ITR'S TRIBUNAL TAX REPORTS (ITR (TRIB)) -- PRINT AND ONLINE EDITION
SUBJECT INDEX TO CASES REPORTED
Appeal --Powers of appellate authorities--Power to consider claim not made in return or revised return--Claim disallowed in assessment year 2002-03 only on ground that project had become operational in next year--Claim to be considered in assessment year 2003-04--Matter remanded-- Merck Ltd. v. Deputy CIT (Mumbai) . . . 629
----Powers of appellate authorities--Power to consider claim not made in return or revised return--Sale taking place in assessment year 2003-04 and claim disallowed for assessment year 2002-03--Claim made in assessment year 2003-04 by way of additional ground before Commissioner (Appeals) disallowed--Legal claim and facts on record--Appellate Tribunal--Claim to be allowed in this year-- Merck Ltd. v. Deputy CIT (Mumbai) . . . 629
Bad debt --Condition precedent for allowance--Debt actually written off in books of account--Whether assessee produced evidence to show that debts taken into account in computing income of earlier year to be verified--Matter remanded--Income-tax Act, 1961, s. 36(1)(vii)-- Merck Ltd. v. Deputy CIT (Mumbai) . . . 629
Business expenditure --Disallowance--Payments liable to deduction of tax at source--Tax deposited after close of accounting year--Deduction to be allowed in following year--Income-tax Act, 1961, s. 40(a)(i)-- Merck Ltd. v. Deputy CIT (Mumbai) . . . 629
----Discount and commission--No quantitative details or supporting evidence filed to prove genuineness of expenses--Ad hoc disallowance not proper--Assessing Officer to compute disallowance on objective basis on basis of material on record--On facts, disallowance reasonable-- Merck Ltd. v. Deputy CIT (Mumbai) . . . 629
----Expenditure incurred on account of advances to suppliers of samples written off--Assessee not able to demonstrate and support his arguments with documentary proof--Matter remanded--Income-tax Act, 1961, s. 37(1)-- IKEA Trading (India) P. Ltd. v. Deputy CIT (Delhi) . . . 683
----Pharmaceutical company--Free samples and physician’s samples distributed for promoting sale--Burden on assessee to prove that expenditure incurred wholly and exclusively for purpose of business--Failure by assessee to file names and addresses of persons, physicians or doctors to whom free samples given--Volume of transactions not good reason for failure--That no disallowance made in earlier years not ground to seek relief in subsequent year--Claim found not genuine--Matter remanded for examination afresh-- Merck Ltd. v. Deputy CIT (Mumbai) . . . 629
----Sales promotion expenses--Failure by assessee to file full details--Estimated disallowance--Claim for current year lower compared to preceding year, in which claim allowed fully--No material to show that claim excessive--Claim to be fully allowed-- Merck Ltd. v. Deputy CIT (Mumbai) . . . 629
----Travelling, conveyance and vehicle expenses--Estimated disallowance in absence of full details and evidence--Justified--However estimate must be on objective basis--No material to show that claim excessive--Disallowance not justified-- Merck Ltd. v. Deputy CIT (Mumbai) . . . 629
Capital or revenue expenditure --Expenditure incurred on repair and maintenance of rented building--Expenses for maintenance and upkeep of leased premises for use as office premises and for expatriate employees, for pest control, annual maintenance contract for electrical fittings--Of revenue nature--Specific bills and vouchers to be considered--Matter remanded--Income-tax Act, 1961, s. 32-- IKEA Trading (India) P. Ltd. v. Deputy CIT (Delhi) . . . 683
Export --Industrial undertaking--Special deduction--Assessee eligible for deduction under sections 80-IB and 80HHC--Profit allowed as deduction under section 80-IA not to be reduced from profits of business while computing deduction under section 80HHC--Income-tax Act, 1961, ss. 80HHC, 80-IB-- Merck Ltd. v. Deputy CIT (Mumbai) . . . 629
----Special deduction--Deduction of 90 per cent. of receipts by way of brokerage, commission, interest, rent charges or other receipts of similar nature--Write back of loss on revaluation of assets--No actual receipt--Provision not applicable--Amount already assessed as business income and fully eligible for deduction--Income-tax Act, 1961, s. 80HHC-- Merck Ltd. v. Deputy CIT (Mumbai) . . . 629
