9911796707
TMI Blog2009 (7) TMI 1270X X X X Extracts X X X X X X X X Extracts X X X X ..... f the assessee and one High Court i.e., Hon ble Punjab and Haryana High Court against the assessee, applying the case law of Hon ble Apex Court in the case of CIT v. Vegetable Products Ltd[ 1973 (1) TMI 1 - SUPREME COURT] , the beneficial view, which is in favour of the assessee is to be adopted. Respectfully following, the above, we allow the claim of the assessee and this common issue in both the appeals of the assessee is allowed. Deduction on the amount of deduction u/s 80IA and 80IB - reduced while calculating the deduction u/s 80HHC - HELD THAT:- In the case of M/s. SCM CREATIONS [ 2008 (3) TMI 223 - MADRAS HIGH COURT] , it is noticed that, the amendment brought out in Chapter VIA of the Act and introduction of section 80IA(9) was not brought to the notice of the Hon ble High Court. The Hon ble Special Bench of Chennai in the case of Rogini Garments [ 2007 (4) TMI 122 - ITAT, CHENNAI] has already considered the case law of J.P. Tobacco Products P.Ltd.[ 1996 (8) TMI 29 - MADHYA PRADESH HIGH COURT] and has also considered the amended provisions of section 80IA(9) of the Act. Respectfully following the Special Bench of Chennai in the case of Rogini Garments (supra), which now st ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n other than just product comparability. The examples provided in the OECD guidelines of Transfer Pricing Guidelines for Multinational Enterprises and Tax Administration has discussed how the CUP method is to be applied. The Hon ble Banagalore Special Bench in the case of Aztec Software Technology Services Ltd. [ 2007 (7) TMI 50 - ITAT BANGALORE] has also held that taxpayer as a party to the transaction has full knowledge of transaction carried out and as a personal associate with that particular line of business, the assessee reasonably accepted to be not only aware about nuisance of that business and but also economic conditions and peculiar situation of that business. The Bench further held that the assessee knew even about the comparable uncontrolled transaction, and therefore it is reasonable to call upon the taxpayer to furnish controlled / un controlled transactions which are within taxpayer s special knowledge. Accordingly, the burden placed on the assessee is not discharged in the present case before us as the assessee has not filed the details before TPO or the Assessing officer. The relevant details, i.e. the transaction carried out of comparable controlled and uncontrol ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e on ALP, the matter in quantum appeal has been set aside to the file of Assessing officer, the penalty cannot survive at this stage. However, the Assessing officer is free to initiate the penalty u/s.271(1)(c) of the Act if the facts warrant so during the course of assessment of set aside proceedings and as per law. Accordingly, this appeal of the assessee is allowed as indicated above. In the result, the appeals of assessee s are allowed for statistical purposes and that of Revenue s appeal is dismissed. X X X X Extracts X X X X X X X X Extracts X X X X ..... ut the profits and gains after allowing the depreciation. It is true that certain Division Benches of the Tribunal have taken the view that for computing deduction under Chapter VI-A also, it is the option of the assessee to claim the depreciation or not to claim. However, when the view canvassed by the Revenue is supportable by the decisions of the Supreme Court, the jurisdictional High Court and other High Courts in the sense that while working out the income for the purpose of Chapter VI-A, the depreciation has to be deducted whether opted to the claimed by the assessee or not; and the view canvassed by the assessee was only supported by the decisions of the Tribunal that it is choice of the assessee as in the case of normal computation of income, it cannot be said that both the views are equally possible or reasonable views. The view, which is supported by the decisions of the Supreme Court, jurisdictional High Court and other High Courts, has to be preferred than the view taken by the Tribunal. Therefore, the depreciation, which is though allowable but not claimed in the return for normal computation of income, has to be allowed while computing the deductions under Chapt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lowing grounds in respective appeals:- "3. The learned CIT(Appeals)-Vs, Ahmedabad, erred in not recognizing New Power Plant as new Industrial Undertaking whose profits are eligible for deduction under section 80IA of the Act." "2. The learned CIT(A) has erred in law and on facts in confirming the action of AO in disallowing the claim of deduction u/s.80IA of the Act on the New Power Plant." 8. At the outset, the Ld. Counsel for the assessee fairly stated that this issue has been decided by the Tribunal in ITA No.3528/Ahd.2004 for the assessment year 2001-02 vide order dated 16-05-2008 against the assessee. We find that the CIT(A) in both the years has relied on the appellate order for the assessment year 2001-02 and decided this issue following the same. However, the CIT(A) in assessment year 2003-04 has also given a finding in para 6.4 of his appellate order 21-11-2006 as under:- "6.8 Thus the issue involved is not that any old machinery was used, but the issue is that no new industrial undertaking came into existence. The above position clearly shows that what has been done in the name of alleged new industrial undertaking is that the assessee has purchased a turbine and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... neration of power what is required is boiler and turbine. Boiler manufactures the steam which is the raw material for turbine. Turbine is independently kept for generating power. The assessee installed new turbine which itself is a new industrial undertaking capable of generating electricity. This turbine can be operated by purchasing steam from outside source but the assessee since had the spare capacity of steam used the same for generating electricity in turbine. It was pointed out that the assessee has charged for consumption of steam at the rate of ₹ 660 per MT. Relying on the decision 107 ITR 195 (SC), it was pointed out that the assessee may establish a new unit for using the product of the old business as its raw material. The business may establish new unit for supplying raw