| 2017-TII-INSTANT-ALL-461 | 08 May 2017 |
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CASE LAWS
PR CIT Vs GILLETTE DRIVERSIFIED OPERATION PVT LTD: DELHI HIGH COURT (Dated: May 2, 2017) The assessee was incorporated as subsidiary of Gillette Group India Pvt. Ltd which was engaged in the business of manufacturing and trading of wide range of products for personal care and use. It is also engaged in the business of equipment leasing. For AY 2005-06 assessee filed return of income declaring NIL income. During the course of assessment year the assessee undertook international transactions with its AE's. Matter was refered to TPO to determine the ALP. TPO rejected the ALP computed by the Assessee and declined to accept the comparables used by the assessee in it's TP report. Assessee approached the FAA who dismissed the appeal and upheld the order of AO. On second appeal the ITAT remanded the matter back to the file of TPO to decicde issue on merit. After hearing the parties, the High Court held that, Whether a substantial question of law arises when, a case remanded to determine the ALP leads to revision of PLI - NO: HC + the substantial question of law concerned inclusion of comparables for the purpose of determining the ALP of international transaction involving the Assessee. The ITAT by the impugned order had remanded to the TPO the issues regarding the working out of the TP adjustment on the basis of certain parameters mentioned therein. The counsel for the Assessee contended, that even if the Profit Level Indicator (PLI) was revised on the basis of the remand order of the ITAT, the PLI based on Operative Profit (OP)/cost will work out to -0.04%. Court opined that the remand order does not gave rise to any substantial question of law requiring determination by this Court. Revenue's Appeal Dismissed PR CIT Vs HCL COMNET LTD: DELHI HIGH COURT (Dated: May 3, 2017) Income Tax - Sections 9(1)(vi), 14A & 40(a)(i) & Rule 8D Keywords - provision for warranty - FTS - AMC - non resident assessee - PE - non deduction of TDS - rejection of books - estimation of profit - revenue neutral exercise. The assessee company was engaged in the business of designing, delivering, installation and commissioning of networking solution and providing professional services for management and maintenance of networking solution. It had filed return of income declaring income the assessment was completed u/s 143(3). Thereafter, CIT passed an order u/s 263 setting aside the assessment on the limited issue for carrying out necessary verification and cross inquiry to determine true nature, correctness and allowability of issues relating to issue of TDS and provision for warranty. AO made disallowances on account of non-deduction of TDS on AMC contract and addition on account of provision for warrantee. Regarding non-deduction of TDS in respect of AMC payments, CIT(A) held that the same was not taxable in the hands of non-resident payee, because that was business income of the non-residents and since they had no PE in India, therefore, in terms of the provisions of relevant DTAA, the same was not taxable in the hands of non-resident assessee. It had further held that the AMC payment could not be held to be in the nature of FTS and, therefore, not taxable u/s 9(1)(vii). CIT(A), accordingly, held that the provisions of section 195 were not attracted in respect of AMC payments and consequently there was no question of disallowance u/s 40(a)(i). CIT(A), therefore, deleted the addition of Rs. 2,55,57,990/-. As regards disallowance of provision for warranty, CIT(A) referred to the decision of the ITAT, wherein the Tribunal had set aside the order of CIT passed u/s 263 in respect of provision for warranty after following the decision of SC in the matter of Rotork Controls India Pvt. Ltd. 2009-TIOL-64-SC-IT. The CIT in his order passed u/s 263 noted from the Notes to Account that assessee had made payment of AMC of Rs. 255.58 lakhs on which no tax was deducted. CIT passed order u/s 263 primarily on the ground that this issue had not been examined by the AO. The assessment was completed after making addition on account of disallowance u/s 14A, addition on account of difference in creditors balance and wrong claim of depreciation. CIT examined the assessment records of assessee from which it transpired that the assessee had written off Rs. 458.13 lacs on account of cost of goods of more than 365 days on notional basis as a policy on the ground of their having nil market value at the end of that period. CIT observed that since the loss claimed was only notional loss, not based on any actual valuation, therefore, should have been disallowed and added back to the income of the assessee. This mistake resulted in under-assessment of Rs. 458.13 lacs involving tax effect of Rs. 205.09 lacs including interest. CIT observed that these aspects were never considered by the AO while framing the assessment order. He further observed that no inquiry/ investigation appeared to have been carried out with regard to this aspect. Thus, he observed that it was a case of lack of inquiry/ investigation, apart from the under assessment of income. Thus, the order of the AO was erroneous as well as prejudicial to the interests of revenue. CIT issued show cause notice in response to which assessee's