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Income Tax Appellate Tribunal, PUNE BENCHES “C” :: PUNE
Before: SHRI S.S.GODARA & DR.DIPAK P.RIPOTE
आयकर अपीलीय अिधकरण “सी” �ायपीठ पुणेम�। IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCHES “C” :: PUNE BEFORE SHRI S.S.GODARA, JUDICIAL MEMBER AND DR.DIPAK P.RIPOTE, ACCOUNTANT MEMBER आयकरअपीलसं. / ITA No.227/PUN/2018 िनधा�रणवष� / Assessment Year : 2013-14 Jain Irrigation Systems Ltd., The Deputy Commissioner of Jain Plastic Park, N.H No.6, Vs Income Tax, Circle-2, Jalgaon – 425001. . Jalgaon. PAN: AAACJ 7163 Q Appellant/ Assessee Respondent /Revenue Assessee by Shri Percy Pardiwala; Shri Prashant Maheshwari and Ms.MonicaMulchandani – AR’s Revenue by Shri B Koteswara Rao – DR Date of hearing 23/09/2022 Date of pronouncement 22/12/2022 आदेश/ ORDER Per S.S.Godara, JM: This assessee’sappeal for Assessment Year 2013-14is directed against theDeputy Commissioner of Income Tax, Cricle-2, Jalgaon’s assessment order dated 29.10.2017, framed in furtherance to the Dispute Resolution Panel-3, Mumbai (DRP)’s direction dated 25.09.2017 passed in Objection No.78, in proceedings u/s 143(3) r,.w.s 144C(5) of the Income Tax Act, 1961 [in short “the Act”].
Heard both the parties. Case file perused.
The assessee pleads the following grounds in the instant appeal:
ITA No.227/PUN/2018 for A.Y. 2013-14(A) Jain Irrigation Systems Ltd.,
“The grounds stated hereunder are independent of, and without prejudice to one another.
Grounds relating to Transfer Pricing adjustment 1. On the facts and in the circumstances of the case and in law, the learned Transfer Pricing Officer (‘TPO’) /learned Assessing Officer (‘AO’) / Hon’ble Dispute Resolution Panel (‘DRP’) erred in disregarding the transfer pricing study report maintained by the Appellant as per Section 92D of the Act read with Rule 10D of the Income tax Rules, 1962 and the various submissions made by the Appellant.
Provision of Corporate Guarantee 2.1 On the facts and in circumstances of the case and in law, the learned AO and the learned TPO erred in concluding and the Hon’ble DRP erred in confirming the adjustment of Rs. 8,58,93,797/- relating to the international transaction of provision of Corporate Guarantee by the Appellant to its associated enterprises by determining its arm’s length price at Rs. 8,58,93, 797/- instead of NIL.
2.2 On the facts and in circumstances of the case and in law, the learned AO / the learned TPO / Hon’ble DRP erred in rejecting the contention of the Appellant that Corporate Guarantee provided by the Appellant to its associated enterprise is a shareholder activity.
2.3 On the facts and in circumstances of the case and in law, the learned AO / the learned TPO / Hon’ble DRP erred in determining the arm’s length price of the Corporate Guarantee provided by the Appellant on behalf of the associated enterprises by adopting the rate prescribed in the Safe Harbor Rules.
Interest on Loan Given to Associated Enterprise
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3.1 On the facts and in circumstances of the case and in law, the learned AO and the learned TPO erred in concluding and the Hon’ble DRP erred in confirming and enhancing the adjustment to Rs. 29,90,300/- relating to the international transaction of receipt of interest on loan given by the Appellant to its associated enterprises by determining its arm’s length rate of interest at LIBOR + 5% instead of LIBOR + 0.875%.
3.2 On the facts and in circumstances of the case and in law, the Hon’ble DRP erred in enhancing the amount of adjustment from Rs. 9,95.000/- to Rs. 29,90.300/- without giving the Appellant an opportunity to show-cause why such enhancement should not be made.
Export of Goods to Associated Enterprise 4.1 On the fact and in circumstances of the case and in law, the learned AO and the learned TPO erred in concluding and the Hon’ble DRP erred in confirming the adjustment of Rs. 22,58.49,502/- relating to the international transaction of export of goods to the associated enterprises by the Appellant.
4.2 On the fact and in circumstances of the case and in law, the learned AO / the learned TPO / the Hon’ble DRP erred in making an adjustment in relation to the international transaction of export of goods to the associated enterprises by rejecting the comparability adjustment relating to the volume discount.