----Special deduction--Profits of business--Interest on deposits and export incentive and indenting commission--90 per cent. of net receipts to be reduced from profits of business--Interest on delayed payment received from customers--Arises from business operations--Not to be reduced under Explanation (baa) --Insurance claim--Integral part of income arising from business operations--Not to be reduced under Explanation (baa) --Income from instruments service, a maintenance contract in relation to equipment sold by assessee--Integral part of business operations and not to be reduced under Explanation (baa) --Income from scrap sales, sundry sales and cash discount integral part of business operations and not to be reduced under Explanation (baa) --Other sums to be reduced at rate of 90 per cent. after excluding expenses--Income-tax Act, 1961, s. 80HHC, Expln. (baa) -- Merck Ltd. v. Deputy CIT (Mumbai) . . . 629
----Special deduction--Profits--Interest on income-tax refund is income from other sources and to be excluded from profits of business--Interest on fixed deposits--Only net income after deducting expenses to be excluded from profits of business--Income-tax Act, 1961, s. 80HHC-- Merck Ltd. v. Deputy CIT (Mumbai) . . . 629
Industrial undertaking --Special deduction--DEPB entitlement--Not derived from business of undertaking--Disallowance proper--Income-tax Act, 1961, s. 80-IB-- Merck Ltd. v. Deputy CIT (Mumbai) . . . 629
International transactions --Arm’s length price--Transactional net margin method--Import of raw material from associated enterprise at higher rate than that at which other purchased--Quality of product has influence on pricing--Additional evidence filed by assessee to show superior quality of assessee’s product to be admitted and matter remanded for consideration afresh--Commission earned by assessee on sale of products by associated enterprises directly to third parties in India--Transfer pricing adjustment on basis of margin of 16 per cent. in respect of third party trading--Comparison of margin of pigment segment with non-associated enterprises segment which did not deal with pigment not proper--Anti-dumping duty levied in respect of pigments imported by assessee showed that associated enterprises was selling pigment to assessee at a lower price--Sufficient material to show low margin in case of pigment not because of high import price but because of low selling price in domestic market--Transfer pricing adjustment liable to be set aside--Technical know-how fees paid by assessee to parent company in Germany--Technical consultancy agreement listing twelve services in relation to which assessee was to receive assistance from parent company--Services rendered only under three heads in year--Fees in respect of each service not fixed nor each service compulsorily required to be provided to assessee--Assessee entitled to any of services as and when required--Applying comparable uncontrolled price method to service not availed of by assessee during year not justified--Disallowance of expenses not justified--Income-tax Rules, 1962, r. 10B(2)(d)-- Merck Ltd. v. Deputy CIT (Mumbai) . . . 629
Loss --Sale of current investments--No details submitted by assessee--Statement filed before Commissioner (Appeals)--Matter remanded to Assessing Officer for passing a fresh order after necessary verification-- Merck Ltd. v. Deputy CIT (Mumbai) . . . 629
Method of accounting --Valuation of purchase and sale of goods and inventory--To be made in accordance with method of accounting regularly employed by assessee--Adjustment on account of tax, duty etc. to be made not only to closing stock but also in purchases, sales and opening stock--Income-tax Act, 1961, s. 145A-- Merck Ltd. v. Deputy CIT (Mumbai) . . . 629
Volume 32 : Part 1 (Issue dated : 2-6-2014)
SUBJECT INDEX TO CASES REPORTED
Appeal to Appellate Tribunal --Power to admit new ground--Sales accepted in accordance with details furnished by assessee before Commissioner (Appeals)--Claim that sales to A should be excluded--Ground neither arising from order of Assessing Officer nor from order of Commissioner (Appeals)--Could not be considered-- Alcatel-Lucent France v. Assistant DIT (Delhi) . . . 1
Business expenditure --Deduction only on actual payment--Service tax--Expenditure can be disallowed only if claim is shown in profit and loss account--Matter remanded--Income-tax Act, 1961, s. 43B-- TNS India P. Ltd. v. Assistant CIT (Hyderabad) . . . 44
----Travelling expenditure--Expenditure wholly and exclusively for purpose of business not to be disallowed merely because assessee’s income or turnover reduced thereby--Finding that assessee produced audited books of account before Assessing Officer and expenses allowable--Justified--Income-tax Act, 1961, s. 37-- Deputy CIT v. Birla Soft India Ltd. (Delhi) . . . 117
