TMI Blog2022 (6) TMI 1266X X X X Extracts X X X X X X X X Extracts X X X X ..... ALP adjustment on account of receipt of commission for Marketing Services - main contention of the appellant is that the functions undertaken by the assessee for selling the product is significantly different from what is undertaken for the purpose of earning the commission income from A.E - CIT-A deleted the adjustments - only bone of contention between the Department and the assessee is exclusion of the cost of material consumed and the depreciation in the total cost for the purpose of determining the percentage of marketing cost to the total cost - HELD THAT:- The reasoning given by the TPO that these two segments of the cost does not contribute to profit does not stand to any reason, in as much as the depreciation and the material actually contributes to the profits in the manufacturing segment. An identical issue was examined by the Co-ordinate Bench of this Tribunal in assessee s own case for A.Y. 2010-11 [ 2021 (9) TMI 635 - ITAT PUNE] issue decided in favour of assessee. Prepayment of liability under Sales Tax Defferal Scheme - CIT-A deleted the addition - HELD THAT:- The issue in the ground of appeal is no more res integra as the issue was decided in favour of as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... minimum expenditure - AO found that out of the miscellaneous expenses, the assessee could not produce supporting documents, details, vouchers - HELD THAT:- During the course of assessment proceedings, the respondent / assessee company could not furnish the evidence, bills, vouchers etc to the extent of Rs.2,59,407/- out of the total Miscellaneous Expenditure. On appeal before ld.CIT(A), ld.CIT(A) restricted the disallowance to Rs.1,00,000/- which is in accordance with the decision of his order in assessee s own case for the earlier assessment years. On the principle of consistency, we uphold the order of ld.CIT(A). Accordingly, this ground of appeal stands dismissed. Addition of commission expenditure - HELD THAT:- Admittedly, the appellant had filed the primary details such as name, address, invoice, payment made etc. However, the assessee could not furnish the confirmations from payees and for want of the confirmations, Assessing Officer made disallowance. The ld.CIT(A) following the decision of his order in assessee s own case in earlier years has deleted the addition. From the material on record, it is clear that the respondent / assessee had discharged the onus cast upon ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 3/- incurred on interior work in Bangalore office which is capital in nature not allowable u/s 30(i) of the IT Act also the Ld. CIT(A) failed to apply the case of Laxmi Sugar Oil Mills to this case. 5. Whether on the facts and circumstances of the case, the CIT(A) was justified in restricting the addition made out of miscellaneous expenditure of Rs.2,00,000/- to Rs. 1 lac on adhoc basis, when the onus to prove the genuineness of the expenses was not discharged by the assessee inspite of opportunity allowed by the A.O and also when no finding on the genuineness of the claim has been brought out by the CIT(A)? 6. Whether on the facts and circumstances of the case, the CIT(A) was justified in allowing commission expenses of Rs.42,53,300/- when onus to prove the genuineness of the expenses was not discharged by the assessee inspite of opportunity allowed by the A.O and also when assessee can prove genuineness of remaining commission expenses of Rs.19,08,66,583/- out of total commission expenses of Rs.19,51,19,883/- and when assessee failed to discharge its onus in submitting evidences called for by the AO when the law specifically requires such onus to be discharged bef ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n Amount (Rs) Method 1 Import of components and Spares 203,06,18,058 TNMM 2 Import of finished goods 247,53,51,918 TNMM 3 Export of Manufactured goods 144,48,44,205 TNMM 4 Import capital goods spares 2,30,65,662 CUP 5 Payment of royalty 12,19,70,217 TNMM 6 Receipt of Sales commission 34,48,45,112 TNMM 7 Payment of commission 2,64,67,023 TNMM 8 Provision of on-site engineering 29,86,247 TNMM 9 Provision of Administrative support services 98,65,458 TNMM 10 Provision of Procurement support services 1, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Act at Rs.25,72,225/- (f) T.P. Adjustment of Rs.13,25,00,000/- 5. Being aggrieved by the assessment order, an appeal was preferred by the respondent / assessee before the ld.CIT(A), who vide impugned order deleted the T.P. Adjustment on account of payment of royalty at Rs.4,31,00,000/- following his order in respondent / assessee s own case for the earlier assessment years i.e., A.Y. 2008-09, 2009-10 and 2010-11. Similarly, as regards to the T.P. adjustment on account of receipt of commission payment of Rs.8,23,00,000/-, the ld.CIT(A) following his order in respondent / assessee s own case for the earlier assessment years for A.Y. 2008-09, 2009-10 and 2010-11 deleted the T.P. adjustment. As regards to the disallowance of