPO has proposed the following adjustments under the provisions of transfer pricing. Rs . a. Bartronics Asia Pte Ltd., Singapore 6,45,88,574 b. Bartronics America Inc., USA 5,22,47,593 4.1. TPO proposed an adjustment of ₹ 11,68,36,167/-. Assessee raise ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... payer is that the TPO has changed the character of the transaction from the contribution of share capital to advances /loans. 2.8 The panel examined the contention of the tax payer very carefully. If the tax payer contention is accepted it leads to violation of Foregin Exchange Management Act 1999. Under this Act, the Reserve Bank of India has notified the regulations known as Foreign Exchange Management (Transfer or Issue of any Foreign Security) Regulations 2004 Under Rule 5 of these regulations no person resident in India shall make any direct investment outside India without prior approval of the RBI. Up to 400% of net worth of an Indian Party can be invested in a wholly owned subsidiary in automatic route but such an Indian Party has to comply with the Rule 15 of the regulations. Under Rule 6 the Indian Party has to submit the prescribed documents relating to investment in wholly owned subsidiary to the designed branch of an authorized dealer. Under Rule 15 of these regulations an Indian entity investing in an entity outside India needs to produce share certificates or any other document as an evidence of investment in the foreign entity to the satisfaction of the Re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d business thereby for the expansion of assessee s business. Even though these advances have been made as equity investments for the purpose of acquisition and for expansion of business, these were classified as advances while preparing the financial statements as equity shares were not allotted. It was further submitted that as per the business plan proposed, assessee raised FCCBs for 50 Mn. US$ and 25 Mn. US$ with a purpose to invest in the subsidiaries of assessee-company. It was clearly stated in the annual report for the AY. 2008-09 that the proceeds of the FCCB will be utilised for the purpose of expansion of its activities in India and abroad. It was further submitted that subsidiary company was not in a position to allot the shares as the process of investment by that company was not complete- the process has taken longer time and ultimately, shares were allotted on 30- 09-2012. This indicates that assessee has always intended to make equity investments. It was submitted that on TPO/DRP s observation that the amounts were shown under loans and advances , assessee has to show the same under the Companies Act as the shares were not allotted but this fact cannot be held again ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s and passed an order in ITA No. 259/Hyd/2017, allowing the case in favour of assessee. It was submitted that the issue is similarly covered as the Co-ordinate Bench has relied on another decision of Co-ordinate Bench in the case of KAR Therapeutics Estates Pvt. Ltd., Vs. DCIT (supra), which was given on similar facts. 6. Ld.DR in reply, however, referred to various annual reports and other documents of assessee as well as the subsidiaries to submit that these amounts were advanced as loans only and nowhere the intention to allot shares was mentioned. Since there is no share application money or as not shown under the head investments , these amounts are purely in the nature of loans and advances. Assessee being a listed company, under the mandatory disclosure as per Clause- 32 of the listing agreement with a stock exchange, it has consistently declared the nature of these amounts as loans and advances . It was further submitted that recipient of these amounts i.e., both the subsidiaries were consistently declared the receipt as a loan from holding company. In view of that, it was submitted that both assessee as well as subsidiaries have treated the amount as loans and advan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Soma Textiles and Industries Limited [59 taxmann.com 152] (Ahamedabad Trib); v. Shrenuj Company in ITA No. 7948/Mum/2011, dt. 17- 04-2015; 6.2. Coming to the Co-ordinate Bench decision given in AY. 2012-13, it was submitted that order was obtained by assessee on the basis of incomplete facts and the decision is not based on true and full disclosure by the assessee. The fact that treatment of advance as loans is brought on record for the first time before the Bench now and the AY 2012-13 was decided prior to deciding the issue in AY. 2008-09, it was the first year when money was transferred to the subsidiaries. Thereafter, Ld. DR elaborately distinguished that decision and finally relied on the principles of Res Judicata which do not apply to the income tax proceedings and relied on the judgment of Hon ble Supreme Court in the case of Radhasoami Satsang Vs. CIT [193 ITR 321] (SC). Ld.DR distinguished the case law relied on by assessee to submit that in all those cases, the amounts were invested as share application money and so they are not applicable. 