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TMI Blog2021 (10) TMI 1283X X X X Extracts X X X X X X X X Extracts X X X X ..... consider all the evidences filed by assessee in the light of observations by the Ld.TPO in preceding and subsequent assessment years. The Ld.TPO/AO shall analyses issue in the light of observations by coordinate bench of this Tribunal in assessee s own case for assessment year 2008-09 and 2010-11 [ 2021 (4) TMI 778 - ITAT BANGALORE] and compute the ALP of international transactions with AE s in accordance with law. Disallowance u/s. 40A(2) in respect of payment made to Home center LLC towards consultance/professional fees - HELD THAT:- We note that on one hand the CIT(A) is observing the casual manner in which the disallowance is made, and on the other hand he is confirming disallowance to the extent of 50% on adhoc basis. We are not in agreement with such ways of the CIT(A) and the TPO. We have remanded identical issue to the Ld.TPO/AO while considering assessee s appeal for assessment year 2009-10. The facts for year under consideration is same and the issue of disallowance being identical, we remand this issue to the Ld.TPO/AO. The Ld.TPO/AO shall verify the details mutatis mutandis as observed by us for assessment year 2009-10. Bogus purchases - AO disallowed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... allowed by the Ld.CIT(A) - HELD THAT:- The restriction of considering fresh claim except by way of filing a revised return is cast only on and assessing officer. However there is no such embargo to consider the claim made by the assessee for the first time before the appellate authorities. We note that the CIT(A) directed the AO to consider the claim of assesssee which is in accordance with the ratio laid down by Hon ble Supreme Court in case of Goetz India Ltd [ 2006 (3) TMI 75 - SUPREME COURT] - Similar is the view by various other decisions of Hon ble Supreme Court and High Courts. We therefore do not find any infirmity in the decision of the Ld.CIT(A). - IT(TP)A No. 2333/Bang/2016, ITA No. 2260/Bang/2016, C.O. No. 20/Bang/2020 (in ITA No. 2260/Bang/2016, ITA No. 2334/Bang/2016, ITA No. 2473/Bang/2017 And ITA No. 2826/Bang/2017, C.O. No. 25/Bang/2018 (in ITA No. 2473/Bang/2017) - - - Dated:- 11-10-2021 - Shri Chandra Poojari, Accountant Member And Smt Beena Pillai, Judicial Member For the Assessee : Shri K.R. Vasudevan, Advocate For the Revenue : Shri Devarathnakumar .K, CIT (DR) ORDER PER BENCH Present cross appeals appeal has been filed by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the view that, payment towards intragroup services would be treated at arms length only when it is proved substantially by assessee that such services were actually received, and further if proved that by the assessee that such services have benefited. The Ld.TPO rejected the aggregation of international transaction, since he was of the view that, the services rendered by assessee were not intrinsically related to each other. The Ld.TPO observed that assessee could not submit any evidence showing that services were actually required and rendered by the AE s. He applied CUP and computed ALP to be nil . The Ld.TPO proposed adjustment to be ₹ 4,68,66,897/- in respect of international transaction. 4.4 The Ld.AO while passing final assessment order, held ₹ 4,68,66,897/- to be excessive under section 40A(2) of the Act. The Ld.AO observed that assessee capatalised payment made to Home Center LLC and consequent depreciation amounting to ₹ 17,11,500/- was claimed. He also observed that professional fees of ₹ 40,79,397/- was paid to RNA. The Ld.AO thus disallowed total of ₹ 57,90,897/- by invoking provisions of section 40A(2)/37 of the Act. 4.5 The L ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... correspondences and other supporting documents itself proves the necessity, reasonability and the corresponding tangible benefits accruing from the service received from its AE. 5.1 The Ld.AR submitted that Ground no.1 is general in nature and therefore do not require any adjudication. 5.2 He submitted that the above grounds, relates to one issue, and that all other grounds are in support of the same. We are therefore restricting to the above reproduced grounds. 5.3 Brief facts are as under: Assessee during the year under consideration made following payments to RNA resources Ltd and Home Centre LLC: Associated Enterprise Particulars Transaction RNA Resources Group Ltd Import of treated goods 21,14,53,768 Professional services 14,79,397 Home Centre LLC Professional services 4,27,87,500 5.4 The Ld.TPO proposed adjustment amounting to ₹ 4,68,66,897/- towards the professional services paid by assessee to RNA Resources Group Ltd., and Home Centre LLC i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Admittedly, such expenses are incurred by assessee on year to year basis and that it is similar with the payments made in the preceding as well as succeeding assessment years. The succeeding and preceding assessment year, the Ld.TPO concluded that no adjustment is required under section 92CA of the act as the transaction was at ALP. However, the Ld.AO while passing assessment order disallowed the expenses under section 40A (2)/37 on the ground that they are excessive unreasonable and unrelated, which was deleted by the Ld.CIT(A). 