9911796707
|
Home
Forgot password New User/ Regiser ⇒ Register to get Live Demo
2019 (8) TMI 448 - AT - Income TaxTP Adjustment - Royalty payment to its Associated Enterprises (AEs) - HELD THAT - As admitted position that the assessee paid Royalty to its AEs as per the rates approved by the RBI. The TPO determined Nil ALP simply on the ground that the AEs to whom the assessee paid Royalty had discontinued production of such products and the assessee was making exports to them also. Such reasons are not germane in the determination of the ALP. TPO is required to determine the ALP of an international transaction under one of the methods mandated under rule 10B of the Income-tax Rules, 1962. Nothing of the sort has been done in the instant case. TPO got influenced with extraneous reasons, which have no bearing on the determination of the ALP of an international transaction. It is further observed that similar issue of payment of royalty came up for consideration before the Tribunal in assessee s own case 2019 (8) TMI 369 - ITAT PUNE for the earlier assessment years in which deletion of transfer pricing addition on payment of royalty by FAA has been upheld. Considering that the payment of Royalty to the AEs was as per RBI norms, we are satisfied that the view taken by the ld. CIT(A) is unassailable. This ground, therefore, fails. TP addition in the international transaction of 'Export of manufactured finished goods - HELD THAT - ALP of the international transaction of Export of manufactured finished goods is required to be separately done. We have held above that the CUP is not the most appropriate method in the given circumstances. In such a condition, there is a need for resorting to another suitable method for determining the ALP of international transaction of Export of manufactured finished goods. We, therefore, set aside the impugned order and remit the matter to the file of the AO/TPO for a fresh determination of ALP of the international transaction of Export of manufactured finished goods by the assessee. It is, however, made clear that the transfer pricing adjustment, if any, resulting from such fresh determination of the ALP should be restricted only to the value of international transactions of ₹ 3.09 crore. The other part of the international transaction of Export of manufactured finished goods with the value of ₹ 47.86 crore, which has been accepted by the TPO at ALP, cannot be now interfered with. Needless to say, the assessee will be allowed a reasonable opportunity of hearing in such fresh proceedings. TP addition in respect of international transaction of Receipt of indenting commission - HELD THAT - As the transaction is that of earning commission, ideally, the benchmarking should also have been done with reference to an uncontrolled transaction of earning commission only. Notwithstanding the fact that the TPO was required to take the comparable uncontrolled transaction as that of rendering of marketing services alone, he started with the entity level figures of the assessee which also include sale of self goods ostensibly involving altogether different functions, assets and risks vis- -vis earning commission on sale for AEs. Thereafter again, he went off the mark by excluding the amount of raw material costs etc. and depreciation from the base of total costs by overlooking the fact that the figure of profit taken up by him also included profit from sale of manufactured goods. DR was fair enough to accept that the amount of depreciation ought to have been included. Even if we presume the initial step of adoption of the entity level profit of the assessee, including that from sale of self goods as correct, with which we do not otherwise agree, then also the total costs contributing to the manufacturing profit should have been considered, which obviously include raw material cost and depreciation, as has been held in the first appeal. CIT(A) has found the ALP of commission income at ₹ 13.79 crore as against the transacted value of commission income at ₹ 13.38 core, which is within plus minus 5% range, not calling for any transfer pricing addition. We, therefore, accord our imprimatur to the view taken by the ld. CIT(A) on this score. This ground is not allowed. Disallowance u/s 35DD - 1/5th of the fees paid to Registrar of Companies for increasing the authorized capital on amalgamation - HELD THAT - Both the sides are in agreement that the facts and circumstances of the instant ground are mutatis mutandis similar to those of the preceding years, in which similar ground has been allowed in favour of the assessee. Following the precedents, we allow this ground of appeal. Disallowance being, 40% of expenses on premises considering the same as capital in nature - HELD THAT - Both the sides agree that similar issue has been decided by the Tribunal against the assessee in its order for the A.Y. 2004-05. In the absence of the ld. AR pointing out any difference in the facts or law on this issue for the instant and the preceding year, following the view taken for the A.Y. 2004-05 2019 (8) TMI 369 - ITAT PUNE we uphold the capitalization of expenses in relation to the premises @ 40%. At the same time, it is directed that the assessee be allowed depreciation on such capitalized amount. Disallowance of Miscellaneous expenses - HELD THAT - Similar issue came up for consideration before the Tribunal for earlier years as well. After allowing full deduction towards software expenses and fees for handling share record and making full disallowance for warranty expenses, Gifts and Donation, the Tribunal has restricted the addition to 15% of the balance expenses. Following the same view, we set aside the impugned order on this score and direct the AO to compute the amount disallowable out of Miscellaneous expenses in accordance with the directions given for the immediately two preceding years on this score. Addition on account of commission - HELD THAT - Here again we find it is an admitted position that similar issue has been determined by the Tribunal in favour of the assessee in its orders for the A.Ys. 2002-03 to 2004-05. Following the same, we countenance the impugned order on this score. This ground is not allowed. Disallowance of payment of VRS as not eligible for deduction u/s 35DDA - HELD THAT - Similar issue came up for consideration before the Tribunal in assessee s own case for earlier years as well. The Tribunal has held the assessee to be entitled to deduction u/s.35DDA on the basis of incurring of liability. A further direction has been given to ensure that the assessee does not get deduction on actual payment basis.The impugned order is set aside to this extent and the matter is remitted to the AO for allowing deduction only towards incurring of liability, i.e. on accrual of liability towards VRS u/s.35DDA and that no amount should be allowed as deduction on payment basis. Deduction u/s.35DD of amalgamation expenses - stamp duty for transfer of immovable assets - HELD THAT - Both the sides are consensus ad idem that similar issue has been determined by the Tribunal in favour of the assessee in earlier years. Following the precedents, we dismiss this ground of appeal by the Revenue Deduction towards provision for warranty - HELD THAT - The Tribunal has discussed this aspect in para no. 15 onwards of its order for the A.Y. 2003-04 and restored the matter to the file of the AO holding, inter alia, that the provision for warranty should be allowed at 0.4% of net sales and further no deduction should be allowed for actual expenses. As the facts are similar, we direct the AO to follow the same course of directions to the extent applicable for the year under consideration. Education cess on income-tax paid for the year - Addition u/s 40(a)(ii) - HELD THAT - It is seen that relying on Circular F. No. 91/58/66-ITJ(19) dt. 18th May, 1967, the Hon ble Rajasthan High Court in Chambal Fertilisers and Chemicals Ltd. 2018 (10) TMI 589 - RAJASTHAN HIGH COURT has held that Education cess is not disallowable u/s 40(a)(ii). Depreciation on the amount of capital expenditure - HELD THAT - For the A.Y. 2004-05 2019 (8) TMI 369 - ITAT PUNE Tribunal noticed that the assessee purchased a property during the year and carried out suitable repairs/renovation to make it fit for use. The decision of the ld. CIT(A) capitalizing 40% of the expenditure as against 80% done by the AO, was approved by the Tribunal. Once a particular amount has been held to be capital expenditure on a building purchased by the assessee, the same has to be subjected to depreciation. As the Tribunal has approved the capitalizing of certain amount to Building account, we, therefore, direct the AO to allow depreciation on such amount as per law.
