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II. Direct Taxes Case Laws:
1. M/s.
Sony Mobile Communication India Private Limited Vs. ACIT, I.T.A. No.
1085/Del./2017, Date of Pronouncement: 21.02.2019, ITAT - Delhi
Issue:
Whether arm length price adjustment of AMP expenses by applying bright line test method on protective basis tenable?
Held: No
Brief facts:
The
brief facts of the case are that the assessee M/s Sony Mobile
Communication India Pvt. Ltd is engaged in business of importing, buying
and selling mobile phones in India. During FY 2011-12, assessee has
entered into international transactions with its associated enterprises
& applied Transactional Net Margin Method as the method for
calculating Arm length price. However, the Ld.TPO applied the Bright
Line test method & made addition of Rs.1460228320 on protective
basis which was confirmed by Ld.DRP.
Being aggrieved, the assessee has filed an appeal before the Hon’ble ITAT.
Held
The
Hon’ble ITAT while relying on decision of Hon'ble Delhi HC in Perfetti
Van Melle India Pvt. Ltd. ITANo.1073/Del/2017 held that TP adjustment by
applying bright line test method on protective basis is not sustainable
in eyes of law. Consequently, protective adjustment made by TPO qua AMP
expenses has no statutory mandate.
Therefore, the appeal was held in favour of assessee and against the revenue.
Cases cited
1. Sony Ericsson Mobile Communication India (P.) Ltd. vs. CIT-III 55 taxmann.com 240 (Delhi HC).
2. Perfetti Van Melle India Pvt. Ltd. vs. DCIT ITA No.1073/Del/2017 (Delhi ITAT).
(Please click here for judgment)
2. Sparrowhawk
International Channels India P. Ltd. Vs DCIT, I.T.A. No. 216/Del/2014,
Date of Pronouncement: 25.02.2019, ITAT - Delhi
Issue:
Whether
loss arising out of conversion of ECB (External Commercial Borrowings)
taken for working capital needs into share capital be treated as revenue
loss?
Held: Yes
Brief facts:
The
brief facts of the case are that the assessee has been taking Working
capital loan in External Currency Borrowings (ECB) from its holding
Company in year 2001 & 2002 to meet its administrative expenses with
the due permission of RBI. The said loan was restated in Indian Rupees
at the exchange rate prevailing at close of financial year. The loan was
converted into Equity Shares on 9 February, 2009 based on exchange rate
prevailing on 9thFebruary, 2009.The loss on account of difference in
exchange rate between 1st April,2008 and 9th February, 2009 was
accounted as revenue loss as was being in earlier years on restatement.
The Ld.AO disallowed the amount of foreign exchange loss of
Rs.4,67,05,830/- on the grounds that it is not a revenue loss. On
appeal, the Ld. CIT(A) dismissed the appeal.
Being aggrieved, the assessee has filed an appeal before the Hon’ble ITAT.
Held
The
Hon’ble ITAT held that conversion of dollar denominated ECB into rupee
denominated share capital comprise of two different transactions, first
transaction being allotment of equity shares & second transaction
being repayment of ECB at exchange rate prevailing on 09.02.2009, the
loss arising out of such conversion is liable for deduction u/s 37 of
Income Tax. Hence, disallowance of Rs.4,67,05,830/- cannot be sustained.
Therefore, the appeal was held in favour of assessee and against the revenue.
(Please click here for judgment)
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