6.2 It is a case of assessee that there is no distinguishing fact for year under consideration vis- -vis assessment years 2008-09 and 2010-11, wherein identical international transaction was found to be at arms length. 6.3 It is argued by the Ld.DR that there was no need for assessee to incur these expenses as assessee could have carried out necessary services with any other person other than AE. The argument of the Ld.DR that facts in present case are different in present year as compared to assessment years 2008-09 2010-11 cannot be accepted. This Tribunal in preceding and subsequent years considered a situation where, the Ld.TPO held the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at there cannot be unwarranted deviation when the international transactions are declared at arm s length price. (ii) The AO has erroneously disallowed the aforesaid expense under section 40A(2) of the I.T.Act, without specifying what is excess or unreasonable in the payments made. The AO failed to bring on record fair market value analysis for making such disallowance. (iii) In the context of section 37 of the I.T.Act, the AO had not explained as to how and why the aforesaid expense is not wholly and exclusively incurred for business purpose. (iv) The aforesaid expense is a capital expenditure of the assessee and therefore, to this extent, the section 40A(2) of the Act / section 37 of the Act itself cannot be made applicable. 4.3 Aggrieved by the order of the CIT(A), the Revenue has filed this appeal before the Tribunal. The learned Departmental Representative relied on two orders of the Bangalore Benches of the Tribunal in the case of (i) DRHL India Services (P.) Ltd. [2019] 102 taxmann.com 334 (Bang.Trib.), and (ii) Gemplus India (P.) Ltd. [2010] 3 taxmann.com 755 (Bang.Trib.), and contended that since evidence filed by the assessee did not substantiate the n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... payments are already been accepted at arms length by the TPO, then there was no justification on the part of the A.O. to hold that the expenditure is unreasonable and invoke the provisions of section 40A(2) of the I.T.Act. Similar view has been held by the Bangalore Benches of the Tribunal in the case of Herbalife International India (P) Ltd. v. ACIT reported in (2016) 65 taxmann.com 143 (Bang.Trib.). The relevant finding of the Tribunal in this regard, reads as follow:- 10.4 We have considered the rival submissions as well as the relevant material on record. This transaction of payment of administrative service fee has been declared by the assessee as international transaction and is also subjected to TP provisions of sec.92CA, however, the AO made an alternative addition by invoking the provisions of sec.40A(2) of the Act. The AO allowed only 2% of the turnover amounting to ₹ 1,02,62,530/- and the balance of ₹ 4,81,97,802/- has been disallowed under section 40A(2) of the Act. There is no dispute that the transaction has been reported by the assessee as international transaction which was also accepted by the AO and the TPO as an international transaction. Thus, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nce of 50% without assigning any reasons. Whereas the assessee has placed substantial material on record to establish that various services were rendered by MEMGIIPL. We have also carefully perused the judgment referred to by the assessee and we find that it has been repeatedly held through various judicial pronouncements that the onus is on the AO to bring on record the comparable cases to prove that payment made by the assessee is in excess of fair market value and hence the same in his opinion is found to be excessive or unreasonable. It was also held that provisions of section 40A(2) are not automatic and can be called into play only if the AO establishes that expenditure incurred is in fact in excess of fair market value. In the case of CIT v. Modi Revlon (Pvt.) Ltd. (supra), the Hon ble Delhi High Court has held that in order to determine whether the payment is not sustainable, the AO has to first return a finding that payment made is excessive, under section 40A(2) of the Act. If it is found to be so, that AO has to determine what constitutes the fair market value of the services rendered and disallow the difference between what is claimed and what is such value determined f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... with regard to the same by RNA. Clauses (g) to (l) are with regard to running of the stores subsequent to the setting up by the RNA and providing inputs to the assessee for the same. Broadly, the services of RNA to assessee includes the following:- (i) Advising on choosing locations; (ii) Evaluating and advising on the technical and commercial aspects like profitability, return on investments etc. (iii) Advising on the ambience, designing and set up of showrooms, display of hardware and products etc. (iv) Sharing of knowledge on global trends, advices on sourcing of the products from global markets, advising on way to increase footfalls and other similar services. 