SGS INDIA P LTD, MUMBAI V. ADDL CIT RG 10(3), MUMBAI

ITA 4968/MUM/2011

• Counselvise Citation: 496819914 RSA 2011
• Duration Of Justice: 2 year(s) 5 month(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-11-2013
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: K
• Next Hearing Date: 13-11-2013
• Assessment Year: 2007-2008
• Appeal Filed On: 23-06-2011
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: AJIT KUMAR JAIN AW
• Assessee Lawyers: SUNIL M LALA AW
• Keywords: Transfer pricing; Double taxation relief; Opportunity of being heard; International transaction; Question of law; Right to appeal; Revised return
• Section: 92C; 43B; 143(3); 234B; 10B

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL K BENCH, MUMBAI . . , , , BEFORE SHRI P.M. JAGTAP , ACCOUNTANT MEMBER AND SHRI AMIT SHUKLA , JUDICIAL MEM BER . / ITA NO. 4968 / MUM./ 2011 ( / ASSESSMENT YEAR : 20 0 7 08 ) . / ITA NO. 8840 / MUM./ 2010 ( / ASSESSMENT YEAR : 20 06 07 ) SGS INDIA PVT. LTD. 4B, ADI SHANKARACHARYA MARG NEXT TO POWAI TELEPHONE EXCHANGE VIKHROLI (W), MUMBAI 400 083 .. / APPELLANT V/S ADDL. COMMISSIONER OF INCOME TAX RANGE 10 (3 ), MUMBAI .... / RESPONDENT . / PERMANENT ACCOUNT NUMBER AAA CS5514Q / ASSESSEE BY : MR. SUNIL M. LALA A/W / REVENUE BY : MR. AJIT KUMAR JAIN A/W / DATE OF HEARING 13 . 11 .2013 / DATE OF ORDER 27.11.2013 SGS INDIA PVT. LTD. 2 / ORDER , / PE R AMIT SHUKLA , J.M. THE PRESENT APPEALS HAVE BEEN PREFERRED BY THE ASSESSEE CHALLENGING THE IMPUGNED FINAL ASSESSMENT ORDER PASSED BY THE ASSESSING OFFICER IN PURSUANCE OF THE DIRECTIONS GIVEN BY THE DISPUTE RESOLUTION PANEL (DRP), MUMBAI. SINCE THE I SSUES INVOLVED IN BOTH THE APPEALS ARE COMMON, THEREFORE, AS A MATTER OF CONVENIENCE, THESE WERE HEARD TOGETHER AND ARE BEING DISPOSED OFF BY WAY OF THIS CONSOLIDATED ORDER. 2 . WE FIRST TAKE UP APPEAL IN ITA NO.8840/MUM./2010, FOR THE ASSESSMENT YEAR 2006 07 , WHICH HAS BEEN PREFERRED BY THE ASSESSEE AGAINST THE IMPUGNED FINAL ASSESSMENT ORDER DATED 22 ND OCTOBER 2010, PASSED BY THE A DDL. CIT 10(3), MUMBAI. 3 . THE ASSESSEE, IN GROUND NO.1, HAS CHALLENGED THE ADDITION OF ` 17,085, ON ACCOUNT OF DISALLOWANCE OF ESI C CONTRIBUTION. 4 . THE ASSESSING OFFICER NOTED THAT THE PAYMENT OF ESIC CONTRIBUTION HAS BEEN MADE BEYOND THE DUE DATE AS PER THE ESIC ACT, 1984, WHICH IS 21 DAYS FROM THE LAST DATE OF THE CALENDAR MONTH. THE DRP HAS GIVEN THE DIRECTION THAT INSOFAR AS THE PAYMENT WHICH HAS BEEN MADE AFTER THE DUE DATE BUT WITHIN THE GRACE PERIOD SHOULD BE ALLOWED AND THE PAYMENT S WHICH ARE MADE BEYOND THE GRACE PERIOD CANNOT BE ALLOWED. 5 . BEFORE US, THE LEARNED COUNSEL, MR. SUNIL LAL A , ON BEHALF OF THE ASSESSEE, SUBMITTED TH AT ALL THE PAYMENTS HAVE BEEN MADE BEFORE THE DUE DATE OF FILING OF THE RETURN OF INCOME, HENCE IN VIEW OF THE PROVISIONS OF SECTION 43B SAME SHOULD BE ALLOWED. HE DREW OUR ATTENTION TO THE DETAILS GIVEN AT PAGE 29 OF THE PAPER BOOK AND POINTED OUT THAT AL L THE PAYMENTS SGS INDIA PVT. LTD. 3 HAVE BEEN MADE MUCH BEFORE THE DUE DATE OF FILING OF RETURN OF INCOME. ACCORDINGLY, HE PLEADED THAT THE SAME SHOULD BE ALLOWED AS DEDUCTION. 6 . THE LEARNED D .R. HAS ALSO ADMITTED THAT ALL THE PAYMENTS HAVE BEEN MADE BEFORE THE DUE DATE OF FILI NG OF THE RETURN OF INCOME. 7 . AFTER HEARING BOTH THE PARTIES AND IN VIEW OF THE AFORESAID ADMITTED FACTS , WHICH ALSO FORMS PART OF THE DETAILS SUBMITTED BY THE LEARNED COUNSEL IN THE PAPER BOOK , THAT ALL THE PAYMENTS OF ESIC HAVE BEEN MADE BEFORE THE DUE DA TE OF FILING OF THE RETURN OF INCOME, WE HOLD THAT THE SAME IS ALLOWABLE AS DEDUCTION U/S 43B . THUS, GROUND NO.1, RAISED BY THE ASSESSEE IS TREATED AS ALLOWED. 