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TMI Blog2016 (10) TMI 522X X X X Extracts X X X X X X X X Extracts X X X X ..... r 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 b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... issioner of Income Tax, Corporate Circle 5(1), Chennai dated 29.01.2016 for the assessment year 2011-2012 passed u/s.143(3) r.w.s. 92CA and 250 of the Income Tax Act, 1961 (herein after referred to as the Act ). Since the issue in these appeals are common in nature, these appeals are clubbed, heard together, and disposed of by this common order for the sake of convenience, first, we take up assessee appeal in ITA No.786/Mds/2016 of assessment year 2011-2012 for adjudication. 2. The assessee has raised the following grounds of appeal:- 1. For that the direction of the Dispute Resolution Panel is contrary to law, facts and circumstances of the case. 2. For that the Dispute Resolution Panel erred in confirming the Downward adjustment to the tune of _ 2,95,08,102/- on payment of Royalty to AE for use of Technical Know-how for manufacture of Wind Electric Generator. 3. For that the Dispute Resolution Panel erred in confirming the action of the Assessing Officer in disallowing the expenditure incurred towards Corporate Social Responsibility amounting to ₹ 4,25,916/- u/s 37(1) without appreciating the fact that the amendment u/s 37(1) in this regard is p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of Royalty to the Associate Enterprises (Associated Enterprise) for use of technical knowhow for Manufacture of Wind Electric Generator. The assessee has a Associate Enterprises M/s. Regan Renewable Energy Generation Global Limited and the amount of =9,87,05,926/- was paid as Royalty for knowhow for manufacture and supply of gearless WEC in India and the assessee entered into Royalty agreement for use of technical knowhow. Further, the knowhow is originally developed by Vensys Germany as in turn sub-licensed to Regen, Cyprus. As per the agreement, the assessee followed TNMM method for calculating Arms Length Price (Arms Length Price). As per the agreement M/s. Regen India shall pay 12,50,000 Euro to licensor on signing of the agreement and there is a difference in payment of Royalty in respect of sales within India and outside India. The assessee on usage of technical knowhow in the relevant period has paid a Royalty of =9,87,05,926/- to Regen Cyprus. In the assessment proceedings, ld. Assessing Officer referred to the Transfer Pricing Officer and based on Royalty payments, the TPO made downward adjustment by restricting payment of Royalty to Regen Cyprus to the extent of =6,92,00 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as relied on many of the above decisions to hold adjustment by TPO was erroneous. With respect to ITANo.1408/Hyd/2010 for the AY. 2006- 2007 the facts are identical and hence the conclusions drawn in ITANo.1159/Hyd/2011 have to be applied. Further, the learned Counsel for the assessee had also invited our attention to page 53 wherein the operating cost has been declared at ₹ 98,61,88,320/- and the same has been reflected in the P L account for the year ending 31st March, 2005 at page 234 of the paper book. At page 245 of the paper book under 'Selling Expenses' the amount of ₹ 2,02, 94,565/- against royalty has already been taken into account. Hence, we find that royalty has been already considered and factored in and hence, the Assessing Officer's order has to be dismissed as unjustified. Since, [TAT find force in the arguments of the learned Counsel, ITAT allow the appeal of the Assessee ITA No. 1408/Hyd/2010. Hence, following the ratio of the Honb'le Delhi High Court in CIT vs. EKL Appliances (supra) and various other decisions as noted above and given the facts and circumstances of the instant case, ITAT hold that the addition made by the TPO and uph ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d. Assessee's ground allowed. In absence of excess payment made of royalty by assessee than approved by SIA, disallowance by way of TP adjustment is not justified . In the case of Global Vantedge (P) Ltd vs. DCIT 1 ITR 0326 it was held that Order of CIT(A) on the point of determination of the arm's length price in respect of the transactions entered into by the assessee with its AE on the basis of average operating margin of comparables method is upheld, and rival contentions raised by assessee as well as cross appeal by Revenue on this issue are rejected for the asst. year 2003-04; similarly for asst. yr. 2004-05, while working on same basis, the resultant ALP derived was lower than book value of the international transaction as declared by assessee, therefore, book value of the international transactions accepted to be at the arm's length price and consequently, entire addition of ₹ 5,22,28,112 deleted by CIT(A) was upheld . In the case of ACIT vs. Kehin Panalfa Ltd, the Delhi Tribunal held that Besides similar issue of royalty payment is decided in favor of the assessee is decided by the ITAT in the case of Lumax Industries Ltd. [2013- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y 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. 5. The second ground raised by the assessee is that the DRP has erred in confirming the action of the ld. Assessing Officer in disallowing expenditure incurred on Corporate Social Responsibility =4,25,916/- under Residual Sec.37(1) of the Act and were the amendment is prospective in nature. 