4.3 On the fact and in circumstances of the case and in law, the learned AO / the learned TPO / the Hon’ble DRP erred in making an adjustment in relation to the international transaction of export of goods to the associated enterprises by rejecting the alternative analysis conducted by the Appellant using Transactional Net
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Margin Method.
Grounds relating to additions on non-Transfer Pricing matters 5. Related Party Transactions 5.1 On the facts and in the circumstances of the case and in law, the learned AO/the Hon’ble DRP have erred in disallowing the interest of Rs. 68,40,000/-, calculated at the ad-hoc rate of 12% on the interest free securitydeposits given to related parties in relation to two flats at Walkeshwar, Mumbai by merely following the order of learned CIT(A) for AY 2008-09 and ignoring the various arguments of the Appellant, including order of learnedCIT(A) for AY 2005-06 deciding the same issue in favour of the Appellant subsequent to the order of learned CIT(A) for AY 2008-09.
Rent and Interest Free Deposits paid to Related Parties 6.1 On the facts and in the circumstances of the case and in law, the learned AO/the Hon’ble DRP have erred indisallowing the interest of Rs. 15,42,361/- calculated at the ad-hoc rate of 12% on the interest free security deposits given to related parties in relation to various properties taken on lease in the past years by merely following the order of learned CIT(A) for AY 2008-09 and ignoring the various arguments of the Appellant, including order of learned C1T(A) for AY 2005-06 deciding the same issue in favour of the Appellant subsequentto the order of learned CIT(A) for AY 2008- 09.
Depreciation on Intangible Assets 7.1 On the facts and in the circumstances of the case and in law, the Ld. AO / the Hon’ble DRP have erred indisallowing the depreciation claimed by the Appellant at the rate of 25% amounting
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to Rs.91,00,069/- onintangible assets of Rs. 3,64.00,278/- under section 40(a)(i) of the Act.
Solar Renewable Energy Incentive 8.1 On the facts and in the circumstances of the case and in law. the learned AO/the Hon’ble DRP have erred in considering the amount of Rs. 10,06,17,500 received by the Appellant on sale of Renewable Energy Certificate as revenue receipt, and not a capital receipt as contended by the Appellant.
8.2 On the facts and in the circumstances of the case and in law, the learned AO/the Hon’ble DRP have erred in holding that decision of Hon’ble High Court cannot be followed in view of Special Leave Petition of the Department against the said decision has been admitted by the Hon’ble Supreme Court.
Education Cess 9.1 On the facts and in the circumstances of the case and in law, the learned AO/the Hon’ble DRP have erred indisallowing the claim in respect of education cess of Rs. 36,16,123/- ignoring Circular No.91/58/99-lTJ (19) issued by the Central Board of Direct Taxes.
Incentive Receivable as per Rajasthan Incentive Promotion Scheme
10.1 On the facts and in the circumstances of the case and in law, the learned AO/the Hon’ble DRP have erred in making an addition of Rs. 10,70,209/- being incentive receivable as per Rajasthan Investment PromotionScheme- 2010 without analyzing the facts of the case.
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Enhancement in value of closing stock
11.1 On the facts and in the circumstances of the case and in law, Hon’ble DRP and consequently, the learned AO have erred in enhancing the value of closing stock by Rs. 5,18,50,000/- taking the difference between the value of stock hypothecated with bank and value appearing in financial statements.
Deduction under Section 35(2AB) of the Income Tax Act, 1961.
12.1 On the facts and in the circumstances of the case and in law, the learned AO has erred in enhancing the disallowance made in draft order dated 30 December 2016 of Rs.59,32,799 to Rs.1,18,65,729 in the assessment order dated 29 November 2017 without there being any direction from Hon’ble DRP to that extent.
12.2 On the facts and in the circumstances of the case, the learned AO has erred in enhancing disallowance under Section 35(2AB) of the Act by an amount of Rs.59,32,930. The learned AO has disallowed difference between weighted deduction of Rs.34,77,57,049 claimed by the Appellant and permissible weighted deduction of Rs.33,58.89,320, without appreciating the fact that the disallowance of Rs.17,38,78,525 considered by the Appellant was higher than amount of Rs.16,79,45,660, in respect of which weighted deduction was available and thus,difference of Rs.1,18,65,729 in weighted deduction as stated above was to be adjusted for excess disallowance of Rs.59,32,930 and balance amount of Rs.59,32,799 was to be disallowed as per the draft order dated 30 December 2016.
