9911796707
TMI Blog2024 (7) TMI 828X X X X Extracts X X X X X X X X Extracts X X X X ..... is ground of the assessee is allowed. Disallowance u/s.14A r.w.r.8D - AO re-computed the disallowance by invoking rule 8D, wherein he has disallowed a sum towards interest under rule 8D(2)(ii) and a sum under rule 8D(2)(iii). The CIT(A) upheld the disallowances - HELD THAT:- It is a settled position now that when own funds are more than the investments earning exempt income, no disallowance under rule 8D(2)(ii) towards interest is warranted. Similar is the position that for the purpose of disallowance under rule 8D(2)(iii), only the those investment that earn tax free income should be considered. On perusal of records we notice that the assessee is having sufficient own funds which is more than the tax free investments and therefore we hold that no disallowance under rule 8D(2)(ii) can be made and the disallowance made by the assessing officer is hereby deleted. Disallowance made u/r 8D(2)(iii) we direct the AO to recomputed the disallowance by considering only those investment that earn tax free income and exclude investments in growth funds. AO is further directed to consider the suo moto disallowance made by the assessee while re-computing the disallowance under rule 8D(2)(iii). ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ected future claims on performance warranty up to 7 years, given by the assessee on its exterior decorative paints and expected claims from industrial customers on account of quality issues - HELD THAT:- Assessee has incurred actual expenditure during FY 2008-09 and therefore there is merit in the submission that the provision is resulting in actual expenditure in subsequent years. As noticed that the assessing officer has not taken cognizance of the actual expenditure incurred in the later years and also it is not clear how the expenditure is allowed in subsequent year i.e. whether actual amount incurred is allowed as a deduction. In case the amount is allowed in the year in which actually incurred then allowing the provision in the current year would amount to double deduction. We therefore remit the issue back to the assessing officer with a direction to examine the basis of provision, the actual expenditure incurred and allow the claim in accordance law with after giving a reasonable opportunity of being heard to the assessee. Allowability of amalgamation expenses of which 1/5th had been claimed under sec. 35DD - as per DR as per the provisions contained in Sec. 35DD only 1/5 d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... CIT(A) has rightly decided the issue against the assessee as the employees contribution on account of ESI lying deposited with the employers has to be deposited before the due date prescribed under the Act. Since the assessee has failed to comply with the condition precedent for depositing the employees contribution on account of PF ESI before the due date prescribed under the Act he is not entitled for any deduction. Treaty rate to be applied for dividend distributed instead of rate prescribed in sec 115O - HELD THAT:- Issue is covered by the decision of the Special Bench decision in the case of Total Oil (P) Ltd. [ 2023 (4) TMI 988 - ITAT MUMBAI (SB)] against the assessee. Respectfully following the decision of special bench we dismiss the additional ground raised by the assessee. Depreciation on UPS - 15% OR 60% - AO has calculated depreciation on UPS by applying general rate of 15% for plant and machinery whereas 60% claimed by assessee - HELD THAT:- It is noticed, in the case of PCIT vs Goa Tourism Development Ltd. [ 2019 (3) TMI 287 - BOMBAY HIGH COURT] has held that UPS being a part/accessory of computer is eligible for depreciation at 60%. The same view has been expressed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t for delayed payment from AEs Ground No.4 Ground No.2 Ground No.3 Ground No.3 Disallowance of the provision for warranty Ground No.5 Ground No.3 Ground No.4 Ground No.4 Allowability of amalgamation expenses under sec.35DD Ground No.6 Ground No.4 Ground No.5 Ground No.5 Disallowance of commission payable to the Managing Director under sec.40(a)(ia). Ground No.7 Ground No.5 Ground No.6 Ground No.6 Disallowance for delayed payment of ESIC under sec.36(1)(va) Ground No.8 Ground No.6 Ground No.7 Ground No.7 Disallowance for excess depreciation claim on assets eligible for 100% depreciation Ground No.8 - Treaty rate to be applied for dividend distributed instead of rate prescribed in sec.115-O Additional Ground Additional Ground Additional Ground 3. The revenue raised the following grounds of appeal 1. On the facts and in the circumstances of the case, and in law, the Ld. CIT(A) erred in deleting the adjustment of Rs. 17,57,731/- to the total income of the assessee on account of lower sale price of goods to the assessee's AE. 2. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in deleting the adjustment of Rs. 17,57,731/- by holding that sales to no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2 Software development charges for E-MIS Reports 59,262/- 3 License fee of software modification of SAP Input and output screens 3,87,463/- 4 Application software for window operating systems 1,26,720/- 5 Licence fee of software for modification of SAP Input and output screens 18,72,000 6 Licence fee for form tracking module for sales tax 7,20,445/- 7 Licence fee for form tracking module for sales tax 2,04,314/- 8 Upgradation of software for GLC Machine (Testing Machine) 1,02,519/- TOTAL 35,37,723/- The AO has treated the above expenditure as capital and allowed depreciation of Rs.17,11,188 @ 60% [Para 3, pg.2]. The AO has also observed that the Assessee s representative agreed for this disallowance as per note sheet entry dated 16.09.2011. On appeal, the CIT(A) upheld the disallowance. 6. The Ld.AR of the assessee submitted that in fact the assessee did not agree for the disallowance. The assessee had only accepted that the concerned expenses were incurred for purchase of software. In this regard, the Ld.AR invited our attention to the affidavit file by one Mr. Santosh H Ghadigaonkar, Chief Accountant of the assessee company, who has confirmed the above facts by swearing that (a) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he assessee towards the purchase of application software is revenue in nature. Thus the 2nd ground of appeal is allowed. 9. We further notice that the above decision has been followed by the coordinate bench in assessee's own case for AY 2007-08. Therefore respectfully following the above we deleted the disallowance of expenditure incurred by the assessee towards the purchase of application software. Further with regard to license fee we notice that the Special Bench of the Tribunal in the case of Amway India Enterprises vs Dy.CIT (111 ITD 112) which has been affirmed by the Hon ble Delhi High Court, where the Hon ble Special Bench has described the concept of benefit of enduring nature as under:- Whether expenditure on computer software gives on enduring benefit to an assessee: For ascertaining as to whether expenditure on computer software gives an enduring benefit, to an assessee, the duration of time for which the assessee acquires right to use the software becomes relevant. Having regard to the fact that software becomes obsolete with technological innovation and advancement within a short span of time, it can be said that where the life of the computer software is shorter ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ers. The ld AR further submitted that this contention has been accepted by the Hon ble ITAT in the Assessee s case for Assessment Year 2007-08. With regard to the disallowance made under Rule 8D(2)(iii) the ld AR submitted that the investments that have yielded exempt income alone can be considered. The ld AR placed reliance on the decision of Hon ble ITAT Special Bench in Vireet Investments reported in 165 ITD 27. The ld AR also prayed that the investments in Growth Funds to be excluded while calculating the disallowance under rule 8D(2)(iii) and in this regard relied on the decision of the coordinate bench in the case of Manugraph Industries ITA No.4761/M/2013 (Ann.A)[2023] 151 taxmann.com 250 (Mumbai). Accordingly the ld AR submitted that the disallowance under Rule 8D(2)(ii) be deleted and the disallowance under Rule 8D2(iii) be reworked after excluding investments that have not yielded income during the year and investments in Growth Funds. 13. The ld DR on the other hand relied on the order of the assessing officer and CIT(A) 14. We heard the parties and perused the material on record. It is a settled position now that when own funds are more than the investments earning exem ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... see filed appeal before the CIT(A). The CIT(A) upheld the action of the Assessing Officer. Further aggrieved, the assessee is in appeal before the Tribunal. 16. The Ld.AR for the assessee submitted that the Assessee follows 'exclusive' method of accounting for MODVAT / CENVAT credit with regard to inventory, purchases and consumption. As per the method of accounting regularly employed by the assessee, the purchases are accounted for net of excise duty paid thereon since such excise duty is available as CENVAT credit. The CENVAT credit is shown on the Asset side of the Balance Sheet. The opening and the closing inventories are valued at net of excise duty paid thereon. Further, the sales are accounted inclusive of the excise duty paid. Excise duty on goods manufactured whether sold or not, is debited to P L A/c. The inventory of finished goods is valued inclusive of excise duty thereon. As per 'Accounting Standard ( AS ) - 2 Valuation of Inventories' issued by the Institute of Chartered Accountants of India ( ICAI ), purchases are to be accounted 'net' of excise duty paid thereon. The Assessee has recorded its inventory as on March 31, 2007 inclusive of taxes ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssee on compensation or on enhanced compensation, as the case may be, shall be deemed to be the income of the year in which it is received. This amendment will take effect from 1st April, 2010 and will, accordingly, apply in relation to the assessment year 2010-11 and subsequent years. The Memorandum to Finance Bill , 2009 also explain substitution of Section 145A as under which as we will see is concerned with insertion of new clause (b) to Section 145A of the 1961 Act, which is reproduced as under : Rationalization of provisions for taxation of interest received on delayed compensation or enhanced compensation The existing provisions of Income-tax Act provide that income chargeable under the head Profits and gains of business or profession or Income from other sources , shall be computed in accordance with either cash or mercantile system of accounting regularly employed by the assessee. Further, the Hon ble Supreme Court, in the case of Rama Bai v. CIT (181 ITR 400) has held that arrears of interest computed on delayed or enhanced compensation shall be taxable on accrual basis. This has caused undue hardship to taxpayers. With a view to mitigating the hardship, it is proposed to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ay High Court in the case of Diamond Dye Chem Limited(supra) was AY 2008-09 which was post amendment by Finance Act, 1998 wherein Section 145A was inserted w.e.f. 01.04.1999. The Hon'ble Bombay High Court in the case of Diamond Dye Chem Limited(supra) while adjudicating appeal relied upon decision of Hon'ble Supreme Court in the case of CIT v. Indo Nippon Chemicals Company Limited (2003) 261 ITR 275(SC) , wherein Hon'ble Supreme Court in the case of Indo Nippon Chemicals Limited(supra) was seized of AY 1989-90 which was prior to introduction of Section 145A by Finance Act, 1998 w.e.f. 01.04.1999. Incidentally when earlier Hon'ble Bombay High Court was adjudicating appeal in the case of CIT v. Indo Nippon Chemicals Co. Limited reported in (2000) 245 ITR 384(Bom.) which related to AY 1989-00, it was brought to the notice of Hon'ble Bombay High Court that there was newly inserted Section 145A of the 1961 Act by Finance Act(No. 2) , 1998 w.e.f. 01.04.1999, where in Hon'ble Bombay High Court held in para 10 , as under: 10. Before concluding, we may mention that, in rejoinder, the learned counsel for the department has brought to our attention section 145A of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d to raise its defence in denovo proceedings. The AO shall provide proper and adequate opportunity of being heard in the set aside proceedings. The grounds of appeal are allowed for statistical purposes We order accordingly. 19. Respectfully following the above decision of the coordinate bench we remit the issue back to the assessing officer with similar directions. TRANSFER PRICING ADJUSTMENT Ground No.4 (a) NOTIONAL INTEREST FOR COUNTER GUARANTEE GIVEN TO AE 20. The Assessee and Kansai Paint Co. Ltd., Japan (KPJ) an AE formed a joint venture, Kansai Coating Malaysia Sdn. Bdh. (KCM) to take over the business assets and liabilities of Sime Darby Malaysia Bhd., a Malaysian company. The Assessee subscribed to 55% and KPJ to 45% of the share capital of KCM. KPJ had provided guarantee to RBH Bank Berhard, a local Bank for the loan taken by KCM for its working capital requirements. The Assessee had by its letter dated 7th August 2008 to KCJ provided a counter guarantee to the extent of 55% (pg.88 of the PB-I). The assessee contended before the TPO that giving counter guarantee is a shareholder activity and hence cannot be subject to TP adjustment. The TPO did not accept the submissions ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng that this is a non fund based liability as there is no outflow of funds. On being asked by the Bench, it was fairly admitted by learned counsel for the assessee that in case of default by Malaysian Company with their bankers in Malaysia , the guarantee issued by Japanese AE in favour of Malaysian Bank will devolve and then assessee may in that eventuality will be asked to contribute its share by way of outflow of funds to meet its obligation under counter guarantee and this non fund based liability will get converted into fund based liability. Once corporate guarantees are issued , then the capacity of the issuer to raise further loans from banks, financial institutions etc. will get reduced as the corporate guarantee will certainly lead to higher debt to equity ratio which will lead to reduction in the capacity of issuer to borrow money from Banks, FI etc which could also lead to higher rate of interests charged by the bankers in case borrower become over leveraged due to higher debts including guarantees issued . Thus, in our considered view, the issue of corporate guarantee by taxpayer in favour of its AE is certainly an international transaction covered by provisions of Sect ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nsportation