TMI Blog2022 (7) TMI 1497X X X X Extracts X X X X X X X X Extracts X X X X ..... claim of prior period expenses crystallized during the year and correctly claimed by the appellant? - HELD THAT:- Considering the fact that the assessee has been consistently debiting prior period expenses in all years, and also crediting prior period income and noting the huge turnover of the assessee, we agree that there is no revenue impact of the impugned disallowance of prior period expenses; that the exercise of making impugned disallowance would only be academic with the shifting of expenses from year to year. The decision in the case of Adani Enterprises [ 2016 (7) TMI 1250 - GUJARAT HIGH COURT] squarely applies to the present case wherein it has been clearly held that where the disallowance of prior period expenses is a tax neutral exercise since the assessee incurs the same year to year with the tax rate also being the same in the years, there is no reason to make any such disallowance of prior period expenses. In view of the same, we are not inclined to uphold the disallowance of prior period expenses claimed by the assessee and direct the same to be deleted. Adjustment on account of determination of ALP of commission allegedly paid by the AE - Receipt of commi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... such quantity discount vis- -vis both of its AE and non-AE, therefore, the claim of the assessee of having paid quantity discount was substantiated and proved to be at ALP. DR was unable to point out any infirmity in the above finding of the ld.CIT(A) - Thus uphold the order of CIT(A) allowing the claim of the quantity discount paid to its AE. This ground is rejected. Addition u/s 14A r.w.r. 8D - disallowance of expenses incurred in relation to earning of exempt income - HELD THAT:- In the case before us, it is an admitted case of the assessee itself before the lower authorities that disallowance, if any, at best can be to the extent of Rs. 2,25,000/- and a working to this effect was also admittedly filed before the CIT(A). CIT(A) has given finding that the disallowance has been worked out on a scientific basis by the CA who has submitted a report in this context. The ld.DR was unable to controvert the above fact. In view of the same, we see no reason to interfere in the order of the ld.CIT(A) restricting the disallowance under section 14A to Rs. 2,25,000/-. Addition on account of excess depreciation claimed is upheld. Disallowance of deduction u/s 80IA on the new po ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nsfer Pricing Adjustment a) commission received from Associate Enterprise(AE) of Rs. 2,71,82,980, and b) on account of sale of goods to AE S/subsidiaries including quantity discount given Rs. 1,74,69,516/-; ii) disallowance under section 14A of the Act r.w.r 8D of the Income Tax Rules, 1962(hereinafter referred to as Rules ) iii) claim of prior period expenses of Rs. 1,11,31,209/- 5. That in compliance with the directions given by the Tribunal, the issues were examined afresh and the AO thereafter made following additions: Transfer pricing upward adjustment of Rs. 1,21,60,877/- on account of receipt of commission from Associate Enterprise ( AE ); Adjustment to Arm s Length Price ( ALP ) on account of sales goods to subsidiaries of Rs. 1,74,69,516/- ; disallowance under section 14A of the Act of Rs. 50,84,881/-; disallowance of prior period expenses of Rs. 47,87,776/- The matter was carried in appeal before the Ld.CIT(A) who in turn deleted the TP adjustment of Rs. 1,21,60,877/- relating to commission paid to AE s, TP adjustment of Rs. 74,59,611/- on sales made to AE s on account of quantity discount and disallowance of expenses u/s 14A to the exten ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was filed, and accordingly, ITAT had sent the matter back to the TPO to determine the ALP afresh. The ld.counsel for the assessee pointed out that in the second round both the authorities below, i.e. TPO/ AO and the Ld.CIT(A), upheld the adjustment on the basis that the additional evidence submitted by the assessee pointing out error in comparison so made, being the certificate of the CA, had been rejected by the ITAT, and therefore, both the authorities below also refused to adjudicate the issue on the basis of said evidence. In this regard, the ld.counsel for the assessee first drew our attention to finding of the ITAT in the first round before it, restoring the matter back to the TPO. Our attention was drawn to paper book (PB) page no.76 to 139 wherein the order of the ITAT dated 29.10.2012 passed in the first round of proceedings was placed. The ld.counsel for the