Income Tax Appellate Tribunal - Ahmedabad
Hitachi Home & Life Solutions(I) ... vs Department Of Income Tax on 26 November, 2007
आयकर अपीलीय अिधकरण,
अिधकरण, अहमदाबाद Ûयायपीठ ''B'', अहमदाबाद ।
IN THE INCOME TAX APPELLATE TRIBUNAL AT AHMEDABAD,
"B" BENCH
सव[ौी डȣ.
डȣ.के.×यागी,
×यागी, Ûयाियक सदःय एवं ौी ए.के.गरोǑडया,
गरोǑडया, लेखा सदःय के सम¢ ।
BEFORE SHRI D.K. TYAGI, JUDICIAL MEMBER
AND
A.K. GARODIA, ACCOUNTANT MEMBER
ITA. No.2361 and 2362/Ahd/2008
[Asstt. Year : 2000-2001 and 2001-2002]
AND
ITA No.2881/Ahd/2007 With
CO No.304/Ahd/2007
[Asstt.Year : 2003-2004]
AND
ITA No.2363/Ahd/2008 With
CO No.176/Ahd/2008
[Asstt.Year : 2004-2005]
ACIT, Cir.4 बनाम/Vs. Hitachi Home and Life Solutions (India) Ltd.
Ahmedabad. 9th Floor, Abhijeet
Mithakhali Six Road
Ahmedabad.
(अपीलाथȸ / Appellant) (ू×यथȸ / Respondent)
राजःव कȧ ओर से/ :
Revenue by Shri O.P. Vaishnav, CIT-DR
4िनधा[ǐरती कȧ ओर से/ :
Assessee by Shri S.N. Soparkar with
Shri Vartik Chokshi
सुनवाई कȧ तारȣख/ : 3rd September, 2013
Date of Hearing
घोषणा कȧ तारȣख/ :
Date of Pronouncement 24.09.2013
आदे श / O R D E R
PER BENCH: Out of this bunch of appeals and COs, four appeals are
filed by the Revenue for the assessment years 2000-2001, 2001-2002,
ACIT Vs. Hitachi Home and Life Solutions (India) Ltd. (6 appeals)
2003-2004 and 2004-2005 and two COs are filed by the assessee for the
assessment years 2003-2004 and 2004-2005. Since some common issues
are involved, all these were heard together, and are being disposed of by
way of this common order for the sake of convenience.
2. First we take up the appeal of the Revenue for A.Y.2000-2001 i.e.
ITA No.2361/Ahd/2008. The Grounds raised by the Revenue are as under:
"1. The ld.CIT(A) has erred in law and on the facts of the case in
holding that the assessment should not have been made ex-parte
u/s.144.
2. The ld.CIT(A) has erred in law and on the facts of the case in
deleting the disallowance of Rs.7,18,64,900/- out of sales and
warranty commission.
3. The ld.CIT(A) has erred in law and on the facts of the case in
deleting the disallowance of Rs.19,40,400/- out of stores and spares,
Rs.76,68,400/- out of expenses on service operators and
Rs.88,10,800/- out of salary and wages and staff welfare expenses,
after admitting fresh evidence in violation of Rule 46A.
4. The ld.CIT(A) has erred in law and on the facts of the case in
deleting the addition of Rs.1,36,61,795/- being adjustment u/s.145A.
5. On the fact and in the circumstances of the case, the
ld.CIT(A) ought to have upheld the order of the AO.
6. It is, therefore, prayed that the order of the ld. CIT(A) maybe
cancelled and that of the AO maybe restored to the above effect."
3. The learned DR supported the assessment order. He also submitted
that no remand report was obtained by the learned CIT(A) and the details
filed by the assessee before the learned CIT(A) were not confronted to the
AO for his comments. As against this, the learned AR of the assessee
supported the order of the ld. CIT(A). He also submitted that ad hoc
disallowance was made by the AO, and hence, no detail is required to be
given for such ad hoc disallowance. He also submitted that the AO did not
ask for details at all, and hence, order of the CIT(A) should be confirmed.
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ACIT Vs. Hitachi Home and Life Solutions (India) Ltd. (6 appeals)
He also submitted that, if at all required, the matter may be restored back to
the file of the AO for limited purpose of verification.
4. We have considered rival submissions and perused the material on
record and gone through the orders of the authorities below. We find that
first ground is this that the CIT(A) should not have commented that the AO
should not have made the assessment ex parte under section 144 of the Act.
We feel that when all the issues on merit are decided by the CIT(A), and
also raised before us, we should decide the issues on merit, and no separate
adjudication is called for, regarding this finding of the CIT(A) that the AO
should not have made the assessment ex parte under section 144 of the Act.
5. Regarding ground no.2, we find that this issue was decided by the
ld.CIT(A) on this basis that this issue is covered in favour of the assessee
by the decision of the Bangalore Bench of the Tribunal rendered in the case
of IBM India Ltd. Vs. CIT, 290 ITR 183 (AT) (Bang). By now, this issue
is also covered by the judgment of the Hon'ble Apex Court rendered in the
case of Rotork Controls India P. Ltd v. Commissioner of Income-tax, 314
ITR 62 (SC). As per these judgments of the Hon'ble Apex Court rendered
in the case of Rotork Controls India P. Ltd (supra), it was held that the
provision made for incurring warranty expenses is allowable on provision
basis also, if such provision is made by the assessee on some scientific
basis. Before us, the assessee has not furnished details regarding the basis
of this provision. As per the judgment of the Hon'ble Apex Court, it was
held that the assessee-company should scrutinise the historical trend of
warranty provision made and the actual expenses incurred against it, and on
this basis, a sensible estimate should be made. In the present case, we feel
that the expenses provided for by the assessee in respect of warranty should
be allowed to the extent the provision is made on a scientific basis, as held
by the Hon'ble Apex Court in this judgment rendered in the case of Rotork
Controls India P. Ltd. (supra). Since these details are not available before
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ACIT Vs. Hitachi Home and Life Solutions (India) Ltd. (6 appeals)
us, and it was not examined by the authority below also, we feel it proper to
restore this matter back to the file of the learned CIT(A) for fresh decision
after examining the details, on the basis of which, the provision has been
made by the assessee, and if it is found that such provision was made on
scientific basis, as has been approved by the Hon'ble Apex Court, in the
judgement rendered in the case of Rotork Control India P. Ltd. (supra), then
no disallowance should be made out of this provision in respect of warranty
expenses. But if it is found that the provision is excessive, then such excess
provision, if any, should be disallowed. With these observations, we
restore this matter back to the file of the ld.CIT(A) for fresh decision. The
ground no.2 is allowed for statistical purpose.
6. Regarding ground no.3, it was submitted by the learned DR of the
Revenue that the decision of the learned CIT(A) is in violation of Rule 46A
of the Income Tax Rules, 1962. When we go through the orders of the
authority below, we find that it was observed by the AO at page no.8 of the
assessment order that nobody has attended in person before him, and except
one letter dated 26.11.2007, all letters were sent through despatch section.
