9911796707
TMI Blog2025 (1) TMI 1108X X X X Extracts X X X X X X X X Extracts X X X X ..... respect of international transactions made with M/s. Northstar Health Care. The Ld. TPO had treated the said entity as a deemed AE. The Ld. DRP has discussed the findings of the Ld. TPO in para 3.2 to 3.3 of its order on page-3 respectively before confirming the action of the Ld. TPO. 3.1 The Ld. Counsel for the assessee informed the matter is covered in assessee's case by virtue of order of Hon'ble Coordinate Bench of this Tribunal vide ITA No.771/Chny/2016 dated 30.11.2016 for AY-2011-12 passed in assessee's own case. It was held therein that M/s. Northstar Health Care cannot be treated as deemed AE of the assessee. The Ld. DR argued in favour of order of the authorities down below. 3.2 We have heard the rival submissions in the light of material available on records. We have noted that an identical issue has been considered by the Hon'ble Coordinate Bench of this Tribunal whereby the addition made by the Ld. TPO was deleted. We have noted the following observations of the Hon'ble Coordinate Bench:- "....17. Viewed in this perspective, we must adopt a sensible meaning of expression 'influence' which advances the scheme of the transfer pricing provisions rather than ma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the earlier discussions on the issue, the assessee and Northstar can not be treated as 'associated enterprises' under section 92 A. We uphold the plea of the assessee. 18. Ground no. 2 is thus allowed...." 3.3 The facts of present case and those of AY-2011-12, on this issue have been found to be identical and no differences were brought on record. It has also been noted that in assessee's own case for AY2017-18 and AY-2018-19 the same issue was existing and the decision of Hon'ble Coordinate Bench of this tribunal in ITA No.771 supra was respectfully followed by an order vide IT(TP)A No.3 and 4 /Chny/2023 authored by me. Accordingly, in respectful compliance to the decisions of the Hon'ble Coordinate Bench, in assessee's own case supra, we direct the Ld. AO to delete the addition made of Rs.1,01,40,092/- on account of adjustment made by the Ld. TPO in respect of M/s.Northstar Health Care. The ground of appeal no. 3 to 7 raised by the assessee are therefore allowed. 4.0 The next issue raised by the assessee vide ground of appeal no. 8 to 9 is regarding the upward adjustments made by the Ld. TPO on account of sale of cephalexin and Levetiracetam Drugs to M/s. Karalex P ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ction i.e those where margins were lower as well as those where margins were higher to arrive at holistic picture. The argument of the Ld. CIT(A) that the said decision is distinguished on the basis of being relevant to CUP method only and not TNMM is misplaced. The Hon'ble Coordinate Bench in principle has decided that in such situations, aggregation of transaction has to be done and that a TPO must consider all transaction i.e those where margins were lower as well as those where margins were higher to arrive fair ALP. True the CUP was involved in the impugned case but the same is irrelevant since the Hon'ble Coordinate Bench decided upon the governing principle of determination of ALP and not on the methodology prescribed in section 92C(1). To this extent the observation of Ld. CIT(A) that decision in the case of Mainetti India Pvt. Ltd., ITA No.1789 / Mds / 2011 for AY-2007-08 Supra is not correct. In the above view of the matter we hereby direct the Ld. TPO to recompute the ALP following the ratio laid down in ITA No.1789 Supra. The Ld. TPO would be required to give all opportunities of being heard to the assessee who shall comply with all the notices issued to him in this reg ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , youth development, woman empowerment etc. and therefore the said expenses are an integral part of its CSR activity. The Ld. Counsel for the assessee argued that the amendment brought in explanation-2 of section 37 in the act is operative from AY2015-16 and that the said amendment is not retrospective in nature so as to hit the assessee in AY-2012-13. We find sufficient force in the argument of the assessee. No doubt by finance act 2014 amendments have been brought to section 37, the fact of the matter remains that for the assessment year under consideration no such prohibition was on statute. We have noted that to justify claim of an expenditure u/s 37, an assessee is required to prove firstly that the expenditure is not of capital nature, is not personal in nature and has been expended for business purposes. There is nothing on record that the impugned expenditure is either personal or capital or not incurred for the purposes of business. At least no evidence to this effect has been on records by the lower authorities. There is nothing on record to suggest or cast a shadow of doubt upon the genuineness of the said expenses. Consequently we are not in a position to sustain the or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e