Issue- Whether interest under Section 234C of the Act is to be calculated based on date of clearing of the cheque or date of presentation of the cheque. Held- It is not the case of the department that the cheque issued by the assessee was dishonourned. Once the cheque issued by the assessee is encashed, […]
REPCO Home Finance Ltd PFA
ITO V Modipon Ltd PFA
S. 50C: The consideration has to be determined on the basis of the circle-rate prevailing on the date of execution of sale deed and not on the basis of the circle-rate prevailing on the date of registration of the sale deed
It is manifest that u/s 50C, the value adopted by the stamp-valuation authority is deemed as the consideration for computation of capital gain. However, such valuation adopted by the stamp-valuation authority should be in respect of the transfer by the assessee, of the capital assets. This enhancement was beyond the control of the assessee (seller). It is also not the case of the revenue, that the buyer has given more than the consideration that has been accepted by the parties where they executed the agreement to sale. Read more of this post
Transfer Pricing: Law on making adjustments for 'risk' and 'location savings' explained
(i) On the issue of risk adjustment, detailed analysis had been provided. The AR submitted that The assessee being a captive service provider hence undertakes lesser risk as compared to comparable companies which undertakes higher risk. This fact has not been disputed by the revenue authorities. Mumbai Bench of Income Tax Appellate Tribunal in the case of Symatec (supra) contemplates the standard deduction of 5% for risk adjustment. However, if not 5% then risk adjustment upto 2.25% which is the difference between Bank Fixed deposit rate (which undertakes little more risk) and risk free government bond (which undertakes risks) should be allowed.
(ii) The assessee as well as the AE operates in a perfectly competitive market and the assessee does not have exclusive access to the factors that may result in the location specific advantages. As a result, there is no super profit that arises in the entire supply chain. Thus there is no unique advantage to the assessee over competitors. We are basing our opinion on the fact that the revenue authorities were not able to substantiate the adjustments made either from the present day scenario or any authenticated and globally material.
(iii) The comparables selected by the assessee to determine arm's length price of transaction relating to contract manufacturing and contract research and development are local Indian comparables operating in similar economic circumstances as the assessee. This according to us are in line with the decision of coordinate bench of the ITAT, Delhi, in the case of GAP International Sourcing (India) Pvt. Ltd. (supra), wherein the Tribunal held, "The arm's length principle requires benchmarking to be done with comparables in the jurisdiction of tested party and the location savings, if any, would be reflected in the profitability earned by comparables which are used for benchmarking the international transactions. Thus in our view, no separate/additional allocation is called for on account of location savings".
(iv) OECD and G20 in Action 8: Guidance on Transfer Pricing Aspects of Intangibles which is part of Base Erosion and Profit Shifting Project, has provided guidance on issue of location savings and concluded that where local market comparables are available specific adjustment for location saving is not required. All the G20 countries have give their concurrence to this position and India is part of G20 countries.
(v) The calculation based on location savings by TPO is also infirm, as it is based on assumptions and not in accordance with the provisions of the Income Tax Act, 1961, because for computing cost savings TPO has relied on an article published in year 2012 whereas assessee's case is for Financial Year 2008-09. Therefore interpolation cannot be taken into consideration, unless specified.
(vi) Once the TNMM method is accepted as method of considering assessee as a tested party then any benefit/advantage accruing to AE is irrelevant if the PLI is within the range of comparables.
(vii) We also take into consideration the reliance placed on UN TP Manual by the TPO, about which we are convinced was incorrect reliance, because UN Manual, is basically view of Indian tax administration and is not binding on Appellate authorities.
(viii) Last but not the least, the TPO has based his computation on a method, which is not ascribed by the provisions of the Act. No doubt, clause (f) of section 92C(1) says, "such other method as may be prescribed by the Board". For adoption of this method, the TPO has to take care that the method has to be prescribed by the Board, which can do so through relevant Rules. Even relevant Rules do not talk about the method adopted by the revenue authorities. This, in unison with the decision of the coordinate Bench on incorrect method of computation, we are of the view that the TPO/AO and DRP erred in making the adjustment on account of location savings.
PFA
S. 40(a)(i): Usance charges paid by the Assessee on import of raw material from foreign countries attracts tax in India u/s 5(2)(b) r.w.s. 9(1)(v)(b)
From reading the decisions of the Hon'ble Supreme Court in CIT vs. Vijay Ship Breaking Corporation as reported in 314 ITR 309 (SC) and the Hon'ble Gujarat High Court (reported in 261 ITR 113) it is apparent that the Hon'ble Supreme Court has not reversed the decision in the case of CIT vs. Vijay Ship Breaking Corporation, 261 ITR 113 (supra) on the finding that the usance charges are not interest u/s 2(28A) except where an undertaking is engaged in the business of ship breaking in view of explanation (2) to Sec. 10(15)(iv)(c) inserted by the Taxation Laws (Amendment) Act, 2003 with retrospective effect. In our view, the decision of the Hon'ble Gujarat High Court has impliedly been approved by the Hon'ble Supreme Court in respect of Assessees who are engaged in the business of ship breaking. Consequently, the Assessee was bound to deduct TDS u/s 195(1) in respect of usance charges paid by the Assessee on import of raw material from countries outside India like Japan, Belgium, Germany, USA etc and failure to do so entails disallowance u/s 40(a)(i)
PFA
(i) Unabsorbed depreciation of AYs 1997-98 to 2001-02 is eligible for relief granted by amended s. 32(2) in AY 2002-03 (ii) Judgement of a non-jurisdictional High Court has to be preferred over the judgement of a Special Bench of the ITAT (iii) In the absence of exempt income, s. 14A disallowance cannot be added to s. 115JB book profits even if assessee has accepted s. 14A disallowance in the normal computation The assessee may have accepted the disallowance under section 14A but once it is a settled legal position, in the light of the law laid down in CIT Vs Holcim India Pvt Ltd (Del) that there cannot be any disallowance under section 14A unless there is corresponding exempt income and the assessee has no such exempt income, adjustment under clause (f) of Explanation to Section 115JB (2) cannot indeed be made. The adjustment has to meet the tests of law and what cannot be considered to be 'expenditure relatable to exempt income' under the law, cannot be subjected to the adjustment either. There is no estoppel against the law. The mere fact that the assessee has accepted this disallowance affects that disallowance only and nothing more than that; it does not clothe such an adjustment, in computation of book profit under section 115JB, with legality Read more of this post Santosh Kumar Agarwal | January 13, 2015 at 10:01 AM | Tags: (i) Unabsorbed depreciation of AYs 1997-98 to 2001-02 is eligible for relief granted by amended s. 32(2) in AY 2002-03 (ii) Judgement of a non-jurisdictional High Court has to be preferred over the ju, Minda Sai Limited vs. ITO (ITAT Delhi), s. 14A disallowance cannot be added to s. 115JB book profits even if assessee has accepted s. 14A disallowance in the normal computation | Categories: Case Law | URL: http://wp.me/p2e8mQ-1bT
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