assessee took us to page no.96 of the PB containing para-5.18 of the order wherein the facts were discussed pointing out that the assessee has sold certain products to AE and for the purpose of determining ALP of the transaction, had considered itself tested party and had adopted CUP as the Most Appropriate Party ( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... screpancy in the nature of sale of product code 111108 (product name Novatic Brown R Pure) to non AE parties was through oversight shown as sale of product code 110308 (product name Novatic Olive R Pure). A certificated dated 6th August 2011 of M/s.Ghanshyam Parekh Co., Chartered Accountants with the sale Invoices in support of the above contention are annexed herewith for appreciation of the Hon'ble Bench. unquote. The effect of this discrepancy has yet to be ascertained and the relevant supporting evidence is yet to be examined. The net result of the two difference as explained to us is that the TPO has worked out the price difference at Rs. 1081.1, as against that the assessee had calculated the price difference at Rs. 383.4. The assessee has sold to A.E. @ 664.47 , however the TPO has calculated the ALP at 1081.1. However, for the purpose of claims of adjustment , the assessee is to demonstrate satisfactorily the correct nature of the product, its marketing strategy and the risk involved for which the assessee is asking for certain adjustments. Due to this reason, we deem it proper to restore this part of the adjustment back to the stage of the AO for de novo considerati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Novatic Olive R Pure 111108-Novatic Brown R Pure 6829 30-9-05 Dystar TextileFarbenGMBH 1000 18,22,212 110.108-Novatic (Olive R Pure 111108-Novatic Brown R Pure 7073 09-11-05 Dystar TextileFarben GMBH 900 15,76,294 110308-Novatic-Olive R Pure 111108-Novatic Brown R Pure 7167 30-11-05 Dystar TexlileFarben GMBH 900 15,86,016 110308-Novatic Olive R Pure 111108-Novalic Brown R Pure 7200 16-12-05 Dystar TextileFarben GMBH 300 5,29,741 110308-Novatic Olive R Pure 111108-Novatic Brown R Pure 7201 16-12-05 Dystar TextileFarben GMBH 680 11,95,465 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he proceedings before Hon'ble IT AT placed a report from Chartered Accountant stating that the additions on account of sale of the aforesaid product were made on the basis of faulty comparable. The Hon'ble Tribunal vide para 3.1 of its order did not entertain such evidences as placed by the appellant. However, vide para 5.19 of its order, the Hon'ble Tribunal directed AO to verify the same. In my opinion the addition as sustained by TPO O on the said issue is justified as the Hon'ble Tribunal has rejected taking on record of additional evidences. In absence of the additional evidences, there is n on record to suggest that the CA has made a faulty comparison of different product* Under the circumstances, I have no option but to confirm the assessment order on this ground. Therefore addition of Rs. 1,00,09,905/- is confirmed. 11. The ld.counsel for the assessee contended that despite clear direction of the ITAT to consider the issue de novo, noting the contention of the assessee that an error had been committed while comparing a product sold by it to its AE, the authorities below had failed to adjudicate the issue in accordance with the directions of the ITAT. Th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he light of the facts stated in the certificate of CA. It is not that the certificate was to be treated as gospel truth. In fact the details mentioned therein needed to be verified by the TPO because that was exactly the claim of the assessee. Clearly, the Revenue authorities have failed to act in accordance with directions of the ITAT. 13.2 Considering the fact that this is the second round of litigation before us, and the matter relates to an issue which is now sixteen years old, pertaining to A.Y 2006-07, and noting more particularly the fact that the despite clear directions of the ITAT, the Revenue authorities have failed to act on the same, we are inclined to hold that the assessee, having submitted all the plausible evidences with respect to its claim of error in the TP report and the Revenue authorities having failed to examine the same, despite two opportunities before them, one by the TPO, the other by the Ld.CIT(A),the adjustment no longer is sustainable. The TP adjustment made on account of sales to AE s of Rs. 1,00,09,905/- is therefore directed to be deleted. 