5.1 The assessee has claimed expenditure of =4,52,916/- as Corporate Social Responsibility debited under the head miscellaneous expenses. In reply to show cause notice issued by the ld. Assessing Officer, the assessee filed letter dated 24.03.2015 explaining the nature of assessee company contribution and its social responsibility initiatives to foster a bet ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ment 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 313 ITR 334. 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. 6. The third ground raised by the assessee is that DRP has confirmed the addition of =7,09,35,162/- subsidiary received from Andhra Pradesh Government was reflected in the profit and loss account and claimed as Capital receipt while computing total income. 6.1 The ld. Authorised Representative explained that the company has accounted subsidiary in the Books of account for Income Tax purpose and it is capital in nature and not taxable. The objects of the scheme is to promote industrialization of the rural areas of the states and setting up of industry at the conceptualization stage. The letter of intent granted before setup for implementation of granting of incentive and the e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has held in the case of Ford India (P) Ltd vs. DCIT (2013) (156 TTJ 1) that assessee received capital subsidy under a scheme for accelerating industrial development in State, same could not be taxed as a Revenue receipt. Further in the case of DCIT vs. Reliance Industries Limited (2004) (88 ITD 273) (Mum) (SB) it was held that if subsidy was given for expansion/setting up of industry in backward area, it will be capital irrespective of modality or sources of funds through from which it is given and the in the case of CIT vs. Chaphalkar Brothers (33 Taxmann.com 431) it was held that the purposes for which subsidy is given is relevant factor and if object of subsidy is to enable assessee to set up a new unit then receipt of subsidy will be on capital account and the purpose of issue of subsidy plays a very relevant role and were the subsidy is for setup of new unit and in the nature of a capital receipt provided for expansion or setting up of unit of industrial backward area. Subsidy is exempted from tax based on the modality or sources of funds and relied on the decision of DICT vs. Reliance Industries Limited 88 ITD 273 (Mum) (SB). The assessee received capital subsidiary un ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 159 of the paper book 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, and relY on decision of Shree Balaji Alloys vs. CIT (2011) 198 Taxmann 122 (J K), subsequently Hon ble Supreme Court has upheld the decision in Civil Appeal No.10061/2011, dated 19.04.2016 by dismissing the Revenue appeal. We respectfully following the Supreme Court decision and 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. 7. The fourth ground raised by the assessee is that the ld. Assessing Officer disallowed provisions for operation, maintenance and warranty were the assessee has provided =18.65 crores in Books of account on account of provision for warranty. 7.1 The assessee has filed explanations that the comp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tively 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. 8. The last ground raised by the assessee is on Non grant of TDS credit to the extent of =68,45,307/-. 8.1 The ld. Assessing Officer while passing the order denied TDS credit in the tax liability without mentioning any reasons. The ld. Assessing Officer probably has not granted TDS credit as this information was not updated or non available of TDS credit in form 26AS issued by M/s. Regen Infra(P) Ltd. We considering the apparent facts and the TDS credit available with the assessee, direct the ld. Assessing Officer to verif ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ach Minerals Company (P) Ltd vs. ACIT in ITA No.2110 2188/2014 and prayed for allowing the appeal. 9.4 We heard the rival submissions, perused the material on record and judicial decisions cited. The crux of the issue being the assessee has made investments in subsidiary/sister companies and the contention that own funds are generated out of business and no borrowed funds were utilized for the purpose of investments. Further, investments in subsidiary/sister company shall not be considered for the purpose of calculation of disallowance under Rule 8D(2). The ld. Authorised Representative drew our attention to the statement of details of subsidiary group companies and the investments reflected in financial statements and relied on judicial decisions. The assessee company made investments in these companies on Business expediency and no income has been generated by sister/group companies and also shareholding pattern varied from company to company. The provisions of Sec. 14A r.w.r. 8D are mandatorily applicable from assessment year 2008-09 but while calculating the disallowance u/sec. Rule 8D(2), the ld. Assessing Officer shall consider that the investments in subsidiaries are ma ..... X X X X Extracts X X X X X X X X Extracts X X X X
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