8 . THE ASSESSEE, IN GROUND NO.2, HAS CHALLENGED THE ADDITION ON ACCOUNT OF ADVANCES WRITTEN OFF FO R SUMS AGGREGATING TO ` 14,16,718. 9 . THE A .O. HAS DISALLOWED THE CLAIM OF THE ASSESSEE ON THE GROUND THAT THE ASSESSEE COULD NOT PRODUCE ANY EVIDENCE IN SUPPORT OF THE CLAIM OF ADVANCE OF ` 14,16,718, IN THE FORM OF DEPOSITS TO VARIOUS ORGANIZATION THAT IT WAS ACTUALLY MEANT FOR BUSINESS PURPOSE. HE FURTHER HELD THAT THE SAME CANNOT BE ALLOWED AS BAD DEBT ALSO BECAUSE FOR CLAIMING THE DEDUCTION AS BAD DEBT, THE PR IM ARY CONDITION THAT THE AMOUNT SHOULD BE FIRST TAKEN INTO COMPUT ATION OF THE INCOME OF THE ASSE SSEE IN THE EARLIER YEARS OR IN THE YEAR IN WHICH THE SAME IS WRITTEN OFF HAS NOT BEEN SATISFIED. THE ASSESSEES CONTENTION WAS THAT IT HAD PAID THE MANDATORY DEPOSITS TO VARIOUS GOV T. AND SEMI GOV T. ORGANIZATIONS AS WELL AS PRIVATE SECTOR UNDERTAKING FOR THE PURPOSE OF ITS BUSINESS. THESE DEPOSITS COULD NOT BE RECOVERED EVEN AFTER THE EFFORTS AND LOOKING TO THE FACTS THAT THE COST OF LITIGATION WOULD BE HIGHER, THE SAME WERE WRITTEN OFF IN THE BOOKS OF ACCOUNT. THE DETAILS OF SUCH DEPOSITS, WHICH WERE WRIT TEN OFF, WE RE AS UNDER: PURPOSE OF DEPOSIT AMOUNT IN ( ` ) SGS INDIA PVT. LTD. 4 EARNEST MONEY DEPOSITS / TENDER DEPOSITS 830,023 ELECTRICITY DEPOSITS 205,194 RENTAL DEPOSITS 167,690 GAS CYLINDER / WATER / FUEL DEPOSIT 231,813 TOTAL 1,416,719 10 . THE DRP ALSO CONFIRMED THE FINDINGS OF THE ASSESSING OFFICER. AGGRIEVED, THE ASSESSEE IS IN FURTHER APPEAL BEFORE THE TRIBUNAL. 11 . THE LEARNED COUNSEL, BEFORE US, SUBMITTED THAT LOOKING TO THE VERY NATURE OF THE DEPOSITS, IT IS SEEN THAT THESE WERE MADE SOLELY DURING THE CARRYING OF T HE BUSINESS, WHICH IS EVIDENT FROM THE DESCRIPTION, AND THE NATURE OF DEPOSITS, THE DETAILS OF WHICH HAVE BEEN GIVEN AT PAGE 25 AND 26 OF THE PAPER BOOK. ONCE THESE DEPOSITS COULD NOT BE RECOVERED, THEY HAVE BEEN WRITTEN OFF IN THIS YEAR AND THE SAME SHOUL D BE ALLOWED AS BUSINESS LOSS. 12 . THE LEARNED DEPARTMENTAL REPRESENTATIVE STRONGLY RELIED UPON THE FINDINGS OF THE ASSESSING OFFICER AND SUBMITTED THAT ONCE THE ASSESSEE HAS NOT BEEN ABLE TO PROVE AS TO HOW IT WAS RELATED TO THE ASSESSEES BUSINESS, THE SAME CANNOT BE ALLOWED AS BUSINESS LOSS. 13 . WE HAVE HEARD THE RIVAL CONTENTION, PERUSED THE RELEVANT FINDINGS OF THE AUTHORITIES BELOW AND THE MATERIAL AVAILABLE ON RECORD. ON A PERUSAL OF THE DESCRIPTION AND THE DETAILS OF DEPOSITS, IT IS SEEN THAT INSOFAR AS T HE DEPOSITS MADE FOR EMD / TENDER, THE ASSESSEE HAD MADE DEPOSITS WITH THE VARIOUS GOVERNMENT DEPARTMENTS AS PER THE TENDER REQUIREMENT WITH VARIOUS GOVERNMENT AND SEMI GOVERNMENT ORGANIZATIONS AS WELL AS UNDERTAKINGS FOR GETTING THE BUSINESS IN WHICH THE ASSESSEE IS ENGAGED I.E., INSPECTION, VERIFICATION, TESTING AND CERTIFICATION SERVICES. THESE PAYMENTS HAVE BEEN MADE IN THE FORM OF DEMAND DRAFT / CHEQUE AT THE TIME OF TENDER SUBMISSIONS. THESE PAYMENTS CAN VERY WELL BE SAID TO HAVE BEEN MADE IN THE COUR SE OF BUSINESS ONLY. ONCE THESE AMOUNTS HAVE NOT BEEN RECOVERED, SGS INDIA PVT. LTD. 5 THE SAME RESULTS INTO LOSS. THIS ASPECT HAS NOT BEEN EXAMINED EITHER BY THE ASSESSING OFFICER OR BY THE DRP DESPITE SPECIFIC DESCRIPTIONS AND DETAILS FURNISHED. SIMILARLY, IN CASE OF ELECTRIC ITY DEPOSITS, RENTAL DEPOSITS, GAS CYLINDER, FUEL, WATER DEPOSIT, THE EXPENSES APPEAR TO HAVE BEEN MADE IN THE COURSE OF BUSINESS. HOWEVER, IT IS NOT CLEA R WHEN THESE DEPOSITS WERE MADE AND HOW THE LOSS HAS BEEN INCURRED IN THIS YEAR. THEREFORE, IN THE INT EREST OF JUSTICE, WE