13.3 We may add that our finding as above shall not be treated as a precedent, considering the peculiar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e ld.CIT(A) however rejected/dismissed all the contentions of the assessee, holding as under: 7.4. I have considered the facts of the case and submissions placed by the appellant. Appellant for the year under consideration has claimed expenses amounting to Rs. 1,11,31,209/- pertaining to previous years. The appellant has further offered income of Rs. 71,74,782/- pertaining to previous years. There are two broad issues involved in the said dispute; first being crystallization of liabilities of prior period expenses in the year under consideration. The second issue is with regards to giving netting off benefit of prior period income against prior period expenses. 7.4.1 The first issue is with regards to crystallization of liabilities on account of prior period expenses in the year under consideration. The Hon'ble Tribunal vide para 9 (Page No. 46 of the order) directed the assesse to substantiate the crystallization of liabilities in the year under consideration and further directed AO to examine the exact nature of liabilities with regards to prior period expenses. AO disallowed the claim after holding that the appellant was not able to substantiate the claim. The ap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... diture along with the evidences through which it could be demonstrated the year for which it pertained but it was not claimed. It is also worth to mention that the assessee has not demonstrated that why the impugned expenditure could not be claimed in the year for which it belonged to. The case laws which were cited by ld.AR, namely Jagatjit Industries Ltd.(supra) and Toyo Engg. Ltd. have been examined by us. In these cases, the assessee has demonstrated the past business practice and the consistent policy followed in the accounting practice by the assessee, therefore it was demonstrated that the expenditures were spilled over to next year. A case law can only be applied when the facts are found to be more or less akin to each other. However, we have noted that certain enquiry, said to be basic enquiry was not conducted at the assessment stage. The AO is therefore directed to first of all examine the exact nature of the liability and how it related to the business of the assessee. The next step should be to examine the evidence about the crystallization, that too crystallized during the year under consideration. What was that evidence on the basis of which the assessee had claimed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... finding of the ITAT regarding the allowance of claim of prior period expenses which Hon ble High Court noted, had been allowed by the ITAT on two grounds; firstly that the assessee was charged uniformly for all years, and therefore, it would have no revenue implication, whether the expenditure was recognized in this assessment year or earlier year; and secondly the Revenue has recognized the prior period income and if so, it would be unfair not to recognize the expenditure also in the prior period. Our attention was drawn to relevant part of the order at para-2 and 3 as under: 2. Main question is sum of Rs. 67.88 lacs (rounded off) which the Assessing Officer and CIT(Appeals) disallowed treating the expenditure as a prior period expenditure. The Tribunal reversed the findings of the Revenue authorities primarily on two grounds. Firstly, that the assessee being a company was charged uniformly for all years and would therefore, have no revenue implication of whether the expenditure was recognised in this assessment year or earlier year. The second ground was that in any case, the Revenue had recognised the prior period income. If that be so, according to the Tribunal, it would ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sent case wherein it has been clearly held that where the disallowance of prior period expenses is a tax neutral exercise since the assessee incurs the same year to year with the tax rate also being the same in the years, there is no reason to make any such disallowance of prior period expenses. In view of the same, we are not inclined to uphold the disallowance of prior period expenses of Rs. 47,87,776/- claimed by the assessee and direct the same to be deleted. Ground No.2 of the appeal is allowed. 21. In the result, the appeal in Asst.Year 2006-07 is allowed. 22. ITA No.908/Ahd/2016 (Asst.Year 2006-07) Revenue s appeal. 