Atlas Copco (India) Ltd., Pune V. Asst. Comm. of Income-tax, Pune

ITA 1677/PUN/2011

• Counselvise Citation: [2019] 116 COUNSELVISE.COM (IT) 4633 (ITAT-PUNE)
• Duration Of Justice: 7 year(s) 8 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-08-2019
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: C
• Next Hearing Date: 19-08-2019
• Assessment Year: 2007-2008
• Appeal Filed On: 27-12-2011
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Keywords: Depreciation; Transfer pricing; International transaction; Capital expenditure
• Section: 271(1)(c); 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH C, PUNE BEFORE SHRI R.S. SYAL, VICE PRESIDENT AND SHRI PARTHA SARATHI CHAUDHURY, JUDICIAL MEMBER . / ITA NO.1677/PUN/2011 / ASSESSMENT YEAR : 2007-08 ATLAS COPCO (INDIA) LIMITED, SVEANAGAR, DAPODI, PUNE 411 012 PAN : AAACA4074D VS. ACIT, CIRCLE-8, PUNE (APPELLANT) (RESPONDENT) / ORDER PER R.S.SYAL, VP : THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST THE FINAL ASSESSMENT ORDER DATED 30-09-2011 PASSED BY THE ASSESS ING OFFICER (AO) U/S.143(3) R.W.S.144C(13) OF THE INCOME-TAX ACT, 1961 (HEREINAFTER CALLED THE ACT) IN RELATION TO THE ASSESSMENT YE AR 2007-08. 2. THE ASSESSEE HAS RAISED THE FOLLOWING FIVE ADDITIONAL GROU NDS: VALIDITY OF THE ORDER PASSED U/S. 143(3) R.W.S 144 C OF THE INCOME- TAX ACT, 1961: ASSESSEE BY SHRI R. MURLIDHAR, ADVOCATE REVENUE BY SHRI M.K. GAUTAM, CIT-DR DATE OF HEARING 26-08-2019 DATE OF PRONOUNCEMENT 27-08-2019 ITA NO.1677/PUN/2011 ATLAS COPCO (INDIA) LIMITED 2 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE LEARNED ASSESSING OFFICER (LD. AO) ERRED IN PASSING THE DRAFT ASSESSMENT ORDER DATED SEPTEMBER 30, 2011 WITHOUT F OLLOWING THE MANDATE AS LAID DOWN UNDER SECTION 144C OF THE INCO ME-TAX ACT, 1961 (THE ACT). THE APPELLANT PRAYS THAT THE SAID DRAFT ASSESSMENT ORDER BE HELD AS VOID-AB-INITIO, BAD IN LAW AND ILLEGAL AND CONSE QUENTLY THE ENTIRE ASSESSMENT OUGHT TO BE QUASHED. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE LD. AO ERRED IN ISSUING A NOTICE UNDER SECTION 274 READ WITH SECTION 271(1)(C) OF THE ACT ALONG WITH THE SAID DR AFT ASSESSMENT ORDER, THEREBY NOT FOLLOWING THE MANDATE AS LAID DO WN UNDER SECTION 144C OF THE ACT. THE APPELLANT PRAYS THAT THE SAID DRAFT ASSESSMENT ORDER BE HELD AS VOID-AB-INITIO, BAD IN LAW AND ILLEGAL AND CONSE QUENTLY THE ENTIRE ASSESSMENT OUGHT TO BE QUASHED.' CLAIM OF EDUCATION CESS 3. THE APPELLANT PRAYS THAT THE LIABILITY FOR EDUCA TION CESS ON INCOME TAX PAID FOR THE YEAR OUGHT TO BE ALLOWED AS TAX DEDUCTIBLE EXPENSES WHILE COMPUTING THE TAXABLE INCOME. CONSEQUENTIAL CLAIM OF DEPRECIATION ON THE EXPENDIT URE OF PREMISES 4. CONSEQUENT TO THE DECISION OF HON'BLE ITAT IN TH E AY 2004-05, IN RELATION TO DISALLOWANCE OF EXPENDITURE OF PREMISES AMOUNTING TO RS.14,18,525, BEING 40% OF THE TOTAL E XPENDITURE INCURRED DURING THE YEAR, WHICH ARE HELD TO BE CAPI TAL IN NATURE FOR SUCH YEAR UNDER CONSIDERATION, I . E. AY 2004-05, THE APPELLANT PRAYS FOR ALLOWANCE OF THE DEPRECIATION ON THE SAME , IN THE SUBSEQUENT YEARS, INCLUDING AY 2007-08. 