9911796707
TMI Blog2017 (11) TMI 1743X X X X Extracts X X X X X X X X Extracts X X X X ..... ement for the Financial years 2009-10 to 2012-13 and it was also not proved that there was carry forward one year to another year. Before the DRP, there was no details provided by the assessee regarding date of installation and only furnished the product sold date for FY 2009-10 and no such details of other years were provided and the assessee failed to substantiate its own claim. AR made a plea that since the invoice has been received from the AE during the assessment year under consideration, it was subject to TDS and it is to be allowed. In our considered opinion, if the expenditure was crystallized and accrued in the assessment year under consideration, the same is to be allowed subject to deduction of TDS as held by Delhi High Court in the case of CIT v. SMCC Construction India [2010 (1) TMI 10 - HIGH COURT OF DELHI]. The assessee has to furnish the details of product sold date and date of completion of installation work with corresponding agreements. The AO/TPO should examine the same and decide the issue in the light of above judgments. This ground is remitted to the file of AO for fresh consideration. Downward adjustment in respect of management fee - Held that:- Regarding ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed. Disallowance of spill over of additional depreciation u/s. 32(1)(iia) on plant and machinery put into use during the preceding year - disallowance of spill over of additional depreciation u/s. 32(1)(iia) on plant and machinery put into use during the preceding year - Held that:- Similar issue was considered by the Karnataka High Court in the case of Rittal India (P.) Ltd. [2015 (1) TMI 1248 - KARNATAKA HIGH COURT] as held tribunal has rightly held that additional depreciation allowed under section 32(i)(iia) of the Act is a one time benefit to encourage industrialization, and the provisions related to it have to be construed reasonably, liberally and purposively, to make the provision meaningful while granting additional allowance. We are in full agreement with such observations made by the Tribunal - decided in favour of assessee. X X X X Extracts X X X X X X X X Extracts X X X X ..... st appropriate method. The TPO in his order has remarked that the PLI of the comparables works out to (-1.53) per cent as against the PLI of the assessee (-0.37 per cent). Further, the assessee submitted before the TPO that if the economic adjustments and extraordinary costs are factored, the PLI of the assessee works out to 4.40%. Thus, it was concluded that Gamesa India's international transactions with AEs was consistent with the arm's length standard from an Indian transfer pricing regulations perspective. 3.2 The assessee entered into Technology Transfer Agreements with Gamesa Innovation and Technology SL Unipersonal ('Gamesa Spain') dated 1st January 2009 and 11th July 2011 for availing technology in relation to AE 59 and G 97 models respectively. As per the agreements, Gamesa India would pay royalty at the rate of 4 per cent and 4.50 per cent respectively on Net Annual Turnover. The assessee has also considered CUP as alternate method for benchmarking the royalty transaction. The assessee has considered certain comparables agreements and the arithmetic mean of the royalty as per the comparable agreements amount to 6.43 per cent. Given that the rate of royalt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... appropriate method and contended that average rate of royalty as per comparable agreements is higher as compared to the subject royalty rate. Therefore, the assessee arrived at a conclusion that the royalty paid to its AE is at ALP. The assessee submitted that technology is a critical factor for undertaking its operations and therefore, royalty expenditure is inextricably linked to its business. The determination of ALP of royalty on a stand-alone is basis in the first place. The TPO has erred in not appreciating the basic fact that royalty is inextricably linked to business of the assessee and therefore, benchmarking the PLI at entity level is sufficient in order to substantiate that the transactions with AE are at arm's length. Without prejudice to the above submission, the assessee has undertaken supplementary benchmarking under CUP method thereby considering the royalty rate of uncontrolled transactions as well and substantiated that the average rate of royalty in respect of uncontrolled transactions was at 6.43 per cent which is higher than the rate of royalty paid by the assessee to its AE (4/4.50 per cent), that was not appreciated by the TPO and DRP as well. Further, it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Assessing Office is expected to exercise his conclusion in a reasonable and fair manner. It should be borne in mind that the provision is meant to check evasion of tax through excessive or unreasonable payments to relatives and associate concerns and should not be applied in a manner which will cause hardship in bona fide cases. The ld. AR, also placed reliance on the judgment of the Delhi High Court in the case of CIT v. EKL Appliances Ltd. [2012] 24 taxmann.com 199/209 Taxman 200/345 ITR 241 wherein it has been held that it is not necessary for the assessee to show that any legitimate expenditure incurred by him was also incurred out of necessity. In addition, the Court held that it is also not necessary for the assessee to show that any expenditure incurred by him for the purpose of business carried on by him has actually resulted in profit or income either in the same year or in any of the subsequent years. 4.4 Further, the ld. AR, relied on the judgment of the Madras High Court in the case of CIT v. Computer Graphics Ltd. [2006] 155 Taxman 612/285 ITR 84 wherein it was held that the reasonableness of the expenditure for the purpose of business had to be adjudged from the vie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... xes, cost of standard bought out components and landed cost of imported components etc. and relying on the conditions, the TPO held that no royalty is permissible under the provisions of FEMA in respect of bought out components. According to the ld. AR, standard conditions form part of Form FC-SIA, which has been withdrawn by RBI, have no relevance for these subject A.Ys. and reliance on the standard conditions by the TPO is baseless. 4.6 The ld. AR further submitted that the rate of royalty prescribed under the provisions of FEMA cannot be regarded as ALP for transfer pricing purposes. To support his view, the ld. AR, relied on the following decisions: 1. CIT v. Oracle India (P.) Ltd. [2016] 386 ITR 1/241 Taxman 253/72 taxmann.com 45 (Delhi) 2. Gruner India (P.) Ltd. v. Dy. CIT [2016] 159 ITD 772/70 taxmann.com 240 (Delhi - Trib.) 3. A.W. Faber Castell (India) (P.) Ltd. v. Dy. CIT [2017] 81 taxmann.com 35 (Mum. - Trib.) The ld. AR submitted that in the case of A.W. Faber Castell (India) (P.) Ltd. (supra), pertaining to the AY. 2012-13 referred to the Press Note No.8 of 2009 and upheld the twin principles as follows: • A perusal of the aforesaid Notification shows th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd sells both the products to end customers as a combined product, royalty should be confined only to the selling price of laptop (thereby excluding the cost of web camera from the overall selling price). Whereas, in the instant case, the components procured by the assessee are processed further and therefore, the same cannot qualify to be 'standard bought out components' in order to be excluded from turnover for the purpose of computation of royalty. Further, it is submitted that the components procured from its AEs have been processed further for completing the end-product and delivering to its customers. In other words, the same does not constitute bought out components that are ready for assembling, which issue has been discussed in detail by the Pune Bench, Tribunal in the case of Akzo Nobel Chemicals (India) Ltd. (supra). Therefore, the ld. AR, submitted that the TPO has erred in recomputing the quantum of royalty by misinterpreting the provisions of FEMA and no transfer pricing adjustment is warranted in this regard. 