He has also observed on the same page of the assessment order that as per
the notice under section 142(1), the assessee was required to furnish details
of expenditure incurred for rendering of services including
change/replacement of parts during the warranty period, but no compliance
has been made. Because of this non-compliance by the assessee, the AO
has made ad hoc 10% disallowance out of various expenses claimed by the
assessee under the head stores & spares, expenses on service operators, and
out of salary & wages and staff welfare expenses. This disallowance was
deleted by the CIT(A), on this basis that the assessee has submitted details
and break up of various expenses, as per enclosure to the statement of facts.
This goes to show that these details were submitted by the assessee for the
first time before the learned CIT(A), and the same were not submitted
before the AO. It is also seen that the ld.CIT(A) has not obtained any
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ACIT Vs. Hitachi Home and Life Solutions (India) Ltd. (6 appeals)
remand report from the AO in this regard. Hence, we are of the considered
opinion that this issue should go back to the file of the ld.CIT(A) for fresh
decision after obtaining remand report from the AO on this aspect.
Accordingly, we set aside the order of the CIT(A) on this issue, and restore
this issue back to his file for fresh decision after obtaining the remand
report from the AO, and after providing adequate opportunity of hearing to
both the sides. This ground of the Revenue is also allowed for statistical
purpose.
7. Regarding ground no.4, we find that this was decided by the learned
CIT(A) vide para 6.1 of his order, wherein it was held by him that addition
of this amount of Rs.1,36,61,795/- was made in assessment year 1999-2000
in respect of under valuation of closing stock, and therefore, the deduction
to that extent has to be allowed in the present by increasing the opening
stock of the present year. Considering these facts, we do not find any
reason to interfere in the order of ld. CIT(A) on this aspect. Accordingly,
the ground no.4 of the Revenue's appeal is rejected.
8. The ground nos.5 and 6 of the appeal of the Revenue are general in
nature, and no separate adjudication is called for.
9. In the result, the appeal of the Revenue is partly allowed for
statistical purpose.
10. We now take up the Revenue's appeal for asstt.year 2001-2002 i.e.
ITA No.2362/Ahd/2008.
11. The grounds raised by the Revenue in this year are as under:
"1. The ld.CIT(A) has erred in law and on the facts of the case in
holding that the assessment should not have been made ex-parte
u/s.144.
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ACIT Vs. Hitachi Home and Life Solutions (India) Ltd. (6 appeals)
2. The ld.CIT(A) has erred in law and on the facts of the case in
deleting the disallowance of Rs.9,45,75,000/- out of sales and
warranty commission.
3. The ld.CIT(A) has erred in law and on the facts of the case in
deleting the disallowance of Rs.91,73,700/- out of service operation
expenses and Rs.1,20,50,800/- out of salary and wages and staff
welfare expenses, after admitting fresh evidence in violation of Rule
46A.
4. The ld.CIT(A) has erred in law and on the facts of the case in
deleting the disallownace of Rs.14,94,000/- out of prior period
expenses.
5. The ld.CIT(A) ahs erred in law and on the facts in directing to
allow voluntary donation of Rs.50,000/- as business expenditure
u/s.37.
6. On the facts and in the circumstances of the case, the
ld.CIT(A) ought to have upheld the order of the AO.
7. It is, therefore, prayed that the order of the ld. CIT(A) maybe
cancelled and that of the AO maybe restored to the above effect."
12. It was agreed by both the sides that the ground nos.1, 2 and 3 are
identical to the grounds raised by the Revenue for A.Y.2000-2001, and the
same can be decided on similar line. In A.Y.2000-2001, we have held that
no separate adjudication is called for regarding the finding of the learned
CIT(A) that the AO should not have made the assessment ex parte under
section 144. Regarding Ground no.2 i.e. regarding the disallowance of
Rs.9,45,75,000/- out of sales and warranty commission, in A.Y.2000-2001,
we have restored back the issue to the file of the ld.CIT(A) for fresh
decision after procuring the details from the assessee regarding the basis of
making this provision, and if it is found that the provision is made on some
scientific basis, as has been approved by the Hon'ble Apex Court in the
judgment rendered in the case of Rotork Controls India P. Ltd. (supra), then
no disallowance is called for out of such provision, but if the provision
made by the assessee is excessive, then the disallowance should be
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ACIT Vs. Hitachi Home and Life Solutions (India) Ltd. (6 appeals)
restricted to such excessive amount only. Accordingly, in the present year
also, we restore this issue back to the learned CIT(A) for fresh decision on
similar line as per the decision on this issue in A.Y.2000-2001. The ground
no.2 of the Revenue is allowed for statistical purpose in the present year
also.
13. Regarding ground no.3, we have held in A.Y.2000-2001 that matter
should go back to the file of ld. CIT(A) for fresh decision after obtaining
remand report from the AO, and after providing adequate opportunity of
hearing to both the sides, because, the decision of the learned CIT(A) on
this issue is in violation of provision of Rule 46A of the I.T.Rules, 1962.
Accordingly, in the present year also, this issue is also restored to the file of
learned CIT(A) for fresh decision in line with our decision on this issue in
A.Y.2000-2001. This ground of the Revenue is also allowed for statistical
purpose.
14. For the ground no.4 of the Revenue in the present year, the learned
DR supported the assessment order, whereas the learned AR supported the
order of the learned CIT(A).
15. We have considered rival submissions. We find that it is observed
by the learned CIT(A) at page no.11 of his order that this request was also
made by the assessee before the AO that this expense, related to prior
period, should be either allowed in the present year or if it is not allowed in
the present year, then the same should be allowed in the earlier year, to
which such expenses are related to. He also noted that the AO has totally
ignored this aspect, although, he has passed the assessment order for the
preceding year i.e. A.Y.2000-2001 on the same date. We are of the
considered opinion that when there is no other objection of the AO,
regarding allowabililty of expenses relating to prior period, the same should
be allowed either in the present year or in the preceding year, to which such
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ACIT Vs. Hitachi Home and Life Solutions (India) Ltd. (6 appeals)
expenses are related to. The assessee has disclosed a loss of Rs.6,92,700/-
in the present year, and in A.Y.2000-2001, the assessee has filed return of
income disclosing NIL income after setting off of brought forward loss of
earlier years to the extent of Rs.303.11 lakhs. Hence, even if this expenses
are allowed in the earlier years i.e. A.Y. 2000-2001, it will ultimately be
adjusted in the present year, by way of set off of brought forward loss, and
therefore, it will make no difference even if deduction is allowed in the
present year. Hence, we feel that no interference is called for in the order
of the learned CIT(A) on this aspect. The ground no.4 of the Revenue is
rejected.
16. Regarding the ground no.5, the learned DR of the Revenue
supported the assessment order. The learned AR submitted that as per his
information, there is no plant of the assessee at Silvassa, and therefore, he is
not in a position to establish that any business purpose was served by
making this donation of Rs.50,000/- at Silvassa. Hence, on this issue, we
reverse the order of the learned CIT(A), and restore that of the AO. The
ground no.5 of the Revenue is allowed.
17. The ground nos.6 and 7 of the appeal of the Revenue are general in
nature, and no separate adjudication is called for.
18. In the result, the appeal of the Revenue is partly allowed.
19. Now we take up appeal of the Revenue for A.Y.2003-2004 i.e. ITA
No.2881/Ahd/2007.
20. The ground no.1 is as under:
"1. The ld.CIT(A) erred in law and on the facts of the case in
giving direction to allow employer's contribution of Rs.1,33,219/-
paid after the due date of concern act though the provision of 43B
was amended w.e.f. 1.4.2004."