material for its old unit. The assessee may establish a division of its own product as a new unit and the assessee may establish one or more units. It was also pointed out that the AO has presumed that the existing boiler is an integral part of the new plant. There is no transfer of previously used plant and machinery and therefore the question of value of previously used plant being less than 20 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tended that the value of the boiler in any case was less than 20% of the total plant and machinery installed by the assessee. Both the learned AO and the learned CIT(A) could not be able to understand that the power can be generated independently. Thus, it was contended that the assessee was entitled for the deduction u/s 80IA. The learned DR, on the other hand, relied on the order of the AO. 9 We have carefully considered the rival submissions and perused the material on record along with the order of the tax authorities below. The deduction u/s 80IA is available to an assessee where the gross total income of the assessee includes any profits and gains derived by an undertaking or enterprise from any eligible business as referred to in sub-section (4). The deduction shall be allowed an amount equal to 100% of the profits and gains derived from such business for ten consecutive yea Rs. As per section 80IA(4) this section applies to any undertaking which is set up in any part of India for the generation or generation and distribution of power if it begins to generate power at any time during the period beginning on the 1st day of April, 1993 and ending on the 31st day of March, 2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e assessee is already having the undertaking engaged in the business of generating the power. The assessee in this case has merely added a new turbine to the existing undertaking by which his capacity to generate the power has increased. This, in our opinion, is merely an expansion of the existing undertaking. The new undertaking as is eligible u/s 80IA, in our opinion, must be independent and integrated unit which should be able to carry on the activities or to carry on the business as has been stipulated u/s 80IA independently. It is not the case of the assessee that the new unit established by the assessee has taken the boiler from the existing unit for its exclusive use and generation of power. It is only in the existing unit the assessee has added new turbine which, in our opinion, cannot be regarded to be establishing the new undertaking qualifying for deduction u/s 80IA. We, therefore, do not find any illegality or infirmity in the order of the CIT(A) in denying deduction to the assessee u/s 80IA. Thus, Ground Nos.3 and 4 stand dismissed." 9. As the Tribunal has already decided this issue and this being a recurring issue and while deciding this issue, one of the Members, i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uction u/s.80IB is to be allowed only on the profits and gains derived by an eligible undertaking. The expression "derived from" has a definite, but narrower meaning and it can not receive a flexible or a wider concept. Hon'ble Supreme Court in the case of Sterling Foods vs. CIT 237 ITR 579 (SC) have held that profit from sale of import entitlement are not profits derived from industrial undertaking in the case of Pandian Chemicals Vs. CIT 262 ITR 278 (SC) also similar view has been taken. Hon'ble Delhi High Court in the case of CIT Vs. Cement Distributors 208 ITR 355 has also held that deduction u/s.80HH/80I is not allowable on export entitlement. In view of the above judgments, I agree with the AO and accordingly the AO was fully justified in excluding this income of ₹ 3,98,98,792/- while computing deduction u/s.80IB. Therefore, this ground of the appellant is rejected." 12. Now before us the Ld. Counsel for the assessee, Shri J.P.Shah and Shri S.N.Soparkar relied on the case law of CIT v. ELTEK SGS P.Ltd. (2008) 300 ITR 6 (Del) and argued that the case law cited by the lower authorities are relating to Section 80I or 80IA of the Act and not relating to Section 80 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ee. As customs duties and excise duties and admittedly an integral part of the cost of production any receipts by way of reimbursement of such duties are inextricably linked with the cost of production which has to be reflected in the profit and loss account of the assessee and, therefore, the Revenue's argument cannot be accepted" Further, the Hon'ble High Court held as under:- "Consequently, we are of the view that the source of the duty drawback is the business of the industrial undertaking which is to manufacture and export goods out of raw material that is imported and on which customs duty Customs Act, 1962 read with the relevant notification issued by the Central Government in that regard. Learned counsel for the Revenue also drew our attention to Pandian Chemicals Ltd. v. CIT [2003] 262 ITR 278 (SC). However, on a reading of the judgment we find that that also deals with section 80HH of the Act and does not lay down any principle different from Sterling Foods [1999] 237 ITR 579 (SC). In fact, in Pandian Chemicals [2003] 262 ITR 278 (SC) reliance has been placed on Cambay Electric Supply Industrial Co. Ltd. [1978] 113 ITR 84 (SC) and the decision seems to suggest, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the spirit of the Act or the mischief at which it is aimed opens the possibility of liberal interpretation. This finer aspect cannot be narrowly watched. It is that delicate and important branch of judicial power, the concession of which is dangerous but the denial is disastrous. At one stream stands Lord Denning who said : "We do not sit here to pull the language of Parliament to pieces and make non-sense of it. That is an easy thing to do. We sit here to find out the intention of Parliament and carry it out. We do this better by filling in the gaps and making sense of the enactment than by opening to destructive analysis. Viscount Simonds called it 'a naked usurpation of the legislative function under the thing guise of interpretation'". In our opinion, the intention of Legislature is a very slippery phase. When the language of the statute is transparently plain, it is wrong to give it colour according to the temper of time. When the language implied by the enactment is clear, there is no question of interpreting