9911796707
TMI Blog2018 (3) TMI 1794X X X X Extracts X X X X X X X X Extracts X X X X ..... hus, in view of the law laid down by the Hon ble Apex Court in the case of TRF Ltd. Vs. Commissioner of Income Tax [ 2010 (2) TMI 211 - SUPREME COURT] and the facts of case, ground No. 2 raised in the appeal by assessee is allowed. Disallowance u/s. 40(a)(i) - contention of assessee is that the provisions of section 40(a)(i) have been invoked in the assessment year under appeal on the basis of amendment introduced by the Finance Act 2012 to section 9(1)(vi) by insertion of Explanations 5 and 6 to the section with retrospective effect from 01-06-1976 - HELD THAT:- No such disallowance can be made when at the relevant point of time the provisions were not in existence. AR has further submitted that the appeal of assessee arising out of proceeding u/s. 201 is pending before Commissioner of Income Tax (Appeals). The directions may be given to Assessing Officer to follow the order of Commissioner of Income Tax (Appeals) in aforesaid proceedings while making disallowance u/s. 40(a)(i) of the Act. In view of the prayer made by ld. AR, the ground No. 3 raised in appeal is remitted back to the Assessing Officer with a direction to recompute disallowance u/s. 40(a)(i) in line with outcome of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd are being disposed of vide this common order. 2. For the sake of convenience the gist of facts are taken from assessment year 2011-12. The assessee is a wholly owned subsidiary of Tetra Laval Holding & Finance SA, Switzerland. The assessee is engaged in manufacturing and supply of packaging material based on aseptic technology which helps in preserving perishable liquid foods without refrigeration or added preservatives. The assessee is also engaged in import and distribution of filling machines, distribution equipments and related spares. The assessee also provides services for installation and maintenance of equipments after sales. The assessee has two main divisions viz. Carton Division and Processing Division. In Carton Division, the assessee undertakes sale and supply of aseptic packaging material, installation and maintenance of equipment's supplied. In Processing Division the assessee carries on business of sale and supply of milk processing modules and aseptic processing equipment. During the period relevant to the assessment year 2010-11, the assessee entered into following international transactions with its Associated Enterprise (AE). S. No. Description of the tr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 38,611/-. iv. Disallowance u/s. 40a(i) ₹ 9,44,43,764/-. Aggrieved by the additions/disallowances made in draft assessment order, the assessee filed objections before Dispute Resolution Panel (DRP). The DRP vide directions dated 17-12-2015 deleted the adjustments made by TPO and accepted assessee's aggregation method for determination of ALP of international transactions. In so far as the other additions/disallowances made by Assessing Officer the same were upheld by the DRP. Based on the directions of DRP the Assessing Officer passed assessment order dated 29-01-2016 against which, both, the assessee and the Revenue are in appeal. 3. The assessee has assailed the assessment order by raising following grounds of appeal : "1.1 The learned Assessing Officer/DRP erred in disallowing the incremental provision for warranty of ₹ 2,95,36,591/-. 1.2 The learned Assessing Officer / DRP erred in not appreciating that the provision for warranty was properly ascertained and was not in the nature of Contingent Liability. 1.3 The learned Assessing Officer / DRP erred in not following the below mentioned decisions: i) Rotork Controls India P. Ltd. Vs. CIT (2009) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ccess third party software 1,12,77,313/- 2 Payments made for right to use internally developed software 1,34,81,469/- 3 Lease Line Charges 1,77,02,023/- 4 Support services 83,87,425/- 5 Support services for ISP 2,42,54,182/- Total 7,51,02,411/- 3.2.3 The learned Assessing Officer /DRP ought to have appreciated that the payments made to AB Tetra Pak Sweden were on account of reimbursement of software license fees and IT support services and since there was no income earned by the said entity, no TDS was required to be deducted on such reimbursement of expenditure. 3.2.4 The learned Assessing Officer / DRP erred in holding that payment for leaseline charges / internet connectivity charges of ₹ 1,77,02,023/- (i.e. ₹ 1,45,18,198/- and ₹ 31,83,825/-) is taxable as "Royalty" under the DTAA as well as per Regular provisions of the Income Tax Act, 1961. He erred in not appreciating that: (a) the payment of lease line charges / internet connectivity charges of ₹ 1,77,02,023/- to AB Tetra Pak Sweden was in the nature of reimbursement of expenses and no tax was deductible at source. (b) the payment of lease line charg ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .2 The learned Assessing Officer / DRP erred in not appreciating that in most of the remittances no Technical Knowledge, plan or design is given and hence the amount remitted is not covered under Article "fees for technical services"/"fees for included services" under the respective DTAA's. 3.4.3 The learned Assessing Officer / DRP erred in not appreciating that the remittances towards training were in the nature of reimbursement or alternately charged under cost allocation agreement and that no tax was deductible at source thereon. 