No TP adjustment for AMP exp. just because incidental benefit accrued to foreign AE

Facts:

a) Assessee-company had entered into an agreement with Widex, Denmark for distribution of digital hearing aids manufactured by it.

b) TPO noted that assessee had incurred huge AMP expenses which were disproportionate to that spent by comparable companies. He concluded that excess AMP expenses benefited AE only, for which assessee should be adequately compensated.

c) Accordingly, he applied Bright Line Test for determining non-routine spend on AMP by assessee. DRP confirmed said addition. Aggrieved-assessee filed instant appeal before the Tribunal.

Tribunal held in favour of assessee as under:

1) In the instant case, the AMP spend had been treated as an international transaction since it was found to be benefitting the foreign AE of assessee.

2) There was no finding of any clause in the agreement entered into between the two parties requiring the assessee to undertake brand promotion expenses on behalf of the AE.

3) The existence of some sort of arrangement between the assessee and the AE obliging the assessee to undertake AMP expenditure on behalf of the AE had not been demonstrated. Further, TPO had not been able to prove that the AMP expenses incurred was not for the benefit of the assessee.4) Merely because there was incidental benefit to foreign AE, it could not be said that AMP expenses incurred was for promoting brand of foreign AE. - [2017] 78 taxmann.com 348 (Chandigarh - Trib.)

2-year ban on practicing CA as he was actively involved in business through companies and trust

Facts:

a) Punjab National Bank filed complaint before council of the Institute of Chartered Accountant (ICAI) alleging that the respondent: a practicing chartered accountant (CA), had incorporated three companies, a trust and had diverted funds to companies and firms in which CA was associated with directly as a director or as a partner.

b) Council held that the CA was guilty of professional misconduct under Chartered Accountants Act, 1949 and recommended to the High Court that the name of the CA be removed from the Register of Members for a period of two years.

The High Court held as under:

1) There was evidence on record that CA was signing the balance sheet of various companies in the capacity as a director and was also operating the bank accounts and signing various applications submitted to the bank.

2) There was also evidence that CA had acted as the introducer when accounts of other companies were opened and significantly the addresses of these other companies were the same from where CA carried on his profession as a Chartered Accountant. 

3) A Chartered Accountant registered with the ICAI as practicing chartered accountant cannot be a director of a company without the permission of the ICAI. In the instant case, being a chartered accountant the respondent was actively carrying on business through companies, trusts and firms.

4) Thus, removal of CA’s name from the Register of Members of the Institute of Chartered Accountants for a period of two years was affirmed. - [2017] 79 taxmann.com 9 (Delhi) 

Ahmedabad ITAT imports make available clause in India- Belgium DTAA from India-USA DTAA

Facts:

a) Assessee made remittances to companies located at USA, Canada and Belgium towards technical consultancy and professional services without withholding tax in terms of section 195

b) Assessing Officer observed that the payments made to the foreign parties were in nature of included services/technical services and, thus, were taxable in India. AO held that assessee was liable to pay tax under section 201(1).

c) CIT (Appeals) held that the services would not fall within the purview of fees for technical services and, hence, there was no liability to withhold tax at source. Aggrievedrevenue filed instant appeal before the Tribunal.

Tribunal held in favour of assessee as under:

1) Because of the MFN clause, the scope of fees for technical services under the India- Canada DTAA and the India-USA DTAA was more restricted than that under India- Belgium DTAA. The language of article 12 of the aforesaid two treaties shall apply to the DTAA between India and Belgium.

2) After importing make available clause in India-Belgium DTAA, services provided by the non-resident parties would not fall within the purview of included services/technical services and, hence, there was no liability on the assessee to deduct TDS under section 195. [2017] 78 taxmann.com 330 (Ahmedabad - Trib.)

SC to decide whether minor delay in furnishing Form 27C would make seller liable for no-collection of TCS; admits SLP

Assessing Officer made additions on the ground that the assessee had breached section 206C(1) as he failed to timely submit buyer’s declaration for non-collection of TCS in Form-27C. CIT(A) and the Tribunal ruled in favour of assessee.