the provisions in any manner except by giving them their plain and obvious meaning. Nebulous concept of the legislative intent cannot be used to curtail the explici ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essee vide para-5 which reads as under:- "5. Following the same, the appeals are allowed to the extent indicated above. Consequently, connected miscellaneous petitions are closed. No costs." From the above referred case law of the Hon'ble Madras High Court in the case of M/s. SCM CREATIONS (supa), it is noticed that, the amendment brought out in Chapter VIA of the Act and introduction of section 80IA(9) was not brought to the notice of the Hon'ble High Court. The Hon'ble Special Bench of Chennai in the case of Rogini Garments (supa) has already considered the case law of J.P. Tobacco Products P.Ltd. (supra) and has also considered the amended provisions of section 80IA(9) of the Act. Respectfully following the Special Bench of Chennai in the case of Rogini Garments (supra), which now stands confirmed by a Five Members Special Bench, Delhi, we are of the view that relief under section 80-IA should be deducted from the profits and gains of the business before computing relief under section 80HHC of the Act. Accordingly, this issue of the assessee's appeal is decided against the assessee and in favour of the Revenue. Accordingly, this issue of the assessee's appeal is dismissed. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urt in the case of DCIT v. Core Health Care Ltd. [2008] 298 ITR 194 (SC) and Munjal Sales Corporation v. CIT And Another (2008) 298 ITR 298 (SC) wherein this issue was decided by following the case law of Hon'ble jurisdictional High Court in the case of DCIT v. Core Healthcare Ltd. [2001] 251 ITR 61 (Guj) even the Hon'ble Apex Court has affirmed the decision of Hon'ble jurisdictional High Court in the case of DCIT v. Core Health Care Ltd. [2008] 298 ITR 194 (SC), wherein it is held as under:- "Interest on moneys borrowed for the purposes of business is a necessary item of expenditure in a business. For allowance of a claim for deduction of interest under the said section, all that is necessary is that, firstly, the money, i.e., capital, must have been borrowed by the assessee ; secondly, it must have been borrowed for the purpose of business ; and, thirdly, the assessee must have paid interest on the borrowed amount (see Calico Dyeing and Printing Works v. CIT [1958] 34 ITR 265 (Bom). All that is germane is : whether the borrowing was, or was not, for the purpose of business. The expression "for the purpose of business" occurring in section 36(1)(iii) indicates that once the test ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ee-firm as on April 1, 1994, was ₹ 1.91 crores, and the profits were sufficient to cover the loan given to a sister concern of ₹ 5 lakhs only, the Appellate Tribunal ought to have held that the loan given was from the assessee's own funds." As the issue is squarely covered by the decisions of Hon'ble Apex Court in the case of Core Health Care Ltd. and Munjal Sales Corporation (supra) , respectfully following the decisions of Hon'ble Apex Court we allow the claim of the assessee and this issue of the assessee's appeal is allowed. 19. The next issues in ITA No.157/Ahd/2007, the appeal of the assessee is as regards to reduce profits of the business on account of sale proceeds of DEPB license while calculating deduction u/s.80HHC of the Act. The assessee has raised the grounds as under:- "10. The Learned CIT(A) has erred in law and on facts in reducing profits of the business on account of sale proceeds of DEPB license while calculating deduction u/s.80HHC of the Act without appreciating the claim of the appellant under the amended provisions of S. 80HHC of the Act. "11. Alternatively and without prejudice, only 90% of the profits and not the entire sale proc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rounds in respective appeals are under:- "8. The learned CIT(Appeals)-V, Ahmedabad erred in confirming the addition of income on account of Transfer Pricing adjustment." "4. The learned CIT(A) has erred in law and on facts in confirming the action of AO in adding ₹ 1,80,62,067/- on account of adjustments to the Arm's length price without there being any jurisdiction as well as legal and factual basis for the same." "5. The learned CIT(A) has erred in law and on facts in confirming the action of AO in invoking the provisions of Chapter X without prima facie demonstrating that there was some tax avoidance." "6. The learned CIT(A) has erred in law and on facts in confirming the action of AO in making a reference to the Transfer Pricing Officer (TOP) u/s.92C(3) r.w.s. 92CA(1) of the Act without providing an opportunity of being heard to the appellant." "7. In any case the whole reference and the consequent orders are bad and illegal because the alleged approval granted by CIT u/s.92C(1) of the Act is vitiated in law firstly because the appellant was not heard before any such approval and secondly because the same has been granted mechanically, without any applicatio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed / paid for property transferred in a comparable uncontrolled transaction or a number of transactions is identified and adjusted, if necessary, to account for differences between the international transaction and comparable uncontrolled transactions which could materially affect the price in the open market. Such adjusted price is taken to be an ALP. In the form No.3CEB there is no reference regarding adjustments made, if any, to the price charged to AE to Non-AE in the comparable uncontrolled transaction. The assessee could not furnish any evidence or supporting documents with regard to the adjustments, that were warranted to determine the ALP. The assessee has furnished product wise details of sales made to AE and non-AE giving the quantum of price charged. These details reflected certain variation in the price charge to AE vis-à-vis non-AE. Since the arm's length price was to be determined each transaction-wise, instances where price charged to the AE was less have been considered. The arm's length price of these transactions was computed considering (+) 5% where the price charged to the AE was less than 5% of the price charged to the non-AE, the same had been considere ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rought on record by the AO carefully. From