Digest Of Important Judgements On Transfer Pricing, International Tax And Domestic Tax (Nov to Dec 2015)

Shri. Sunil Moti Lala, Advocate, has prepared a compilation of important judgements on transfer pricing, international tax and domestic tax reported in the period from November to December 2015. The author has meticulously and systematically classified the judgements into various categories to enable ease of reference. He has also given the appeal numbers in several cases so as to enable the judgements to be retrieved from the website of the respective Court or Tribunal. A pdf copy of the digest is available for download. The digest will prove invaluable to all practitioners of taxation law

I. Transfer Pricing

a. International transactions

1. The Tribunal held that interest on delayed realization of sales proceeds from AE is not a separate international transaction but an integral part of sale made to the AE. It held that early or late realization of sale proceeds was only incidental to the transaction of sale and accordingly deleted the notional interest addition made by the TPO.
Avnet India Pvt Ltd v DCIT [IT(TP)A No.757(Bang.)/2011] – TS-629-ITAT-2015 (Bang) – TP

b. Most Appropriate Method

Comparable Uncontrolled Price Method

2. The Tribunal held that internal CUP was not the most appropriate method for benchmarking the import of electro-optic components from AEs as the assessee failed to establish that the purchases made from AE as well as non-AEs were in respect of identical products and in the absence of such similarity CUP method could not be applied. Accordingly it held the TNMM to be the most appropriate method.
Alpha ITL Electro Optics Pvt Ltd v DCIT (IT(TP)A No.249/Bang/2015) – TS-601-ITAT-2015 (Bang) – TP

3. The Court held that the CUP method was the most appropriate method for benchmarking the residual profits shared between the assessee, a freight forwarding service provider, and its AE, which were split in the ratio of 50:50. It upheld the finding of the Tribunal that in the business line of the assessee, the business model of sharing residual profits in equal ratio was a standard practice and therefore no different from a third party scenario.
Pr CIT v Toll Global Forwarding India Pvt Ltd (ITA 374/2015 & ITA 396/2015) – TS-598-HC-2015 (Del) – TP

4. The Tribunal rejected the CUP method used by the assessee for benchmarking the sale of train sets to its German AE, wherein it used the price at which the German AE in-turn sold the train sets to Delhi Metro Rail Corporation (‘DMRC’) at the same price, on the ground that the transaction between the assessee and the German AE and the transaction between the AE and DMRC were on totally different footing as the buyer and sellers in both sets of transactions were in different geographical markets and operating at different levels viz. one was selling to an international buyer while the other was selling to a local market and that the assessee failed to justify with documentary evidence, comparability on the issue of quality of the product, contractual terms, level of market, geographical market of the respective transactions, date of transaction and foreign currency receipt. Accordingly, it held that the TNMM method was correctly adopted as the most appropriate method by the TPO.
Bombardier Transportation India Pvt Ltd v DCIT (I.T.A .No.-1626/Del/2015) – TS-520-ITAT-2015 (Del) – TP

Resale Price Method

5. The Tribunal held that where the assessee was an independent distributor having all the risks, then the Resale Price Method would be the most appropriate method for benchmarking the import of finished goods from its AE for resale in India.
Roca Bathroom Products Pvt Ltd v JCIT (ITA No.586/Mds/2014 & ITA No.610/Mds/2015) – TS-634-ITAT-2015 (CHNY) – TP

6. The Court upheld the decision of the Tribunal and held that the Resale Price Method was the most appropriate method for determining the ALP of the transactions undertaken by the assessee as the assessee was a trader who purchased goods from its AE and sold them to independent third parties without any value addition.
CIT v Luxottica India Eyewear Pvt Ltd (ITA 852 / 2015) – TS-532-HC-2015 (Del) -TP

7. The Tribunal, considering the fact that the assessee, engaged in the importing of high end toys from its AE and selling them to third parties, had incurred 65 percent of its total operating costs on AMP expenses and that there was a huge gap between the Gross Profit and Net Profit rates of the assessee during the year under review, held that the assessee could not be considered as a mere distributor and therefore the RPM method would not be the most appropriate method. Accordingly, it remanded the file to the TPO for fresh adjudication.
Mattel Toys (India) Pvt Ltd v ITO (ITA No.6391/M/2011) – TS-518-ITAT-2015 (Mum) – TP

Transactional Net Margin Method

8. The Tribunal held that internal comparables were to be preferred to external comparables and therefore held that internal TNMM was more appropriate than external TNMM. It further held that the geographical differences were not relevant where the FOB price was considered.
Inslico Ltd v DCIT (I.T.A .Nos. 4880 /Del/2013) – TS-623-ITAT-2015 (Del) – TP

9. The Tribunal held that TNMM and not the CUP method was the most appropriate method for determining arm’s length price of the overseas sales of glass mosaic products manufactured by the assessee to its AEs. It held that the DRP and TPO were incorrect in considering sales to resident affiliate companies as CUP as the definition of uncontrolled transactions in Rule 10 specifically provided for transactions with Non-AEs. Accordingly, the logic of the DRP stating that since the companies were domestic affiliates, there was no motive for tax avoidance and therefore they could be considered as comparable was dismissed by the Tribunal.
Gemstone Glass Pvt Ltd v JCIT (I.T.A. No.: 3223/Ahd/11 and 2858/Ahd/12) –TS-510-ITAT-2015 (Ahd) – TP

10. The Tribunal held that where the assessee had rendered similar services to both AEs and Non-AEs, internal comparable companies were to be considered as opposed to external comparables.
E4E Business Solutions India Pvt Ltd v DCIT [IT(TP)A No.324(B)/2015] – TS-542-ITAT-2015 (Bang)-TP

c. Comparability– Inter and Intra Industry

Investment Advisory Services
11. The Tribunal held that companies engaged in the merchant banking business were not functionally comparable with the assessee rendering investment advisory services as there was a huge difference between the functions involving different risks and remuneration. It also excluded a comparable on the ground that the related party transactions exceeded 50 percent.
General Atlantic Pvt Ltd v DCIT (I.TA No.1019/Mum/2014) – TS-544-ITAT-2015(Mum) – TP

12. The Tribunal held that the assessee, engaged investment advisory services for investment in Indian equities and strategic investments could not be compared to companies engaged in asset management services, companies engaged in debt resolution and debt syndication, companies making investments out of its own funds, companies engaged in investment banking & corporate advisory services, companies engaged in merchant banking, mergers and acquisitions and companies engaged in the business of agency and retail distribution.
Goldman Sachs (India) Securities Ltd v DCIT (I.TA No. 222/Mum/2014) – TS-589-ITAT-2015 (Mum) – TP

ITES Sector

13. The Court held that Cosmic Global could not be compared with the assessee who was engaged in the provision of ITES Services as Cosmic Global’s major activity comprised of translation services which were dissimilar with the assessee’s activity and that it outsourced a substantial part of its service therefore having a different business model. Further it excluded Accentia Technologies Ltd as a comparable in view of the fact that there was a merger of this company with another entity.
Pr CIT v Xchanging Technology Services India Pvt Ltd (ITA No 813 / 2015) – TS-555-HC-2015 (Del) – TP

14. The Tribunal held that the following companies could not be considered as comparable to the assessee who was engaged in the provision of software development services to its AE:
• Companies having significant intangible value, owning IPRs (patents) and revenue from software products segment.
• Giant companies, assuming all risks which led to higher profits.
• Companies, whose services segment comprised of software consultancy, engineering services, web development and web hosting in addition to software development for which no segmental information was available.
• Companies engaged in development of software and software products and also providing training facilities.
• Companies providing outsourced product development services along with software development services without segmentation of the results into software services and product development.
• Companies having related party transactions in excess of 15 percent.
• Companies engaged in providing complex services.
• Companies engaged in clinical research and manufacture of bio-products
• Companies having abnormal profits due to amalgamation with another company
• Companies providing Geospatial Information Systems therefore being functionally different.
DCIT v Ikanos Communication India Pvt Ltd [I.T(IT).A No.137/Bang/2015] – TS-548-ITAT-2015 (Bang) –TP
Infineon Technologies India Pvt Ltd v ACIT [I.T. (T.P) A. No.1670/Bang/2012] – TS-549-ITAT-2015 (Bang) – TP
Unisys India Pvt Ltd v DCIT [IT(TP)A No.67/Bang/2015] – TS-512-ITAT-2015 (Bang) –TP
Software AG Bangalore Technologies Pvt Ltd v ITO (ITA No.1264/PN/2013) – TS-539-ITAT-2015-(Pun)TP
DCIT v Synopsis India Pvt Ltd [I.T(TP).A No.1107/Bang/2011] –TS-504-ITAT-2015 (Bang) –TP
ACIT v Hyundai Motors India Engineering Pvt Ltd (ITA No 1743 / Hyd / 2014 and ITA No 1917 / Hyd / 2014) – TS-554-ITAT-2015 (Hyd) –TP
Lionbridge Technologies Pvt Ltd v ITO [I.T.A. No. 668/Mum/2014 and I.T.A. No. 1375/Mum/2014] – TS-557-ITAT-2015 (Mum) – TP

15. The Tribunal held that companies that were market leaders enjoying economies of scale and diverse customer base along with significant brand value, companies who have undergone extra-ordinary events having impact on profitability and companies engaged in high end services involving specialized knowledge could not be compared with the ITES Segment of the assesee. However, it held that companies could not be rejected merely on the basis of abnormal profits.
Unisys India Pvt Ltd v DCIT [IT(TP)A No.67/Bang/2015] – TS-512-ITAT-2015 (Bang) -TP

16. The Tribunal held that companies cannot be excluded as comparable merely on the turnover filter without analyzing their functionality. Additionally, it excluded companies having extra-ordinary events such as amalgamation or acquisition of another company and companies providing software development services as opposed to BPO services provided by the assessee.
M/s Rampgreen Solutions Pvt Ltd v DCIT (ITA no. 1066/Del/2015) – TS-538-ITAT-2015 (Del) – TP

17. The Tribunal held that companies engaged in product development were not comparable with the assessee who was engaged in the business of provision of software development services to its parent company. Further, it excluded companies having turnover in excess of Rs. 200 crore.
M/s Infineon Technologies India Pvt Ltd v ACIT [IT (TP)A No 1670 / Bang / 2012)] – TS-549-ITAT-2015 (Bang)–TP

18. The Tribunal held that the assessee, engaged in the provision of software development, consultancy services and IT enabled services could not be compared with companies providing call center services and companies outsourcing a large portion of its business.
DCIT v Genesis Integrating Systems (India) Pvt Ltd [IT(IT)A No.869(B)/2013] – TS-637-ITAT-2015 (Bang) – TP

19. The Tribunal held that the assessee, engaged in providing IT Enabled Services such as back office services, web enabled services, email support etc exclusively to its AE could not be compared to the following:
• Companies failing the filter of export sales to total sales of 25 percent as the geographical markets in which parties entering into transactions operate is an important factor influencing price of the transaction
• Companies having huge turnovers and large economies of scale, catering to different industries as opposed to the assessee whose business profile was quite limited
• Companies providing data analytics knowledge process outsourcing services
Actis Global Services Pvt Ltd v ITO (ITA No. 30/Del/2015) – TS-611-ITAT-2015 (Del) – TP

20. The Tribunal held that the assessee, engaged in software development services and marketing support services could not be compared to companies having related party transactions to sales greater than 15 percent, companies having turnover in excess of Rs. 200 crore and companies having drastic variation in its profit margins.
Support.com India Pvt Ltd v ITO (IT(TP)A No. 1340/Bang/2010) – TS-609-ITAT-2015 (Bang) – TP

21. The Tribunal held that companies outsourcing a major portion of its activitites (75 percent of total cost) could not be compared with the assessee, engaged in electronic publishing services and data conversion services as they operated completely different business models.
Further, it held that the Revenue could not be aggrieved by the AO / TPOs action in considering a company as comparable and that even Rule 27 of the ITAT Rules could not be invoked. It stated that though the Revenue had the right to file cross appeals against the adverse decision of the CIT(A), it had no right to file appeal against the view taken by the AO / TPO himself which was not disturbed in the first appeal.
ACIT v Tech Books Electronics Pvt Ltd (ITA No.6081/Del/2012) – TS-606-ITAT-2015 (Del) – TP

22. The Tribunal held that the assessee engaged in providing software development services to its AE could not be compared to companies engaged in development of software products, companies owning intellectual property and brand value, companies for which segmental data is unavailable, companies failing the Related Party transaction filter.
Intoto Software India Pvt Ltd v ITO (ITA.No.1810/Hyd/2012) – TS-635-ITAT-2015 (Hyd) – TP
Starnet Networks (India) Pvt Ltd v ACIT (ITA No. 1684/PN/2011) – TS-636-ITAT-2015 (Pun) – TP

23. The Tribunal held that the assessee, engaged in the provision of ITES services such as customized business research support was not comparable with Coral Hub Ltd as it outsourced majority of its functions while the assessee carried out most functions in-house. It further held that Eclerx Services was functionally different as it was a KPO providing complete business solutions and the assessee merely provided primary data for various field of activities.
Copal Research India Pvt Ltd v ITO (ITA no. 1713/Del/2014) – TS-597-ITAT-2015 (Del) – TP

Research Services

24. The Tribunal held that the issue of capping the upper turnover filter had been decided in favour of the assessee in the case of 24/7 Customer.com Pvt Ltd v DCIT and therefore excluded companies having turnover over Rs.1,000 crores. Further it held that companies engaged in software development and ITES were not comparable with the assessee who was engaged in the business of research, design and development of application solutions. Further, companies having extra-ordinary events such as mergers and acquisitions during the year were also excluded as comparable.
AMD Research & Development Centre India Pvt Ltd v DCIT (ITA No. 275/Hyd/2015 & ITA No. 242/Hyd/2015) – TS-563-ITAT-2015 (Hyd) – TP

Support Services

25. The Tribunal held that companies providing variety of operations such as marketing of equipment relating to banking and postal offices and whose after sales support service was only an insignificant component of the revenue were not comparable with the assessee’s marketing support services.
DCIT v Parametric Technology (India) Pvt Ltd [I.T. (T.P) A. No.145/Bang/2015] – TS-514-ITAT-2015 (Bang) – TP (the rest of the issues and comparables were remitted back)

26. The Tribunal held that companies which have undergone amalgamation during the year under review or companies having outsourced major of its activities cannot be compared to the assessee who was engaged in providing tele-servicing and transaction processing support to its AEs.
American Express India Pvt Ltd v DCIT (ITA No.3532/Del/2014) – TS-517-ITAT-2015 (Del) – TP

27. The Tribunal held that the assessee engaged in providing Clinical Study Management & Monitoring Support Services and outsourcing its research activities could not be comparable to companies carrying on in-house research, companies having substantial related party transactions, companies having two streams of revenue viz. contract research fees and sale of compounds, but not having segmental break-up.
Pfizer Limited v ACIT ( ITA no.3729/Mum./2008) – TS-561-ITAT-2015 (Mum) TP

28. The Tribunal held that the assessee, a company providing technical support services to its AEs outside India could not be compared to the following companies:
• Companies earning abnormally high profits as compared to the preceding and succeeding years and which werefunctionally different since it outsourced its work resulting in a lower employee cost to turnover percentage as compared to the assessee.
• Companies which were functionally different and incurring losses in the current and preceding years
• Companies engaged in providing outsourced product development services and in sale of products.
Schlumberger Global Support Centre Ltd v DDIT (ITA No.86/PN/2013) – TS-528-ITAT-2015 (Pun) – TP

29. The Tribunal held that the assesee, engaged in providing technical support services to its AEs could not be compared to
• Cosmic Global Ltd, as it had faced wide fluctuation in its margin as compared to earlier years which was opposed to its normal business trend. Additionally, unlike the assessee, the company outsourced a substantial part of its activities.
• Allsec Technologies as it was engaged in the business of data verification, processing of orders telemarketing, monitoring of quality of calls etc which was different from the functions of the assessee.
• R Systems International Ltd as it was engaged in product development and sale of products.