representative filed the written submissions. However, since the same was found to be inadequate, therefore, CIT(A) again gave opportunity to assessee to explain its position. However, none appeared and, therefore, the CIT proceeded to pass the revisional order u/s 263. CIT has reproduced the written submissions filed by assessee, in which primarily assessee demonstrated how the sum of Rs. 458.14 lacs was written down under the head purchases in the P&L a/c as per Schedule 16 and also referred to the queries raised by AO and assessee's reply in this regard. Further an amount of Rs. 103.78 lakhs, was written back (i.e. it was offered as income), during the financial year and, hence, it was only the net amount of Rs. 458.13 Lakhs, which was ultimately charged to the P&L A/c. AO passed the assessment order u/s 143(3) read with section 263 determining total income at Rs. 29,36,07,013/- as against the returned income of Rs. 22,83,76,292/-. The assessment order has been passed in pursuance to the order of ld. CIT u/s 263 dated 30.9.2010, setting aside the assessment. The main issue for which the assessment was set aside, was regarding writing down of inventories of Rs. 458.14 lakhs by assessee, which was on the basis of impairment in the value of inventory by 25% of the cost of spares and accessories. The AO, after detailed discussion, disallowed the assessee's entire claim of Rs. 458.13 lakhs. AO, after detailed discussion made the addition of Rs. 458.13 lakhs, inter alia, observing that the loss claimed by assessee was on account of presumptive write off of goods. On appeal, CIT(A) deleted the addition. The ITAT also answered in favour of the assessee. Having heard the parties, the High Court held that, Whether when the Revenue fails to debunk the findings relating to interest expenditure even then disallowance can be sustained - NO: HC + even the interest expenditure beyond Rs. 274.68 lakhs was made from either the own funds or the borrowing from the holding company and this fact and finding was not controverted by the Revenue, the Court did not find any substantial question of law arising from the finding. Revenue's appeal dismissed FATHIMA HARRIS Vs ITO: MADRAS HIGH COURT (Dated: April 27, 2017) Keywords - Foreign Agent - TDS Liability. The assessee, the proprietrix of M/s Niyaz Apparels, was engaged in the exports of garments. In the AY 2002-03, the assessee effected payments of commission of an amount to various entities for the procurement of export orders. This included an entity by the name and style of M/s.Textile Services Limited, based in New Delhi to which an amount was paid and was also claimed as expenditure in the computation of income for the purposes of the Income tax Act 1961 (Act). Matter was taken up for scrutiny, the AO was of the view that tax ought to have been deducted from the commission payment in view of the mandate in s. 40(a)(i) of the Act, the expenditure claimed was liable to be disallowed and added back to the taxable income. The appellant submitted that the payments of commission were, in all cases except Textile Services, made to entities situated outside India, 3 and in the absence of a business connection, there was no liability to taxation in this regard. The AO accepted the submission with regard the overseas commission agents, however added back the amount of commission paid to Textile Services, Delhi, for non-compliance of the provisions of s. 40(a)(i) of the Act. On Appeal the FAA confirmed the order of AO. After hearing the parties, the High Court held that, Whether disallowance is warranted if no TDS is deducted on payments made to non-resident agent for canvassing export order u/s 40(a)(i) - YES : HC + the facts were not in dispute. An agreement had been entered into by the Assessee with M/s.Textile Services Limited, Hong Kong for canvassing of export orders. Commission was paid on various dates. The amount was paid to M/s Textile Services Limited, an agent of the foreign entity based in Delhi. Concurrent orders of the authorities confirm the position that the commission has actually been received in India and no details were forthcoming to establish that the Indian entity received the same for onward transmission to Hong Kong. The inevitable conclusion in law was that the commission payments are liable to tax in India. + the argument that was advanced before the court on behalf of the assessee was to the effect that the provisions of section 40(a)(ia) of the Act, in terms of which the aforesaid disallowance had been effected, was inserted only with effect from 1.4.2004 and as such would not applicable to assessment year 2002-03. However, Court noted that the disallowance has been effected in terms of subclause (i) of section 40(a) relating to a non-resident. + the liability to deduction of tax at source was held to be in terms of section 40(a)(i) of the Act. The argument of the counsel as well as the substantial question of law sought to be raised appeared to the court to be a clever afterthought, particularly since that argument was not raised either at time of assessment or first appeal but for the first time before the Tribunal even though all earlier orders were passed after the insertion of sub clause (ia) of section 40. Revenue's appeal Allowed |
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