3.4.4 Without prejudice to above, the learned Assessing Officer / DRP erred in not appreciating that the remittance of ₹ 72,72,116/-included various reimbursements of air fare, hotel and other actual expenses which were grouped under this head and that the said reimbursements had to be excluded for the purpose of working of the tax deductible at source. 3.5 The learned Assessing Officer / DRP erred in not appreciating that the payment of ₹ 98,62,173/- for repairs and maintenance, testing and technical consultation was not covered under "Fees for Technical services" of the ADTA and hence the Appellan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... most appropriate method." 5. Shri Nikhil Pathak appearing on behalf of the assessee submitted that the assessee has been consistently following aggregation method in respect of international transactions. The Department never raised any objection qua the method followed up to assessment year 2008-09. The TPO raised objection for the first time in assessment year 2009-10 against the aggregation of various segments. During the assessment proceedings for assessment year 2009-10 the TPO bifurcated the transactions into three segments i.e. Straws segment, Capital segment and Packaging material segment. In assessment year under appeal, the TPO carved out fourth segments i.e. Import of Packaging Material. The assessee raised objections before the DRP against bifurcation of segments. The DRP accepted aggregation approached followed by assessee. The Revenue carried the matter in appeal before the Tribunal in ITA No. 359/PUN/2014. The Tribunal dismissed the ground raised by Revenue against aggregation of international transactions and upheld the findings of DRP. In the subsequent assessment year i.e. assessment year 2010-11 the Tribunal again affirmed the aggregation approach followed by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... relating to disallowance of ₹ 9,44,43,764/- u/s. 40(a)(i) of the Act, the ld. AR reiterated the submissions made in exhaustive grounds of appeal. The ld. AR submitted that separate proceedings u/s. 201 were initiated against the assessee. The assessee has filed appeal u/s. 201 before the Commissioner of Income Tax (Appeals) which is still pending for final disposal. The ld. AR prayed that the directions may be given to Assessing Officer to decide the issue following the order of Commissioner of Income Tax (Appeals). 7. On the other hand Shri Rajeev Kumar representing the Department vehemently defended the assessment order qua the grounds raised by assessee in its appeal. In so far as the grounds raised in appeal by the Department, the ld. DR fairly admitted that the issue raised in ground Nos. 1 and 2 of appeal is identical to the one adjudicated by Tribunal in assessee's own case in assessment years 2009-10 and 2010-11. Findings : ITA No. 635/PUN/2016 (A.Y. 2011-12) 8. We have heard the submissions made by representatives of rival sides and have perused the orders of authorities below. We have also considered the decisions on which the ld. AR of assessee has placed re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e to the defective part. The replacement or repair price were also subject to some warranty for the remainder of original warranty period or six months from the date of repair or installation of replacement part, whichever is shorter. It was agreed that the purchaser had to bear the cost and risk of transport of defective part to the seller, who in turn, had to repair or replace the same on the same terms as the equipment was supplied. As per clause 7.4, the seller i.e. the assessee had no liability for any defect in the equipment because of ordinary wear and tear, misuse or abuse and other conditions. In view of undertaking given by the assessee by way of warranty on the equipment sold by it to the prospective purchasers, the assessee was maintaining a systematic method, wherein the provision was made on account of warranty. In case any part of the warranty was utilized, then the same was so debited or / and the balance on expiry of period of warranty was written back. This method was regularly and systematically followed by the assessee. The CIT(A) has referred to the factual aspects of the case and pointed out that the machinery sold by the assessee was in the range of ₹ 4 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... T(A) is in tune with the decision of the Tribunal. Therefore, the decision of the CIT(A) given in Para No.3.5.3 is fair and reasonable and it does not call for any interference. Accordingly, Ground No.2 raised by the Revenue is dismissed." Following the aforementioned order of the Tribunal, the Tribunal deleted similar disallowance in respect of provision for warranty in the appeal by assessee in ITA No. 412/PUN/2015 for assessment year 2010-11. No material has been placed on record by Revenue to show any change in facts and circumstances in the assessment year under appeal, following the order of Tribunal in assessee's own case in the earlier assessment years, disallowance in respect of provision for warranty is deleted. Thus, ground No. 1 raised in appeal by assessee is allowed. 