Gaddomajra Cooperative Labour & Construction Society v ITO – (2015) 45 CCH 0168 Chd Trib

30. The Tribunal held that the assessee engaged in the business of providing customer relationship services and BPO services could not be compared to the following companies:
• Companies having undergone extra-ordinary events during the year
• Companies providing engineering design services, data analytics and operation management which were KPO services
• Companies outsourcing most of its work
• Companies functionally dissimilar being established market leaders, having huge brand value and economies of scale.
E4e Business Solutions India Pvt Ltd v DCIT (I.T. (T.P.) A. No.1765/Bang/2013) – TS-541-ITAT-2015 (Bang) – TP

31. The Tribunal held that the assessee, engaged in providing end to end BPO services could not be compared with the following companies:
• Companies engaged in the diversified activity of medical transcription, medical coding, billing, receivable management as these were different from the service of contract center provided by the assessee
• Companies providing high-end services involving decision making analysis, requiring thought process and evaluation of various factors
• Companies undergoing extra-ordinary development such as amalgamation
• Companies engaged in the providing consultancy services, translation services and accounts BPO and companies outsourcing its services.
E4e Business Solutions India Pvt Ltd v DCIT [IT(TP)A No 1845 / Bang / 2013 & IT(TP)A No 1777 / Bang / 2013) – TS-632-ITAT-2015 (Bang) – TP

32. The Tribunal held that the assessee, engaged in providing marketing support services to its AE could not be compared to companies imparting high end technical services and companies imparting consultancy in an entirely different field.
It held that if a particular segment was performing a specific function, then for determining the ALP only those comparables having close similarity with the functional segment under consideration should be selected.
Rolls Royce India Pvt Ltd v DCIT (ITA no. 1310/Del/2015) – TS-616-ITAT-2015 (Del) – TP

33. The Tribunal held that since the activities performed by the assessee viz. providing emergency assistance and support services were not performed by any comparable companies, companies having a broad comparative functional profile of undertaking support services in other fields were to be taken as comparable.
Further, it held that Government owned companies should not be included as comparable as profit motive was not a relevant consideration for those companies.
International SOS Services India Pvt Ltd v DCIT (I.T.A .No. 1631/Del/2014) – TS-620-ITAT-2015 (Del) – TP

34. The Tribunal held that the assessee, engaged in providing engineering support services to its AEs could not be compared with companies engaged in comprehensive green field related services, Government companies as profit motive might not be a relevant consideration, companies engaged in the surface transport business (developer, operator and facilitator of surface transport infrastructure projects from conceptualization to operation), companies engaged in providing engineering consultancy services and companies having service income to sales ratio of less than 75 percent.
Bechtel India Pvt Ltd v DCIT (I.T.A. No.1477 /Del/2015) – TS-602-ITAT-2015 (Del) – TP
Bechtel India Pvt Ltd v DCIT (I.T.A. No.1476 /Del/2015) – TS-607-ITAT-2015 (Del) – TP

35. The Tribunal held that the assessee, engaged in providing back office services relating to accounts payable processing and HR to its AEs could not be compared to the following companies:
• Companies whose financial results arise out of amalgamation
• Companies providing KPO Services
• Companies failing the employee cost filter
• Companies having super normal profit and functionally incomparable
• Companies providing geospatial services in land based technologies
• Companies having a different scale of operations owing to the brand value of its parent company.
Flextronics Technologies (India) Pvt Ltd v DCIT (IT(TP)A No.1559/Bang/2012) – TS-600-ITAT-2015 (Bang) – TP
36. The Tribunal held that the assessee, engaged in the business of providing marketing support services and business support services in relation to re-insurance, underwriting and actuarial activities was not comparable with companies engaged in providing event management services.
ACIT v RGA Services India Pvt Ltd (I.T.A. No.22/Mum/2015) – TS-580-ITAT-2015 (Mum) – TP

37. The Tribunal held that the assessee, engaged in providing business support services to its AE was comparable with companies engaged in providing technical assistance and human resources and companies providing management services functionally comparable to the assessee.
Further, it held that companies providing payroll processing outsourcing services were not comparable to the assessee.
Eli Lilly & Co (India) Pvt Ltd v ACIT (ITA No 788 / Del / 2015) – TS-573-ITAT-2015 (Del) – TP

38. The Tribunal held that the assessee, engaged in providing support services such as administrative support in providing demos for products, helping distributors get orders, tracking logistics etc could not be compared to a company engaged in the business of hiring and chartering ships / maritime vessels earning revenue in the form of charter hire charges.
Emerson Electric Company (India) Pvt Ltd v DCIT (ITA No.7613/Mum/2012) – TS-625-ITAT-2015 (Mum)

Others

39. The Tribunal held that companies providing services in the nature of product report preparation, technical and economic studies, feasibility studies, skill development, project management consulting etc, companies providing Procurement Review of multilaterally funded projects across the globe and companies undertaking Registrar and Transfer agent activities, records management activities and payroll and trust fund activities could not be compared to the assessee who was engaged in identifying customers, understanding their requirements and forwarding the same to its AE along with assisting in finalization of the sale of products.
Trend Micro India Pvt Ltd v DCIT (ITA No.1585/Del/2015) – TS-556-ITAT-2015 (Del)

40. The Tribunal held the assessee, engaged in the purchase of electro-optics components and manufacture, assembling and testing of opto-electronic equipment could not be compared to companies engaged in manufacture of cardio vascular equipment and devices, companies engaged in the manufacture of high precision special purpose motors for surgical and dental instruments, companies engaged in the manufacture of electronic equipment, companies engaged in manufacture of fuse holders, reed relays, switches and key boards and companies engaged in the manufacture of storage optical media.
Further, it held that a difference in fixed assets between the assessee and its comparable does not adversely affect the interest of the assessee but would reduce the operating margin of the comparable companies and that the cost of fixed assets alone was not a determining factor for comparability if the corresponding turnover was also higher.
Alpha ITL Electro Optics Pvt Ltd v DCIT (IT(TP)A No.249/Bang/2015) – TS-601-ITAT-2015 (Bang) – TP

Filters

41. The Court held that the turnover filter was a relevant factor for comparability and upheld the order of the Tribunal excluding companies having turnover substantially higher (23 times, 65 times) than that of the assessee i.e. Rs. 11 crores
CIT v Pentair Water India Pvt Ltd (Tax Appeal No 18 of 2015) – TS-566-HC-2015 (Bom)

42. The Tribunal held that the value of debtors and creditors were to be excluded while computing RPT to sales ratio.
Schlumberger Global Support Centre Ltd v DDIT (ITA No.86/PN/2013) – TS-528-ITAT-2015 (Pun) – TP

43. The Tribunal held that companies having ratio of Related Party to Sales transactions in excess of 15 percent, turnover in excess of Rs.200 crore (assessee’s turnover was approximately Rs. 31 crore) and companies functionally incomparable could not be considered for benchmarking the ALP of the international transactions undertaken by the assessee.
VeriSign Services India Pvt Ltd v DCIT [IT(TP)A No.1404(B)/2010] – TS-617-ITAT-2015 (Bang) – TP

44. The Tribunal held that as per Rule 10B(4) of the Income-tax Rules, 1962, it is a mandatory requirement to use the data of the financial year in which the international transaction took place and the exception provided for in the said Rule was for allowing the use of data for the two preceding year only if it was established that the data reveals facts which could have an influence on determination of transfer price.
Emerson Electric Company (India) Pvt Ltd v DCIT (ITA No.7613/Mum/2012) – TS-625-ITAT-2015 (Mum)

d. Computation / Calculations / Adjustments

45. The Tribunal held that foreign exchange gains / losses pertaining to sale are revenue in nature and thus to be treated as part of operating income / loss.
Further, it held that for the purposes of providing working capital adjustment the interest rate to be applied should be the US currency rate and not the Prime Lending rate as the assessee received all of its business income in US dollars.
M/s Rampgreen Solutions Pvt Ltd v DCIT (ITA no. 1066/Del/2015) – TS-538-ITAT-2015 (Del) – TP

46. The Tribunal held that the adjustment arising out of TP analysis was to be confined to the international transactions undertaken with the AEs alone and not in relation to Non-AE transactions. Accordingly, the Tribunal directed the TPO to consider the segment submitted by the assessee with respect to the transactions with AEs.
Vistcon Engineering Center (India) Pvt Ltd v ACIT (ITA No 358 / PN / 2013) – TS-527-ITAT-2015 (Pun) – TP

47. The Tribunal held that the transfer pricing adjustment was to be made only in respect of transactions entered into with AEs and not on any Non-AE transactions despite the fact that the assessee carried out benchmarking at an entity level.
DCIT v Alstom Projects India Ltd (ITA No.5335/M/2014, ITA No.5487/M/2014 & ITA No.2143/M/2014) – TS-522-ITAT-2015 (Mum)-TP

48. The Tribunal held that for the purposes of benchmarking the ALP of purchase of goods by the assessee from its AE the value of unsold stock / closing stock could not be considered relying on the decision of St Jude Medical India Pvt Ltd v DCIT (ITA No 1626/Hyd/2010).
Signity India Pvt Ltd v DCIT (ITA No 7464 / Mum / 2014) – TS-562-ITAT-2015 (Mum) – TP

49. The Tribunal held that for the purposes of computing the operating profit of the distribution segment and the agency service segment, the indirect expenses common to both functions were to be allocated on the basis of gross margin of distribution and commission income and not on the basis of sales as allocation on the basis of sales would amount to providing equal weightage in terms of functions performed, assets utilized and risk assumed to both functions whereas the agency service function involved lesser functions and utilization of assets and risks.
Corning SA, India Branch Office v DDIT ( ITA No.1129/Del./2014) – TS-547-ITAT-2015 (Del) – TP

50. The Tribunal accepted the contention of the assessee that since the depreciation adopted by it was on the higher side since the estimated life of the assets were shorter (3 and 5 years), it led to a higher cost compared to other comparable companies, lowering its operating margin as compared to comparable companies and therefore it should have been excluded from the variable cost of all the comparable companies as well as the assessee.
AMD Research & Development Centre India Pvt Ltd v DCIT (ITA No. 275/Hyd/2015 & ITA No. 242/Hyd/2015) – TS-563-ITAT-2015 (Hyd) – TP

51. The Tribunal held that costs incurred by the assessee such as booking of hotels, airfare, transport expenses in the course of providing tour services to foreign tourists, were expenses incurred in its capacity of a principal and not as an agent of its Foreign AE and therefore were to be included in the operating cost while computing PLI and could not be treated as pass-through costs (costs incurred on behalf of the AE for which subsequent reimbursement was to be claimed).
DCIT v Fritidsresor Tours & Travels India Pvt Ltd (ITA No.1480/Del/2011) – TS-530-ITAT-2015 (Del) -TP

52. The Court held that provision for stock obsolesce was to be considered as non-operating as it was abnormal and extra-ordinary in nature. Further, dealing with the contention of the Revenue that the provision was claimed year after year, the Court observed that the question for determination was not whether the assessee was claiming the provision as a one-time measure but was whether it was gaining any undue advantage and using the provision as a measure of avoiding tax.
CIT v Federal Mogul Automative Products (India) Pvt Ltd (ITA 848/2015) – TS-531-HC-2015 (Del) – TP

53. The Tribunal held that the depreciation adjustment on account of under-utilization of assets and capacity claimed by the assessee was incorrect as the reasons for under-utilization such as difficulty in procuring raw materials, shortage of power etc were adverse business environment faced by all competitors and that depreciation on fixed assets need not be directly proportionate to utilization of machinery. It held that the assessee was attempting to have a lesser charge of depreciation in the guise of under-utilization of capacity.
Further, it held that since the assessee did not have debtors and was wholly funded by an advance form its AE against supplies, it was essential to make a working capital adjustment to bring parity with the results of comparable companies.
Indigra Exports Pvt Ltd v DCIT (I.T(TP).A No.309/Bang/2015) – TS-529-ITAT-2015 (Bang) – TP

54. The Tribunal held that the assessee was entitled to a working capital adjustment since it was providing services to its AEs on a cash basis and therefore worked on lower prices for its services as opposed to a company who allowed its customers to pay at a later date. Therefore, it upheld the order of the CIT(A) and allowed a working capital adjustment on the basis of average credit / debit period for the year and commercial rates of interest.
ACIT v Software AG (India) Pvt Ltd (ITA No.1264/PN/2013) – TS-539-ITAT-2015 (Pun) – TP

55. The Tribunal held that for the purpose of computing and granting adjustment for underutilization of capacity, the optimum capacity had to be considered as opposed to the total installed capacity as done by the assessee. It held that manufacturing companies could not always operate at full capacity and therefore the optimum capacity at which comparable companies operated was to be compared with the capacity utilization of the assessee to determine the under-utilization.
Further it held that the capacity utilization was to be granted to the extent of fixed costs and not the entire non-operating costs of the assessee.
Biesse Manufacturing Co Pvt Ltd v ACIT [I.T.(T.P.)A. No.97/Bang/2015] – TS-533-ITAT-2015(Bang) -TP

56. The Tribunal held that for the purpose of benchmarking selling prices of exports made by the assessee to its AEs using the CUP method, the assessee could use the portfolio approach of the products rather than considering single products since all the products fell in the category of insecticides and were supplementary to each other.
Godrej Sara Lee Ltd v ACIT (ITA No. 1251/MUM/2014) – TS-565-ITAT-2015 (Mum) – TP

57. The Tribunal held that apportioning the payment of product development expenses paid to the AE on the basis of estimated sales was not a prescribed method for determination of ALP under Rule 10B of the Rules and accordingly remitted the issue back to the file of the AO / TPO.
Autoneum Nittoku Sound Proof Products India Pvt Ltd v ACIT (I.T.A.No.1425/Mds. /2014) – TS-608-ITAT-2015 (CHNY) – TP

58. The Tribunal deleted the TP adjustment made on sale of CDs made by the assessee to its AEs in the US by allowing assessee’s claim for adjustment on account of differences in geographical markets of USA and Europe (sales to third parties) while applying the CUP method. It held that he distributor in the US had to incur higher expenses as the products were sold through shopping malls / super markets which followed the just in time approach requiring rent costs and frequent stock control. However, it rejected the claim of the assessee for adjusting prices by reducing selling and distribution expenses incurred by the AE in the US since expenses incurred by the AE to develop market for the assessee’s products had no relevance for comparability adjustments.
Moser Baer India Ltd v DCIT (ITA No 882 / Del / 2008) – TS-624-ITAT-2015 (Del) – TP

59. The Court held that TP adjustments are only mandated in respect of international transactions and not transactions entered into by the assessee with independent unrelated third parties as there is no issue of avoidance requiring adjustment in valuation in respect of transactions entered into with independent third parties. It held that adjustment on Non-AE transaction would increase the profit in a manner which was beyond the scope and ambit of Chapter X of the Act.
CIT v Thyssen Krupp Industries India Pvt Ltd (INCOME TAX APPEAL NO. 2201 OF 2013) – TS-590-HC-2015 (Bom) – TP
CIT v Ratilal Becharlal & Sons (INCOME TAX APPEAL NO. 1906 OF 2013) – TS-610-HC-2015 (Bom)
Maine Global Enterprises Pvt Ltd v ACIT (ITA No.5969/Mum/2012 & ITA No.5889/Mum/2012) – TS-630-ITAT-2015 (Mum) – TP

