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TMI Blog2019 (5) TMI 411X X X X Extracts X X X X X X X X Extracts X X X X ..... e same view was reiterated by the Tribunal while deciding assessee s appeal for subsequent year also. Therefore, facts being identical, following the consistent view of the Tribunal in the orders referred to above, as well as the decision of different High Courts cited supra, we uphold the decision of the learned Commissioner (Appeals) on the issue in allowing claim - decided against revenue Disallowance of interest on borrowed funds - AO disallowed a part of interest expenditure on the reasoning that investments made by the assessee in sister concerns are not for the purpose of business - HELD THAT:- While deciding dispute arising out of similar disallowance made by the Assessing Officer in the assessment year 2001 02, the Tribunal in [2016 (4) TMI 583 - ITAT MUMBAI] has decided the issue in favour of the assessee by holding that the investment of funds in sister concerns are for the purpose of business. The same view was reiterated by the Tribunal while deciding the issue in assessment year 2006 07 [2016 (10) TMI 1037 - ITAT MUMBAI] , and for the assessment year 2011 12 . [2017 (4) TMI 862 - ITAT MUMBAI] . Disallowance on account of interest attributable to interest free loan to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fer Pricing Officer is examining the arm s length price of the marketing fee paid, he cannot club it with the sales transaction since both are separate and distinct transactions.The agreement between the assessee and the AE clearly establish that the payment of marketing fee is not linked to sales. Therefore, benchmarked separately. Moreover, the assessee is following the aforesaid method of benchmarking all the transactions separately consistently over the years. It is also fact on record that the Department has accepted the benchmarking done by the assessee in all other years except the impugned assessment year. Therefore, there being no material difference in facts, following the rule of consistency also assessee s benchmarking has to be accepted Disallowance for provision of doubtful debts - added back to the income computed under the normal provisions - no adjustment while computing the book profit u/s 115JB - HELD THAT:- As could be seen, the Assessing Officer has added back the provision for doubtful debt taking recourse to Explanation-1(c) to section 115JB(2), as it is not set out for meeting any ascertained liability. However, the facts on record reveal that the amount in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he statute. The Transfer Pricing Officer has not justified or provided any valid reason why 25% downward adjustment has to be made to the price paid. That being the case, the addition made on account of transfer pricing adjustment is unsustainable. Assessee has also not properly benchmarked the transaction, we are inclined to restore the issue to the Assessing Officer for determining the arm s length price of the international transaction relating to purchase of moulds by applying any one of the prescribed methods. In this context, the Assessing Officer should consider assessee s claim of determination of arm s length price by applying entity level TNMM. X X X X Extracts X X X X X X X X Extracts X X X X ..... his context, he drew our attention to the respective orders of the Tribunal. Further, he relied upon the decision of the Hon'ble Madras High Court in Pentasoft Technologies Ltd. v/s DCIT, [2014] 222 taxman 209 (Mad.) and the decision of the Hon'ble Karnataka High Court in CIT v/s Ingersoll Rand International Industry Ltd., 48 taxmann.com 349. 8. We have considered rival submissions and perused material on record. The issue before us is, whether assessee's claim of depreciation on non-compete fee @ 25% by treating it as an intangible asset is acceptable or not. As could be seen, this is a recurring dispute between the parties since the assessment year 1999-2000. Though, while deciding the issue in the assessment year 1999-2000, vide ITA no.4842/Mum./2004, dated 5th April 2013, the Tribunal has disallowed assessee's claim of depreciation on non-compete fee by treating it as an intangible asset, however, while deciding assessee's appeal in assessment year 2001-02 in ITA no. 9645/Mum./2004, dated 2nd March 2016, the Tribunal though was conscious of its own contrary decision in assessment year 1999-2000, however, taking note of the decisions of Hon'ble Madras High Court and Hon'ble Kar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ribunal in assessment years 2001-02, 2006-07 and 2011-12. He drew our attention to the respective orders of the Tribunal. Further, he submitted, since the subsidiaries in which investments were made are in the same line of business, the investment is for the purpose of business, hence, no disallowance of interest expenditure can be made. In this contest, he relied upon the decision of the Hon'ble Supreme Court in S.A. Builders v/s CIT, 288 ITR 001 (SC). Without prejudice to the aforesaid submission, the learned Authorised Representative submitted, since the assessee was having sufficient surplus funds to make the investment, no disallowance under section 36(1)(iii) of the Act can be made. In support of such contention, he relied upon the decision of the Hon'ble Jurisdictional High Court in CIT v/s Reliance Utilities And Power Ltd., [2009] 313 ITR 340 (Bom.). 