23. Ground No.1 reads as under: 1. The ld.CIT(A) has erred in law and on facts in upholding that the alleged receipt of commission from Atul Europe Ltd., of Rs. 1,21,60,877/- is a notional income and not taxable under the Income-tax Act and thus, deleting the same. 24. The facts relating to this ground are that during the course of original transfer pricing proceedings it was noted by the TPO from the audited financial statements of the Associated Enterprise(AE) of the assessee , Atul Europe Ltd., that it had paid commission of GBP 1,54,530/- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt of account from the books of the AEL which was placed at page no. 211 212 of the P/b which are third party evidence. In my opinion, AO ought not to have rejected the evidences as the same have itself been accepted by Hon'ble Tribunal vide Para 3.1 of its order. As apparent from the ledger account/statement of account as placed before me, it has been observed that Atul Europe Ltd. has recorded commission receivable from the appellant from April 2001 to March 2006 and the net amount recorded was GBP 1,54,,530/- (Rs.1,21,60,877). AEL has duly recorded commission as receivable by following the accounting standards of UK. At the same time, the appellant did not pass any accounting entry with respect to this commission for the simple reason that according to the appellant, such commission was not at all due and payable. For the year under consideration, it was finally decided that such commission is not at all required to be paid. Consequently, the said AEL has expensed off commission shown as income in earlier year. However, the appellant having not booked the original commission as expenditure did not pass any entry for write back of the non-payment of commission. In the books ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rises, that the AE paid a commission of 1,54,530 to the assessee for which neither any bench marking was made by the assessee nor it was shown in the books of accounts as receipt of commission. The assessee claimed that instead of receipt of commission from the AE, it was required to pay commission from the AE, during the period from 2001 -2005. It was further submitted that since it was not able to pay the said commission to the associated enterprise, the same was written off in F.Y 2005-06 by the AE and charged to P L A/c which was shown as commission paid by it to the assessee in its financial statements. Considering the above facts, it becomes clear that the assessee has not shown such commission in its books of accounts and upon detection of this fact by the departments-such a claim is being made. Further even if such claim is assumed to be correct, then the assessee has not provided any justification for non inclusion of such commission payment by it to the AE in the in the form 3CEB reports submitted for relevant F.Ys. In addition the assessee has not given any justifiable reason for non production of the evidence earlier especially in light of the fact that the associat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... idences placed before him and allowed the assessee s claim. 29. We have heard both the parties and have perused the order of the authorities below. We do not find any infirmity in the order of the Ld.CIT(A) who after appreciating all the evidences before him recorded a finding of fact that no commission was earned by the assessee and that the entry in the books of Atul Ltd (AEL) only pertained to reversal of commission income booked by it in earlier years as earned from the assessee. The Ld.CIT(A) arrived at these findings from the ledger account of the assessee in the books of Atul Ltd (AEL) for earlier years and impugned year wherein all these entries were found recorded and also from a certificate of Atul Ltd (AEL) certifying these facts. The Revenue ,we find, does not contest the factum of these evidences . But has opposed considering them since they were not originally produced .We find that the Ld.CT(A) has rightly dealt with this aspect pointing out that taking note of these very evidences the ITAT had in the first round restored the matter to the AO to consider the issue in the light of the explanation of the assessee. The Ld.CIT(A) ,we agree ,has rightly held that these ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... commercial policy with respect to four products in which the sales to AE was less than the non-AE s. He therefore held that the AO, having accepted the commercial policy of the assessee, in this regard, was not right in holding that the assessee had no such commercial policy with regard to rest of the quantity discount given. The relevant part of the ld.CIT(A) s order are as under: 6.4.1 As far as second issue with regard to quantity discount amounting to Rs. 74,59,611/- is concerned, TPO during the original proceedings had restricted the adjustment of such quantity discount