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2022 (6) TMI 1433 - AT - Income TaxTP Adjustment - determination of ALP in a case of services rendered by an AE and the benchmarking process - evidence for rendering services and demonstrating the benefit that the assessee received from the services rendered by the AE to the assessee - plea of the assessee has been that documentary evidence furnished by it has not been examined by the TPO, who has merely come to the conclusion that the assessee failed to prove the nature of services rendered by the AE for which the assessee made payment. HELD THAT - There is force in the arguments of assessee, in as much as the TPO as well as the DRP ignored the documentary evidence filed by the assessee and have proceeded on the assumption that these details were general in nature and did not prove the rendering of services by the AE. It is also equally true that the bulk of evidence filed by the assessee have to be corelated with type of services rendered and it is necessary for the assessee to explain as to how these emails show that services were rendered by the AE. It is only on such analysis being provided by the assessee, can the TPO proceed to examine the rendering of services as well as benefit that the assessee might derive. In the matter of coming to the conclusion on the benefit that the assessee received, clear evidence cannot be insisted upon and the overall business scenario and type of services rendered have to be looked into. We also notice that similar payment made to the very same AE for similar services under the very same agreement, has been accepted to be at Arm s Length in AY 2017-18 2018-19. We are, therefore, of the view that it would be just and appropriate to set aside the issue with regard to determination of ALP to the AO/TPO for fresh consideration in the light of law as explained above and the other observations in this order. The AO/TPO will afford opportunity of being heard to the assessee in the set aside proceedings, before deciding the issue. Determination of ALP in respect of international transactions whereby assessee paid a sum for Brand Promotion Expenses - HELD THAT - We find that the TPO in the impugned assessment year i.e., AY 2013-14, on identical facts has taken a contrary view, which is to the effect that there is an element of indirect control. The DRP has not rendered any finding on this issue. We are of the view that, in the light of order of the TPO for AY 2016-17, the issue requires fresh examination by the TPO. We, therefore, set aside the order of the TPO and direct re-examination of the issue, whether FIFOTL can be considered as an AE? TP adjustment of Specified Domestic Transaction in respect of Sales Promotion Expenses for payment made to United East Bengal Football Pvt Ltd - HELD THAT - As the reference to the TPO in respect of specified domestic transactions mentioned in clause (i) of sec.92BA is not valid, as the said provision has been omitted. Accordingly, we direct the AO to delete the addition relating to specified domestic transactions made u/s 92CA of the Act. We notice that the co-ordinate bench in the case of Textport Overseas 2017 (12) TMI 1719 - ITAT BANGALORE has restored the matter to the file of the A.O. with the direction to examine the claim of expenditure in accordance with the provisions of section 40A(2) of the Act. Following the same, we restore this issue to the file of the AO with the direction to examine the claim of expenditure mentioned above in terms of the provisions of section 40A(2) of the Act. Accordingly, following the binding decision rendered by Hon'ble High Court of Karnataka in the case of Texport Overseas P Ltd 2019 (12) TMI 1312 - KARNATAKA HIGH COURT we hold that the reference to the TPO in respect of specified domestic transactions mentioned in clause (i) of sec.92BA is not valid, as the said provision has been omitted. Accordingly, we direct the AO to delete the addition relating to specified domestic transactions made u/s 92CA. Depreciation on goodwill - assessee has submitted that it has acquired the brewery from Karnataka Breweries Distilleries Ltd. through a process of demerger and acquisition and the difference between the cost of acquisition and the fair value of the assets is recognized as goodwill in the books of the assessee - AO disallowed the depreciation stating that the claim was not allowed in the earlier assessment year also - HELD THAT - The coordinate Bench of this Tribunal in the assessee s own case for AY 2007-08 2016 (9) TMI 1527 - ITAT BANGALORE has held that depreciation on goodwill is not allowable based on the facts of the case of assessee. Respectfully following that decision, we hold that depreciation on goodwill is not allowable. Accordingly, these grounds are dismissed. Disallowance of expenses u/s. 14A - HELD THAT - It is settled law that disallowance u/s. 14A cannot exceed the amount of exempt income earned by the assessee. Thus we hold that the disallowance should be restricted to the amount of exempt income earned by the assessee. We direct accordingly. Disallowance of year end provisions u/s. 40(a)(ia) - AO disallowed the said amount stating that tax ought to have been deducted as of 31.3.2012 and only for remittance the assessee has time till the date of filing of the return which the assessee failed to comply - HELD THAT - In the present case, we notice that the assessee has furnished the details of subsequent deduction of tax from the year end provisions and the details of payment made before the due date for filing the return of the assessee s PB. Thus we remand this issue back to the AO to verify the details of payments and tax deducted and allow the expenditure where the TDS is remitted to the Government account on or before the due date for filing the return of income. The assessee may be given a reasonable opportunity of being heard. Disallowance u/s 43B - disallowing provision of service tax on sponsorship services and penalty on service tax - HELD THAT - AO while arriving at the difference between the amount mentioned in the tax audit report (as not paid before the due date for filing the return of income) and the amount already disallowed by the assessee i.e., the difference between had arrived at an amount of Rs.3,50,30,965 which is wrong, whereas the correct amount is Rs.3,15,30,965. Further the assessee has already disallowed Rs.1,90,33,176 as penalty on service tax which fact has not been considered by the AO resulting in double disallowance to that extent. We, therefore, direct the AO to recompute the disallowance taking into consideration the above two disallowances already considered by the assessee in the computation and also correct the transposition error while arriving at the disallowance. Taxing capital receipt - AO has taken the market price of the shares of the assessee company which were allotted as a gain in the hands of the assessee - HELD THAT - We hold that there is no income arising in the hands of the assessee for the notional profit computed by the AO. Hence the addition is deleted. Directions to verify and allow the credits for MAT and TDS while recomputing the income of the assessee. Computing the ALP considering the /- 5 percent variation from the arm's length price as permitted under Section 92C(2).