ARE OF THE OPINION THAT THE MATTER NEEDS TO BE REMANDED BACK TO THE FILE OF THE ASSESSING OFFICER. CONSEQUENTLY, WE SET ASIDE THE IMPUGNED ORDER AND RESTORE THE ISSUE BACK TO THE FILE OF THE ASSESSING OFFICER TO VERIFY THE DETAILS OF D EPOSITS AND TO ASCERTAIN AS TO WHEN THESE DEPOSITS WERE MADE WITH THE VARIOUS GOVERNMENT AND SEMI GOVERNMENT AND ALSO TO LOOK INTO THE CLAIM WHETHER SUCH A LOSS CAN BE ALLOWED IN THIS YEAR. WE ORDER ACCORDINGLY. THUS, GROUND NO.2, RAISED BY THE ASSESSEE IS TREATED AS ALLOWED FOR STATISTICAL PURPOSES. 14 . IN GROUND NO.3, THE ASSESSEE HAS CHALLENGED THE DISALLOWANCE OF CLAIM OF DEDUCTION OF RIGHT BACK OF LEAVE ENCASHMENT OF ` 14,87,645. 15 . BEFORE US, IT HAS BEEN SUBMITTED THAT THE PROVISIONS OF LEAVE ENCASHMENT WA S MADE IN THE ASSESSMENT YEAR 2005 06 AND THE SAME WAS ADDED BACK IN THE COMPUTATION OF INCOME FILED ALONG WITH THE RETURN OF INCOME. HOWEVER, IN THIS YEAR, IT WAS WRITTEN BACK BUT COULD NOT BE CLAIMED IN THE COMPUTATION OF INCOME . IN SUPPORT OF THE CONTEN TION LD. COUNSEL DREW OUR ATTENTION TO THE COMPUTATION OF INCOME FOR THE ASSESSMENT YEAR 2005 06, WHEREIN THE PROVISIONS FOR LEAVE ENCASHMENT HAS BEEN ADDED BACK AND ALSO TO THE COMPUTATION OF INCOME FOR THE ASSESSMENT YEAR 2006 07, WHEREIN THIS AMOUNT HAS NOT BEEN CLAIMED. 16 . LEARNED DEPARTMENTAL REPRESENTATIVE, ON THE OTHER HAND, SUBMITTED THAT THE MATTER NEEDS TO BE REMANDED BACK FOR VERIFICATION AT THE STAGE OF THE ASSESSING OFFICER. SGS INDIA PVT. LTD. 6 17 . AFTER CAREFULLY CONSIDERING THE SUBMISSIONS OF THE LEARNED COUNSEL FOR THE ASSESSEE AND THE MATERIAL REFERRED TO BEFORE US, WE FIND THAT THE ASSESSEE HAS MADE A PROVISION FOR LEAVE ENCASHMENT IN THE ASSESSMENT YEAR 2005 06 WHICH WAS DISALLOWED BY THE ASSESSEE ITSELF IN THE COMPUTATION OF INCOME AND THE SAME WAS ADDED BACK. IN THIS YEAR, IT HAS BEEN STATED THAT THE SAME HAS BEEN WRITTEN BACK BUT NOT CLAIMED. THE DRP HAS REJECTED THE ASSESSEES CLAIM ON THE GROUND THAT SUCH A CLAIM CAN ONLY BE MADE THROUGH REVISED RETURN OF INCOME IN VIEW OF THE DECISION OF THE HON'BLE SUPREME C OURT IN GOETZE INDIA LTD. V/S CIT, [2006] 284 ITR 323 (SC). THE VIEW TAKEN BY THE DRP CANNOT BE SUSTAINED FOR THE REASON THAT IT IS NOT A NEW CLAIM WHICH IS BEING MADE BEFORE THE ASSESSING OFFICER. IF THE ASSESSEE HAS WRITTEN BACK THE LEAVE ENCASHMENT ON T HE BASIS OF ACTUARIAL VALUATION, THE SAME HAS TO BE ALLOWED EVEN THOUGH THE ASSESSEE COULD NOT CLAIM IN THE COMPUTATION OF INCOME. UNDER THESE FACTS, WE SET ASIDE THE IMPUGNED ORDER AND RESTORE THIS ISSUE BACK TO THE FILE OF THE ASSESSING OFFICER AND DIREC T HIM TO VERIFY THE CLAIM OF THE ASSESSEE AND IF IT IS FOUND THAT THE SAME HAS BEEN WRITTEN BACK IN THIS YEAR ON ACCOUNT OF ACTUARIAL VALUATION THE SAME HAS TO BE ALLOWED AS DEDUCTION. THUS, GROUND NO.3, RAISED BY THE ASSESSEE IS TREATED AS ALLOWED FOR STA TISTICAL PURPOSES. 18 . IN GROUND NO.4, THE ASSESSEE IS AGGRIEVED BY NOT GRANTING THE CREDIT FOR TDS OF ` 45,093. 19 . BEFORE US, THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE ASSESSING OFFICER HAS TO GIVE CREDIT OF DEDUCTION AS PER THE ARTICLE 24 OF IND O KOREAN DTAA AS PER THE CONDITIONS MENTIONED THEREIN WHICH HAS NOT BEEN GIVEN BY THE ASSESSING OFFICER. 