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2016 (10) TMI 522 - AT - Income TaxTransfer pricing adjustment - downward adjustments made by the ld. TPO considering comparative statements - Held that - We on perusing the comparative statement showing computation of royalty, find the Arms Length Price (ALP) at 4.6% as against Royalty on sales @1.14% and there is also a variation of percentage on sales admitted by the assessee. Considering the apparent facts and material, we are of the opinion that the matter has to be relooked as the percentage computed by the ld.TPO is 1.14% in comparison with the Arms Length Price margin being 4.60%. Therefore, we remit the disputed issue for recalculation to the file of ld. TPO to consider Royalty payment on brought out components based on technical specifications. The ground of the assessee is allowed for statistical purpose. Disallowance of expenditure incurred on Corporate Social Responsibility u/s 37(1) - Held that - The expenditure incurred towards corporate social responsibility by the assessee company is Revenue in nature and the objects for which it is offered is for social cause and amendment to Sec. 37(1) of the Act inserted with Finance Act, 2014 is subsequent to assessment year. Therefore, the same is not applicable and assessee company relied the judicial decision of CIT vs. Madras Refineries Ltd 2008 (9) TMI 309 - SUPREME COURT . Considering the apparent facts, we are of the opinion that the expenditure is for a specific cause for the benefit of society was not disputed by the Revenue on genuineness. So, we direct the ld. Assessing Officer to delete the addition and the ground of the assessee is allowed. Addition of subsidiary received from Andhra Pradesh Government - revenue or capital receipt - Held that - We perused the Industrial Investment Promotion Policy which considered the incentives and subsidy provided to the units according to their investments criteria. Further, the facts that VAT subsidy is as per the order issued by the Government and further due to amendment to Sec. 2(24) (xviii) w.e.f. 01.04.2015 subsidy or a grant defined was made taxable under Income Tax. So, considering the apparent facts, provisions of law, industrial policy regulations direct the ld. Assessing Officer to delete the addition of VAT subsidy as being in the nature of Capital Receipt and it is to be treated accordingly and allow the ground of the assessee. Disallowance of provisions for operation, maintenance and warranty - Held that - Authorised Representative contention that the difference in the value between the provisions made by the assessee and the Chartered Engineer certificate is disallowed but there is no necessity as tax rate for both assessment years are same. The differential sum alternatively if not allowed it needs to be considered in the year of reversal being next year. Further, this provisions are reversed in the next assessment year. We are of the opinion that the ld. Assessing Officer shall allow the claim on verification that the said provisions are reversed on the first day of next financial year and entries are passed in the Books and therefore, we remit the disputed issue for limited purpose to the file of the ld. Assessing Officer for verification and examination and assessee should be provided adequate opportunity of being heard before deciding the issue on merits. The ground of the assessee is allowed for statistical purpose. Non grant of TDS credit - Held that - We considering the apparent facts and the TDS credit available with the assessee, direct the ld. Assessing Officer to verify the form 16A and Income Tax website disclosing credit of tax amount in 26AS and obtain confirmation of credit from M/s. Regen Infra (P) Ltd. and the ld. Assessing Officer is directed to allow the tax credit. The ground of the assessee is allowed for statistical purpose. Addition u/s 14A - Held that - We remit the disputed issue to the file of the ld. Assessing Officer to verify and exclude the investments in subsidiary companies for the purposes of calculation of disallowance under Rule 8D(2) and the assessee should be provided adequate opportunity of being heard before passing the order on merits. The ground of the Department is allowed for statistical purpose.
Issues Involved:
1. Downward adjustment of royalty payment to AE. 2. Disallowance of Corporate Social Responsibility (CSR) expenditure. 3. Treatment of subsidy received from Andhra Pradesh Government. 4. Disallowance of provision for operation, maintenance, and warranty. 5. Non-grant of TDS credit. 6. Disallowance under Section 14A read with Rule 8D. Detailed Analysis: 1. Downward Adjustment of Royalty Payment to AE: The Transfer Pricing Officer (TPO) made a downward adjustment of ?2,95,08,102 on royalty payments to the Associated Enterprise (AE) for the use of technical know-how. The assessee argued that the royalty was computed based on the number of units sold, not on the percentage of net sales, and was within the regulated rates. The Tribunal found that the TPO's adjustment was erroneous and remitted the issue back to the TPO for recalculation, considering the royalty payment on brought-out components based on technical specifications. 2. Disallowance of Corporate Social Responsibility (CSR) Expenditure: The Assessing Officer disallowed the CSR expenditure of ?4,25,916 under Section 37(1), considering it non-business expenditure. The Tribunal held that the expenditure was for a social cause and revenue in nature. It directed the Assessing Officer to delete the addition, noting that the amendment to Section 37(1) was prospective and not applicable for the assessment year in question. 3. Treatment of Subsidy Received from Andhra Pradesh Government: The Assessing Officer treated the subsidy of ?7,09,35,162 received from the Andhra Pradesh Government as a revenue receipt. The assessee argued that the subsidy was capital in nature, intended to promote industrialization in backward areas. The Tribunal, relying on judicial precedents, concluded that the subsidy was a capital receipt and directed the Assessing Officer to delete the addition. 4. Disallowance of Provision for Operation, Maintenance, and Warranty: The Assessing Officer disallowed ?29,68,000 of the provision for operation, maintenance, and warranty, considering it excessive. The Tribunal noted that the provision was reversed in the next financial year and directed the Assessing Officer to allow the claim upon verification that the provisions were reversed in the next year. 5. Non-Grant of TDS Credit: The Assessing Officer denied TDS credit of ?68,45,307 without providing reasons. The Tribunal directed the Assessing Officer to verify the TDS credit available in Form 26AS and allow the credit accordingly. 6. Disallowance under Section 14A read with Rule 8D: The Assessing Officer disallowed ?1,20,83,593 under Section 14A read with Rule 8D, despite no exempt income being earned during the year. The Tribunal held that investments in subsidiaries for business expediency should not be considered for disallowance under Rule 8D(2). It remitted the issue back to the Assessing Officer to exclude investments in subsidiary companies for the calculation of disallowance. Conclusion: The Tribunal allowed the appeals of both the assessee and the department for statistical purposes, directing the Assessing Officer to re-examine and verify the issues as per the Tribunal's directions. The Tribunal's decisions were based on a thorough examination of the facts, legal provisions, and judicial precedents.
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