60. The Tribunal held that foreign exchange gains / losses arising as a consequence of realization of consideration in the course of business operation for rendering software development / end to end BPO services were to be considered as operating in nature while computing the Profit Level Indicator.
DCIT v Guhring India Pvt Ltd [IT(TP)A No 217 / Bang / 2015] – TS-571-ITAT-2015 (Bang) – TP
E4e Business Solutions India Pvt Ltd v DCIT [IT(TP)A No 1845 / Bang / 2013 & IT(TP)A No 1777 / Bang / 2013) – TS-632-ITAT-2015 (Bang) – TP

61. The Tribunal, relying on the earlier year’s order in the case of the assessee held that the provision of agency services could not be aggregated with the distribution segment as the transactions were not closely linked.
Further, it held that the common expenses of the assessee were to be apportioned to the agency segment on the basis of the gross profit ratio and not in the ratio of sales.
Corning SAS India Branch Office v DDIT (I.T.A .No.-3236/Del/2014) – TS-592-ITAT-2015 (Del) – TP

62. The Tribunal held that since the services received by the assessee were part of a composite, intrinsic agreement it was incorrect to split the same and hold some services to be at arm’s length price. It held that the principle of aggregation seeks to combine all closely linked transactions wherein ALP can be determined for a number of transactions taken together. It observed that there was a direct nexus between the revenue earned and the majority intra-group services received and therefore it would be incorrect to analyze the intra-group service as a single element of cost in isolation.
Avery Dennison (India) Pvt Ltd v ACIT (I.T.A .No. 4869/Del/2014) – TS-619-ITAT-2015 (Del) – TP

63. The Tribunal held that the foreign exchange gains / losses related to the sale price of export (trading receipt) were to be considered as operating income / loss in the case of the tested party as well as the comparable companies.
Rolls Royce India Pvt Ltd v DCIT (ITA no. 1310/Del/2015) – TS-616-ITAT-2015 (Del) – TP

64. The Tribunal held that provision written back should be treated as operating income and provision created during the year should be treated as operating expense. Further, it held that only current years financial information of comparable companies was to be used for comparability analysis.
ACIT v Conexant Systems Pvt Ltd (ITA no. 4359/Del/2009 & C.O. No. 37/Del/2010) – TS-567-ITAT-2015 (Del) – TP

e. Specific Transactions

Advertisement, Marketing and Promotion

65. Noting that the assessee was a manufacturer, the Tribunal remanded the issue of AMP adjustment to the AO / TPO for fresh determination in accordance with the High Court ruling in the case of Sony Ericsson. It noted that the High Court ruling distinguished between a limited risk distributor and a manufacturer and since the assessee was a manufacturer, its activities were to be bifurcated into the prime manufacturing activities and the AMP activities. It also held that TNMM was not the most appropriate method for determination of ALP on AMP expenses in the case of a manufacturer and also observed that in case the Cost Plus method was being used, selling expenses were to be excluded from the total AMP expenses.
Glaxo Smithkline Consumer Healthcare Ltd v JCIT (ITA No.290/Chd/2014) – TS-535-ITAT-2015 (Chandi) – TP

66. The Court held that every AMP spent by an Indian entity which happens to use the brand of a foreign AE could not be presumed to involve an international transaction as it is not one of the deemed international transactions under section 92B of the Act. It held that as per the provisions of Chapter X, the TP adjustment envisaged is a price adjustment and not a quantitative adjustment by first determining whether the AMP spent by the assessee was excessive and subsequently deeming the excess AMP as an international transaction.
Maruti Suzuki India Ltd v CIT – [2015] 64 taxmann.com 140 (Del)
Honda Siel Power Products Ltd v DCIT (ITA No 346 / 2015) – TS-627-HC-2015 (Del) – TP
Bausch & Lomb Eyecare (India) Pvt Ltd v ACIT (ITA No 643 / 2015) – TS-626-HC-2015 (Del) – TP

67. The Court held that since the Revenue was unable to demonstrate with tangible material that there was an international transaction involving AMP expenses between the assessee and its AE, the question of determining ALP did not arise. It held that merely because the AE had financial interest in the assessee it could not be presumed that the AMP expenses incurred by the asessee was on behalf of the AE. It held that even though Section 92B read with Section 92F included arrangement, understanding or actions in concert within the ambit of international transaction there has to be tangible evidence to show that the parties acted in concert. It further held that the clauses of trade name license agreement do not indicate that the assessee was under obligation to incur AMP expenses for building the brand of its AE and accordingly dismissed the appeal of the Revenue.
Whirpool of India Ltd v DCIT (ITA 610/2014, ITA 228/2015 & CM No.5751/2015) – TS-622-HC-2015 (Del) – TP

68. The Tribunal held that selling expenses incurred for making sales not leading to brand promotion in any manner are distinct from expenses and should not be included in the base amount for computing ALP of AMP expenses.
Discovery Communications India v DCIT – [2015] 64 taxmann.com 120 (Del – Trib)

Issue of shares

69. The Tribunal relying on the case of the High Court in Vodafone India Services (368 ITR 1) and Shell India Markets (369 ITR 516) and CBDT Instruction No 2 / 2015 held that amount received by the assessee from its AE towards share premium in connection with subscription of share capital does not give rise to any income under the Act and therefore Chapter X of the Act would not apply.
Supergems (India) Pvt Ltd v ACIT ( I.T.A. No. 789/M/2013) – TS-511-ITAT-2015 (Mum) – TP

70. Relying on the decision of the High Court in the case of Vodafone (368 ITR 1) and Shell (369 ITR 516), the Tribunal held that the issue of shares to foreign AEs was outside the scope of TP provisions as it fell in the capital field and dismissed the appeal of the Revenue.
M/s Solvay Specialties India Pvt Ltd v DCIT (ITA No 1702/M/2014, I.T.A. No. 630/M/2015, C.O.104/M/2015 & C.O. No.41/M/2015) – TS-534-ITAT-2015 (Mum) – TP

Loan / Corporate Guarantee

71. The Tribunal held that for the purposes of benchmarking interest on loan granted to an AE situated in Singapore, the interest rates in Singapore and not the SBI Prime Lending Rate were to be considered.
The Tribunal, relying on the decision of the High Court in the case of Everest Kanto Cylinders, held that the rate for benchmarking guarantee commission was 0.5 percent as opposed to the 4.12 percent arrived at by the TPO.
Cox and Kings Ltd v DCIT (I.T.A. No. 1354/M/2014 & I.T.A. No. 7770/M/2014) – TS-540-ITAT-2015 (Mum) – TP

72. The Tribunal held that where for majority transactions there was no delay in realization of debts, the interest could not be imputed for the few delays in realization since neither the assessee nor the TPO had given any comparable instance as to whether an unrelated party would have charged interest in such a situation. Accordingly, the Tribunal held that for the transactions in which the delay in realization was more than 180 days, the interest to be charged should be on the basis of LIBOR + 1.5 percent relying on the decision in the case of Dania Oro Jewellery Pvt Ltd v ITO (43 taxmann.com 190).
Golawala Diamonds v ACIT (ITA No 518 / Mum / 2014) – TS-543-ITAT-2015 (Mum) – TP

73. The Tribunal held that interest on loans given by the assessee to overseas subsidiaries situated in Hong Kong and Singapore should be benchmarked considering the LIBOR of the respective country where the loan is consumed. It further held that since the loan was not used for uniform periods, the LIBOR rate for an average of 6 months was to be considered and applying the uniform average of 12 months LIBOR on all loans was not valid.
Arshiya International Limited v DCIT ( I.T.A. No. 659/M/2013)- TS-519-ITAT-2015 (Mum) – TP

74. The Tribunal deleted the adjustment made by the TPO on account of excess credit period allowed by the assessee to its AE as opposed to its non-AE customers on the ground that the goods sold to the AEs were semi-finished goods and therefore the period of credit on semi-finished goods could not be compared to the period of credit allowed for finished goods. It further held that where interest is includible in operating income which has been accepted as reasonable under TNMM, there is no occasion to make adjustment for notional interest and that the delay in realization of debts, resulting in a continuing debit balance is not a standalone international transaction per se, but is a result of an international transaction.
The Tribunal held that the issuance of corporate guarantee was in the nature of shareholder activities and thus could not be included within the ambit of services under section 92B of the Act and that there could be activities which benefit group entities but were not necessarily services as there is no express reference to the ‘benefit test’ in the main definition of the international transaction under the Act. Further it held that even if the corporate guarantee was to be treated as service, it would have to be re-characterised to bring it into tune with commercial reality as no independent enterprise would provide corporate guarantee without a security as in the instant case. Relying on the decision of Bharti Airtel it held that in the absence of bearing on profits, income, losses or assets, the guarantee was outside the ambit of international transactions.
Micro Ink Ltd v ACIT (ITA No 2873 / Ahd / 10) – TS-568-ITAT-2015(Ahd) – TP

75. The Tribunal adopted LIBOR for determining the ALP of the interest on loan given by the assessee to its AE for the purpose of acquiring another company viz. CII Carbon LLC.
With regard to corporate guarantee provided by the assessee, the Tribunal, noting the decision of the Court in the case of Everest Kento remitted the file back to the TPO as in the instant case no corporate guarantee commission was charged by the assessee whereas in the said decision corporate guarantee commission had been charged.
Rain Commodities v ACIT (ITA No. 157/Hyd/2014) – TS-594-ITAT-2015 (Hyd) – TP

76. Observing that the account payables were more than the account receivables from the AE, the Tribunal held that the charging of notional interest did not arise and remitted the issue back to the file of the DRP to give clear findings on the issue.
Satyam Venture Engg Services Pvt Ltd v ACIT (ITA Nos. 431 & 432/Hyd/2015) – TS-581-ITAT-2015 (Hyd) – TP

77. The Tribunal applied EURIBOR + 0.8 percent as the arm’s length price of the notional interest on loan granted by the assessee to its AE as opposed to the SBI PLR.
With respect to the addition of 0.8 percent margin, it held that it was necessary to add such margin as only banks and other large financial institutions dealing with each other are able to obtain loans at mere EURIBOR and that retail borrowers would be charged an additional margin / premium over and above EURIBOR.
Tata Autocomp Systems Ltd v ACIT (ITA No. 774/M/2014) – TS-582-ITAT-2015 (Mum)

78. The Tribunal deleted the addition made by the TPO on account of notional interest on outstanding debt receivable from its AEs which were due for a period exceeding six months. It held that adjustment could not be made on a hypothetical and notional basis until there was material on record that there was an actual under charging of real income.
Ingersoll Rand (India) Ltd v DCIT [IT(TP)A No 228 / Bang / 2015] – TS-572-ITAT-2015 (Bang) – TP

79. The Tribunal held that if the receivables (AE receivable) were outstanding for a period of 6 months no separate addition on account of notional interest was required.t
Actis Global Services Pvt Ltd v ITO (ITA No. 30/Del/2015) – TS-611-ITAT-2015 (Del) – TP

Reimbursement of expenses

80. The Tribunal held that where the assessee failed to provide documentary evidence of services such as invoices or confirmation from the parties and benefit received, the TPO was correct in determining the ALP of the intra-group services at Nil as for the purposes of transfer pricing AEs transacting with each other must replicate the dynamics of market forces and substantiate the benefit derived from such transactions.
Bombardier Transportation India Pvt Ltd v DCIT (I.T.A .No.-1626/Del/2015) – TS-520-ITAT-2015 (Del) – TP

81. The Tribunal held that where the assessee had produced all relevant details as well as the evidence in support of the claim that the AE had rendered the services as per the agreement between the parties, the TPO was incorrect in determining the ALP of intra-group services at Nil on the basis that the intra-group services did not result in increase of profit margin and that intra-group services to the extent of cost of services should have been allowed.
DCIT v Essentra India Pvt Ltd (IT(TP)A No.68/Bang/2011) – TS-537-ITAT-2015 (Bang) –TP

82. The Tribunal held that since the assessee did not bring any cogent material on record to substantiate the incurrence of expenditure wholly and exclusively for business purposes, the expenditure was clearly disallowable and the ALP was held to be Nil.
Godrej Sara Lee Ltd v ACIT (ITA No. 1251/MUM/2014) – TS-565-ITAT-2015 (Mum) – TP

83. The Tribunal relying on the earlier year’s decision in the case of the assessee, allowed payment for intra-group services rendered by the AE to the extent of cost of services (not including the mark-up paid). The TPO had determined the ALP of the entire payment at Nil on the ground that the intra-group service did not result in an increase in the profit margin of the assessee.
Essentra India Pvt Ltd v DCIT [IT(TP)A No 1308 / Bang / 2011] – TS-574-ITAT-2015 (Bang) – TP

Royalty / Management fees

84. The Court dismissed the Revenue’s appeal against the order of the Tribunal wherein the ALP of royalty was accepted at 3 percent. It held that the Revenue’s reliance on Clause III of Press Note No 9 (2000) series, stating that royalty was to be paid at 2 percent for exports and 1 percent of domestic sales on use of trademarks and brand name of the foreign collaborator, was incorrect as the given case was covered by Clause IV of the said Press Note which provided for 8 percent on exports and 5 percent on domestic sales in case of payment by a wholly owned subsidiary and the royalty paid by the assessee ranged between 2.5 percent to 4 percent. Further, it upheld the findings of the Tribunal that the said payment was approved by the FIPB and that royalty paid by comparable companies was at 10 percent as opposed to the 2.5 to 4 percent paid by the assessee.
CIT v SGS India Pvt Ltd (ITA No 1807 of 2013) – TS-529-HC-2015 (Bom)

85. The Court rejected the reasoning of the Tribunal and TPO in determining the ALP of the fees paid by the assessee for professional management and SAP consultancy services at Nil on the ground that the assessee was unable to substantiate that the payment for services increased profits. It held that profit earned by the assessee could be for reasons other than those relating to international transactions and that mere profitability did not indicate that the transaction was at arms length. It further observed that while profit may reflect upon the genuineness of the assessee’s claim, it is not determinative of the same.
Knorr Bremse India Pvt Ltd v ACIT (INCOME TAX APPEAL No.182 of 2013) – TS-558-HC-2015 (P&H)-TP

86. The Tribunal held that the foreign exchange loss incurred by the AE on account of foreign exchange loan taken by it, charged to the assessee, could not be treated as management fee as it could not be considered as services provided to the assessee and accordingly determined the ALP of such portion of management fee as Nil. For the balance management fee (after excluding foreign exchange fluctuation loss), the Tribunal held that since the fact of rendering of services by the AE had been accepted by the Revenue, in the absence of a comparable the TPO was incorrect in determining the ALP as Nil and accordingly allowed the payment of such management fee.
DQ Entertainment (International) Ltd v ACIT (I.T.A. No. 62/HYD/2013) – TS-524-ITAT-2015(Hyd) – TP

87. The Tribunal upheld the order of the CIT(A) deleting the addition made by the TPO by way of restricting royalty paid to its AE on software duplication and sub-licensing activity to 30 percent of actual sales. It observed that the assessee changed the basis for royalty payment from 30 percent of Indian Published Price to 56 percent of actual sales revenue (owing to the new liberalized foreign exchange control policy) and that the assessee had clearly demonstrated that the effective royalty pay out was less than the earlier years payout. Further, it noted that the assessee’s profit margin was more than that of comparables and that the royalty payment was made exclusively for the purpose of business.
ACIT v Oracle India Pvt Ltd (ITA no. 1432/Del/2011) – TS-605-ITAT-2015 (Del) – TP