vehicle, machinery, equipment, tools, plant, furniture, commodity or any other article, product or thing; (b) the purchase, sale, transfer, lease or use of intangible property, including the transfer of ownership or the provision of use of rights regarding land use, copyrights, patents, trademarks, licences, franchises, customer list, marketing channel, brand, commercial secret, know-how, industrial property right, exterior design or practical and new design or any other business or commercial rights of similar nature; (c) capital financing, including any type of long-term or short-term borrowing, lending or guarantee, purchase or sale of marketable securities or any type of advance, payments or deferred payment or receivable or any other debt arising during the course of business; (d) provision of services, including provision of market research, market development, marketing management, administration, technical service, repairs, design, consultation, agency, scientific research, legal or accounting service; (e) a transaction of business restructuring or reorganisation, entered into by an enterprise with an associated enterprise, irrespective of the fact that it has b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... xplanation to the aforesaid section so as to clarify the definition of the expressions international transaction and intangible property . This amendment will take effect retrospectively from 1st April, 2002 and will, accordingly, apply in relation to the assessment year 2002- 2003 and subsequent assessment years. We have also observed that Mumbai-tribunal has consistently held that issuance of corporate guarantee by a taxpayer in favour of its AE within meaning u/s 92A is an international transaction which is covered u/s 92B of the 1961 Act. Reference is drawn to decision of Mumbai-tribunal in the case of Piramal Glass Limited v. DCIT reported in (2017) 80 taxmann.com 68(Mum- trib,) and decision of Mumbai-tribunal in the case of Videocon Industries Limited v. DCIT reported in (2017) 79 taxmannn.com 216(Mum trib.) and there are several other decision of Mumbai-tribunal. We have also noted that recently Hon'ble Bombay High Court in the case of CIT v. Glenmark Pharmaceuticals Limited reported in (2019) 101 taxmann. com 84(Bombay) had held that ALP of the corporate guarantee can not be determined on the basis of charges as were prevailing for issuance of Bank Guarantee. The Hon ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bunal as the second fact finding authority had gone into factual aspects in great detail and therefore having interpreted the law as it stood on the relevant date the order passed cannot be faulted. In the matter of guarantee commission, the adjustment made by the TPO were based on instances restricted to the commercial banks providing guarantees and did not contemplate the issue of a Corporate Guarantee. No doubt these are contracts of guarantee, however, when they are Commercial banks that issue bank guarantees which are treated as the blood of commerce being easily encashable in the event of default, and if the bank guarantee had to be obtained from Commercial Banks, the higher commission could have been justified. In the present case, it is assessee company that is issuing Corporate Guarantee to the effect that if the subsidiary AE does not repay loan availed of it from ICICI, then in such event, the assessee would make good the amount and repay the loan. The considerations which applied for issuance of a Corporate guarantee are distinct and separate from that of bank guarantee and accordingly we are of the view that commission charged cannot be called in question, in the manne ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e. The Hon'ble Bombay High Court held as under: 3. Regarding question no.(i): (a) We note that the impugned order of the Tribunal while allowing the assessee's appeal holding that the Arms Length Price of Corporate Guarantee cannot be determined on the basis of comparison with Bank Guarantee and relied upon the decision of its Co-ordinate bench in the case of Everest Kento Cylinder Ltd. v. Dy. CIT [2013] 34 taxmann.com 19 (Mum. - Trib.). Mr. Suresh Kumar, the learned counsel appearing for the Revenue very fairly states that being aggrieved with the above order in M/s. Everest Kento Cylinders Ltd., the Revenue had filed an appeal to this Court raising an identical issue viz. CIT v. Everest Kento Cylinders Ltd. [2015] 378 ITR 57/232 Taxman 307/58 taxmann.com 254 (Bom.). By an the above appeal was not entertained. (b) As no distinction in facts and/or law has been shown to us in this appeal which would warrant taking a different view on this very issue from that taken by this Court in Everest Kento Cylinders Ltd. (supra), we follow the same. (c) Accordingly, question no.(i) as proposed does not give rise to any substantial question of law for the reasons indicated in our order ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e.f. 01.04.2002 . The said explanation was declared to be clarificatory in nature. This ground number 5 (a) and (b) are partly allowed. We order accordingly. 