TMI Blog2018 (8) TMI 1942X X X X Extracts X X X X X X X X Extracts X X X X ..... ciety charge and property tax - HELD THAT:- Disallowance of expenses was on the basis of order of earlier years. Before us, the ld. AR of the assessee vehemently submitted that the expenses were incurred as per the agreement/understanding between the lesser and the lessee/assessee. Considering the factual matrix of the case, principally, we are of the view that the expenditure made on account of society and property tax are allowable expenses, if the payment is made under contractual obligation with the lesser/owner and the lessee/assessee. Therefore, the Assessing Officer is directed to verify the fact, if the assessee has incurred these expenses with the consent /agreement of lesser and allowed the appropriate relief to the assessee in accordance with law. - ITA No. 2166/Mum/2015, ITA No. 2167/Mum/2015 - - - Dated:- 8-8-2018 - SHRI R.C. SHARMA, ACCOUNTANT MEMBER AND SHRI PAWAN SINGH, JUDICIAL MEMBER For the Appellant : Shri Madhur Agarwal (Advocate) For the Respondent : Shri Jayant Kumar with Shri V. Jenerdhanan (CIT-DR) ORDER UNDER SECTION 254(1)OF INCOME TAX ACT PER PAWAN SINGH, JUDICIAL MEMBER; 1. These two appeal by assessee are directed against ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of +/- 5% provided in proviso to section 92C(2) of Act. 6. The Ld. CIT (A) grossly erred, in fact and in law, in upholding the disallowance of ₹ 1,06,079/- in respect of society charges and property tax paid by the Appellant for the premises from where it conducts its business, even though same are incurred for business purposes and are fully allowable expense under section 37 of the Act. 2. For Assessment Year 2011-12, the assessee has raised the following grounds of appeal: Each of the grounds I sub-grounds of appeal is independent and without prejudice to each other. 1. The Ld. CIT(A) grossly erred, in fact and. in law, in upholding the Ld AO's action (a) In determining the arm's length, price u/s 92C(3) of the Act without issuing mandatory notice in terms of proviso to section 92C of Act. (b) In not furnishing, by way of show cause notice, the material or document or information on which he relied for invoking section 92C(3) of the Act and for computing the arm's length price thereunder. 2. The Ld. CIT(A) grossly erred, in fact and in law, in upholding that M/s. Kaybee Exim Pte Ltd, Singapore ('KEPTL') is an Associated Enterprise ( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... grieved by the order of ld. CIT(A), the assessee has filed the present appeal before us. 4. We have heard the ld. AR of the assessee and ld. DR for the Revenue and perused the material available on record. Ground No.1 relates to nonissuance of show-cause notice under section 92C for determination of ALP. The ld. AR of the assessee submits that no specific notice was issued by the Assessing Officer to the assessee. Only show-cause notice which may have some relevance was issued vide notice dated 08.08.2012. Copy of which is filed at page no. 76 to 77 of Paper Book. The assessee in its reply contended that section 92C is not applicable to the assessee. Thereafter no such notice under section 92C was issued to the assessee. The Assessing Officer directly made the Transfer Pricing Adjustment of ₹ 2.44 Crore without resorting to the mandatory procedure prescribed under the Act. The ld. CIT(A) confirmed the action of Assessing Officer on his observation that there is no change of fact and the observation made by his predecessor for earlier years order. The ld. AR of the assessee submits that the ld. CIT(A) failed to appreciate that in earlier years notices under section 92C(3) w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essee on 08.11.2012. The assessee despite imposition of penalty has not responding to the queries of the Assessing Officer. We have noted that the ld. DR for the Revenue has placed on record copy of notices dated 03.12.2010 under section 142(1) for Assessment Year 2010-11 and dated 30.12.2013 for AY 2011-12. The Notice for AY 2011-12 is duly acknowledged / received on 30.12.2013. Perusal of the notice shows that AO has mentioned in the said notices you are hereby show-caused as to why the Arm s Length Price should not be computed in your case . Similar language is used by AO in notice for Assessment Year 2011-12. The copies of notices for both the years were filed before Tribunal and were supplied to the ld. AR of the assessee. The ld. AR of the assessee either in his oral submission or in his written submission has not denied the receipt of such notices. 