5. THE APPELLANT CRAVES LEAVE TO ADD, ALTER, MEND, SUBSTITUTE AND/OR MODIFY IN ANY MANNER WHATSOEVER ALL OR ANY O F THE FOREGOING ADDITIONAL GROUNDS OF APPEAL AT OR BEFORE THE HEARING OF THE APPEAL. 3. THE FIRST SET OF TWO ADDITIONAL GROUNDS ARE CHALLENGING THE VALIDITY OF ORDER PASSED U/S.143(3) R.W.S. 144C OF THE IN COME-TAX ACT, 1961 ON THE GROUND THAT THE DRAFT ASSESSMENT ORDER PA SSED BY ITA NO.1677/PUN/2011 ATLAS COPCO (INDIA) LIMITED 3 THE AO REFERRED TO THE INITIATION OF PENALTY U/S.271(1)(C). IT IS OBSERVED THAT SIMILAR ADDITIONAL GROUNDS WERE TAKEN UP BY THE ASSESSEE FOR THE A.Y. 2006-07 ALSO. VIDE ORDER DATED 2 1-08-2019, THE TRIBUNAL IN ITA NO.1470/PUN/2010 HAS DISMISSED SUCH ADDITIONAL GROUNDS BY NOTING THAT NO DEMAND NOTICE WAS DIRE CTED TO BE ISSUED BY THE AO PURSUANT TO THE DRAFT ORDER PASSED U/S .143(3) R.W.S.144C OF THE ACT AND HENCE THE SAME COULD NOT TREA TED AS A FINAL ASSESSMENT ORDER. FOLLOWING THE PRECEDENT, WE DISMISS THESE ADDITIONAL GROUNDS OF APPEAL. 4. THE NEXT ADDITIONAL GROUND IS AGAINST THE CLAIM OF EDUCATION CESS. BOTH THE SIDES ARE IN AGREEMENT THAT SIMILAR ISSUE HAS BEEN DECIDED BY THE TRIBUNAL IN THE ASSESSEES OWN CASE IN ITS FAVOUR FOR THE EARLIER YEARS INCLUDING THE AFORESAID ASSESSMENT YEAR 2 006-07. FOLLOWING THE SAME, WE DECIDE THIS ISSUE IN THE ASSESSEES F AVOUR BY HOLDING THAT EDUCATION CESS ON INCOME-TAX PAID SHOULD NOT BE DISALLOWED U/S.40(A)(II) OF THE ACT. 5. THE NEXT SET OF ADDITIONAL GROUNDS IS ON CLAIM OF DEPREC IATION TOWARDS EXPENDITURE ON PREMISES. SIMILAR ISSUE CAME UP TO BE CONSIDERED BY THE TRIBUNAL IN THE ASSESSEES OWN CASE FOR THE A.Y. 2006-07 BY HOLDING THAT THE AMOUNT OF EXPENDITURE ON PREMIS ES, ITA NO.1677/PUN/2011 ATLAS COPCO (INDIA) LIMITED 4 HELD TO BE CAPITAL IN NATURE, SHOULD BE SUBJECTED TO DEPRECIATION AS PER LAW. WE, THEREFORE, DIRECT TO GRANT DEPRECIATION TO THE A SSESSEE IN RESPECT OF EXPENDITURE ON PREMISES CAPITALIZED BY VIRTUE O F THE ORDERS PASSED BY THE TRIBUNAL FOR EARLIER ASSESSMENT YEAR S 2004-05 TO 2006-07. 6. THE FIRST EFFECTIVE ISSUE RAISED BY THE ASSESSEE IN ITS MEMORANDUM OF APPEAL IS AGAINST THE CONFIRMATION OF TRANSFER PRICING ADDITION IN RESPECT OF THE INTERNATIONAL TRANSACTION OF PAYMENT OF ROYALTY. 7. THIS ISSUE IS ALSO RECURRING IN NATURE. THE TRIBUNAL VIDE ITS ORDER DATED 22-07-2019 IN ITA NO.1303/PUN/2010 ETC. FOR TH E A.Y. 2004-05 HAS DECIDED IT IN ASSESSEES FAVOUR BY DELETING THE TRANSFER PRICING ADDITION ON ACCOUNT OF ROYALTY. SIMILAR VIEW HAS BEE N FOLLOWED IN ALL THE SUBSEQUENT YEARS UP TO THE YEAR UNDER CONSIDERATION. THE LD. DR COULD NOT POINT OUT ANY DISTINGUISH ING FEATURE IN THE FACTS FOR THIS YEAR VIS--VIS THE PRECEDING YEARS. FOLLOWING THE PRECEDENT, WE DIRECT TO DELETE THE TRANSFER PR ICING ADDITION IN RESPECT OF ROYALTY. ITA NO.1677/PUN/2011 ATLAS COPCO (INDIA) LIMITED 5 8. THE NEXT ADDITION ASSAILED IN THIS APPEAL IS AGAINST THE TRANSF ER PRICING ADDITION IN THE INTERNATIONAL TRANSACTION OF INDENTING COMMISSION. 