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DCIT, Circle 11(1), Room No.312, CR Building, New Delhi. Vs. Insilco Ltd.,3rd Floor, Central Wing, 124, Janpath, New Delhi.
November, 06th 2014
                DELHI BENCHES : I : NEW DELHI


                        ITA No.282/Del/2012
                     Assessment Year : 2003-04

DCIT,                              Vs.   Insilco Ltd.,
Circle 11(1),                            3rd Floor,
Room No.312,                             Central Wing,
CR Building,                             124, Janpath,
New Delhi.                               New Delhi.

                                         PAN: AAACI1203N

     (Appellant)                            (Respondent)

              Assessee By      :    Shri Peeyush Jain, CIT, DR
              Department By    :    Shri V.P. Gupta, Advocate



       This appeal by the Revenue arises out of the order passed by

the CIT(A) on 22.11.2011 in relation to the assessment year 2003-


2.    First ground is against the deletion of addition of `50,10,463/-

made by the AO on account of transfer pricing adjustment. Briefly

stated, the facts of the case are that the assessee was initially
                                                      ITA No.282/Del/2012

formed as a joint venture in 1988. Subsequently, in April, 1999, it

became a subsidiary of Degussa A.G., Germany, which holds

68.25% of the shares in the assessee company. The assessee is

engaged in the business of manufacturing and sale of silica.

During the year under consideration, it entered into international

transactions with three of its associated enterprises, namely,

Degussa AG, Germany; J.J. Degussa Chemicals, Indonesia; and

J.J.   Degussa    Chemicals,   Philippines.   These    international

transactions were on account of export of silica with sale value of

`5,12,00,053/-.   The assessee benchmarked these international

transactions by using Comparable uncontrolled price (CUP) as the

most appropriate method. On comparison of the rates charged

by the assessee from its AEs and unrelated parties, it was found

by the TPO that in certain transactions, the price charged from its

AEs was lower as compared to that charged from non-AEs and

further such difference was more than 5%.        On being show-

caused to explain the reasons for charging lower price from its

AEs, the assessee contended that there were certain geographical

differences and economic adjustments which led to the difference

in the rates charged from AEs and non-AEs.       Apart from that,

                                                     ITA No.282/Del/2012

certain other objections were also taken by the assessee to the

working of the TPO, divulging difference in the rate charged from

non-AEs. The TPO required the assessee to      supply information

about the resale price of the goods sold by the AEs as, in some

cases, the goods purchased by the AEs from the assessee were

resold to other customers. No such information was supplied by

the assessee. It was also noticed that the assessee made sale to

group entities in South Africa and Latin America through Degussa,

West Germany. On the analysis of the transfer pricing report, the

TPO noted that the 2/3rd of the related enterprises were located in

Indonesia and Philippines and the unrelated enterprises were

located in Indonesia, Philippines, Sri Lanka and Bangladesh. The

only other AE was located in Germany.           After taking into

consideration of the relevant arguments made on behalf of the

assessee, the TPO proposed the transfer pricing adjustment of

`54,10,463/-, which was made by the AO. In the appeal before

the ld. CIT(A), the assessee raised additional ground to the effect

that Transactional net margin method (TNMM) should be adopted

as the most appropriate method for computing the arm's length

price (ALP). The ld. CIT(A) remitted the additional ground along

                                                     ITA No.282/Del/2012

with the necessary documents to the TPO for comments. The TPO,

vide his remand report dated 13.09.2011, objected to the

admission of additional ground and contended that the same be

rejected. Taking into consideration the Special Bench decision in

the case of Quark Systems Pvt. Ltd. Vs. ITO 2010-TIOL-31-ITAT-

CHD-SB, the ld. CIT(A) admitted the assessee's additional ground.

The assessee contended that the internal TNMM should be

applied to benchmark the international transactions undertaken

by it.   Creating the segmental accounts for this purpose, the

assessee allocated expenses and incomes in certain percentage

and demonstrated to the CIT(A) that the profit charged from AEs

was higher than that charged from non-AEs. The ld. CIT(A) got

convinced with the assessee's submissions and ordered for the

deletion of addition.   In reaching this conclusion, the ld. CIT(A)

also referred to the Tribunal order passed for the immediately

preceding assessment year, namely, 2002-03, remanding the

matter to the AO/TPO and also the view taken by the TPO for the

AYs 2007-08 and 2008-09 accepting the application of TNMM.