4.9 Regarding the royalty on wind farm development and erection and commissioning, the ld. AR, submitted that the TPO has remarked that the scope of wo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the purpose of executing the wind farm development, erection and commissioning activities and the contention of the TPO and DRP that no technology from its AE for undertaking such activities is required, is factually incorrect. 5. The ld. DR, submitted that the TPO has not determined the ALP for the royalty paid by the assessee to its AE based on FEMA Regulations instead he has substantiated his point of view that no royalty can be paid on the bought out components using the method of calculation of royalty provided in FEMA. According to the ld. DR, it is pertinent to note that almost all the companies operating in India and paying royalty to its foreign AEs for the technology provided by the AEs are calculating royalty on the turnover after reducing the value of the bought out components for the simple reason that the cost of the technology were impeded in the price of the raw material. Indian Transfer Pricing regulations provide the choice to the assessee for selecting most appropriate method for benchmarking its international transactions with its AEs. So, there is no logic behind the supplementary benchmarking done to prove the ALP of the royalty using CUP method. The TPO has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the ld. DR submitted that the commercial expediency may not be questioned if the transactions carried out between uncontrolled parties. If the transactions between the two parties are controlled then the nature of transactions should be analyzed including the commercial expediency. Needless to say the comparability study which forms the basis of Transfer Pricing proceedings requires an analysis of the need for such a transaction and the benefit derived by the assessee from that transaction. The TPO has not sought to question the commercial expediency of the royalty. What has been done is to compare the circumstances surrounding the payment and the services said to have received with an independent party in an uncontrolled situation. The way in which the TPO is looking at each transactions, are altogether different from the AO. The need benefit analysis in the light of the uncontrolled transactions are essential for the comparability analysis. 5.3 The ld. DR submitted that the contention of the assessee that no restriction on payment of royalty under the provisions of FEMA, Rates prescribed under FEMA cannot be regarded as ALP for transfer pricing purposes is not acceptable as the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 44 1088060649 2454997620 73649929 Total 40959298775.65 2451708826.57 9153360845.99 29354229103.09 880626873 R&D Cess 5% 44031344 Total 924658217 As per GL 924658216 Difference 0 5.5 The ld. DR further submitted that the issue of royalty ex-bought out components is discussed in detail by the TPO. Royalty is to be paid on turnover less bought out component as per the Press Note of the Department of Industries Policy and Promotion. The assessee has not effectively countered the stand of the TPO that the royalty is to be paid net of brought out components. Nor has the assessee given any reason why the official policy document relied upon by the TPO is to be discarded. This issue has also been confirmed by the DRP and the reasoning therefore are explained by the Panel. The assessee had claimed royalty on substation development charges, development revenues and revenue on erection and Commissioning of Wind Turbine Generators (WTGs), which was discussed by the TPO in his order. He has, after a perusal of the agreements relating to the above activities, held that what was being done under these categories did not involve any technology out of common infrastructure activit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pted by TPO as the PLI is higher than the comparables. Even considering the CUP as a secondary method for benchmarking the royalty payment, average rate of royalty at comparable companies is at 6.43% as compared to the royalty paid by the assessee company at 4%/4.5%. Therefore, even applying the CUP method percentage of payment royalty is lesser than the comparable cases. In the case of Diebold Software Services (P.) Ltd. (supra) it was held that when the TPO did not accept TP analysis made by assessee without giving any reasons and made TP adjustment without applying any prescribed method, such TP adjustment is not sustainable either in law or on facts. 6.1 Similar view was taken in the case of Merck Ltd. (supra) wherein held that the: "TP adjustment is, required to be made by applying one of the prescribed methods. The TPO has not applied any prescribed method and has only disallowed part of the expenses as done in the normal assessment, which is not permitted under transfer pricing regulation as per which adjustment on account of any international transaction is required to be made as per the method prescribed. The learned CIT (DR) pointed out that the TPO in respect of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hus, the transaction approach is not required, if the PLI of the assessee at arm's length. This view is fortified by the judgment of Delhi High Court in the case of Magneti Marelli Powertrain India (P.) Ltd. (supra) wherein held that- "17. As far as the second question is concerned, the TPO accepted TNMM applied by the assessee, as the most appropriate method in respect of all the international transactions including payment of royalty. The TPO, however, disputed application of TNMM as the most appropriate method for the payment of technical assistance fee of ₹ 38,58,80,000 only for which Comparable Uncontrolled Price ("CUP") method was sought to be applied. Here, this court concurs with the assessee that having accepted the TNMM as the most appropriate, it was not open to the TPO to subject only one element, i.e. payment of technical assistance fee, to an entirely different (CUP) method. The adoption of a method as the most appropriate one assures the applicability of one standard or criteria to judge an international transaction by. Each method is a package in itself, as it were, containing the necessary elements that are to be used as filters to judge t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ning the royalty. The TPO worked out the difference in the PLI of the outside party (the assessee) at 4.09% and the comparables at 7.05%. This has not been shown to fall outside the permissible range. 34. The decision of the Tribunal in 'Ekla Appliances', 2012- TII-01-HCDel- TP, has been sought to be distinguished by the TPO, observing that the facts in that case are not in pari materia with those of the assessee's case. However, therein also, the benefit test had been applied by the TPO, as in the present case. The matter was carried in appeal before the Hon'ble High Court. The Hon'ble Delhi High Court has held that the so-called benefit test cannot be applied to determine the ALP of royalty payment at nil and that the TPO could apply only one of the methods prescribed under the law. A similar view has been taken in 'Sona Okegawa Precision Forgings Ltd.' (supra) and in 'KHS Machinery Pvt. Ltd. v. ITO', 53 SOT 100 (Ahmd) (URO). 35. It is, thus, seen that the royalty payment @ 3% by the assessee is at arm's length. The Technical Collaboration Agreement stands approved by the Government of India. The royalty payment has been accepted by the d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... insurance, custom duties, etc. However, the assessee has not done so. The assessee has Claimed that the above condition no longer apply after the issue of RBI Circular RBI/2009-10/465 A.P.