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2015 (5) TMI 1238 - ITAT AHMEDABADTP Adjustment - upward adjustment on account of determining the Arm’s Length Price of the international transactions - AO found that the assessee-company had exported printing inks as well as semi finished intermediates to various countries including USA and Europe. The assessee-company operates through a wholly owned subsidiary in USA with manufacturing facilities - HELD THAT:- Issue decided in favour of assessee as relying on assessee own case [2013 (8) TMI 332 - ITAT AHMEDABAD] wherein held that very foundation of impugned addition in arm's length price on account of excess credit period is thus devoid of any legally sustainable merits or factual basis. When all these factors were pointed out to the learned Departmental Representative, he did not have much to say except to place his bland but dutiful reliance on the orders of the authorities below. However, for the reasons set out above and in the absence of any comparative price and credit period figures on comparable product to support the case of the revenue, we uphold the grievance of the assessee and direct the Assessing Officer to delete this ALP adjustment. Disallowance of interest out of interest paid on account of not taking deposit from M/s. Mitsu Limited - AO observed that the assessee-company had given deposit of Rs.1 crore to Bilakhia Property Private Limited as per lease deed for taking the premises on lease from the said company and that the assessee-company had given part of the said premises on rent to M/s. Mitsu Limited without charging any deposit - HELD THAT:- CIT=A agreed with the contention of the Assessing Officer, that the interest bearing funds were not utilized by the assessee-company wholly and exclusively for business purpose; however, in the end he has deleted the addition in question. Hence, there is a contradiction between the observation and conclusion in the order of CIT(A) on this issue. In view of the above, both parties agreed that let the matter be restored to the file of CIT(A) on this issue as there is a contradiction in the observation and conclusion in the order of the CIT(A). Agreeing to same, we set aside the order of CIT(A) on this issue and restore the same matter back to him with the direction to decide this issue as per facts and law, after providing due opportunity of hearing to both the sides. Since we are restoring the issue for the aforesaid reasoning, we are refraining to comment on the merit of the issue at hand. This also takes care of the corresponding issue raised in Ground No.1 of the Revenue’s appeal. Exclusion of other incomes while computing profits eligible for deduction u/s 80IB in respect of its Silvassa 1 and Silvassa 2 Units - assessee-company has objected to the exclusions of other income made by the Assessing Officer while working out the profits eligible for deduction u/s 80IB in respect of Silvassa 1 and Silvassa 2 Units - HELD THAT:- As relying on assessee own case [2013 (8) TMI 332 - ITAT AHMEDABAD] matter restored to the file of the Assessing Officer with directions to decide the same as per fact and law after providing due opportunity of hearing. Disallowance of telephone and electricity expenses - AO observed that in the case of residential electricity and telephone, it is used by the entire joint family members of the Managing Director and the same cannot be treated as business expenditure - HELD THAT:- With regard to telephone expenses issue decided in favour of assessee as per on assessee own case [2013 (8) TMI 332 - ITAT AHMEDABAD] Regarding electricity expenses we find that electricity in bungalow was used by entire family members of Managing Director, so same cannot be said for business purpose. Accordingly, we uphold the findings of the CIT(A) whereby he has rightly upheld the additions on account of disallowance of electricity expenses pertaining to bungalow of Managing Director used by entire family. Disallowance of bad debts - CIT(A) has granted relief to the assessee on the ground that the assessee submitted the details of each and every debtor alognwith reasons for writing off the same - HELD THAT:- As CIT-A relied on provision of Section 36(2) and held that the assessee-company has satisfied the required conditions as per the provisions of Section 36(2) of the Act. The view taken by the CIT(A) is fortified by the ratio of the decision of Hon’ble Apex Court in the case of T.R.F. Ltd. vs. CIT, [2010 (2) TMI 211 - SUPREME COURT] - we uphold the order of the CIT(A) on issue. Disallowance of foreign travel expenditure - AO observed that though the assessee-company had given the names of the persons for whom expenses were incurred alognwith details of country of visit, the assessee could not give any justification about the purpose of visit and accordingly the Assessing Officer disallowed the same - HELD THAT:- We find that the ad-hoc disallowance at 1/10th of