2018-TII-INSTANT-ALL-525
30 January 2018   

Budget 2018 - Indirect Tax Expectations | simply inTAXicating

Budget 2018 - Indirect Tax Expectations | simply inTAXicating

TII BRIEF

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CASE LAWS

2018-TII-04-HC-ALL-INTL

HONDA MOTOR INDIA PVT LTD Vs ACIT : ALLAHABAD HIGH COURT (Dated: January 19, 2018)

Income Tax - Writ - Sections 143(3) & 148.

Keywords - Escaped assessment - Purchases made from AE - Payment of royalty - Reasons for reopening

The Assessee-company, engaged in manufacturing and exporting premium cars, had filed its return for the relevant AY and the assessment was completed by the AO. Later on, the AO issued notice u/s 148 for drawing re-assessment as there exists reasons to believe that income chargeable to tax had escapped assessment. The AO had already recorded from material available on record that the Assessee's income with regard to spare parts purchased from AE and the payment of royalty to the parent company of the Assessee had escaped assessment and this reason was based on the basis of earlier years 2009-10, 2010-11 and 2011-12.

In Writ, the HC held that,

Whether when Department has failed to consider materials available on record relating to the issue in hand, reopening notice issued under such circumstances is not sustainable and hence calls for a fresh order - YES: HC

++ it is seen that the Department had itself given up the case on the basis of the assessment proceedings held in the year 2009-2010, 2010-11 and 2011-12. From a perusal of the order whereby the objections of Assessee have been decided, it is apparent that the objection taken by Assessee with regard to the material, which was already on record has not been dealt with specifically. The record reflects that this issue had engaged the attention of the AO earlier also, who had in the proceedings u/s 143(3) for the year 2012-13 referred to the same in its communication. The order passed on the objections clearly do not deal with all the material, which was already on record;

++ it was this very issue which was engaging the attention of the Department when the matter was sought to be reopened, the material was there, the explanations were there, it could certainly have been part of the order passed on the objections but no reference is made to the material, which is already there. Therefore, this Court believes that in the facts and circumstances of this case, it would be appropriate and in the pass a fresh order on the objections of the Assessee after giving an opportunity of hearing. Till decision by the authority concerned, the reassessment proceedings may be kept in abeyance.

Case disposed of

2018-TII-62-ITAT-HYD-TP

DCIT Vs Ms VALUE LABS : HYDERABAD ITAT (Dated: December 15, 2017)

Income Tax - Sections 10B, 143(3), 147 & 148

Keywords - ALP - credit period to AEs - directions of DRP - international transactions - interest on receivables - profit before depreciation

The assessee company, engaged in providing software development services to its AEs, had preferred present appeal challenging the order, whereby the AO had not followed the direction of DRP to take the "profit before depreciation" of both the assessee as well as comparable companies for determining the ALP, as the assessee was a partnership firm, while the comparables taken by the TPO were companies and the rate of depreciation was high in the case of the firm. The AR had submitted that the DRP had directed the AO to consider the margin in the case of assessee as well as the margins of comparable companies after excluding the depreciation. He submitted that the AO however had not followed the said direction while passing the final assessment order.

During the relevant year, the assessee had transactions with both AEs and non-AEs and had not charged "interest on the receivable" from the AEs as well as the non-AEs and therefore, it was pleaded that it should not be treated as international transaction. He submitted that the AO however charged interest @ 14.75% on the amount receivable after allowing credit period of 30 days, whereas the DRP had extended the period to 60 days. It was submitted that when the assessee was not charging interest on receivable from non-AEs also and since the credit period allowed by the assessee was not extended beyond six months in most of the cases and beyond 12 months in one case, the interest charged by the Department at 14.75% on the total of receivables was not sustainable. Even otherwise, it was submitted that since the payments were from AEs outside India, the interest rates prevalent in India should not have been charged.

On appeal, the Tribunal held that,

Whether ALP merits denovo determination after excluding depreciation, if it is so directed by DRP and the AO has finalized the assessment without incorporating these directions - YES: ITAT

+ as far as software development services are concerned, it is found that the DRP, by following the decision of jurisdictional High Court in the case of BA Continuum in ITA No.440/2017, has directed the AO to consider the margins of assessee as well as the comparables after excluding the depreciation. Since the AO has not followed the said method while computing the ALP, the AO is directed to recompute the ALP after taking the margins of the assessee as well as the comparables after excluding the depreciation, in accordance with the directions of the DRP;

Whether where assessee is not charging interest on both AE and non-AE transactions and the receivables are outstanding for a period of less than six months, no notional interest can be charged - YES: ITAT

+ as far as interest on receivables are concerned, it is seen that in most cases of AE’s, the amounts were received within a period of six months except in one case where it was received after 12 months. We find that the Coordinate Bench of this Tribunal in the case of GSS Infotech Ltd in ITA No.497/Hyd/2015 has considered similar issue and has held that, as the assessee is neither charging interest on any of the receivables outstanding, there is no basis for adopting only two months as credit period. Therefore, respectfully following the same, we hold that where the assessee is not charging interest on both AE and non-AE transactions and the receivables are outstanding for a period of less than six months, no interest can be charged. For the receipts beyond six months also, we find that the interest is not chargeable because the assessee has not charged any interest on receivable from the non-AEs.

Revenue's Appeal Dismissed

 

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