(DIR Series) Circular No.52, dated 13th May 2010 liberalizing royalty payment under technology collaboration agreements. The ld. DR submitted that there is no merit in the argument of the assessee. These conditions are still applicable. Further, such conditions also give a method regarding calculation of the amount of royalty to be paid to a foreign entity. The method is a good guideline for determination of arm's length payment of royalty between two unrelated parties. According to ld.D.R, the downward adjustment has been done by the TPO by excluding bought out component for the purpose of calculation of royalty. In our opinion, an erstwhile regulatory law of FEMA regarding royalty payment was permitted to the tune of 5% on domestic sales and 8% in the case of export sales However, the above said ceiling on payment of royalty has been lifted with effect from 16.12.2009 vide Circular No.52, dated 13th May 2010, which is reproduced herein below:- RESERVE BANK OF INDIA Foreign Exchange Depart ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... exercise of the powers conferred by Section 5 and sub-section (1) and clause (a) of sub-section (2) of Section 46 of the Foreign Exchange Management Act, 1999 (42 of 1999) and in consultation with the Reserve Bank, the Central Government, having considered it necessary in the public interest, hereby makes the following further amendment in the Foreign Exchange Management (Current Account Transactions) Rules, 2000, namely: 1. (1) These rules may be called the Foreign Exchange Management (Current Account Transactions) (Amendment) Rules, 2010. (2) They shall be deemed to have come into force with effect from the 16th day of December, 2009. 2. In the Foreign Exchange Management (Current Account Transactions) Rules, 2000, in Schedule II, item number 8 and the entry relating thereto shall be omitted. Sd/- Dr. K. P. KRISHNAN Joint Secretary Issued by: Government of India Ministry of Finance (Department of Economic Affairs), New Delhi. [F.No. 1111EC12004J Explanatory Memorandum:- The Government of India reviewed the extant policy with regard to liberalization of foreign technology agreement and it was decided to permit, with immediate effect, payments for royalty, lump sum f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd sold on as is basis to end customers. In the instant case, the components procured by the assessee are processed further and therefore, the same cannot be excluded from turnover for the purpose of computation of royalty. Reliance placed on para-16 of Tribunal decision in the case of Akzo Nobel Chemicals (India) Ltd. (supra) wherein held that the examination of controlled transaction should ordinarily be based on the transaction as it has been actually undertaken and structured by the AE. The TPO should not disregard the actual transaction or substitute other transaction for them. The two exceptions which have been prescribed are (i) where the economic substance differs from its form; and (ii) where the form and substance of the transaction is the same but arrangements made in relation to the transaction, view in its totality, differ from those which would have been adopted by independent enterprises be having in a commercially rational manner. In this case, the TPO has reworked the royalty payable by the assessee to its AE on the basis of his Interpretation of the expression "Net Sales" for the purposes of determining ALP of the international transaction of royalty pay ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pertaining to development of land, substation development and erection and commissioning. 8. The facts of the issue are that for erection and commissioning of WTG the Gamesa-Spain provides how the erections are to be done and necessary steps for commissioning is provided in the way of manual. Further, Gamesa-Spain has developed software called Product Data Management ('PDM') a web based portal, which contains such manuals for development, erection and commissioning. A guide to access of the portal is attached which enables the users to use such manuals. The TPO held that no royalty is payable on revenue pertaining to development of land, substation development and erection and commissioning. The TPO himself has not disputed the fact that such activities require technology support. The only contention raised by the TPO is that such activities do not require any technology, which is not available in India. 9. The ld. AR submitted that the TPO is not correct in holding that no technology is required for allied activities such as erection and commissioning, development etc. During the course of proceedings before the TPO and DRP, the assessee has clearly explained the reasons ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d note The relevant part of the same is reproduced as follows: "2. (a) The royalty will be calculated on the basis of the net ex-factory sale price of the product, exclusive of excise duties, minus the cost of the standard bought out components and the landed cost of imported components, irrespective of the source of procurement including ocean freight insurance, customs duties, etc. The payment of royalty wilt be restricted to the licensed capacity plus 25% in excess thereof for such items requiring industrial licence or on such capacity as specified in the approval letter. This restriction will not apply to items not requiring industrial licence. In case of production in excess of this quantum, prior approval of Government would have to be obtained regarding the terms of payment of royalty in respect of such excess production. (b) The royalty would not be payable beyond the period of the agreement if the orders had not been executed during the period of agreement. However, where the orders themselves look a long time to execute, then the royally for an order booked during the period of agreement, but executed after the period of agreement, would be payable only after a C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n considered. The issue has been discussed by TPO in paras 12 and 13 of his order. The issue has duly been confronted to the assessee by the TPO and the objections of the assessee have been dealt in detail in the order. The TPO has examined the agreement between the assessee and its customers to bring out as to how the work performed by the assessee did not require use of any special technology, for which the payment of royalty could be considered. The assessee has put unnecessarily stress on the words "manufacture, sell, instal & commission and carry out O&M activities and use all technical documents, drawings, type certificates" in its agreement with AB, for claiming that the royalty is meant for "instal & commission" technology also. However, the observation of the TPO mat these words have been used in generic sense only and are meant to indicate the activities that would follow the transfer of technology, deserve special consideration e.g. the words include "sell" however the assessee has not replied as to how the transfer of technology was linked to the sale of its products and how the same has been used by it for sale of its products. Similarly, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 39;s manufacturing the components. If it is considered the concept of arm's length price, GIT would be charging Royalty from the manufacturers utilizing its technology and the selling price of these manufacturers (which is cost price of the components for the assessee) will already be loaded with cost related to royalty. So in an arm's length scenario: payment of royalty on bought out components would not make any business logic other than unduly benefitting the AE. In fact, even as per the agreement between the assessee and GIT, the royalty is to be paid 'to manufacture, sell, instal & commissioning and carry out O&M activities', however the bought out components are not at all manufactured, but the same are just purchased and then sold. So the issue of payment of royalty on the same would not arise even as per terms of the agreement. The assessee has made request for admission of certain additional evidences before this Panel. 