88. The Tribunal, relying on the approval granted by the RBI and earlier year’s order in the case of the assessee allowed royalty payment at 5 percent of domestic sales and 1 percent of export sales.
DCIT v Gulf Oil Corporation Ltd (ITA No. 11/Hyd/2014) – TS-576-ITAT-2015 (Hyd) – TP

89. The Tribunal allowed the management fees paid by the assessee to its AE for services in the areas of Administration, Finance, Treasury etc which were used by the assessee to undertake its business operations in India. The management fee was allocated to the group concerns on a scientific basis (head count, annualized sales) by the AE who was a Centralized service provider. Relying on the decision of the Tribunal in Dresser Rand India Pvt Ltd and the fact that the assessee had furnished evidences to substantiate the said fee, it allowed the payment of management fee.
Ingersoll Rand (India) Ltd v DCIT [IT(TP)A No 228 / Bang / 2015] – TS-572-ITAT-2015 (Bang) – TP

f. Assessment

90. The Tribunal held that it is the statutory duty of the AO / CIT to analyze the transfer pricing transactions independently before making reference / granting approval of reference to the TPO after a proper application of mind to all facts and forming a prima facie opinion / belief.
It was further held that CBDT Instruction 3 / 2003 detracting the AO / CIT from the aforesaid obligation was in violation of the provisions of the Act and that necessary hearing was to be given to the assessee in accordance with the principles of natural justice before making reference to the AO in light of the amendment made to Section 92CA.
Further it was held that TP adjustment could not be made in cases where the assessee enjoys benefit under section 10A / 80HHE of the Act or where the tax rate in the country of the AE was higher than the Indian rate, as tax avoidance or manipulation of prices of shifting of profits was not possible.
DCIT v Tata Consultancy Services (ITA No.7513/M/2010 & C.O. No.216/M/2010) – TS-521-ITAT-2015 (Mum) – TP

91. The Tribunal observed that the assessment proceedings had been continued in the name of GE Medical Systems Pvt Ltd (assessee) rather than in the name of Wipro GE Healthcare (into which the assessee had merged) and therefore cancelled the assessment order passed in the hands of GE which was non-existent on the date of the assessment order. It held that any order made on a non-existent entity is a nullity and invalid.
GE Medical Systems India Pvt Ltd v DCIT [I.T.(T.P.) A. No.328/Bang/2015] – TS-546-ITAT-2015 (Bang) – TP

92. The Tribunal held that where the working capital adjustment claimed by the assessee was not examined by the AO and rejected by the TPO, the CIT(A) was not authorized to proceed with deleting the addition made by the TPO by granting working capital adjustment without entertaining additional evidence and without calling for a remand report from the AO. When the working capital adjustment was demonstrated before the TPO (a quasi-judicial authority) the AO and CIT(A) were legally bound to address the issue.
ACIT v BT (India) Pvt Ltd (ITA No 1496 / Del / 2012) – TS-553-ITAT-2015 (Del) – TP

93. The Tribunal held that the CIT(A) merely directing the TPO to apply the functionality test without rendering any finding as to which comparables were functionally dissimilar would tantamount to setting aside the matter which was beyond the mandate of section 251(1)(a) of the Act.
E4e Business Solutions India Pvt Ltd v DCIT (I.T. (T.P.) A. No.1765/Bang/2013) – TS-541-ITAT-2015 (Bang) – TP

94. The Tribunal held that the direction of the CIT(A) to verify the availability of financials of comparables for the previous year did not limit the power of the AO / TPO to consider comparability on their yardsticks and therefore the direction could not be held to be unfair.
DCIT v Vmoksha Technologies Pvt Ltd [IT(TP)A No 1053 / Bang / 2013] – TS-545-ITAT-2015 (Bang) – TP

95. The Court directed the CIT(A) to dispose of the assessee’s appeal as expeditiously as possible in light of the fact that the AO failed to furnish to the assessee the draft assessment order consequent to the TPO order but had issued a letter rejecting the stay applied for by the assessee. It held that it was incumbent for the AO to have considered this aspect of the matter before rejecting the stay of demand pending hearing of appeal. It further directed the Revenue not to take any consequential steps for recovery of demand pursuant to the letter issued by DCIT.
Vodafone East Limited v DCIT (W.P. No. 682 of 2015) – TS-515-HC-2015 (Cal) – TP

96. The Court granted stay of remaining demand to the assessee pending the disposal of appeal as it deemed the case of the assessee to be a fit case for stay in light of the facts viz. the AO had passed a conditional order under section 220(6) of the Act directing the assessee to pay Rs. 5 crores out of Rs. 10 crores but also mentioned that if the appeal was not disposed of by September 30, 2015 it would review the stay order. As the appeal had not been disposed of and the assessee had already paid Rs. 5 crore, the Court granted stay till disposal.
Jyothy Laboratories Ltd v DCIT (Writ Petition No.3145 of 2013) – TS-451-HC-2015(MAD)-TP

97. The Tribunal held that the Revenue could not argue for the exclusion of comparable companies selected by the AO / TPO itself as it would mean that the AO / TPO is challenging the correctness of his own decision through the DR before the Tribunal which is illogical. It further noted that the Department was entitled to file appeal or cross objection against the assessment order passed in pursuance of the direction of the DRP to the extent it was aggrieved against such direction. Further distinction was made between the powers of the Tribunal under section 254 of the Act wherein the Tribunal is empowered to direct the AO / TPO to re-consider the correctness of companies included by him in the list of comparables but in no case could the DR argue against the inclusion.
Trend Micro India Pvt Ltd v DCIT (ITA No.1585/Del/2015) – TS-556-ITAT-2015 (Del)

98. The Tribunal held that assessment order passed by the AO in set aside proceedings was void ab initio as the AO did not pass any draft assessment order, did not ask assessee to file objections before the DRP but simply framed the assessment based on comments of the TPO to whom reference was made failing to follow procedure under section 144C of the Act. It rejected the stand of the Revenue that the said procedure was only applicable to original assessment proceedings.
Headstrong Services (India) Pvt Ltd v DCIT (ITA No 5409 / Del / 2014) – TS-526-ITAT-2015 (Del) – TP

99. The Tribunal held that merely because the assessee, at the initial stage, while preparing its transfer pricing study, rejected the Resale Price Method and selected TNMM as the most appropriate method, it could not be precluded from making a plea at a later stage that RPM is the most appropriate method for determination of ALP. It observed that the selection of the most appropriate method was a purely legal issue and could be entertained by it in the form of an additional ground.
Pfizer Limited v ACIT ( ITA no.3729/Mum./2008) – TS-561-ITAT-2015 (Mum) TP

100. The Tribunal held that if the AO disallowed payment of salary to a person under section 40A(2)(b) of the Act on account of it being too high then the same would have to be adjusted in receipts of the assessee as well as the assessee had recovered the salary cost with a mark-up from its AE.
XL India Business Services Pvt Ltd v ITO (I.T.A .No.-1427/Del/2014) – TS-591-ITAT-2015 (Del) – TP

101. The Court set aside the assessment order passed by the AO as the same was passed without referring the matter to the TPO and the AO had not passed a draft assessment order. It held that since the provisions of the Act make it very clear that under Section 92CA of the Act the only option is to place the matter to the TPO, it was necessary for the matter to be placed before the TPO.
Carrier Race Technologies Pvt Ltd v ITO (Writ Petition No: 13442 of 2015) – TS-583-HC-2015 (Mad) – TP

102. The Tribunal held the AO could not vary the margins as computed by the TPO in his order, because once reference was made by the AO under section 92CA(1), then in view of the provisions of 92CA(4), the AO was required to compute the total income in conformity with the ALP determined by the TPO. Therefore, absent direction from the DRP altering the ALP determined by the TPO, the AO cannot alter the same.
Copal Research India Pvt Ltd v ITO (ITA no. 1713/Del/2014) – TS-597-ITAT-2015 (Del) – TP

103. The Tribunal held that the final order passed by the AO under section 143(3) read with section 144C(13) of the Act was bad in law ab initio and not sustainable as it was passed beyond 30 days from the end of the month in which the DRP issued its directions.
IHG IT Services (India) Pvt Ltd v DCIT (ITA No. 1019/Del./2015) – TS-599-ITAT-2015 (Del) – TP

104. The Tribunal set aside the order of the DRP on the ground that it was laconic and non-speaking as it did not deal with the objections raised and the submissions made by the assessee. Accordingly, it directed the DRP to pass a speaking order dealing with the objections.
Lexmark International (India) Pvt Ltd v DCIT (I.T.A. No. 1967/KOL/ 2010) – TS-603-ITAT-2015 (Kol) – TP

105. The Tribunal granted stay to the extent of balance tax payable (60 percent) as the assessee had a prima facie good case considering that relying on the Delhi High Court decision in Sony Ericsson, most of the issues were decided in favour of the assessee and that the TPO had accepted the ALP of the international transaction in the immediately succeeding assessment year without any change in facts and circumstances.
Page Industries Ltd v DCIT [IT(TP) No.1 63/Bang/2015] – TS-613-ITAT-2015 (Bang) – TP

106. The Tribunal held that the margin determined for 96 percent of the assessee’s ITES transactions with its US AE entities under MAP proceedings should be applied to the remaining 4 percent of transactions with Non-US AE entities since the facts and nature of the transactions were the same and neither was there any distinction made between the US and Non-US entities by the assessee in its annual report and nor by the Revenue authorities.
JP Morgan Services Pvt Ltd v DCIT (ITA NO.8987/Mum/2010 & ITA NO.7822/Mum/2011) – TS-578-ITAT-2015 (Mum) – TP

107. The Court held that the power to grant stay was only to be exercised when a strong and sound prima facie case was made out by the assessee or where the entire purpose of the appeal would be frustrated by allowing the recovery proceedings to continue during the pendency of appeal. The Court observed that the assessee had already been allowed to pay the outstanding demand on account of AMP adjustment in four instalments and no prejudice had been demonstrated to be caused to the assessee and there was no error in the order of the CIT(A). The Court therefore dismissed the petition seeking stay for balance demand.
M/s Perfetti Van Melle India Pvt Ltd v DCIT (CWP No.21769 of 2015) – TS-585-HC-2015 (P&H) – TP

108. The Tribunal dismissed the assessee’s appeal as infructuous since the assessee had accepted the resolution reached under MAP proceedings between the Indian and US authorities in respect of TP adjustments for the relevant year.
Ocwen Financials Solution Pvt Ltd v DCIT [IT(TP)A 1318 / Bang / 2011] – TS-570-ITAT-2015 (Bang) – TP

g. Penalty

109. The Tribunal deleted penalty under section 271G of the Act imposed by the TPO for non-maintenance of information and TP documentation under section 92D in relation to investment made by the assessee in its AE situated outside India. It held that investment in share capital of subsidiaries outside India was not in the nature of international transaction and therefore there was no requirement to maintain TP documentation for the said transaction and accordingly section 271G was inapplicable as there was no contravention of section 92D on the part of the assessee.
ACIT v Hill County Properties Limited (I.T.A. No. 420/HYD/2015) – TS-551-ITAT-2015 (Hyd) -TP

110. The Tribunal deleted penalty by holding that the determination of arm’s length price was a matter of estimate and merely because it was possible to arrive at two different estimates, it could not be held that the lower of the two estimates is based on inaccurate particulars. Further it held that where there was no lack of due diligence on the part of the assessee in determining ALP i.e where the conditions precedent for invoking Explanation 7 to section 271(1)(c) of the Act was not fulfilled, penalty could be levied.
Babcock & Brown India Pvt Ltd v DCIT (ITA No. 2214/MUM/2015) – TS-564-ITAT-2015 (Mum)

h. Others

111. The Tribunal held that the TPO was only required to determine the ALP of an international transaction for services and not to decide if such services exist or if benefits accrued to the assessee and thereafter it was for the AO was to decide the deductibility of the amount under section 37(1) of the Act.
Avon Beauty Products India Pvt Ltd v ACIT (ITA No.5739/Del/2011) – TS-522-ITAT-2015 (Del) – TP

112. The Court held that merely because the purchase of items and the acceptance of services was a component leading to the manufacture of the final product sold or final service provided by the assessee it does not imply that the initial purchases were not independent transaction for the sale of goods or provision of services and therefore the assessee would have to provide that they were all provided under one composite agreement which constitutes an international transaction, if it wished to benchmark the transactions on an aggregate basis.
Knorr Bremse India Pvt Ltd v ACIT (INCOME TAX APPEAL No.182 of 2013) – TS-558-HC-2015 (P&H)-TP

113. The Court held that where the assignment of option rights including the call option in favour of a third party had not taken place, mere intention to assign the said rights could not be considered as a transfer under section 2(47) of the Act and therefore the threshold requirement of existence of a transaction including international transaction was not satisfied. It held that mere receipt of incidental benefits would not be sufficient to attract transfer pricing provisions. Since there was no transfer of asset, there was no income arising out of the transaction and therefore transfer pricing provisions would not apply. Further, it held that the Tribunals attempt to get over the binding judgment of the Apex Court could not be sustained.
Vodafone India Services Pvt Ltd v CIT (INCOME TAX APPEAL NO. 82 OF 2015) – TS-621-HC-2015 (BOM)

114. The Tribunal held that the corporate service fee paid by the assessee to its AE for services in the area production, sales, market information, etc were at arm’s length price since the assessee derived benefits from it. Following the earlier years order, it held that corporate service fee paid in respect of financial services was to be reduced by 50 percent of the benefit derived from such services for determining ALP, due to the substantial increase in benefits received on account of such services.
DSM Sinochem Pharmaceuticals India Pvt Ltd v DCIT (ITA No 438 / Chd / 2015) – TS-604-ITAT-2015 (Chandi) – TP

115. The Tribunal held that the transaction of export of pet chips and guar gum by the assessee to its AE was at arm’s length price since the assessee sold the goods to the AE at the same price at which it was purchased from the local market and the AE in turn sold the commodities to customers at the same price at which they were bought from the assessee and the only loss incurred by the assessee was on account of foreign exchange fluctuations.
Pepsico India Housing Pvt Ltd v ACIT (ITA No. 834/Del/2010) – TS-631-ITAT-2015 (Del) – TP

116. The Court held that the Tribunal was incorrect in rejecting reliance on the decision in the case of Frost & Sullivan, which was prima facie identical to the case of the assessee, without pointing out detailed distinctions as to why the decision was not to be relied upon.
Garnter India Research and Advisory Services Pvt Ltd v ACIT (INCOME TAX APPEAL NO. 2089 OF 2013) – TS-584-HC-2015 (Bom) – TP

II. International Tax

a. Permanent Establishment

117. The Tribunal held that the transfer of advertising airtime by the assessee to its agent in India was not a purchase / sale of goods as it could not be consumed by the buyer agent without the assistance from the assessee. Accordingly it held that the agent could not be considered as selling advertisement airtime independent of the assessee and therefore could not be considered as independent. Further, since the agent exercised the authority to conclude contracts on behalf of the assessee, the Tribunal held that it was a dependent agent of the assessee under the India –US DTAA and therefore profits attributable to the PE were taxable in India.
NGC Network Asia LLC v JDIT(IT) – [2015] 64 taxmann.com 289 (Mum – Trib)