The Appellant prays that the additions / disallowances made by the learned AO and TPO and upheld by the learned DRP be deleted.
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The Appellant craves leave to add, alter, amend and/or withdraw any of the grounds of appeal and to submit such statements, documents and papers as may be considered necessary either at or before the hearing of this appeal as per law.”
Learned senior counsel does not press for the assessee’s first and foremost ground stated to be general in nature. Rejected accordingly.
The assessee’s ground nos.2 to 2.2 inter-alia challenge correctness of the learned lower authorities action making arms length price “ALP” adjustment of Rs.8,58,93,797/- relating international transaction of corporate guarantee given in favour of the overseas associate enterprises “AE’s” in issue.
Mr.Pardiwala first of all proposes a pure legal question that such a corporate guarantee does not form an international transaction at all under section 92B of the Act being in the nature of a shareholder’s activity. He took us to page 559 of the assessee’s paper book that the impugned corporate guarantee(s) involving Israel, Mauritius, USA and Turkey based associated enterprises which were in fact aimed for acquisition of balance shares in the targeted companies, procurement of various products from them and to the vendors M/s.DOW Chemicals for supplying of polymer “JISL” and US based subsidiaries; as the case may be.
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We find no merit in the assessee’s instant first and foremost argument in principle in light of Explanation 2 to section 92B, inserted in the Act vide in Finance Act 2012 w.e.f 01.04.2002,involving such a corporate guarantee which has been held to be carrying retrospective effect only in PCIT Vs. Redington (I) Ltd. [2020] 430 ITR 298 (Madras). The assessee’s instant arguments is rejected therefore.
Learned senior counsel at this stage sought to distinguish the above case law that we must look into the purpose of assessee’s corporate guarantees. We are afraid that such a purpose test would frustrate stricter interpretation principle as per Commissioner Vs. Dilipkumar & Company [2018] (9) SCC page 1 (SC) (FB). We further wish to reiterate here that Chapter-X in the Act is an anti avoidance provision introduced by the legislature in order to ensure that international transactions between associated enterprises are carried out at arms length price only. The assessee’s instant second argument is also declined therefore.
Learned senior counsel’s next vehement contention is that the assessee admittedly had neither treated the foregoing corporate guarantees as an international transactions nor it declared or recognized any income element therefrom. Mr.Pardiwala sought to
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buttress the point therefore that the learned lower authorities have erred in law and on facts in invoking Chapter-X of the Act in these clinching facts and circumstances. His case is that the departmental authorities could only have substituted the assessee’s already declared ALP than increase the same from “Nil” to Rs.8,58,93,797/- which amounts to re-writing the books not permissible in law. He quotes Maruti Suzuki India Ltd Vs. CIT [2016] 381 ITR 117 (Del) and more particularly paras 69 to 70 therein. Further case law quoted at the assessee’s behest is Shilpa Shetty Vs. ACIT [2018] 172 ITD 404 (Mum) in paragraphs 14 onwards that Chapter-X could not be invoked wherein no income chargeable to tax has arisen in assessee’s case. Learned senior counsel further submitted that contrary to various other deeming fictions like section 50C, section 50D which pre-suppose even accrued or arisen or “assessable” consideration or section 115O etc envisaging “any addition” to already declared income, this anti avoidance Chapter would not apply in the given facts since the assessee had not charged any price at all for these corporate guarantees. And that such a course of action would amount to improvement in the provisions of the Act not sustainable in law as per Elphinstone Spinning Mills Company case 40 ITR 142 (SC). Learned Senior Counsel’s last plea is that without prejudice to all the foregoing arguments, the impugned corporate guarantee adjustment
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@2% deserves to be reduced to 0.5% only in light of CIT Vs. Everest Kanto Cylinders Ltd., [2015] 328 ITR 57 (Bom).
The Revenue has placed strong reliance on lower authorities action making impugned adjustment.