7. In reply, Ld.Counsel submitted that there is no dispute showing the amounts as loans and advances but it was onl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ational transactions as per Section 92B(1). The provisions of 92B(1) is enacted originally are as under: Sec. 92B(1) For the purpose of this section and sections 92, 92C, 92D and 92E, international transaction means a transaction between two or more associated enterprises, either or both of whom are non-residents, in the nature of purchase, sale of lease of tangible or intangible property, or provision of services, or lending or borrowing money, or any other transaction having a bearing on the profits, income, losses or assets of such enterprises, and shall include a mutual agreement or arrangement between two or more associated enterprises for the allocation or apportionment of, or any contribution to, any cost or expenses incurred or to be incurred in connection with a benefit, service or facility provided or to be provided to any one or more of such enterprise . Explanation was introduced by the Finance Act, 2012 w.e.f. 01-04-2002 clarifying retrospectively that capital financing is also forming part of international transactions vide Explanation(1)(c). however, it is to be noted that this amendment has been inserted by the Finance Act, 2012 by which time, assessee ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erred funds to its AE as investment and the same was classified in the balance sheet as loans and advances. However, it is only a classification of accounting entry in the books, but, what is relevant and important is whether such transfer of funds were duly treated as investment and accordingly shares were allotted in the subsequent AY. Assessee has submitted share allotment certificate as evidence. Since the transfer of funds were duly accounted by the AE and there is no restriction on the part of the AE to allot shares in the same AY of receipt of funds, as long as the shares allotted, it gives true nature of the transaction. In the given case, even there is no outstanding balance in the books of assessee as loans and advances, the same transaction was duly justified by receiving allotted shares in the subsequent AY. In our considered view, there is no element of profit in the above transaction. Moreover charging of interest is depending upon the contractual obligations between the parties. In the given case, assessee has transferred funds with an intention to make investment, it cannot be treated as international transaction as held by various courts, particularly, in the case ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is restored and the grounds raised by the assessee in this regard are allowed. As held in the above, we are inclined to treat the above transaction as not an international transaction and accordingly ground No.1 of the assessee is allowed. Since we have adjudicated ground No.1 as allowed, the ground Nos. 2 3 are only academic in nature and accordingly, dismissed. Respectfully following the decision of the coordinate bench in the said case, we are inclined to treat the above transaction as not an international transaction and accordingly the ground raised on this issue is allowed. We respectfully follow the same as facts are unchanged. 9.4. On the issue whether every loan advance has to be an interest earning activity, the Co-ordinate Bench at Delhi in the case of DLF Hotel Holdings Ltd., Vs. DCIT in ITA No. 6336/Del/2012 also considered similar issue and held as under: 17.6.1 There is nothing on record to support the conclusion that the interest free loan must necessarily be deemed to be an interest earning activity and not an activity to capitalize the opportunity cost for investing in new territories. We hold that for the tax authorities to cons ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stipulated to be a loan for a transitory period, the economic purpose of which is a future capital investment in all its forms including contribution to equity or subscription of capital and cannot be justifiably be treated as a debt simplicitor . 7.19 Reverting back to the main issue, we note that on behalf of the assessee, reliance has also been placed on the judicial precedent as considered by the Hon'ble Bombay High Court in the case of Vodafone India Services (P.) Ltd. (supra). A perusal of the said decision shows that it further places reliance on Vodafone India Services (P.) Ltd. v. Union of India [20141 50 taxmann.com 300/[2015] 228 Taxman 25/368 ITR 1 (Bom.). The said decision has been relied upon for the proposition that even if shares have been issued at a premium to the foreign holding company by an India subsidiary the amounts received from non-resident being capital in nature cannot be subjected to transfer pricing provisions. The Hon'ble High Court in categoric terms considering the issues on facts have held that the-alleged shortfall between fair market of shares and the issue price of shares cannot be considered income on the basis of supposed intent ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts and consistent with the stand taken in earlier year in above appeal for AY. 2008-09 and also in later year of 2012-13, we hold that no adjustment is required. Accordingly, assessee s grounds in these years are allowed. 