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2016 (6) TMI 1334 - AT - Income TaxTPA - whether the transaction related to payment of technical support charges, should be evaluated on a stand-alone basis or by aggregating this transaction with the other transactions of manufacturing segment of the assessee - Held that - The assessee has priced the royalty and the technical services provided by the AE separately, and they were all provided under 2 different agreements which constitutes an International Transaction. TPO on one breath does not doubt the existence of services being rendered by the personnel sent by the AE, while on the next breath he has denied that technical support fees paid by the assessee to its AE, on the ground that no independent enterprise would pay such expenses under similar circumstances. Neither this can be a ground for rejecting the claim for deduction nor it can be a ground for assuming that the technical service fees paid by the assessee to the AE is not at arm s-length. The documents/evidence submitted by the assessee wide letter dated 07/10/2011 has not been analysed by the TPO. It cannot by any stretch of imagination be held that the evidences are irrelevant. For example the assessee has produced all the invoices and the proof of payments in respect of the services rendered by the employees of the AE. On one hand commercial expediency is recognised but on the other hand it has been held that the transactions were really not for the The assessee has priced the royalty and the technical services provided by the AE separately, and they were all provided under 2 different agreements which constitutes an International Transaction. Ld. TPO on one breath does not doubt the existence of services being rendered by the personnel sent by the AE, while on the next breath he has denied that technical support fees paid by the assessee to its AE, on the ground that no independent enterprise would pay such expenses under similar circumstances. Neither this can be a ground for rejecting the claim for deduction nor it can be a ground for assuming that the technical service fees paid by the assessee to the AE is not at arm s-length. The documents/evidence submitted by the assessee wide letter dated 07/10/2011 has not been analysed by the TPO. It cannot by any stretch of imagination be held that the evidences are irrelevant. For example the assessee has produced all the invoices and the proof of payments in respect of the services rendered by the employees of the AE. On one hand commercial expediency is recognised but on the other hand it has been held that the transactions were really not for the benefit of the assessee. We are therefore inclined to set aside this issue to the TPO for determination the ALP in accordance with the ratio laid down by Hon ble jurisdictional High Court in the case of EKL Appliances Ltd 2012 (4) TMI 346 - DELHI HIGH COURT . As we are remanding the matter, we direct the Ld. TPO to consider the evidence submitted by the assessee in the paper book and adjudicate the issue in accordance with law. Inadvertent mistake as crept in form 3CEB under the head technical support service fee paid to AE, against which the assessee had filed a rectification application - Held that - Ground is set aside to the Ld. AO/TPO to exclude the payments made by the assessee to unrelated party from the technical support fee paid by the assessee to its AE after verification as directed by the DRP. DRP had directed the AO to reduce the amount capitalised to fixed assets from the block of assets. The relevant para of the DRP has been extracted in para 4.4 above. It is observed that the Ld. AO has not followed the directions of the DRP. Accordingly this ground is set aside to Ld. TPO/AO to do the working as per the DRP direction. Addition in respect of undisclosed sales - Held that - It is observed that the authorities below have not considered the evidence filed by the assessee in the right perspective the calculation of reconciliation submitted by the assessee at page 301 of the paper book very clearly shows the difference in the turnover due to various statutory payments that the assessee has collected from M/s Maruti Udyog Ltd. The statutory payments as submitted by the assessee has been paid to the government account which can be verified by the authorities very easily. We are, therefore, inclined to set aside this issue to the file of the AO for verification of the details filed by the assessee and to allow the claim of the assessee as per law. Accordingly this ground filed by the assessee stands allowed for statistical purposes. Addition of sundry creditors - transactions of purchase - Held that - It is observed by the DRP that the AO has added certain purchases from these parties. Further additions have been made on account of confirmed credit balances from the same parties. It is also observed that the details/evidences filed by the assessee has not been verified and considered by the Ld. AO. We are therefore inclined to set aside the issue to the files of the AO for considering the evidences filed by the assessee and to allow the claim as per law after proper verification. Accordingly this ground reached by the assessee stands statistically allowed. Addition of gardening expenses claimed by the assessee under the head repair and maintenance-building - Held that - It is observed that the AO has not verified that details/evidences filed by the assessee and also has not verified as to whether there existed any garden within the factory premises of the assessee. We accordingly set aside this issue to the AO for verification of the facts and to consider the claim of the assessee within the parameters of law. Accordingly this ground filed by the assessee stands statistically allowed. Warranty expenses - AO disallowed the claim on the ground that no supporting documents in this regard were furnished by the assessee - Held that - It is observed that the assessee has produced warranty analysis and Ledger account for warranty expenses for the year under consideration at page 378 of the paper book volume II. We accordingly set aside the issue to the file of the Ld.AO for verification of the details/evidences filed by the assessee and to allow the claim following the ratio laid down in the case of M/s Rotork Controls India Pvt. Ltd. (2009 (5) TMI 16 - SUPREME COURT OF INDIA). Accordingly this ground of the assessee stands statistically allowed. Cash discount expenses paid to Maruti Udyog Ltd - Held that - As observed from the records filed before us that the authorities below has not properly verified the quantum which is available from the details filed by the assessee in the paper book. We thus set aside this issue to the ld.AO for verification of the details/evidences filed by the assessee and to allow the claim within the parameters of law. Accordingly the grounds raised by the assessee stands statistically allowed.