We have given our thoughtful consideration to foregoing rival contentions and find merit in assessee’s stand only qua the quantification aspect seeking to reduce the impugned adjustment from that in issue @2% to 0.5% only in light of hon’ble jurisdictional high court’s decision. Coming to the assessee’s all other remaining arguments, we are of the opinion that none of the judicial precedents quoted at its behest deal with an actual international transaction under section 92B of the Act. We wish to repeat here that the issue of a corporate guarantee between AE’s foregoing international transaction is no more res-integra in light of the statutory amendment in section 92B as well as hon’ble madras high court’s decision (supra). The assessee’s argument(s) that such a price could not be super imposed on Nil value declared goes against the very applicability of Chapter-X which has been inserted in the act by the legislature by way of an anti-avoidance provision. The same would not be allowed to be frustrated mainly because an assessee does not adjust any international transaction. This tribunal’s Special
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Bench’s decision in M/s.Instrumentatirum Corporation Vs. ACIT [2016] 71 taxmann.com 269 (Kolkata) (SB) has already settled the instant issue against the assessee and in favour of the department that such an international transaction has to carried at the arm’s length price computed as per the corresponding most appropriate method ‘MAM” as per law. We thus reject all these assessee’s arguments challenging correctness of the learned lower authorities action to this effect and direct the learned TPO at the same time to re-compute the impugned adjustment @0.5% only. These assessee’s substantive ground nos.2 to 2.2 are partly accepted in very terms.
Next come the assessee’s ground no.3 to 3.2 challenging correctness of the learned lower authorities action making “ALP” adjustment of Rs.9,95,000/- in TPO’s order as enhanced to Rs.29,90,300/- in the DRP’s directions as follows: “5.2 Findings : The issue is discussed by the TPO in para 20 onwards in his order. The assessee has borrowed from one financial institution and made back-to-back arrangement for lending the same to its AEs on the same terms and conditions. The submission of the appellant before the TPO is reproduced in the order. The TPO holds that the borrowing made by the assessee has" increased its financial leverage, reducing further borrowings for its own operations, and also increased its risk profile. The banks have refused to lend to the AE due to its weak financial health and, therefore, the direct borrowing by the assessee for back-to-back lending to its AE has
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severe costs for the assessee. Therefore, the TPO applied margin of 2% on the borrowings and added a sum of Rs.9,95,000/-.
Looking into the facts of the case, we find that the A.E was not in a position to obtain the loan on its own because of it weak financial position and therefore such back to back arrangement was made. However in the process the assessee is exposed to considerable risk and therefore we are of the opinion that assessee needs to be compensated for the arrangement. Though in this case , the Assessee borrowed the money from UBS AG bank and on back-to- back basis entered into inter-company loan arrangement with Jain Irrigation Inc, USA i.e. AE. However the fact remains that loan is advanced to the A.E by the assessee.
We have also taken note of the decisions of Hon. Mumbai High Court in the case of CIT vs Tata Autocomp Systems Ltd [TS-45-HC- 2015 (Bom)] and also considered the decision of Hon. Delhi High Court in the case of CIT vs Cotton Naturals (I) Pvt Ltd. [TS-117- HC-2015 (Del)].
The Hon’ble Mumbai High Court and Hon'ble Delhi High Court and Hon’ble ITAT have decided the principle regarding international transactions of interest on loan advanced in foreign jurisdiction on the basis of LIBOR plus basis. The market / country in which such loan is to be raised by the borrower should be considered as the place where transactions was carried out and the comparable unrelated transactions in the same foreign currency should be used to find out the Internal / External CUP in this regard. The CUP Method for benchmarking of interest has been approved by various Benches of ITAT, including ITAT Mumbai in the case of DCIT vs. Tech Mahindra 46 SOT 141(Mum.) and M/s. Aithent Technologies Pvt. Ltd.vs. ITO[TS-721-ITAT-2011(Del)], CUP method has also been impliedly upheld by the Hon’ble Delhi
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High Court in CIT vs Cotton Naturals (I) Pvt Ltd [TS-117-HC- 2015(Del)]. Thus the CUP method is the most appropriate method to ascertain the ALP of such international loan transactions after taking into account the basis at which similar transactions with other unrelated parties have been entered into the assessee in its submission has also pointed out that it is charging interest on outstandings with A.E at LIBOR plus a spread.
However, the issue regarding quantum of spread over LIBOR rate is to be decided on the basis of peculiar facts of each case after evaluating the terms of the loan i.e. period of loan, quantum of loan currency, creditworthiness of the borrower before borrowing, collateral (secured/unsecured loans). The rate of interest is clearly dependent upon all these factors. It can be seen from the available public data (like Bloomberg data) that banks / financial institutions / corporate have advanced loans where interest rate increases with increase in tenure and amount and it also increases with decrease in creditworthiness of borrowing entity. In fact the interest rate increases at very fast rate with creditworthiness of the borrower as it goes down from AAA rating to "D" rating. The interest rate further increases in the case of unsecured loans or where no guarantees for loans have been made available.