Business loss --Carry forward and set off--Exemption--Export of computer software--Assessee carrying out software development and related services from undertakings entitled to exemption under section 10A of Act and other units--Set off of losses arising out of section 10A units against income of other undertakings and carry forward of unabsorbed losses and depreciation--Permissible--Income-tax Act, 1961, s. 10A-- Deputy CIT v. Birla Soft India Ltd. (Delhi) . . . 117
Capital or revenue expenditure --Expenditure incurred on purchase of photo sets--Assessing Officer allowing depreciation--Inability to determine nature of expenditure due to conflicting findings--Depreciation allowable for balance years for life of asset--Income-tax Act, 1961-- TNS India P. Ltd. v. Assistant CIT (Hyderabad) . . . 44
----Royalty expenses--Revenue in nature--Income-tax Act, 1961-- ITO v. Cryobanks International (I) P. Ltd. (Delhi) . . . 31
Depreciation --Rate of depreciation--Computer peripherals--Depreciation allowable at 60 per cent.--Income-tax Act, 1961-- Hyper Quality India P. Ltd. v. Assistant CIT (Delhi) . . . 37
----Rate of depreciation--Computer peripherals--Depreciation allowable at 60 per cent.--Income-tax Act, 1961, s. 32-- Deputy CIT v. Birla Soft India Ltd. (Delhi) . . . 117
----Rate of depreciation--Depreciation at 60 per cent. allowable for computer peripherals--Income-tax Act, 1961-- ITO v. Cryobanks International (I) P. Ltd. (Delhi) . . . 31
Double taxation relief --Credit for tax paid in foreign country--Taxable income of assessee increasing on account of additions--Enhanced credit of taxes paid in foreign country to be granted--Income-tax Act, 1961, s. 90--Double Taxation Avoidance Agreement between India and Australia, art. 24(4)-- Deputy CIT v. Birla Soft India Ltd. (Delhi) . . . 117
Exemption --Export of computer software--Eligible profits--Notice pay recovered from employees--To be treated as income derived from eligible undertaking--Deduction allowable--Income-tax Act, 1961, s. 10A-- Deputy CIT v. Birla Soft India Ltd. (Delhi) . . . 117
----Export of computer software--Undertaking set up in 1995 with approval of Software Technology Parks of India--In 1999, as a result of new equity participation in parent company new independent unit set up for rendering software services to new client base--New undertaking obtaining separate approval of Software Technology Parks of India--Substantial fresh capital invested and new unit capable of doing business of its own, independent of old unit--Two undertakings to be treated as separate--Income-tax Act, 1961, s. 10A-- Deputy CIT v. Birla Soft India Ltd . (Delhi) . . . 117
Export --Special deduction--Export of computer software--Assessee engaged in export of data processing entitled to deduction--Income-tax Act, 1961, s. 80HHE.-- TNS India P. Ltd. v. Assistant CIT (Hyderabad) . . . 44
International transactions --Arm’s length price--Assessee bound to adopt one of prescribed methods--Holding company providing support services which benefitted assessee and group companies--Allocation of costs--Transfer Pricing Officer not entitled to take arm’s length price of transaction at nil and add entire payment made by assessee to its associated enterprise as adjustment to arm’s length price--Assessee not choosing any method prescribed under rules for benchmarking payment of management fee on ground it was only cost allocation--Reference by Transfer Pricing Officer and Dispute Resolution Panel to services not rendered by assessee to its associated enterprise--No proper application of mind to documentation and evidence filed by assessee--Evidence to be linked with invoices to show nature of services rendered--Order of Assessing Officer set aside and determination of arm’s length price remanded to Transfer Pricing Officer for fresh consideration--Income-tax Act, 1961, s. 92CA-- Quintiles Research (India) P. Ltd. v. Deputy CIT (Bangalore) . . . 73
----Arm’s length price--Determination--Assessee providing software development and related services to holding company incorporated in U. S. A. from several units--Assessee employing internal transactional net margin method--Finding that terms and conditions for rendering services governed by one single agreement between assessee and foreign holding company--Unity of business, administrative control and unity of funds--Independent functions, assets and risk analysis of each unit with existing comparables practically not possible--Software related services rendered from each of its units to same two associated enterprises under a single agreement on continuous basis--Services of similar nature--To be combined and evaluated--Benchmarking of transactions to be aggregated at entity level and not at unit level--Income-tax Act, 1961, s. 92CA(3)-- Deputy CIT v. Birla Soft India Ltd. (Delhi) . . . 117
