9911796707
|
Home
Forgot password New User/ Regiser ⇒ Register to get Live Demo
2019 (5) TMI 411 - AT - Income TaxAllowance of depreciation on non compete fee - whether assessee s claim of depreciation on non compete fee @ 25% by treating it as an intangible asset is acceptable or not? - HELD THAT - The Tribunal while deciding assessee s appeal in assessment year 2001 02 2016 (4) TMI 583 - ITAT MUMBAI taking note of the decisions of M/S. INGERSOLL RAND INTERNATIONAL IND. LTD. 2014 (6) TMI 934 - KARNATAKA HIGH COURT and M/S. PENTASOFT TECHNOLOGIES LTD. 2013 (11) TMI 1057 - MADRAS HIGH COURT allowed assessee s claim of depreciation by treating the non compete fee as an intangible asset. The same view was reiterated by the Tribunal while deciding assessee s appeal for subsequent year also. Therefore, facts being identical, following the consistent view of the Tribunal in the orders referred to above, as well as the decision of different High Courts cited supra, we uphold the decision of the learned Commissioner (Appeals) on the issue in allowing claim - decided against revenue Disallowance of interest on borrowed funds - AO disallowed a part of interest expenditure on the reasoning that investments made by the assessee in sister concerns are not for the purpose of business - HELD THAT - While deciding dispute arising out of similar disallowance made by the Assessing Officer in the assessment year 2001 02, the Tribunal in 2016 (4) TMI 583 - ITAT MUMBAI has decided the issue in favour of the assessee by holding that the investment of funds in sister concerns are for the purpose of business. The same view was reiterated by the Tribunal while deciding the issue in assessment year 2006 07 2016 (10) TMI 1037 - ITAT MUMBAI , and for the assessment year 2011 12 . 2017 (4) TMI 862 - ITAT MUMBAI . Disallowance on account of interest attributable to interest free loan to the sister concern and director - HELD THAT - Assessing Officer has computed notional interest on certain amounts shown as receivable from a sister concern and one of the directors. Commissioner (Appeals) after verifying the facts on record has found that the amount receivable from the sister concern is not in the nature of loan and the loan advanced to one of the directors is out of surplus fund. The aforesaid factual finding of learned Commissioner (Appeals) remains uncontroverted. Further, the Tribunal while deciding the issue in the preceding assessment years, in the orders referred to above, has deleted similar disallowance made by the Assessing Officer. In view of the aforesaid, we uphold the decision of learned Commissioner (Appeals) on the issue. Disallowance of employees contribution to provident fund (P.F) and pension fund - sum paid within the grace period allowed under the relevant Acts. within the grace period allowed under the relevant Acts - HELD THAT - Undisputedly, the assessee has paid the employees contribution to PF and pension fund within the grace period allowed under the relevant Acts. Moreover, such payments have been made by the assessee much before the due date of filing of return of income for the impugned assessment year as per section 139(1) of the Act. That being the case, following the decision of CIT v/s Ghatge Patil Transports Ltd. 2014 (10) TMI 402 - BOMBAY HIGH COURT , we uphold the decision of learned Commissioner (Appeals) by dismissing the ground raised. Transfer pricing adjustment - marketing fee paid to the Associated Enterprises (AE) - assessee has benchmarked each of the transactions separately by applying one of the prescribed methods - HELD THAT - The assessee had entered into various international transactions with its AEs, such as, sale of goods to AE in USA, royalty on sales received, sale of goods to AE in Sri Lanka and marketing fee paid to the AE in USA. It is relevant to observe, the assessee has benchmarked each of the aforesaid transactions separately by applying one of the prescribed methods. TPO while determining the arm's length price of marketing services fee paid has aggregated it with the sales made to the AE at USA and while doing so has selected / rejected comparables relating to the sales segment. In our view, the aforesaid approach of the Transfer Pricing Officer is unacceptable. When the Transfer Pricing Officer is examining the arm's length price of the marketing fee paid, he cannot club it with the sales transaction since both are separate and distinct transactions.The agreement between the assessee and the AE clearly establish that the payment of marketing fee is not linked to sales. Therefore, benchmarked separately. Moreover, the assessee is following the aforesaid method of benchmarking all the transactions separately consistently over the years. It is also fact on record that the Department has accepted the benchmarking done by the assessee in all other years except the impugned assessment year. Therefore, there being no material difference in facts, following the rule of consistency also assessee s benchmarking has to be accepted Disallowance for provision of doubtful debts - added back to the income computed under the normal provisions - no adjustment while computing the book profit u/s 115JB - HELD THAT - As could be seen, the Assessing Officer has added back the provision for doubtful debt taking recourse to Explanation-1(c) to section 115JB(2), as it is not set out for meeting any ascertained liability. However, the facts on record reveal that the amount in dispute is not a liability but debt receivable by the assessee. That being the case, Explanation-1(c) to section 115JB would not apply. The order passed by the learned Commissioner (Appeals) on the issue is upheld. Adjustment made to the arm's length price of interest on interest free loan advanced to the Associated Enterprise (AE) and commission on corporate guarantee provided to the AE - LIBOR rate OR Prime Lending Rate (PLR) of RBI. - HELD THAT - The provision of interest free loan to the AE comes within the purview of international transaction under section 92B hence, transfer pricing provisions will apply. Moreover, since by provision of interest free loan, a benefit has accrued to the AE which may not have been the case if such loan would have been advanced by a third