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2023 (3) TMI 33 - AT - Income TaxDepreciation on Non-compete Fee - HELD THAT - Respectfully following the ITAT Chennai Bench s decision in assessee own case for A.Y.2001-02 we hold that assessee is eligible for depreciation on non-compete fee. Accordingly as far as ground regarding non-compete fee is concerned the Revenue s Ground is dismissed. Depreciation on Effluent Treatment Plant - DR submitted that ld.CIT(A) has admitted additional evidence without giving opportunity to the AO. On perusal of the ld.CIT(A) s order it is observed that CIT(A) has not called for any remand report from the AO. It is an admitted fact by the AR that the assessee had submitted Chartered Engineers certificate which was not submitted before AO. The said certificate contains list of machinery. Therefore the ld.CIT(A) has violated Rule 46A of the Income Tax Rules. Accordingly the Ground related to Deprecation on Effluent Treat Plant is set-aside to the file of Assessing Officer. The AO is free to conduct necessary enquiries and assessee is given liberty to file all the documents before the AO. The AO shall pass order after giving opportunity of being heard to the assessee. Therefore of the Revenue for the A.Y. 2010-11 2011-12 2012-13 is allowed for statistical purposes. Employee s Contribution towards PF - AO has disallowed us.36(1)(va) - AO has observed that the assessee had not deposited the employee s contribution towards Provident Fund within the due date mentioned in the The Employees Provident Funds and Miscellaneous Provisions Act 1952 - HELD THAT - The issue of delayed payment of employee s contribution of Provident fund has been decided by Hon ble SC in the case of Checkmate Services (P.) Ltd. 2022 (10) TMI 617 - SUPREME COURT held that the employee s contribution towards PF has to be deposited before the due date mentioned in the respective statute. In this case it is an admitted position by the assessee in the Audit Report that the amount was not deposited before the due date mentioned in The Employees Provident Funds and Miscellaneous Provisions Act 1952. Hence the impugned amount has been rightly disallowed by the AO. Disallowance on Account of Management Services - TPO for determination of Arm s length price of the international transactions. The TPO analyzed the International transaction of Management Services in the Order u/s 92CA - HELD THAT - It is a self serving document as it is prepared by parent company and the subsidiaries had to agree. As mentioned there are 16 receiving parties located at different geographical locations. However it is presumed in the agreement that all of them have requirement of the so called services mentioned in the agreement irrespective of the geographical difference.The services provided were to be billed at a fee Calculated at Budgeted Cost plus 5% mark up. It is important to mention here that the assessee has not provided any documents to prove the budgeted cost. Rather the assessee has not provided What was the budgeted cost for various services separately We have gone through the invoices which are enclosed in the paper book none of the invoices mentions the Budgeted Cost. The assessee has not submitted which services were utilized by more than one AEs and what was the Budgeted cost of these services and what was the turnover of all these AEs and how these were allocated. We have gone through the invoices and these invoices does not contain any of these details. Rather all the invoices are vague. The onus is on the assessee to prove it. Therefore the TPO was right in holding the value at NIL. We have analyzed all the copies of emails submitted by the assessee as evidence of the So-called services provided by the AE to the assessee. We have observed that none of the emails establish any service being provided by the AE to the assessee. Therefore we are of the opinion that the assessee has failed to substantiate by documentary evidence any services provided by the AE to the assessee. Therefore on facts and circumstances of this case we are of the opinion that no services were provided by the AE to the assessee. Since there are no services there is no question of benchmarking them. One can analyze the ALP if there are any services but in the case of the assessee there is no service by the AE to the assessee. Hence the TPO has rightly held value of the so called services as NIL because there are no services. Thus we uphold the order of the TPO on the issue of Management Services .
Issues Involved:
1. Transfer Pricing Adjustment for Import of Goods. 2. Disallowance of Management Charges Paid. 3. Depreciation on Effluent Treatment Plant (ETP). 4. Depreciation on Non-Compete Fee. 5. Deduction for Delayed Payments of Provident Fund and Employees State Insurance. Issue-Wise Detailed Analysis: 1. Transfer Pricing Adjustment for Import of Goods: The assessee challenged the downward adjustment of Rs.40,00,000/- to the value of international transactions for the import of goods from associated enterprises (AE). The CIT(A)/TPO did not consider the customs valuation of imported goods as the Arm's Length Price (ALP) and compared the unadjusted net margins with comparable companies. The assessee argued that the gross margin was higher than that of comparable companies, indicating that the transactions were at arm's length. The tribunal set aside the issue to the AO/TPO for proper working of PLI and allowed the assessee to provide necessary details. 2. Disallowance of Management Charges Paid: For A.Y.2011-12 and 2012-13, the TPO rejected the Transactional Net Margin Method (TNMM) and determined the ALP of management fees as NIL. The TPO found that the assessee failed to substantiate the receipt of services from AE with adequate evidence. The CIT(A) upheld the TPO's order. The tribunal analyzed the agreement and emails provided by the assessee and concluded that there was no substantial evidence of services being rendered by the AE. Therefore, the tribunal upheld the TPO's determination of the ALP as NIL for management fees. 3. Depreciation on Effluent Treatment Plant (ETP): The AO disallowed the assessee's claim of 100% depreciation on ETP as the assessee failed to submit a list of eligible machineries. The CIT(A) admitted additional evidence without giving the AO an opportunity to examine it. The tribunal set aside the issue to the AO, allowing the AO to conduct necessary inquiries and the assessee to file all relevant documents. 4. Depreciation on Non-Compete Fee: The assessee claimed depreciation on non-compete fee, which the AO disallowed, arguing that no rights accrued to the company by paying the fee. The CIT(A) allowed the claim, and the tribunal upheld this decision, referencing ITAT Chennai's previous ruling in the assessee's favor for A.Y.2001-02. Therefore, the tribunal dismissed the Revenue's ground regarding non-compete fee for A.Y.2010-11, 2011-12, and 2012-13. 5. Deduction for Delayed Payments of Provident Fund and Employees State Insurance: For A.Y.2012-13, the AO disallowed Rs.2,08,834/- under section 36(1)(va) for delayed payments of employees' contributions to Provident Fund. The tribunal referenced the Supreme Court's decision in Checkmate Services (P.) Ltd., which held that employees' contributions must be deposited before the due date specified in the respective statute. Since the assessee did not comply, the tribunal upheld the AO's disallowance. Conclusion: - Assessee's appeal for A.Y.2010-11 was partly allowed for statistical purposes. - Assessee's appeals for A.Y.2011-12 and A.Y.2012-13 were dismissed. - Revenue's appeals for A.Y.2010-11, A.Y.2011-12, and A.Y.2012-13 were partly allowed.
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