----Arm’s length price--Determination--Profit level indicator--Payment of management fee--Profit level indicator higher than comparables even after considering payment of management fee--Transactions at arm’s length--Denial of management fee not proper--Income-tax Act, 1961-- TNS India P. Ltd. v. Assistant CIT (Hyderabad) . . . 44
----Arm’s length price--Pricing methodology--Transfer Pricing Officer failing to examine whether payment of fee made according to agreement--Assessing Officer to verify pricing methodology--Matter remanded--Income-tax Act, 1961-- TNS India P. Ltd. v. Assistant CIT (Hyderabad) . . . 44
----Transfer Pricing Officer--Scope of powers--Restricted to determination of arm’s length price--Payment by assessee for management services provided by group entity--Transfer Pricing Officer has no jurisdiction to question business decision of assessee to make payment--Income-tax Act, 1961, s. 92C-- TNS India P. Ltd. v. Assistant CIT (Hyderabad) . . . 44
----Transfer pricing--Computation of arm’s length price--Transactional net margin method--Profit split method--Associated enterprises continuously sustaining loss--Functions performed, assets employed and risk assumed not properly evaluated--No proper justification for application of transactional net margin method and rejection of profit split method--Addition made to be deleted--Income-tax Act, 1961-- Hyper Quality India P. Ltd. v. Assistant CIT (Delhi) . . . 37
Non-resident --Advance tax--Interest--Assessee’s claim that receipts not taxable in India--Possibility that it might have instructed payer not to deduct tax at source--Not entitled to claim that since income liable to deduction of tax at source, it was not liable for interest--Income-tax Act, 1961, ss. 195, 234B-- Alcatel-Lucent France v. Assistant DIT (Delhi) . . . 1
----Royalty--Revenue received on account of supply of software--Receipts from supply of equipment including hardware and software to be taxed as business profits in accordance with article 7 of the Double Taxation Avoidance Agreement--Income-tax Act, 1961, s. 9(1)(vi)-- Alcatel-Lucent France v. Assistant DIT (Delhi) . . . 1
----Taxability in India--Failure to furnish details of revenue received from India but providing good faith estimate for aggregate supplies invoiced to India--Assessing Officer estimating assessee’s revenue in India--Should have allowed opportunity to assessee--Assessee furnishing complete details of sales in India before Commissioner (Appeals)--Commissioner (Appeals) admitting as additional evidence and allowing opportunity to Assessing Officer to verify it--No discrepancy found in details of sales in India--Direction to Assessing Officer to accept assessee’s sales figure--No infirmity--Income-tax Rules, 1962, r. 46A-- Alcatel-Lucent France v. Assistant DIT (Delhi) . . . 1
Penalty --Concealment of income or furnishing of inaccurate particulars--Disallowance of amount under transfer pricing provisions--Only a difference of opinion in determining arms length price-- Not a case of concealment of income or furnishing of inaccurate particulars--Income-tax Act, 1961, s. 271(1)(c)-- TNS India P. Ltd. v. Assistant CIT (Hyderabad) . . . 44
----Loans or deposits exceeding specific limits in cash--Firm--Not separate independent legal entity from partners--Withdrawal from capital account and deposit of cash in capital account--Not a case of loan--Penalty cannot be levied--Income-tax Act, 1961, ss. 269T, 271E-- Deputy CIT v. Chetan M. Kakaria (Mumbai) . . . 24
Scientific research and development --Special deduction--Condition as to existence of infrastructure--No requirement that assessee should own it--Contract research organisation--Eligible to claim deduction--Approval granted by prescribed authority fully conscious that assessee a contract research organisation--Assessing Officer not entitled to go behind approval--Income-tax Act, 1961, s. 80-IB(8A)--Income-tax Rules, 1962, rr. 18D, 18DA-- Quintiles Research (India) P. Ltd. v. Deputy CIT (Bangalore) . . . 73
SECTIONWISE INDEX TO CASES REPORTED IN THIS PART