4.5.5 RNA has rich experience in setting up, running of stores and other related matters. It is providing such inputs to the other group concerns world over. The A.O. has nowhere doubted the genuineness of the agreement, the retention of services as well as the fact of actual payment of professional fees. The A.O. has disallowed the payment merely because he considered that there was no necessity of incurring such expenses by stating that the assessee had full-fledged management team and well-equi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be treated at arms length only when it is proved substantially by the assesee that such services were actually received and further providing that such received services have benefited assesee. Nothing significant services were rendered by the associated enterprise which commensurate the payment of consultancy charges. 6.6 Before us, the Ld.AR submitted that, the consultancy agreement, specifies the scope of services rendered, which forms part of submissions before the Ld.CIT(A). Further, he submitted that, it is the same agreement and, services rendered by associated enterprises were same for year under consideration as well as assessment year 2008-09 and 2010-11. He submitted that assessee filed all relevant evidences/ documentation which could establish the necessity of services to be rendered by the associated enterprises. He referred to page 97-99 of paper book and page 81 to 88 of paper book wherein various submissions were made and advanced by assist. He also referred to page 135 to 237 of paper book wherein the rendition of services have been evidenced, which were not considered. 6.7 We note that the authorities below has not doubted the agreement for year u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessee had management experts on its rolls, and, therefore, global business oversight services were not needed. It is difficult to understand, much less approve, this line of reasoning. It is only elementary that how an Assessee conducts his business is entirely his prerogative and it is not for the revenue authorities to decide what is necessary for an Assessee and what is not. An Assessee may have any number of qualified accountants and management experts on his rolls, and yet he may decide to engage services of outside experts for auditing and management consultancy; it is not for the revenue officers to question Assessee's wisdom in doing so. The Transfer Pricing Officer was not only going much beyond his powers in questioning commercial wisdom of Assessee's decision to take benefit of expertise of Dresser Rand US, but also beyond the powers of the Assessing Officer. We do not approve this approach of the revenue authorities. We have further noticed that the Transfer Pricing Officer has made several observations to the effect that, as evident from the analysis of financial performance, the assessee did not benefit, in terms of financial results, from these services. Thi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... earned Commissioner of Income-tax (Appeals) [ the learned CIT(A) ] has erred in upholding disallowance to the extent of 50% of payment made to Home Centre LLC [ AE ] amounting to ₹ 2,987,738 in an ad-hoc manner without providing any comparable price and any basis for estimating the expense to be excessive and unreasonable. 2. The learned CIT(A) has erred in contending that the aforesaid payments were unreasonable and excessive and without legitimate need of business without appreciating the fact that the Appellant has duly submitted the necessity as well as reasonability of such payments. 3. The learned CIT(A) erred in not appreciating that, the professional/ consultancy services are aggregated with the main business activity of the Appellant under Transactional Net Margin Method [ TNMM ] and are tested by transfer pricing analysis and hence disallowance under section 40A(2) of the Act is bad in law. 4. The learned CIT(A) erred in disregarding the documentary evidences in the form of agreements, email correspondences and other supporting documents which proves the necessity, reasonability and the corresponding tangible benefits accruing from the service receive ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... epartment regarding non genuine/bogus bills being issued by a person under the name and style Mahavir Corporation. Aggrieved by the addition made, assessee preferred appeal before the Ld.CIT(A). 