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ACIT Vs. Hitachi Home and Life Solutions (India) Ltd. (6 appeals)
21. The learned DR of the Revenue supported the assessment order,
whereas, it is submitted by the learned AR of the assessee that this issue is
interconnected with the ground no.1 of the assessee's CO for the same
assessment year. He also submitted that the issue involved in the
Revenue's appeal is covered in favour of the assessee by the judgment of
the Hon'bnle Apex Court rendered in the case of Alom Extrusions, as
reported in 319 ITR 306 (SC). Regarding ground no.1 of the assessee's CO,
the learned AR submitted that this ground is not pressed, in view of
smallness of the amount, and accordingly, the ground no.1 of the CO of the
assessee is rejected.
23. The ground no.1 of the Revenue is also rejected because, this issue
regarding delayed payment of employer's contribution to PF is covered in
favour of the assessee by the judgment of the Hon'ble Apex Court rendered
in the case of Alom Extrusions (supra).
24. The ground no.2 of the Revenue is appeal is as under:
"2. The ld.CIT(A) erred in law and on the facts of the case in
giving direction to allow claim of Rs.35,15,610/- being old balance
written off. The assessee had written off only Rs.3,76,296/- in P&L
A/c. and remaining amount was set off against credit balanc3e
written off, though it was required to treat the allowability of sundry
credit balance written off as per section 41(1) and debit balance
written off as per section 36(1)(vii)."
25. The learned DR supported the assessment order, whereas, the
learned AR of the assessee supported the order of the learned CIT(A). He
also submitted that this issue is now covered in favour of the assessee by
the judgment of the Hon'ble apex Court rendered in the case of TRF Ltd.,
as reported in 323 ITR 397 (SC).
26. We have considered rival submissions, and since this issue is
squarely covered in favour of the assessee by the judgment of the Hon'ble
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ACIT Vs. Hitachi Home and Life Solutions (India) Ltd. (6 appeals)
Apex Court rendered in the cse of TRF Ltd. (supra), this ground of the
Revenue is rejected.
27. The ground no.3 of the Revenue is as under:
"3. The ld.CIT(A) erred in law and on the facts of the case in
giving direction to allow consultancy fees of Rs.11.66 lakhs in
A.Y.2003-04 and Rs.58.34 lacs in A.Y.2004-05, though assessee has
failed to establish that any services were rendered to it."
28. The learned DR supported the assessment order, whereas it was
submitted by the AR of the assessee that this issue is interconnected with
Ground no.2 raised by the assessee in the CO. He submitted that out of
total amount paid by the assessee of Rs.70 lakhs, the CIT(A) has allowed
deduction in the present year of only Rs.11.66 lakhs and the balance
amount of Rs.58.34 lakhs was disallowed by the ld.CIT(A). He submitted
that since entire amount was paid by the assessee in the present year, as per
the agreement executed in the present year, and the assessee is not eligible
to get any refund, even if the assessee terminates the agreement, the entire
amount should be allowed in the present year itself.
29. We have considered rival submissions, and we have gone through
the orders of the authorities below. As per the facts of the present case,
noted by the authorities below, the agreement was entered into by the
assessee for consultancy for consideration of Rs.70 lakhs on 21.1.2003 and
as per this agreement, entire amount was required to be paid in the present
year, and was paid by the assessee accordingly. But the agreement is for a
period of 12 months. Accordingly, the learned CIT(A) has allowed the
deduction to the extent of Rs.11.66 lakhs on proportionate basis, and it was
held by him that the balance amount of Rs.58.34 lakhs is allowable in the
next year i.e. A.Y.2004-2005. The entire amount was disallowed by the
AO on this reasoning that as per the recipient i.e. Equinox Brands Pvt. Ltd.,
only an amount of Rs.11.66 lakhs was declared as income by that party in
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ACIT Vs. Hitachi Home and Life Solutions (India) Ltd. (6 appeals)
the present year. We have also noted from the assessment order that one of
the directors of that company i.e. Shri Naishad Parikh was erstwhile MD of
the assessee-company. This is one of the objections of the AO that the
assessee neither explained the business expediency of the payment nor he
has provided any cogent evidence regarding the actual services rendered by
Equinox Brands P. Ltd. Before us, it was submitted by the AR of the
assessee that services were rendered in the form of consultancy, advisory
services etc. for which there cannot be any evidence in the form of any
paper etc., and therefore, this reasoning is not valid for making
disallowance. Regarding this aspect that only an amount of Rs.11.66 lakhs
was shown as income by the recipient, it was submitted before us by the
AR that the party has accounted for income on accrual basis, whereas the
assessee has claimed the entire amount as expenditure on this basis that
entire amount is spent in the present year itself and as per the agreement,
the assessee is not eligible for any refund, even in case of termination of the
agreement by the assessee. In our considered opinion, in the facts of the
present case, no interference is called for in the order of the learned CIT(A)
on this issue, because, it is not the case of the Revenue that this party is a
related party, and hence, it cannot be accepted that the assessee has entered
into this agreement and paid this amount to this party without obtaining any
services especially, when the assessee has incurred a loss of
Rs.32,87,13,169/- in the present year. Even after making various
adjustments, the income assessed by the AO is also at a loss and hence, it is
not acceptable that in the facts of the present case, this expense by the
assessee is bogus expense.
30. Regarding the argument that full amount to be allowed in the present
year, we feel that the ld.CIT(A) has allowed the proportionate amount of
Rs.11,66,670/- in the present year, and held that the balance amount is
allowable in the next year. We, therefore, confirm the order of the ld.
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ACIT Vs. Hitachi Home and Life Solutions (India) Ltd. (6 appeals)
CIT(A) on this issue, and accordingly, the ground no.3 of the Revenue and
the ground no.2 of the assessee's CO are rejected.
31. The ground no.4 of the Revenue's appeal is as under:
"1. The ld.CIT(A) erred in law and on the facts of the case in
giving direction to reduce inventory by Rs.3.70 crores being
provision for obsolescence of inventory though assessee itself has
added back the same in statement of income which was claimed
originally in P&L a/c. by it."
32. The learned DR supported the assessment order, and the AR
supported the order of the learned CIT(A).
33. We have considered rival submissions. We find that this issue was
decided by the learned CIT(A) on this basis that the assessee has claimed
this amount as per the normal practice of valuation of closing stock as per
the audited accounts and it is an omission on the part of the AO not to have
dealt with this issue. The ld.CIT(A) has directed the AO to allow the claim
of the assessee subject to the assessee furnishing the complete particulars in
this regard, if necessary, with adequate proof. Hence, in our considered
opinion, no interference is called for in the order of the ld.CIT(A) on this
issue, because he has taken proper care to ensure that all the details and
evidences are obtained and are examined by the AO and only thereafter,
deduction is to be allowed, if the assessee is able to establish before the AO
that such write off in respect of provision for obsolescence of inventory
claimed by the assessee is in line with the accepted method of valuation of
stock, i.e. at cost or market price, whichever is lower. Hence, this ground
no. 4 of the Revenue is also rejected.
34. The ground nos.5, 6, 7 and 8 of the Revenue's appeal are in relation
to various adjustments made by the AO in respect of Transfer Pricing as per
the order of the TPO, which has been deleted by the learned CIT(A).