Double Taxation Avoidance Agreement between India and Australia
Art. 24(4) --Double taxation relief--Credit for tax paid in foreign country--Taxable income of assessee increasing on account of additions--Enhanced credit of taxes paid in foreign country to be granted-- Deputy CIT v. Birla Soft India Ltd. (Delhi) . . . 117
S. 9(1)(vi) --Non-resident--Royalty--Revenue received on account of supply of software--Receipts from supply of equipment including hardware and software to be taxed as business profits in accordance with article 7 of the Double Taxation Avoidance Agreement-- Alcatel-Lucent France v. Assistant DIT (Delhi) . . . 1
S. 10A --Exemption--Export of computer software--Undertaking set up in 1995 with approval of Software Technology Parks of India--In 1999, as a result of new equity participation in parent company new independent unit set up for rendering software services to new client base--New undertaking obtaining separate approval of Software Technology Parks of India--Substantial fresh capital invested and new unit capable of doing business of its own, independent of old unit--Two undertakings to be treated as separate-- Deputy CIT v. Birla Soft India Ltd . (Delhi) . . . 117
----Business loss--Carry forward and set off--Exemption--Export of computer software--Assessee carrying out software development and related services from undertakings entitled to exemption under section 10A of Act and other units--Set off of losses arising out of section 10A units against income of other undertakings and carry forward of unabsorbed losses and depreciation--Permissible-- Deputy CIT v. Birla Soft India Ltd. (Delhi) . . . 117
----Exemption--Export of computer software--Eligible profits--Notice pay recovered from employees--To be treated as income derived from eligible undertaking--Deduction allowable-- Deputy CIT v. Birla Soft India Ltd. (Delhi) . . . 117
S. 32 --Depreciation--Rate of depreciation--Computer peripherals--Depreciation allowable at 60 per cent.-- Deputy CIT v. Birla Soft India Ltd. (Delhi) . . . 117
S. 37 --Business expenditure--Travelling expenditure--Expenditure wholly and exclusively for purpose of business not to be disallowed merely because assessee’s income or turnover reduced thereby--Finding that assessee produced audited books of account before Assessing Officer and expenses allowable--Justified-- Deputy CIT v. Birla Soft India Ltd. (Delhi) . . . 117
S. 43B --Business expenditure--Deduction only on actual payment--Service tax--Expenditure can be disallowed only if claim is shown in profit and loss account--Matter remanded-- TNS India P. Ltd. v. Assistant CIT (Hyderabad) . . . 44
S. 80-IB(8A) --Scientific research and development--Special deduction--Condition as to existence of infrastructure--No requirement that assessee should own it--Contract research organisation--Eligible to claim deduction--Approval granted by prescribed authority fully conscious that assessee a contract research organisation--Assessing Officer not entitled to go behind approval-- Quintiles Research (India) P. Ltd. v. Deputy CIT (Bangalore) . . . 73
S. 80HHE --Export--Special deduction--Export of computer software--Assessee engaged in export of data processing entitled to deduction-- TNS India P. Ltd. v. Assistant CIT (Hyderabad) . . . 44
S. 90 --Double taxation relief--Credit for tax paid in foreign country--Taxable income of assessee increasing on account of additions--Enhanced credit of taxes paid in foreign country to be granted-- Deputy CIT v. Birla Soft India Ltd. (Delhi) . . . 117
S. 92C --International transactions--Transfer Pricing Officer--Scope of powers--Restricted to determination of arm’s length price--Payment by assessee for management services provided by group entity--Transfer Pricing Officer has no jurisdiction to question business decision of assessee to make payment-- TNS India P. Ltd. v. Assistant CIT (Hyderabad) . . . 44
S. 92CA --International transactions--Arm’s length price--Assessee bound to adopt one of prescribed methods--Holding company providing support services which benefitted assessee and group companies--Allocation of costs--Transfer Pricing Officer not entitled to take arm’s length price of transaction at nil and add entire payment made by assessee to its associated enterprise as adjustment to arm’s length price--Assessee not choosing any method prescribed under rules for benchmarking payment of management fee on ground it was only cost allocation--Reference by Transfer Pricing Officer and Dispute Resolution Panel to services not rendered by assessee to its associated enterprise--No proper application of mind to documentation and evidence filed by assessee--Evidence to be linked with invoices to show nature of services rendered--Order of Assessing Officer set aside and determination of arm’s length price remanded to Transfer Pricing Officer for fresh consideration-- Quintiles Research (India) P. Ltd. v. Deputy CIT (Bangalore) . . . 73