118. The Tribunal held that the assessee was not liable to pay in India for transferring money to India for its American clients even if it appointed agents in India to provide the services and set up a liaison office to interact with such agents as the agents / liaison office did not constitute a permanent establishment as per the India –US DTAA which was examined by the Tribunal:
Fixed Place PE: The assessee did not have a fixed place PE as it did not have its own outlet in India
Liaison Office as PE: The liaison office was engaged in activities which were preparatory or auxiliary in nature and therefore could not be considered as a PE in India.
Dependent Agent PE: The agents appointed were acting in the ordinary course of their business and their activities were not wholly or almost devoted to the assessee.
Software PE: The software belonged to the assessee and was merely used by the agents without parting of the copyright. Further, even if the software was to be considered as an installation, it would not be used for exploration or exploitation of natural resources and therefore could not be treated as a PE.
DDIT v Western Union Financial Services Inc – [2015] 64 taxmann.com 230 (Del Trib)

b. Royalty / Fees for technical services

119. The Tribunal, following the decision of the Court in Centrica India Offshore Pvt Ltd [TS-237_HC-2014 (Del)], held that payment made by the assessee to a Hong Kong based company for secondment of employees was taxable as FTS as the employees were rendering managerial and highly expert services to the assessee for and on behalf of the Hong Kong company. Further it held that TDS was deductible on the gross amount paid irrespective of the profit element of the payment and accordingly held the assessee to be an assessee in default under section 201 of the Act.
Food World Supermarkets Ltd v DDIT (ITA Nos.1356 & 1357/Bang/2013) – TS-629-ITAT-2015 (Bang)

120. The Tribunal held that consideration received by the assessee for providing deliverables in the form of best practice manuals, guidelines, newsletters developed by the assessee did not constitute fees for technical services absent the ‘make available of technology’. It held that the fact that deliverables were interlinked with certain technical services did not alter their basic character. Further it noted that the India-Netherlands Treaty had the Most Favoured Nation clause, which provides for the extension of like benefits provided to other OECD countries and therefore considering the presence of the ‘make available’ clause in the India-USA treaty held that it was to be applied to the India-Netherlands treaty as well.
Shell Global Solutions International BV v ITO (I.T.A. No.: 1283/Ahd/2010) – TS-678-ITAT-2015 (Ahd)

c. Reimbursement of expenses

121. The Tribunal held that the payment made on account of webhosting charges and marketing expenses by the assessee for services rendered outside India was in the nature of re-imbursement of expenses and was not subject to withholding since the services were rendered outside India and since there was no PE in India the same were not taxable. Further the said payments were not in the nature of royalty or fees for technical services.
DCIT v Matrimony Com Pvt Ltd – (2015) 45 CCH 0227 Chen Trib

d. Withholding tax

122. Relying on the case of the Court in Orient Goa Pvt Ltd [(2010) 325 ITR 554 (Bom)], the Tribunal held that failure to deduct tax under section 195 of the Act on payment of freight charges would attract disallowance under section 40(a)(i) of the Act unless the assessee had obtained certificate under section 195(2) of the Act and rejected the assessee’s stand that 40(a)(i) disallowance was to be restricted only to amount remaining payable at the year end.
Elve Corporation v ACIT (I.T.A. Nos. 4108/Mum/2012 & 6279/Mum/2012) – TS-665-ITAT-2015 (Mum)

123. The AAR held that unless payment made attracted tax under the Act, there would be no liability to deduct tax under section 195 of the Act. Penalty ordered by the US Court could never attract any tax under the provisions of the Act and therefore no tax was to be deducted on such payment.
Satyam Computer Services Ltd v In Re – (2015) 94 CCH 0118 IAAR

124. The Tribunal held that interest on tax refund was not covered under the definition of interest under Article 12(4) of the India-Italy DTAA and therefore the lower authorities were justified in imposing TDS under section 195 of the Act on the said interest.
Ansaldo Energia SPA v DDIT (/ITA Nos. 1496 to 1498/Mds/2014) – TS-686-ITAT-2015 (Chny)

e. Others

125. The Tribunal granted the assesse relief under section 90 of the Act for taxes paid in a foreign country while computing the tax liability as per MAT provision under section 115JB of the Act. It held that once taxable income was determined under normal provisions of the Act or as per Section 115JB of the Act, subsequent set off / rebate is governed by the normal provisions of the Act. It also held that there was no provision of the Act debarring granting of credit for tax paid abroad in case income is computed under section 115JB of the Act.
DCIT v Subex Technology Ltd (ITA No 913(B) / 2013) – TS-644-ITAT-2015 (Bang)

126. The Tribunal held that the assessee was not liable to deduct tax at source under section 195 of the Act on payment for land to a non-resident seller by invoking the non-discrimination clause under Article 26 of the India-US DTAA. It held that since there was no provision in the Act requiring a resident to deduct tax at source from sale proceeds of land payable to any other resident, the assessee could not be burdened with the requirement of TDS in case of payment to non-resident.
ITO v Santur Developers Pvt Ltd (ITA no. 1532/Del/2011) – TS-724-ITAT-2015 (Del)

127. The Court, relying on the decision of the Apex Court in CIT v Toshoku Ltd (125 ITR 525), held that commission earned by a non-resident agent who carried on business of selling Indian goods outside India could not be said to be deemed income which had accrued or arisen in India.
CIT v Gujarat Reclaim & Rubber Products Ltd – (2015) 94 CCH 0148 Mum HC

128. The Court held that section 44BBA could not be applied to bring to tax assessee’s income on presumptive basis when assessee had incurred losses during the year. However, it held that the assessee had to produce books of accounts to substantiate that it had incurred losses or that its assesseable income was less than its presumptive income.
DIT v Royal Jordanian Airlines (ITA 159/2002) – TS-709-HC-2015 (Del)

129. The Court held that journey of a vessel between two ports is international traffic under Article 8 of the India – Singapore DTAA if the same was part of a larger journey between two foreign ports and that it was only when a ship or aircraft was operating solely between places in one contracting state that the transport was excluded from the scope of international traffic.
CIT v Taurus Shipping Services – [2015] 64 taxmann.com 64 (Guj)

III. Domestic Tax

a. Income

130. The Tribunal held that merely because Modvat Credit was an irreversible credit available to manufacturers upon purchase of duty paid raw material it would not amount to income liable to be taxed under the Act.
Aditya Birla Nuvo v DCIT – (2015) 45 CCH 0222 Mum Trib

131. The Court held that receipt was to be recorded as income in the books of the assessee, a real-estate developer, only when a conveyance deed was executed or possession was delivered. Further, since the advance received by the assessee was in respect of a project that never took off and a part of the advance was returned in the following year since the transaction fell through, the said advance could not be treated as income.
Paras Buildtech India Pvt Ltd v CIT – (2015) 94 CHH 0093 Del HC

132. The Tribunal held that amount received by the assessee for not providing benefit of his skills to any other person in India was a capital receipt and accordingly not taxable. It held that since the assessee was not an employee of the payer but was involved in managing its affairs the sum received would not be taxable as profits in lieu of salary under section 17(3) of the Act. Further, it held that the sum was not in the nature of non-compete fee as well as the payment made was not for not competing with the payer and that Section 28(va) taxes amounts received in relation to business and not profession whereas the assessee was providing professional services.
Satya Kant Khosla v ITO (ITA No. 882/Del/2015) – TS-664-ITAT-2015(Del)

133. The Tribunal held that the upfront premium received by the assessee for leasing out port land to companies for 30 years on Build Operate Transfer basis was taxable on receipt basis and not on a year on year basis as there was no corresponding liability or obligation to be discharged by the assessee after the receipt of upfront premium.
New Mangalore Port Trust v ACIT (ITA No.1299/Bang/2013) – TS-674-ITAT-2015 (Bang)

134. The Court held that where there was no factual basis to claim that the assessee was receiving money from its Joint Venture companies and on the other hand remitting a larger amount to its parent company, it could not be held that the assessee was depressing its income.
Pr CIT v McDonalds India Pvt Ltd – (2015) 94 CCH 0085 Del HC

135. The Apex Court held that interest earned on share application money by the assessee was taxable only post allotment of shares and not on receipt of application money. It noted that as per Section 73 of the Companies Act, the assessee was required to keep the application money in a separate bank account and no part of the money including interest could be utilized until allotment was completed.
CIT v Henkel Spic India Ltd– (2015) 64 taxmann.com 405 (SC)

136. The Tribunal held that merely because the assessee recognized exchange gain on restatement of foreign currency loan in its books of accounts in compliance with AS 11, it would not automatically take the character of income for income tax purposes as entries in books of accounts were not determinative of whether the assessee had earned any income or suffered any loss.
ITO v UMT Investments Ltd – (2016) 176 TTJ 0053 (Kol)

137. The Court held that where on account pf pendency of appeals arising from proceedings under section 31(2) of the Land Acquisition Act, the right of the assessee to receive impugned sums was still unclear and therefore the question of bringing to tax enhanced compensation had to await final outcome of pending proceedings.
CIT v Suman Dhamija – TS-697-HC-2015 (Del)

b. Income from House Property

138. The Tribunal held that where a copy of sanction letter was available on record which showed that the loan was granted for renovation / reconstruction purposes, the assessee was entitled to deduction under section 24(b) of the Act.
ITO v Mac Overseas Pvt Ltd – (2015) 45 CCH 0269 Del Trib

c. Business Income

139. The Apex Court upheld the order of the High Court wherein it was held that if the basis for arriving at the valuation of stock is changed by the AO without correspondingly changing the valuation of the opening stock then it results in charging income on a distorted figure which is not permissible in law.
CIT v Motor Industries – TS-671-SC-2015

140. The Tribunal held that where the foreign exchange losses incurred by the assessee on account of F&O transactions was recorded on settlement date and was not a marked to market loss, the AO was incorrect in disallowing the same on the ground that it was a notional loss. Further, it upheld the order of the CIT(A) that Board’s Instruction No. 3/2010, applied by the AO in disallowing the loss, was not applicable to F&O transactions undertaken by the assessee.
ITO v Samir Jasuja – (2015) 45 CCH 0246 Del Trib

141. The Tribunal held that the loss on revaluation of stock of equity shares could not be allowed as a deduction since the assessee did not engage in the regular activity of purchase or sale of shares of any other company during the year under consideration or in the previous or succeeding years. Mere fact that the shares were purchased out of borrowed funds was not a determinative factor to treat the shares as stock in trade. It held that the facts of the case indicated that the assessee intended to hold the shares as investment.
DCIT v Robus Marketing Services Ltd – (2015) 45 CCH 0231 Mum Trib

142. The Apex Court held that in the absence of cessation in the hands of the assessee, the difference between the deferred sales tax liability and its settlement payment at Net Present Value was not taxable under section 41(1) of the Act.
CIT v SI Group India Ltd (Civil Appeal No 10873 of 2011) – TS-703-SC-2015

143. The Court held that consideration received in the form of money and residential flat upon entering into an agreement with a builder was not business income. It rejected the contention of the Revenue that since the assessee exploited land owned by her to be used for construction of building, the activity was an adventure in the nature of trade.
Raj Dulari Bhasin v CIT (ITA 11/2004) – TS-738-HC-2015 (Del)

d. Deductions

Section 32

144. The Tribunal held that crop compensation paid by the assessee to the land owners for the purpose of compensating them for the damage to crops suffered while laying down pipelines could not be added to the cost of land because even after acquiring the land the assessee could have waited till the crop was harvested by the land owner for which no compensation would have been payable. Accordingly, it held that the compensation should have been added to the cost of the pipeline and hence depreciation was allowable on such compensation.
Gujarat State Petronet Ltd v ACIT – (2015) 45 CCH 0301 Ahd Trib

145. The Court held that a radio programme is a “thing” as the dictionary meaning of the word “thing” envisages the possibility of it being intangible in nature. It held that when a radio programme is made, there comes into existence a thing which can be transmitted and sold by making copies which would imply manufacture. Accordingly, the Court held that the assessee could have said to have used plant and machinery for the manufacture of an article or thing, satisfying the requirements of section 32(1)(iia) of the Act.
CIT v Radio Today Broadcasting Ltd – [2015] 64 taxmann.com 164 (Del)

Section 35

146. The Tribunal allowed deduction for expenditure incurred by the assessee on raw-materials, salaries / wages for the purpose of designing products holding it to be revenue in nature. It dismissed the Revenue’s plea that the expenditure led to enduring benefit to the assessee and held that even if the expenditure was of enduring benefit it was to be allowed as long as it was not incurred in the capital field.
DCIT v Autoline Industries Ltd (ITA No.1711/PN/2012) – TS-690-ITAT-2015 (Pun)

Section 36

147. The Apex Court allowed the assessee deduction under section 36(1)(iii) of the interest on loan borrowed from the bank by setting aside the order of the High Court wherein it was disallowed as the assessee had advanced interest free loan to its subsidiary company and a loan to its director at 10 percent wherein the loan taken from the bank was at 18 percent. It held that the advance to the subsidiary company was imperative in view of the undertaking given to the financial institutions by the assessee that it would provide additional margin to the subsidiary to meet working capital for cash losses suffered. It was also noted that when the assessee off loaded its shareholding in the subsidiary company, the loan was returned with interest which was offered to tax. In so far the loan to directors was concerned, the Apex Court noted that the advances were made out of assessee’s surplus funds. Once it was established that there was nexus between the expenditure and purpose of business, the revenue cannot claim to put itself in the arm chair of the businessman or in the position of the board and to determine how much is reasonable expenditure.
Hero Cycles Pvt Ltd v CIT (CIVIL APPEAL NO. 514 OF 2008) – TS-670-SC-2015

148. The Tribunal held that where the assessee had sufficient funds of its own which was substantiated by the statement of funds generated during the year, out of which it granted an interest free loan to its Group company, the Revenue was incorrect in disallowing the interest paid on loan acquired by the assessee from its banker on the ground that the loan was utilized for providing onward interest free loans loan to its Group companies and therefore not for business purposes. Relying on various decisions, it also held that the assessee was free to utilize its own funds in the manner it desired.
JCT Limited v JCIT – (2015) 45 CCH 0289 Kol Trib

Section 37(1)

149. The Tribunal held that discount on premium of shares issued to employee to compensate them, for their services is a part of remuneration and cannot be held to be a short capital receipt or capital expenditure and therefore the expenses on account of employees stock option scheme was to be treated as employee cost and considered as revenue in nature.
Tata Consultancy Services Ltd v ACIT – (2015) 45 CCH 0202 Mum Trib

150. The Apex Court dismissed the SLP filed by the Revenue and upheld the decision of the High Court wherein it was held that expenses incurred for buy back for shares were to be treated as revenue expenses and thus allowable, as the consequence of buy back of shares is that the capital base of the company is reduced and the capital structure goes down which is not of any enduring benefit so as to bring the expenditure incurred as a capital expenditure. It held that where there was no flow of fund or increase in the capital employed, the expenditure incurred would be revenue expenditure. Accordingly, the reliance placed by the Revenue on Brooke Bond India Ltd v CIT (TS-15-SC-1997) was dismissed.
CIT v Motor Industries – TS-671-SC-2015

