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2013 (9) TMI 165 - AT - Income TaxAsjustment of arm s length price - Payment of commission - Method of computation - Held that - All 14 international transactions has not been separately considered in the TP report and basis has been adopted as TNMM - none of the international transactions match to each other. Therefore, it cannot be said that a common method will be sufficient to compute the ALP - most appropriate method to compute ALP in respect of commission paid by the assessee is CUP method. However, the way in which TPO has applied CUP method is not appropriate. The AO has relied upon the internal transactions for arriving at a conclusion that the commission paid by the assessee is on higher side. Such opinion has been formed by TPO without giving any finding that whether or not any outside comparison is available in similar type of transactions. Such course can be adopted only in the circumstances where it is found that outside comparison is not available - matter remanded back for fresh adjudication - Decided in favour of assessee. Additions u/s 41(1) - difference in the sales tax loan liability and the actual payment - Remission of deferred sales tax liability - Held that - the issue in appeal is admittedly covered by Special Bench decision in the case of Suizer India Ltd (2010 (11) TMI 728 - ITAT, MUMBAI), wherein it was held that, difference between the payment of net present value against the future liability credited by the assessee under the capital reserve account in its books of account is a capital receipt and cannot be termed as remission/cessation of liability and consequently no benefit has arisen to the assessee in terms of section 41(1)(a) of the Income-tax Act, 1961 - Decided in favor of assessee. Deduction u/s 80HHC - DEPB benefits - Whether entire amount received on sale of the Duty Entitlement Pass Book (DEPB) represents profit on transfer of DEPB for the purpose of the computation of deduction u/s 80HHC Held that - DEPB has direct nexus with the cost of imports for manufacturing an export product, any amount realized by the assessees over and above the DEPB on transfer of the DEPB would represent profit on the transfer of DEPB and while the face value of the DEPB will fall under clause (iiib) of Section 28, difference between the sale value and the face value of the DEPB will fall under clause (iiid) of Section 28 Decided in favor of assessee. Capital or revenue expenditure - Software expenditure - Deduction u/s 80HHC - Held that In the submissions made before Ld. DRP it has been made clear by the assessee that assessee did not purchase SAP programme. It s existing structure of software was made compatible by the KSB Germany for which an agreement was entered into between the assessee and KSB Germany, copy of which was also filed before Ld. DRP. The nature of expenditure were also given which include Travellling cost of KSB AG Consultants and External consultants for migration and Technical architecture, Interface to subsystems and Consultation charges of KSB AG Consultants. None of these expenditure has been incurred for acquiring any asset - therefore, software expenditure was allowable as revenue expenditure - Following decision of CIT vs. Raychem 2011 (7) TMI 953 - Bombay High Court - Decided in favor of the assessee.
Issues Involved:
1. Allowability of club expenses. 2. Deletion of additions made on account of transfer pricing adjustment. 3. Addition under section 41(1) for differential sales tax liability. 4. Disallowance under section 14A. 5. Denial of deduction under section 80HHC for DEPB licenses. 6. Reduction of deduction under section 80IB while computing deduction under section 80HHC. 7. Denial of deduction under section 80IB for insurance claim and interest on delayed payments. 8. Transfer pricing adjustment for commission paid to KSB Singapore. 9. Disallowance of additional depreciation under section 32(1)(iia). 10. Disallowance of professional fees paid to KSB AG for SAP implementation. 11. Addition based on Annual Information Return (AIR) entries. Detailed Analysis: 1. Allowability of Club Expenses: The Tribunal upheld the CIT(A)'s decision allowing club expenses, referencing the Hon'ble Bombay High Court in OTIS Elevator and an unreported Supreme Court decision in CIT vs. United Glass Manufacturing Co. Ltd., recognizing club membership fees for employees as business expenditure deductible under section 37(1). 2. Deletion of Additions Made on Account of Transfer Pricing Adjustment: The Tribunal noted that the TPO had accepted the prices for all transactions except the commission paid to KSB Singapore. The TPO's adjustment was based on an internal comparison, which the CIT(A) found flawed due to the lack of valid comparable uncontrolled transactions. The Tribunal restored the issue to the AO for fresh adjudication, allowing the assessee to present a new TP study or for the AO to refer it to the TPO. 3. Addition Under Section 41(1) for Differential Sales Tax Liability: Following the Tribunal's decision in the assessee's own case for A.Y. 2003-04 and the Special Bench decision in Sulzer India vs. JCIT, the Tribunal held that the payment of NPV of future liability does not constitute remission under section 41(1), thus deleting the addition. 4. Disallowance Under Section 14A: For A.Y. 2004-05, the Tribunal noted the disallowance was not pressed. For A.Y. 2006-07, the Tribunal restricted the disallowance to 5% of the exempt income, reducing the AO's calculation. 5. Denial of Deduction Under Section 80HHC for DEPB Licenses: The Tribunal restored the issue to the AO for recalculating the deduction under section 80HHC in accordance with the Supreme Court decision in Topman Export vs. CIT. 6. Reduction of Deduction Under Section 80IB While Computing Deduction Under Section 80HHC: The Tribunal, referencing the Hon'ble Bombay High Court in Associated Capsule Pvt. Ltd. vs DCIT, held that the assessee is entitled to claim the full deduction under section 80HHC without reducing the deduction under section 80IB. 7. Denial of Deduction Under Section 80IB for Insurance Claim and Interest on Delayed Payments: The Tribunal noted the insurance claim issue was not pressed. For interest on delayed payments, the Tribunal allowed the deduction under section 80IB, referencing decisions in G.S.C Toughened Glasses vs. ACIT and Nirma Industries Ltd. 8. Transfer Pricing Adjustment for Commission Paid to KSB Singapore: The Tribunal found CUP method appropriate for computing ALP for commission payments but noted the TPO's application was flawed. The issue was restored to the AO for fresh adjudication, allowing the assessee to present a new TP study. 9. Disallowance of Additional Depreciation Under Section 32(1)(iia): The Tribunal upheld the AO's decision, interpreting the section to require both acquisition and installation after 31/3/2005, thus disallowing additional depreciation for assets acquired before this date. 10. Disallowance of Professional Fees Paid to KSB AG for SAP Implementation: The Tribunal held the expenditure as revenue in nature, referencing the Hon'ble Bombay High Court in CIT vs. Raychem RPG Ltd., and allowed the deduction. 11. Addition Based on Annual Information Return (AIR) Entries: The Tribunal restored the issue to the AO to call information from the concerned party and confront the assessee, directing re-adjudication as per law. Conclusion: - Cross appeals for A.Y. 2004-05 were partly allowed. - Assessee's appeal for A.Y. 2006-07 was partly allowed. - Assessee's appeal for A.Y. 2007-08 was allowed for statistical purposes. - Revenue's appeal for A.Y. 2007-08 was dismissed.
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