Therefore, these grounds are decided together. Regarding this issue, the
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ACIT Vs. Hitachi Home and Life Solutions (India) Ltd. (6 appeals)
learned DR of the Revenue has furnished written submissions dated
7.12.2012, and the same are reproduced below for the sake of ready-
reference.
A. Addition on account of Royalty Payment:
A.I In this case addition was made by the TPO, after comparing
the rate of royalty paid by other associate enterprises with the rate
paid by the assessee, using internal comparable uncontrolled
transaction (CUP) method. In the TP analysis, the assessee did not
benchmark this transaction and submitted that the royalty rate is
comparable to the royalty payments in international market. It was
further submitted that the payment is approved by the RBI. These
arguments were rejected by the TPO.
A.2 In the TP analysis the assessee did not bring any documents
to justify its claim of the royalty rate being in consonance with the
international royalty rates. The onus for selecting the most
appropriate method and demonstrate the carrying out transactions at
arm's length price lies on the assessee. The same is fortified by the
judgement delivered in the case of Aztec Software & Technology
Services ltd Vs ACIT Cir.11 (1) (2007) 107 ITO 141 (Bang) (SB). The
relevant portion is reproduced below:
The burden is on the assessee to select the most appropriate
method (MAM). This decision of selecting MAM is to he
substantiated by the assessee by an appropriate documentation as
well as by substantiating why a particular method is considered to
be best suited in the facts and circumstances of the international
transaction and as to how it provides the most reliable result of A
LP. Rule 10C(2) of the Income-tax Rules lays down the factors to
he considered in selection of MAM. [Para 121]....
Having regard to above statutory provisions, it is clear that hunter
to establish that international transaction was carried at ALP is on
the taxpayer. He has also to furnish comparable transactions,
apply appropriate method for determination of ALP and justify the
same by producing relevant material and documents before the
revenue authorities [para 127]
A.3 By failing to provide the appropriate documentation, the
bench marking carried out by the assessee is incorrect and flawed.
Further the claim that It131 approval is sufficient for treating it as
a Comparable uncontrolled transaction is also incorrect, as has
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ACIT Vs. Hitachi Home and Life Solutions (India) Ltd. (6 appeals)
been held in a series of judgements, as described below:
i. Custom's valuation has no relevance for the purposes of
Chapter X as both are file different purposes and different
criteria are used (Para 37). Panasonic India P. ltd. 43 SOT
68(Del)
ii. The contention that according to the permission granted by
the Reserve flank of India under the FERA, the assessee
cannot charge more than particular price, can also not
control the provisions of the Act, which provides for taxing the
income as per the said provision or computation of income,
having regard to arm's length price in any international
transaction, as defined.(Para 54). Coca Cola India Inc. Vs
ACIT 309 ITR 194.
iii. ........ We are. of the view that the Tribunal is not correct in
observing that since the permission is given by the Reserve
Bank of India, the reasonableness and genuineness of the
expenditure could not have been gone into by the Assessing
Officer. The purpose for which such permission is given by the
RBI is totally different. The RBI is only concerned with the
foreign exchange and. therefore, would look into the matter
from that point of view. The RBI, at the time of giving such
permission would not keep in mind the provisions of the
Income-tax Act and that is the Function of the Income-tax
authorities and, therefore, they can validly go into such an
issue. (Para 15). CIT Vs Nestle India Ltd, 337 ITR 103 (Del).
v. Merely because another arm of the government considers the
price at an ALP (Customs evaluation), the 'A' cannot be
relieved of the burden of establishing that its price was at the
arm's length, under the IT Act. Serdia Pharmaceuticals (India)
P. Ltd., 44 SOT 391 (Mum)
v. "Furthermore, as rightly observed by the Id. CIT(A) RBI's
approval does not put a seal of approval on the trite character
of the transaction fume the perspective of transfer pricing
regulation as the substance of the transaction has to be judged
as to whether the transaction is at arm's length or not. " Perot
Systems TSI (India) Ltd Vs DCIT 37 SOT 358,
A.4 Thus the assessee did not benchmark the international
transaction properly and thus the TPO utilized the information
available with him for determining the ALP for which he
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ACIT Vs. Hitachi Home and Life Solutions (India) Ltd. (6 appeals)
utilized the royalty payments made by other associate
enterprises. In the absence of correct determination by the
assessee and insistence on incorrect position adopted by it the
TPO had no choice but to utilize the information available with
him. Such use of information is approved in the case of Aztec
technologics(Supra).
There would be cases, inhere taxpayer does not cooperate and
fails to furnish ALP or disclose furl/ information, relevant/or
determination of ALP when called upon to do so by tax
authorities. The taxpayer flails to discharge burden placed on
the taxpayer. In similar enactments of other countries, it is
provided that burden on the revenue authorities in such a case
would he reduced. We have not come across similar provision
in Chapter X of the Act. The tax authorities there/ore, have to
resort to provision of, section 144 of the Income-tax Act and
determine the ALP on the basis of the material collected or
available on record. In such circumstances. the ALP
determined would he on the parity with a best judgment
assessment. Such assessment (determination of ALP) would
have some approximations and estimations.[Para 134]
A.5 Since the assessee could not produce any comparable case,
the TPO could not find any external comparables, he resorted
to the use of internal comparables, even though controlled and
benchmarked the royalty payment. The use of controlled
transactions in the absence of any comparables is approved by
the Hon'ble Tribunal in the case of Bayer Materials Science
Pvt. Ltd., 46 SOT 46 (Mum)
A.6 As far as the contention of the assesses before the CIT
(A) that it had paid less royalty after taking out certain from
the calculation, it is seen that the CIT(A)deleted the addition
after observing that on the basis of the chart submitted by the
assessee, the royalty paid by it was less than the payment made
by the other associate enterprises. First of all the assessee did
not produce the royalty agreements entered into with other
entities for comparison and the basis, reason and calculation
of the deductions for assessee and others were not provided.
Thus the observation of the Id CIT(A) that the assessee had
demonstrated its royalty payment to be less is incorrect as was
it still unsubstantiated and the Id CIT(A) deleted the addition,
on the basis of the chart produced by (lie assessee, without
ascertaining the basis of the calculation or sending any report
to the AO/TPO.
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ACIT Vs. Hitachi Home and Life Solutions (India) Ltd. (6 appeals)
A.7 In addition to the above, in respect of royalty payments it is
absolutely important to know that the royalty is generally paid
as remuneration for the grant of intangibles such as licenses.
Technical know-how, technical assistance, trade market etc. by
one entity to the other. The reason for payment of royalty is to
compensate the entity developing the intangibles for the efforts
put in by it for the development of such intangibles. Since the
payment of royally is for the usage of such intangibles, the
calculation for payment of royalty should be such that it should
take into account the usage for the intangible assets provided
by the entity receiving royalty, the royally calculation cannot
and should not take into account the revenues earned by the
entity paying royalty, on account of its own efforts. Therefore,
in order to compare the royalty payments made by two
different entities, the most important aspect is to find out the
extent of value addition in the sale of product which mandates
the payment of royalty. Since different technologies, different
technical know-how for the manufacture of the products may
be involved in the royalty agreements: the royalty payment for
manufacturing is made as percentage of different sales base.
However it must be kept in mind that the relevant base should
be such which should best capture the value addition incurred
as a result of the use of intangibles.
