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2016 (3) TMI 639 - ITAT KOLKATADisallowance of bad debts - Held that:- in the AY 2002-03, the AO disallowed the bad debt on the reasons that party wise break up was not furnished before him and further it was also alleged by the AO in that year that the assessee had made an ad hoc adjustment in the provision for bad debt account and further the value of the sundry debtors had not been reduced at the year end. The allegation of the AO in relation to disallowance in regard to bad debt for the assessment years 2002-03 was totally different than the allegation raised by the AO in the instant years. However, Tribunal has to set aside the said issue to the file of the AO with a direction to verify as to whether the provision made for bad debts had been ever claimed by assessee. The AO has also allowed the bad debt after verification as directed by Tribunal in AY 2002-03. We find from the facts in entirety that the assessee had written off actual bad debt in the profit and loss account through the provision for bad debt created earlier, the details of which are filed by assessee at page 4 of assessee’s paper book and further at the year end the balance sheet of assessee has disclosed the sundry debtors at net of provision figure. In view of the facts and circumstances of the case and precedent cited above, we are of the view that bad debts claimed by the assessee are allowable and we allow accordingly. - Decided in favour of assessee Disallowance of write off on account of reduction in the value of stock - Held that:- he allegation of the lower authorities that the assessee company has not filed the details to substantiate that in the next year the obsolete stock of raw material were sold at reduced price as included in the closing stock in the AY 2003-04 has no basis as the assessee had not included the value of obsolete stock in the valuation of closing stock for the year ended 31.03.2003. This was done for the reason that such stock has become of nil value and question of selling the same in the next year does not arise. In view of these facts and circumstances, we are of the view that the action of the lower authorities in making addition and confirming the same in regard to provision for obsolete stock with the value of closing stock correspondingly increasing the value of opening stock in the immediate next year would lead to double taxation as the assessee company has to pay tax on the additional amount without getting the benefit of increased value of stock in the immediate next year. Accordingly, we delete this addition - Decided in favour of assessee Disallowance of annual contribution of gratuity to Group Gratuity Scheme of LIC - Held that:- We find from the facts of the case that the assessee during the relevant previous year created a provision with respect to gratuity amounting to ₹ 12,52,861/- and provision was debited to the P&L Account for the year ended 31.03.2003 and added back the same to the computation of total income. The assessee during the relevant assessment year made payment of gratuity amount of ₹ 31,89,486/- to gratuity fund being maintained by LIC. This fact is very much available in the accounts and tax audit report. We find that the assessee during the course of assessment proceedings filed details in regard to gratuity payment and provision made in the books of account and difference was only to the extent of ₹ 8116/- only. In view of the above reconciliation statement, we are of the view that the disallowance should be restricted to the extent of ₹ 8116/- only and that that extent the addition is confirmed and balance is deleted. - Decided in favour of assessee in part Transfer pricing adjustment - international transactions covered by the TNMM analysis (including the intra-group service charge paid /payable to Nalco Pacific) adhered to the arm’s length principle Transfer Pricing Regulation - Held that:- The first ground for confirming disallowance by CIT (A) that no independent documentary evidence had been furnished by assesse to show that the fact of actual services having been rendered to assessee and Nalco Pacific too could not substantiate the claim for provision of actual services with documentary evidence, has no leg to stand. Disallowance of intra-group service charge under the agreement between assessee and Nalco Pacific was fixed not with reference to any particular service - Held that:- The only alternative pricing arrangement available to Nalco Pacific was indirect-charge method. Ld. Counsel referred to page no. 190 and 191 of the assessee’s paper book, wherein 11 cost centre were engaged in rendering intragroup services to 14 group companies located in Australia, New Zealand, China, Malaysia, Taiwan, South