S. 92CA(3) --International transactions--Arm’s length price--Determination--Assessee providing software development and related services to holding company incorporated in U. S. A. from several units--Assessee employing internal transactional net margin method--Finding that terms and conditions for rendering services governed by one single agreement between assessee and foreign holding company--Unity of business, administrative control and unity of funds--Independent functions, assets and risk analysis of each unit with existing comparables practically not possible--Software related services rendered from each of its units to same two associated enterprises under a single agreement on continuous basis--Services of similar nature--To be combined and evaluated--Benchmarking of transactions to be aggregated at entity level and not at unit level-- Deputy CIT v. Birla Soft India Ltd. (Delhi) . . . 117
S. 195 --Non-resident--Advance tax--Interest--Assessee’s claim that receipts not taxable in India--Possibility that it might have instructed payer not to deduct tax at source--Not entitled to claim that since income liable to deduction of tax at source, it was not liable for interest-- Alcatel-Lucent France v. Assistant DIT (Delhi) . . . 1
S. 234B --Non-resident--Advance tax--Interest--Assessee’s claim that receipts not taxable in India--Possibility that it might have instructed payer not to deduct tax at source--Not entitled to claim that since income liable to deduction of tax at source, it was not liable for interest-- Alcatel-Lucent France v. Assistant DIT (Delhi) . . . 1
S. 269T --Penalty--Loans or deposits exceeding specific limits in cash--Firm--Not separate independent legal entity from partners--Withdrawal from capital account and deposit of cash in capital account--Not a case of loan--Penalty cannot be levied-- Deputy CIT v. Chetan M. Kakaria (Mumbai) . . . 24
S. 271(1)(c) --Penalty--Concealment of income or furnishing of inaccurate particulars--Disallowance of amount under transfer pricing provisions--Only a difference of opinion in determining arms length price-- Not a case of concealment of income or furnishing of inaccurate particulars-- TNS India P. Ltd. v. Assistant CIT (Hyderabad) . . . 44
S. 271E --Penalty--Loans or deposits exceeding specific limits in cash--Firm--Not separate independent legal entity from partners--Withdrawal from capital account and deposit of cash in capital account--Not a case of loan--Penalty cannot be levied-- Deputy CIT v. Chetan M. Kakaria (Mumbai) . . . 24
R. 18D --Scientific research and development--Special deduction--Condition as to existence of infrastructure--No requirement that assessee should own it--Contract research organisation--Eligible to claim deduction--Approval granted by prescribed authority fully conscious that assessee a contract research organisation--Assessing Officer not entitled to go behind approval-- Quintiles Research (India) P. Ltd. v. Deputy CIT (Bangalore) . . . 73
R. 18DA --Scientific research and development--Special deduction--Condition as to existence of infrastructure--No requirement that assessee should own it--Contract research organisation--Eligible to claim deduction--Approval granted by prescribed authority fully conscious that assessee a contract research organisation--Assessing Officer not entitled to go behind approval-- Quintiles Research (India) P. Ltd. v. Deputy CIT (Bangalore) . . . 73
R. 46A --Non-resident--Taxability in India--Failure to furnish details of revenue received from India but providing good faith estimate for aggregate supplies invoiced to India--Assessing Officer estimating assessee’s revenue in India--Should have allowed opportunity to assessee--Assessee furnishing complete details of sales in India before Commissioner (Appeals)--Commissioner (Appeals) admitting as additional evidence and allowing opportunity to Assessing Officer to verify it--No discrepancy found in details of sales in India--Direction to Assessing Officer to accept assessee’s sales figure--No infirmity-- Alcatel-Lucent France v. Assistant DIT (Delhi) . . . 1
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