24. Respectfully following the above decision of the coordinate bench we hold that providing counter guarantee to AE is an international transaction within the meaning of section 92B of the Act and that ALP on the shall be calculated at 0.5%. The TPO is directed to recompute the ALP accordingly. (b) NOTIONAL INTEREST FOR DELAYED PAYMENT FROM AEs. 25. During the year, the assessee has made exports of goods amounting to Rs. 4,43,60,382/- to its Associated Enterprises (AEs) as well as its Non Associated Enterprises (non AEs). There has been delay in receiving the export proceeds from the sales made to AEs and non AEs. The TPO, by applying CUP method, has proceeded to determine what interest the assessee would have earned had it been advanced such loans to unrelated parties in similar situation as that of the subsidiaries. And since the assessee was the tested party, the TPO adopted the interest rate which the assessee would have earned by advancing such loan to an unrelated party in India. The TPO has considered various types of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or decorative paints and expected claims from industrial customers on account of quality issues. The provision for warranty is calculated @0.035% of the sales value of products on which warranty is offered by the assessee and amount of Rs.25 lakhs was debited as provision for warranty. The assessing officer has disallowed the provision made for the relevant year on the ground that it is a contingent liability and the Assessee has not met the following 3 conditions laid down by the Apex Court in Rotork Controls India Ltd. 314 ITR 62 viz. a. An enterprise has a present obligation as a result of past event. b. It is probable that an outflow of resources will be required to settle the obligation and c. A reliable estimate can be made of the amount of obligation. 30. The assessing officer further held that there was no scientific or actuarial basis for the provision by relying upon the judgment of the Hon ble Supreme Court in Bharat Earth Movers case 245 ITR 428. The CIT(A) has confirmed the disallowance. 31. The Ld.AR submitted that the assessee had started giving warranty on its decorative paints and industrial products from FY 2006-07. Therefore, in absence of past experience, the As ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and in respect of which a reliable estimate of amount of obligation is possible. In assessee's case there is no doubt that there is an obligation of guarantee that arises on sale of products by the assessee and that certain warranty towards which provisions are made is settled by the assessee in subsequent years. The contention of the revenue is that the basis on which the guarantee is provided for is not scientific. In our considered view, the method adopted by the assessee based on Asian Paint's provision for guarantee cannot be rejected without analyzing the provision vis a vis subsequent expenditure towards guarentee and whether the amount provided is commensurate with the actual spending. We in this regard notice that the assessee during the course of assessment proceeding had submitted the following details with regard to provision towards warranty and the actual expenditure incurred. Description F.Y.2006-07 F.Y. 2007-08 F.Y. 2008-09 Opening Balance -- 20 45 Add: Amount claimed on provisional basis 20 25 80 Less: Incurred during the year (Utilisation/settlement) -- -- 65 Closing Balance 20 45 60 From the above it is clear that the assessee has incurred actual expendit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y allowable in 5 subsequent assessment years from the date of amalgamation i.e. in the present case financial year 2006-07. The Ld.AR, therefore, prayed that the Assessing Officer be directed to allow deduction of Rs. 4,65,524/- u/s 35DD of the Act. 36. The ld DR on the other hand submitted that as per the provisions contained in Sec. 35DD only 1/5 deduction in each of 5 successive previous years can be claimed beginning with the year in which amalgamation took place. The ld DR further submitted that there is no such provision to change the quantum of deduction from 1/5th to 1/4th as claimed by the assessee. Therefore the ld DR prayed that the decision of the CIT(A) be upheld. 37. We heard the parties and perused the material on record. Before proceeding further we will look at the provisions of section 35DD which reads as under - Amortisation of expenditure in case of amalgamation or demerger. 35DD . (1) Where an assessee, being an Indian company, incurs any expenditure, on or after the 1st day of April, 1999, wholly and exclusively for the purposes of amalgamation or demerger of an undertaking, the assessee shall be allowed a deduction of an amount equal to one-fifth of such expe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .... and the section is applicable to tax deductible under Chapter XVII-B. section 40(a)(ia) is a legal fiction and has to be strictly construed . 