A.7.1 The methods for calculation of such value addition vary
in different countries. The method for such calculation for
entities situated in India is prescribed by the Government
authorities and the basis of royalty calculation is net sales
subject' to taxes'. The phrase "Net sales subject to taxes" mean
that royalty is payable on net sales subject to withholding taxes
as applicable. Further the words "net sales" mean net ex
factory sale price of the product exclusive of excise duties
minus the cost of standard bought out components and landed
cost of imported components, irrespective of the source of
procurement including ocean freight, insurance, custom duties
etc. From the prescribed calculation it can be seen that the
value of sale of final product is reduced by the amount
corresponding to the products/services not utilizing the royalty
paid intangibles. Since the cost of standard bought Out
components and cost of imported goods have no role to play in
value addition to the final product on the basis of the
intangibles received through royalty agreement, the same are
reduced for calculating the appropriate base.
-16-
ACIT Vs. Hitachi Home and Life Solutions (India) Ltd. (6 appeals)
A.8 Therefore it is imperative that the royalty agreements
of the royalty payments made by other AEs be examined and
the basis and appropriateness of the calculation made by the
assessee is established. Since the Id CIT(A) has deleted the
addition without such examination, the deletion is unjustified.
It is pertinent to mention that merely by finding faults with the
benchmarking exercise being carried out by the TPO, the
benchmarking carried out by the assessee can't be accepted.
The appellate authorities are required to record a finding that
the benchmarking carried out by the assessee is correct before
deleting the addition. This proposition is enumerated by the
judgement delivered by the Hon'ble Tribunal in the case of
Aztec Software & Technology Services Ltd. Vs. ACIT Cir.11
(1) (2007) 107 ITO 141 (Bang) (SB). The relevant portion of
the same is reproduced below:
Having regard to the purpose of the legislation and
application of similar enactment world over, it must further be
held that adjustments made on account of ALP by tax
authorities can he deleted in appeal al only if the appellate
authorities are satisfied and record finding that ALP
submitted by the assessee is fair and reasonable. Merely
finding faults with the transfer price determined by the
revenue authorities (AO/TPO) addition on account of
'adjustments' cannot he deleted. This is because the mandate
of section 92(1) is that in every case of international
transaction, income has to be determined having regard to
ALP. Therefore, unless ALP furnished by the taxpayer is
specifically accepted, the appellate authorities on the basis of
material available on record have to determine ALP
themselves. Subject to statutory Provisions, appellate
authorities can direct lower revenue authorities to carne this
exercise in accordance with law. The matter cannot he left
hanging in between. ALP of international transaction has to
he determined in every case. [Para 133]"
A.9 In this case, as discussed above, the Id CIT(A) has
wrongly held that the benchmarking carried out by the
assessee is correct, without making appropriate examination of
the calculations submitted by the assesses. Thus it is prayed
that the appeal of the revenue related to the deletion of royalty
by the CIT'(A) be upheld.
B. Addition on account of Purchases
-17-
ACIT Vs. Hitachi Home and Life Solutions (India) Ltd. (6 appeals)
B.1I The assessee bench marked purchase transactions,
from associate enterprise using comparable uncontrolled
price (CUP ) method. In the proceeding, the TPO that the
assessee relied on single or at best two quotations for bench
marking. It was further observed that the same were
unsubstantiated and could not consider as representative of
price prevailing in the market. On this basis comparable
uncontrolled price method was rejected as the most
appropriate method and TNMM was considered as the most
appropriate method for bench marking the purchase
transactions. Comparable uncontrolled price method requires
very strict conditions of comparability as even the slight
difference in the conditions lead to huge difference in the
price: thus affecting the reliability of CUP method. In this
respect, reliance is placed on para 2.15 of OECD Transfer
Pricing Guidelines for multi-national enterprise and tax
administration July 2010.
It may be difficult to find a transaction between independent
enterprises that is similar enough to a controlled transaction
such that no difference have a material effect on price. For
example, a minor difference in the property transferred in
the controlled and uncontrolled transactions could
materially affect the price even though the nature of the
business activities undertaken mar be sufficiently similar to
generate the same overall profit margin.
B.2 Further, as per provisions of Rule 10 B(3)(i) the
comparability of the uncontrolled transactions is to be
examined in light of such differences which should not affect
the price in the open market. It is a common knowledge that the
factors such as volume of transaction, credit period, etc. affect
the price of the product in the market by obtaining quotations,
the effect of such factors is not quantified and ascertained.
Further, the assessee also did not provide any document to
substantiate that while obtaining the quotations, all such
factors were taken into account as per the requirement of Rule
10B(3) of the Act. As a result of the same, the use of CUP as
the most appropriate method is incorrect in this case. The
selection of the most appropriate method by the assessee is
incorrect and it is also important to note that the choice of
most appropriate method by the assesses is not an unfettered
right of the assessee. The same needs to be sustainable in law.
This proposition is held in following judgements:
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ACIT Vs. Hitachi Home and Life Solutions (India) Ltd. (6 appeals)
i. Coca Cola India Inc Vs. ACIT (2009) 177 TAXMAN 103
(Punj. & Har.)
..............The income arising from international transaction is
to be computed having regard to arm 's length price as per
guidelines laid down in section 92C by adopting one of the laid
clown methods, at the discretion of the competent authority.
Alert' fact that the assessee has chosen one of the said
methods, does not take away the discretion of t the competent
authority to select any other method which may be considered
to he more appropriate for the purpose of determining the true
income ................[Para 52]
SAP LABS India (P.) Ltd. vs ACIT [2011] SOT 156
ii.
(Bang.)
Section 92C of the Income-tax Act, 1961 - Transfer pricing -
Computation of unit arm's length price - Assessment year
2003-04 - Whether while determining ALP, shifting from one
method to another method in selection process of most
appropriate method is inherent in a transfer pricing case -
Held, yes
iii. Serdia Pharmaceuticals (India) (P.) Ltd vs ACIT [2011]