7. The contention of ld. AR of the assessee is that no specific notice under section 92C(3) was issued to the assessee before making adjustment of Arm s Length Price. The careful perusal of section 92C(3) makes it clear that, if the Assessing Officer on the basis of information on documents in his possession is of the opinion ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... der section 92C, the Assessing Officer is empowered to determine ALP, in accordance with the methods prescribed under sub-section (1) of section 92C. However, section 92CA deals with the reference to the Transfer Pricing Officer and his power and procedure for determination of ALP. Considering the factual matrix of the case in hand, we are of the view that case law relied by ld. AR of the assessee are on different factual matrix and not applicable on the facts of the present case. In the result, ground no. 1 of the appeal raised by assessee has no force and the same is rejected. 10. Ground no.2 relates to treating M/s. Kaybee Exim Pte Ltd., Singapore (KEPTL) is an Associate Enterprises (AE) of assessee. The ld. AR of the assessee submits that the lower authority has deemed KEPTL as AE of assessee merely on account of common Director, Mr. Govind Karunakaran and determined Arms Length Price (ALP) in respect of commission received by assessee from KEPTL for sourcing yarn and made the addition on difference amounting to ₹ 2,44,21,288/-. The Assessing Officer merely relied upon the order of Assessment Year 2008-09. The ld. CIT(A) upheld the action of Assessing Officer on relyin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed the order of authorities below. The ld. DR further submits that this ground of appeal is covered against the assessee in assessee s own case for Assessment Year 2008-09 in ITA No. 3749/Mum/2014 dated 29.05.2015. The assessee has not brought any material on record to take any contrary view. Therefore, the assessee has no right to plead otherwise. 13. We have considered the rival submission of both the parties and have gone through the orders of authorities below. The perusal of Tribunal s order for Assessment Year 2008-09, reveals that the assessee has raised similar ground of appeal and the Tribunal on the identical facts and on identical issues passed the following order: 7. We have considered the rival submissions as well as relevant material placed on record. The language of section 92A(1) is unambiguous and does not leave any scope of importing any meaning of expression AE . The question raised before us is whether the meaning of expression AE as per s.s. (1) of section 92A is subjected to s.s. (2) of section 92A. The ld. Sr. counsel for the assessee has asserted that the criteria prescribed under s.s. (2) are necessarily be fulfilled for two enterprises to be treat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nterprise is the owner or in respect of which the other enterprise has exclusive rights; or (h) ninety per cent or more of the raw materials and consumables required for the manufacture or processing of goods or articles carried out by one enterprise, are supplied by the other enterprise, or by persons specified by the other enterprise, and the prices and other conditions relating to the supply are influenced by such other enterprise; or (i) the goods or articles manufactured or processed by one enterprise, are sold to the other enterprise or to persons specified by the other enterprise, and the prices and other conditions relating thereto are influenced by such other enterprise; or (j) where one enterprise is controlled by an individual, the other enterprise is also controlled by such individual or his relative or jointly by such individual and relative of such individual; or (k) where one enterprise is controlled by a Hindu undivided family, the other enterprise is controlled by a member of such Hindu undivided family or by a relative of a member of such Hindu undivided family or jointly by such member and his relative; or (l) where one enterprise is a firm, associ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... refore, even if, for the sake of argument it is presumed that the meaning of AE in terms of s.s. (1) of section 92A has to be understood as per the criteria provided in clause (a) to (m) of s s. (2), the condition of participating in the management directly or indirectly or one or more intermediaries as per clause (a) of s.s. (1) does not get effected by the criteria prescribed under s.s. (2). The Coordinate Bench of this Tribunal in the case of Diageo India (P.) Ltd. (supra) had the occasion to consider the meaning of AE as per section 92A (1) (2) in para 10 11 as under:- 10. We find that, in terms of the provisions of section 92A(l )(a), the expression 'associated enterprises' refers to an enterprises which participates, directly or indirectly, or through one or more intermediaries, in the management or control or capital of the other enterprise . The scope of 'associated enterprises' is expanded further by section 92A(I)(b), taking into account group concerns, and it is provided that 'associated enterprises' covers an enterprise in respect of which one or more