with respect to 4 products wherein sales to AEs were less than sale to Non-AEs. The Hon'ble Tribunal vide para 5.19.2 (Page. No. 28 of the order) directed the appellant to place its commercial policy on record. The appellant was further directed to demonstrate the basis of applying such policy. The appellant has placed before me letter dated 21/04/2014 wherein the appellant has produced its commercial policy along with comparative data of sales to its AEs and non-AEs which has been placed at page no. 148 to 151 of the P/B. The appellant has further demonstrated that it provided volume discount and adj ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ur cases on the basis of existing instances of commercial policy in this regard of the assessee; that noting so, he held, having accepted existing commercial policy of the assessee to grant quantity discount and the assessee having exhibited existence of such quantity discount vis- -vis both of its AE and non-AE, therefore, the claim of the assessee of having paid quantity discount was substantiated and proved to be at ALP. The ld.DR was unable to point out any infirmity in the above finding of the ld.CIT(A). In view of the above, we uphold the order of ld.CIT(A) allowing the claim of the quantity discount amounting to Rs. 74,59,611/- paid to its AE. This ground is rejected. 34. In the result, the appeal of the Revenue for A.Y 2006-07 is dismissed. 35. Revenue s appeal in IT(TP)A No.1108/Ahd/2017 (Asst.Year 2007-08) 36. At the outset, it was pointed out that the present appeal was also in second round before us, as in Asst.Year 2006-07 dealt with by us hereinabove, following the directions of the ITAT on certain issues in the first round. 37. Ground No.(a) (b) raised by the Revenue reads as under: (a) That the ld.CIT(A) erred in law and on facts in deleting the ad ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ises (supra). In view of the above, since the issue is identical to that raised in the assessee s appeal for Asst.Year 2006-07, dealt with us by in para-20 of our order, our decision rendered therein as well apply to the above ground also, following which we uphold order of the ld.CIT(A) deleting the addition made on account of prior period expenses amounting to Rs. 52,95,097/-. Ground (c) is dismissed. 43. Ground No.(d) reads as under: That the ld.CIT(A) erred in law and on facts in deleting the addition of Rs. 45,77,383/- made under section 14A r.w.r. 8D of the Act. 44. The issue, as is evident, relates to disallowance of expenses incurred in relation to earning of exempt income as per the provisions of section 14A of the Act. 45. The facts relating to the issue being that in the original proceedings, the AO found that the assessee had earned dividend of Rs. 5,02,97,065/-, however, no disallowance under section 14A was made, and therefore, the AO made disallowance of Rs. 2,44,30,000/- under section 14A of the Act 1961 read with Rule 8D of the Rules, 1962. On appeal, the Tribunal set aside the matter to the AO to be decided in line with the decision of Hon ble Bomb ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al had, in identical facts and circumstances, held that Rule 8D was not applicable in that year and restricted the disallowance to Rs. 1,00,000/-. Our attention was drawn to para 21 and 21.1 of the order which reads as under: 21. Therefore it is settled law that where sufficient own funds are available and the investments have been made out of mixed funds, no disallowance u/s. 14A is called for. In the facts of the present case, the assessee had canvassed the facts before the Ld. CIT(A) that it had own funds of 28,524.85 lacs and had generated cash of 4,770.83 lacs during the year. That in the past 10 years from 1995- 96 to 2004-05, the assessee was having sufficient own funds ranging from 20,593 lacs to 20,011 lacs which was more than sufficient for making the impugned investments of Rs. 6902 lacs . Since these facts have remained uncontroverted by the Ld. CIT(A) as also the fact that the investments have been made out of mixed funds, we have no hesitation in holding that no disallowance of interest u/s.14A was warranted in the impugned case. 21.1 As for disallowance of administrative expenses the assessee has contended that other than depositing cheques of dividend earn ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... duction of claim in depreciation by Rs. 85,11,361/- by the AO, which was confirmed by the ld.CIT(A); that it is against the same order of the ld.CIT(A) that the assessee has come up in appeal raising the following grounds: Ld. CIT (A) erred in law and on facts in confirming action