44 SOT 391 (Mum.)
Section 92C, read with section 92CA, of the Income-tax Act,
1961, and rule 10C of the Income-tax Rules, 1962 - transfer
pricing - Computation of arm's length price - Assessment years
2002-03 to 2004-05 - Whether in a situation where Assessing
Officer finds that selection of most appropriate method for
determining Arm's Length Price (ALP) by assessee is not
appropriate to all relevant 7bctors, he has powers and indeed
a corresponding duty to select most appropriate method, and
compute arm's length price by applying that method - held. yes
- Whether it is not necessary for Assessing Officer to
demonstrate ALP computed by assessee is not computed in
manner prescribed by regulations, so as to reject method
chosen by assessee - Held, Yes -Whether selection of most
appropriate method of computing arm's length Price is a
significant component of process of determining arm's length
price and assessee has to justify same on sound reasoning and
he cannot simply pick up any of specified method without
discharging onus of demonstrating that method so selected is
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ACIT Vs. Hitachi Home and Life Solutions (India) Ltd. (6 appeals)
indeed most appropriate to facts of case - Held, yes - Whether
once assessee places on record reasons for selecting a
particular method of determining arm's length price that
reasoning can be declined, though for cogent reasons, by
Transfer Pricing Officer, and that aspect of matter can be
challenged before appellate authorities - held, yes - Whether
therefore, it cannot be said that assessee has an unlettered
choice of choosing method for determination of ALP - held yes
B.3 As a result of the above discussion it becomes clear
that the assessee has incorrectly applied the most appropriate
method for bench marking the transactions related to payment
of purchases. In the TP proceedings, the TPO chose TNMM as
the most appropriate method for bench marking the purchase
payments since the assessee failed to provide the details about
the factors affecting the cost in open market and thus making
CUP as inappropriate method. As discussed above. in the case
of Aztec Software and Technology Service Ltd, the special
bench held that the burden for selection of most appropriate
method lies on the assesses. In this case the use of CPM (Cost
Plus method) and RPM (Resale Price method) is ruled out as it
does not involve the sale of products to the AE or simply
distribution of the products purchased from the AE. Further
since the assessee does not have substantial intangibles, the
use of PSM (Profit Split Method) is also ruled out. Thus the use
of TNMM is most appropriate in this case. The approach of the
TPO in making the selection of comparable uncontrolled
transaction method signifies the best possible approach. It is
also pertinent to mention here that transfer pricing is not an
exact science, it is an errand therefore the rigours should not
be applied very strictly. This proposition is supported by the
observation made by Hon'ble Tribunal for judgement in the
case of Mentor Graphics (Noida) (P.) Ltd. vs. Deputy
Commissioner of Income-tax, Circle 6(1), New Delhi [2007]
109 ITD 101 (DELHI). He relevant head note from the
judgement is reproduced below:
Whether 'transfer pricing' is not all exact science, evaluation
of transactions through which process of determination is
carried is an art where mathematical certainly is indeed not
possible and some approximation cannot be ruled out, yet it
has to be shown that analysis carried was 'judicial' and was
done after taking into account all relevant facts and
circumstances of case - Held, yes
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ACIT Vs. Hitachi Home and Life Solutions (India) Ltd. (6 appeals)
B.4 The Id. CIT(A) deleted the addition by observing that the
approach followed by the TPO is incorrect as there were
difference in the consumption of raw material as percentage of
sale liar the assessee and the comparables selected by the
TPO. the TPO compared the profits instead of cost of the items,
the arithmetical mean was used for determining the arms
length price and the difference in profit margin of the
comparable selected by the assessing officer was large.
B.4. In this respect, it is seen that transactional net margin
method (TNMM) is based on comparison of net margin earned
by the assessee in controlled transaction with the net margin
of similar comparable uncontrolled transactions. Therefore,
once the TNMM is found to be the most appropriate method,
the comparison is bound to be between the profit margin and
not on cost. Therefore the observation of the CIT(A) in this
regard that the TPO should have compared cost instead of
margin is misplaced. It is further seen that as per the
provisions of rule 10B(2) the comparability of transactions is
dependent on functions performed, assets utilised, and risks,
undertaken. In TNMM, the functions carried out by the
comparables are most important and in case the functions are
found to be comparable, the variations in different line
expenditures in the P & L account are not taken into account.
This is because in TNMM. profits are compared and the
individual effect of different expenditures of profit is less. As a
matter of fact because of this reason, transactional net margin
method is more resilient to even slight difference in the
functional profile. Reliance for this is placed on para 2.62 of
OECD guidelines 2010.
" One strength of the transactional net margin method
is that net profit indicators (e.g. return on assets, operating
income to sales, and possibly other measures of net profit) are
less affected by transactional differences than is the case with
price, as used in the CUP method. Net profit indicators also
may be he more tolerant to souse functional difference
between the controlled and uncontrolled transactions than
gross profit margins. Differences in the functions performed
between enterprises are often reflected in variations in
operating expenses. Consequently, this may lead to a wide
range of gross profit margins hill still broadly similar levels of
net operating profit indicators. In addition, in some countries
the lack clarity in the public data with respect to the
classification of expenses in the gross or operating profits may
-21-
ACIT Vs. Hitachi Home and Life Solutions (India) Ltd. (6 appeals)
make it difficult to evaluate the comparability of gross
margins, while the use of net profit indicators may avoid the
problem.
B.4.2 Therefore, the observation of the CIT(A) regarding
difference in the percentages of raw material vis-a-vis sales
being different in case of coin parables will not be a significant
determinant in the TNMM analysis.
B.4.3 The CIT(A) also observed that there was large
difference in the margin of comparables. In this respect, it is
again emphasized that the comparability is dependent upon
FAR analysis i.e. functions performed, assets utilized, and risks
undertaken. In case the entities are considered comparable on
these grounds, the fact that some of the comparables have very
low or very high margin does not in itself become a factor for
not considering those entities as comparable entities. This
proposition was upheld in the case of Exxon Mobil Co. India
Pvt. Ltd., 46 SOT 294 (Mum).
"33 ....
(xi)....... A general argument that you have to exclude units
which have high profit range, in case you exclude units have
made loss is a general submission which cannot he accepted,
In other words, as a general principle, both loss making unit
and high Profit making unit cannot be eliminated from the
comparables unless, there are specific reasons for
eliminating the same which is other than the general reason
that a comparable has incurred loss or has made abnormal
profits. Thus, this ground is dismissed''
B.4.4 Therefore, the observation of the CIT(A) regarding
large variation in the profits of the comparable is also not a
factor to assail the methodology adopted by the TPO.
B.4.5 The CIT (A) has observed that the TPO has taken
arithmetic mean of the profit margins of the comparables
which is incorrect. In this regard again it is seen that the
provisions of the proviso to section 92C(2) mandates the use
of arithmetic mean of the comparables for ascertaining the
ALP as shown below:
92C.......
-22-
ACIT Vs. Hitachi Home and Life Solutions (India) Ltd. (6 appeals)
(2) The most appropriate method referred to in sub-section (1)
shall be applied, for determination of arm's length price,
in the manner as may be prescribed:
[Provided that where more than one price is determined by
the most appropriate method the arm's length price shall be
taken to be the arithmetical mean of such prices.
Thus again the reliance of the CIT(A) on this issue for deletion
is also misplaced
B.5 It is also important to note that the assesses has not
disputed the selection of comparable made by the Transfer
Pricing Officer. Since the 1d. CIT(A) has deleted the additions
by placing mis-placed reliance on issues extraneous to
transactional net margin method and there is no dispute in
respect of the comparables selected by the TPO it is prayed
that the appeal of the revenue against appeals, the additions by
the CIT(A) may be upheld."
35. As against this, the learned AR of the assessee supported the order of
the learned CIT(A).
36. We have considered rival submissions and perused the material on
record, and gone through the orders of the authorities below. We find that
the issue regarding payment of royalty at the rate of 3.75% to the AE by the
assessee, as against the royalty at the rate of 3% by other group entities, it
was explained by the assessee before the AO that the royalty at 3.75% was
applied after reducing various expenses from ex-factory sale value of the
concerned products. It was also explained before the learned CIT(A) that if
the effective rate is considered, then the effective rate of royalty is less than
the royalty paid by other AEs to Hitachi Limited i.e. parent company. In
our considered opinion, only stated rate is not decisive and effective rate
has to be considered, and when the amount of royalty paid by the assessee
is considered with ex-factory sale value, without deducting various
expenses, such as dealer commission, special commission, warranty etc., as
has been noted by the learned CIT(A) at page no.4 of his order, then the
-23-
ACIT Vs. Hitachi Home and Life Solutions (India) Ltd. (6 appeals)
effective rate worked out is only 2.3% on sale, as against 3% paid by other
group entities. This finding of the fact given by learned CIT(A) could not
be controverted by the learned DR of the Revenue, and hence, on this
aspect, we hold that no interference is called for in the order of the learned
CIT(A), and accordingly, the ground no.5 of the Revenue is rejected.
