2013 (9) TMI 525 - AT - Income Tax

Transfer pricing adjustments - ALP - addition made for guarantee amounting to Rs. 29.18 lakhs - addition made towards notional interest amounting to Rs. 5.64 Crores on loan to subsidiaries - Held that - following the decision in Four Soft Limited 2011 (9) TMI 634 - ITAT, Mumbai matter remanded back to AO. TDS on Dealer Incentive and Service Coupons - disallowance under Section 40 (a)(ia) r.w.s. 194 H and 194C - Held that - as sale took place between the assessee and the dealers, provisions of section 194 H would not be applicable in the case under consideration. - Decision in Jai Drinks (2011 (1) TMI 1035 - Delhi High Court) followed - transaction between the assessee and the dealers were on principal to principal basis. In other words there are certain terma and conditions in the agreement that are clearly indicative of the fact that the transactions were between principal and principal and that even in the matter of sales that were effected by the dealer it did not act as an agent of the assessee company. AO has categorically stated that plan of incentives was not filed before him. In the paper book we do not find any documents related with the incentive scheme. We are of the opinion that matter of incentives allowed by the assessee to its dealers needs to be restored to the file of the AO. He is directed to decide the issue afresh with regard to the provisions of section 194C of the Act. Assessee is directed to furnish the AO details like plan adopted by it, method of calculating the incentives, incentives actually allowed etc. to the AO. - partly decided in favor of assessee. Depreciation of Rs.13,09,000, on intangible assets - evidence regarding use of technical know how - Held that - The assessee had acquired technology for defence vehicles from one company of Israel. The assessee had acquired IPR of the said technology. We are of the opinion that existence of an agreement is not sufficient to claim depreciation. Neither before the Assessing Officer nor before us the assessee had shown as to how the technical know how was used passively during the year under consideration. - Decided against the assessee. Provisions for medical benefits as prior period expenses - Held that - this is merely a provision and an unascertained liability - The claims also do not relate to the year under consideration. Further we also find that there are no specific approved funds for the provisions. The claim is also against the matching principle. The important fact also to be noted is that this amount has neither been paid to the employees during the year nor it has been deposited in a separate fund. In line with the foregoing, the disallowance is upheld - Decided against the assessee.

Issues Involved:
1. Expenditure debited to Profit and Loss account
2. Development expenses for compact project for tractors
3. Premium payable on Foreign Currency Convertible Bonds (FCCBs)
4. Unutilised CENVAT credit on raw material
5. Provision for Warranties
6. Disallowance under section 40A(9)
7. Expenses on Employees' Stock Option (ESOP)
8. Disallowance under section 14A
9. Payments to Clubs
10. Adjustment to Arm's Length Price of international transaction
11. Disallowance of capital loss on sale of R&D assets
12. Disallowance under section 40a(ia) in respect of year-end provisions
13. Disallowance of weighted deduction under section 35(2AB)
14. Disallowance under section 40a(ia) of Dealer Incentive and Service Coupon
15. Disallowance of Depreciation on Intangible Assets
16. Disallowance under section 40a(ia)
17. Disallowance of Provision of Medical benefits
18. Disallowance of deduction of Octroi Incentive
19. Disallowance of deduction of Part reversal of FCCB premium
20. Disallowance of deduction under section 80IC
21. Disallowance of deduction of expenditure incurred on Building made for R&D Nashik
22. Disallowance of deduction of Sale Proceeds of R&D Assets
23. Provision for pending labour demand
24. Deduction under section 35DDA for Voluntary Retirement Schemes
25. Short Credit of TDS

Detailed Analysis:

1. Expenditure debited to Profit and Loss account:
The tribunal held that the expenditure incurred for acquisition of Indian and overseas entities was capital in nature. The Assessing Officer (AO) was directed to treat the expenditure as part of the investment.