11. We have heard both the parties and perused the material on record. The assessee claimed royalty of 4% on revenue generated from erected and commission, which worked out at ₹ 2,96,65,850/- for assessment year 2011-12 and a sum of & ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vided by Gamesa-Spain. WTG Manufacturing & Erection & Commissioning All necessary drawing and required part are provided by GIT with the common tool of PDM the necessary document is attached herewith. Erection & Commissioning:- Foundation Validation of foundation designs are done by GIT. Each and every change in type of wind turbines requires necessary changes according to different foundations which are based on the bearing capacity of soil. The necessary base drawings are approved through engineering department. The necessary standard details are to be provided for the same by Gamesa-Spain. Suggesting type of foundations based on the site conditions. Problems solving during construction as necessary. An extract from the execution and quality control manual is given below: Gamesa Instruction Execution and quality control for wind turbine foundations Code: ICA-1-011 Previous code: Version: 1 Date:03/06/2011 Language : EN Security : Public classification Page :1 of 37 The aim is to define the control activities for the design and validation of foundations and to develop, in detail, the activities to be carried out for the execution of the slab or pile cap at the wind f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ive. Crane operators are integral to the actual construction job, as well. For example, they operate cranes to stack the tower segments and lift the blades to the hub. Electricians are needed to get the energy from the turbine's generator to the power grid on the ground. They wire the turbine to connect its electrical system to the power grid. When installing wiring, electricians use hand tools such conduit benders, screwdrivers, pliers, knives, and wire strippers, as well as power tools such as drills and saws. Support of Gamesa-Spain entities is drawn in all the above aspects of operations. Education and Training: Although some construction labourer jobs have no specific Education or training requirements, some construction workers receive more formal training in the form of apprenticeships These programs consist of several years of classroom and on the job training. High school classes in English, mathematics, physics, mechanical drawing, blueprint reading, welding and general shop can be helpful to prepare for the apprenticeships. Many construction labourers' skills are learned on the job and by assisting more experienced workers. Local contractors may or may not h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... onstruction, or tower erection. These Managers report to a senior project manager or site manager. Project managers split their time between the wind farm site and their office, which may be located onsite or offsite. Primary office responsibilities include managing permitting, contracting, and the budget. At the construction site, the project manager monitors progress and performs inspections for quality control. Project managers oversee the contracting process and manage various contractors and sub-contractors. They are responsible for promoting a safe work environment and ensuring strict adherence to site safety policies. EDUCATION AND TRAINING Experience in construction, particularly wind farm construction, is vital for project managers. Most managers have experience working on several wind farm projects before they are selected to manage one. Education is becoming important, and most project managers hold a bachelor's degree or higher in construction management, business management, or engineering. Advanced degrees, such as an MBA, are becoming more common. Because experience is so important for these positions, years of experience may substitute for some educational re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... have used the technology provided by its AE or not. It is to be noted that assessee developed wind farms, installed and commissioned WGS on the basis of input provided by its AE. The AE has vast experience in implementing such projects across global and therefore, the assessee obtained expertise knowledge from AE in order to ensure better quality to its customers. In our opinion, the TPO cannot question commercial expediency of incurring any expenditure by the assessee as held by the following judgments:- (a) In the case of Hive Communication (P.) Ltd. (supra) (b) In the case of EKL Appliances Ltd. (supra) (c) In the case of Computer Graphic Ltd. (supra) 11.2 Further, once the TNMM has been applied for the transaction and it covered under its ambit the royalty transaction in question. A separate analysis and consequent deletion of royalty payment is unwarranted. Placing reliance in the case of Magneti Marelli Powertrain India (P.) Ltd. (supra) wherein held that:- 17. As far as the second question is concerned, the TPO accepted TNMM applied by the assessee, as the most appropriate method in respect of all the international transactions including payment of royalty. The TPO, ho ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... #39;transaction' as a number of closely linked transactions. Royalty, then, is a transaction closely linked with production and sales, it cannot be segregated from these activities of an enterprise, being embedded therein. That being so, royalty cannot be considered and examined in isolation on a stand-alone basis. Royalty is to be calculated on a specified agreed basis, on determining the net sales which, in the present case, are required to be determined after excluding the amounts of standard bought out components, etc., since such net sales do not stand recorded by the assessee in its books of account. Therefore, it is our considered opinion that the assessee was correct in employing an overall TNMM for examining the royalty. The TPO worked out the difference in the PU of the outside party (the assessee) at 4.09% and the comparables at 7.05%. This has not been shown to fall outside the permissible range. 34. The decision of the Tribunal in 'Ekla Appliances', 2012- TH-01-HCDel- TP, has been sought to be distinguished by the TPO, observing that the facts in that case are not in pari materia with those of the assessee's case. However, therein also, the benefit te ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 11 is dismissed and Assessee's appeal in ITA No. 1159/Hyd/2011 is allowed.' 11.4 Being so, in our opinion, there is no question of downward adjustment towards on royalty payment to AE on the ground that no royalty is allowable on turnover pertained to development of land, substation development and erection and commissioning. This ground of assessee in both the appeals is allowed. 12. The next ground for the asst. year 2011-12 is with regard to downward adjustment in respect of royalty paid pertaining to the turnover of preceding year. 13. The facts of the issue as noted by the Authorities are that the technology agreement is dated 1st April, 2010 and therefore, it is valid only with effect from that date. Going by the rational business behaviour of economic activities, no royalty would have been otherwise paid to an unrelated party. No business entity would wilfully impose on itself any financial obligation for a period for which there was no legal obligation. 