151. The Tribunal held that expenses incurred in connection with issue of bonus shares were to be allowed as revenue expenditure as the issue of bonus shares did not involve an inflow of fresh funds or increase in capital employed and therefore the company had not acquired a benefit or advantage of enduring nature.
Aditya Birla Nuvo v DCIT – (2015) 45 CCH 0222 Mum Trib
152. The Tribunal allowed deduction under section 37(1) of the Act for expenditure incurred on free samples given by the assessee to doctors and medical practitioners as they were distributed in pursuance to their requests and not as gifts therefore not attracting CBDT Circular No 5 / 2012 disallowing free samples given as gifts / freebies.
Eli Lilly & Co (India) Pvt ltd v ACIT (ITA No.788/Del./2015) – TS-680-ITAT-2015 (Del)

153. The Court held that expenditure incurred on renovation of hotel rooms, conference halls etc were to be considered as revenue expenditure and therefore allowed the assessee the deduction. Relying on the decision of the Apex Court in Empire Jute Ltd (124 ITR 1)(SC), it held that expenditure incurred for obtaining an advantage of enduring benefit could be considered as revenue if the nature of the advantage merely facilitated the trading operation of the assessee or enabled more efficient conduct of business.
CIT v Cama Hotels Ltd – (2015) 235 TAXMAN 0206 (Guj)

154. The Court held that expenditure incurred on stamp duty for acquiring leasehold land for 30 years was revenue in nature as the stamp duty was paid for the purposes of carrying on assessee’s business. Further, the Court pointed out that the Revenue had accepted CIT(A)’s finding that the expenditure on stamp duty could be considered as deferred revenue expenditure and also relied on the Apex Court ruling in the case of Taparia Tools Ltd (TS-134-SC-2015) wherein it was held that there was no concept of deferred revenue expenditure unless specifically provided for in the Act.
CIT v Reliance Industrial Infrastructure Ltd (INCOME TAX APPEAL NO. 3611 OF 2010) – TS-704-HC-2015 (Bom)

155. The Tribunal held that the commission paid by the assessee to its directors could not be disallowed on the ground that it was dividend paid in the garb of commission considering that the commission was only paid to 3 out of 6 directors and the sub-contracts executed by the assessee could not have been carried out without the efforts of the directors. The payment could not be presumed to be a mode of tax avoidance.
Arihantam Infraprojects Pvt Ltd v JCIT (ITA No.2201/PN/2012) – TS-685-ITAT-2015 (Pun)

156. The Tribunal held that in the absence of basic details to substantiate the claim of reimbursement of expenses, the amount so claimed was to be added to the income of the assessee.
Further it held that merely because an expenditure has been incurred by the assessee it does not entitle him to the claim without discharging his onus of establishing that the expenditure has been incurred for business purposes.
In relation to expenditure on application software incurred by the assessee, the Tribunal, relying on the decision of the High Court in the case of CIT v Lubrizol India ltd (37 taxmann.com 294 (Bom) and the order of the Tribunal in the case of the assessee for earlier years, held that since the license was for a limited period and had to be renewed from time to time it was to be treated as revenue in nature.
Sandvik Asia Pvt Ltd v JCIT – (2015) 45 CCH 0311 Pune Trib

157. The Tribunal held that the basis adopted by the AO for disallowing expenses incurred by the assessee by deeming them to be capital in nature viz. increase in capital work in progress and a higher capital work in progress as compared to revenue, were not sustainable since the assessee had shown bifurcation of each type of expenditure along with minute details as to the application of expenditure and that no specific defect in the books of accounts had been pointed out by the AO.
However, considering the size of the assessee’s business as well as the impossibility of bifurcating each and every expense and the increase in capital work in progress, the Tribunal sustained disallowance at 1 percent of total employee cost and 1 percent of administrative and other expenses.
Gujarat State Petronet Ltd v ACIT – (2015) 45 CCH 0301 Ahd Trib

158. The Tribunal held that interest on delay in payment of Sales Tax was allowable as a deduction under section 37(1) of the Act as it was compensatory in nature and nowhere in the form of penalty.
ACIT v Jamkash Vehicleades Pvt Ltd – (2015) 45 CCH 0322 Asr Trib

Section 14A

159. The Tribunal held that Rule 8D of the Income-tax Rules, 1962 could not be applied retrospectively to assessment years 2006-07 and 2007-08 as it was applicable from AY 2008-09 only.
Tata Consultancy Services Ltd v ACIT – (2015) 45 CCH 0202 Mum Trib
Aditya Birla Nuvo v DCIT – (2015) 45 CCH 0222 Mum Trib

160. The Court upheld the Tribunals order wherein it was held that no disallowance under section 14A of the Act could be made for interest expenditure under Rule 8D(2)(ii) absent common interest expenditure. It held that the intention of Rule 8D(ii) was to allocate common interest expenses and therefore interest directly attributable to tax exempt income as well as interest directly relatable to taxable income was to be excluded. Since no portion of interest survived after excluding the aforesaid interest, the Court held that no disallowance under Rule 8D(ii) could be made.
Pr CIT v Bharti Overseas Pvt Ltd (ITA 802 / 2015) – TS-729-HC-2015 (Del)

161. The Tribunal held that for an AO to invoke Rule 8D, he must place on record that he is not satisfied with the correctness of claim of expenditure made by the assessee. Further, it held that since there was no exempt income earned during the year, the disallowance under section 14A was not sustainable.
Gujarat State Petronet Ltd v ACIT – (2015) 45 CCH 0301 Ahd Trib

Section 40(a)(ia)

162. The Tribunal deleted the disallowance made under section 40(a)(ia) on account of non deduction of tax on provision made for expenses. Relying on the earlier years order in the case of the assessee it held that deduction of tax at source could only be effected when the payee was known and therefore in the absence of the ascertainment of the payee no tax could be deducted at source.
Aditya Birla Nuvo v DCIT – (2015) 45 CCH 0222 Mum Trib

Section 43B

163. Relying on the decisions Bharat Earth Movers (254 ITR 428) and Metal Box (73 ITR 53), the Tribunal deleted the disallowance made under section 43B of the Act on provision for pension liability made by the assessee on the basis of the observations made in the judgments i.e. the incurrence of liability should be certain irrespective of the fact that it may be discharged on a future uncertain date. Since the pension liability of the assessee was crystalized the Tribunal ruled in its favour.
Aditya Birla Nuvo v DCIT – (2015) 45 CCH 0222 Mum Trib

164. The Tribunal held that since the assessee paid the entire amount of excise duty provided for prior to the due date of filing return of income, a portion of excise duty paid could not be disallowed on the ground that it pertained to obsolete stock which was scrapped in a future assessment year. It held that as per section 43B the deduction was to be allowed in the year of payment.
Sandvik Asia Pvt Ltd v JCIT – (2015) 45 CCH 0311 Pune Trib

165. The Tribunal held that since the assessee deposited the funds in the Employers and Employees Provident Fund account prior to the date of filing return as stipulated under the proviso to section 43B of the Act no addition could be made even though the same was deposited post the due dates in the respective Acts.
ACIT v Jamkash Vehicleades Pvt Ltd – (2015) 45 CCH 0322 Asr Trib

Section 10A / B

166. The Tribunal held that income enhanced pursuant to disallowance of expenditure under section 40(a)(ia) was to be considered as eligible profits of the undertaking while computing deduction under section 10B of the Act. It noted section 92C(4) which specifically provided that no deduction under section 10A / 10AA / 10B of the Act would be allowed on income enhanced pursuant to a transfer pricing adjustment and held that in the absence of such provision in section 10B, the benefit could not be denied.
It further held that deduction under section 10B was to be allowed before set off of brought forward losses and unabsorbed depreciation relating to earlier years.
ACIT v Precision Camshafts Limited (ITA No.70/PN/2012)– TS-649-ITAT-2015 (Pun)

167. The Tribunal held section 10A of the Act is a deduction provision and not an exemption provision after the amendment (wef AY 2001-02) and therefore losses from a section 10A unit was to be adjusted against the taxable profits of the other units after deduction under section 10A has been allowed in respect of each eligible unit.
Tata Consultancy Services Ltd v ACIT – (2015) 45 CCH 0202 Mum Trib

168. The Tribunal held that the assessee could not be denied deduction under section 10B of the Act as it was performing BPO services and had acquired approval from the Software Technology Parks of India which comes under the Ministry of Communication & Information Technology and was a competent authority.
Quality BPO Services Pvt Ltd v ACIT – (2015) 45 CCH 0187 Ahd Trib

Chapter VIA

169. The Tribunal held that where the assessee had submitted adequate evidence to prove that it was engaged in the manufacture of goods (such as an SSI certificate which was given after commencement of production, registration under the Central Excise Act, Sales tax Act etc, books of account which supported claim of manufacture of goods as well as an undertaking of the assessee that it was not split up or reconstructed), the AO / CIT(A) were incorrect in denying deduction under section 80IB of the Act, inferring that the assessee was not engaged in the manufacture of goods on the ground that the supplier from whom the assessee had purchased machinery to carry on manufacture, denied supplying the machinery to the assessee.
Hemant Kumar Godara v ACIT – (2015) 45 CCH 0233 Mum Trib

170. The Court held that income earned by the assessee from export incentives, customer claims, freight subsidiary and interest on fixed deposits were eligible for deduction under section 10B of the Act. It dismissed the revenue’s argument that section 80A(4) of the Act clarified that income having direct nexus with the business activities was eligible for deduction as the said section merely ensures that units claiming section 10B benefit were not further allowed to claim relief under section 80IA / IB and not to deny benefit under section 10B.
Riviera Home Furnishing v ACIT – TS-668-HC-2015 (Del)

171. The Tribunal held that while computing the profits for the purpose of deduction under section 80IB of the Act, the loss incurred by the assessee in any other eligible industrial undertaking could not be set off against the profits of a particular industry that would qualify for deduction.
DCIT v Bengal Ambuja Housing Development Ltd – (2015) 45 CCH 0232 Kol Trib

172. The Tribunal allowed the assessee (engaged in the telecom business) exemption under section 80IA(2A) on extra-ordinary income of license fee, reimbursement and provisions written back. It dismissed the contention of the revenue that 80IA(2A) stipulated exemption on receipts from eligible business as the condition of ‘derived from; was not applicable to the telecom business.
Bharat Sanchar Nigam Ltd v DCIT (I.T.A .No.-3304/Del/2010 & I.T.A .No.-3386/Del/2010) – TS-737-ITAT-2015 (Del)

173. The Tribunal held that head office expenses not attributable to eligible units were not to be reduced from the claim of deduction under section 80IA / 80IB of the Act.
Aditya Birla Nuvo v DCIT – (2015) 45 CCH 0222 Mum Trib
174. The Tribunal held that in computing gross total income of the assessee, same had to be determined after adjusting losses and that if gross total income of the assessee so determined turns out to be Nil, then the assessee would not be entitled for deduction.
DCIT v Precision Electronics Ltd – (2015) 45 CCH 0313 Del Trib

175. The Tribunal held that the assessee was entitled to claim deduction under section 10B from the AY in which it commences business and not when the plant and machinery is first put to use.
Additionally, it held that he assessee was entitled to set off losses of EOU units against the other business income if any assessed in the hands of the assessee and could be carried forward to succeeding years to be adjusted as per the provisions of the Act.
Sandvik Asia Pvt Ltd v JCIT – (2015) 45 CCH 0311 Pune Trib

176. The Court denied deduction under section 80IB(10) of the Act to the assessee (a builder) since the project completion certificate was issued by the local authority beyond the cut-off date provided for in the said section vide amendment in Finance Act 2004. It rejected assessee’s stand that the amendment was prospective and therefore the time frame was not applicable and held that the compliance required in the provision was not incapable, unreasonable, harsh or absurd.
CIT v Global Reality (I.T.A.No.40/2012) – TS-692-HC-2015 (MP)

177. The Tribunal held that profit earned out of squaring off future contracts was on account of hedging against raw material price fluctuations which stemmed from the activity of the Jammu unit of the assessee engaged in manufacturing of Menthol Products and accordingly, the said profits were eligible for deduction under section 80IB of the Act.
Jindal Drugs Ltd v ACIT (ITA NO 2592/Mum/2008) – TS-705-ITAT-2015 (Mum)

178. The Tribunal held that where the assessee had authored a book on income-tax problems in question answer format, the said book was a literary work in terms of section 80QQB of the Act as it was on a complex issue which required intellect and knowledge and therefore the royalty received on the same would be entitled for a deduction.
Dilip Loyalka v ACIT – [2015] 64 taxmann.com 121 (Kol – Trib)

e. Capital Gains

179. The Tribunal held that where the assessee, a dermatologist, had not borrowed funds but used her own capital and interest free funds from her father to purchase shares and held major shares for more than one year, the gains declared by the assessee were to be assessed as long term capital gains under the head Income from Capital gains and not as business income. Further, considering that the assessee was a dermatologist and did not hire any staff for carrying out activity of purchase and sale of shares, the Tribunal held that trading of shares was not its main activity.
Amrita Pankaj Talwar v ACIT – (2015) 45 CCH 0180 Mum Trib

180. The Tribunal held that surplus arising on transfer of booking rights in office premises in a technology park was to be considered as Income from Other Sources and not long term capital gains as mere making of payment by the assessee to the builder prior to sanction of the building plan cannot said to have yielded a vested right to get a property considering that there was no property in place and no definite process for creating the said property had been initiated. Further it held that at the time of making the advance, the assessee was aware that office premises could be used only for IT activities while the assessee was not into the IT business indicating that there was no intention to buy the premises.
S Narendrakumar & Co v DCIT (ITA No 7080 / Mum / 2012) – TS-650-ITAT-2015 (Mum)

181. The Tribunal held that the creation of goodwill and distribution of the amount among retiring partners did not attract capital gains under section 45(4) of the Act as none of the conditions provided therein were satisfied. It held that creation of goodwill was merely a mode of making the payment to the retiring partners without any impact on the capital assets.
Electroplast Engineers v ACIT – (2015) 45 CCH 0189 Mum Trib

182. The Tribunal held that merely because the assessee offered to tax rental income on property gifted to his wife, via a registered gift deed, as per the clubbing provisions, it could not be held that the assessee was actually the owner of the property and accordingly the contention of the AO that the assessee violated the provisions of section 54 of the Act by owning more than one residential property on the date of transfer of the original asset was incorrect.
ITO v Samir Jasuja – (2015) 45 CCH 0246 Del Trib

183. The Tribunal held that investment in new property would be construed from the date of making advance payment towards booking the property and not the date of the agreement for the new property. Accordingly, it allowed the assessee the benefit of exemption under section 54F Act.
Smt Rathan B Shetty v ACIT (ITA. No. 253/Mum/2013) – TS-656-ITAT-2015 (Mum)

184. The Apex Court upheld the order of the Court where it was held that booking rights in a flat was to be treated as acquired upon the execution of the buyers agreement with the builder and not on the date of booking confirmation letter for provisional allotment as the book confirmation letter specifically stated that no right to provisional allotment accrued till the agreement was signed.
Gulshan Malik v CIT – TS-625-SC-2015

185. The Tribunal held that since the assessee had assigned specific consideration for the tea estate along with the standing trees and listed out and assigned value to every movable property transferred to the buyer and since the sale agreement did not include liabilities, investments and deposits, the transfer could not be considered as a slump sale irrespective of the fact that the assessee sold the tea estate as a going concern. It held that going concern was a functional qualification for determining slump sale but was not sufficient enough to decide the exact legal character of the transaction and accordingly deleted the capital gains addition made by the revenue.
DCIT v Tongani Tea Co Ltd (I.T.A No. 1233/Kol/2008)– TS-647-ITAT-2015 (Kol)