persons who participate, directly or indirectly. or through one or more intermediari ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... illustrations of this kind of a control. All these illustrations deal with simple situations of dealing with two enterprise, as envisaged in section 92A(1)(a), but these are equally good for application in situations involving more than two enterprise, as envisaged in section 92A(1)(b). Section 92A(2)(e), for example, refers to a situation in which more than half of the directors or members of the governing board, or one or more of the executive directors or members of the governing board, of each of the two enterprises are appointed by the same person or persons but this deeming fiction is equally applicable when the same person appoints, say, more than half of the directors of the governing board for three or more enterprises. A literal interpretation to this clause will mean that if this relationship is between two enterprises, these two enterprises are required to be treated as 'associated enterprises' but when the same basis extends to more than two enterprises, these enterprises will not be associated enterprises. That is clearly an incongruous result. In our considered 'view, as all clauses of deeming fictions set out in section 92:(2) are only illustration of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted. The Tribunal was of the view that all the clauses of deeming fictions set out in section 92A (2) are only illustration of the manner in which this de facto control on decision making exists. We will now examine the facts of the case in hand in the context of the requirement of one enterprise participate directly or indirectly or through one or more intermediaries inter alia in the management of the other enterprise as per clause (a) (b) of s.s. (1) of section 92A. The assessee has given the position of the Directors and shareholders of the assessee and Kaybee Exim Pte Limited, Singapore during the financial year 2007-08 relevant to the assessment year under consideration at page 97 of the paper book as under:- Directors Kaybee India Pvt. Ltd. [Yest/No] Kaybee India Pvt. Ltd. [Yest/No] 1. Mr. Deepak Gurnami Yes Director No 2. Mr. Govind Karunakaran Yes Director Yes Director 3. Mr. Suresh Chand Gupta Yes Director No 4. M ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mited, Singapore and is part of decision making process of the said company since 1996. Shri Govind Karunakaran is a common director in both the company and participating in the management of both the companies not for the name sake but he is holding the key position in taking decision being a Chief Operating Officer of Kaybee Exim Pte Limited, Singapore and almost the entire shareholding of the assessee company, therefore, the condition of one enterprise participates directly or indirectly or through one or more intermediaries in its management or control or capital as prescribed under clause (a) (b) of s.s. (1) of section 92A is satisfied. Hence, the assessee and Kaybee Exim Pte Limited, Singapore falls under the meaning of AEs as per the provisions of section 92A. 14. Considering the decision of Co-ordinate Bench in assessee s own case on almost identical ground and on identical fact and respectfully following the same, the ground no.2 of the appeal is dismissed. For alternative contention of the ld. AR of the assessee that each year relationship for the determination of AE s has to be separately established. We have noted that the assessee has not brought any material fac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e order of Assessment Year 2008-09. The Assessing Officer has not made any attempt to select unrelated party transaction for making a base to bench marking international transaction. The Assessing Officer relied solely on the order of Assessment Year 2008-09 on his observation that no details was furnished by assessee despite repeated notices. Considering the factual matrix of the case as the Assessing Officer has not adopted the method prescribed under section 92C(1), therefore, we deem it appropriate to restore this ground of appeal to the file of Assessing Officer to re-compute the ALP afresh. Needless to say that Assessing Officer shall provide opportunity to the assessee before passing the order in accordance with law. The assessee is also directed to furnish all documentary evidence to substantiate their contention. 18. In the result, ground no. 3 to 5 are allowed for statistical purpose. 19. Ground No.6 relates to disallowance of society charge and property tax. The ld. AR of the assessee submits that the assessee has taken a premises on rent. The premise was used by assessee for the purpose of its business. The assessee has paid ₹ 1,06,079/- as property tax and ..... X X X X Extracts X X X X X X X X Extracts X X X X
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