On further appeal by the revenue, the High court held as under:-

a) Section 206C(1A) provides that the liability to collect TCS u/s 206C(1) does not arise if the buyer has furnished tax declaration in Form-27C to the Commissioner.

b) Section 206C(1A) itself does not provide for any time limit within which, such declaration is to be made. The main thrust of sub-section (1A) of section 206C is to make a declaration as prescribed, upon which the liability to collect tax at source under sub-section (1) would not apply.

c) When there was no dispute about such a declaration being filed in a prescribed format and there was no dispute about the genuineness of such declaration, mere minor delay in filing the said declaration would not defeat the very claim. Aggrieved by the order of the High Court, revenue filed Special Leave Petition (SLP)

before the Supreme Court. Now, the apex court has admited SLP against High Court's ruling. [2017] 78 taxmann.com 295 (SC)

5-year ban on CA for issuing incorrect certificate of share application money

A Chartered Accountant (CA) issued certificates to company for listing of its shares for trading in stock exchange, without verifying same with statement of accounts issued by bank to company. On basis of report submitted by SEBI on unusual price movement of company's shares, Disciplinary Committee of ICAI found CA guilty of professional misconduct as he failed to render any explanation as to why he did not cross-check with the statement of account issued by bank to company. Accepting the report of the Disciplinary Committee, the Council (ICAI) at its meeting recommended removal of the name of the CA from the Register of Members of the ICAI for a period of 5 years.

The Delhi High Court sustained the decision of removal of the name of CA from the Register of Members of the ICAI for a period of 5 years. [2017] 78 taxmann.com 304 (Delhi)

CBDT to issue legal notice to taxpayers who haven’t responded to cash deposit verifications

The Govt. had demonetized Rs500 and Rs1,000 notes on 8 November 2016. Taxpayers were required to deposit the demonetized note till 30 December 2017 in their bank accounts.

Central Board of Direct taxes (CBDT) had sent emails and text messages to around 1.8 million taxpayers whose cash deposits looks suspicious. They were given time till 10 February 2017 to submit their response online; this was later extended to 15 February 2017.

However, many taxpayers have not submit their response even by such extended time. Now, CBDT will issue legal notice under section 133(6) to the taxpayers who haven’t responded to cash verifications within time. However, such notice shall be issued after obtaining the prior approval of Pr. CIT/CT/PR. DIT/DIT.

Notice shall be issued online and tax payers are required to submit online response within the time specified in such notice. If no response was submitted by the taxpayer within specified timeframe then AO couldinitiate action in accordance with the procedure prescribed in the Standard Operating Procedures.

Instruction No.4 of 2017 Dated 03 March 2017

Reimbursement for promoting Microsoft and Intel logo on assessee's products not liable to Service Tax

Background:

Assessee was engaged in the manufacture of personal computers and used the products of Intel and Microsoft for such manufacture. A specified percentage was paid by these two companies on the condition of including their logos on publicity material of the assessee. The reimbursements were mode from a fund created out of a contribution of the two entities that was directly linked to purchases effected in the past by the assessee. The Department raised demand on the ground that displays were for a consideration and the said consideration was liable to Service Tax.

Held:

On appeal to tribunal, tribunal held that the assessee was manufacturer of branded products and by no stretch of imagination, could it be inferred that in the process of promoting its own products, the components in the personal computers were also marketed for a consideration paid by Intel and Microsoft. A question that arose was whether the two suppliers benefited in any manner from the inclusion of their logos in the advertisement and publicity material deployed by the assessee. In scale and reputation, the assessee was incomparable with the two global giants.

It was difficult to conceive that the products of these two entities would find additional acceptability in the market owing to the inclusion of their respective logos. The products themselves were amenable to utilization only by computer manufacturers and the publicity, if any, among the potential customers of the assessee was unlikely to derive any economic benefits to the suppliers.