the order of TPO, it is noticed that the appellant has raised various objections in response to show cause notice, which have been considered by the TPO in para 6 of the order. The appellant has not provided the evidence regarding various reasons given for variations to the TPO. For example, TPO has clearly mentioned that invoices do not indicate the product code or any description indicating that whether it is trial sale or otherwise. It has also been mentioned that where it was claimed that product was sold to AE for introduction in market, it has not been made clear in which part of the world the product was to be introduced. Similarly, for other reasons also no evidence was submitted by the appellant. Another reason given by the appellant is that the volume to the AE was much larger than Non AE and also AE acts as whole seller. This is also not full supported by the date submitted by the appellant. For example, in respect of product code No.456121, the quantity to AE was 2000 kg. while to Non-AE it was 16800 kg. while the price charged from AE is ₹ 397.28 per kg. as against for Non-AE it is ₹ 610.43. Therefore, in spite of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) which is as follows: "(3) The provisions of this section shall not apply in a case where the computation of income under sub-section (1) or the determination of the allowance for any expense or interest under that sub-section, or the determination of any cost or expense allocated or apportioned, or as the case may be, contributed under sub section (2), has the effect of reducing the income chargeable to tax or increasing the loss, as the case may be, computed on the basis of entries made in the books of account in respect of the previous year in which the international transaction was entered into." He further argued that this provision merely lays down that the result of the computation of transfer pricing income should not result into reduction of the total income or increase in the loss computed under the other provisions of the Act, therefore this provision on the contrary supports the assessee because the total income would increase by ₹ 16,49,955/-. This contention was advanced without prejudice to following contentions of the assessee submitting that no addition can be made under transfer pricing provisions. He further argued that all citizens of the country have ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s where for every transaction where the AE according to the TPO is charged less than Non-AE and which has gone in computation of the said amount of ₹ 2 crores plus, but this has been of no avail to TPO because no adjustment has been made. Now, as pointed above, if the adjustments of all these factors come to be made, it will more than make up the addition made by TPO and A.O. He also referred to Section 92CA(4) as amended w.e.f. 01.06.07 is as follows: "(4) On receipt of the order under sub-section (3), the Assessing Officer shall proceed to compute the total income of the assessee under sub-section (4) of section 92C in conformity with the arm's length price as so determined by the Transfer Pricing Officer." According to him, the above provision does not apply to the case of the assessee because the assessment order is passed on 31.03.2005. 92CA(4) as actually applicable to the case of the assessee is … "(4) On receipt of the order under sub-section (3), the Assessing Officer shall proceed to compute the total income of the assessee under sub-section (4) of section 92C having regard to the arm's length price determined under sub-section (3) by the Transfer Pric ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd set at rest judicial and quasijudicial controversies as it must in other spheres of human activity." In view of these arguments, the learned counsel for the assessee prayed to quash the above addition and allow the appeal of the assessee on this issue 24. The facts being similar in the assessment year 2003-04 also, we will take up the arguments made by the learned counsel for the assessee, Shri Soparkar in this assessment year. He started the arguments that Under Sec.92CA(1) of the Act, Learned A.O. who framed the impugned assessment order referred the case of the assessee to Transfer Pricing Officer (TPO for short) for the purpose of framing order under Sec.92CA(3) of the Act. Pursuant to the same, the hearing took place before the TPO from time to time and finally vide his order dated 20.2.2006, TPO made adjustments of the Arm's Length Price in the sum of ₹ 1,80,62,067/-. Pursuant to the said adjustment, the A.O. who framed the impugned assessment order incorporated and added the said sum of ₹ 1,80,62,067/- in the income of the assessee. Shri Soparkar further submitted that as a separate reasoned order is passed by the TPO under Sec.92CA(3) of the Act, a sep ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... th the AEs have been adjusted by the TPO at Arm's Length Price as according to him, the sales transactions with the said AE have been under stated to the tune of ₹ 1,80,62,067/ . He also submitted that before going into the merits of the matter it is necessary to understand the method adopted by the assessee for the purpose of calculating the Arm's Length Price and the reasons behind such adoption. The assessee has adopted Comparable Uncontrolled Price Method (CUP for short) as the assessee was having sales of large number of products to these AE during the year under consideration. Apart from AE, the assessee also sold diversified products to various unrelated enterprises. Therefore considering the complexity of the transactions, product diversity and multiplicity of transactions, the said CUP method was the only practicable method to determine the margins earned by the assessee as a whole which would duly reflect the comparable price in an uncontrolled transaction in the international market, both with AEs as well as unrelated enterprises. Under the said method, the assessee found out the price of a product in an uncontrolled transaction of sale and compare the same ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... below together with the explanation and/or submissions of the assessee: • According to the Learned TPO, Form No. 3CEB ought to have contained all the reasons which the appellant advanced before the ld. TPO during the course of the assessment proceedings. If all the arguments which the appellant