In the present case, the assessee has not furnished any information about the credit rating of the AE. However it is an established fact that the A.E is financially very weak and therefore could not procure the loan on its own. Considering this fact, the spread is taken at 5%, which will cover various risks related to tenure, amount, collateral and creditworthiness of the borrower and also service mark-up. The A.O. is, therefore, directed to apply LIBOR rate plus 5% as ALP for interest on loan borrowed by AE. The LIBOR rate to be applied in case the loan has been granted at a
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fixed rate for the entire tenure of loan is the LIBOR rate of the year in which loan was given. However, if the loan has been granted at floating/flexible rate of interest, the LIBOR rate to be applied is the LIBOR rate for the year under consideration. The A.O/TPO is to take action accordingly. This ground is adjudicated accordingly.”
Learned senior counsel took us through the assessee’s paper book at page 86 wherein the latter had claimed to have availed loans from third parties @4.5 to 5%; which in turn, stood advanced to the AE’s @ 5 to 5.5%. Learned counsel’s case is that these third parties are internal comparables in assessee’s case in the very segment since involving “back to back” element qua loans availed and advances to AEs. The fact however remains this “back to back aspect” has nowhere been considered in detail either in the TPO’s order or in the DRP’s directions as it is evident from perusal of the case file. Faced with this situation, we deem it appropriate to restore the instant second issue back to the TPO for his fresh appropriate adjudication as per law. These assessee’s ground nos.3 to 3.2 are allowed for statistical purposes in very terms. 13. The assessee’s ground no.4 to 4.3 seek to reverse the learned lower authorities action making adjustment of Rs.22,58,49,502/- relating to export of goods to overseas associated enterprises. We note that the DRP’s directions in issue read as follows: “3.2 Findings:
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As regards ground No.2, which relates to volume adjustment, the TPO has elaborately discussed the issue in para 24 onwards and is not repeated. It is noted that the assessee has no formal discount policy for goods exported /sold by it. No such evidence has been put on record even during the present proceeding. Even no invoice could be produced in support of the fact that discount is being offered. The TPO has referred to many instances where price charged is more even for high volume transactions. This also defeats the argument put forward by the assessee. As regards the chart submitted now also ,no invoice wise proof of offering discount is submitted. There can be many other reasons for variation in price for instance quality of product. In any case such argument can not be accepted without an iota of evidence on record. Res-judicata is not applicable to income tax proceedings and adjustments made in a year is dependent on the facts of that year. As regards the alternative argument of TNMM as MAM by considering A.Es as tested party, the assessee itself selected CUP for benchmarking the transactions in the T P study report. In this case proper internal comparable exist and looking into the facts CUP is the most appropriate method. In this connection, the TPO has also relied on the decision in the case of Henkel Adhesive Technologies India Pvt Ltd Thus considering the facts of the case, this ground is dismissed.”
Learned senior counsel has filed a detailed written note dated 13.12.2022 explaining each and every aspect of the instant issue at threadbare. The crux of the instant issue lies in the fact that the assessee had inter-alia sold PVC Sheets, different varieties of onions and fruit products and in varying quantities, totaling to 89,08,234 kgs
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to AEs as against that to non AE’s weighing 116125 kgs only. It had further claimed to have offered discounts in the range of 20 to 30% of in general and 24 to 26 % in particular; based on volumes, and claimed before the learned lower authorities that the same are market related trends keeping in mind the huge overseas market tapped through AE’s in large volumes. Learned senior counsel also referred to Rule 10B(1)(a)(ii) that such an adjustment is indeed permissible to eliminate the material facts of differences in order to controlled transaction and international transaction in issue. He further refers to OECD’s transfer pricing guidelines ICAI guidance note to submit that the learned lower authorities have erred in law and on facts in comparing different product descriptions whilst adopting “CUP” method. Mr.Pardiwala contends that the assessee’s stand all along is that there is no formal discount policy and that if the transactions net margin method “TNMM” is adopted, these transactions will be very much at arm’s length only. He further referred to the assessee’s AEs computation adopting such higher rates would indeed render them as loss making entities only.Mr.Pardiwala lastly contended that there are various tribunals decisions holding such a discount policy basis of quantity of sales as a permissible adjustment under Chapter-X of the Act.
