9911796707
TMI Blog2018 (5) TMI 797X X X X Extracts X X X X X X X X Extracts X X X X ..... 2008 whereas the due date for filing return was 30-09-2008 - return was uploaded belatedly - The reason given is that the computer got infected and it took some time to set it right so that assessee could upload the entire data - Held that:- The reasoning for delay given is supported by a certificate from a computer specialist, who attended to the problem. Since the audit was completed on 02-09-2008 which was not doubted by the Revenue, there is no reason why assessee should postpone the uploading of the return, when all the information was ready. Therefore, the explanation given that the computers got infected is a reasonable explanation given in the circumstances. We are of the opinion that the delay in filing the return is not an intentional delay but beyond the reasonable control of assessee. Also assessee was also claiming deduction in earlier years and following the principles laid down in the case of Visu International Limited Vs. DCIT [2011 (7) TMI 1161 - ITAT HYDERABAD], the deduction u/s. 10B cannot be denied in the subsequent year without a valid reason. - Decided in favour of assessee. Disallowance u/s 36(1)((v)/(va) - contribution to PF - Held that:- There is no distin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ction u/s. 10B also may have to vary accordingly. With these observations/directions, the grounds on this issue are set aside to the file of AO for fresh examination. Disallowance of depreciation on computers - Held that:- Since the evidence was not furnished before the AO/DRP to establish that assessee has purchased computes and software, it is necessary to examine the transaction of purchase and sale in the hands of those companies, stated to be group concerns by the AO and clear finding should be given whether these transactions of sale of computer software are recorded by those companies and if so, the nature of purchase of computers and software by that company. Therefore, we are of the opinion that this issue also required to be examined by the AO afresh. X X X X Extracts X X X X X X X X Extracts X X X X ..... ere interest free and they were given for the purpose of expansion of business activities of its AEs. Assessee did not charge any interest on the advances given to its subsidiaries. The TPO was of the opinion that since assessee has obtained bonds with interest, assessee should have charged interest on advances given to the subsidiaries. After detailed discussion and rejecting the assessee's contentions, the TPO determined the yield on B rated bonds at 20% and taking that as basis, assessee's bonds were rated BB rated bonds and arrived at the interest rate of 17.26% which assessee should have charged on the advances given to the subsidiaries. Accordingly, the TPO has proposed the following adjustments under the provisions of transfer pricing. Rs. a. Bartronics Asia Pte Ltd., Singapore 6,45,88,574 b. Bartronics America Inc., USA 5,22,47,593 4.1. TPO proposed an adjustment of ₹ 11,68,36,167/-. Assessee raised objections before the DRP and submitted that the source of the funds advanced to the subsidiaries are proceeds of FCCBs which are obtained with the purpose of acquisition and expansion of business. The money was raised as equity with Zero coupon rate of interest and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Exchange Management Act 1999. Under this Act, the Reserve Bank of India has notified the regulations known as 'Foreign Exchange Management (Transfer or Issue of any Foreign Security) Regulations - 2004' Under Rule 5 of these regulations no person resident in India shall make any direct investment outside India without prior approval of the RBI. Up to 400% of net worth of an Indian Party can be invested in a wholly owned subsidiary in automatic route but such an Indian Party has to comply with the Rule 15 of the regulations. Under Rule 6 the Indian Party has to submit the prescribed documents relating to investment in wholly owned subsidiary to the designed branch of an authorized dealer. Under Rule 15 of these regulations an Indian entity investing in an entity outside India needs to produce share certificates or any other document as an evidence of investment in the foreign entity to the satisfaction of the Reserve Bank within 6 months. Thus, under these regulations, firstly, the tax payer has to intimate the Reserve Bank of India / Authorised Dealer before remitting the share capital to its AEs. Thereafter, within six months, the tax payer has to produce the share certificates in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e not allotted. It was further submitted that as per the business plan proposed, assessee raised FCCBs for 50 Mn. US$ and 25 Mn. US$ with a purpose to invest in the subsidiaries of assessee-company. It was clearly stated in the annual report for the AY. 2008-09 that the proceeds of the FCCB will be utilised for the purpose of expansion of its activities in India and abroad. It was further submitted that subsidiary company was not in a position to allot the shares as the process of investment by that company was not complete- the process has taken longer time and ultimately, shares were allotted on 30- 09-2012. This indicates that assessee has always intended to make equity investments. It was submitted that on TPO/DRP's observation that the amounts were shown under 'loans and advances', assessee has to show the same under the Companies Act as the shares were not allotted but this fact cannot be held against it as ultimately shares were allotted. 5.1. It was further submitted that since the intention was to make investment as an equity investment, the provisions of Section 92CA will not be applicable as the transaction cannot be regarded as international transaction. In support, it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ch was given on similar facts. 