Korea, Thailand, Japan, Philippines, Indonesia and India (i.e. the assessee) and the costs incurred by the respective cost centre were allocated to the group companies based on percentage of sales agreed between Nalco Pacific and the group companies. For instance, the assessee, under the agreement, agreed a net remittance to Nalco Pacific for the intra-group services up to a maximum of 2% of net sales for each calendar year. This method of allocation has been approved by the OECD Guidelines. Accordingly, the second ground of CIT (A) that the intra-group service charge under the agreement between the assessee and Nalco Pacific was fixed not with reference to any particular service and the intra-group service charge was calculated at a fixed percentage of sales of assessee, irrespective of which services were actually received by assessee or whether any services were received by it or not, has no leg to stand. Assesse made application dated 14th March, 2001 to the General Manager, Exchange Control Department, Reserve Bank of India. In the aforesaid application, assesse explained the scope of services receivable from Nalco Pacific under the aforesaid agreement, the benefits to be received by it from entering into the aforesaid agreement with Nalco Pacific and the maximum amounts to be remitted as consultancy charge to Nalco Pacific under the aforesaid agreement. In reply, the RBI intimated their "in-principle" approval for remittance of consultancy charge to Nalco Pacific @ 2% of net sales for the calendar year 2001. In view of this, weare of the view that the aforesaid payment (Rs. 1,51,74,980/-) made to Nalco Pacific @ 2% of net sales, having been the rate of consultancy charge approved by the RBI, are at arm's length price. Accordingly, we delete the addition and allow this issue of assessee’s appeals - Decided in favour of assessee Adjustment made by TPO in respect to disallowance of export of chemicals to associated enterprises - Held that:- We are of the view that characteristics of EC3210A/198 transferred in the uncontrolled transaction between assessee and Haldia Petrochemicals Ltd were not at all comparable to the characteristics of EC3210A/198 transferred in controlled transactions between assessee and Ondeo Nalco Thailand. The TPO did not adjust the price charged by assessee in the uncontrolled transaction in order to account for the aforesaid differences between controlled transaction and uncontrolled transaction. Hence, the application of the CUP Method made by the TPO in the above case was inappropriate.the assessee was bound to sell the chemicals at low prices to its associated enterprises to recover a part of the costs incurred in manufacturing the chemicals. Thus there was no room for the prices of the aforesaid chemicals to be determined by the free interplay of demand and supply forces in the open market. On the other hand, EC5300A/180 was sold to Bongaigaon Refinery Petrochemicals Ltd and EC3210A/198 was sold to Haldia Petrochemicals Ltd when the chemicals were in good physical condition and had demand from various customers. The prices at which the chemicals were sold to the aforesaid independent parties were determined by the free interplay of demand and supply forces in the open market. We further find that the TPO did not adjust the prices charged by assessee in uncontrolled transactions with Bongaigaon Refinery Petrochemicals Ltd and Haldia Petrochemicals Ltd on account of the differences in quality, reliability and availability of chemicals, volume of supply, geographical location, availability of raw material, demand and supply equation between the respective controlled transactions and the uncontrolled transactions in chemicals EC5300A/180 and EC3210A/198.Hence, we delete the addition/adjustment - Decided in favour of assessee Disallowance of ad hoc on the basis of amalgamation of Acqa Chemicals & Systems (Mfg.) Ltd. - Held that:- the changes as per the scheme of amalgamation approved by the Hon’ble High Courts were given effect to in the books of account for the AY 2003-04. Even Hon’ble ITAT in assessee’s own case for AY 2001-02 has held that the effect of amalgamation should be given effect to from the AY 2001-02 and not from AY 2003-04. and held that the AO should consider the revised return filed by assessee consolidating the financial results of both the entities for AY 2001-02. In view of these facts, we are of the considered view that the allegation of the lower authorities that the assessee has not given effect to the scheme of amalgamation in AY 2001-02 and 2002-03 is without any basis and accordingly, the ad hoc disallowance made by AO and confirmed by ld. CIT(A) to the extent of ₹ 5 Cr. is deleted.- Decided in favour of assessee
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