20 . THE LEARNED DEPARTMENTAL REPRESENTATIVE SUBMITTED THAT THIS MATTER NEEDS VERIFICATION BY THE ASSESSING OFFICER TO EXAMINE WHETHER THE CONDITIONS AS GI VEN IN PARA 3 OF ARTICLE 24 OF THE DTAA IS SATISFIED OR NOT. SGS INDIA PVT. LTD. 7 21 . AFTER HEARING BOTH THE PARTIES, WE ARE OF THE OPINION THAT THE ISSUE NEEDS TO BE REMANDED BACK TO EXAMINE THE CONDITIONS OF A R T ICLE 24 AND WHETHER CREDIT OF DEDUCTION CAN BE GIVEN. CONSEQUENTLY, WE SET ASIDE THE IMPUGNED ORDER PASSED BY THE LEARNED COMMISSIONER (APPEALS) AND RESTORE THE ISSUE BACK TO THE FILE OF THE ASSESSING OFFICER AND DIRECT HIM TO VERIFY AS TO WHETHER THE CONDITIONS PROVIDED IN PARA 3 OF ARTICLE 24 OF THE INDO KOREAN DTAA IS SATI SFIED OR NOT AND GIVE CREDIT FOR TAXES ACCORDINGLY. GROUND NO.4, IS THUS TREATED AS TREATED AS ALLOWED FOR STATISTICAL PURPOSES. 22 . IN GROUND NO.5, THE ASSESSEE HAS CHALLENGED THE DISALLOWANCE OF TDS CREDIT OF ` 6,18,805. 23 . THE ASSESSING OFFICER HAS DENIED TH E CREDIT OF TDS ON THE GROUND THAT THE REVENUE HAS NOT BEEN OFFERED IN THE YEAR UNDER CONSIDERATION. 24 . THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED BEFORE US THAT THE REVENUE HAS BEEN OFFERED IN THIS YEAR ONLY WHICH IS EVIDENT FROM THE FACT THAT THE DRP I N THE SUBSEQUENT YEAR HAS HELD THAT THE CORRESPONDING INCOME HAS BEEN OFFERED IN THIS YEAR ONLY. 25 . THE LEARNED DEPARTMENTAL REPRESENTATIVE RELIED UPON THE FINDINGS OF THE ASSESSING OFFICER. 26 . AFTER CAREFULLY CONSIDERING THE SUBMISSIONS OF THE LEARNED COUNSE L FOR THE ASSESSEE AND ALSO THE FINDINGS OF THE DRP IN THE SUBSEQUENT YEAR, WE ARE OF THE CONSIDERED OPINION THAT THIS MATTER NEEDS TO BE RESTORED BACK TO TH E FILE OF THE ASSESSING OFFICER TO EXAMINE THE CONTENTION OF THE ASSESSEE. CONSEQUENTLY, WE SET ASI DE THE IMPUGNED ORDER AND RESTORE THE ISSUE BACK TO THE FILE OF THE ASSESSING OFFICER AND DIRECT HIM TO VERIFY THE CONTENTION OF THE ASSESSEE THAT THE CORRESPONDING INCOME / REVENUE HAS BEEN OFFERED IN THE YEAR UNDER CONSIDERATION I.E., A.Y. 2006 07. THUS, THE GROUND RAISED BY THE ASSESSEE IS TREATED AS ALLOWED FOR STATISTICAL PURPOSES. SGS INDIA PVT. LTD. 8 27 . GROUND NO.6, RELATES TO LEVY OF INTEREST UNDER SECTION 234B AND 234C. 28 . BEFORE US, BOTH THE PARTIES AGREED THAT THIS GROUND IS CONSEQUENTIAL IN NATURE. CONSEQUENTLY, WE DIRE CT THE ASSESSING OFFICER TO GIVE CONSEQUENTIAL EFFECT IN ACCORDANCE WITH LAW WHILE RE - COMPUTING THE INCOME OF THE ASSESSEE. 29 . GROUND NO.7 RELATES TO THE ADDITION OF ` 30 LAKHS ON ACCOUNT OF TRANSFER PRICING ADJUSTMENT IN RESPECT OF TECHNICAL FEES PAID TO TH E A.E. 30 . THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT THIS ISSUE IS SQUARELY COVERED BY THE DECISION OF THE TRIBUNAL GIVEN IN ASSESSEES OWN CASE IN THE EARLIER YEARS. 31 . THE LEARNED DEPARTMENTAL REPRESENTATIVE ADMITTED TO THE AFORESAID FACT THAT SIMIL AR ISSUE HAS BEEN DECIDED BY THE TRIBUNAL IN FAVOUR OF THE ASSESSEE. 32 . WE HAVE CONSIDERED THE RELEVANT FINDINGS OF THE ASSESSING OFFICER AND THE DRP AND ALSO THE TRIBUNAL ORDERS IN ASSESSEES OWN CASE FOR THE EARLIER YEARS. THE TPO HAS MADE RE COMPUTATION O F ALP OF THE INTERNATIONAL TRANSACTION OF FEE FOR TECHNICAL SERV ICES PAID TO S.G.S. SA. T HE ASSESSEE HAS PAID TECHNICAL FEES OF ` 5.16 CRORES TO ITS A.E. OUT OF WHICH THE LICENSE FEE HAS BEEN PAID FOR THE USE OF INTELLECTUAL / INTANGIBLE PROPERTY @ 3% OF THE TURNOVER. THIS 3% WAS BASED ON SOME INTERNATIONAL STUDY WHICH HAS CONCLUDED THAT THE LICENSE FEE RANGES FROM 2.5% TO 4% ON THE REVENUE GENERATED. THE TPO, FOLLOWING THE EARLIER YEAR FINDING CAME TO THE CONCLUSION DRAWN THAT THE ALP OF THE LICENSE FEE HAS TO BE DETERMINED BY TAKING 1% OF LOCAL SALES AND 2% ON EXPORT SALES. ACCORDINGLY, HE CONCLUDED THAT A SUM OF ` 30 LAKHS HAVE BEEN PAID MORE TO THE A.E. THIS VIEW OF THE TPO WAS BASED ON GOVT. OF INDIA PRESS NOTE NO.9 OF 2000 ISSUED BY THE MINISTRY OF C OMMERCE AND INDUSTRY WHICH PERMITTED ROYALTY @ 1% ON DOMESTIC SALE AND 2% ON