Rs.71 lakhs i.e., difference in prices of the products sold in AE and non-AE, ld.CIT(A) remitted the issue back to the file of Assessing Officer. As regards addition of Rs.23,88,025/- on account of pre-payment of sales tax deferred loan, the ld. CIT(A) following the decision of Hon ble Bombay High Court in the case of CIT vs. Sulzer India Limited (2014) 369 ITR 717 (Bom) and the Hon ble High Court of Karnataka in the case of CIT vs. McDowell Co Ltd (2014 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h paid the royalty at 3% on the net sales price. The TPO considered it as a comparable transaction and held that ALP of the royalty is determined at 3% of the domestic sales and 8% of the export sales and the value of which is determined at Rs.2.97 crores. Consequently the difference between the actual payment of Rs.6.41 crores and ALP of Rs.2.79 lac being Rs.3.62 lac was suggested as TP adjustment on account of royalty payment. 10. On appeal before the ld.CIT(A), the ld.CIT(A) deleted the addition by holding that the methodology adopted by the TPO in comparing the controlled transaction with another controlled transaction is flawed by placing reliance on his order in assessee s own case for the earlier A.Ys. 2008-09, 2009-10 and 2010-11. 11. Before us, the ld.CIT DR had vehemently contested that the ld.CIT(A) ought not have granted relief to respondent / assessee on the ground that comparison of two controlled transactions cannot be made when no such method is barred by law. 12. On the other hand, Shri R. Muralidhar, learned counsel for assessee contended that the transaction of payment of royalty is at ALP. It is in accordance with the policy of the Government of India o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ase of PCIT Vs. Audco India Limited reported in (2019) 104 taxmann.com 386 (Bom) wherein the Hon'ble High Court on identical facts had confirmed the decision of Tribunal by dismissing the appeal filed by the Revenue by holding that TPO has to arrive at ALP of the transaction only comparing it with uncontrolled transactions and the Hon'ble High Court had found fault with the approach of the TPO by holding that it is contrary to the clear provisions of the Act as per Rule 10A(d) of the Rules. Hon ble Bombay High Court dismissed the appeal of Revenue on the following question of law by holding as under : (d) We note that Chapter X of the Act is a special provision relating to avoidance of tax. Section 92 deals with computation of income from international transaction having regard to ALP. It provides any income arising from the international transaction shall be computed having regard to the ALP. The ALP is defined under Section 92F(ii) of the Act to mean a price which is applied or proposed to be applied in transactions between persons other than AE's in uncontrolled transactions. This is further supported by Rule 10A(d) where uncontrolled transaction has been ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nical specifications of the products desired, and communicates the same to the concerned AE It should be noted that ACIL 's involvement is restricted to providing the AEs with the lead and in providing routine administrative support whenever required ACIL does not conclude contracts on behalf of the AEs, nor does it hold any inventory of products on behalf of the AEs, The consideration due to ACIL is mutually agreed between ACIL and the transacting AE, and generally depends on the size of the order procured as well as the price which the AE is able to negotiate with the customer, The consideration due to ACIL is mutually agreed between ACIL and the transacting AE, and generally depends on the size of the order procured as well as the price which the AE is able [Q negotiate with the customer. The appellant received commission of Rs.34.73 crores for rendering the indenting / marketing services to its A.E. The respondent / assessee applied the TNMM method in respect of this international transactions and sought to justify the transaction of receipt of commission is at ALP by applying the TNMM separately. There is no dispute as to the computation of the total profit arrived at ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... material on record. The issue in this ground of appeal relates to the determination of ALP in respect of the transaction of receipt of commission. The main contention of the appellant is that the functions undertaken by the assessee for selling the product is significantly different from what is undertaken for the purpose of earning the commission income from A.E. The profit earned from independent activity of marketing function cannot be compared with the integrated marketing function of a fully integrated manufacturer. But the TPO had aggregated both the functions, however proceeded to benchmark the marketing function separately. We need not examine propriety of aggregating both the functions as the respondent / assessee is not objecting the same. The only bone of contention between the Department and the assessee is exclusion of the cost of material consumed