advanced before her were not there in the Form CEB, i.e. auditors report, all these arguments are afterthought and cannot be taken into consideration. The appellant submits that CUP method is used as in the said method controlled transactions are being compared with uncontrolled transactions wherein the degree of comparability with uncontrolled transactions is very high. In any case, it is not necessary to give all the reasons or grounds for justification of a particular method in the audit report itself. If it is stated that a particular method is followed because in majority of the cases prices are comparable between AE and non-AEs, the appellant has every right to adopt the CUP method. In few instances, when prices of other comparable cases are not available, the appellant can state that prices charged by it to AE in such cases are ALP. • The Learned TPO contended that who ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... m's Length Price in the hands of the assessee. As stated earlier for the purpose of rejecting the method adopted by the assessee and to substitute the same with another method, it has to be conclusively established by the TPO that the method adopted by the assessee is patently erroneous and the same can never truly and fairly state the Arm's Length Price. In any case while adopting another method or adjusting ALP, it is also necessary on the part of the TPO to establish that why the method selected by her is superior to the method followed by the assessee. In this respect he submitted that Circular No.14 of 2001 issued by the CBDT explaining notes of profits in the Finance Act,2001 dated 22.11.2001 is relevant and therefore the relevant extract of the same is reproduced herein below: Circular No.14/2001 Finance Act, 2001 - Explanatory Notes On Provisions Relating To Direct Taxes. DATE : 22-11-2001 55.3 With a view to provide a detailed statutory framework which can lead to computation of reasonable, fair and equitable profits and tax in India, in the case of such multinational enterprises, the Act has substituted section 92 with a new section, and has introduced n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... decrease in the overall tax incidence in India in respect of the parties involved in the international transaction. 55.6 The substituted new sections 92A and 92B provide meanings of the expressions "associated enterprise" and "international transaction" with reference to which the income is to be computed under the new section 92. While sub-section (1) of section 92A gives a general definition of associated enterprises, based on the concept of participation in management, control or capital, sub-section (2) specifies the circumstances under which the two enterprises shall be deemed to be associated enterprises. 55.7 Section 92B provides a broad definition of an international transaction, which is to be read with the definition of transaction given in section 92F. An international transaction is essentially a cross border transaction between associated enterprises in any sort of property, whether tangible or intangible, or in the provision of services, lending of money, etc. At least one of the parties to the transaction must be a non-resident. The definition also covers a transaction between two non-residents, where for example, one of them has a permanent ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . With a view to avoid unnecessary disputes, the proviso to section 92C(2) provides that in such a case the arithmetic mean of the prices shall be adopted as the arm's length price. In the normal course, if the different sets of comparable data are equally reliable there may not be any significant divergence between the various arm's length prices determined. 55.11 Under the new provisions the primary onus is on the taxpayer to determine an arm's length price in accordance with the rules, and to substantiate the same with the prescribed documentation. Where such onus is discharged by the assessee and the data used for determining the arm's length price is reliable and correct, there can be no intervention by the Assessing Officer. This is made clear by sub-section (3) of section 92C which provides that the Assessing Officer may intervene only if he is, on the basis of material or information or document in his possession, of the opinion that the price charged in the international transaction has not been determined in accordance with sub-sections (1) and (2), or information and documents relating to the international transaction have not been kept and maintained ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e been made clear in the second proviso that income of one associated enterprise shall not be recomputed merely by reason of an adjustment made in the case of the other associated enterprise on determination of arm's length price by the Assessing Officer. 55.14 The new section 92D provides that every person who has undertaken an international transaction shall keep and maintain such information and documents as may be specified by rules made by the Board. The Board may also specify by rules the period for which the information and documents are required to be retained. The documentation required to be maintained has been prescribed under rule 10D. Such documentation includes background information on the commercial environment in which the transaction has been entered into, and information regarding the international transaction entered into, the analysis carried out to select the most appropriate method and to identify comparable transactions, and the actual working out of the arm's length price of the transaction. The documentation should be available with the assessee by the specified date defined in section 92F and should be retained for a period of eight yea Rs. Dur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of an assessee who has entered into an international transaction, any amount is added or disallowed in computing the total income under sub-sections (1) and (2) of section 92, then, the amount so added or disallowed shall be deemed to represent income in respect of which particulars have been concealed or inaccurate particulars have been furnished. However, no penalty under section 271(1)(c) shall be levied where the assessee proves to the satisfaction of the Assessing Officer or the Commissioner (Appeals) that the price charged or paid in such transaction has been determined in accordance with section 92C in good faith and with due diligence. 