THE EXPORT FOR THE USE OF TRADE MARK AND BRAND NAME OF FOREIGN COLLABORATION. THE TRIBUNAL, IN ASSESSEES OWN CASE, FOR THE ASSESSMENT YEARS 2002 03, SGS INDIA PVT. LTD. 9 2003 04, 2004 05 AND 2005 06, HAVE DECIDED THIS ISSUE IN FAVOUR OF THE ASSESSEE BY HOLDING THAT THE ROYALTY @ 5% TO 8% WAS ACCEPTED AS PER FIPB INSTRUCTION ISSUED BY THE MINISTRY OF COMMERCE, GOVT. OF INDIA. IN THAT VIEW OF THE MATTER, THE ASSESSEES PAYMENT OF LICENSE FEE @ 3% TO ITS AE ON THE TOTAL TURNOVER IS AT ALP. THUS, RESPECTFULLY FOLLOWING THE JUDICIAL PRECEDENCE OF THE EARLIER YEARS, WHICH ARE APPLICABLE MUTATIS MUTANDIS IN THIS YEAR ALSO, WE UPHOLD THE RATE OF LICENSE FEE @3% OF THE TOTAL TURN OVER FOR THE USE OF INTELLECTUAL / INTANGIBLE PROPERTIES , IS AT ALP. THUS, THE GROUND NO.7 RAISED BY THE ASSESSEE IS TREATED AS ALLOWED. 33 . THE ASSESSEE HAS ALSO RAISED FOLLOWING ADDITIONAL GROUNDS: ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE APPELLANT OUGHT TO BE GRANTED THE BENEFIT OF ARTICLE 10 OF THE INDIA SWITZERLAND DOUBLE TAXATION AVOIDANCE AGREEMENT, THAT THE DIVIDEND DECLARED BY THE APPELLANT IS LIABLE TO DIVIDEND DISTRIBUTION TAX AT THE RATE OF 10%. 34 . ALONG WITH THE AFORESAID GROUND, THE ASSESSEE HAS ALSO F ILED A PETITION FOR ADMISSION OF THE SAID GROUND AND IN SUPPORT , VARIOUS JUDICIAL PRONOUNCEMENTS HAVE BEEN RELIED UPON THAT A LEGAL CLAIM WHICH HAS NOT BEEN RAISED BEFORE THE AUTHORITIES BELOW, THEN THE SAME CAN BE RAISED BEFORE THE SECOND APPELLATE AUTHOR ITY. A LIST OF SUCH CASE LAWS ARE AS UNDER: I ) JUTE CORP. OF INDIA LTD. V/S CIT, [1991] 187 ITR 688 (SC) ; II ) CIT V/S S. NELLIAPPAN, [1967] 66 ITR 722 (SC); III ) NATIONAL THERMAL POWER CO. LTD. V/S CIT, [ 1998] 229 ITR 383 (SC); IV ) AHMEDABAD ELECTRICITY CO. LTD. AN D GODAVARI SUGAR MILLS LTD. V/S CIT, [1993] 199 ITR 351 (BOM.); V ) ASHOK VARDHAN BIRLA V/S CWT, [1994] 208 ITR 958 (BOM.); VI ) INAROO LTD. V/S CIT, [1993] 204 ITR 312 (BOM.); VII ) CIT V/S GOVINDRAM BROS . P. LTD. V/S [1983] 141 ITR 626 (BOM.). SGS INDIA PVT. LTD. 10 35 . BEFORE US, THE LEARN ED COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE ACTUAL RATE OF DEDUCTION OF TAX ON DIVIDEND DISTRIBUTION AS PER ARTICLE 10 OF INDO SWITZERLAND DTAA IS 10% , WHEREAS THE ASSESSEE HAS DEDUCTED 14%. THEREFORE, THE CORRECT RATE OF 10% SHOULD BE APPLIED. HE ALSO SUBMITTED THAT THIS ISSUE WAS RAISED BEFORE THE LEARNED COMMISSIONER (APPEALS) IN THE EARLIER YEAR AND THE TRIBUNAL HAS SET ASIDE THE ISSUE TO THE FILE OF THE ASSESSING OFFICER. MOREOVER, THIS ISSUE IS PURELY A LEGAL ISSUE AND DOES NOT REQUIRE ANY VERIFICA TION OF FACTS OR RECORD AND, THEREFORE, THE SAME SHOULD BE ADMITTED IN VIEW OF THE CASE LAWS MENTIONED IN THE PETITION. HE FURTHER FILED COMPILATION OF VARIOUS CASE LAWS ON THE GROUND THAT A CLAIM CAN BE MADE EVEN AT THE STAGE OF THE TRIBUNAL IF THE FOUNDA TI NAL FACTS ARE THERE IN THE RECORD. 36 . THE LEARNED DEPARTMENTAL REPRESENTATIVE STRONGLY OBJECTED TO THE ADMISSION OF THE ADDITION AL GROUND ON THE GROUND THAT THIS ISSUE HAS NEITHER BEEN RAISED BEFORE THE ASSESSING OFFICER N OR BEFORE THE DRP AND ALSO NO SUCH CLAIM HAS BEEN MADE BEFORE THE ASSESSING OFFICER. THEREFORE, SUCH A CLAIM CANNOT BE ENTERTAINED BY WAY OF ADDITIONAL GROUND BEFORE THE TRIBUNAL. 