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TMI Blog2019 (1) TMI 2067X X X X Extracts X X X X X X X X Extracts X X X X ..... case the Ld. CIT(A) erred in deleting the disallowance of IT service charges of Rs. 6,22,64,471/- by holding that the above expenditure was in the nature of revenue expenditure? 4. Whether on the facts and circumstances of the case the Ld. CIT(A) was justified in deleting the addition on account of IT service charges of Rs. 6,22,64,471/-, ignoring that on similar issue for A.Y.2008-09 the Hon'ble ITAT has restored the matter to the file of AO for fresh verification? 5. Whether on the facts and circumstances of the case the Ld. CIT(A) erred in deleting the disallowance of Rs. 21,32,932/- u/s.14(A) ignoring that AO has clearly recorded in his order that he is not satisfied with the quantum of expenses allocated by the assessee against exempt income? 6. The appellant craves leave to add, amend or alter any of the above grounds of appeal." 2. The brief facts in this case are that the assessee company is a subsidiary of Alfa Laval AB, Sweden and is engaged in manufacturing and sale of plate and spiral head exchanges, decanters and separators and also executes complete projects and systems for its customers. The assessee company has three divisions' viz. Equipment division ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessee. The TPO applied the Cost Plus Method (CPM) with the Profit Level Indicator (PLI) with respect to its domestic segment of the traded spares @ 136.15% wherein the PLI in the case of the export of the traded spares to AE is @46.02%. With the result, the TPO made the adjustment of Rs. 1,56,00,000/- to the assessee's international transaction of export of spares. 5. With respect to the export of manufactured Equipment, the TPO worked out the gross margin with respect to the assessee's non-AE domestic sales @34.28% as against the gross margin @ 27.09% on transactions of exports to AE. This resulted in to the adjustment of Rs. 14,02,00,000/- with respect to the international transactions of exports of manufactured Equipment. Thus, the TPO made the total adjustment of Rs. 15,58,00,000/- to the assessee's international transactions. 6. In addition, following disallowances were made and added by the TPO to the assessee's total income: Particulars Amount (Rs.) Difference between Sales-tax deferral and NPV 72,74,168/- Disallowance u/s.40A(9) 2,87,145/- Disallowance out of IT Service charges 6,22,64,471/- Disallowance out of brokerage 1,86,000/- Out of depreciation 46,24 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lar principle and held as under: "12. Similar issue of selection of most appropriate method arose before the Tribunal in assessee's own case in assessment year 2008-09 and the Tribunal held that CPM method should not be applied and TNMM method is to be applied as most appropriate method. Applying the said ratio to the facts of the present case, where the TPO himself had applied TNMM method in all the earlier years starling from assessment years 2002-03 to 2007-08 and the Tribunal had directed the application of TNMM method in assessment year 2008-09, we hold that for benchmarking the interactional transactions in the equipment division, TNMM method is to be applied. The TPO has already considered the list of comparables selected by the assessee. In respect of comparables at serial Nos.1 and 7 being rejected for non-matching on turnover, we uphold the order of TPO. Similarly, Walchandnagar Industries Ltd. cannot be selected as comparable for different accounting period. In respect of Thermax Ltd. and GMM Pfaudler Ltd., 'the two concerns are not functionally comparable. Now, looking at the margins of balance four concerns which were selected by the assessee and as pointed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dia Ltd. 11. Before the Ld. CIT(Appeal), assessee has made following detailed written submissions : "2.1 It is submitted that our company is engaged in manufacture and sale of plate & spiral heat exchangers, decanters and separators and also executes complete projects and systems for its customers. The appellant has set up manufacturing units at Satara. The Appellant became eligible to sales tax deferral benefit under the Package Scheme of Incentives in respect of its unit at Satara which was implemented by SICOM Ltd acting as nodal agency on behalf of the State Government. As per the Scheme, the sales tax collected from customers was allowed to be accumulated and the appellant was liable to repay the amount after 10 years in 5 equal installments. Our company has disclosed the above amount as unsecured loan in its books. Section 38 of the Bombay Sales Tax Act was amended to provide for pre-payment of deferred sales tax liability at Net Present Value (NPV). Accordingly during the relevant previous year, our company decided to pre-pay the above loan at the NPV. Our company made pre-payment of Rs. 2,80,63,956/- during the relevant previous year being the net present value of Rs. 3, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rt of sub-so (I) comes into play. (iii) The amount obtained by the assessee or the value of benefit accruing to him is deemed to be profits and gains the business or profession and it becomes chargeable to income-tax as an income of that previous year. 2.3 Thus to invoke the provisions of section 41(1), the first requirement is as to whether in the assessment of the assessee, an allowance or deduction has been made in respect of loss, expenditure or the trading liability incurred by the assessee and subsequently obtained any benefit in respect of such a trading liabilities by way of remission or cessation thereof. In the present case, our company has only made a pre-payment of its liability as per the option provided by the state government and there is no waiver of such liability. In this case it is submitted that the above prepayment could not be construed as remission of liability because the State Government had not waived of any of the liability but only accepted the amount at its present value which was due later. 