the expenditure incurred on foreign travelling expenses has been made by the Assessing Officer and the CIT(A) has deleted the addition in question, after verifying the details of the same. Moreover, similar relief has been given by ITAT in assessee’s own case for Assessment year 2002-03 to 2004-05 which has not been disputed by the Revenue - In view of the same, the order of the CIT(A), whereby he has deleted the addition, is hereby confirmed. Disallowance of depreciation claimed on HT lines for electricity supply in respect of Vapi-1 unit and Silvassa Unit - As per AO the assessee-company has not owned the HT Lines and was claiming depreciation on it - assessee, submitted that the assessee-company is the de-facto owner of the HT lines and dispute was about the allowability of depreciation on assets not legality of ownership of the company and this alternative submission of the assessee was not adjudicated by the lower authorities - HELD THAT:- Agreeing to submission of both the parties and in the interest of justice, we set aside the order of the CIT(A) in this regard and restore issue to the file of the Assessing Officer to decide the alternative claim of the assessee which has not been adjudicated. Of course the Assessing Officer will provide the adequate opportunity of being heard to the assessee. Since we are restoring the preliminary issue to the file of the Assessing Officer, we are refraining to comment on the merit of the issue at hand. Exclusion of discount earned on purchase of DEPB license while computing deduction u/s 80IB - CIT(A) observed that DEPB license purchased was an element of purchase cost and any discount received reduced cost of manufacturing and he, accordingly, directed the Assessing Officer to include the same as part of income from business for the purpose of calculation of deduction u/s 80IB - HELD THAT:- This view is fortified by the decision of Hon’ble Supreme Court in the case of Topman Exports [2012 (2) TMI 100 - SUPREME COURT] wherein it has been held that such discount actually reduces the cost of raw material and therefore it reduced the manufacturing cost of the assessee subsequently Hon’ble Supreme Court in case of CIT(A) vs. Orchev Pharma (P) Ltd.[2013 (7) TMI 232 - SC ORDER] has held that duty draw receipts do not form part of net profit of eligible industrial undertaking for the purpose of deduction u/s.80IA of Act. Assessing Officer is directed to decide the issue at hand in light of this legal discussion. Exclusion of income from the sale of scrap from the profits eligible for deduction/s 10B - HELD THAT:- The matter was carried before the First Appellate Authority, wherein he observed that scrap is natural outcome of the manufacturing process and the same is generated during the manufacturing process, thus, he directed the Assessing Officer to include the same as part of the income from business for the purpose of calculation of deduction u/10B. This issue is fortified by the decision of GE BE (P.) Ltd. [2015 (5) TMI 310 - KARNATAKA HIGH COURT]wherein the Hon’ble Court has held that when the assessee undertakes manufacturing or production activity and in process it results in any scrap, since said scrap attracts nexus between profits and gains derived from export business, income arising from sale of it is eligible for benefit of section 10B of the Act. Accordingly, we are not inclined to interfere in the findings of the CIT(A) who has rightly directed the Assessing Officer to include the same as part of income from business for the purpose of calculation of deduction u/s 10B. MAT Computation u/s 115JB - addition made to book profit u/s 115JB in respect of loss on wind farm project - AO added loss of windmill as negative income for calculating the book profit u/s 115JB - AO has made the addition to the book profit stating that loss represents negative profit - HELD THAT:- we find that the intention of legislature u/s 115JB appears to tax the book profit excluding the profit from industrial undertaking as mentioned and also from business of generation of power. As per the section 115JB, the loss shall not include depreciation or the amount of profits derived by an industrial undertaking from the business of generation / generation & distribution of power. Thus, from the provisions of the Act, it is clear that the intention of the legislature is not to tax the profits of an industrial undertaking which is entitled for 100% exemption and also the profit from generation of power. In view of these provisions of law, the CIT(A) held that the loss from such activities cannot be added to the book profit and accordingly, he added the loss to the book profit, treating the same as negative profit and directed the Assessing Officer to delete same for the purpose of computation of income u/s 115JB. This reasoned finding of CIT(A) needs no interference from our side. - Decided in favour of assessee.
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