9. The Ld.CIT(A) upheld the disallowance by observing as under: 7.3. The observations findings of the AO are based on formal communication received from the VAT department of state of Maharashtra. The seller namely M/s Mahavir Corporation has clearly admitted to having indulged in large-scale sales, without-actual delivery of goods. The Assessee, has accepted that, certain transactions have been entered with the above said party in a bonafide belief that, the PAN/TAN particulars were genuine. It is clear that, the supplier of goods to the appellant has resorted to certain tax fraud. The Assessee's plea to the extent that, it may not have been aware of the seller's antecedents is acceptable, as it would not be possible to verify each supplier, when large-scale purchases are involved. However, at the same time it is incumbent upon the assessee to undertake due-diligence with regard to basic verification of its trading partners. Once it has been held that, sales in th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mstances the purchases made by assessee cannot be treated to be bogus on surprises. 10.4 We therefore direct the Ld.AO to delete the addition in the hand of assessee. Accordingly this ground raised by assessee stands allowed. ITA No.2260/B/2016(Revenue Appeal) Grounds alleged by Revenue are as under: 1. The Order of the Ld. CIT (A), in so far as it is prejudicial to the interest of the Revenue, is opposed to law and the fact and circumstances of the case. 2. On facts of the case, whether the Ld. CIT (A) is right in deleting the impugned disallowance of professional fee of ₹ 29,87,738/- being 50% of the total disallowance of ₹ 59,75,476/- without any justification. 3. On facts of the case, whether the Ld. CIT (A) is right in deleting the disallowance made of premium on forward cover u/s 43(5) treating it as speculative loss which is capital in nature and allowing the appeal of the assessee. 4. On facts of the case, whether the Ld. CIT (A) is right in allowing the appeal of the assessee on the issues of belated payment s made towards PF/ESI despite the fact that these payments were made beyond the due date specified by the respectiv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eleted the disallowance by observing as under: 6.3. The observations / findings of the AO and submissions of the Appellant have been carefully perused. The judicial position on the issue at hand has been analysed. The primary argument of the AO is that, the since the final settlement of the forward contracts, happened on currency, even though admittedly on trading items and working loan, the same had to be deemed as speculative. The Assessee on the other hand, has contended that, the transactions under reference, fall 'abinitio' out of the ambit of speculative-character, as per law and as held by several courts, in identical facts circumstances. -The Appellant has contended that, the impugned forward contracts were entered to hedge the import payments working capital loans, in the attempt to secure from foreign exchange risk, which is found to be in the course of its routine business activity. -The consideration being paid to the Bank is typically in the nature of Bank-charges, which therefore essentially assume a revenue character, in the present-circumstances. The Assessee has disputed the AO's stand that, the present transactions would fall un ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ium for entering into such forward contract. These are in the nature of actual charges levied by the bankers. It is nothing but bank charges which is purely revenue in nature. The said expenditure is incurred to secure the assessee s business from foreign exchange fluctuation risk. In case the assessee would not have taken the forward contract to cover itself from fluctuation risk, it can lead to making higher payment of imports and incurring huge losses, which could result in lesser profit. The Hon ble Calcutta High Court in the case of CIT v. Britannia Industries Ltd. reported in [2015] 376 ITR 299 (Calcutta) had held that consideration paid by the assessee to the authorized dealer of foreign exchange, which is the bank in this case, in order to obtain protection from fluctuation of foreign exchange rates is a revenue expenditure . 