37. Regarding purchase of components of Rs.13 crores, we find that the
TPO has decided the issue by adopting TNMM method, whereas the
assessee has adopted CUP method, as most appropriate method. The CUP
method was not accepted by the TPO on this basis that only one
comparable has been provided by the assessee and that too was
unsubstantiated and therefore cannot be considered as a representative of
price prevailing in the market. Before us, it was contended by the learned
AR that there is no requirement in law that comparable for the purpose of
CUP method should be necessarily more than one. As per Rule 10B, there
is no requirement that comparable un controlled transaction should
necessarily be more than one, because, as per rule 10B(1)(a)(i) it is
described that the price charged or paid for property transferred or services
provided in a comparable uncontrolled transaction, or a number of such
transactions, is identified. This very language of the clause in Rule 10B
clearly shows that comparable uncontrolled transactions may be one or
more than one. Hence, this objection of the TPO is not valid that because,
the assessee has adopted only one or at best two quotations, and therefore,
the same are not acceptable. But we find force in the objection that such
price as per quotation is not substantiated and hence cannot be considered
as a price being representative of prevailing market price. The price as per
quotation only not supported by reasonable amount of actual transaction
can be considered as a proposed price or indicative price but not actual
price. Therefore, it cannot be used as CUP. But at the same time, we feel
that no opportunity was provided to the assessee by making a specific query
as to whether this price as per quotation is supported by price of actual
-24-
ACIT Vs. Hitachi Home and Life Solutions (India) Ltd. (6 appeals)
transaction of a reasonable amount. Hence, we feel that this issue should
go back to the CIT(A) for a fresh decision. We set aside the order of the
ld.CIT(A) on this issue and restore the matter back to him for a fresh
decision. The burden is on the assessee to establish that such quotation
price is supported by price of actual transaction also. If the assessee is able
to establish that then such price should be accepted as CUP, otherwise, the
method adopted by TPO/AO should be adopted. Needless to say, adequate
opportunity of hearing be provided to both sides. Ground no.6 is allowed
for statistical purposes.
38. Regarding ground no.7, we find that this issue was decided by the
learned CIT(A) on this basis that the AO and the TPO have followed the
same basis and the reasoning for making the disallowance of depreciation,
as per which the addition in respect of purchase of raw-material was deleted
by the learned CIT(A). It was held that on the same basis and on same
reasoning, adjustments effected on capital cost of imported goods is also
not justifiable. Hence, this issue is also restored back to ld. CIT(A) for fesh
decision in line with decision on the issue as per ground no.6. Accordingly,
the ground no.7 of the Revenue is also allowed for statistical purpose.
39. The ground no.8 of the Revenue is as under:
"1. The ld.CIT(A) erred in law and on the facts of the case in
adjudicating issues decided by TPO in order passed by him
u/s.92CA(3) contrary to the decision given by Allahbabad high
Court in the case of CWT Vs. Dr.H. Rahman reported in 189 ITR
307 and ITAT Special Bench Delhi in the case of Promain Ltd. Vs.
DCIT, 95 TTJ 825 wherein it is held that CIT(A) can adjudicate
those issue which AO can decide. Since order passed by TPO is
binding on AO, the CIT(A) cannot adjudicate the issues decided by
TPO."
40. Regarding ground no.8 of the Revenue, we find that in this ground
the Revenue has disputed the power of the learned CIT(A) for adjudicating
the issue regarding the TP adjustments made by the AO as per the
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ACIT Vs. Hitachi Home and Life Solutions (India) Ltd. (6 appeals)
directions of the TPO, because, it is claimed by the Revenue that since the
AO is bound by the TPO's order, the CIT(A) cannot adjudicate the issue
decided by the TPO. We do not find any merit in these contentions of the
Revenue, because, as per section 246 of the IT Act, 1961, any assessment
order under section 143(3) is appealable order before the learned CIT(A),
and it is immaterial as to whether the decision taken by the AO in such
assessment, is as per the directions of the TPO or as per the directions of
the Joint Commissioner of Income Tax under section 144A, and therefore,
this ground of the Revenue is rejected.
41. The ground nos.9 and 10 are general and do not call for any separate
adjudication.
42. In the result, the appeal of the Revenue is partly allowed for
statistical purposes.
43. Now, we take up the CO filed by the assessee for A.Y.2003-2004 i.e.
CO No.304/Ahd/2007.
44. While deciding the appeal of the Revenue, we have already decided
the ground no.1 and 2 of the assessee's CO and both these grounds were
rejected. The ground no.3 of the CO is as under:
"3. In law and in the facts and circumstances of the respondent's
case, the learned CIT(A) has grossly erred in treating Ground No. 8
of the Respondents appeal reading as under as being too general and
in dismissing it as infructuous.
"8. In law and in the facts and circumstances of the
appellant's case, the order dated 23-3-2006 passed by the
learned TPO u/s. 92CA(3) is void and deserves to be
cancelled inter alia, for the reason that the learned TPO
has exceeded his jurisdiction (which was confined to his
having merely to determine the arm's length prices of the
goods and/or services purchased or sold by the appellant
from or to associated enterprises) and for the reason that
it has been passed without observing elementary
-26-
ACIT Vs. Hitachi Home and Life Solutions (India) Ltd. (6 appeals)
principles of natural justice and being such, it was not
open to the learned Assessing Officer to have regard to it
while computing the appellant's total income."
45. The learned AR of the assessee did not press this ground, and
accordingly this ground of the assessee's CO is also rejected.
46. The ground no.4 of the CO is as under:
"4. In law and in the facts and circumstances of the Respondent's
case, the learned CIT(A) has grossly erred in upholding the addition
of Rs. 9,48,408 made by the learned Assessing Officer on the basis of
the order of the Transfer Pricing Officer for an adjustment by way of
an addition on account of additional export value of that amount."
47. It was submitted by the learned AR of the assessee, in the course of
hearing before us that in view of the smallness of the amount, this ground is
also not pressed, and accordingly, this ground of the CO is also rejected as
not pressed.
48. In the result, the CO of the assessee is dismissed.
49. Now, we take up the appeal of the Revenue for A.Y.2004-2005 i.e.
ITA No.2363/Ahd/2008.
50. The grounds raised in this appeal are as under:
1. The Ld. CIT(A) has erred in law and on the facts of the case in
deleting the disallowance of Rs.2,08,015/- out of Royalty paid by
the assessee, as determined by the TPO in order passed u/s
92CA(3).
2. The Ld. CIT(A) has erred in law and on the facts of the case in
deleting the disallowance of Rs.3,39,48,000/- out of purchase of
raw materials and components from Associated Enterprises, as
determined by the TPO in the order passed u/s 92CA(3).