Issues Involved:
1. Transfer Pricing Adjustment on account of Management Service Fee. 2. Transfer Pricing Adjustment on account of Brand Promotion Expenses. 3. Transfer Pricing Adjustment of Specified Domestic Transaction in respect of Sales Promotion Expenses. 4. Disallowance of Depreciation on Goodwill. 5. Disallowance of Expenses under Section 14A. 6. Disallowance under Section 40(a)(i)/40(a)(ia) for non-deduction of TDS on year-end provisions. 7. Disallowance under Section 43B for unpaid statutory dues. 8. Taxation of Notional Profit from Amalgamation. 9. MAT Credit and TDS Credit. Detailed Analysis: 1. Transfer Pricing Adjustment on account of Management Service Fee: The assessee challenged the adjustment of INR 6,00,00,000 made by the AO/TPO, who concluded that the Arm's Length Price (ALP) of the Management Fee paid to its AE was NIL. The AO/TPO argued that no specific tangible services were rendered by the AE and that the payment lacked commercial rationality. The Tribunal noted that the assessee had provided detailed evidence of services rendered, including emails and correspondence. The Tribunal set aside the issue to the AO/TPO for fresh consideration, emphasizing the need to benchmark the services rendered by the AE and determine the ALP accordingly. 2. Transfer Pricing Adjustment on account of Brand Promotion Expenses: The assessee argued that Force India Formula One Team Ltd. (FIFOTL) was not an Associated Enterprise (AE). The TPO had treated FIFOTL as an AE based on the significant influence of a common shareholder. The Tribunal noted that in AY 2016-17, the AO had accepted that FIFOTL was not an AE. The Tribunal remanded the issue back to the TPO for fresh examination, directing the TPO to reconsider whether FIFOTL qualifies as an AE and to determine the ALP if necessary. 3. Transfer Pricing Adjustment of Specified Domestic Transaction in respect of Sales Promotion Expenses: The assessee contended that the payment to United East Bengal Football Pvt. Ltd. (UEBF) should not be considered a Specified Domestic Transaction (SDT) due to the omission of clause (i) of section 92BA by the Finance Act, 2017. The Tribunal, following the decision of the Karnataka High Court in the case of Texport Overseas Pvt. Ltd., held that the reference to the TPO for SDTs was invalid due to the omission. The Tribunal directed the AO to delete the addition and examine the claim of expenditure under section 40A(2). 4. Disallowance of Depreciation on Goodwill: The AO disallowed depreciation on goodwill, relying on the earlier year's order. The Tribunal upheld the disallowance, following the coordinate Bench's decision in the assessee's own case for AY 2007-08, which held that depreciation on goodwill was not allowable based on the facts of the case. 5. Disallowance of Expenses under Section 14A: The AO disallowed INR 70,66,372 under section 14A, invoking Rule 8D, despite the assessee's claim that no expenditure was incurred to earn exempt income. The Tribunal held that disallowance under section 14A cannot exceed the exempt income earned by the assessee, following the decision in the case of GMR Enterprises. The Tribunal directed the AO to restrict the disallowance to the amount of exempt income. 6. Disallowance under Section 40(a)(i)/40(a)(ia) for non-deduction of TDS on year-end provisions: The AO disallowed INR 11,00,00,002 for non-deduction of TDS on year-end provisions. The Tribunal, following the decision in the case of Biocon Ltd., remanded the issue back to the AO to verify the details of payments and TDS deducted, and to allow the expenditure where TDS was remitted before the due date for filing the return of income. 7. Disallowance under Section 43B for unpaid statutory dues: The AO disallowed Rs. 3,50,30,965 under section 43B, noting a discrepancy between the amount mentioned in the tax audit report and the amount disallowed by the assessee. The Tribunal directed the AO to recompute the disallowance, considering the disallowances already made by the assessee and correcting the transposition error. 8. Taxation of Notional Profit from Amalgamation: The AO added Rs. 4,82,21,348 as notional profit from the amalgamation with Scottish & Newcastle India Pvt. Ltd. The Tribunal, following the decisions in the cases of DCIT v. Ozone Ltd. and ITO v. Kyal Developers, held that there was no income arising in the hands of the assessee for the notional profit computed by the AO and deleted the addition. 9. MAT Credit and TDS Credit: The Tribunal directed the AO to verify and allow the credits for MAT and TDS while recomputing the income of the assessee in accordance with the Tribunal's directions. Conclusion: The Tribunal partly allowed the appeal, remanding several issues back to the AO/TPO for fresh consideration and directing the AO to verify and correct certain disallowances and credits.
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