14. The ld. AR submitted that the Technology Transfer Agreement has been signed on 1st January, 2009. Further, the ld. AR submitted that the TPO has not disputed the fact that the assessee utilized the technology ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oning was completed. Before TPO, the assessee not furnished the details of "product sold date" and "ex-work" details in relation to each supply agreement along with the copies of relevant agreement for the Financial years 2009-10 to 2012-13 and it was also not proved that there was carry forward one year to another year. Before the DRP, there was no details provided by the assessee regarding date of installation and only furnished the product sold date for FY 2009-10 and no such details of other years were provided and the assessee failed to substantiate its own claim. Before us, the ld. AR made a plea that since the invoice has been received from the AE during the assessment year under consideration, it was subject to TDS and it is to be allowed. In our considered opinion, if the expenditure was crystallized and accrued in the assessment year under consideration, the same is to be allowed subject to deduction of TDS as held by Delhi High Court in the case of CIT v. SMCC Construction India [2010] 320 ITR 534/[2011] 198 Taxman 181. Similar view was taken by Tribunal in the case of (i) Termo Penpol Ltd. v. Asstt. CIT [2015] 59 taxmann.com 90 (Cochin - Trib.) and A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... these documents before the TPO. In response to this assessee only submitted that the TPO did not make any specific request for production of these documents and so the same were not produced before the TPO. The assessee submitted that since the DRP rules allow submission of additional evidence, so the same should be admitted. The assessee has failed to give any reason for not furnishing these documents before the TPO to support its case. The assessee has not given any explanation as to what prevented it from producing such documents before the TPO at the time of transfer pricing proceedings before the TPO, especially when sufficient opportunity of being heard was given to it by the TPO. The onus was on the assessee, to produce all such relevant documents before the TPO, which in its opinion could support its case. However, the assessee failed to do so. The assessee has not brought anything on record to show that the documents could not have been produced by it before TPO despite its best efforts Admission of the additional evidence cannot be claimed as a matter of right and it is the duty of the assessee to explain the circumstances which prevented it from submitting such documents ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a result of a judicial decision given while the appeal is pending before the Tribunal, it is found that a non-taxable item is taxed or a permissible deduction is denied there is no reason why the assessee should be prevented from raising that question before the Tribunal for the first time, so long as the relevant facts are on record in respect of that item. There is no reason to restrict the power of the Tribunal under s. 254 only to decide the grounds which arise from the order of CIT(A). Both the assessee as well as the Department have a right to file an appeal/cross-objections before the Tribunal. Tribunal should not be prevented from considering questions of law arising in assessment proceedings although not raised earlier.-Jute Corporation of India Ltd. v. CIT [1990] 88 CTR (SC) 66 : (1991) 187 ITR 688 (SC) : TC 7R.343 applied; CIT v. Anand Prasad (1981) 128 ITR 388 (Delhi) : TC 8R.1021, CIT v. Karamchand Premchand (P.) Ltd. (1969) 74 ITR 254 (Guj.) : TC 8R.547 and CIT v. Cellulose Products of India Ltd. (1985) 44 CTR (Guj.) 278 (FB) : (1985) 151 ITR 499 (Guj.)(FB): TC 8R.965 overruled. (Para 3) The view that the Tribunal is confined only to issues arising out of appeal b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... able in exact monetary terms, the assessee on identification of above services, excluded the cost of stewardship/shareholding activity in the range of 20 per cent to 50 per cent depending on the close nature of activities. 18.3 The TPO computed the ALP of management fee to be Nil citing the followings reasons: • The scenario is one of control and hold exercise by the AE over the affiliates rather than in the form of any services rendered. The costs incurred by the holding company are charged to affiliates globally on some basis on the assumption that the AEs exist for the benefit of the affiliates. • The costs are allocated to all affiliates principally on the basis of 'revenue which is based on the principle of capacity to pay' rather than on the basis of the need and extent of services available by the affiliates. • A multinational enterprise functioning globally may like to co-ordinate with the affiliates taking into account the principle of optimization of profits. But such an exercise is not necessarily comparable to a service provided by a third party professional service provider. • In the instant case, the ultimate holding company either ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ndia (P.) Ltd. (supra), wherein it has been held that in a case where the assessee company had adopted TNMM for the purposes of benchmarking its profits, adoption of CUP solely for the purposes of evaluating technical assistance fee would lead to chaos and be detrimental to the interests of both revenue and the assessee. Further, the ld. AR submitted that the question of applying CUP would arise only in a case where the comparison is made with uncontrolled transaction identified with regard to similar services rendered for the purpose of transfer pricing. In the instant case, the TPO has merely held that the ALP of the transaction is Nil without even identifying comparables which is not in accordance with the methodologies provided in the Rules. The ld. AR, also relied on the following judgments, wherein it has been held that no transfer pricing adjustment is warranted in a scenario where the officer has not taken any step to identify a comparable to determine the ALP: a. Merck Ltd. (supra) - upheld by Bombay High Court [ITA 272 of 2014] b. Dy. CIT v. Flakt India Ltd. [2016] 70 taxmann.com 342 (Chennai - Trib.) c. Sabic Innovative Plastics India (P.) Ltd. v. Asstt. IT [IT App ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... siness Process Services (P.) Ltd. (supra) c. Dy. CIT v. Cornell Overseas (P.) Ltd. [2017] 83 taxmann.com 165 (Delhi - Trib.) (Del., ITAT)(2166/Del/2011) 19.2 The ld. AR, reiterated the submission stated above, in respect of jurisdictional of the TPO to determine the commercial expediency of the assessee and submitted that the TPO has remarked that the assessee has not substantiated the NEED-EVIDENCE-BENEFIT in relation to management fee Further, the ld. AR submitted that the said transaction satisfies all the tests, the tax authorities have no jurisdiction to question the commercial expediency of the transactions. In other words, the TPO has the limited responsibility of computing the arm's length price of the transactions consideration the methods prescribed in the Act read with Rules. The said principle has been laid down in the following decision: a. Hive Communication (P.) Ltd. (supra) b. EKL Appliances Ltd. (supra) c. Computer Graphics Ltd. (supra) d. Showa India (P.) Ltd. (supra) Therefore, the ld. AR submitted that the jurisdiction of the TPO does not extend to stepping into the shoes of the assessee and determining the necessity of incurrence of expenditure ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s its headquarters in Spain. The Group is dedicated to the manufacturing, sale, operation and maintenance of wind turbine generators, as well as in the development of wind farms. Its business covers all items of the wind value chain: design, manufacture, construction, Balance of Plant (BOP - also known as civil works for wind farms-), development, additional services and operation and maintenance (O&M) of wind farms. According to the ld. AR, as per the Gamesa Group corporate policy, all central activities are carried out by GCT and where necessary, GCT obtains the assistance of third party vendors in providing the central services in the nature of management activities. The affiliates companies (which include the assessee) obtain advice and assistance from GCT and the cost incurred (GCT owns cost and cost charged by third party vendors) were charged to all the group companies. GCT has tremendous managerial talent and experience in the field of Wind Turbine industry. It has senior professionals with lots of years of experience in the field. As a new player in India, there was a critical need for the assessee to draw managerial services from this entity to face the challenges in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the decision of the Tribunal, Delhi Bench, in the case of Showa India (P.) Ltd. (supra), wherein it has been held that where the assessee has produced the documents/evidence, the TPO cannot by any stretch of imagination hold that the evidences are irrelevant, without even perusing such evidences. Further, the Tribunal recognized the principle that the TPO has no jurisdiction to question the commercial expediency of transactions entered into by the assessee company. 