2. Development expenses for compact project for tractors:
The tribunal decided against the assessee, holding that the expenses incurred were for acquiring technical know-how and thus, section 32(1)(ii) of the Act was applicable.

3. Premium payable on Foreign Currency Convertible Bonds (FCCBs):
The tribunal decided in favor of the assessee, allowing the pro-rata disallowance of premium payable on redemption of FCCBs.

4. Unutilised CENVAT credit on raw material:
The issue was remitted back to the AO for recalculating the unutilized CENVAT credit, similar to the previous assessment year.

5. Provision for Warranties:
The matter was remitted back to the AO to decide the issue afresh, keeping in mind the observations made in the order of the last assessment year.

6. Disallowance under section 40A(9):
The tribunal remitted the matter back to the AO, similar to the previous assessment year.

7. Expenses on Employees' Stock Option (ESOP):
The tribunal decided against the assessee, following the decision of the previous assessment year.

8. Disallowance under section 14A:
The matter was restored back to the file of the AO to recalculate the disallowance made by him for exempt income.

9. Payments to Clubs:
The AO was directed to decide the issue afresh in the background of judgments of Hon'ble Gujarat High Court and Hon'ble Kerala High Court.

10. Adjustment to Arm's Length Price of international transaction:
The tribunal remitted the matter back to the AO to decide the issue in light of the discussion about the LIBOR rate prevalent at the relevant point of time.

11. Disallowance of capital loss on sale of R&D assets:
The tribunal decided against the assessee, following the decision of the previous assessment year.

12. Disallowance under section 40a(ia) in respect of year-end provisions:
The tribunal allowed the appeal of the assessee, as the facts and circumstances remained the same as the previous assessment year.

13. Disallowance of weighted deduction under section 35(2AB):
The AO was directed to allow the expenditure under section 35(2AB) for Kandivali Unit and for Nasik Unit, the same should be allowed as and when the approval is produced by the assessee.

14. Disallowance under section 40a(ia) of Dealer Incentive and Service Coupon:
The tribunal held that the transactions between the assessee and its dealers were on a principal-to-principal basis and not subject to section 194H. However, the matter of incentives was restored to the AO for further examination.

15. Disallowance of Depreciation on Intangible Assets:
The tribunal decided against the assessee, as the assessee did not show how the technical know-how was used passively during the year under consideration.

16. Disallowance under section 40a(ia):
The tribunal remitted the matter back to the Commissioner (Appeals) for examination as directed by the Pune Bench of the Tribunal.

17. Disallowance of Provision of Medical benefits:
The tribunal upheld the AO's decision, stating that unascertained liabilities cannot be allowed under section 37 of the Act.

18. Disallowance of deduction of Octroi Incentive:
The AO was directed to allow the claim for capital goods only.

19. Disallowance of deduction of Part reversal of FCCB premium:
The AO was directed to ensure that the assessee does not suffer double taxation.

20. Disallowance of deduction under section 80IC:
The AO was directed to pass a speaking order and allow the loss of the unit to be set off against the profit of the year whenever the appellant makes a profit.

21. Disallowance of deduction of expenditure incurred on Building made for R&D Nashik:
The tribunal decided against the assessee, applying the ratio of the judgment in Goetze (India) Ltd.

22. Disallowance of deduction of Sale Proceeds of R&D Assets:
The tribunal decided against the assessee, applying the ratio of the judgment in Goetze (India) Ltd.

23. Provision for pending labour demand:
The tribunal restored the matter to the file of the AO, directing not to tax the same amount in two assessment years.

24. Deduction under section 35DDA for Voluntary Retirement Schemes:
The tribunal did not adjudicate the issue as it was not covered by the assessment order for the year in question.

25. Short Credit of TDS:
The AO was directed to verify the claim and give credit for the said amount.

Conclusion:
The tribunal allowed the appeal partly, remitting several issues back to the AO for further examination and recalculations, while deciding others against the assessee based on previous judgments and applicable legal principles.

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