9911796707
TMI Blog2016 (10) TMI 522X X X X Extracts X X X X X X X X Extracts X X X X ..... lution 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 Rs. 4,25,916/- u/s 37(1) without appreciating the fact that the amendment u/s 37(1) in this regard is prospective in nature. 4. For that the Dispute Resolution Panel erred in confirming the action of the Assessing Officer in adding the subsidy of Rs. 7,09,35,162/- received from Andhra Pradesh Government treating the same as revenue receipt without appreciating the fact that the amendment u/s 2(24)(xviii) in this regard is prospective in nature. 5. For that the Dispute Resolution Panel erred in confirming the action of the Assessing Officer in disallowing the provision for operation, maintenance and warranty debited to Profit and Loss Account to the tune of Rs. 29,68,000/- stating that the same is exces ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . 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 =6,92,00,000/- only and excess treated for the purpose of addition and the assessee filed objections with the DRP against Assessment order. 4.1 The Dispute Resolution Panel has confirmed the order of the Assessing Officer/Transfer Pricing Officer. Aggrieved by the order, the assessee assailed an appeal before Tribunal. 4.2 Before us, the ld. Authorised Representative submitted that as per agreement the Royalty is computed based on number of units sold and not on percentage of net sale. The rate of royalty computed after excluding the brought out items being 1.14% as against the Arms Length Price (4.61) as per Transfer Pricing Report. Under ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n 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 upheld by the DRP is unsustainable and is to be deleted. Hence Ground No. 2 is held in favour of the assessee. Hence, the appeal of the Revenue ITANo.l040/Hyd/2011 is dismissed and Assessee's appeal in ITA No. 1159/Hyd/2011 is allowed. No disallowance can be made towards payment of royalty if payments exclusively made for purpose of trade. In the case of Akzo Nobel Chemicals (India) Ltd. vs. DCIT in ITA No.1477/PN/2010, the Pune Bench held that 'Tribunal in assessee 's own case vide ITA No.1477/PN/2010 and ITA No.1659/PN/2011 dated 11.02.2014 held methodology adopted by Revenue to rework net sales value for purposes of computing royalty payabl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt 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 Rs. 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- TII-123- ITAT-DEL- TP} holding that: "Payment of royalty was being claimed and allowed right from 1984 to Assessment Year 2003-04, as business expenditure of the Assessee and no new circumstance has been pointed out by either of the authorities below to hold that in the years thereafter, the benefit accrued to the Assessee by the payment of such royalty has dried up. ITAT aforesaid view is fortified by the aforesaid judgment of Lumax Industries (supra). Since the Royalty was being paid from 1997 and was continuously examined by the AO, then in the absence of any new facts to hold that there was no need to pay the royalty was uncalled for. and prayed for allowing the appeal. 4. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... orporate 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 better future for children in neighborhood communities, by significantly strengthening the social institutions that generally influence well being of children, Family, school and community in general which are strategic areas of focus of the Company. The ld. Assessing Officer considered the submissions and nature of expenses incurred for business purpose is of the view that expenditure incurred towards corporate social responsibility is for non business purposes and not as per the scheme envisaged under Income Tax Act to encourage the assessee company to conduct activities for Benefit of Society and ignored the purpose of expenses incurred for social cause and alleged that they was not incurred for the pu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 eligibility to receive incentive depends upon the setting up of industries in backward area and commencing production being eligible for incentive under the policy and this subsidy was granted on satisfaction of certain eligibility of minimum capital investments and relied on judicial decisions. But the ld. Assessing Officer considered the object of the company and is of the opinion that it is only a refund of VAT liability and being in the nature of supplementary trading receipt and elaborately dealt at page 8 & 9 of his order and finally considered the subsidy as Revenue receipt and made an addition. Aggrieved by the order, the assessee filed an appeal before Dispute Resolution Panel. 6.2 The Dispute Resolution ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eceipt 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 under a scheme for accelerating industrial development in the State and same could not be taxed as a revenue receipt. Further, the decision relied by the ld. Assessing Officer based on Sahney Steel & Press Works is clearly distinguishable and subsidiary is not linked to investments. Further, in the case of CIT vs. Pooni Sugars & Chemicals Ltd (129 Taxmann 231) the purpose of subsidiary needs to be considered not the source or form of subsidy. In the case of excise, laws Refunds are given as subsidy for the purpose of setting up or expansion of industries would amount to capital receipt in the hands of the industrial unit even though it was received after commencement of operations. Further any subsidy granted to project ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sing 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 company is in the practice of creating the provisions for operation, maintenance and warranty to cover expected expenditure on serving failed parts of WEG over the period of warranty and during the current year the company has created such provision. In Business operations chartered engineer estimated the cost at =1,31,000/- per machine whereas the assessee has claimed =1,50,000/- per machine. Therefore, difference of =19,000/- per machine is disallowed by the ld. Assessing Officer as excess provision aggregating to =46,33,000/-. The assessee filed letter dated 31.03.2015 explaining that in earlier assessment year there is a disallowance of =16,65,000/- on account of difference in valuation certificate and actual provision. Hence ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he 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 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. 9. Now, we take up Departmental appeal in ITA No.766/Mds/2015:- 9.1 The ld. Assessing Officer by applying the provisions of Sec. 14A r.w.r 8D has disallowed =1,20,83,593/-. The assessee company has made investments in Indian Subsidiary Renewable Energy Generation Private Limited =11,55,00,000/- and Regen Renewable Energy Generation Global Ltd (foreign company) =24,12,49,000/-. The ld. Assessing Officer computed disallowance u/sec. 14A r.w.r 8D (2) on second and third ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sions. 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 made in ordinary course of business. We found that there are no findings in the assessment order on this subsidiary/group companies which are considered as investments for calculating disallowance u/sec. 14A r.wr.8D(2) and rely on the Co-ordinate Bench decision of M/s. Rane Holdings vs. ACIT, Chennai in ITA No.115/Mds/2015, dated 06.01.2016 were it was held as under:- ''Taking note of the above decisions and the decision of the Chennai bench of the Tribunal in ITA No.156/Mds/13 cited supra, we hereby remit the matter back to the file of Ld. Assessing Officer to examine the issue involved in this case afresh and pass appropriate order as per law and merits and in the light of the decisions cited herein above. While doing so, we also direct the Ld. ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