6. Ld.DR in reply, however, referred to various annual reports and other documents of assessee as well as the subsidiaries to submit that these amounts were advanced as loans only and nowhere the intention to allot shares was mentioned. Since there is no share application money or as not shown under the head 'investments', these amounts are purely in the nature of loans and advances. Assessee being a listed company, under the mandatory disclosure as per Clause- 32 of the listing agreement with a stock exchange, it has consistently declared the nature of these amounts as 'loans and advances'. It was further submitted that recipient of these amounts i.e., both the subsidiaries were consistently declared the receipt as a loan from holding company. In view of that, it was submitted that both assessee as well as subsidiaries have treated the amount as loans and advances in the impugned assessment years and the contention that these are share application money is only an afterthought and is not based on any fact or evidence. Relying on the explanation to Clause-I, Sub-Clause-C, Ld.DR submitted that the transaction of advances is an international transactio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and the decision is not based on true and full disclosure by the assessee. The fact that treatment of advance as loans is brought on record for the first time before the Bench now and the AY 2012-13 was decided prior to deciding the issue in AY. 2008-09, it was the first year when money was transferred to the subsidiaries. Thereafter, Ld. DR elaborately distinguished that decision and finally relied on the principles of Res Judicata which do not apply to the income tax proceedings and relied on the judgment of Hon'ble Supreme Court in the case of Radhasoami Satsang Vs. CIT [193 ITR 321] (SC). Ld.DR distinguished the case law relied on by assessee to submit that in all those cases, the amounts were invested as share application money and so they are not applicable. 7. In reply, Ld.Counsel submitted that there is no dispute showing the amounts as 'loans and advances' but it was only the intention behind advance which is material. It was submitted that foreign funds are obtained specifically for expansion through its subsidiaries and the intention was really established at the time of raising the funds and also undertakings given to various authorities for necessary permissions. It w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dents, in the nature of purchase, sale of lease of tangible or intangible property, or provision of services, or lending or borrowing money, or any other transaction having a bearing on the profits, income, losses or assets of such enterprises, and shall include a mutual agreement or arrangement between two or more associated enterprises for the allocation or apportionment of, or any contribution to, any cost or expenses incurred or to be incurred in connection with a benefit, service or facility provided or to be provided to any one or more of such enterprise". Explanation was introduced by the Finance Act, 2012 w.e.f. 01-04-2002 clarifying retrospectively that capital financing is also forming part of international transactions vide Explanation(1)(c). however, it is to be noted that this amendment has been inserted by the Finance Act, 2012 by which time, assessee has already borrowed funds on zero coupon bonds and advanced these funds to the sister concerns. Therefore, at the time of entering into the transactions and also till the shares are allotted, capital financing was outside the purview of international transaction. Therefore, liability on those transactions cannot be fa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ubsequent AY. Assessee has submitted share allotment certificate as evidence. Since the transfer of funds were duly accounted by the AE and there is no restriction on the part of the AE to allot shares in the same AY of receipt of funds, as long as the shares allotted, it gives true nature of the transaction. In the given case, even there is no outstanding balance in the books of assessee as loans and advances, the same transaction was duly justified by receiving allotted shares in the subsequent AY. In our considered view, there is no element of profit in the above transaction. Moreover charging of interest is depending upon the contractual obligations between the parties. In the given case, assessee has transferred funds with an intention to make investment, it cannot be treated as international transaction as held by various courts, particularly, in the case of KAR Therapeutics & Estates Pvt. Ltd. (supra) wherein the coordinate bench has held as under: "9. Considered the submissions of both the parties and perused the material facts on record as well as the orders of revenue authorities. There is no dispute that the assessee had remitted $ 3387182 towards investment in share ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in nature and accordingly, dismissed. " Respectfully following the decision of the coordinate bench in the said case, we are inclined to treat the above transaction as not an international transaction and accordingly the ground raised on this issue is allowed." We respectfully follow the same as facts are unchanged. 