As rightly submitted by learned counsel for the assessee, the impugned order of the learned Commissioner of Income-tax (Appeals) is well reasoned and well discussed on this issue and the same is self explanatory as regards the reasons given by him for deleting the additional disallowance of Rs. 5,98,139 made by the Assessing Officer under section 14A. As held by him relying on the decision of the hon’ble Bombay High Court in the case of Godrej and Boyce Mfg. Co. Ltd. (supra), rule 8D applied by the Assessing Officer to work out the disallowance under section 14A was not applicable to the year under consideration.
Facts are not in dispute inasmuch as it is also not in dispute that the assessee has paid the amount of service tax of Rs. 41,97,663/- before the due date of filing of return, therefore, the ld. CIT(A) has rightly deleted the said disallowance. As regards other disallowance of service tax payable Rs. 48,10,998/- we find merit in the plea of the ld. counsel for the assessee that the issue is covered in favour of the assessee by the decision of the Tribunal in Pharma Search (supra) wherein the Tribunal after considering the decision of Chowringhee Sales Bureau (P.) Ltd. v. CIT [1977] 110 ITR 385 (Cal.), Real Image Media Technologies (P.) Ltd. (supra) and other decisions held as under:-
The language of this proviso to section 92C(2) makes it clear that selecting a price within the range of +-5% of such arithmetic mean if more than one price is determined by the most appropriate method. Therefore, the ALP shall be taken to be in the range of ± 5% of arithmetic mean of more than one price. Since in this case, one comparable is considered as ALP; therefore, the benefit under the said proviso would not be available.
The issue involved in the present case is relating to the determination of arm’s length price in relation to the international transactions involving payment of royalty by the assessee company to its associated enterprises. As provided in section 92C of the Act, such arms’s length price is to be determined by one of the methods prescribed, which is found to be the most appropriate method having regard to the nature of transaction or class of transaction or class of associated persons or functions performed by such persons or such other relevant factors as may be prescribed. The manner in which such most appropriate method is to be applied for determination of arm’s length price is prescribed in Rule 10B of Income-tax Rules, 1962.
Section 2(14) defines ‘capital asset’ as property of any kind held by an assessee. The term ‘property’ encompasses in its ambit bundle of rights. This includes every conceivable species of valuable rights and interests. The right to dispose off a thing in every legal way, to possess it and to use and to exclude everyone from interfering with it, comes within the ambit of property. The exclusive right of possessing, enjoying and disposing off a thing comes within the term of ‘property’. The assessee had perpetual right of possession of suite and was entitled to transfer the same by virtue of seventh covenant noted above. Therefore, long term advance booking by virtue of which assessee got right to possession was ‘capital asset’ within the definition of section 2(14) and, therefore, on transfer of the same long term capital gain accrued to the assessee and assessee was, accordingly, entitled for indexation of cost of acquisition.
The view of the Larger Bench that the assessee had to be directly engaged in developing, maintaining and operating the facility and that there had to be a complete development of the facility and not just a part of it is contrary to the law laid down in ABG Heavy Industries 322 ITR 323 (Bom). The High Court held that The assessee did not have to develop the entire project in order to qualify for a deduction under s. 80-IA. The Parliament did not legislate a condition impossible of compliance.
The sum paid was also not in the nature of compensation because there was no obligation on M/s Gillette Company USA, under any contract to compensate the assessee. Under these facts we do not find infirmity in the decision of the first appellate authority in treating the amount of Rs. 108.49 crores out of an aggregate addition of Rs. 118.49 crores made by the AO as capital receipt and hence not chargeable to tax. In this regard we also find support from the decisions relied upon by the Ld. AR in the cases of Smartalk (P) Ltd. (supra) and General Electrodes & Equipment Ltd. (Supra) wherein under almost identical circumstances addition made has been deleted.
Moreover, in the subsequent year i.e 2008-09 & 2009-10 the cup method as adopted by the assessee for benchmarking its international transactions has not been disputed by the revenue. Further, when the relevant data are now available, as stated by the ld Sr counsel, then it is appropriate to determine the ALP by adopting the same method as it was accepted in the subsequent year.
The fact of approval of the payment by the RBI has been succinctly recorded by the TPO in his order as well. He still chose to propose adjustment in respect of full payment. In our considered opinion, when the rate of royalty payment and fee for drawings etc. has been approved or deemed to have been approved by the RBI, then such payment has to be considered at ALP.
We found that assessee’s case is squarely covered by the decision of Mumbai Bench in the case of B.D. Leasing and Finance Limited, (2013) 49(II) ITCL 148, wherein it was held that penalty u/s 271B for non-filing of tax audit report cannot be levied in view of the CBDT Circular No.9/2006 dated 10.10.2006, which provided that in case of electronic filing of return, tax audit report need not to be filed alongwith return.