37 . WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL PLACED ON RECORD. INSOFAR AS THE POWER OF THE TRIBUNAL IN ADMITTING THE ADDITIONAL GROUND IS CONCERNED, THE SAME HAS BEEN ELABORATED IN VARIOUS DECISIONS OF THE HON'BLE SUPREME COURT AND HIGH COURTS , WHEREIN IT HAS BEEN HELD THAT THE TRIBUNAL, WHILE DEALING WITH THE APPEAL UNDE R SECTION 2 54, HAS A WIDE POWER TO ADMIT SUCH NEW GROUND PROVIDED ALL THE FOUNDATIONAL FACTS A RE IN RECORD. THE HON'BLE SUPREME COURT IN NATIONAL THERMAL POWER CO. LTD. (SUPRA) HAS HELD THAT THE TRIBUNAL HAS JURISDICTION TO EXAMINE A QUESTION OF LAW WHICH ARISES FROM THE FACT FOUND BY THE AUTHORITIES BELOW AND WHICH HAS A BEARING ON DETERMINING THE CORRECT TAX LIABILITY O F THE ASSESSEE , NOT WITH STAND ING THAT THE SAME WAS NOT RAISED BEFORE THE LOWER AUTHORITIES. THE RELEVANT OBSERVATIONS OF THE HON'BLE SUPREME COURT ARE AS UNDER: SGS INDIA PVT. LTD. 11 UNDER SECTION 254 OF THE INCOME - TAX ACT, THE APPELLATE TRIBUNAL MAY, AFTER GIVING BOTH THE PARTIES TO THE APPEAL AN OPPORTUNITY OF BEING HEARD, PASS SUCH ORDERS THEREON AS IT THINKS FIT. THE POWER OF THE TRIBUNAL IN DEALING WITH APPEALS IS T HUS EXPRESSED IN THE WIDEST POSSIBLE TERMS. THE PURPOSE OF THE ASSESSMENT PROCEEDINGS BEFORE THE TAXING AUTHORITIES IS TO ASSESS CORRECTLY THE TAX LIABILITY OF AN ASSESSEE IN ACCORDANCE WITH LAW. IF, FOR EXAMPLE, AS A RESULT OF A JUDICIAL DECISION GIVEN WHILE THE APPEAL IS PENDING BEFORE THE TRIBUNAL, IT IS FOUND THAT A NON - TAXABLE ITEM IS TAXED OR A PERMISSIBLE DEDUCTION IS DENIED, WE DO NOT SEE ANY REASON WHY THE ASSESSEE SHOULD BE PREVENTED FROM RAISING THAT QUESTION BEFORE THE TRIBUNAL FOR THE FIRST T IME, SO LONG AS THE RELEVANT FACTS ARE ON RECORD IN RESPECT OF THAT ITEM. WE DO NOT SEE ANY REASON TO RESTRICT THE POWER OF THE TRIBUNAL UNDER SECTION 254 ONLY TO DECIDE THE GROUNDS WHICH ARISE FROM THE ORDER OF THE COMMISSIONER OF INCOME - TAX (APPEALS). BOTH THE ASSESSEE AS WELL AS THE DEPARTMENT HAVE A RIGHT TO FILE AN APPEAL/CROSS - OBJECTIONS BEFORE THE TRIBUNAL. WE FAIL TO SEE WHY THE TRIBUNAL SHOULD BE PREVENTED FROM CONSIDERING QUESTIONS OF LAW ARISING IN ASSESSMENT PROCEEDINGS ALTHOUGH NOT RAISED EA RLIER. XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX THE VIEW THAT THE TRIBUNAL IS CONFINED ONLY TO ISSUES ARISING OUT OF THE APPEAL BEFORE THE COMMISSIONER OF INCOME - TAX (APPEALS) TAKES TOO NARROW A VIEW OF THE POWERS OF THE APPELLA TE TRIBUNAL (VIDE, E.G., CIT V. ANAND PRASAD [1981] 128 ITR 388 (DELHI), CIT V. KARAMCHAND PREMCHAND P. LTD. [1996] 74 ITR 254 (GUJ) AND CIT V. CELLULOSE PRODUCTS OF INDIA LTD. [1985] 151 ITR 499 (GUJ) [FB] . UNDOUBTEDLY, THE TRIBUNAL WILL HAVE THE DISCRET ION TO ALLOW OR NOT ALLOW A NEW GROUND TO BE RAISED. BUT WHERE THE TRIBUNAL IS ONLY REQUIRED TO CONSIDER A QUESTION OF LAW ARISING FROM THE FACTS WHICH ARE ON RECORD IN THE ASSESSMENT PROCEEDINGS WE FAIL TO SEE WHY SUCH A QUESTION SHOULD NOT BE ALLOWED TO BE RAISED WHEN IT IS NECESSARY TO CONSIDER THAT QUESTION IN ORDER TO CORRECTLY ASSESS THE TAX LIABILITY OF AN ASSESSEE. 38. IN THE PRESENT CASE, THE ASSESSEE HAS RAISED THE CONTENTION THAT THE CORRECT TAX LIABILITY FOR DEDUCTING THE TDS IS AT 10% IN VIEW OF THE ARTICLE 10 OF THE INDIA SWITZERLAND DTAA WHICH IS ADMITTEDLY APPLICABLE IN THE CASE OF THE ASSESSEE. FOR ADJUDICATING THIS ISSUE, THERE IS NO REQUIREMENT FOR INVESTIGATION OR EXAMINATION OF FACTS ALBEIT IT IS CLEARLY BO R NE OUT FROM THE RECORDS. THEREFORE, WE DO NOT FEEL ANY REASON NOT TO ADMIT SUCH AN ADDITIONAL GROUND WHICH GOES TO THE ROOT OF THE TAX LIABILITY OF THE ASSESSEE IN ACCORDANCE WITH THE PROVISIONS OF LAW. ACCORDINGLY, WE ADMIT THE ADDITIONAL GROUND AND RESTORE THIS MATTER TO THE FI LE OF THE ASSESSING OFFICER TO DEAL AND DECIDE THIS ISSUE IN ACCORDANCE WITH THE LAW AS IN THE EARLIER YEAR, THE SGS INDIA PVT. LTD. 12 TRIBUNAL HAS SET ASIDE THIS ISSUE. CONSEQUENTLY, THE ADDITION AL GROUND RAISED BY THE ASSESSEE IS TREATED AS ALLOWED FOR STATISTICAL PURPOSES. 