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The Revenue has placed strong reliance on the lower authorities action making the impugned adjustment. 16. We have given our thoughtful consideration to the foregoing vehement contentions and find no merit in the assessee’s stand. We make it clear that we are dealing with the comparable uncontrolled price “CUP” method which is direct in nature and applicable herein since the assessee’s stand all along is not supported by the internal comparables “non-AE’s” wherein there is no volume discount policy at all. This tribunal in M/s.Serdia Pharmaceuticals (I) Ltd. Vs. ACIT [2011] 44 SOT 391 (Mumbai) has settled the issue against the assessee and in department’s favour that this “CUP” method is a direct method to be preferred over all the other recognized indirect methods as most appropriate methods “MAM” under the provisions of the Act. Learned senior counsel’s endeavor to challenge correctness of the lower authorities action going by the various qualities of cut size or minced or standard chopped or pondered or kibbled or granulated onions; as the case may be hardly carries any merit once it has come on record that the that there had not been any discount offered to non AE’s in the very segment. We thus reject the assessee’s endeavour to distinguish the various qualities of the onion products once it is evident all these all are onion products only. This is indeed coupled with the fact that the assessee could not prove any
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discount policy right from the TPO’s level till date based on its volume of sales. Nor could it find any such comparable discounting trends in open markets involving the very nature of the segments since we are dealing with “CUP” method only.
The legal position also would be hardly different regarding Mr.Pardiwala’s arguments quoting Rule 10B(I)(a)(ii) wherein the assessee has not been able to prove any volume based discount ranging between 24 to 26% (supra) which “could materially effect the price in the open market” or that such a discount policy based on volume of sales is very much prevalent in open market. We thus reject the assessee’s contentions to this effect.
The very outcome follows for the assessee’s remaining arguments as well since there is no precedent before us which gives any discretion to interfere with the impugned adjustment determined in light of “CUP” method already held as direct most appropriate method “MAM” in nature. We make it clear that this tribunal’s decision Tecnimont ICB Pvt. Ltd. Vs. ACIT [2012] 138 itd 23 (Mumbai Trib) has settled the law that the price arrived at between two AE’s themselves could hardly from an uncontrolled price for the purpose of determining ALP since not involving uncontrolled transactions. We follow the very reasoning herein as well to hold
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that the assessee could not claim its impugned volume based discounts to the AE’s open market trends only since they form an uncontrolled transaction only. The assessee’s last arguments based on UN’s TP manual as well as ICAI guidelines and loss figures to AE’s hardly form any material to reverse the impugned adjustment which has been computed after adopting “CUP” method only in accordance with Chapter-X of the Act which is in the nature of an anti avoidance provision (supra). We further wish to quote sec 92(3) of the Act wherein the legislature has made it clear that these Chapter-X’s provision would not apply in the specified circumstances only whose scope cannot be allowed to be expanded . We thus uphold the impugned adjustment of Rs.22,58,49,502/- in issue. These substantive ground no.4 to 4.3 stand declined in very terms.
Next comes the assessee’s ground no.5 to 6.1 involving non transfer pricing issue of disallowance of interest of Rs.68,40,000/- calculated at the ad-hoc rate of 12% of the interest free security deposits given to related parties in relation to two plots at Walkeshwar, Mumbai and similar claim ofRs.1542361/- regarding various leased properties. The Revenue could hardly dispute that the learned lower authorities have adopted their respective findings in A.Y. 2008-09 which already stand revised in assessee’s favour in its
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appeal ITA No.1070/PUN/2013 decided on 28.02.2018. We thus accept the assessee’s instant grounds no.5 to 6.1 in very terms. The impugned twin disallowances stands deleted therefore.
The assessee’s ground no.7 to 7.1 challenge disallowance of depreciation of intangible assets claimed @25% coming to Rs.91,00,069/-; which in turn, stand rejected under section 40(a)(i) of the Act. The Revenue could hardly dispute that such a depreciation claim could not be rejected under section 40(a)(i) as held in PCIT Vs. Tally solutions P. Ltd., [2021] 430 ITR 527 (Karnataka). This issue is accordingly decided in assessee’s favour and against the department.