and the depreciation in the total cost for the purpose of determining the percentage of marketing cost to the total cost. The reasoning given by the TPO that these two segments of the cost does not contribute to profit does not stand to any reason, in as much as the depreciation and the material actually contributes to the p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... easing the authorized capital on amalgamation. Thus, we are of the considered opinion that the TPO was not justified in excluding the depreciation and cost of the material consumed in denominator of total costs. Further, we find that the methodology adopted by the TPO does not fall into any of the appropriate methods prescribed under Rule 10(b) of the I.T. Rules, 1962. We must also mention that clause (f) of clause (1) of Rule 10(b) prescribing any other method was inserted with retrospective effect from 01.04.2013 is not applicable for the year under consideration. Therefore, the ratio of the jurisdictional Bombay High Court in the case of CIT Vs. Kodak India (P) Ltd., reported in (2017) 79 taxmann.com 362 (Bombay) is applicable in the present set of facts. In the case of CIT Vs. Kodak India (P) Ltd. (supra), the Hon ble Bombay High Court has held as under : 10. We must also record the fact that the ALP was arrived at by the Transfer Pricing Officer (TPO) by not adopting any of the methods prescribed under Section 92C of the Act. The method to determine the ALP adopted was not one of the prescribed methods for computing the ALP. It was not even any method prescribed by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent Value of total sales tax defferal loan of Rs.1,89,66,384/- was determined at Rs.1,65,78,359/-. Under the Package Scheme of Incentive of Government of Maharashtra, the Appellant was entitled to defer the sales tax liability of the year 1998-1999 and 1999-2000 for 10 years and thereafter, pay the same in installments. Subsequently, the scheme was amended to allow prepayment of deferred sales tax liability at Net Present Value (NPV) and during the year relevant to the year under consideration, the appellant made an application to the Dy. Commissioner of Sales Tax for prepayment of sales tax liability of Rs.1,89,66,384/- and the same came to be approved by the said authority vide letter dated 23.12.2010. The said difference between the sales tax liability and NPV of the said sales tax liability of Rs.23,88,025/- was not offered to tax claiming to be capital receipt. However, the Assessing Officer was of the opinion that the provisions of section 41(1) and 28(iv) of the Act have application to the facts of the case and accordingly, brought the difference amount of Rs.23,88,025/- to tax. However, on appeal, the ld. CIT(A) applying the ratio laid down by the Hon ble Bombay High Court ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 004 and the amount got settled. 44. In relation to this very controversy and the very provision namely section 41(1), the High Court of Karnataka noted the rival contentions in para 5 and 6. Those were admittedly raised on the factual background that deferred Sales Tax was to be paid in the year 2007. The State Government itself determined the NPV of the amount, which was receivable in 2017, calculated the same and treated it as payment of deferred tax. 45. In dealing with the rival contentions, the High Court framed one identical substantial question of law as was dealt with by the Tribunal in the present case before us and held as under: 8. As per the incentive scheme announced by the Government of Maharashtra, the assessee entered into an agreement with the Governor of Maharashtra to avail the benefits under deferral/1993 scheme which provides for deferment of payment of taxes. This agreement not only determines the eligibility of the assessee but also lays down the terms and conditions under which the agreement exists. The quantification of this deferment was made by Sicom Limited, a Government of Maharashtra Undertaking, which was an agent for the package schem ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... provision, if the assessee obtains, whether in cash or in any other manner in respect of such loss or expenditure or some benefit in respect of trading liability by way of remission or cessation thereof, the amount obtained by such person or the value of benefit accruing to him shall be deemed to be profits and gains of business or profession and accordingly chargeable to income tax as the income of the previous year. Therefore, the assessee should obtain benefit, before it is deemed to be profits and gains of business or profession. 