14. We have considered rival submissions and perused material on record. As could be seen, the Assessing Officer has disallowed a part of interest expenditure on the reasoning that investments made by the assessee in sister concerns are not for the purpose of business. However, it is noticed that while deciding dispute ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ctive orders of the Tribunal. 19. We have considered rival submissions and perused material on record. Undisputedly, the Assessing Officer has computed notional interest on certain amounts shown as receivable from a sister concern and one of the directors. However, the learned Commissioner (Appeals) after verifying the facts on record has found that the amount receivable from the sister concern is not in the nature of loan and the loan advanced to one of the directors is out of surplus fund. The aforesaid factual finding of learned Commissioner (Appeals) remains uncontroverted. Further, the Tribunal while deciding the issue in the preceding assessment years, in the orders referred to above, has deleted similar disallowance made by the Assessing Officer. In view of the aforesaid, we uphold the decision of learned Commissioner (Appeals) on the issue. 20. Ground no.4 is on the issue of deletion of disallowance of employees' contribution to provident fund (P.F) and pension fund amounting to ₹ 14,85,755. 21. In the course of assessment proceedings, the Assessing Officer noticed that employees' contribution to PF and pension fund was paid by the assessee after the due date presc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mmissioner (Appeals) held that the Transfer Pricing Officer was wrong in holding that the marketing fees are related to sales. He observed, as per the material on record, irrespective of the volume of sales made to the AE, marketing fee does not vary. He observed, sale of glass bottles and payment of marketing fee are separate transactions, hence, cannot be benchmarked together. Thus, ultimately, he accepted assessee's separate benchmarking of transaction of sales and marketing fee and ultimately deleted the addition made on account of transfer pricing adjustment. 25. The learned Departmental Representative relying upon the observations of the Transfer Pricing Officer submitted, since the marketing fee is linked to the sales, the Transfer Pricing Officer was justified in making adjustment to the margin shown by the assessee relating to sales of bottles. In this context, he heavily relied upon the observations of the Transfer Pricing Officer. 26. The learned Authorised Representative strongly relying upon the observations of learned Commissioner (Appeals) submitted, without assigning any valid reason for rejecting the method applied by the assessee, the Transfer Pricing Officer ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in PCIT v/s Vishay Components India Pvt. Ltd., in ITA no.1643/2016, dated 18th February 2019, supports this view. Even, the Hon'ble Supreme Court in CIT v/s Kargill Foods India Ltd., judgment dated 24th October 2016. has also expressed similar view. In the aforesaid view of the matter, we uphold the decision of the learned Commissioner (Appeals) on the issue. 28. In ground no.6, the Department has challenged the deletion of disallowance for provision of doubtful debts amounting to ₹ 2,31,79,785. 29. Brief facts are, during the assessment proceedings, the Assessing Officer noticed that the assessee has debited an amount of ₹ 2,31,79,785, to the Profit & Loss Account towards provisions for doubtful debts. He noticed that, though, the assessee has added back this amount to the income computed under the normal provisions of the Act, however, it has not done the same while computing the book profit under section 115JB. Referring to the Explanation 1 (c) under section 115JB(2) of the Act, the Assessing Officer held that the amounts set-aside towards provision made for making liabilities other than ascertained liabilities have to be added back to the net profit. Accordin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... learned Commissioner (Appeals). 