55.19 The new section 271AA provides that if any person who has entered into an international transaction fails to keep and maintain any such information and documents as specified under section 92D, the Assessing Officer or Commissioner (Appeals) may direct that such person shall pay, by way of penalty, a sum equal to two per cent. of the value of the international transaction entered into by such person. 55.20 The new section 271BA provides that if any person fails to furnish a report from an accountant as required by section 92E, th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ons required to be made in application of a method. In view of the above Rule, the Ld. Counsel for the assessee stated that it is very apparent that for the purpose of Sec.92C(1), most appropriate method shall be the one which is best suited to the facts and circumstances of each particular international transactions and which provides the most reliable measure of Arm's Length Price in relation to the international transactions. He further submits that the perusal to the provisions of transfer pricing makes it abundantly clear that no method is given preference over another method. In fact rules provides different criteria from Clauses-(a) to Clauses-(f) and based on the same, most appropriate method shall have to be determined by the assessee first and approved by the TPO later. He further submitted that even in CUP method, the mechanism for calculating Arm's length price is as follows: (a) comparable uncontrolled price method, by which, :- (i) the price charged or paid for property transferred or services provided in a comparable uncontrolled transaction, or a number of such transactions, is identified; (ii) such price is adjusted to account for differences, if any, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and AEL. The transaction with both the AEs have been adjusted by the TPO at Arm's Length Price, reason being the said transaction with these AEs have been understated to the extent of ₹ 1,80,62,067/-. For this purpose, the assessee has opted for CUP method as the assessee was having sales of large number of products to these AEs during the years under consideration. The assessee, apart from the AEs, also sold diversified products to various other enterprises who are not related to the assessee. The assessee in view of these facts, opted for CUP method, considering the complexity of the transactions, product diversity and multiplicity of transactions, and this was only the practicable method to determine the profits earned by the assessee, as a whole, as well as to the transactions to which the comparable price applies in an Uncontrolled transactions in the International market, both the AEs as well as non-AEs. The assessee claimed during the course of hearing before TPO, before the AO during the course of assessment proceedings and before CIT(A) submitted the details of price charged to AEs and non-AEs and the reasons for variation. The same details were even produced before ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hod. We are of the view that the CUP method compares the price charge for property transferred in a controlled transaction to the price charged for property transferred in a comparable uncontrolled transaction in comparable circumstances. If there is any difference between the two prices, this may indicate that the conditions of the commercial and financial relations of the associated Enterprises are not at arm's length and, that the price in the uncontrolled transaction may need to be substitute for the price in the controlled transaction. In the cases, where controlled and uncontrolled transactions are comparable, then regard should be had to the effect on price of border business function other than just product comparability. The examples provided in the OECD guidelines of Transfer Pricing Guidelines for Multinational Enterprises and Tax Administration has discussed how the CUP method is to be applied. The relevant para 2.10 to 2.13 read as under:- "2.10 The following examples illustrate the application of the CUP method, including situation where adjustments ma need to be made to uncontrolled transactions to make them comparable uncontrolled transactions. 2.11 The CUP met ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ), Bangalore (2007) 107 ITD 141 (Bang) ((SB) has held that the burden to establish that international transaction carried by the assessee is at ALP is on the taxpayer. The Special Bench held as under:- "127. Having regard to above statutory provisions, it is clear that burden to establish that international transaction was carried at ALP is on the taxpayer. He has also to furnish comparable transactions, apply appropriate method for determination of ALP and justify the same by producing relevant material and documents before the Revenue authorities. In case Revenue authorities are not satisfied with the ALP and the supporting documents/information furnished by the taxpayer, the authorities have ample power to determine the same and make suitable adjustments. In such a situation, as rightly admitted in the ground of appeal by the Revenue, this responsibility of determination of ALP is shifted to the Revenue authorities who are to determine the same in accordance with statutory regulations. 128. There is criticism that legislature is not justified in placing onerous burden on the taxpayer to maintain detailed documents and to justify that transaction was carried at ALP. It is co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... this menace. We quote below the position of "burden of proof" in some of important countries; it being not possible and practical to note in full details of provision of all the countries. This information is being extracted from Commentaries on Transfer Pricing, 2006 published by Price Water House : "Burden of proof Denmark The question of burden of proof has been one of the most important issue in relation to the development of transfer pricing in Denmark. In the Texaco and BP Denmark Court cases the High Court and Supreme Court confirmed that the burden of proof lies with the tax authorities and that the taxpayer is required to disclose information relevant to the question of whether the arm's length principle has been violated. This information would include items such as prices and