40. On appeal, the CIT(A) upheld the disallowance. The Ld AR submitted that that the MD is an employee of the assessee company. The MD is responsible for the day to day management of the assessee Company subject to the superintendence, control and direction of the Board of Directors. Apart from looking after the day to day management, the MD had also attended several Board and Audit Committee Meetings of the assessee in the capacity of an MD. The tax is deducted at source u/s 192 of the Act for the payments made to the MD in the capacity of an employee. As per the accrual method followed by the Companies Act, the Assessee had made a provision of Rs. 75 lakhs as commission payable to the MD on 31.03.2008. The said provision was reversed on 1st April 2008 and credited to the P L Account. As commission was part of the salary, tax of Rs. 29,39,500 was deducted under sec. 192 in June 2008 when the commission was actually paid and the same was deposited in July 2008. The same has been allowed in the following assessment year. Since the provisi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... provisions of sec. 43B are not applicable to employees contribution to PF/ESIC and the fact that the same has been paid before the due date of filing the return is not applicable. 44. The Ld.AR of the assessee has fairly conceded that this ground has to be decided against the assessee in view of the judgement of the Hon ble Supreme Court in the case of Checkmate Services P Ltd vs CIT Civil Appeal No. 2833 of 2016 dated 12/10/2022 . 45. We find that now, the issue in question as to whether the assessee is entitled for deduction claimed towards contribution of sum to provident fund on behalf of the employees deposited after due date prescribed under the Act but before the date of filing the return; has been set at rest by the Hon ble Supreme Court in case of Checkmate Services P Ltd vs CIT Civil Appeal No.2833 of 2016 dated 12/10/2022 that assessee is not entitled for claim of deduction qua the amount deposited towards employees contribution on account of provident fund after due date prescribed under the Act by returning following findings:- 51. The analysis of the various judgments cited on behalf of the assessee i.e., Commissioner of Income-Tax v. Aimil Ltd.; Commissioner of Incom ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ime- by way of contribution of the employees' share to their credit with the relevant fund is to be treated as deduction (Section 36(1)(va)). The other important feature is that this distinction between the employers' contribution (Section 36(1) (iv)) and employees' contribution required to be deposited by the employer (Section 36(l)(va)) was maintained - and continues to be maintained. On the other hand, Section 43 B covers all deductions that are permissible as expenditures, or out-goings forming part of the assessees' liability. These include liabilities such as tax liability, cess duties etc. or interest liability having regard to the terms of the contract. Thus, timely payment of these alone entitle an assessee to the benefit of deduction from the total income. The essential objective of Section 43B is to ensure that if assessees are following the mercantile method of accounting, nevertheless, the deduction of such liabilities, based only on book entries, would not be given. To pass muster, actual payments were a necessary pre-condition for allowing the expenditure. 53. The distinction between an employer's contribution which is its primary liability under ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ue dates mandated by such concerned law, that the amount which is otherwise retained, and deemed an income, is treated as a deduction. Thus, it is an essential condition for the deduction that such amounts are deposited on or before the due date. If such interpretation were to be adopted, the non-obstante clause under Section 43B or anything contained in that provision would not absolve the assessee from its liability to deposit the employee's contribution on or before the due date as a condition for deduction. 55. In the light of the above reasoning, this court is of the opinion that there is no infirmity in the approach of the impugned judgment. The decisions of the other High Courts, holding to the contrary, do not lay down the correct law. For these reasons, this court does not find any reason to interfere with the impugned judgment. The appeals are accordingly dismissed. 