12. In the instant case, as per the scheme he was allowed to retain the sales tax as determined by the competent authority and pay the same 15 years thereafter. The tax collected was deemed to have been paid and, therefore, the tax so collected cannot be construed as income in the hands of the assessee. The tax so retained by the assessee is in the nature of a loan given by the Government as an incentive for setting up the industrial unit in a rural area. The said loan had to be repaid after 15 years. Again it is an incentive. However, by a subsequent scheme, a provision was made for premature payment. when the assessee had the benefit of making t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ase of capital assets. Consequently, the decision of this Court in the matter of Mahindra and Mahindra Limited (supra) was distinguished as in the said case the loan was taken for the purchase of capital assets and not for trading activities as in the case of Solid Containers Limited (supra). In view of the above, the decision of this Court in the matter of Solid containers Limited (supra) will have no application to the facts of the present case and the matter stands covered by the decision of this Court in the matter of Mahindra Mahindra Limited (supra). The alternative submission that the amount of loan written off would be taxable under Section 28(iv) of the Act also came up for consideration before this Court in the matter of Mahindra Mahindra Limited (supra) and it was held therein that Section 28(iv) of the Act would apply only when a benefit or perquisite is received in kind and has no application where benefit is received in cash or money. ** ** ** ** 49. These observations of the Division Bench have been reproduced only to distinguish the Judgment of an another Division Bench of this Court in the case of Solid Containers Ltd. (supra), which is relied up ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o the partners' account. It was held by the Delhi High Court that the amount referable to loans was not a trading liability. That, only amounts allowed as deduction in earlier years could be treated as a trading liability. In other words, unless the amounts heave been allowed as deduction in earlier years they cannot be treated as trading liability. In the circumstances, section 41(1) was not applicable. This case applies to the facts of our case also. In the case of CIT v. A.V.M. Ltd. [1984] 146 ITR 355 (Mad), it has been held by the Madras High Court that every deposit money does not constitute trading receipt. That, although such a receipt may be in connection with business, it could not be dealt with by the assessee as a receipt of its trade. Therefore, the amounts referable to loans received for purchase of capital asset would not constitute a trading liability and accordingly section 41(1) was not attracted. In our case, the most fundamental fact which is required to be borne in mind is that there was no deduction given to the assessee in earlier years and, therefore, Rs.57,74,064 could not be include as income under section 41(1) of the Act. Lastly, it is important ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Revenue's argument really misses the point. The Incentive to establish a unit or factory in a industrially backward or hilly area is the core of the Sales Tax Deferral Scheme. Some time has to be given to the unit to establish itself before it starts giving corresponding benefit to the state. That opportunity is granted by deferring the remittance of the Sales Tax collected by the unit like the Assessee. In that regard, we have perused the compilation of admitted documents placed on record by Shri. Dastur. From a perusal thereof, it is apparent that the Government Resolution dated 4th May, 1983 evolves a package of incentives to disperse the industries from BombayThane-Pune belt and to attract them to underdeveloped and developing areas of the State of Maharashtra. This package evolves several measures to achieve this object. Then, there is a New Package Scheme of incentives, 1988. Both Schemes have clauses and paras containing Sales Tax deferral incentives. To carry this object further and also to achieve the purpose of early remittance of deferred Sales Tax collected by the units availing of the Schemes, the statutory option was incorporated in section 38 by substituting th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ral Scheme of 1983 and over a period of 6 years under the Deferral Scheme of 1988. However, under the Scheme of 1988, the Government of Maharashtra promoted premature or payment of deferral sales tax at Net Present Value (NPV). 8. In the meantime, section 38 of the Sales Tax Act was amended which provides that where the NPV of deferred tax as may be prescribed was paid, the deferred tax was deemed to have been paid. Taking advantage of this Scheme, the assessee made repayment of Rs. 3,37,13,393/- against the total liability of Rs. 7,52,01,378/-. In this manner, the assessee could save a sum of Rs. 4,14,87,985/-. The issue is as to whether this amount, which the assessee could save, is to be treated as 'income' by applying the provisions of Section 41 of the Act. The Assessing Officer treated it as the revenue receipt and thereby income. Contention of the assessee is that it is a capital receipt, which is accepted by the High Court. 