5.6 As per section 43(5) of the I.T.Act, speculative transaction means a transaction in which the contract for purchase or sale of any commodity including stocks and shares, is periodically or ultimately settled otherwise than by the actual delivery or transfer of the commodity or scrips. The definition also provides for certain exceptions. A spe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... efinition of goods. Besides, no person other than authorised dealers and money changers are allowed in India to trade in foreign currency, much less speculate. S. 8 of the Foreign Exchange Regulations Act, 1973, provides that except with prior general or special permission of the RBI, no person other than an authorised dealer shall purchase, acquire, borrow or sell foreign currency. In fact, prior to the LERMS, residents in India were not even permitted to cancel forward contracts. The presumption of any speculative transaction is, therefore, directly rebutted in view of the legal impossibility and in view of the fact that foreign currency was neither commodity nor shares. 5.11 Based on the above, foreign currency does not fall within the purview of the term commodity and hence this characteristic of a speculative transaction is not satisfied. Since, the definition of speculative transaction itself is not applicable to the assessee s case as all the conditions were not satisfied, treating the transaction as speculative in nature is not sustainable in law. Therefore, we hold that the CIT(A) is correct in deleting the disallowance of premium on forward contract and no interf ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... member, his wages, deduct his contribution from his wages and de posit the same together with his own contribution and other charges as stipulated therein with the provident fund or the fund under the ESI Act within fifteen days of the closure of every month pay. It is clear that the word contribution' used in Clause (b) of Section 43-B of the IT Act means the contribution of the employer and the employee. That being so, if the contribution is made on or before the due date for furnishing the return of income under sub-section(1) of Section 139 of the IT Act is made, the employer is entitled for deduction . 14.3 The law stood during the relevant were under consideration, Respectfully following decision of Hon ble, Karnataka High Court , we do not find any infirmity in the view taken by the Ld.CIT(A) and the same is upheld. Accordingly this ground respectively stands dismissed. 15. Ground No.5 is regarding claims not made in the return allowed by the Ld.CIT(A) It is a case of revenue that the Ld.CIT(A) considered certain issues which were not part of the original return filed processing or any revised return that was filed during assessment proceedings. Th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed submissions advanced of both sides in the light of records placed before us. 16.2 The restriction of considering fresh claim except by way of filing a revised return is cast only on and assessing officer. However there is no such embargo to consider the claim made by the assessee for the first time before the appellate authorities. We note that the Ld.CIT(A) directed the Ld.AO to consider the claim of assesssee which is in accordance with the ratio laid down by Hon ble Supreme Court in case of Goetz India Ltd (supra). Similar is the view by various other decisions of H on ble Supreme Court and High Courts . We therefore do not find any infirmity in the decision of the Ld.CIT(A). 16.3 We direct the Ld.AO to consider the claim of process in accordance with law by granting proper opportunity of being heard. Accordingly this ground raised by revenue stands dismissed. CO No. 20/B/2020(By assessee) 17. Assessee has filed this cross objection in support of CIT(A) s decision in respect of 50% addition deleted under section 40A(2). As we have remanded entire issue to the Ld.TPO, the cross objection filed by assessee does not survive. Accordingly cross ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessee stands allowed for statistical purposes. ITA No.2473/B/2017(Revenue Appeal) 19. Ground No.1 is general in nature and therefore do not require any adjudication. 20. Ground No.2 of Revenue appeal is challenging 50% addition deleted by the Ld.CIT(A) in addition made under section 40A(2). 20.1 As we have remitted the issue in assessee s appeal, with necessaty direction, this issue also stands remanded to the Ld.TPO. The Ld.TPO shall verify the entire issue in light of evidences filed in accordance with law. Ld.TPO shall verify the details mutatis mutandis as observed by us for assessment year 2009-10 2011- 12 hereinabove. Accordingly, this ground raised by revenue stands allowed for statistical purposes. 21. Ground no.3 in revenue appeal is challenging the addition deleted under section 43(5) r.w. section 73 of the Act. 21.1 We have considered identical issues for AY 2011-12 hereinabove in revenue appeal. The observations therein are applicable mutatis mutandis . Accordingly, this ground raised by revenue stands dismissed. 22. Ground No.4 is regarding claims not made in the return allowed by the Ld.CIT(A) 22.1 We have re ..... X X X X Extracts X X X X X X X X Extracts X X X X
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