9. HERE AGAIN, IT IS FOUND THAT THE TRANSFER PRICING OFFICER (TPO) PROPOSED THE TRANSFER PRICING ADDITION ON THE SIMILAR PATTERN A S WAS DONE FOR THE EARLIER YEARS. THE TRIBUNAL IN ITA NO.736/PUN /2011 VIDE ITS ORDER DATED 05-08-2019 FOR THE A.Y. 2005-06 CON SIDERED SUCH ISSUE AND DELETED THE ADDITION BY OBSERVING THAT MATERIA L COST AND DEPRECIATION COST ETC. WERE REQUIRED TO BE INCLUDED IN THE BASE OF TOTAL COSTS FOR THE PURPOSE OF COMPUTING THE ARMS LENG TH PRICE. THIS ORDER WAS BASED ON A CATEGORICAL FINDING RENDERED BY THE LD. CIT(A) ON PAGES 27 AND 28 OF HIS ORDER TO THE EFFECT TH AT IF MATERIAL COST AND DEPRECIATION ETC. ARE CONSIDERED IN THE COST BASE, THEN THE PRICE CHARGED BY THE ASSESSEE FALLS WITHIN +/-5% RANGE. I T IS FURTHER OBSERVED THAT SIMILAR ISSUE CAME UP FOR CONSIDERATION AGAIN BEFORE THE TRIBUNAL IN ITS ORDER FOR A.Y. 2006-07. SINCE THIS APPEA L CAME UP THROUGH THE ROUTE OF THE DISPUTE RESOLUTION PANEL IN WHICH TH ERE WAS NO SUCH CATEGORICAL FINDING ABOUT THE TRANSACTION BEING AT ARMS LENGTH PRICE OR NOT AS WAS THERE FOR THE A.Y. 2005-06, THE TRIBUNAL RESTORED THIS MATTER TO THE FILE OF AO/TPO FOR A FRESH ADJUDICATIO N. HOWEVER, FOR THE YEAR UNDER CONSIDERATION, IT IS OBSERVED FROM ITA NO.1677/PUN/2011 ATLAS COPCO (INDIA) LIMITED 6 PAGES 13 AND 20 OF THE TPOS ORDER THAT THE ASSESSEE SU BMITTED A DETAILED CALCULATION TO THE TPO BY CONSIDERING THE MATERIAL COST AN D DEPRECIATION COST IN THE BASE OF COSTS AND DEMONSTRATED THA T THE TRANSACTION WAS AT THE ALP. THE TPO DID NOT CONTROVERT SUCH A POSITION BUT WENT WITH HIS EARLIER VIEW THAT THESE COSTS WERE NOT REQUIRED TO BE CONSIDERED, WHICH VIEW HAS BEEN OVERTURNED BY THE TRIBUNAL FOR EARLIER YEARS. THUS, IT IS EVIDENT THAT THE FAC TS AND CIRCUMSTANCES OF THE INSTANT YEAR ARE SIMILAR TO THOSE OF THE A.Y. 2005-06. FOLLOWING THE PRECEDENT, WE ORDER TO DELETE THE ADD ITION. 10. THE NEXT GROUND ABOUT CAPITALIZATION OF SOFTWARE EXPENSE S WAS NOT PRESSED BY THE LD. AR BY CONCEDING THAT SUCH EXPENDITUR E SHOULD BE TREATED AS CAPITAL EXPENDITURE ON WHICH DEPRECIATION SHOULD BE ALLOWED. IT IS SEEN THAT THE AO HAS DONE THE SAME , NAMELY, CAPITALIZED THE EXPENDITURE AND THEN ALLOWED DEPRECIATIO N. IN VIEW OF THESE FACTS, THIS GROUND IS NOT ALLOWED. 11. THE NEXT GROUND IS AGAINST CAPITALIZATION OF EXPENDITURE O N THE PREMISES. HERE AGAIN, IT IS FOUND THAT THE FACTS AND CIRCUM STANCES OF THIS GROUND ARE MUTATIS MUTANDIS SIMILAR TO THOSE OF PRECEDING YEARS. THE TRIBUNAL FOR THE A.Y. 2006-07 AND EARLIER YEARS HAS UPHELD ITA NO.1677/PUN/2011 ATLAS COPCO (INDIA) LIMITED 7 CAPITALIZATION OF EXPENSES IN RELATION TO THE PREMISES AT 40%. FOLLOWING THE PRECEDENT, WE DIRECT ACCORDINGLY. 