gross profit earned by the parent company when dealing with other group companies and with unrelated custome Rs. Where this information is not disclosed, the Court concludes that the burden of proof on the Danish tax authorities is reduced. France As a rule, the burden of proof lies with the tax authorities, unless the transfer of profits concerns a tax haven, in which case the burden ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... an alteration of the incidence of tax in Malaysia. Netherlands As indicated previously, there is a legal obligation for the taxpayer to maintain certain transfer pricing documentation. To the extent that this requirement is not met, the burden of proof is ultimately transferred to the taxpayer. In general, there are no statutory provisions to indicate how the burden of proof is divided between the taxpayer and the tax authorities. The allocation of the burden of proof between the parties is at the discretion of the Court. However, in practice and as a result of Dutch case law, if the company ' s revenue is adjusted upwards because of transfer pricing issues, the burden of proof usually lies with the tax authorities. On the other hand, the burden lies with the taxpayer to prove the deductibility of expenses. In transfer pricing cases the burden of proof transfers to the taxpayer if the pricing arrangements are very unusual, for example if comparable uncontrolled prices (CUP) are available but not used, or goods or services are provided at cost or below cost. The burden of proof is also transferred to the taxpayer, and will be more onerous, if s/he refuses to provide information req ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g from related party transactions. This is specifically also true with regard to licence fees charged to a Swiss entity or support and defense of low profits in connection with limited risk type entities. United States Non-US tax authorities and practitioners alike have tended to be critical of the level of detail included in the US regulations and procedures. However, in considering the US regime, it is important to bear in mind that unlike many of its major trading partners, the US corporate tax system is a self-assessment system where the burden of proof is generally placed on the taxpayer, and where there is an adversarial relationship between the Government and the taxpayer. This additional compliance burden is not unique to the field of transfer pricing." 131. Similar provisions are available in the laws of other countries. It would be seen that even a most advanced country like United Kingdom has provisions placing on the taxpayer the burden of proving that international transaction is carried at ALP. 132. A dispassionate study of provisions of various countries on burden of proof, would show, the following fundamental features : (i) That the burden to establish t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f international transaction, income has to be determined having regard to ALP. Therefore, unless ALP furnished by the taxpayer is specifically accepted, the appellate authorities on the basis of material available on record have to determine ALP itself. Subject to statutory provisions, appellate authorities can direct lower Revenue authorities to carry this exercise in accordance with law. The matter cannot be left hanging in between. ALP of international transaction has to be determined in every case. 134. There would be cases, where taxpayer does not co-operate and fails to furnish ALP or disclose full information, relevant for determination of ALP when called upon to do so by tax authorities. The taxpayer fails to discharge burden placed on the taxpayer. In similar enactments of other countries, it is provided that burden on the Revenue authorities in such a case would be reduced. We have not come across similar provision in Chapter X of the Act. The tax authorities therefore, have to resort to provision of s. 144 of the IT Act and determine the ALP on the basis of the material collected or available on record. In such circumstances, the ALP determined would be on the parity ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... CIT has also been challenged as mechanical and illegal. Such an objection has also been raised in the grounds of appeal. While answering seven questions referred to the Special Bench, we have discussed this objection relating to approval of CIT in detail. In the light of above discussion, we do not find any substance in the technical objections raised by the assessee and accepted by the learned CIT(A) in the impugned order. It is further to be noted that in the audit report filed by the taxpayer in Form No. 3CEB it was stated that the taxpayer had paid ₹ 28,32,20,103 to Aztec US towards onsite software services. Likewise sum paid for marketing services was also stated. Taking above details from the audit report, a reference was made by the AO to TPO to determine ALP of international transactions. The taxpayer and TPO had fully and clearly understood what international transactions were referred for the determination of the ALP. In the light of Circular No. 3 of 2003, approval was rightly given by the CIT as aggregate value of transactions exceeded ₹ 5 crores. The circular being binding was required to be followed. The taxpayer filed all conceivable objections before the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the light of the above observations. This mater is set aside in the entirely to the file of the AO of this issue. Now we shall take up assessee's appeal in ITA No.253/Ahd/2008 & Revenue's appeal in ITA No.951/Ahd/2008 both A.Y. 2002-03. 31. The only issue in these appeals of the assessee and of the Revenue is regarding partly upholding the penalty levied by the Assessing officer u/s.271(1)(c) of the Act. The assessee has challenged the upholding the penalty on the disallowance of claim u/s.80IA and addition of transfer pricing difference of ALP. For this the assessee has raised the following grounds:- "1. The C.I.T.(Appeals) erred in upholding the penalty under sec. 271(1)(c) on a disallowance of claim under sec.80IA amounting to Rs. s12,91,95,094/- and on account of addition of transfer pricing difference amounting to ₹ 2,02,39,798/- 2. The CIT(Appeals) ought to have allowed the appeal of the assessee praying for quashing of the total penalty. 3. The C.I.T.