39 . 39 . IN THE RESULT, ASSESSEES APPEAL IS TREATED AS PARTLY ALLOWED FOR STATISTICAL PURPOSES . WE NOW TAKE UP ASSESSEES APPEAL IN ITA NO.4968/MUM./2011, FOR THE ASSESSMENT Y EAR 2007 08, CHALLENGING THE FINAL ASSESSMENT ORDER DATED 8 TH DECEMBER 2010, PASSED BY THE ACIT 10(3), MUMBAI, IN PURSUANCE OF THE DIRECTION GIVEN BY THE DRP. GROUNDS RAISED BY THE ASSESSEE ARE AS UNDER: 1. THE LEARNED ASSESSING OFFICER CAO') / TRANSFER PRICING OFFICER (TPO ' ) HAS ERRED IN LAW AND ON FACTS IN MAKING AN ADJUSTMENT WITH RESPECT TO TECHNICAL FEES PAID TO ASSOC I ATED ENTERPR I SE DISREGARDING THE CONTENTIONS / EVIDENCES PROVIDED BY THE APPELLANT . 1.1 THE LEARNED AO HAS ERRED IN LAW AND ON FA CTS BY FOLLOWING THE APPROACH ADOPTED BY THE TPO FOR DETERMINING THE ARM ' S LENGTH PRICE OF TECHNICAL FEES , WH I CH IS NOT BASED ON THE MACHINERY PROVISIONS DEALING WITH THE METHOD AND CALCULATION OF THE ARM'S LENGTH PRICE AS CONTAINED IN SUB - SECTIONS (1) AND (2) OF SECTION 92C OF THE ACT READ WITH RULES 10B AND 10C OF THE INCOME TAX RULES , 1962 . 1.2 THE LEARNED AO / TPO HAS ERRED IN LAW AND ON FACTS IN DETERMINING THE ARM ' S L ENGTH PRICE OF LICENSE FEES FOR USE OF I NTANGIBLES / INTELLECTUAL PROPERTY ON THE B ASIS OF G O V ERNMEN T O F I ND I A ' S PRESS NOTE NO . 9 O F 2000 ISSUED BY THE M I N I S T R Y O F C OMME R CE A ND I ND U S T RY WH I CH PERMITS ROYALTY @ 1 % ON DOMESTIC SALES AND 2% ON EXPORT SA L ES F OR T HE U SE O F T RADE MARK AND BRAND NAME AND DISREGARDING T HE I NTERNATIONA L STUDY C O M M I SS I ONED BY THE SGS GROUP FOR ANALYSING THE ARM ' S LENGTH STANDARD OF SUC H F EES . 1.3 THE LEARNED AO WHILE FOLLOWING THE DIRECTIONS OF DISPUTE RESOLUTION PANEL ( ' DRP ') TO DETERMINE THE ARM ' S LENGTH PRICE IN RESPECT OF TECHNICAL FEES PAID , ERRED I N H I S COM PUTATION BY CONSIDERING THE MANAGEMENT SUPPORT COST OF INR 2.5 CRORES W HICH PERTAINS TO THE EARLIER ASSESSMENT YEAR I . E. AY 2006 - 07 INSTEAD OF CONSIDERING INR 3 . 6 CRORES WHICH PERTAINS TO THE CURRENT ASSESSMENT YEAR I . E . AY 2007 - 08 . 2. ON THE FACTS AND C IRCUMSTANCES OF THE CASE, AND IN LAW, THE LEARNED AO ERRED IN PROPOSING AND THE DRP FURTHER ERRED IN UPHOLDING THE ACTION OF THE AO IN MAKING ADDIT I ON ON ACCOUNT OF ADVANCES WRITTEN OFF OF RS 99,877. SGS INDIA PVT. LTD. 13 3. ON THE FACTS AND CIRCUMSTANCES OF THE CASE , AND IN LAW, THE LEARNED AO ERRED IN DISALLOWING THE TDS CREDIT OF RS 39,82,285 WHICH WAS NOT DISALLOWED EARLIER IN THE DRAFT ASSESSMENT ORDER DATED DECEMBER 8 , 2010 ISSUED UNDER SECTION 143(3) READ WITH SECTION 144C( 1) OF THE ACT . 4. WITHOUT PREJUDICE , ON THE FACTS AND CIRCUMSTANCES OF THE CASE , AND IN LAW , THE LEARNED AO ERRED IN NOT ALLOWING THE TDS CREDIT OF RS 39,82 , 285 . 40. IN GROUND NO.1, 1.1 AND 1.2, THE ASSESSEE HAS CHALLENGED THE TRANSFER PRICING ADJUSTMENT WITH RESPECT TO THE TECHNICAL FEES PAID TO THE A.E. 41. THIS ISSUE IS SIMILAR TO GROUND NO.7, WHICH HAS BEEN RAISED BY THE ASSESSEE IN THE ASSESSMENT YEAR 2006 07. THE FACTS IN THIS YEAR ARE ALSO IDENTICAL AND, THEREFORE, THE CONCLUSION GIVEN IN THE AFORESAID APPEAL WILL APPLY MUTATIS MUTANDIS IN THIS YEAR ALSO. THUS, THE ADDITION MADE BY THE ASSESSING OFFICER ON ACCOUNT OF TRANSFER PRICING ADJUSTMENT IS DELETED AND THE GROUND RAISED BEFORE US ARE TREATED AS ALLOWED. 42. WITH REGARD TO GROUND NO.1.3, LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THA T IF THE AFORESAID GROUNDS ARE ALLOWED, THEN THIS ISSUE WILL BECOME PURELY ACADEMIC IN NATURE. SINCE THE AFORESAID GROUNDS ARE ALLOWED, THEREFORE, THIS GROUND RAISED BY THE ASSESSEE IS TREATED AS DISMISSED AS ON MERITS, THE TRANSFER PRICING ADJUSTMENT STAN DS DELETED. 