2.4 It is submitted that the CBDT has issued circular clarifying that deferred sales tax under the deferred scheme has to be treated as actually paid so th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... XX (iv) the value of any benefit or perquisite, whether convertible into money or not, arising from business or the exercise of a profession It is submitted that in the present case, the appellant has not earned any benefit as submitted in para 2.3 & 2.4 above. The Appellant has only made a pre-payment of its deferred sales tax liability at the Net Present Value. The Net Present Value is the current value of the future liability. Since the payment is made at NPV, there is no remission or waiver of any liability and therefore the allegation that such benefit is taxable u/s. 28 is baseless and without any merit. Section 28 of the Income Tax Act 1961 does not bring capital receipts into the income tax net. It is respectfully submitted that the benefit, if any, was received by our company at the time of setting up' of the unit and the deferral since these benefits are related to the setting up of the units. In view of this, it is submitted that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cordingly, relief provided to the assessee by the Ld. CIT(Appeal) is sustained. Hence, ground no. 2 raised in appeal by Revenue is dismissed. 14. The ground No. 3 and 4 relate to the deletion of disallowance of IT services. 15. On this issue, Ld. DR apprised the Bench that in assessee's own case for assessment year 2008-09, the matter has been set aside to the file of Assessing Officer for fresh consideration and therefore, in the present assessment year i.e. 2011-12, the issue should be set aside to the file of Assessing Officer for fresh consideration. 16. The Ld. AR of the assessee conceded to the arguments of the Ld. D.R. 17. We have perused the case record and heard the rival contentions. We find that in assessee's own case for assessment year 2008-09 and 2010-11, this issue has been remitted back to the file of Assessing Officer for verification. Relevant part of the order in ITA No.1351/PUN/2015 for assessment year 2010-2011 wherein the order of Tribunal for assessment year 2008-09 has considered is as under: "16. In the facts relating to the issue, the assessee during the year under consideration had claimed expenditure incurred towards acquisition and use of software ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ax auditor in his report has also given the working of disallowance u/s.14A r.w. rule 8D of Rs. 25,32,932/-. In my view the above amount is required to be disallowed u/s 14A r.w. rule 8D. 10.2 As the assessee has already disallowed Rs. 4,00,000/- u/s.14A of the Income Tax Act, 1961 in its Statement of Total Income, I hereby, disallow net Rs. 21,32,932/-/- (i.e. Rs. 25,32,932/- less Rs. 4,00,000/-) u/s.14A r.w.Rule 8D of the Income Tax Act, 1961." 19. At the time of appeal before the First Appellate Authority, the assessee advanced similar arguments vide letter dated 19.05.2016 on this disallowance, which were advanced by it against the same disallowance made by the Assessing Officer in the assessment year 2010-11 in assessee's own case. The Ld. CIT(Appeal) after considering the facts of the case, assessment order and the submissions of the assessee held as follows : "2.6.3 I find that I have deleted the disallowance made by the learned AO u/s 14A in the Appellant's appeal for AY 2010-11 because the learned AO failed to record his satisfaction before invoking Rule 8D, which is held as a mandatory pre- condition provided u/s 14(2). The same facts prevail during the year un ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Rules, namely, recording of an objective satisfaction with regard to the claim of the assessee that an expenditure of Rs. 5,00,000/- has been incurred in relation to the exempt income, is incorrect. In order to examine the aforesaid compliance with the pre-condition, we have perused the para 4 to 4.2 of the assessment order and find that no reasons have been advanced as to why the disallowance determined by the assessee was found to be incorrect, having regard to the accounts of the assessee. The only point made by the Assessing Officer is to the effect that "the said disallowance was not acceptable". In-fact, we find that the assessee made detailed submissions to the Assessing Officer, which have been reproduced by the CIT(A) in para 3.2.1 of his order. As per the assessee, the determination of disallowance u/s 14A of the Act of Rs. 5,00,000/- was based on the employee costs and other costs involved in carrying out this activity. Further, assessee also explained that the shares which have yielded exempt income were acquired long back out of own funds and no borrowings were utilized. The mutual fund investments were claimed to be also made out of surplus funds. It was speci ..... 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