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2020 (9) TMI 341 - AT - Income TaxTransfer Pricing Adjustment - adjustment against AMP expenditure - Bright Line Test (BLT) - HELD THAT - Assessee was not merely a distributor of the products manufactured by its AE but the assessee itself was manufacturing its own products in India under license from the AE. With a view to market and promote its own manufactured products, the assessee incurred AMP expenditure by making payments to third parties in India. There was no express arrangement / agreement between the assessee and the AE for incurring such expenditure to promote the brand of the AE and therefore, the said transactions would not constitute international transaction relating to AMP expenditure. As also observed that BLT method as adopted by Ld. TPO was not a valid method to benchmark the transactions. The technical collaboration agreement as referred to by Ld. TPO did not envisage any such express arrangement / agreement between the assessee and its AE and therefore, the same could not support the case of the revenue. Disallowance of cost of infrastructure development - HELD THAT - There could be no doubt that the construction of roads facilitated the business operations of the assessee and enabled the management and conduct of the assessee's business to be carried on more efficiently and profitably. There could be no doubt that the advantage secured for the business of the assessee was of a long duration inasmuch as it would last so long as the roads continued to be in motorable condition, but it was not an advantage in the capital field, because no tangible or intangible asset was acquired by the assessee, nor was there any addition to or expansion of the profit-making apparatus of the assessee. The expenditure would be for the purpose of facilitating the conduct of the business of the assessee and making it more efficient and profitable and therefore, clearly an expenditure on revenue account. Another aspect is that The Income Tax Act, unless specifically provided in the provisions, do not recognise the concept of deferred revenue expenditure. If the expenditure qualifies for deduction u/s 37(1), the same would be an allowable expenditure in its entirety in the year in which it has been incurred, if the assessee chooses to claim the same at one go. The said proposition stem from another decision in Taparia Tools Limited V/s JCIT 2015 (3) TMI 853 - SUPREME COURT . We are of the considered opinion that the aforesaid expenditure, being revenue in nature would be an allowable expenditure in its entirety during this year. Accordingly, the ground raised stand allowed. Treatment of interest income - HELD THAT - No details of bank deposits could be provided by AR despite specific request being made by the bench due to which we are unable to ascertain the fact that whether these deposits have direct nexus with the business of the assessee AR has attributed the parking of funds to general credit float enjoyed by the assessee without bringing anything on record to substantiate the same. Hence, we deem it fit to restore the matter back to the file of AO to examine the nature of Bank FDR particularly the tenure of the deposit and also verify the fact of 'credit float' enjoyed by the assessee and decide the issue afresh in accordance with law. The assessee is directed to cooperate with the lower authorities forthwith to substantiate his submissions. The ground of revenue's appeal is allowed for statistical purposes. Set-off of brought forward unabsorbed depreciation - HELD THAT - As decided in own case 2020 (6) TMI 42 - ITAT MUMBAI allowed the assessee to set off unabsorbed depreciation in accordance with the amended provisions of section 32(2) of the Act. As per amended provision of section 32(2), the unabsorbed depreciation can be carry forward and set off without any time limit. Thus, in the light of the settled position we find merit in the contentions of the assessee and direct the Assessing Officer to allow set off of brought forward unabsorbed depreciation pertaining to assessment year 2007-08 against the profits of the current year s assessment. We direct Ld. AO to allow the set-off of the same. This ground stand allowed.
Issues Involved:
1. Transfer Pricing Adjustment 2. Disallowance of Payment towards Cost of Infrastructure Development 3. Classification of Interest Income 4. Set-off of Brought Forward Unabsorbed Depreciation 5. Initiation of Penalty Proceedings under Section 271(1)(c) Issue-wise Detailed Analysis: 1. Transfer Pricing Adjustment: The primary issue was the Transfer Pricing adjustment of ?45,85,16,563 related to AMP expenses. The AO/TPO/DRP presumed that these expenses benefited the Associated Enterprises (AEs). The assessee argued that the AMP expenses were for its domestic operations and did not constitute international transactions under sections 92B and 92(1) of the Income-tax Act. The TPO used the Bright Line Test (BLT) method to benchmark the AMP expenses and determined an adjustment based on the AMP to sales ratio of comparable companies. The Tribunal found that the AMP expenses were incurred for the assessee’s own business and not for the AE's benefit. The Tribunal also noted that the BLT method is not a valid method for determining the ALP of AMP expenses. The Tribunal, following its own precedent in the assessee’s case for earlier years, deleted the TP adjustment related to AMP expenses. 2. Disallowance of Payment towards Cost of Infrastructure Development: The assessee paid ?8,20,00,000 towards infrastructure development at Sri City, which the AO treated as capital expenditure. The assessee argued that the expenditure was revenue in nature as it did not result in the acquisition of any asset but was essential for efficient business operations. The DRP agreed that the infrastructure was owned by the lessor and not the assessee, thus not qualifying for depreciation. However, the DRP treated the expenditure as upfront lease charges and amortized it over the lease period. The Tribunal, considering the nature of the expenditure and relevant judicial precedents, concluded that the expenditure was revenue in nature and allowable under section 37(1) in its entirety. 3. Classification of Interest Income: The AO classified the interest income of ?2,72,84,483 as 'Income from Other Sources,' whereas the assessee claimed it as 'Profits and Gains from Business and Profession' due to its nexus with business operations. The Tribunal restored the issue to the AO to verify the nature of the interest income and its connection to the business, following its own decision in earlier years. 4. Set-off of Brought Forward Unabsorbed Depreciation: The AO denied the set-off of unabsorbed depreciation of ?4,62,00,217 from AY 1997-98, citing the 8-year carry-forward limitation as per the Finance Act 1996. The Tribunal, referring to the amendment by the Finance Act 2001 and relevant judicial precedents, directed the AO to allow the set-off of unabsorbed depreciation without the 8-year limitation. 5. Initiation of Penalty Proceedings under Section 271(1)(c): The Tribunal noted that the issue of penalty proceedings was premature and did not require specific adjudication at this stage. Conclusion: The appeal was partly allowed, with the Tribunal deleting the TP adjustment related to AMP expenses, allowing the infrastructure development expenditure as revenue expenditure, restoring the issue of interest income classification to the AO, and directing the AO to allow the set-off of unabsorbed depreciation. The penalty proceedings issue was deemed premature and not adjudicated.
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