19.6 The ld. AR, submitted that allocation of cost based on turnover of AEs cannot be a factor to propose transfer pricing adjustments. In the transfer pricing order, the TPO remarked that the costs are allocated to all affiliates principally on the basis of 'revenue' which is based on the principle of 'capacity to pay' rather than on the basis of the need and extent of services availed by the affiliates. In this regard, the ld. AR, submitted that under the provisions of sec.92CA of the Act, the TPO has the authority to determine the ALP of the transactions undertaken by the assessee. The jurisdiction of the TPO cannot extend to decide the basis of charge/allocation of expenses. In the instant case, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee has obtained a Nil withholding certificate from the tax authorities. The said principle has been laid down by the Tribunal, Chennai Bench in the case of Aban Offshore Ltd. v. Dy. CIT [2016] 76 taxmann.com 147, wherein the Tribunal has held that any payment which is systematically subject to deduction of tax at source cannot be said to be non-genuine. Therefore, the ld. AR, submitted that the TPO has no jurisdiction to question the genuineness of management fee since it has been subject matter of service tax and specific lower tax deduction certificate has been availed. 20. The ld. DR submitted that the basic issue before the TPO was to determine ALP of the fee paid by the assessee. For determining the ALP of the transaction, a proper show-cause notice was issued and served upon the assessee. The assessee has only referred to the service agreement, summary of the cost allocation among various services provided and copy of the various invoices/debit notes/credit notes raised during the relevant year under consideration; however the queries of the TPO still remained unanswered. When the assessee is paying on cost to cost basis to AE, then where are the actual details of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ment. The profits of the Indian entity are due to the efforts of this entity and consequently, the entire profits are taxable in India even if the margins are above the arm's length level. This does not in any way impact on the royalty and management service fee. The need for incurring such expenses and the benefits accruing as a result are needed to be justified on a stand-alone basis without taking recourse to the argument of availability of sufficient profits. These are two separate issues and are needed to be dealt with separately. In any case, the assessee could not substantiate the need-benefit analysis before the TPO as a result of which downward adjustments were proposed in respect of royalty and management service fee. The transactions can be aggregated only if they are intricately intertwined and cannot be separately analyzed. This is not the case here. Moreover, aggregated approach to transfer pricing analysis is the exception rather than the norm. This issue has been dealt with extensively by the DRP in its order dated 24.3.2007. The DRP has quoted the case laws to reject the assessee's objections in this regard. The Guidelines of 2010 has also taken the view th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... trengthen the commercial position of the receiving entity. Hence, the assessee's contention regarding the need benefit test is not acceptable. In this context the following OECD Guidelines (para No. 79, page No. 207): "In a narrow range of such case, an intra-group activity may be performed relating to group members even though those group members do not need the activity (and would not be willing to pay for it were they independent enterprises). Such an activity would be one that a group members, i.e. in its capacity as shareholder. This type of activity would not justify a charge to the recipient companies assumes significance." The European Union Joint Transfer Pricing Forum (JTPF), in their summit at Brussels on 04.02.2010 on the "Guidelines on low value adding Intra-Group Services" has discussed this issue elaborately. It says that Costs of managerial and control (monitoring) activities related to the management and protection of the investments in participations are of shareholders activities only and these costs are to be classified as shareholders cost only. 20.4 Hence, the ld. DR, submitted that the benefit received from such stewardship service ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted application of TNMM as the most appropriate method for the payment of technical assistance fee of ₹ 38,58,80,000 only for which Comparable Uncontrolled Price ("CUP") method was sought to be applied. Here, this court concurs with the assessee that having accepted the TNMM as the most appropriate, it was not open to the TPO to subject only one element i.e payment of technical assistance fee, to an entirely different (CUP) method. The adoption of a method as the most appropriate one assures the applicability of one standard or criteria to judge an international transaction by each method is a package in itself, as it were, containing the necessary elements that are to be used as filters to judge the soundness of the international transaction in an ALP fixing exercise. If this were to be disturbed, the end-result would be distorted and within one ALP determination for a year, two or even five methods can be adopted. This would spell chaos and be detrimental to the interests of both the assessee and the revenue. The second question is, therefore, answered in favour of the assessee, the TNMM had to be applied by the TPO/AO in respect of the technical fee payment too.& ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t has been accepted by the department as having been made by the assessee wholly and exclusively for its business purposes. For Assessment Years 2004-05 and 2005-06, such payment of royalty has been allowed by the CIT (A). As per the FEMA Regulations, royalty can be paid on net sales @ 5% on domestic sales and @ 8% on export sales. The royalty payment by the assessee falls within these limits. It also falls within the limits of payment of royalty in the auto mobile sector, as per the market trend. This payment of royalty is at the same percentage as that paid by other auto ancillaries in the automotive industry. Then in 'Ekla Appliances' (supra) and in 'Ericsson India Pvt. Ltd. v. DCIT 2012-TII-48-ITAT-Del-TP, it has been held that royalty payment cannot be disallowed on the basis of the so-called benefit test and the domain of the TPO is only to examine as to whether the payment based on the agreement adheres to the arm's length principle or not. That being so, the action of the TPO in the present case, to make the disallowance mainly on the ground of the benefit test, is unsustainable in law. 36. Keeping in view all the above factors, the disallowance made on ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 14]. 