38. Ground no.3 is on the issue of deletion of addition of interest on interest free loan advanced to sister concern. This ground is identical to ground no.3 of ITA no.4777/Mum./2016. Following our decision in Para-19 of the order, we uphold the decision of the learned Commissioner (Appeals). 39. Gorund no.4, relates to deletion of disallowance made on account of delayed payment of employees' contribution to P.F. and pension fund. 40. This ground is identical to ground no.4 of ITA no.4777/Mum./ 2016. Following our decision in Para-22 of the order, we uphold the decision of the learned Commissioner (Appeals). 41. In ground no.5, the Revenue has challenged partial relief granted by the learned Commissioner (Appeals) in respect of adjustment made to the arm's length price of interest on interest free loan advanced to the Associated Enterprise (AE) and commission on corporate guarantee provided to the AE. Challenging the decision of learned Commissioner (Appeals) assessee has raised corresponding grounds in its appeal for the very same Assessment Year in ITA no.4598/Mum./ 2016. 42. Brief facts are, the Transfer Pricing Officer noticing that the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... record. We are unable to accept the contention of the learned Authorised Representative that transfer pricing provision would not apply to the loan transaction with the AE. In our considered opinion, the provision of interest free loan to the AE comes within the purview of international transaction under section 92B of the Act, hence, transfer pricing provisions will apply. Moreover, since by provision of interest free loan, a benefit has accrued to the AE which may not have been the case if such loan would have been advanced by a third party, determination of arm's length price of the interest on such loan has to be made. However, we agree with the learned Commissioner (Appeals) that interest cannot be charged by applying PLR rate, since, the loan has been advanced to the AE in a foreign country. Therefore, we direct the Assessing Officer to charge interest on interest free loan to the AE at LIBOR plus 200 basis points. As regards guarantee commission for provision of corporate guarantee, we are unable to accept the contention of the learned Authorised Representative that it does not come within the purview of international transaction as defined under section 92B of the Act. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... identical to ground no.5 of ITA no.4778/ Mum./2016. Following our decision in Para-46 of the order, we dismiss the grounds raised. 60. In ground no.6, the Revenue has challenged deletion of addition made to the book profit on account of disallowance of provision of non-moving / obsolete inventory. 61. This ground is identical to ground no.6 and 7, of ITA no.4777/ Mum./2016. Following our decision in para-32 and 34 of the order we dismiss the ground raised. 62. In the result, appeal is dismissed. ITA no.4599/Mum./2016 Assessee's Appeal for A.Y. 2008-09 63. Grounds no.I and II raised by the assessee are in relation to determination of arm's length price of interest on interest free loans advanced to the AE and guarantee commission on corporate guarantee provided to the AE. 64. We have dealt with these issues while deciding corresponding grounds, being ground no.4 and 5 in Revenue's appeal in ITA no.4780/Mum./2016. Accordingly, these grounds are decided in terms of our decision in para-46 and 51 of the order. 65. In ground no.(III), the assessee has challenged addition made on account of transfer pricing adjustment to the price paid for purchase of moulds. 66. Brief fac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ave considered rival submissions and perused material on record. Undisputedly, the assessee was unable to justify its claim that the international transaction relating to purchase of moulds was benchmarked by applying CUP method. Similarly, while determining the arm's length price of the disputed transaction, the Transfer Pricing Officer has not followed any prescribed method, but has determined the arm's length price on purely estimation basis. This, in our view, is legally unsustainable. The Transfer Pricing Officer is duty bound to determine the arm's length price of the international transaction by following any one of the methods prescribed in the statute. The Transfer Pricing Officer has not justified or provided any valid reason why 25% downward adjustment has to be made to the price paid. That being the case, the addition made on account of transfer pricing adjustment is unsustainable. However, considering the fact that the assessee has also not properly benchmarked the transaction, we are inclined to restore the issue to the Assessing Officer for determining the arm's length price of the international transaction relating to purchase of moulds by applying a ..... X X X X Extracts X X X X X X X X Extracts X X X X
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