46. By following the decision rendered by Hon ble Supreme Court in case of Checkmate Services P. Ltd. vs. CIT (supra), we are of the considered view that Ld. CIT(A) has rightly decided the issue against the assessee as the employees contribution on account of ESI lying deposited with the employers has to b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essed. DEPRECIATION ON UPS Ground No.2 52. The Assessee bought UPS amounting to Rs. 30,63,800. These UPS were attached to computers and were meant for providing temporary power supply for running the computers uninterruptedly during the power cuts and it is capitalised by Assessee as part of computers and claimed depreciation at the rate of 60%. The AO has calculated depreciation on UPS by applying general rate of 15% for plant and machinery and relying in the decision of ITAT Delhi, in case of Nestle India (111 TTJ 498). The CIT(A) has confirmed the disallowance. 53. The ld AR submitted that the UPS form an integral part of the overall computer system and it is not used as a standalone generator. The UPS don t merely ensure uninterrupted power supply to computer network, but more importantly, also regulated the flow of power to avoid any kind of damage to the computer network due to fluctuation in power. Therefore, UPS is a necessary part of computer system. Since UPS are necessary for proper and continuous functioning of computer, applying the functional test the same were capitalized as part of computers and accordingly depreciation at the rate @ 60% as applicable to the compute ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... OODS TO AE Ground No.1 2 58. During the year under consideration the assessee exported manufactured water based paints name Acrylic CED Shd-40 Black Resin Emulsion to its AE in Philippines namely Kansai Paint Philippines Inc for Rs. 64,41,030 based on the request of the said AE. The benchmarking analysis done by the assessee for this transaction comparing the contribution margin (Sale minus Direct costs) in respect of same type of products and service sold to non-AEs with the contribution margin of sale made to AE. The ALP of the said transaction was calculated by the assessee at Rs. 23,48,458/- using TNMM method and the assessee accordingly made a TP adjustment of Rs. 7,51,800/- as tabulated below Customer and Product Volume Sales Proceed Cost Cont. Cont. (Lt/Kg) Rs. Rs. Rs. % Honda Motor Cycles Scooters 121430 24345416 15302569 9042846 37.14% Jai Bharat Maruti Ltd. 13200 2693526 1729762 963763 35.78 Average Margin 36.46 Sr. Particulars Actual Contribution Average on uncontrolled Transactions ALP Contribution Difference in contribution Rs. % Rs. Rs. 1. Kansai Paint Philippines Inc. 15,96,658 36.46 23,48,458 7,51,800 59. The TPO did not accept the benchmarking done by the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... verage sales price of the said product sold in the domestic market as Arms Length price for export to AE without taking into account differences in both the types of sales or without making any adjustments to the domestic price. The concept of TP cannot be that of an exact science and that constant application of mind has to occur to determine whether a transaction is at ALP or not. Considering, in the given circumstances comparing average contribution margin earned by the appellant in the domestic market on sale of product to non-AEs is a good profit level indicator for calculating the ALP for export of the same product to AE, which will take care of all the differences in the circumstances, functions performed, assets used, risked assumed and other terms and conditions of the sales. Therefore TNMM can be considered as the most appropriate in the given case. Adopting CUP method, will involved lot of subjectivity in assigning values to the various differences and arriving at the comparable price. Accordingly, the action of TPO in applying CUP method is not justifiable. As pointed out correctly by the appellant before me instead of making adjustments to the price charged to the non- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... made to the non-AEs situated in India have been applied as CUP to determine the arm's length price of export made to the AEs. It is the case of the assessee that no comparable export sales to non- AEs are available to apply as CUP. The aforesaid factual position has not been controverted by the Revenue. Therefore, the moot point which arises for our consideration is, whether the domestic sales can be applied as CUP for determining the arm's length price of export sales. It is fairly well settled, CUP method requires strict comparability. It cannot be denied that the pricing of a product varies on the basis of geographical location. Thus, primarily, the price of products sold in domestic market cannot be compared with the price of the product sold in foreign country due to various factors. Therefore, if the Transfer Pricing Officer selects CUP as the most appropriate method to benchmark the transaction, it is his duty to find out and bring on record price charged for uncontrolled transactions carried out under similar circumstances. If, suitable comparable uncontrolled transaction is unavailable, CUP method cannot be applied. 64. In assessee's case we notice that the TP ..... X X X X Extracts X X X X X X X X Extracts X X X X
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