9.4. On the issue whether every loan advance has to be an interest earning activity, the Co-ordinate Bench at Delhi in the case of DLF Hotel Holdings Ltd., Vs. DCIT in ITA No. 6336/Del/2012 also considered similar issue and held as under: "17.6.1 ………There is nothing on record to support the conclusion that the interest free loan must necessarily be deemed to be an interest earning activity and not an activity to capitalize the opportunity cost for investing in new territories. We hold that for the tax authorities to consider re-characterizing the transaction the tax authorities must necessarily demonstrate that the transaction as claimed and documented is a sham or on the basis of facts and evidences is at a substantial variance with the stated form. In the absence of any such exercise the tax authorities are entering at their peril in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f of the assessee, reliance has also been placed on the judicial precedent as considered by the Hon'ble Bombay High Court in the case of Vodafone India Services (P.) Ltd. (supra). A perusal of the said decision shows that it further places reliance on Vodafone India Services (P.) Ltd. v. Union of India [20141 50 taxmann.com 300/[2015] 228 Taxman 25/368 ITR 1 (Bom.). The said decision has been relied upon for the proposition that even if shares have been issued at a premium to the foreign holding company by an India subsidiary the amounts received from non-resident being capital in nature cannot be subjected to transfer pricing provisions. The Hon'ble High Court in categoric terms considering the issues on facts have held that the-alleged shortfall between fair market of shares and the issue price of shares cannot be considered income on the basis of supposed intent of legislature. Form No. 3CEB filed by the assessee by way of abundant caution, it has been held, would not be said to have granted Jurisdiction to the TPO. The applicability of Chapter X in categoric terms was ousted as the departmental case was found to have been based on surmises". 9.5. Respectfully followin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 72,92,241 in respect of undertaking engaged in export. Assessee filed return on 31-10- 2008 whereas the due date for filing return was 30-09-2008. Since there was a delay in filing return, deduction u/s. 10B was denied. It was submitted that the assessee company had trouble with software which was used for maintaining accounts and lost the financial data due to problem with software at the time of due date for filing return, which is beyond the control of assessee. It was contended that assessee faced genuine hardship in filing the return of income. Hence, assessee filed return on 31-10-2008. To evidence the same, a copy of Virus report and certificate obtained was filed. It was contended that the statutory audit of the assessee company was completed on 02-09-2008. The Tax Audit u/s 44AB and Form 3CEB were also completed. It was submitted that assessee had successfully discharged all the statutory duties within the due date provided under Act. As the assessee had to collate a large data to file the ITR, like the payments made for items referred in section 43B of the Act, Payments of TDS to revenue Account, Reconciliation of TDS as per books and as per Form 26AS, Payment of self ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .09.2008, then how come the report have been prepared and signed on 29.09.2008. Thus, it is clear that the cause is not genuine and assessee does not deserve any concession. Moreover, the act is very specific and no two interpretation are possible when the language of the section is plain and simple. Therefore, it is prayed that the disallowance u/s 10B may kindly be confirmed. 11.4. We have considered the rival contentions and perused the documents placed on record. There is no doubt that assessee has completed audit as on 02-09-2008, but the return was uploaded belatedly. The reason given is that the computer got infected and it took some time to set it right so that assessee could upload the entire data. This reasoning given is supported by a certificate from a computer specialist, who attended to the problem. Since the audit was completed on 02-09-2008 which was not doubted by the Revenue, there is no reason why assessee should postpone the uploading of the return, when all the information was ready. Therefore, the explanation given that the computers got infected is a reasonable explanation given in the circumstances. We are of the opinion that the delay in filing the return ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... claim in the original return or the revised return cannot denude the appellate authorities of their power to consider the claim, if, the relevant material is available on record and is otherwise tenable in law. Any 'other view will set at naught the plenary powers of appellate authorities." 11.6. Further relied in the case of ITO Vs S Venkataiah in ITA No. 984/Hyd/2011, 2012, [22 taxmann.com 2 (Hyd.)] it was held: "14. In our opinion, in view of the above discussion, the claim of the assessee cannot be denied on technicalities when the assessee is legally otherwise entitled for deduction. As such we are inclined to dismiss the appeal filed by the Revenue as devoid of merit". 11.7. In the case of ACIT Vs Dhir Global Industria (P) Ltd [2011] [43 SOT 640 (Delhi)] it was held; Section 10B of the Income-tax Act, 1961 - Export oriented undertaking Assessment year 2006-07 - Whether proviso to section 10B(1) is directory and not mandatory - Held, yes - Whether, therefore, in case of genuine hardship, relief can be granted to assessee u/s. 10B even if return is not furnished on or before due date specified under sub-section (1) of section 139 - Held, yes 11.8. Not only that, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ome Extrusions has held as under: "26. The question, whether benefit under Section 43B, as a result of amendment of Finance Act, 2003, is retrospective or not, came to be considered in Commissioner of Income-Tax Vs Alom Extrusions Ltd. (supra). Court considered the intent, purpose and object in the historical back drop of insertion of Section 43B and its progress by way of various amendments. Referring