party, determination of arm's length price of the interest on such loan has to be made. We agree with the Commissioner (Appeals) that interest cannot be charged by applying PLR rate, since, the loan has been advanced to the AE in a foreign country. Therefore, we direct the Assessing Officer to charge interest on interest free loan to the AE at LIBOR plus 200 basis points. As regards guarantee commission for provision of corporate guarantee, we are unable to accept the contention of the learned Authorised Representative that it does not come within the purview of international transaction as defined under section 92B. In the decisions referred to by the learned Commissioner (Appeals), the Hon'ble Jurisdictional High Court has upheld the decision of the Tribunal in computing corporate guarantee fee @ 0.5%. In view of the aforesaid, we uphold the decision of the learned Commissioner (Appeals) on the issue. Transfer pricing adjustment to the price paid for purchase of moulds - no proper benchmarking of transaction - HELD THAT - Assessee was unable to justify its claim that the international transaction relating to purchase of moulds was benchmarked by applying CUP method. Similarly, while determining the arm's length price of the disputed transaction, the Transfer Pricing Officer has not followed any prescribed method, but has determined the arm's length price on purely estimation basis. This, in our view, is legally unsustainable. The Transfer Pricing Officer is duty bound to determine the arm's length price of the international transaction by following any one of the methods prescribed in the statute. The Transfer Pricing Officer has not justified or provided any valid reason why 25% downward adjustment has to be made to the price paid. That being the case, the addition made on account of transfer pricing adjustment is unsustainable. Assessee has also not properly benchmarked the transaction, we are inclined to restore the issue to the Assessing Officer for determining the arm's length price of the international transaction relating to purchase of moulds by applying any one of the prescribed methods. In this context, the Assessing Officer should consider assessee s claim of determination of arm's length price by applying entity level TNMM.
Issues Involved:
1. Depreciation on non-compete fee. 2. Disallowance of interest on borrowed funds. 3. Disallowance of interest on interest-free loans to sister concerns and directors. 4. Disallowance of employees' contribution to provident fund and pension fund. 5. Transfer pricing adjustments on marketing fee, interest on interest-free loans, and corporate guarantee commission. 6. Provision for doubtful debts and non-moving/obsolete inventory under section 115JB. Issue-wise Detailed Analysis: 1. Depreciation on Non-Compete Fee: The Revenue challenged the allowance of depreciation on non-compete fee. The assessee had capitalized the non-compete fee over various fixed assets and claimed depreciation. The Tribunal had previously disallowed this claim but later allowed it by treating the non-compete fee as an intangible asset. The current Tribunal upheld the decision of the learned Commissioner (Appeals) to allow depreciation at 25% treating it as an intangible asset, following consistent Tribunal decisions and High Court rulings. 2. Disallowance of Interest on Borrowed Funds: The Revenue contested the deletion of disallowance of interest on borrowed funds used for investments in Ceylon Glass Co. Ltd. and Gujarat Glass U.S. Inc. The Assessing Officer had disallowed the interest, attributing it to non-business purposes. However, the Tribunal upheld the Commissioner (Appeals)' decision to delete the disallowance, noting that similar disallowances were deleted in previous years, and the investments were for business purposes. 3. Disallowance of Interest on Interest-Free Loans to Sister Concerns and Directors: The Assessing Officer disallowed interest on loans to sister concerns and directors, computing notional interest. The Commissioner (Appeals) found that the amounts were not loans or were out of surplus funds. The Tribunal upheld the deletion of disallowance, noting consistent Tribunal decisions in favor of the assessee in previous years. 4. Disallowance of Employees' Contribution to Provident Fund and Pension Fund: The Assessing Officer disallowed the deduction for employees' contribution to PF and pension fund paid after the due date. The Commissioner (Appeals) allowed the deduction as the payments were within the grace period and before the due date of filing the return. The Tribunal upheld this decision, following the Jurisdictional High Court's ruling. 5. Transfer Pricing Adjustments: - Marketing Fee: The Transfer Pricing Officer (TPO) proposed an adjustment for high marketing fees paid to AE in the USA. The Commissioner (Appeals) deleted the adjustment, stating that marketing fees are not linked to sales. The Tribunal upheld this decision, noting the separate benchmarking of transactions and consistent acceptance by the Department in other years. - Interest on Interest-Free Loans and Corporate Guarantee Commission: The TPO proposed adjustments for interest on interest-free loans and corporate guarantee commission. The Commissioner (Appeals) directed the use of LIBOR rates for interest and 0.5% for guarantee commission. The Tribunal upheld these decisions, rejecting the use of PLR rates and confirming that these transactions fall under international transactions as per section 92B. 6. Provision for Doubtful Debts and Non-Moving/Obsolete Inventory under Section 115JB: The Assessing Officer added back provisions for doubtful debts and non-moving inventory while computing book profit under section 115JB. The Commissioner (Appeals) deleted these additions, stating they were not liabilities but diminution in asset value. The Tribunal upheld these deletions, noting that Explanation-1(c) to section 115JB does not apply. Conclusion: The Tribunal dismissed the Revenue's appeals and partly allowed the assessee's appeals, consistently following prior Tribunal decisions and High Court rulings on similar issues. The judgments emphasized the importance of consistency and adherence to prescribed methods in transfer pricing and tax computations.
|