43. IN GROUND NO.2, THE ASSESSEE HAS CHALLENGED THE ADDITION ON ACCOUNT OF ADVANCES WRITTEN OFF OF ` 99,877. 44. THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT THESE ADVANCES WERE GIVEN IN THE COURSE OF CARRYING ON THE BUSINESS WHICH WAS ON ACCOUNT OF EMD / TENDER DEPOSITS AND ELECTRICITY DEPOSITS. SINCE THE FACTS AND ISSUE INVOLVED IS QUITE SIMILAR TO GROUND NO.2 OF THE ASSESSMENT YEAR 2006 07, THEREFORE, THE FINDINGS GIVEN THEREIN WILL APPLY TO THIS ISSUE ALSO WHEREIN THIS SGS INDIA PVT. LTD. 14 MATTER HAS BEEN RESTORED TO THE FILE OF THE ASSESSING OFFICER. ACCORDINGLY, GROUND NO.2 IS TREATED AS ALLOWED FOR STATISTICAL PURPOSES. 45. IN GROUND NO.3 AND 4, THE ASSESSEE HAS CHALLENGED THE CREDIT OF TDS OF ` 39,82,285. 46. THE ASSESSING OFFICER HAS WITHHELD T HE CREDIT OF THE TDS ON THE GROUND THAT ALL THE TDS CERTIFICATES COULD NOT BE PRODUCED AND THE ASSESSEE WAS NOT ABLE TO RECONCILE THEM WITH THE INCOME OFFERED TO TAX. THE DRP HAS GIVEN DIRECTION TO THE ASSESSING OFFICER TO CARRY OUT THE EXERCISE OF RECONCI LIATION OF THE ORIGINAL TDS CERTIFICATE FILED BEFORE HIM ON 7 TH MARCH 2010 AND GIVE THE DUE CREDIT. LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE TPO HAS NOT GIVEN CREDIT TO THE TDS WHICH WERE BASED ON THE TDS CERTIFICATE FILED BEFORE HIM ON 7 TH MAR CH 2010. 47. ACCORDINGLY, WE SET ASIDE THE IMPUGNED ORDER PASSED BY THE ASSESSING OFFICER AND RESTORE THIS ISSUE BACK TO THE FILE OF THE ASSESSING OFFICER AND DIRECT HIM TO VERIFY THE TDS CERTIFICATE WHICH WERE FURNISHED BEFORE HIM AND ALSO BEFORE US FRO M PAGE 45 TO 54 OF THE PAPER BOOK AND ACCORDINGLY GIVE CREDIT OF TDS TO THE ASSESSEE. ACCORDINGLY, THIS GROUND IS TREATED AS PARTLY ALLOWED FOR STATISTICAL PURPOSES. 48. THE ASSESSEE HAS ALSO RAISED FOLLOWING ADDITIONAL GROUNDS: ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE APPELLANT OUGHT TO BE GRANTED THE BENEFIT OF ARTICLE 10 OF THE INDIA SWITZERLAND DOUBLE TAXATION AVOIDANCE AGREEMENT, THAT THE DIVIDEND DECLARED BY THE APPELLANT IS LIABLE TO DIVIDEND DISTRIBUTION TAX AT THE RATE OF 10%. 49. THE AFORESAID GROUND IS IDENTICAL TO THE ADDITIONAL GROUND RAISED BY THE ASSESSEE IN THE ASSESSMENT YEAR 2006 07 WHEREIN THIS ADDITION AL GROUND HAS ALREADY BEEN ADMITTED. MOREOVER, IN THIS YE AR, THE ASSESSEE HAS RAISED THI S SGS INDIA PVT. LTD. 15 GROUND BEFORE THE D RP ALSO. THEREFORE , NOT ONLY THIS GROUND IS ADMITTED BUT ALSO RESTORED TO THE THE FILE OF THE ASSESSING OFFICER TO DECIDE THE SAME IN VIEW OF THE OBSERVATION S MADE IN THE ASSESSMENT YEAR 2006 07. CONSEQUENTLY, THE ADDITIONAL GROUND RAISED BY THE ASSESSEE I S TREATED AS ALLOWED FOR STATISTICAL PURPOSES. 50. 2006 07 50 . IN THE RESULT, FOR THE ASSESSMENT YEAR 2006 07, ASSESSEES APPEAL IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. 51. , 2006 07 2007 08 51. TO SUM UP, FOR THE ASSESSMENT YEAR 2006 07 AND 2007 08 ASSESSEES APPEAL ARE PARTLY ALLOWED FOR STATISTICAL PURPOSES. 27 TH NOVEMBER 2013 ORDER PRONOUNCED IN THE OPEN COURT ON 27 TH NOVEMBER 2013 SD / - . . P.M. JAGTAP ACCOUNTANT MEMBER SD / - AMIT SHUKLA JUDICIAL MEMBER MUMBAI, DATED : 27 TH NOVEMBER 2013 SGS INDIA PVT. LTD. 16 / COPY OF THE ORDER FORWARDED TO : ( 1 ) / THE ASSESSEE ; ( 2 ) / THE REVENUE; ( 3 ) ( ) / THE CIT(A ) ; ( 4 ) / THE CIT, MUMBAI CITY CONCERNED ; ( 5 ) , , / THE DR, ITAT, MUMBAI ; ( 6 ) / GUARD FILE . / TRUE COPY / BY ORDER . / PRADEEP J. CHOWDHURY / SR. PRIVATE SECRETARY / / (DY. /ASSTT. REGISTRAR) , / ITAT, MUMBAI