The tribunal pointed that reimbursement was from funds added in proportion to the procurements effected by the assessee from the two suppliers and not from enhanced sales attributed. The tribunal held that the scheme incentivized the assessee to procure more products from the two suppliers and to enhance the sales of the computers manufactured by the assessee. Such a benefit to the assessee would not qualify as promotion of product of client.

Click here to read full Judgement

CA guilty of professional misconduct as he failed to highlight suspicious book entries during audit

Facts:

a) The respondent (CA) was a partner of the partnership firm which was the Statutory Auditor of Pertech Computers Ltd (PCL). CA was incharge of the audit team.

b) A complaint was received by the Council from the Assistant General Manager, State Bank of India, against CA alleging that while carrying out the audit the respondent was guilty of various acts of commission and omission and, thus, action was to be taken against the CA for professional misconduct.

c) Council of ICAI noted that huge payments were made by PCL on behalf of its subsidiary, Altos India Ltd. (AIL) but no disclosure of the same was made by the auditor. Further, there were suspicious adjustment entries between AIL and PCL which ought to have raised a doubt about the genuineness of the transactions and ought to have been detected and reported by the CA.

d) Council held CA guilty of professional and other misconduct and removed his name from the register of members of the ICAI for a period of 5 years.

e) CA filed appeal before the High Court.

High Court held as under:

1) In its report the Committee highlighted the modus operandi adopted by PCL and AIL to form a loop with no cash flow coming in, but sales, stocks and receivables increasing.

2) It was the obligation of the auditor to comment on the internal control procedures of the company. The duty to enquire into whether the transactions were prejudicial to the interest of the company being not discharged by the auditors.

3) Keeping in view the scam which had taken place and the seriousness of the indictment of the CA the recommendation of the Council was accepted and the penalty of removing the name of the CA from the register of members of the ICAI for a period of 5 years was levied. - [2017] 78 taxmann.com 286 (Delhi)

Appeal against order of DRAT can't be entertained when pre-deposit isn't made: HC

Facts:

i. Writ petition was filed against an order passed by the Debt Recovery Appellate Tribunal (DRAT), Delhi where by it dismissed an appeal of petitioner on the ground of noncompliance of pre-deposit.

The High Court held as under:

a) Section 21 of the ‘Recovery of Debts Due to Banks and Financial Institutions Act, 1993’ provides that an appeal is preferred by any person from whom the amount of debt is due to a bank or a financial institution. Such appeal would not be entertained by the Appellate Tribunal unless such person has deposited with the Appellant Tribunal 75% of the amount of debt due from borrower as determined by the Tribunal.

b) An appeal cannot be entertained on ground of non- deposit of amount which is mandatory for an appeal to DRAT.

c) Thus, the instant writ petition couldn’t be entertained and the same was to be dismissed. - [2017] 78 taxmann.com 206 (Delhi)

No abuse of dominance by manufacturer of Range Rover due to existence of others brands like, Audi, Ferrari, BMW

Facts:

1. Lexus Motors Ltd (Lexus) is authorized dealer of cars manufactured by Jaguar Land Rover India Ltd. for sale and purchase of luxurious cars in the eastern region of India.

2. Informant had purchased one 'Range Rover Evoque Dynamic Car' ('Car') for personal use from Lexus. Soon after the purchase, the informant noticed many problems and defects in the car, such as gear problem, pick up, over heating of the gear nob, etc. After that, the car was sent to the service center of Lexus.

3. Due to the exclusive dealer in the eastern region of India, Informant alleged that the Lexus was abusing their dominance in the market for sale of high - end luxury cars.

The Competition Commission held as under:

a) There are many brands of luxury passenger cars which are available in India including Mercedes Benz, Ferrari, BMW, Audi, Porsche Volvo, Mitsubishi, Aston Martin, Maserati, etc., with a variety of models. The presence of a large number of players indicates that the market is competitive. Further, there are no significant barriers for other players to enter into the relevant market.

b) Thus, the Lexus did not hold a position of strength in the market of sale and purchase of luxurious car in India. [2017] 78 taxmann.com 228 (CCI)