The assessee’s 8 to 8.2 substantive grounds seek to reverse the lower authorities action assessing its sum of Rs.10,06,17,500/- received on sale of renewable energy certificate as a revenue receipt than a capital one. We note that herein as well that the issue is no more res-integra once various judicial precedents i.e. My Home Ltd [2014] 46 taxmann.com 314 (AP), Veda Spinning Mills P. Ltd. [2021] 127 taxmann.com 386 (Madras), and L.H.Sugar Factory P. Ltd [2017] 88 taxmann.com 647 (All) have settled the issue in assessee’s favour and against the department that such receipts are not taxable under the provision of the Act. The legislature has also
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inserted sec 115BBG in the Act vide Finance Act 2017 w.e.f 01.04.2018 with prospective effect whereas we are in A.Y. 2013-14 only. Faced with this situation, we reverse the lower authorities action treating the assessee’s receipts in issue of Rs.10,06,17,500/- as taxable income. Allowed accordingly.
Learned senior counsel does not press for assessee’s ground nos.9 to 9.1 claiming educational cess of Rs.36,16,123/- as an allowable deduction in light of the latest amendment in section 40(ii) and Explanation 3 therein inserted by Finance Act 2022 with retrospective effect from 01.04.2005. Rejected accordingly.
The assessee’s 10th substantive ground challenges correctness of the learned lower authorities action treating its incentive receivables of Rs.10,70,209/- as per the Rajasthan Investment Promotion Scheme 2010 as a revenue receipt. The same admittedly found as in the nature of sales tax incentive only. We note in this factual backdrop that case law PCIT Vs. Nitin Spinners Ltd. [2021] 130 taxmann.com 402 (SC) has already upheld honourable Rajasthan high court’s decision treating similar subsidy of sales tax as per the above scheme for the year 2003, as capital receipt in nature only. We thus adopt the very reasoning mutatis-mutandis to accept the assessee’s instant 10th substantive ground. Ordered accordingly.
ITA No.227/PUN/2018 for A.Y. 2013-14(A) Jain Irrigation Systems Ltd.,
The assessee’s 11th substantive ground challenges addition of 24. Rs.5,18,50,000/- made by the learned lower authorities on account of difference between the stock figures submitted to bank authorities for hypothecation vis-à-vis the actual figures as per the duly audited books of accounts. The learned CIT(DR) could hardly dispute that the assessee’s former figures nowhere claimed to have been submitted after physical verification as is the case with its duly audited books of accounts. We thus quote CIT Vs. Apcom Computers (P) Ltd. [2007] 158 TAXMAN 363 (Madras) to delete the impugned addition for this precise reason alone. Ordered accordingly.
Lastly comes section 35(2AB) weighted deduction disallowance of Rs.1,18,65,729/- in issue. The assessee’s case in light of its pleading in ground no.12.2 is that the Assessing Officer could not have gone beyond the corresponding figures taken in this draft assessment dated 30.12.2016 as Rs.59,32,799/- which never formed subject matter of its objection petition before the DRP. We prima-facie find merit in the assessee’s pleadings as it is evident from a perusal of the Assessing Officer’s above stated draft assessment (page 22). We thus quote section 144C(3) that such a course of action going against draft assessment is no more available
ITA No.227/PUN/2018 for A.Y. 2013-14(A) Jain Irrigation Systems Ltd.,
with the Assessing Officer at the time of final assessment which has to be framed as per the DRP’s directions under section 144C(13) of the Act. We thus partly affirm the impugned disallowance only to the extent of the foregoing draft assessment’s figure of Rs.59,32,799/- by adopting stricter interpretation(supra). Necessary computation shall follow as per law.
No other ground or argument has been pressed before us.
This assessee’s appeal is partly allowed in above terms.
Order pronounced in the open Court on 22nd December, 2022.
Sd/- Sd/- (DR.DIPAK P.RIPOTE) (S.S.GODARA) JUDICIAL MEMBER ACCOUNTANT MEMBER पुणे / Pune; �दनांक / Dated : 22nd Dec, 2022/ SGR* आदेशक��ितिलिपअ�ेिषत / Copy of the Order forwarded to : अपीलाथ� / The Appellant. 1. ��यथ� / The Respondent. 2. 3. The CIT(A), concerned. 4. The Pr. CIT, concerned. 5. िवभागीय�ितिनिध,आयकरअपीलीयअिधकरण, “सी” ब�च, पुणे / DR, ITAT, “C” Bench, Pune. गाड�फ़ाइल / Guard File. 6. आदेशानुसार / BY ORDER, // TRUE COPY // Senior Private Secretary आयकर अपीलीय अिधकरण, पुणे/ITAT, Pune.