(Appeals) failed to appreciate that the Assessing officer had not recorded his satisfaction during the course of assessment proceedings for levy of penalty under sec. 271(1)(c) and also the fact that the notice ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ower. As discussed earlier, as per the C.A's certificate which has been reproduced in earlier pat of the order, which was taken out of assessment order, that this power plat was an old plant. Apart from that it is apparent that turbine in itself cannot be said to be a new power plant, therefore, the claim of deduction u/s.80IA was simply with a view to reduce the incidence of tax and the Assessing officer after investigation of the issue as rightly come to the conclusion that the same cannot be termed as new power plant. This ground is therefore dismissed." We further find that this issue is recurring from earlier years and the Tribunal in assessee's own case for assessment year 2001-02 in ITA No.3528/Ahd.2004 has held against the assessee by discussing the facts as under:- "7.Ground Nos.3 and 4 relate to the claim of the assessee for deduction u/s 80-IA in respect of new power plant. The assessee claimed that during the year he has established the new power plant and accordingly claimed the deduction on that power plant u/s 80-IA of the Act. When questioned by the AO, the assessee vide letter dated 9/3/2004 pointed out that for generation of the power what is required is tur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ue. I find that no industrial undertaking came into existence within the provisions of Section 80IA by transferring the boiler or by installing new machinery for the purpose of generation of power for factory consumption. I find that this is nothing but an exercise to claim deduction to reduce taxable profits. I also find that the power plant is not capable to run independently and is dependent on the transfer of steam etc. from the existing plant. I therefore hold that the appellant is not entitled to claim deduction u/s 80IA on new power plant amounting to ₹ 15,68,40,556/-. This ground of appeal is therefore rejected." 8 Before us, the learned AR vehemently contended that the installation of a new turbine is a new Industrial Undertaking capable of generating electricity. This undertaking is being run independently. Merely that the assessee was using the steam as raw material from the existing boiler does not mean that a new Industrial Undertaking has come into existence. The assessee could have bought the steam from outside also. The power and plant is a separate unit from the boiler. Therefore, the assessee should have treated new turbine to be an Industrial Undertaking ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e turbine which was already in existence and the new one established by the assessee. The claim of the assessee is that the new turbine established by him itself is a new undertaking engaged in the business of generating the power. New turbine itself cannot generate power until and unless the steam is provided to it through boiler. An undertaking which is eligible for deduction u/s 80IA, in our opinion, must itself be an independent undertaking and should be able to carry out the activities for which it has been established. The new turbine established by the assessee cannot itself generate the power. The undertaking so that it may generate the power will be complete only when both new turbine and the boiler are installed. The assessee has not installed boiler but it is part of existing undertaking generating the power. This, in our opinion, is merely an expansion of the existing undertaking. If the existing boiler is carved out from the new turbine installed by the assessee, the new turbine claimed to be eligible undertaking itself cannot generate the power. No material or evidence was brought to our knowledge which may prove that the new turbine installed by the assessee can inde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the boiler would have been either purchased from outside agency as a fuel or like it has been done it would take the same from the in house boiler and used it as fuel. There was no question of this being considered as a part of the turbine as a new Industrial Undertaking for the purposes of granting deduction under section 80IA. In view of the above explanation, the assessee has stated in his explanation that very same Assessing officer had scrutinized the return for assessment year 2001-02 and had made disallowance of the assessee's claim and hence, was aware about the legal stand of the assessee. The assessee is merely canvassing the same stand in the subsequent assessment year ie. Assessment year 2002-03 and hence, there is no question of any concealment or filing of inaccurate particulars in the return of income. The assessee also put the certificate of the chartered Accountant as required u/s.80IA(7) of the Act which also clearly demonstrate the bona fide of the assessee in making this claim. In view of the above explanation of the assessee, we find that that it is a difference of opinion on legal point of view and the assessee's explanation has never been held to be false and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al cost of assets because claim of depreciation had become mandatory. This disallowance, is basically for the reason that after allowing depreciation in A.Y. 2001-02, the WDV had reduced and claim of the assessee for this year was reduced. Since the earlier year's claim of the assessee that no depreciation was to be allowed was based on a legal decision, hence the issue in that year was debatable. This year, the claim has been disallowed because WDV has changed and the assessee cannot be fastened with liability of penalty for this disallowance because the disallowance is because of change in WDV on account of allowance of depreciation in A.Y. 2001-02, the order in which the assessee did not choose to claim depreciation on the basis of various judicial pronouncements. Since this issue was highly debatable, mere disallowance of depreciation due to change of WDV would not automatically result in levy of penalty. Therefore, penalty in respect of excess claim of depreciation is not leviable at all." 38. We find from the above that the CIT(A) has deleted the penalty on the premise that this disallowance of depreciation is basically for the reason that after allowing depreciation in ass ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