year of write off and the contention of the Ld. AO regarding appellant enjoying tax holiday is therefore not relevant. The argument of the Ld. AO that the assessee's claim is inadmissible as it was eligible for claim of deduction u/s 10B is difficult to be accepted. The fact of the matter which has been admitted by the AO itself the assessee had offered the impugned amount during AY 2009-10 and added it back as provision in the computation of income. The mere fact that it was otherwise a tax free income would not change the nature of the transaction. The reversal by the assessee has to be accordingly viewed in the light of accounting principles. A benefit accruing to a tax payer on account of a statutory stipulations cannot be taken away by the assessing authority on account of mere adverse presumption. In support of its contentions the Ld. AR of the assessee has placed reliance upon the decision of Hon'ble Gujarat High Court in the case of Banyan and Berry 222 ITR 831 and of Hon'ble Apex Court in the case of Walfort share and stock broker private limited 192 taxmann 211. We have also noted that the Ld. DRP has also not confirmed the order of the Ld. AO with any detailed findings ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on the premise that a provision can be made when actual liability has been accrued in a year but could not be spent for some justified reasons. It was held that under the mercantile system of marketing accrual of liability for any expenditure is not depended upon receipt of invoice from the person to whom payment for expenditure has to be made and that the accounting practice followed by the assessee was contrary to the mercantile system of accounting. The assessee had also reportedly not made any TDS on the amounts of provision. The Ld. Counsel for the assessee argued that appellant had manufactured certain products through job works and as bills were received in subsequent years it merely created a provision. It argued that the impugned products on which job work was executed was sold during the year under consideration and hence provisions were raised. The Ld. Counsel for the assessee further argued that there is no loss to the revenue as the tax rates for the present year and those of subsequent year are the same, the issue is tax neutral. 7.1 We have heard rival submissions in the light of material available on records. The genuineness of the impugned job work charges is not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for the assessee submitted that during the year it has incurred Rs. 34,90,37,833/- on account of expenditure on scientific research etc. It was stated that within the meanings of provisions of 37 a part of the same would be classified as capital expenditure and the balance as revenue expenditure. It was also urged that on the component of capital expenditure the assessee would be entitled for depreciation u/s 32. Accordingly, the order of lower authorities on this issue is set aside. The Ld. AO is directed to read judicate the matter de novo and consider allowing assessee's claim of deduction u/s 37 / 32 in accordance with law after giving opportunity of being heard to the assessee. The assessee shall provide the Ld. AO bifurcation of the capital and revenue expenditure as available in its records. The Ld. AO would then allow the assessee the impugned expenses u/s 37 and 32 in accordance with law. The assessee shall comply with all the notices issued by the Ld.AO on the matter. Accordingly ground of appeal no.11 is dismissed and 12 is allowed for statistical purposes. 9.0 The next issue raised by the assessee vide ground of appeal no. 20 to 23 are regarding an addition of Rs. 2,4 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessee. To this extent the disallowance made by the Ld. AO has been found to be in order. However we have also noted that no adverse findings have been given by the Ld. AO as regards to commercial expediency of the impugned expenditure on premium or regarding the genuineness of the said expenditure. The argument of the Ld. AO about amortization also does not find favour with us since even though he argued for amortization he has himself chosen not to allow the assessee 1/5th of Rs. 246.87 Crs and proceeded to add the entire figure. In the absence of any adverse findings qua commercial expediency of the impugned expenditure on premium or regarding the genuineness of the said expenditure brought on records we are unable to concur with the findings of the lower authorities. The order of Ld. Lower authorities is therefore set aside. However, we have also noted that the impugned expenditure cannot be allowed as deduction in the year under consideration on account of the same not being exposed to any TDS deduction u/s 40(a)(i). Accordingly, we direct the Ld. AO to allow the impugned expenses in the year when TDS deduction u/s 40(a)(i) is made by the assessee. Accordingly, the grounds of ..... X X X X Extracts X X X X X X X X Extracts X X X X
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