3. The Ld. CIT(A) has erred in law and on the facts of the case in
adjudicating issues decided by TPO in order passed by him u/s
92CA(3) contrary to the decision given by Allahabad High
Court in the case of CWT Vs. Dr. H.Rahman reported in 189
-27-
ACIT Vs. Hitachi Home and Life Solutions (India) Ltd. (6 appeals)
ITR 307 and ITAT special Bench Delhi in the case of Promain
Ltd. Vs. DCIT 95 TTJ 825 wherein it is held that CIT(A) can
adjudicate those issue which 4.0 can decide . Since order passed
by TPO is binding on A.O., the CIT(A) cannot adjudicate the
issues decided by TPO.
4. The Ld. CIT(A) has erred in law and on the facts in deleting the
disallowance of deduction of Rs.81,69,000/- on account of
provision for obsolescence of inventory.
5. The Ld. CIT(A) has erred in law and on the facts in deleting the
disallowance of warranty expenses of Rs.1,39,35,979/-.
6. The Ld. CIT(A) has erred in law and on the facts in directing the
A.0 to allow deduction of Rs.16,25,243/- on account of provision
for TDS on royalty in contravention to the judgment of the
Hon'ble Supreme Court in the case of Goetze(India) Ltd, 284
ITR 323.
7. On the facts and in the circumstances of the case, the Ld.CIT(A)
ought to have upheld the order of the Assessing Officer.
8. It is, therefore, prayed that the order of the Ld.CIT(A) may be
cancelled and that of the Assessing Officer may be restored to
the above effect.
51. It was agreed by both the sides that the ground nos.1, 2 and 4 are
identical to Ground no.5, 6 and 4 of the Revenue's appeal for A.Y.2003-
2004, and the same can be decided on similar line. In A.Y.2003-2004, we
have rejected two grounds of the Revenue in that year, i.e. ground no.5 and
4, in relation to disallowance out of royalty payment and in relation to
disallowance on account of provision for obsolescence of inventory, and on
the similar line, in the present year also, these two issues are decided in
favour of the assessee, and against the Revenue, on similar line. Ground
no.1 and 4 are rejected. For ground no.2, the matter is referred to the
CIT(A) for fresh decision with the same directions, as given in A.Y.2003-
2004 in relation to ground no.6 of that year.
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ACIT Vs. Hitachi Home and Life Solutions (India) Ltd. (6 appeals)
52. Regarding ground no.3 also, it was agreed by both the sides that this
ground is identical to ground no.8 raised by the Revenue in A.Y.2003-
2004, and the same can be decided on similar line. In that year, the ground
no.8 of the Revenue was rejected, and accordingly, in this present year also,
the ground no.3 raised by the Revenue is rejected.
53. Regarding ground no.5, both sides agreed that the issue is identical
to ground no.2 raised by the Revenue in A.Y.2000-2001 and 2001-2002,
and the same may be decided on similar line. While deciding the ground
no.2 in A.Y.2000-2001 and 2001-2002, the issue was restored by us to the
file of the learned CIT(A) for fresh decision after obtaining the details
regarding the basis for making provision in respect of warranty expenses
and if it is found that such provision is made on scientific basis, as has been
approved by the Hon'ble Apex Court in the case of Rotork Controls India
P. Ltd. (supra) then no disallowance is called for, but if provision made is
excessive, then such excessive amount should be disallowed. Accordingly,
in the present year also, this issue is also decided on similar line, and the
matter is restored to the file of the learned CIT(A) for fresh decision in line
with our directions given on this issue in A.Y.2000-2001 and 2001-2002,
and the ground no.5 of the Revenue is allowed for statistical purpose.
54. Regarding ground no.6, the learned DR supported the assessment
order, and the learned AR supported the order of the learned CIT(A).
55. We have considered rival submissions. We find that this issue was
decided by the learned CIT(A) at para no.13.2 of his order, which is
reproduced below for the sake of ready reference:
"13.2 I have considered the submissions of the A.R. carefully. The
A.R. has submitted that the appellant had made a wrong calculation
of royalty for the period from 1.4.2003 to 30.6.2003 and deducted
excess TDS and had paid the same. Therefore, the excess TDS to be
recovered from the Income tax Department was worked to be
-29-
ACIT Vs. Hitachi Home and Life Solutions (India) Ltd. (6 appeals)
Rs.16,25,243/- and the same was shown on the asset side of the
balance sheet. This amount was not debited to P & L account but the
appellant had wrongly disallowed the same in the statement of total
income and it was claimed as deduction before the A.O. but the A.O.
has not discussed the same in the assessment order and had not
allowed the deduction. The A.O. is directed to allow the same as
deduction."
56. From the above para of the order of the learned CIT(A), we find that
a clear finding is given by the learned CIT(A) that this amount of
Rs.16,25,243/- was shown on the assets side of the balance sheet, and the
amount was not debited to P&L account, but still the assessee has wrongly
disallowed the same in the statement of total income. Admittedly, the
claim of the assessee for excluding this amount before the AO could not be
accepted by him as per the judgment of the Hon'ble Apex Court rendered
in the case of Goetze (India) Ltd., 284 ITR 323, but as per this judgment of
the Hon'ble Apex Court, there is no restriction on learned CIT(A) or on the
Tribunal to admit such issue and decide the same on merit. In the present
case, no defect has been pointed out by the Revenue in the decision of the
learned CIT(A), and only contention raised is that, the decision is in
contravention of the judgment of the Hon'ble Apex Court rendered in the
case of Goetze (India) Ltd. (supra). In our considered opinion, this decision
of the learned CIT(A) is not in contravention of this judgment of the
Hon'ble Apex Court rendered in the cse of Geotze (India) Ltd., (supra), and
hence, we do not interfere in the order of the learned CIT(A) on this issue,
and this ground no.6 of the Revenue is rejected.
57. The ground nos.7 and 8 are general in nature and do not require any
separate adjudication.
58. In the result, the appeal of the Revenue is partly allowed for
statistical purpose.
-30-
ACIT Vs. Hitachi Home and Life Solutions (India) Ltd. (6 appeals)
59. We now take up the CO filed by the assessee for A.Y.2004-2005 i.e.
CO No.176/Ahd/2008.
60. The grounds raised are as under:
"1. On the facts and in the circumstances of the cse, the CIT(A)
erred in upholding the disallowance of shifting charges in a sum of
Rs.5,36,946/-
2. The respondent craves leave to add, alter, amend and/or
withdraw any ground or grounds of cross objections either before or
during the course of hearing of the same."
61. It was submitted by the learned AR of the assessee that there is only
one effective ground, and because of smallness of the amount, he did not
press this ground. Accordingly, this ground is rejected as not pressed.
62. In the result, the CO of the assessee is dismissed.
63. In combined result, four appeals of the Revenue are partly allowed
for statistical purpose, and both COs of the assessee are dismissed.
Order pronounced in Open Court on the date mentioned hereinabove.
Sd/- Sd/-
डȣ.
डȣ.के.×यागी/D.K.TYAGI)
(डȣ ×यागी (ए.के.गरोǑडया /A.K. GARODIA)
Ûयाियक सदःय /JUDICIAL MEMBER लेखा सदःय /ACCOUNTANT MEMBER
Copy of the order forwarded to:
1) : Appellant
2) : Respondent
3) : CIT(A)
4) : CIT concerned
5) : DR, ITAT.
BY ORDER
DR/AR, ITAT, AHMEDABAD -31-