Issues Involved:
1. Deletion of Transfer Pricing addition for Royalty payment. 2. Confirmation of Transfer Pricing addition for Export of manufactured finished goods. 3. Deletion of Transfer Pricing addition for Receipt of indenting commission. 4. Disallowance under Section 35DD for fees paid to Registrar of Companies. 5. Disallowance of expenses on premises. 6. Disallowance out of Miscellaneous expenses. 7. Deletion of addition on account of commission. 8. Deletion of disallowance under Section 35DDA for VRS payment. 9. Allowing deduction under Section 35DD for amalgamation expenses. 10. Allowing deduction towards provision for warranty. 11. Claim of Education Cess. 12. Claim of Depreciation on capitalized expenses. Detailed Analysis: 1. Deletion of Transfer Pricing addition for Royalty payment: The Tribunal upheld the deletion of the Transfer Pricing addition of ?3,50,06,690/- made by the Assessing Officer (AO) concerning Royalty payments to Associated Enterprises (AEs). The Tribunal found that the Transfer Pricing Officer (TPO) determined Nil ALP based on irrelevant factors and did not follow the prescribed methods under Rule 10B of the Income-tax Rules, 1962. The Tribunal noted that similar issues in previous years were resolved in favor of the assessee and that the Royalty payments were as per RBI norms. 2. Confirmation of Transfer Pricing addition for Export of manufactured finished goods: The Tribunal remitted the issue of Transfer Pricing addition of ?2,24,11,726/- back to the AO/TPO for fresh determination. The TPO had applied the Comparable Uncontrolled Price (CUP) method, which the Tribunal found inappropriate due to significant differences in quantities sold, customization, and geographical locations between sales to AEs and non-AEs. The Tribunal directed the AO/TPO to determine the ALP using a suitable method and restricted the adjustment to the disputed amount of ?3.09 crore in exports. 3. Deletion of Transfer Pricing addition for Receipt of indenting commission: The Tribunal upheld the deletion of the Transfer Pricing addition of ?9.84 crore. The TPO had incorrectly applied the Cost Plus Method, using the assessee's entity-level profit, which included manufacturing and trading activities, to benchmark the commission income. The Tribunal found that the TPO's methodology was flawed and agreed with the CIT(A) that no addition was warranted. 4. Disallowance under Section 35DD for fees paid to Registrar of Companies: The Tribunal allowed the assessee's appeal regarding the disallowance of ?2,10,000/- under Section 35DD, following precedents from previous years where similar grounds were decided in favor of the assessee. 5. Disallowance of expenses on premises: The Tribunal upheld the capitalization of 40% of expenses on premises, consistent with its decision for the assessment year 2004-05, and directed the AO to allow depreciation on the capitalized amount. 6. Disallowance out of Miscellaneous expenses: The Tribunal directed the AO to compute the disallowable amount out of Miscellaneous expenses following the directions given for the preceding two years, where the disallowance was restricted to 15% of the balance expenses. 7. Deletion of addition on account of commission: The Tribunal upheld the deletion of the addition of ?2,84,04,988/- made by the AO on account of commission, consistent with its decisions for the assessment years 2002-03 to 2004-05. 8. Deletion of disallowance under Section 35DDA for VRS payment: The Tribunal remitted the issue back to the AO to allow deduction only towards the incurring of liability under Section 35DDA and not on an actual payment basis, following its decision for earlier years. 9. Allowing deduction under Section 35DD for amalgamation expenses: The Tribunal dismissed the Revenue's appeal against the deduction of ?47,50,536/- under Section 35DD for amalgamation expenses, following precedents from earlier years. 10. Allowing deduction towards provision for warranty: The Tribunal directed the AO to follow the same directions as given for the assessment year 2003-04, allowing the provision for warranty at 0.4% of net sales and disallowing actual expenses. 11. Claim of Education Cess: The Tribunal allowed the additional ground raised by the assessee for the deduction of Education Cess, relying on the judgment of the Rajasthan High Court in Chambal Fertilizers Ltd. and Another vs. JCIT and Another. 12. Claim of Depreciation on capitalized expenses: The Tribunal directed the AO to allow depreciation on the capitalized amount of expenses on premises, following its decision for the assessment year 2004-05. Conclusion: The appeals were partly allowed for both the assessee and the Revenue, with specific directions for fresh determinations and adherence to precedents from previous years. The Tribunal's order emphasized the need for appropriate methods in Transfer Pricing and adherence to judicial precedents in disallowances and deductions.
|