24.7 Such argument in our view is not convincing. The argument would have been valid if fees was fixed in respect of each service, which was compulsorily required to be provided to the assessee, but it is not so in the present case. The agreement listed certain services on which the assessee requires guidance/assistance from time to time. The assessee was thus entitled to any of the services as and when required. Therefore, applying CUP method to the service not availed by the assessee during the year is not justified. It would have been appropriate if the AO had applied CUP method to the payment made during the year by the assessee for the three services and compared with similar payment for such services by an independent party. No efforts have been made by TPO/AO to determine the market value of services received by the assessee during the year relating to SAP implementation and quality control to show that the assessee had paid more compared to any independent party for the same services. The assessee had submitted that in case the assessee had paid to the AE at man hour rate for the technical services provided during the year in relation to SAP implementation, the fees p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... upheld by Andhra Pradesh High Court [IT Appeal No. 595 of 2016]- '10. We are really surprised to see the reasoning of TPO in fixing the ALP of royalty payment at 2%. It is manifest from TPO's order he has rejected assessee's TP analysis under TNMM. Further, in para 6.4 of his order TPO has mentioned of undertaking an independent analysis under TNMM for selecting comparables and determining ALP. However, even after repeatedly scanning through his order, we failed to find any such analysis being done by him. Similarly, though in para 5.1.1, ld. DRP has observed that TPO has benchmarked intangible transactions by using CUP, but, the order passed by TPO does not support such conclusion. It is an accepted principle of law that TPO has to determine the ALP by adopting any one of the methods prescribed u/s 92C of the Act. Mode and manner of computation of ALP under different methods have been laid down in rule 10B. Even, assuming that TPO has followed CUP method for determining ALP of royalty payment, as held by ld. DRP, it needs to be examined if it is strictly in compliance with statutory provisions. Rule 10B(1)(a) lays down the procedure for determining ALP under CUP meth ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mparables were selected by her by making a fresh search in order to show that the payment of royalty by the assessee to its AE was not at arm's length. She simply relied on the approval of SIA to hold that any royalty paid by the assessee on exports and other income was not allowable and disallowed the royalty payment to the extent of ₹ 40,51,486/- treating the same as the royalty paid by the assessee in respect of exports sale and other income. We are unable to agree with this strange method followed by the TPO to make a TP adjustment in respect of royalty payment which is not sustainable either in law or on the facts of the case. She has neither rejected the method followed by the assessee to benchmark the transaction in respect of payment of royalty nor has been adopted any recognized method to determine the ALP of the said transactions. The approval of SIA adopted by the TPO as basis to make TP adjustment in respect of royalty payment was untenable and even going by the said basis wrongly adopted by the TPO, no TP adjustment in respect of royalty payment was liable to be made. As per the said basis, the net sales of the assessee after excluding export sale and other i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e of an anesthesian before operation and after gaining consciousness is difficult to prove as that is not tangible in nature. Likewise, for the advise given by various group centres to the group companies in day-to-day manner is difficult to place on record by way of concrete evidence but the way business is conducted, one can perceive the same. Assessee has given a detailed write-up as well as the services provided and benefit obtained which were not contradicted. The Assessing Officer did not believe the same in the absence of concrete evidence. Unless the Assessing Officer steps into assessee's business premises and observes the role of these companies/assessee's business transactions, it will be difficult to place on record the sort of advice given in day-to-day operations. What sort of evidence satisfies the AO also not specified. Assessee has already placed lot of evidence in support of claims. Therefore, on that court, we are not in agreement with the Assessing Officer and TPO that services were not rendered by the group companies to assessee. 16.1. Even otherwise, the role of transfer pricing Officer is to determine the arm's length price of a transaction. He ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ECD guidelines, he is expected to examine the international transaction as he actually finds the same and then make suitable adjustment but a wholesale disallowance of the expenditure, particularly on the grounds which have been given by the TPO is not contemplated or authorized. 23. Apart from the legal position stated above, even on merits the disallowance of the entire brand fee/royalty payment was not warranted. Assessee has furnished copious material and valid reasons as to why it was suffering losses continuously and these have been referred to by us earlier. Full justification supported by facts and figures have been given to demonstrate that the increase in the employees cost, finance charges, administrative expenses, depreciation cost and capacity increase have contributed to the continuous losses. The comparative position over a period of 5 years from 1998 to 2003 with relevant figures have been given before the CIT (Appeals) and they are referred to in a tabular form in his order in paragraph 5.5.1. In fact there are four tabular statements furnished by assessee before the CIT (Appeals) in support of the reasons for the continuous losses. There is no material brought b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the learned TPO has the authority to determine the arm's length price of the transactions undertaken by the assessee. The jurisdiction of the learned TPO cannot extend to decide the basis of charge/allocation of expenses. In the instant case, the learned TPO ought to have confined his jurisdiction in determining whether the cost allocated by GCT Spain is at arm's length or not. 20.12 For the purposes of benchmarking the profits, the Appellant considered TNMM as the most appropriate method and the PLI of the Appellant is higher than that of the comparable companies. Recently, in the case of Durr India (P.) Ltd. (supra) the co-ordinate Bench of Tribunal held that allocation of cost partly on the basis of turnover and net profit cannot be considered as a factor to propose transfer pricing adjustment. Further, it was held that where the PLI of the Appellant under TNMM is at arm's length and it is not possible on the part of the department to identify a comparable, which is rendering similar services, the question of considering CUP method would not arise at all. 20.13 The Appellant remitted service tax under reverse charge mechanism in respect of the said management fee. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... paid the payments in relation to royalty to its parent AE for use of technical know-how and trademark after getting due approval from RBI and SIA, the disallowance cannot be made. Further if the amount paid by assessee was lesser than similar payments made by other group entities to parent AE, then, TPO should not make the TP adjustment in respect of the royalty payment to its parent AE. 6.2 it is pertinent to note that the Tribunal Hyderabad Bench in the case of Air Liquide Engineering India P. Ltd. In IT Appeal Nos. 1040 & 1159/Hyd/2011 and 1408/Hyd/2010, vide order dated 13-2-2014 held that in transfer pricing proceedings TPO could not sit in judgment on business and commercial expediency of assessee company so as to conclude that payment of royalty made by assessee to its AE was unreasonable and thus ALP of said payment was to be taken as nil. 6.3 It is to be noted that in the case of DCIT v. Sona Okegawa Precision Forgings Ltd. in IT Appeal No. 5386/Del/2010 dated 16-12-2011, the Tribunal held that the assessee entered into an international transaction with its overseas associates and paid royalty @ 3% which was considered as excessive by TPO did not bring any material on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Management fees is remitted to the file of ld. Assessing Officer for fresh consideration for both the assessment years and the Assessing Officer after going through the evidences filed by the assessee decide the issue fresh as indicated above. This ground is partly allowed for statistical purposes for both the assessment years. 22. Next ground for the asstt. year 2012-13 is with regard to disallowance u/s. 14A read with Rule 8D of the Income-tax Rules, 1962 for the purpose of computing total income. 23. The facts of the issue are that for the subject asst. year, the company had investments in its wholly owned subsidiaries i.e. GM Navarra Wind Energy Pvt. Ltd. RSR Power Pvt. Limited and Kintech Santalpur Pvt. Ltd. amounting to ₹ 12,25,00,000/-. The assessee had also submitted the Tax Audit Report in Form 3CA and 3CD, which clearly indicates that the Company had not incurred any expenditure towards maintenance of the aforesaid investments or for earning any exempt income from the said investment. The assessee claimed that no expenditure is required to be disallowed u/s. 14A of the Act. However, the AO modified the facts that there is a direct nexus between increase in investm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Delhi) (Mag.) b. Dy. CIT v. Regen Powertech (P.) Ltd. [2016] 73 taxmann.com 370/161 ITD 43 (Chennai - Trib.). 24.2 The ld. AR, further submitted that there is no proportionate disallowance of interest cost, since the assessee had sufficient interest free funds to make investments. The ld. AR submitted that loan funds have not been utilized for making investments and therefore no disallowance can be made by applying the second limb of Rule 8D i.e. no requirement to disallow proportionate interest cost. The ld. AR also submitted the extracts of bank statement substantiating that only interest free funds in the form of share capital has been invested in subsidiaries. Therefore, the AO has factually erred in not appreciating the same. The ld. AR relied on the decision in the case of Beach Minerals Co. (P.) Ltd. v. Asstt. CIT [2015] 64 taxmann.com 218 (Chennai - Trib.), wherein the Tribunal, Chennai Bench upheld the above principle. 24.3 On the other hand, the ld. DR relied on the orders of the DRP. 25. We have heard both the parties and perused the material on record. It was submitted before us that there was no exempted income; hence, Sec.14A read with Rule 8D cannot be applied. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r conducting a proper enquiry. Inter alia a direction was issued to the assessee to tender a proper explanation for the interest payments. The open remand was made in the facts and circumstances of that case and no conclusion was drawn by the Bench on the position of law involved. In fact, the substantial question of law raised in that case for the consideration of the Court was couched in general terms as follows: "Whether on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal is right in law in confirming the disallowance under section 11.1 of the Income-tax Act, of an amount of ₹ 55,00.000/- in relation to assessment year 2007-2008?" 14. Nothing much turns on the use of the word 'includable' and the phrase 'under the act' in s. 14A and we are not persuaded to accept emphasis laid or the interpretation of the same by the Revenue. An assessment in terms of the Income-tax Act is specific to an assessment year and the related previous year. S. 4 of the Act, which imposes the charge to tax reads thus: Charge of income-tax 4. (1) Where any Central Act enacts that income tax shall be charged for any assessment year a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . [2017] 165 ITD 27/82 taxmann.com 415 (Delhi - Trib.) wherein held that Sec.14A r.w. Rule 8D has no application while computing the book profit u/s.115JB of the Act. More so, in this case there is no exempted income, this provision cannot be applied. This ground of the assessee is allowed. 28. The next ground for the A.Y. 2011-12 is with regard to deduction of interest on service tax and TDS. 28.1 The facts of the issue are that the assessee has incurred expenditure in the nature of interest on delayed payment of service tax (Rs. 12,02,485) and TDS (Rs. 3.81,650). The AO disallowed the expenditure citing that under the provisions of sec. 37(1) of the Act, any expenditure for any purpose in the nature of offence which is prohibited by law shall not be eligible for deduction. 28.2 The ld. AR submitted that as per the Explanation to sec. 37 of the Act, allowability of any expenditure would depend on whether the expenditure incurred is penal or compensatory in nature. Where the expenditure incurred is compensatory in nature, the same should be allowed as deduction. It is pertinent to note that any interest payment is compensatory in nature and therefore cannot be said to be a penal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of Messee Dusseldorf India (P.) Ltd. (supra) wherein held that:- "Interest paid for delayed payment of service-tax is compensatory and has the same character as service-tax and, therefore, it is allowable as deduction." 31.1 Further, in the case of CIT v. Udaipur Distillary (160 ITR 444 (Rajasthan) wherein it was held that interest paid for delay in payment of sales tax is allowable expenditure. Kerala High Court in the case of CIT v. TM Chacko And Partners (115 ITR 40) (Kerala) wherein it was held that interest paid for late payment of Kist is allowable business expenditure. The same view was taken by the Kerala High Court 128 in the case of CIT v. Pachi Phillip & Co. 212 ITR 75 (Kerala). Further, the Tribunal in the case of Remfry & Sagar Consultants (P.) Ltd. v. ACIT (34 CCH 131 (Delhi) wherein it has been held that interest paid for delayed payment of service-tax is allowable. However, in respect of payment of interest on delayed TDS payment it cannot be allowed in view of the judgment of Supreme Court in the case of Bharat Commerce & Industries Ltd. v. CIT (230 ITR 733). Further, the Kolkotta High Court in the case of East India Pharmaceutical India Ltd. v. CIT 11 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... motivate the assessee to defer such investment to the next year for availing full 100% of additional depreciation in the next year. To remove the discrimination in the matter of allowing additional depreciation on plant or machinery used for less than 180 days and used for 180 days or more" Thus, the memorandum acknowledges that as of today if the assets are used for less than 180 days, it is not eligible for full 100% of additional depreciation. Accordingly, the amendment is more for the future years rather than an amendment as applicable even to earlier years prior to financial year 2015-16. Thus, it was never the intention of the legislature to allow the claim of balance 50% additional depreciation in the immediately subsequent year in case of financial years prior to 2015-16. The issue also has been decided by the Tribunal, Chennai Bench in the case of Brakes India Ltd. (supra), where the Tribunal did not allow the balance additional depreciation in subsequent financial year. 34. After hearing both the parties, we find that similar issue was considered by the Karnataka High Court in the case of Rittal India (P.) Ltd. (supra) wherein held that:- 'It has been consist ..... X X X X Extracts X X X X X X X X Extracts X X X X
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