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2015 (3) TMI 318 - AT - Income TaxDisallowance of payments made to John Deere India Pvt. Ltd - Held that - The nature of expenditure pertained to the year under consideration of technical consultancy fees was made in accordance of an agreement dated 31-03-2000 which was signed by one MD of John Deere India Pvt. Ltd. On the other hand; from the side of the assessee it was signed by one Deputy CHO. The said agreement had provided as per the terms for reimbursement of monthly salary and that it was revenue in nature deserves to be affirmed. Issue stands covered in favour of the assessee by the decision of the Hon ble ITAT, Pune in the assessee s own case in preceding year i.e. A.Y. 2001-02 - Decided against revenue. Disallowance of Software maintenance and other system expenditure - Held that - Identical addition made by the Assessing Officer in the preceding years i.e. A. Yrs. 2002-03 to 2004- 05 by holding that the said expenditure is in the nature of capital expenditure and could not be allowed as a revenue expenditure was deleted by CIT(A) and confirmed by the Tribunal. - Decided against revenue. Sale tax / purchase tax subsidy received by the assessee from SICOM - whether a revenue receipt on the ground that the subsidy given was for increasing the profitability of the assessee? - Held that - We have considered the 1979 Package Scheme of Incentives and as well as Package Scheme of 1993 introduced by the Govt. of Maharashtra. As rightly argued by the Ld. AR the object and purpose for which the incentive by way of sales tax subsidy is given are the identical in both the Incentive Schemes. It is true that in the preceding years the Tribunal has set aside the issue to the file of the Assessing Officer for the fresh adjudication but in our opinion as the issue has been settled by the jurisdictional High Court on the identical subsidy, we do not consider it necessary to again set aside the issue to the file of the Assessing Officer and to create the complexity of the litigation. We, therefore, following the decision of the Reliance Industries Ltd. (2003 (10) TMI 255 - ITAT BOMBAY-J ) hold that the sales tax subsidy availed in Package Scheme of Incentives 1993 is a capital receipt and cannot be taxed as a revenue receipt in the hands of the assessee - Decided against revenue. Transfer pricing adjustment - selection of comparable - rejection of the TNMM method adopted by the assessee and substituting the said method with CUP by the TPO/DRP - Held that - Admittedly, for all those assessment years starting from 2004-05 onwards and also for the A.Y. 2008-09 the Assessing Officer has accepted the TNMM method as a most appropriate method for determining the ALP in respect of the sale of tractors by the assessee to the AEs.Though the TPO/DRP has gone on discussing the provisions of law but have conveniently ignored to put of record how the facts of the current year are different from the fact in A.Ys. 2004-05 and 2005-06 as in those years the TNMM was adopted by the assesse for determining the ALP which has been accepted as a most appropriate method by the TPO without any objection or reservation. There is no dispute on the proposition that the doctrine of the res judicata is not applicable to tax proceedings but at the same time if there is no change of the facts in respect of the a particular issue and the Revenue has a particular approach or method to determine the taxability then there must be consistency and this view is expressed by the Hon ble Supreme Court in the case of Radhasoami Satsang Vs. CIT (1991 (11) TMI 2 - SUPREME Court). - Decided in favour of assessee. ALP adjustment made by the Assessing Officer - Held that - Out of the 8 companies selected as a comparable in this year i.e. A.Y. 2006-07, 7 companies were also selected in A.Y. 2005- 06 and only KAMCL is added as a new comparable companies in this year. On perusal of the data in our opinion KAMCL cannot be considered as a comparable in the A.Y. 2006-07 as said company is not admittedly in the business of manufacturing tractors. But in respect of the remaining 7 companies as per the data placed before us, all those companies are in the line of same business i.e. tractor manufacturing. If we put the remaining 7 companies selected by the assessee. he average operating margin of 7 companies is at 5.71% as against 11.17% of the export segment of the assessee company. It is also seen that the assessee has share in the sale of tractors in domestic market also. We, accordingly, hold that the transaction of export of tractors to its AEs is at ALP within the settle parameters. - Decided in favour of assessee.
Issues Involved:
1. Disallowance of payments made to John Deere India Pvt. Ltd. 2. Disallowance of expenditure on software maintenance as capital expenditure. 3. Treatment of sales tax/purchase tax subsidy as revenue receipt. 4. Recomputing the transfer price of international transactions relating to exports of tractors. Detailed Analysis: 1. Disallowance of Payments Made to John Deere India Pvt. Ltd. The assessee challenged the disallowance of Rs. 1,62,80,699/- paid to John Deere India Pvt. Ltd. (JDIPL) as professional fees. The payment was claimed as reimbursement of salaries for expatriates providing services as CEO, Quality Manager, and Manufacturing Engineer. The Tribunal found that the issue was already decided in favor of the assessee in the preceding years (A.Y. 2001-02), confirming that the expenditure was revenue in nature. The Tribunal reversed the CIT(A)'s order and allowed the ground in favor of the assessee. 2. Disallowance of Expenditure on Software Maintenance as Capital Expenditure The assessee claimed Rs. 75,72,755/- towards SAP maintenance charges and other system expenses as revenue expenditure. The Assessing Officer treated it as capital expenditure. The Tribunal noted that similar expenditure was allowed as revenue expenditure in the preceding years (A.Y. 2002-03 to 2004-05). Following the Tribunal's earlier decisions, the ground was allowed in favor of the assessee, deleting the addition. 3. Treatment of Sales Tax/Purchase Tax Subsidy as Revenue Receipt The assessee received a subsidy of Rs. 6,91,61,972/- under the "1993 Package Scheme of Incentives" from the Government of Maharashtra, which it claimed as a capital receipt. The Assessing Officer treated it as a revenue receipt, relying on the Supreme Court's decision in Sahaney Steels and Press Work Ltd. The Tribunal, however, followed the decision in Reliance Industries Ltd., where the subsidy under a similar scheme was treated as a capital receipt. The Tribunal held that the subsidy was for setting up the unit in a backward area and thus was a capital receipt, allowing the ground in favor of the assessee. 4. Recomputing the Transfer Price of International Transactions Relating to Exports of Tractors The Transfer Pricing Officer (TPO) recomputed the transfer price of exports of tractors, resulting in an addition of Rs. 33,59,50,091/-. The TPO rejected the Transactional Net Margin Method (TNMM) adopted by the assessee and applied the Cost Plus Method (CPM). The Tribunal noted that the TNMM was accepted in the earlier and subsequent years (A.Y. 2004-05 to 2008-09). The Tribunal emphasized the principle of consistency and found no change in the facts warranting a different approach. The Tribunal also noted that the TPO's reasons for rejecting the comparables and adopting CPM were not justified. The Tribunal held that the assessee's transactions were at Arm's Length Price (ALP) and allowed the ground in favor of the assessee. Separate Judgments Delivered by Judges The judgment does not indicate separate judgments by the judges; hence, it is treated as a single, unified judgment.
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