10.2. The grounds on these transfer pricing issues of assessee are allowed. II. Corporate Matters: These issues arise only in AY. 2008-09. 1. Disallowance u/s.10B of the Act: 11. During the AY 2008-09, the assessee claimed deduction u/s. 10B of ₹ 16,72,92,241 in respect of undertaking engaged in export. Assessee filed return on 31-10- 2008 whereas the due date for filing return was 30-09-2008. Since there was a delay in filing return, deduction u/s. 10B was denied. It was submitted that the assessee company had trouble with software which was used for maintaining accounts and lost the financial data due to problem with software at the time of due date for filing return, which is beyond the control of assessee. It was contended that assessee faced genuine hardship in filing the return of income. Hence, assessee filed return on 31-10-2008. To evidence the same, a copy of Virus report and certificate obtained was filed. It was contended ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the assessee has filed its return of Income for AY 2008-09 after one month. The assessee has relied on report and certificate given by one, Infokall to say that the computers were not working from 25-09-2008. These documents are self serving documents and cannot be verified independently. Secondly, the Audited account was already signed on 02.09.2008. (Page 96 of PB/A of AY 2008-09).Therefore, the return of income could have been filed based on the financials. If the system was not working from 24.09.2008, then how come the report have been prepared and signed on 29.09.2008. Thus, it is clear that the cause is not genuine and assessee does not deserve any concession. Moreover, the act is very specific and no two interpretation are possible when the language of the section is plain and simple. Therefore, it is prayed that the disallowance u/s 10B may kindly be confirmed. 11.4. We have considered the rival contentions and perused the documents placed on record. There is no doubt that assessee has completed audit as on 02-09-2008, but the return was uploaded belatedly. The reason given is that the computer got infected and it took some time to set it right so that assessee c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is only that of delay of 9 ITA.774/Mds/12 one month filing 'return we are of the opinion that the assessee has successfully explained the delay. Accordingly we hold that the assessee has filed a valid return u/s. 139(1) of the Act . Accordingly, the assessee is also held entitled for getting the deduction u/s. 10B of the Act. 11.5. Hon'ble Madras High Court ruling in case of CIT Vs. Abhinitha Foundation (P.) Ltd [(2017) 183 taxmann.com 100 (Madras)] is as under: 12.5. The failure to advert to the claim in the original return or the revised return cannot denude the appellate authorities of their power to consider the claim, if, the relevant material is available on record and is otherwise tenable in law. Any 'other view will set at naught the plenary powers of appellate authorities. 11.6. Further relied in the case of ITO Vs S Venkataiah in ITA No. 984/Hyd/2011, 2012, [22 taxmann.com 2 (Hyd.)] it was held: 14. In our opinion, in view of the above discussion, the claim of the assessee cannot be denied on technicalities when the assessee is legally otherwise entitled for deduction. As such we are inclined to dismiss the appeal filed by the Reve ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat would not give rise to any taxable income in the hands of the assessee. 12.3. We have considered the rival contentions and perused the case law relied upon. We are of the opinion that this issue now stands decided in favour of assessee by the various Co-ordinate Bench decisions and that of Hon ble Allahabad High Court. The Hon ble Allahabad High Court in the case of Sagun Foundry Pvt Ltd., (supra) has analyzed all the case law on the issue, including that of Hon ble Gujarat High Court and following the Supreme Court Judgment in the case of Alome Extrusions has held as under: 26. The question, whether benefit under Section 43B, as a result of amendment of Finance Act, 2003, is retrospective or not, came to be considered in Commissioner of Income-Tax Vs Alom Extrusions Ltd. (supra). Court considered the intent, purpose and object in the historical back drop of insertion of Section 43B and its progress by way of various amendments. Referring Section 2(24)(x) it said, income is defined under Section 2(24) which includes profits and gains. Further in clause (x) of Section 2(24) any sum received by Assessee from employees as 'contributions' to any provident fund/sup ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f tax, duty, cess or fee by explicitly stating that if such tax duty cess or fee is paid before the date of filing of the return under Act 1961, Assessee would than be entitled to deduction. This relaxation /incentive was restricted only to tax, duty, cess and fee. It did not apply to contributions to labour welfare funds. The reason appears to be that the employer should not sit on the collected contributions and deprive workmen of the rightful benefits under social welfare legislations by delaying payment of contributions to the welfare funds. But when implementation problems were pointed out for different due dates, uniformity was brought about in first proviso by Finance Act, 2003. Hence, amendment made by Finance Act 2003 in Section 43B is retrospective, being curative in nature and apply from 01.04.1988. In the result when contribution had been paid, prior to filing of return under Section 139(1), Assessee/employer would be entitled for deduction and since deletion of Second Proviso and amendment of First Proviso is curative and apply retrospectively w.e.f. 01.04.1988. 28. From the aforesaid judgment, we find that irrespective of the fact that deduction in respect of su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 62,841/ - : 13. Assessee claimed a total depreciation of ₹ 28,89,94,398/-. Out of the above sum, a sum of ₹ 2,93,68,048/- was claimed as 100% depreciation on pollution control equipment. Even though assessee had furnished details on pollution control equipment, AO was of the view that the description of the assets as stated by the assessee did not fall in the category of 100% depreciation. Therefore, he allowed 15% depreciation on the Plant Machinery as applicable to general Plant Machinery and disallowed a sum of ₹ 2,49,62,841/-. DRP confirmed the disallowance on the reason that assessee did not prove that pollution control equipment was required for the purpose of business and such equipment was used in controlling the pollution- emanating from the manufacturing operations of the tax payer. 13.1. Ld. Counsel submitted that there is no dispute with reference to the purchase of equipment as the AO allowed depreciation at 15%. It was the contention that assessee manufactures smart cards and pollution control equipment is required for the purpose of business. Even though the same was explained, the officers are not willing to accept the same. It was submit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ,89,876/ - 14. Assessee claimed that it has purchased machine from IRIS Smart Cards Ltd., for a sum of ₹ 18,26,57,500/- in a slump sale agreement dt. 10-08-2007. AO invoking the provisions of Section 43(1) r.w. Explanation (3) and after obtaining the approval of Addl. CIT, restricted the depreciation claim to 15% of WDV of the machine in the books of account of IRIS Smart Cards Ltd., valued at ₹ 1,86,97,484/- and restricted the depreciation to ₹ 28,04,622/- as against 60% claimed at ₹ 10,95,94,500/-. The difference of ₹ 10,67,89,876/- was disallowed by the AO. 14.1. Assessee objected to before the DRP and submitted that the said IRIS Smart Cards Ltd., is not a sister concern and without giving an opportunity, AO disallowed the amount. Further, it was submitted that it was a case of slump sale and break up of each asset is not available. DRP, however, did not agree with the taxpayer. It relied on the shareholding of Bartronics and India Ltd., and IRIS Smart Cards Ltd., and held that the said company was a sister concern. It also held that it is not a slump sale only a machine was purchased and therefore, it confirmed the action of the AO. 14.2. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... /-. AO disallowed the entire depreciation claim on the ground that in the case of Asia Trading Pte Ltd., no original bills or invoices were produced and in the case of Godavari Exports Imports Ltd., that company was engaged in steel products and the transaction is not a genuine transaction. Moreover, Godavari Exports Imports Ltd. was found to be a company under the same management. DRP after considering the submissions of assessee rejected the claim on the reason that no evidence in support of purchases was produced before the AO and no interference is called for by the panel, as far as purchase from Intra Asia Trading Pte Ltd., is concerned. Coming to purchase from Godavari Exports Imports Ltd., it held that inspite of giving repeated opportunities, assessee failed to prove the genuineness of purchase of software. In the absence of any evidence, panel agreed with the disallowance of depreciation. 15.2. Ld. Counsel submitted that the observations of the AO are completely misplaced. It was submitted that assessee neither related to Godavari Exports Imports Ltd., nor Asia Trading Pte Ltd. It was the contention that assessee purchased the computer and software from the abov ..... X X X X Extracts X X X X X X X X Extracts X X X X
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