12. THE NEXT ISSUE IS ABOUT CONFIRMATION OF DISALLOWANCE AT 10 % OF MISCELLANEOUS EXPENSES. THE AO OBSERVED THAT THE ASSE SSEE CLAIMED DEDUCTION OF RS.14.31 CRORE WHICH INCLUDED SOFTWAR E DEVELOPMENT EXPENSES AND EXPENSES ON PREMISES. THOSE TWO ITEMS WERE SEPARATELY DEALT WITH BY HIM WHICH, WE HAVE ALSO SEP ARATELY ADJUDICATED IN EARLIER PARAS. THE REMAINING AMOUNT OF EXPE NDITURE TO THE TUNE OF RS.13.18 CRORE UNDER THE HEAD MISCELLANEOUS EXPENSES WAS NOT PROPERLY BACKED BY VOUCHERS AND BILLS. THE AO, THEREFORE, MADE ADDITION @10% AT RS.1,31,85,119/-. 13. HAVING HEARD BOTH THE SIDES AND GONE THROUGH THE RELE VANT MATERIAL ON RECORD, IT IS OBSERVED THAT THE AO HAS RECORDED A CATEGORICAL FINDING THAT THOUGH THE ENTIRE BILLS HAVE NOT BEEN PRODUCED FOR VERIFICATION AND THE REASONS FOR NON PRODU CTION WAS GIVEN THAT THE BILLS ARE IN HUGE VOLUME. HE, THEREFORE, PRO CEEDED TO MAKE DISALLOWANCE AT 10%. IT IS OBSERVED THAT SIMILAR ISSUE CAME UP FOR CONSIDERATION BEFORE THE TRIBUNAL IN THE ASSESSEES OWN CASE FOR THE PRECEDING YEAR AS WELL. IN THE IMMEDIATELY PR ECEDING YEAR, THE TRIBUNAL UPHELD THE DISALLOWANCE AT 10% OF SUCH EXPENSE S. ITA NO.1677/PUN/2011 ATLAS COPCO (INDIA) LIMITED 8 SINCE THE EXTENT OF DISALLOWANCE MADE BY THE AO ACCORDS WITH THAT UPHELD BY THE TRIBUNAL IN THE ASSESSEES OWN CASE FOR THE IMMEDIATELY PRECEDING YEAR, FOLLOWING THE SAME, WE UPHOLD THE ADDITION, MORE SPECIFICALLY BECAUSE OF THE UNCONTROVERTED FIN DING RETURNED BY THE AO THAT THE ENTIRE BILLS WERE NOT PRODUCED FOR VERIFICATION. THIS GROUND, THEREFORE, FAILS. 14. THE LAST GROUND OF THE APPEAL IS AGAINST THE ADDITION OF RS.81,54,289/- TOWARDS COMMISSION AT 7.5%. 15. HERE AGAIN, IT IS FOUND THAT SIMILAR ISSUE CAME UP FOR CONSIDERATION BEFORE THE TRIBUNAL IN THE ASSESSEES OWN CAS E FOR EARLIER YEARS. IN ITS ORDER FOR THE A.Y. 2006-07, THE TR IBUNAL HAS DELETED SUCH DISALLOWANCE. FOLLOWING THE PRECEDENT, WE ORDER TO DELETE THE ADDITION. 16. IN THE RESULT, THE APPEAL IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 27 TH AUGUST, 2019. SD/- SD/- (PARTHA SARATHI CHAUDHURY) (R.S.SYAL) JUDICIAL MEMBER VIC E PRESIDENT PUNE; DATED : 27 TH AUGUST, 2019 ITA NO.1677/PUN/2011 ATLAS COPCO (INDIA) LIMITED 9 / COPY OF THE ORDER IS FORWARDED TO : 1. / THE APPELLANT; 2. / THE RESPONDENT; 3. THE CIT(A)-13, PUNE 4. 5. 6. THE PR.CIT-V, PUNE , , / DR C, ITAT, PUNE; / GUARD FILE. / BY ORDER, // TRUE COPY // SENIOR P RIVATE SECRETARY , / ITAT, PUNE DATE 1. DRAFT DICTATED ON 26-08-2019 SR.PS 2. DRAFT PLACED BEFORE AUTHOR 26-08-2019 SR.PS 3. DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER JM 4. DRAFT DISCUSSED/APPROVED BY SECOND MEMBER. JM 5. APPROVED DRAFT COMES TO THE SR.PS/PS SR.PS 6. KEPT FOR PRONOUNCEMENT ON SR.PS 7. DATE OF UPLOADING ORDER SR.PS 8. FILE SENT TO THE BENCH CLERK SR.PS 9. DATE ON WHICH FILE GOES TO THE HEAD CLERK 10. DATE ON WHICH FILE GOES TO THE A.R. 11. DATE OF DISPATCH OF ORDER. *