3.   We have heard the rival submissions and perused the

relevant material on record.    It is observed that the assessee
                                                    ITA No.282/Del/2012

applied CUP as the most appropriate method for benchmarking

the international transactions undertaken by it. The assessee did

not dispute before the TPO that the CUP was the most appropriate

method. However, it was only during the course of first appellate

proceedings that the assessee came out with an additional

ground contending that the most appropriate method was TNMM

and the same should be applied. The reason advanced for not

applying the CUP method was that there were no instances of

uncontrolled transactions in Germany and the assessee had also

entered into certain international transactions with Degussa AG,

Germany. The ld. AR vehemently argued that the Tribunal was

pleased not to accept the application of CUP as the most

appropriate method in its order for the AY 2002-03 because in

that year also,   like the current year, there were international

transactions with Degussa AG, Germany and no transactions with

non-AEs situated at Germany were undertaken by the assessee.

These facts indicate that the facts and circumstances of the

instant year are, mutatis mutandis, similar to those for the

assessment year 2002-03.     We have perused the order dated

05.08.2011 passed by the Tribunal in assessee's case for the AY

                                                            ITA No.282/Del/2012

2002-03, a copy of which has been placed on record.                 In such

earlier year also, the assessee applied the CUP method for

benchmarking its international transactions.           It was contended

before   the   Tribunal   that   no       exports   were   made     to   any

uncontrolled parties in South American countries and, hence, CUP

method could not be applied in respect of sales made through

Degussa AG, Germany to various jurisdictions in South American

countries. After considering the entire gamut of the contentions

and the factual position, the Tribunal held in para 8.4 of its order

as under:-

      "8.4     We have considered the facts of the case and
      rival submissions. We do agree with the submissions of
      the learned counsel that CUP method is not appropriate
      in respect of sales made to the Degussa, AG, Germany.
      The reason is that there is no instance of uncontrolled
      sale either to Germany or to South American countries
      where the goods were actually shipped by the assessee
      on CIF basis. In these circumstances, we think it fit to
      restore the whole matter to the file of the Assessing
      Officer for fresh determination of the arm's length price
      of international transactions with AEs by applying an
      appropriate method and after hearing the assessee. It
      is specifically mentioned that the Assessing Officer is
      not bound by any argument made before us or
      observation made by us and he shall proceed in a
      manner as if this issue is being decided for the first
      time. Thus, ground No.2 in the appeal of the assessee
      and ground No.1 in the appeal of the revenue are
      treated as allowed for statistical purposes."
                                                    ITA No.282/Del/2012

4.   A cursory look at the observations made by the Tribunal in

assessee's case for the immediately preceding year divulges that

the Tribunal did not uphold the application of TNMM. Rather, the

entire matter for fresh determination of the ALP, by applying an

appropriate method, stood restored.

5.   The contention of the ld. AR that the viewpoint taken by the

ld. CIT(A) in adopting TNMM should be upheld, in our considered

opinion, is not capable of acceptance at this stage. The larger

question before us is not only the application of a particular

method for determination of ALP, but also the calculation part. It

can be seen from the impugned order that in order to

demonstrate that the price charged from its AEs was at ALP, the

assessee created segmental accounts. It is not a case where the

assessee had prepared separate accounts in respect of different

segments, which were produced before the TPO during the course

of original proceedings. Rather, the consolidated accounts were

bifurcated into the transactions with AEs and non-AEs by

allocating expenses/incomes, mainly based on sales.             Such

allocation never came to be considered by the TPO because it was

                                                      ITA No.282/Del/2012

done for the first time before the ld. CIT(A). When the ld. first

appellate authority sent such calculations and the assessee's

request for admission of additional ground on this aspect, the TPO

raised a preliminary issue by objecting to the admission of this

additional ground and, as such, did not have any occasion to

verify the correctness of allocation of expenses/income.