186. The Tribunal held that the assessee could not be labelled as a dealer in shares and thus income derived therefrom could not be treated as business income since the assesse regularly showed investments in shares at purchase value taking them as investments and did not claim deduction of Securities Transaction Tax paid on the deals. Accordingly, the income arising therefrom was treated as Capital Gains.
ACIT v KS Gupta & Sons – (2015) 45 CCH 0284 Del Trib

187. The Court held that the transfer of intangible assets such as a trademark or brand name associated with business could not lead to taxable income from capital gains. Further, it observed that in the instant case, what stood extinguished as a result of termination of the Joint Venture Agreement was a bundle of rights of the assessee including such business rights. It held that the transfer of intangible assets described under the JVA could not be held to fall within the ambit of capital assets provided for in section 55(2) of the Act and therefore their cost of acquisition could not have be deemed to be ‘Nil’.
CIT v HCL Infosystems Ltd – (2015) 94 CCH 0155 Del HC

188. The Tribunal held that when both flats purchased by the assessee were joined and used as a single unit it had to be considered as a single residential house for the purpose of section 54F of the Act.
It further held that cost of the new asset shall not be reduced by the deduction allowed under section 54F of the Act for the purpose of computing deduction under section 54F of the Act.
Dinanath Badrinath Chhabra v ITO – (2015) 45 CCH 0299 Mum Trib

f. Income from Other Sources

189. The Tribunal upheld the order of the CIT(A), treating amounts received by the assessee for confirming a sale deed as taxable under the head “Income from Other Sources”. It rejected the contention of the assessee that the amount was not taxable as it was a capital receipt and proceeded to tax the receipt under section 56(2)(vii) since the amount was received from a non-relative without any consideration.
Maheshkumar R Patel v ITO (ITA No.1932, 1933 & 1934 /Ahd/2015) – TS-684-ITAT-2015 (Ahd)

g. Assessment / Re-assessment / Revision / Search Proceedings

Assessment

190. The Court held that omission to file certified copy of the re-constituted partnership deed along with the return, which was filed during assessment proceedings, would not attract disallowance of interest, commission, remuneration etc paid to partners under section 185 of the Act. The Court further held that according to section 139(4) of the Act, an assessee was permitted to file its return any time before the expiry of 1 year from the end of the relevant assessment year or before the completion of assessment, whichever was earlier, and therefore the assessee could have filed its return along with the reconstituted partnership deed validly without attracting any disallowance under section 184 and further held that section 185 read with section 184 was emphatic but not mandatory. It further noted that the AO had refused to treat the return as defective so as to enable the assessee to cure the defect under section 139(9) of the Act.
CIT v SR Batliboi & Associates (ITA No 190 of 2009) – TS-645-HC-2015 (Cal)

191. The Court set aside the order of the Tribunal dismissing Revenues appeal as the tax effect involved was less than the prevailing monetary limit prescribed by the CBDT instruction as the appeal filed involved a substantial question of law. Reliance was placed on the decision of the Apex Court in Surya Herbal Ltd wherein it was held that the High Court can ignore CBDT circulars and proceed to decide statutory appeals on merits where substantial question of law was involved.
CIT v South Travancore Distilleries & Allied Products (ITA.No. 153 of 2001) – TS-682-HC-2015 (Ker)

192. The Tribunal gave effect to CBDT Circular No 21 / 2015 dated December 10, 2015 on no appeals to be filed below the revised tax effect of Rs. 10 lakhs and consequently dismissed a batch of appeals as not maintainable as any pending appeal below the revised limit would amount to a legal nullity. It also specified that the dismissal was without prejudice to the rights of the revenue authorities to raise the same issue as and when the tax effect crosses the threshold limit.
DCIT v Soma Textiles & Industries Ltd (ITA No 302 / Ahd / 2014) – TS-711-ITAT-2015 (Ahd)

Reassessments

193. The Tribunal held that where the assessee submitted his claim during the assessment proceedings vide a revised return and the AO raised queries pertaining to such claim, the assessee cannot be held guilty of failure to disclose all material facts necessary for assessment and therefore held the initiation of reassessment proceedings as invalid.
ACIT v Mussoorie Dehradun Development Authority – (2015) 45 CCH 0225 Del Trib

194. The Court held that reassessment order could not be passed under section 147 of the Act without compliance with mandatory requirement of issuing a notice under section 143(2) of the Act to the assessee and accordingly held that the reassessment orders were legally unsustainable.
Pr CIT v Silver Line & ANR – (2015) 94 CCH 0077 Del HC

195. The Tribunal deleted the addition made by the AO pursuant to reassessment proceedings on the ground that the assessee had consumed a higher percentage of raw materials (ingots) as compared to the reporting made to the Excise Department as the reporting to the Excise Department did not include details of non-excisable goods and the final profit figures matched irrespective of the discrepancy in consumption. Accordingly, in the absence of any evidence or material on record the reasoning adopted by the AO was unsustainable and the addition made (difference between ingots consumed and reported) was deleted.
Vishwakarma Ispat Ltd v ACIT – (2015) 45 CCH 0279 Chd Trib

196. The Court held that since the AO had specifically raised queries and obtained responses in relation to the share transactions of the assessee post which no addition was made, initiating re-assessment in regard to the said transactions amounted to a change of opinion and therefore the reassessment was invalid.
Further, it held that since the re-assessment proceedings were initiated after a period of 4 years from the end of the relevant assessment year it was a pre-condition of there being a failure on part of the assessee to fully and truly disclose all material particulars and since there was no such allegation made by the AO on the assessee, the reassessment proceedings were invalid.
Shri Parasram Industries Pvt Ltd v ITO – (2015) 94 CCH 0152 Del HC

197. The Court quashed reassessment order under section 147 of the Act pursuant to reassessment proceedings initiated after a lapse of 4 years as it amounted to change of opinion. It held that where the reopening of assessment could not stand on the strength of the reasons recorded under section 148(2), the Revenue could not seek to justify the reopening by finding some other point or other post facto after the reopening. Further it held that true and full disclosure contemplated in the first proviso to section 147 refers to ‘all material facts’ and not to a legal provision.
PVP Ventures Ltd v ACIT (W.A.Nos. 1171 and 1172 of 2015) – TS-712-HC-2015 (MAD)

198. The Court held that re-assessment initiated on the basis of an office note prepared by the AO in relation to gifts received by the assessee from non-resident donors which was subject matter of reference to the Foreign Tax Division, was invalid as no information was received from the Foreign Tax Division about the donations and therefore the reassessment was a mere change of opinion.
Kulbhushan Khosla v CIT (ITA 33/2004) – TS-731-HC-2015 (Del)

199. The Tribunal quashed reassessment proceedings initiated by the AO as they were time barred under section 153 of the Act. It held that the benefit of extended limitation in terms of Explanation 1(iii) of Section 153 of the Act, pertaining to the exclusion of time period commencing from the date on which the AO directed audit of account under section 142(2A) till the last date on which the assessee was required to furnish the report, was not available to the AO since the time limit for the furnishing of the special audit report was extended by the AO suo motu without any application from the assessee.
PHI Seeds Ltd v DCIT – TS-720-ITAT-2015 (Del)

200. The Court held that the reason for re-opening assessment proceedings cited by the AO viz. that the director of the assessee company was the person who floated the company, the shares of which were purchased by the assessee and valued at a loss, was invalid as it did not constitute tangible material for forming reasons to believe that income had escaped assessment since the value of the closing stock (shares) had been computed on the basis of the quotation in the stock exchange. Further it noted that the assessee had consistently followed the said method of valuation and that the reason to believe should have been predicated on tangible material or information and bear direct nexus to the material on which it is based, which was not fulfilled in the instant case.
CIT v Vishisth Shay Vyapar Ltd – (2015) 94 CCH 0108 Del HC

201. The Tribunal held that the re-assessment proceedings initiated on the basis of the allegation that the assessee made bogus purchases were not sustainable in light of the decision in the case of Unique Metal Industries v ITO (ITA No 1372 / Del / 2015). Further, and in any event, it held that the addition made by the CIT(A) viz. 20 percent of the alleged bogus purchases on the basis of section 40A(3) was unsustainable as it was not a correct determination of real income and that section 40A(3) was meant for cash purchases only and could not be applied in the instant case.
Kishan Lal Gambhit & Sons v ITO – (2015) 45 CCH 0278 Del Trib

Revision

202. The Tribunal held that if an inquiry was made by the AO during assessment proceedings, the objection of the CIT that the inquiry was inadequate was not acceptable considering that the AO had after examining records and details submitted by the assessee allowed the claim on being satisfied by the explanation of the assessee. Further, it held that the order of the AO maybe brief or cryptic but that was not sufficient reason to brand the assessment order as erroneous and prejudicial to the interests of the revenue.
CIT v Sunil Aggarwal – (2015) 94 CCH 074 Del HC

203. The Tribunal held that failure of the AO to give a logical conclusion to the enquiry conducted by him during assessment proceedings empowers the CIT to revise the assessment order passed by him by holding that the enquiry conducted by the AO could not be construed as a proper enquiry. It was further held that law does not require service of notice under section 263 strictly as per the terms in section 282 of the Act as long as the assessee was given an opportunity of being heard.
Mayfair Commotrade Pvt Ltd v CIT – (2015) 45 CCH 0197 Kol Trib
Khushi Conbuild Pvt Ltd v CIT – (2015) 45 CCH 0177 Kol Trib
Sambhav Commodities Pvt lTd v CIT – (2015) 45 CCH 0182 Kol Trib
Rising Tracom Pvt Ltd v CIT – (2015) 45 CCH 0201 Kol Trib
Tara Vinimay Pvt Ltd v CIT – (2015) 45 CCH 0188 Kol Trib

204. The Tribunal held that failure of the AO to give a logical conclusion to the enquiry conducted by him gives power to the CIT to revise such assessment, by holding that the enquiry conducted by the AO in such cases could not be construed as a proper enquiry.
Billbody Vyapaar Pvt Ltd v ITO – (2015) 45 CCH 0184 Kol Trib
Esteem Tradecom Pvt Ltd v CIT – (2015) 45 CCH 0196 Kol Trib

205. The Tribunal held that when the AO had taken one of two views permissible in law and which Commissioner did not agree with and which resulted in a loss of revenue, it could not be treated as erroneous order prejudicial to interest of revenue, unless view taken by AO was completely unsustainable in law.
Nathpa Jhakri Joint Venture v ACIT – (2015) 45 CCH 0339 (Mum Trib)

206. The Tribunal held that assessment order passed under section 143(3) read with section 153C of the Act post the approval of the Additional CIT under section 153D of the Act, could not be subject to revision under section 263 of the Act.
Trinity Infra Ventures Ltd v DCIT – (2015) 45 CCH 0290 Hyd Trib

Search

207. The Court upheld the order of the ITAT and CIT(A) wherein it was held that section 69C of the Act was applicable only where there is some expenditure and the assessee was unable to explain the source from which such expenditure has been incurred and since the assessee had accounted for all the purchases made in cash in its books of accounts, the source of expenditure could not be considered as unexplained. Further it relied on the decision of CIT v RRJ Securities Ltd [(2015) 94 CCH 0069 Del HC], wherein it was held that merely because valuable article or document belonging to the assessee was seized from possession of person search under section 132 of the Act, it would not mean that concluded assessments of the assessee were to be reopened under section 153C of the Act.
CIT v Refam Management Services Pvt Ltd – (2015) 94 CCH 0079 Del HC

208. The Tribunal held that the addition made by the AO based on the admission of the assessee was not sustainable as the admission was made under pressure and mistaken belief and was subsequently retracted as the assessee had reconciled the alleged difference in stock. Therefore, in the absence of some corroborative evidence found in support of such admission, the addition was to be deleted.
Additionally, with respect to the addition made by the AO under section 69C pursuant to transactions noted in a diary found during the search proceedings, the Tribunal held that since the AO himself has stated that the transactions dealt with the trading activities of the assessee it could not represent unexplained investments under section 69C. Further, since the assessee had not discharged any presumption and the authorities had not furnished any evidence, the Tribunal inferred that the entries in the diaries were not reflected in the books of accounts and accordingly made an addition of the gross profit on the quantum of the transactions.
Tribhovandas Bhimji Zaveri (Delhi) Pvt Ltd v ACIT – (2015) 45 CCH 0183 Mum Trib

209. The Court held that merely because the material seized from the assessee’s Chartered Accountant related to the assessee it could not be considered as belonging to the assessee who wasn’t searched and therefore the concluded assessments of the assessee could not be mechanically re-opened under section 153C of the Act. Further, it held that the limitation period of 6 years contained in the Second Proviso to Section 153C was to be reckoned from the date of recording satisfaction and not from the date on which search was conducted.
CIT v RRJ Securities Ltd – TS-624-HC-2015 (Del)

210. The Tribunal held that the main requirement for initiation of action and issuance of notice under section 153C of the Act, is that the AO of the other person was mandatorily required to record that the documents belong to such person and he has jurisdiction to assess such person. Further it held that the expression ‘belong to’ should not be confused with the expression ‘relates to’ or ‘refers to’. Accordingly, in the absence of such record made by the AO, it quashed the notice and declared it void ab initio.
ACIT v Amrapali Grand – (2015) 45 CCH 0224 Del Trib

211. The Tribunal held that in the absence of any incriminating material found during the course of search and the assessment proceedings having not been abated at the time of search, the AO has no jurisdiction to make addition under section 153A of the Act.
DCIT v Times Finvest & Commerce Ltd – (2015) 45 CCH 0324 Chd Trib

212. The Court held that when satisfaction note had not been recorded by the AO of the searched person, then initiation of search proceedings under section 153C of the Act were invalid.
Pr CIT v Flucky Leasing & Finance Pvt Ltd – (2015) 94 CCH 0145 Del HC
Super Malls Pvt Ltd v DCIT – (2015) 45 CCH 0330 Del Trib

213. The Court held that even in cases where the AO of the person searched and the assessee who is sought to be assessed under section 153C of the Act is the same, the AO was still required to record his satisfaction that the assets / documents seized belong to the assessee.
Pr CIT v Nikki Drugs & Chemicals Pvt Ltd – [2015] 64 taxmann.com 309 (Del)

h. Withholding tax

214. The Court held that under the provisions of Section 10(15A) of the Act, payments made for acquisition of aircrafts or an aircraft engine on lease were exempt from taxation and that the amendment inserted on April 1, 1996 excluded payments made for providing spares, facilities or services in connection with the operation of leased aircraft from the exemption provided under section 10(15A) of the Act. It held that supplemental rent paid by the assessee did not fall under the exclusion to 10(15A) of the Act and therefore the assessee was not liable to deduct tax at source on such payments.
Jet Lite (India) Ltd v CIT – [2015] 63 taxmann.com 62 (Delhi)

215. The Tribunal held that the amount paid by the assessee to a credit company towards ‘authority to guarantee’ whereby assessee agreed to share percentage of losses suffered by the credit company while extending credit to the assessee’s customers did not amount to commission under section 194H as there was no service rendered by the credit company to the assessee and the agent to principal relationship was absent. Accordingly, it held that sections 201(1) and 201(1A) were not triggered.
John Deere India Pvt Ltd v CIT(A) (ITA Nos.390 to 392/PN/2014)– TS-648-ITAT-2015(Pun)

216. The Tribunal held that as per section 4of the Act it was the recipient of interest who was liable to pay tax and that the TDS provisions made it easier to facilitate collection of tax and therefore unless it could be shown that the due tax could not be recovered from the recipient of interest, the payer could not be treated as an assessee in default.
RBL Bank Ltd v ITO (TDS) – (2015) 45 CCH 0244 Panaji Trib

