Arithmetic Mean of ALPs to be determined even if actual price exceeds one of the ALPs determined by TP method

Proviso to section 92C(2) requiring calculation of arithmetical mean of multiple ALPs (more than 1 ALP) determined as per Most Appropriate Method doesn’t become inapplicable where one of the ALPs determined as per Most Appropriate Method is less than the price indicated by assessee

In the instant case, the most appropriate method, as accepted by both, the assessee and revenue, was the Transactional Net Margin Method. The dispute that arose was with regard to the following observation of the Tribunal:

Where one of the prices determined by the most appropriate method is less than the price as indicated by the assessee. Then there would be no need to adopt the process of taking the arithmetical mean of all the prices arrived at through the employment of the most appropriate method.

The High Court held as under:

1) When more than one price is thrown up by the most appropriate method, the statute requires that the arm's length price shall be taken to be the arithmetical mean of such prices. This is the plain and simple meaning of the proviso to section 92C(2) of the said Act;

2) The Tribunal was wrong in holding that if one profit level indicator of a comparable, out of a set of comparables, was lower than the profit level indicator of the taxpayer, then the transaction reported by the taxpayer was at an arm's length price;

3) The proviso to section 92C(2) is explicit in that where more than one price is determined by most appropriate method, the arm's length price would be taken to be the arithmetical mean of such prices – CIT v. Mentor Graphics ( Noida) (P.) Ltd. [2013] 32 taxmann.com 300 (Delhi)

Sec. 80-IB allowed to SSI located in industrially backward State even if it manufactures Schedule XI items

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An industrial undertaking recognized as an SSI and situated in an 'industrially backward State' will be eligible for deduction under section 80-IB, even if it manufactures items specified in Eleventh Schedule

In the instant case, the assessee was engaged in manufacturing of items specified in Eleventh Schedule and its manufacturing unit was located in Pondicherry, an 'Industrially backward state'. It was registered as small scale industry (‘SSI’) with the Directorate of Industries and Commerce Pondicherry. It claimed deduction under section 80-IB. The AO held that as the item manufactured by the assessee was an article specified in Schedule XI, it was not eligible for deduction under section 80-IB. On appeal, the CIT(A) allowed the claim of the assessee, on the ground that an SSI or an industrial undertaking situated in an industrially backward state, is eligible for deduction under section 80-IB even if it manufactures items specified in Eleventh Schedule. Revenue appealed to the Tribunal against such order.

The Tribunal held in favour of assessee as under:

1. The section 80-IB deductions in the case of an undertaking situated in industrially backward area (as specified in VII Schedule) is governed by the provisions of Sec. 80-IB(4). The only requirement in such case is that the industrial undertaking should be located in an industrially backward State;
2. All SSI units can also take exception to clause (iii) of sub-section (2) of section 80-IB. Once the requirements of SSI are fulfilled, the assessee falls under the first limb of exceptions of proviso to clause (iii). In such a case, the assessee is eligible for deduction even if they manufacture items specified in 11^th schedule notwithstanding the location of the undertaking i.e. whether located in an industrially backward State or other states;

3. The exceptions specified in the proviso to clause (iii) i.e. being "Small Scale Industries" or "located in an industrially backward State" are independent of each order. The assessee is not required to fulfill both of these two conditions. If any one requirements is fulfilled the assessee is eligible for deduction, irrespective of the fulfillment of the other condition; and

4. Therefore, there is no good and valid reason to interfere with the reasoning of the CIT(A) – Dy.CIT v. Eye Photonics India (P.) Ltd [2013] 31 taxmann.com 387 (Chennai - Trib.)

Lord Shiva and Lord Hanuman are super natural powers and worshipping them isn’t a religion; Sec. 80G liberalized

Expenses incurred on worshipping of Lord Shiva, Hanuman, Goddess Durga and on maintenance of temple cannot be regarded as incurred for religious purpose.

In the instant case, the assessee-trust filed an application seeking approval under section 80G(5)(vi). The Commissioner took the view that the expenses incurred related to the religious object and since expenditure on religious object exceeded 5% of total income, he rejected application for approval under section 80G(5)(vi).

On appeal, the Tribunal held in favour of assessee as under:

1) Lord Shiva, Hanuman, Goddess Durga do not represent any particular religion, they are regarded as super natural powers of the universe;

2) Hindus consist of a number of communities having different Gods who are being worshipped in a different manner, different rituals, and different ethical codes. Even the worship of God is not essential for a person who has adopted Hinduism way of life. Thus, Hinduism holds within its fold men of divergent views and traditions who have very little in common except a vague faith in what may be called as the fundamentals of the Hinduism. Therefore, it cannot be said that Hinduism is a separate community or a separate religion;

3) Technically Hinduism is neither a religion nor a community. Therefore, expenses incurred for worshipping of Lord Shiva, Hanuman, Goddess Durga and for maintenance of temple cannot be regarded to have been incurred for religious purpose. Thus, the Commissioner was not correct, in law, in not allowing the approval to the assessee-trust under section 80G. Accordingly, the order of the Commissioner was to be set aside and the Commissioner was to be directed to grant approval to the assessee-trust under section 80G(5)(vi) - Shiv Mandir Devsttan Panch Committee Sanstan v. CIT [2012] 27 taxmann.com 100 (Nagpur - Trib.)