6.   Further, the ld. CIT(A) appears to have been swayed by the

application of TNMM by the TPO for the A.Ys. 2007-08 and 2008-

09 in holding that this was the most appropriate method for

application, despite the fact that the order of the tribunal for the

immediately preceding A.Y. 2002-03 was before him in which the

question of the application of the appropriate method was

restored. There is no material on record that pursuant to such

direction given by the tribunal for the preceding year, the TPO/AO

have accepted the application of TNMM as the most appropriate


7.    We do not find any force in the argument of the ld. AR that

simply because the TPO has applied TNMM for the A.Ys 2007-08

and 2008-09 and hence the application of the same by the ld.
                                                    ITA No.282/Del/2012

CIT(A) be upheld.    This factor, though significant, but is not

conclusive. What persuaded the TPO to observe departure in

these two later years from the consistent stand taken by him in

the immediately preceding four years up to A.Y. 2006-07 in

following the CUP method, is not available on record. There may

have been some change in the factual position necessitating the

adoption of TNMM in these later years. Further, the mere fact that

the TPO adopted TNMM in a later year can be no ground to argue

before the tribunal that the same method be followed in a

preceding year, which stand has been specifically rejected by him

in the instant years. As such, we cannot uphold the application of

TNMM on this reason alone, more specifically, when in the

immediately preceding year, where the facts are        admittedly

similar, the tribunal has restored the matter to the TPO for de

novo adjudication.   Since the facts and circumstances of the

instant year are admittedly similar to those of the immediately

preceding year, in respect of which the Tribunal has given

unambiguous direction for de novo determination,      respectfully

following the precedent, we set aside the impugned order and

remit the matter to the file of TPO/AO for fresh determination of

                                                     ITA No.282/Del/2012

the issue in accordance with the directions given by the Tribunal

for the AY 2002-03.

8.   Ground No.2 of the appeal is against the deletion of addition

of `5,04,072/- made by the AO on account of disallowance of

renovation and maintenance expenses.       The facts apropos this

ground are that the assessee claimed deduction of `2.24 crore

under the head `Miscellaneous expenses'. This included a sum of

`25,20,361/- incurred on account of renovation and maintenance

of Vasant Vihar office. In the absence of any details furnished on

behalf of the assessee, the AO disallowed 20% of such expenses,

which resulted into addition of `5,04,072/-. The ld. CIT(A) ordered

for the deletion of this appeal.

9.   After considering the rival submissions and perusing the

relevant material on record, it is observed that the sum of `25.20

lac was not towards any renovation of building, but, paid to a

company, namely, Towerbase Services Pvt. Ltd., as maintenance

charges for Vasant Vihar office on monthly basis.      Month-wise

details of such payment made aggregating to `25.20 lac were

made available to the ld. CIT(A), which were sent to the AO for

                                                    ITA No.282/Del/2012

comments. No objection was taken by the AO to the correctness

of the nature of amount in the remand report.         Under such

circumstances, we are of the considered opinion that the view

taken by the ld. CIT(A) in allowing deduction for the full amount,

which was incurred    for the maintenance of office on monthly

basis, does not require any interference.     This ground is not


10. The last ground of this appeal is against the deletion of

addition out of `88,000/- made by the AO on account of ISO

certification fee paid by the assessee. The assessee paid a sum

of `88,000/- towards ISO certification fee.   Considering certain

judgments, the AO came to hold that the assessee acquired an

enduring advantage by getting approval of Quality Management

System to ISO-9002 norms and, hence, it was a capital

expenditure liable for depreciation @ 25%.      That is how, the

addition of `66,000/- was made.      The ld. CIT(A) deleted this


11. After considering the rival submissions and perusing the

relevant material on record, it is noticed that the payment of ISO

                                                       ITA No.282/Del/2012

certification fee is a routine expenditure incurred on annual basis.

By no stretch of imagination it can be considered as amounting to

acquisition of a capital asset or advantage of an enduring nature.

We, therefore, approve the view taken by the ld. CIT(A) on this

issue. This ground fails.

12. In the result, the appeal is partly allowed for statistical


          The order pronounced in the open court on 31.10.2014.

              Sd/-                                     Sd/-

 [GEORGE GEORGE K.]                               [R.S. SYAL]
   JUDICIAL MEMBER                            ACCOUNTANT MEMBER

Dated, 31st October, 2014.


Copy forwarded to:

     1.   Appellant
     2.   Respondent
     3.   CIT
     4.   CIT (A)
     5.   DR, ITAT

                                               AR, ITAT, NEW DELHI.

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