217. The Tribunal held that the amendment to section 201 of the Act vide Finance Act, 2009 inserting time limits therein was curative in nature and that since the section 201 proceedings were pending at the time of the insertion of new provisions, the amended provision would be applicable to the assessee. Further, it noted the subsequent amendment in the section vide Finance Act, 2010 which was applicable to residents and therefore distinguished the reliance placed by the assessee on the Special Bench decision of Mahindra and Mahindra which was applicable to non-residents.
Vodafone Digilink Ltd v ITO (ITA No. 75 to 80/JP/2013) – TS-726-ITAT-2015 (JPR)

218. The Court observed that prior to April 1, 2010 there was no limitation period for initiating action on TDS default and accordingly held that it was well settled that where there was no period of limitation prescribed for taking action under any provision of law, the same should be taken within a reasonable period which would depend on the facts of the case and provisions of the relevant Act. In the given case, the period of 4 years was held as reasonable for initiating action under section 201 of the Act.
CIT v Bharat Hotels Ltd – [2015] 64 taxmann.com 325 (Kar)

i. Others

Appeals

219. The Tribunal allowed the additional grounds of appeal raised by the assessee relying on the judgments in the case of National Thermal Power Co Ltd v CIT (1998) 229 ITR 383 (SC), PV Doshi v CIT (1978) 113 ITR 22 (Guj) and Ramilaben Ratilal Shah v CIT (2006) 152 Taxman 37 (Guj) wherein it was held that legal issues could be raised at any stage before the Tribunal. However, it set aside the order of the CIT(A) and restored the additional ground to his file for determination in accordance with law.
JK Paper Ltd v CIT – (2015) 45 CCH 0325 Ahd Trib

220. The Tribunal rejected the appeal filed by the revenue as it was not accompanied by the prescribed fee and therefore in contravention of section 253 of the Act. It held that Tribunals can exercise discretion to accept the memorandum of appeal even if the same was deficient in enclosures but not when the appeal was not accompanied by the prescribed fee.
ACIT v DE Shaw India Software Pvt Ltd – [2015] 64 taxmann.com 95 (Hyd – Trib)

Carry forward of losses

221. The Court held that for the purpose of section 72A(2)(a)(i) of the Act, the term commencement of business would be different from engaged in business. It held that a party engages in business from the day it gets involved in setting up of the business and therefore it would be incorrect to say that a party is engaged in business only from the date on which it commences production. Since the business had been set up for more than 3 years, the Court allowed the carry forward post amalgamation.
CIT v KBD Sugars & Distilleries Ltd – TS-630-HC-2015 (Kar)

222. The Tribunal held that where the demerger satisfied all conditions under section 2(19AA) of the Act, the assessee company was eligible to carry forward losses and unabsorbed depreciation under section 72A(4) of the Act. The Tribunal held that the reasoning adopted by the AO in deeming the demerger as non-compliant with section 2(19AA) of the Act viz. transfer of properties and investments to other entities via the same SPA, did not impact the conditions in section 2(19AA) of the Act and therefore the benefit of carry forward could not be denied.
DCIT v Maana Sugar Ltd – (2015) 45 CCH 0286 Del Trib

Cash Credits

223. The Tribunal held that the assessee failed to substantiate the source of Rs. 20 lakhs deposited in its bank account which was claimed to be receipts from family partition arrangement and therefore confirmed the addition made by the AO under section 68 of the Act since the explanation offered by the AO was not satisfactory.
Minalben Dipakbhai Mehta v ITO – (2015) 45 CCH 0178 Ahd Trib

224. The Tribunal held that where the assessee had filed all details such PAN, election card, receipts details of creditors in relation to the unsecured loan received by it, but the CIT(A) failed to consider the same, the matter was to be remanded for fresh adjudication and the assessee was to be afforded full opportunity of being heard.
Golden Time Services Pvt Ltd v DCIT – (2015) 45 CCH 0175 Del Trib

225. The Tribunal held that section 68 of the Act only seeks to tax cash credits where the source of receipts was not established. In the case of the assessee, the source of receipts was duly established and therefore could not be taxed as there was no provision in statute to tax amount, the source of which has been explained.
Likewise, with respect to expenditure / investments, it held that only when the source of expenditure / investment was not established could it be brought to tax under section 69C of the Act.
DCIT v Sanjeev Nanda – (2015) 45 CCH 0287 Del Trib

226. The Court upheld the order of the Tribunal wherein it was held that the addition under section 68 of the Act could only be made where the assessee failed to offer an explanation for credit in its book or the explanation was unsatisfactory. Where the assessee established the identity of source of funds as well as creditworthiness along with the explanation of the transaction leading to the credit entries, the onus to provide reasons for doubting the explanation would lie with the AO.
Pr CIT v Matchless Glass Services Pvt Ltd – (2015) 94 CCH 0151 Del HC

227. The Court held that as per section 68 of the Act, the assessee is liable to disclose only the source from where he has himself received credit and it is not the burden of the assessee to show the source of his creditor nor is it the burden of the assessee to prove the credit-worthiness of the source of the sub-creditors.
CIT v Shiv Dhooti Pearls & Investment Ltd – [2015] 64 taxmann.com 329 (Del)

Charitable Institution

228. The Court held that the mere fact that the assessee was making profit did not indicate that it was carrying on an activity solely for the purpose of making profit and that it ceased to be for educational purposes.
Manas Sewa Samiti & Ors v CCIT – (2015) 94 CCH 0081 All HC

229. The Tribunal held that trusts are allowed to accumulate funds for creating long term assets to carry out its main objects but they must specify clearly as to why they were accumulating huge funds.
Presentation Social Service Centre v DDIT – (2015) 45 CCH 0198 Hyd Trib

Deemed Dividend

230. The Tribunal held that exempt capital gains was not to be included while computing accumulated profits under section 2(22)(e). Since the assessee had only negative accumulated profits after the exclusion of exempted capital gains the provisions of section 2(22)(e) were not attracted.
Further, it held that section 2(22)(e) of the Act would apply only to the shareholders of the company.
Manoj Murarka v ACIT (I.T.A No. 1703/Kol/2014 & I.T.A No. 2140/Kol/2010) – TS-669-ITAT-2015 (Kol)

231. The Tribunal held that gratuitous loans and advances given by a company to classes of shareholders would come within the purview of section 2(22) but not to cases where loan or advance was given in return to an advantage conferred upon the company by such shareholder. It further held that deemed dividend could only be assessed in the hands of the person who was a shareholder of the lender company and not in the hands of the person other than the shareholder.
DCIT v Machino Techno (Sales) Pvt Ltd – (2015) 45 CCH 0199 Kol Trib

Interest

232. The Apex Court held that the right to charge overdue interest on discounted Bills of Exchange is not “interest” under the Interest Tax Act as it does not arise on account of delay in repayment of any loan or advance and section 2(7) of the Interest Tax Act refers only to interest arising directly from a loan or advance. The right of the assessee arises on account of default in the payment of amounts due under a discounted bill of exchange and not loan or advance.
State Bank of Patiala v CIT – (2015) 94 CCH 0076 ISCC

Method of accounting

233. The Tribunal held that the inclusive method prescribed under section 145A of the Act could not be applied selectively to closing stock without applying it to opening stock, purchases and sales as it would lead to distortion of income chargeable to tax.
Further, it observed that section 145A of the Act was introduced during the MODVAT scheme which allowed credit on specific inputs used in in manufacture of final output and in the light the advent of CENVAT credit and the decision of the Apex Court in Eicher Motor wherein CENVAT credit is allowed without one to one correlation, held that section 145A of the Act required realignment with the present indirect tax regime.
Sunshield Chemicals Pvt Ltd v ITO – [2015] 64 taxmann.com 161 (Mum – Trib)

Minimum Alternate Tax

234. The Tribunal held that remission of liability of one time settlement credit to P&L account formed part of book profits under section 115JB and could not be excluded on the basis that it was capital in nature, as once the P&L account was prepared as per Schedule VI of the Companies Act, then no exclusion or inclusion of any item except as provided under section 115JB of the Act could be made. It distinguished the ruling of Shivalik Venture Pvt Ltd (TS-469-ITAT-2015 (Mum)) relied on by the assessee, as in the said ruling the income of capital nature was disclosed in the notes to account and not in the P&L account, which was not so in the instant case.
B&B Infotech Ltd v ITO (ITA No 726 / Bang / 2014) – TS-643-ITAT-2015 (Bang)

235. The Apex Court dismissed the SLP filed by the Revenue and upheld the order of the High Court wherein it was held that once the assessee had incurred expenditure and arrived at the profits, merely because the P&L account prepared for the shareholders show the expenditure as deferred, the assessee could not be denied the benefit of the entire expenditure. It allowed the claim further noting that there was no intention to avoid tax.
CIT v Karnataka Soaps and Detergents Ltd (SPL No 19860 / 2015 and 19909 / 2015) – TS-655-SC-2015

236. The Tribunal held that the MAT provisions do not apply to the assessee (UCO Bank), a nationalized bank as it did not qualify as a ‘company’ under section 3 and consequently section 211 of the Companies Act, 1956 therefore falling outside the purview of Explanation 3 to Section 115JB of the Act. It also noted that the assessee was declaring dividends to shareholders and paying huge income tax under the Act.
UCO Bank v DCIT (I.T.A No. 1768/Kol/2009) – TS-687-ITAT-2015 (Kol)

Penalty

237. The Apex Court held that where pursuant to the directions issued by the CIT(A), the AO passed a fresh assessment order wherein no satisfaction was recorded for initiating penalty proceedings under section 271E, the penalty order passed under the said section was to be set aside.
CIT v Jai Laxmi Rice Mills Ambala City – [2015] 64 taxmann.com 75 (SC)

238. The Tribunal held that no penalty was to be levied under section 271(1)(c) of the Act on part of the commission paid by the assessee, disallowed by the AO, based on the lacuna that the agreement was entered into on stamp paper dated July 8, 2012 and the agreement was made effective from November 24, 2001 as the rest of the commission was duly allowed and there was no mensrea of concealing the particulars of income for such a meagre sum. Further, it noted that the assessee had furnished all particulars of his income and expenditure.
Power Build Ltd v ACIT – (2015) 45 CCH 0191 Ahd Trib

239. The Court held that period of limitation prescribed under section 275 of the Act lays down that the penalty order must be passed within 6 months of the end of the month in which the appellate order is received and could not be extended merely because the assessee filed an application under section 254 of the Act. Since the penalty order was passed on January 31, 2002 and the order of the Tribunal order was received by the CIT on June 28, 1999, the Court held that the penalty order was time barred and accordingly deleted the penalty.
CIt v KM Sugar Mills Ltd (2015) 94 CCH 0146 All HC

240. The Tribunal held that when the quantum on which penalty levied was deleted, penalty would not survive notwithstanding that the present appeal was filed after a delay of 2379 days. It observed that the Revenue did not point out as to how the assessee has taken advantage of not filing the appeal in time.
Rama Multi Tech Ltd v ACIT – (2015) 45 CCH 0327 Ahd Trib

241. The Court held that making mere claims that were not sustainable in law shall not amount to furnishing inaccurate particulars regarding the income of the assessee and accordingly penalty under section 271(1)(c) of the Act could not be levied.
CIT v Euro Footwear Ltd – (2015) 94 CCH 0128 All HC

242. The Court held that once the assessee explained that the mistake was due to an error of its accountant and not mala fide, the AO was not justified in imposing penalty under section 271(1)(c) of the Act.
Pr CIT v HV Williams & Company – (2015) 94 CCH 0124 Kol HC

243. The Court held that where the assessee filed a revised return before the issuance of notice under section 148 of the Act, there was no issue of concealment of income or finishing of inaccurate particulars and therefore upheld the order of the Tribunal setting aside the penalty imposed under section 271(1)(c) of the Act.
CIT v Arun Kumar Khetwat – (2015) 94 CCH 0154 Kol HC

Refund

244. The Tribunal held that once it was found that income covered by the return filed by the assessee was not taxable and tax was paid by the assessee, the refund of such tax was a must.
Vaibhavi Discretionary Family Trust & Ors v ITO & Ors – (2015) 45 CCH 0179 Mum Trib

245. The Court allowed the assessee’s writ petition and quashed the order of the CBDT dismissing assessee’s refund claim under section 119(2) with respect to condonation of delay in filing return of income. It held that since the Act allows for filing of returns and refund claim within a period of one year from the end of the assessment year and there was a delay of only one day on part of the assessee, the order of the CBDT rejecting the application was erroneous to the extent that it was based on observation that there was a delay of 17 months.
Cosme Matias Menezes v CIT (WRIT PETITION NOS. 225 AND 505 OF 2011) – TS-691-HC-2015 (Bom)

Set-off

246. The Tribunal held that as per section 32(2) of the Act, the assessee was entitled to set off unabsorbed depreciation against the income computed under the head ‘long term capital gain’.
Sunshield Chemicals Pvt Ltd v ITO – (2015) 45 CCH 0320 Mum Trib

247. The Tribunal allowed the assessee set off of losses from derivative trading transactions against its other income earned. It noted that apart from the losses, assessee only earned dividend and interest income falling under income from other sources and therefore Explanation to Section 73 of the Act, deeming losses as speculative was not applicable as the assessee’s case fell under the exception prescribed viz. gross total income mainly consisting of income from other sources or house property).
AK Capital Markets Ltd v DCIT (ITA No. 6859/Del/2014) – TS-694-ITAT-2015 (Del)

Stay

248. The Court quashed the order of the AO under section 220 of the Act directing the assessee to pay 50 percent of outstanding demand since the assessment was high pitched in light of CBDT Instruction No 95/1969 (14 times returned income) and the assessee’s appeal was pending before CIT(A). It dismissed the Revenue’s contention that CBDT Instruction No 95 / 1969 was superseded by Instruction no 1914 of 1993 by placing reliance on Valvoline Cummins Ltd v DCIT (2008) 307 ITR 103 (Del).
N Jegatheesan v DCIT –(2015) 64 taxmann.com 339 (Mad)

249. The Court held that the Tribunal is not empowered to grant stay against launch of prosecution proceedings under section 276(1) of the Act. It held that the powers of the Tribunal in relation to interim orders were confined to matters pending before the Tribunal and at best to matters intrinsically linked to matters pending before the Tribunal and that it could not be extended to matters over which the Tribunal has no jurisdiction even though the matters may incidentally be affected by the outcome of the appeal. Therefore it held that a prayer for stay of prosecution of a show casue notice would have to be made by resort to other remedies and only after the notice and replies thereon reach a conclusion.
Pr CIT v ITAT (Civil Writ Petition No.15239 of 2015) – TS-679-HC-2015 (P&H)

Transfer

250. The Apex Court held that collaboration agreement for land development would be covered under the ambit of transfer under section 269UA of the Act. It rejected assessee’s contention that since the collaboration agreement does not purport transfer of land, section 269UA had no application. Observing that possessory rights were granted to the assessee to construct buildings on the land, It held that transfer was defined to include within its scope agreement which have the effect of transferring all the important rights in land for future considerations.
Unitech Ltd v UOI – TS-639-SC-2015

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Disclaimer: The contents of this document are solely for informational purpose. It does not constitute professional advice or a formal recommendation. While due care has been taken in preparing this document, the existence of mistakes and omissions herein is not ruled out. Neither the author nor itatonline.org and its affiliates accepts any liabilities for any loss or damage of any kind arising out of any inaccurate or incomplete information in this document nor for any actions taken in reliance thereon. No part of this document should be distributed or copied (except for personal, non-commercial use) without express written permission of itatonline.org