Section 2(24)(x) it said, income is defined under Section 2(24) which includes profits and gains. Further in clause (x) of Section 2(24) any sum received by Assessee from employees as 'contributions' to any provident fund/superannuation fund or any fund set up under Act 1948, or any other fund for welfare of such employees constitute 'income'. This is the reason why every Assessee/Employer was entitled to deduction even prior to April, 1, 1984, keeping books on mercantile system of accounting, as a business expenditure, by making provision in his books of account in that regard. Assessee was capable of keeping money with him and just by mentioning in accounts, was able to claim deduction as business expenses. Section 43B was inserted to check this practice and it re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mplementation problems were pointed out for different due dates, uniformity was brought about in first proviso by Finance Act, 2003. Hence, amendment made by Finance Act 2003 in Section 43B is retrospective, being curative in nature and apply from 01.04.1988. In the result when contribution had been paid, prior to filing of return under Section 139(1), Assessee/employer would be entitled for deduction and since deletion of Second Proviso and amendment of First Proviso is curative and apply retrospectively w.e.f. 01.04.1988. 28. From the aforesaid judgment, we find that irrespective of the fact that deduction in respect of sum payable by employer contribution was involved, but Court did not restrict observations, findings and declaration of law to that context but looking to the objective and purpose of insertion of Section 43B applied it to both the contributions. It also observed clearly that Section 43B is with a non-obstante clause and therefore over ride even if, anything otherwise is contained in Section 36 or any provision of Act 1961. 29. Therefore, we are clearly of the view that law laid down by High Courts of Karnataka, Rajasthan, Punjab & Haryana, Delhi, Bombay and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... isallowance on the reason that assessee did not prove that pollution control equipment was required for the purpose of business and such equipment was used in controlling the pollution- emanating from the manufacturing operations of the tax payer. 13.1. Ld. Counsel submitted that there is no dispute with reference to the purchase of equipment as the AO allowed depreciation at 15%. It was the contention that assessee manufactures smart cards and pollution control equipment is required for the purpose of business. Even though the same was explained, the officers are not willing to accept the same. It was submitted that assessee has purchased pollution control equipment and necessary details were furnished to the AO so that the claim may be allowed. In the alternate, it was submitted that as assessee is entitled for deduction u/s. 10B, the disallowance of depreciation should be added to the profit of the unit and corresponding increase in the deduction u/s. 10B. 13.2. Ld.DR submitted that assessee failed to file evidence before AO as well as DRP to prove that the Plan & Machinery was a pollution control equipment eligible for 100% depreciation. The assessee has not produced any evid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he AO. 14.1. Assessee objected to before the DRP and submitted that the said IRIS Smart Cards Ltd., is not a sister concern and without giving an opportunity, AO disallowed the amount. Further, it was submitted that it was a case of slump sale and break up of each asset is not available. DRP, however, did not agree with the taxpayer. It relied on the shareholding of Bartronics and India Ltd., and IRIS Smart Cards Ltd., and held that the said company was a sister concern. It also held that it is not a slump sale only a machine was purchased and therefore, it confirmed the action of the AO. 14.2. Ld. Counsel submitted that assessee purchased through an agreement, after obtaining the valuation report of an independent valuer giving total value of assets. It was further submitted that AO without appreciating the documentary evidences, invoked the Section 43(1) and restricted the disallowance. Without prejudice to the above, it was submitted that disallowance would increase deduction u/s. 10B. 14.3. Ld.DR, however, supported the order of AO/DRP on facts. 14.4. We have considered the rival contentions. Even though the DRP has mentioned that assessee-company had shares in the said uni ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Asia Trading Pte Ltd., is concerned. Coming to purchase from Godavari Exports & Imports Ltd., it held that inspite of giving repeated opportunities, assessee failed to prove the genuineness of purchase of software. In the absence of any evidence, panel agreed with the disallowance of depreciation. 15.2. Ld. Counsel submitted that the observations of the AO are completely misplaced. It was submitted that assessee neither related to Godavari Exports & Imports Ltd., nor Asia Trading Pte Ltd. It was the contention that assessee purchased the computer and software from the above two concerns and shown as addition in the fixed assets schedule. It was further submitted that no additions were made in other two concerns, which are also of the same group. Without prejudice, it was submitted that any disallowance would increase the profits of the units and therefore, claim of exemption u/s. 10B of the above should be allowed. 15.3. Ld.DR however, submitted that assessee has not controverted the factual finding given by the DRP. Therefore, the decision of DRP based on facts become final. Hence, Ld.DR prayed for confirming the disallowance. 15.4. We have considered the rival contentions. As ..... 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