9. In a very detailed and exhaustive judgment rendered by the High Court, it has discussed the view taken by the Assessing Officer, which was confirmed by the Commissioner of Income Tax (Appeals). Thereafter, the High Court noted in det ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oach the SICOM and request it to consider the application of the Assessee of premature payment and discharge of the liability by finding out its NPV. If that was a permissible exercise and in terms of the settled law, then, we do not see how the Assessee can be said to have been benefited and as claimed by the Revenue. The argument of Mr. Gupta is not that the Assessee having paid Rs. 3.37 crores has obtained for himself anything in terms of section 41(1), but the Assessee is deemed to have received the sum of Rs. 4.14 crores, which is the difference between the original amount to be remitted with the payment made. Mr. Gupta terms this as deemed payment and by the State to the Assessee. We are unable to agree with him. The Tribunal has found that the first requirement of section 41(1) is that the allowance or deduction is made in respect of the loss, expenditure or a trading liability incurred by the Assessee and the other requirement is the Assessee has subsequently obtained any amount in respect of such loss and expenditure or obtained a benefit in respect of such trading liability by way of a remission or cessation thereof. As rightly noted by the Tribunal, the Sales Tax collect ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r consideration, the respondent / assessee incurred an expenditure of Rs.37,38,703/- on renovating the lease premises which are used for the business purpose of the respondent / assessee at Bangalore. From details of expenditure, it is evident that the expenditure is incurred on interior work, electrical work and painting etc. The Assessing Officer capitalized this expenditure and allowed the depreciation at 5% and the balance amount of Rs.96,776/- was disallowed. 28. On appeal before ld.CIT(A), the ld.CIT(A) deleted the addition by holding that no new asset was brought into existence and no enduring benefit was accrued to the assessee as a result of this expenditure. 29. Being aggrieved by the order of ld.CIT(A), the Revenue is in appeal before us. 30. Before us, the Ld. CIT DR vehemently contested that the decision of the ld.CIT(A) holding the expenditure incurred on rented premises as revenue in nature is contrary to the Explanation 1 of Sec.32 of the I.T. Act and submitted that in view of the plain provisions of the Act, the expenditure cannot held to be revenue in nature. 31. On the other hand, the learned counsel for the assessee submitted that no new asset came i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... course of assessment proceedings, the Assessing Officer found that out of the miscellaneous expenses, the assessee could not produce supporting documents, details, vouchers to the extent of Rs.2,00,000/-, therefore disallowed the same. 35. On appeal before ld.CIT(A), ld.CIT(A) following his order in assessee s own case in the earlier years in A.Ys. 2008-09 and 2009-10, restricted the disallowance to Rs.1,00,000/-. 36. Being aggrieved by the order of ld.CIT(A), the Revenue is in appeal before us. 37. Before us, the learned CIT DR vehemently contested that there is no basis to restrict the disallowance to Rs.1,00,000/-. 38. On the other hand, the learned counsel for the respondent / assessee contested that no disallowance can be made on adhoc basis without rejecting the books of accounts. 39. We heard the rival submissions and perused the material on record. During the course of assessment proceedings, the respondent / assessee company could not furnish the evidence, bills, vouchers etc to the extent of Rs.2,59,407/- out of the total Miscellaneous Expenditure. On appeal before ld.CIT(A), ld.CIT(A) restricted the disallowance to Rs.1,00,000/- which is in accordance with ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... enquiries by the Assessing Officer as to the genuineness or otherwise of the expenditure. The identical issue was examined by the Co-ordinate Bench of this Tribunal in assessee s own case for A.Y. 2010-11 in ITA No.1353/PUN/2015, wherein it was held as under: 48 ..Admittedly, there is no material on record exhibiting the nongenuineness of the expenditure. Hence, respectfully following the decisions of this Tribunal and Hon ble Bombay High Court in respondent/assessee s own case, we hold that ld.CIT(A) is justified in deleting the commission expenditure and accordingly, this ground of appeal is dismissed. Since the identical issue was decided against the Revenue in earlier year, on the parity of same reasoning, the ground of appeal No.6 filed by the Revenue stands dismissed. 46. In ground No.7, the Revenue challenges the decision of ld.CIT(A) in deleting the disallowance of Rs.25,72,235/- made u/s 14(A) The ld. DR submitted that this ground of appeal is not being pressed. Therefore, we dismiss ground of appeal no.7 as not pressed. 47. In the result, the appeal of the Revenue is partly allowed for statistical purposes. Order pronounced in open Court on 01st day of No ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