Issues Involved:
1. Determination of total loss. 2. Determination of international transaction related to payment of technical fee. 3. Addition in respect of undisclosed sales. 4. Addition in respect of sundry creditors. 5. Disallowance of gardening expenditure. 6. Disallowance of warranty expenses. 7. Disallowance of cash discount expenses. 8. Disallowance of provision for ascertained liabilities. 9. Initiation of penalty proceedings under Section 271(l)(c). 10. Non-allowance of brought forward losses to be carried forward. 11. Validity of the order passed by Ld. AO/Ld. TPO/ Hon'ble DRP. Detailed Analysis: 1. Determination of Total Loss: The assessee contested the reduction of the declared loss from ?39,34,19,281/- to ?4,09,77,489/- by the Assessing Officer (AO). The Tribunal did not provide a separate analysis for this issue, implying it was covered under the broader issues of specific disallowances and adjustments. 2. Determination of International Transaction Related to Payment of Technical Fee: - Issue 2.1: The TPO and DRP failed to appreciate the actual rendering of technical services under the Technical Services Contract. - Issue 2.2: The TPO computed the Arm's Length Price (ALP) of ?65,06,275/- for airline tickets against the actual cost of ?6,646,298/-. - Issue 2.3: The TPO erroneously treated a transaction with M/s. Koshin Trading Co. Ltd., an unrelated party, as an associated enterprise transaction. - Issue 2.4: The AO made a double addition of ?12,829,790/- already included in the addition of ?23,664,501/-. The Tribunal remanded the matter to the TPO for re-evaluation of the evidence submitted, following the principles laid down by the Hon'ble jurisdictional High Court in EKL Appliances Ltd. The TPO was directed to exclude third-party payments after verification and to recompute depreciation as per the DRP’s directions. 3. Addition in Respect of Undisclosed Sales: The AO added ?6,69,05,725/- based on discrepancies between the sales figures provided by Maruti Udyog Ltd. and the assessee. The Tribunal set aside this issue to the AO for verification of the reconciliation details provided by the assessee, including statutory payments like excise duty and sales tax. 4. Addition in Respect of Sundry Creditors: The AO added ?87,60,176/- due to non-confirmation from certain creditors. The Tribunal remanded this issue to the AO for verification of the evidence provided by the assessee, including bills and bank payment details. 5. Disallowance of Gardening Expenditure: The AO disallowed ?28,78,262/- claimed under 'Repair and Maintenance - Building'. The Tribunal directed the AO to verify the existence of a garden within the factory premises and reconsider the claim. 6. Disallowance of Warranty Expenses: The AO disallowed ?50,75,794/- due to lack of supporting documents. The Tribunal remanded the issue to the AO for verification of the details and to follow the Supreme Court’s decision in Rotork Controls India Pvt. Ltd. 7. Disallowance of Cash Discount Expenses: The AO disallowed ?26,50,994/- due to lack of documentary evidence. The Tribunal remanded the issue to the AO for verification of the evidence, including emails and ledger accounts. 8. Disallowance of Provision for Ascertained Liabilities: The AO disallowed ?22,96,76,550/- due to insufficient evidence. The Tribunal remanded the issue to the AO for verification of the details and proper reconciliation of the provisions made. 9. Initiation of Penalty Proceedings Under Section 271(l)(c): This issue was deemed premature and was dismissed by the Tribunal without adjudication. 10. Non-Allowance of Brought Forward Losses to be Carried Forward: The AO did not allow the set-off of ?1,07,89,918/- of brought forward losses. The Tribunal directed the AO to verify the returns filed for the previous year and allow the claim as per law. 11. Validity of the Order Passed by Ld. AO/Ld. TPO/ Hon'ble DRP: The Tribunal did not provide a separate analysis for this issue, implying it was addressed through the resolutions of the specific grounds of appeal. Conclusion: The Tribunal allowed the appeal for statistical purposes, remanding several issues back to the AO/TPO for re-evaluation and verification based on the evidence provided by the assessee. The Tribunal emphasized adherence to legal principles and proper verification of facts.
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