of AO in reducing the claim of depreciation by Rs. 85,11,361/- after allowing the enhanced depreciation from A Y 2001/02 to 2008/09 due to depreciation foisted upon the appellant in A Y 2001/02 though not claimed. Ld. CIT (A) confirmed said disallowance on the basis of the decision of the Hon'ble ITAT for A.Y. 2006/07, 2007/08 2008/09. Ld. CIT (A) ought to have deleted disallowance appreciating that foisting of depreciation not claimed is not permissible under law. It be so held now. 53. The ld.counsel for the assessee fairly admitted that the issue stands covered against it by the order of the ITAT in the case of assessee for Asst.Year 2005-06. Thereafter, drawing our attention to the facts relating to the issue, the ld.counsel for the assessee pointed out from orders of the authorities below that in Asst.Year 2001-02, depreciation though not claimed by the assessee, had been thrust upon ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he facts, details and after considering allowability of expenses on the basis of ratio and direction given by the ITAT in the case of the assessee for Asst.Year 2006-07. He drew our attention to page no.42 43 of the CIT(A) s order containing direction as under: It is therefore Hon ble ITAT Ahmedabad upheld my predecessor s view that on this ground, the AO should verify various facts, details and consider the allowability of prior period expenses on the basis of ratio and direction given by Hon ble ITAT, Ahmedabad in the case of appellant for A.Y.06- 07. Respectfully following this ratio, the AO is directed to allow prior period expenses after compliance of direction of Hon ble ITAT as given is appellant s case for A.Y.06-07. This ground is allowed for statistical purpose. 59. The ld.DR contended that the ld.CIT(A) had no power of restoration. The ld.counsel for the assessee, on the other hand stated that the issue was identical to that raised by the assessee in Asst.Year 2006- 07 which has been dealt by us above. 60. We have heard both the parties and we have noted that the ld.CIT(A) had restored the matter to the AO to adjudicate it afresh. We agree with the ld.D ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er plant, Captive power plant and Cogeneration plant on the ratio and direction of Hon ble ITAT order in the case of appellant for Asst.Year 2001-02 as well as for Asst.Year 2006-07. All these grounds are treated as allowed for statistical purpose. 63. The ld.counsel for the assessee, on the other hand contended this issue already stands adjudicated in the case of assessee for Asst.Year 2005-06 wherein disallowance was restricted to Rs. 1,00,000/- and also in Asst.Year 2007-08 in the Department s appeal in IT(TP)A No.1108/Ahd/2017 before us. 64. We have heard both the parties and we agree with the ld.DR that the ld.CIT(A)has no power to restore the issue to the file of the AO, but noting that this issues already stands adjudicated in Asst.Year 2007-08 in the case of the assessee at para-48, and admittedly, facts are identical in this year also, We direct the AO to apply the decision of the ITAT in the said year to the present case also. Ground No.2 is adjudicated as above. 65. Ground No.3 reads as under: (3) The Id. CIT(A) has erred in directing to recomputed the disallowance Of Rs. 21,42,48,271/- u/s 80IA of the Act in respect of all three units on the ratio and di ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ratio of Reliance Petro Products Pvt. Ltd. for A. Y.2008-09 in the case of the assessee. 70. The issue relates to adjustment to book profits of the assessee on account of disallowance made under section 14A of the Act. The ld.counsel for the assessee at the outset stated that this issue has been decided in favour of the assessee by the Special Bench of the ITAT in the case of ACIT Vs. Vireet Investment Pvt. Ltd., 165 ITD 27 (SB). The ld.DR was unable to controvert the above. 71. In view of the above, the order of the ld.CIT(A) allowing the assessee s claim of no adjustment to be made to the book profits on account of disallowance of interest under section 14A of the Act is upheld. Ground No.4 is dismissed. 72. In the result, appeal of the Revenue is partly allowed for statistical purpose. 73. In the combined result; i) Appeals for Asst.Year 2006-07 of the assessee in ITA No.823/Ahd/2016 is allowed; that of the Revenue in ITA No.1197/Ahd/2015 is dismissed; ii) Appeal for Asst.Year 2007-08 of the Revenue in ITA No.908/Ahd/2016 is dismissed ; iii) Appeal for Asst.Year 2009-10 of the assessee in IT(TP)A.No.1108/Ahd/2017 is dismissed; and that of the Revenue in ITA ..... 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