9. The ground No. 2 of appeal by assessee is with respect to disallowance of claim of bad debts written of ₹ 71,38,611/-. We find that this issue is also covered in favour of assessee by the order of Co-ordinate Bench of Tribunal in assessee's own case in assessment year 2010-11 (supra). The relevant extract of the findings of Tribunal reads as under : "18. On hearing both the parties on this ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... additional ground is not pressed. Thus, in view of statement made by the ld. AR, additional ground raised in appeal by assessee is dismissed. 12. In the result, the appeal of assessee in assessment year 2011-12 is partly allowed in the terms aforesaid. ITA No. 665/PUN/2016 13. Now, we proceed on to decide the appeal of Revenue. The ground Nos. 1 and 2 of appeal are in respect of aggregation approach accepted by Commissioner of Income Tax (Appeals). We observe that identical grounds were raised by Revenue against aggregation approach adopted by assessee and approved by Commissioner of Income Tax (Appeals) in assessment year 2009-10. The Revenue agitated this issue before Tribunal in ITA No. 359/PUN/2014 (supra). The Co-ordinate Bench of Tribunal after taking into consideration the facts of the case, US transfer price regulations, guideline notes issued by ICAI and OECD transfer pricing guidelines passed a detailed order upholding the order of Commissioner of Income Tax (Appeals) and dismissed the grounds raised by Revenue. The Tribunal finally concluded : "21. In view thereof, we uphold the business strategy adopted by the assessee which would follow that sale of machinery ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ving the detailed reasons for difference in price. Thereafter, the onus is on the TPO to show that the method adopted by the assessee for benchmarking the transactions with AEs is not the most appropriate method. 10. In the case of Amphenol Interconnect India Pvt. Ltd. Vs. DCIT (supra) similar issue had come up before the Co-ordinate Bench of the Tribunal. In the said case the assessee had entered into an international transaction for purchase of raw material and export of finished goods. In the TP study report the assessee had applied TNMM as the most appropriate method for computing the ALP of international transactions. The TPO did not accept the contention of the assessee and applied CUP method. The assessee contended that the difference in the price is on account of volume, geographical locations, time difference, risk factor, functional difference etc. The Tribunal after considering the facts of the case observed as under: "3.3 Considering the above differences, CUP method was claimed to be not the most appropriate method to determine ALP. The suitable adjustments were not possible for the above differences and therefore, the TPO was not justified in adopting CUP for ex ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cted by it, was most appropriate. There is no dispute regarding this proposition as well. However, once, the TPO has tried to select a different method, the onus is on the TPO to demonstrate that the other method is the most appropriate method. This principle has been laid down by Special Bench in the case of Aztec Software Ltd. [107 ITD 141 (Bang)(SB)]." 11. The Co-ordinate Bench after considering various decisions relied upon by both the sides concluded that the TPO had wrongly applied CUP method for determining ALP in respect of some of the transactions pertaining to export of finished goods especially when the TPO had accepted more 90% of the export to the AEs. The Tribunal deleted the additions made by applying CUP method. In the present case, we find that the TPO has accepted substantial part of the transactions with AEs (more than 80%), it is only on the minor part of the transactions in respect of one product that the TPO has applied CUP method even though the reasons were given by the assessee for difference in the rate at which the products are supplied to AE in the one country (Thailand) and the third party in other (Vietnam). Thus, in view of the facts of the case an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e from directions issued in earlier years. We are of considered view that the DRP/Assessing Officer cannot take a different view from the settled position which they have endorsed in earlier assessment year(s) merely for the reason that amendment in the provisions of a section has taken away the right of Department to appeal against the directions of DRP. The DRP for the last several assessment years have been consistently allowing aggregation approach. There has been no change in nature of international transactions entered into by the assessee and there has been no change in method of remuneration or AEs involved in the international transactions. Thus, we do not find any reason for DRP/Assessing Officer to take diagonally opposite view from the settled and consistent stand. Accordingly, ground Nos. 1 to 6 raised in appeal by assessee are allowed. 19. In ground No. 7 of appeal, the assessee has assailed disallowance of ₹ 9,28,29,036/- u/s. 40(a)(i) of the Act. Identical issue has been raised by assessee in its appeal in ITA No. 635/PUN/2016 for assessment year 2011-12 as ground No. 3. We have remitted the issue back to the file of Assessing Officer. The findings given ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
