2017-TII-INSTANT-ALL-442
27 March 2017   

NOTIFICATION

Protocol amending India-Singapore DTAA notified

TII CASES

2017-TII-12-SC-INTL

DIT Vs SKANSKA CEMENTATION INTERNATIONAL LTD: SUPREME COURT OF INDIA (Dated: March 20, 2017)

Income Tax – Section 44C

Keywords: HO - head office - reimbursement of expenses.

The assessee's assessment was finalized u/s 143(3) determining income after rejecting book results and estimating income at the rate of 6% of gross receipts. CIT(A) confirmed said rejection of books results by directing not to estimate the profit and make lump sum disallowance of Rs.10 Lacs. Tribunal set aside the orders for the assessment year 1998-99 to 2000-01 to the file of the AO. Pursuant to directions of Tribunal, AO set aside assessment arriving at the assessed loss after making disallowance by applying the provisions of section 44C and disallowance on account of expenses incurred by subcontractor but claimed by assessee being for execution of work project under subcontract. CIT(A) confirmed the disallowance of sundry expenses and hire charges considering it as expenses being the responsibility of the subcontractor, treated the expenses 'reimbursed to Head Office' as Head Office Expenditure' u/s. 44C.

Further the HC held that addition on account of reimbursement of expenses to Head Office is not sustainable where for execution of the project, expatriates were working as also the subcontract was also given to the Indian company which is subsidiary of parent company and the expenses were to be borne by the parties as per the agreement and even some technical persons were required to be employed and their expenses were debited and additions made by AO are not sustainable where the additions made were not a part of the show cause notice and no fresh notice was issued for initiating the penalty proceedings but it was made on the basis of remand of the earlier proceedings.

On further appeal by the Revenue, the Apex Court condoned the delay in filing of appeal and granted leave to Revenue to present its case.

Leave granted

2017-TII-06-SC-TP

PR CIT Vs LI AND FUNG (INDIA) PVT LTD: SUPREME COURT OF INDIA (Dated: March 24, 2017)

Income Tax - Rule 10B(1)(e)

Keywords: ALP - interference by High Court & TP adjustment

The Revenue had preferred the present appeal challenging the order, whereby the ITAT accepting the submissions of assessee, passed a direction to the TPO/AO for determination of ALP. The HC observed that decision of ITAT was premised upon a Division Bench ruling of HC for a previous AY in Li and Fung India Pvt. Ltd. v. CIT, wherein HC had observed that Act does not authorise the broadening of the cost base in the circumstances. The Court had further observed that: "....To apply TNMM, assessee's net profit margin realized from international transactions had to be calculated only with reference to cost incurred by it, and not by any other entity, either third party vendors or the AE. Textually, and within the bounds of text must AO/TPO operate, Rule 10B(1)(e) does not enable consideration or imputation of cost incurred by third parties or unrelated enterprises to compute the assessee's net profit margin for application of the TNMM...." Since the ITAT has followed the above decision and also having regard to the fact that HC in other appeals for later years ruled against the revenue, no question of law arises.

On appeal, the Supreme Court grants leave to the Revenue to defend its case which is to be heard with Civil Appeal No.6940 of 2015 and other connected matters.

Leave granted

 

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