2013 (5) TMI 862 - AT - Income Tax

Issues Involved:
1. Transfer Pricing Adjustment
2. Disallowance u/s 14A
3. Disallowance of R&D Expenditure
4. Disallowance of Commission to Non-Resident Agents
5. Disallowance of Demurrage Payments
6. Disallowance of Demurrage on Ships
7. Disallowance of Education Cess
8. Deduction u/s 10B for EOU
9. Disallowance of Contribution to Goa Mineral Ore Exporters Association
10. Disallowance of Additional Depreciation
11. Disallowance of Exchange Loss
12. Disallowance of Forward Contract Loss

Summary:

1. Transfer Pricing Adjustment:
The Assessee challenged the addition of Rs. 3,95,27,600/- as transfer pricing adjustment made by the TPO u/s 92CA. The Assessee argued that the transaction with BHP Billiton was not an "international transaction" with "associated enterprises" as defined u/s 92A(2)(m). The Tribunal found that the TPO made the addition based on assumptions and without establishing a relationship of mutual interest. The Tribunal deleted the addition, stating that the provisions of Sec. 92A(2)(m) were not applicable as no such relationship was prescribed.

2. Disallowance u/s 14A:
The Assessee contested the disallowance of Rs. 7,01,41,535/- u/s 14A r/w Rule 8D. The Tribunal noted that the Assessing Officer did not provide a clear finding regarding the incorrectness of the Assessee's claim. Following its decision for A.Y. 2009-10, the Tribunal deleted the disallowance, emphasizing the necessity of recording satisfaction by the Assessing Officer before applying Rule 8D.

3. Disallowance of R&D Expenditure:
The Tribunal addressed the disallowance of Rs. 1,36,91,148/- as R&D expenditure. It was noted that the Assessee had not claimed the expenditure as scientific research u/s 35. Following its previous decision, the Tribunal deleted the disallowance, recognizing the expenditure as incurred in the usual course of business.

4. Disallowance of Commission to Non-Resident Agents:
The Assessee contested the disallowance of Rs. 17,72,05,217/- paid as commission to non-resident agents. The Tribunal referred to its earlier decision and the Supreme Court ruling in GE India Technology Centre (P) Ltd., concluding that the Assessee was not liable to deduct TDS as the income was not taxable in India. The Tribunal deleted the disallowance.

5. Disallowance of Demurrage Payments:
The Tribunal upheld the disallowance of Rs. 1,27,25,674/- paid as demurrage to non-resident buyers, citing the Bombay High Court decision in CIT vs. Orient Goa Co. Pvt. Ltd., which held that such payments were liable for TDS.

6. Disallowance of Demurrage on Ships:
The Tribunal confirmed the disallowance of Rs. 23,36,879/- paid as demurrage on ships, following the same reasoning as for the demurrage payments to non-resident buyers.

7. Disallowance of Education Cess:
The Tribunal upheld the disallowance of Education Cess, following its previous decision for A.Y. 2009-10.

8. Deduction u/s 10B for EOU:
The Assessee claimed deduction u/s 10-B for its EOU at Codli. The Tribunal, following its decision for A.Y. 2009-10, held that the Assessee was entitled to the deduction. However, the Tribunal directed the Assessing Officer to re-compute the profit eligible for exemption after verifying the market value of the tailings used in the Codli unit.

9. Disallowance of Contribution to Goa Mineral Ore Exporters Association:
The Assessee contested the disallowance of Rs. 1,97,91,667/- contributed to the Goa Mineral Ore Exporters Association. The Tribunal allowed the expenditure as revenue expenditure, citing the Madras High Court decision in CIT vs. Coats Viyella India Ltd., and noting that the expenditure was incurred for the purpose of business without acquiring any asset of enduring nature.

10. Disallowance of Additional Depreciation:
The Tribunal addressed the disallowance of additional depreciation. Following its decision for A.Y. 2009-10, the Tribunal deleted the disallowance, recognizing the Assessee's entitlement to additional depreciation u/s 32(1)(iia).

11. Disallowance of Exchange Loss:
The Tribunal deleted the disallowance of Rs. 28,96,685/- being notional loss due to foreign exchange fluctuations, following the Supreme Court decision in CIT vs. Woodward Governor India Pvt. Ltd., which allowed such losses based on AS-11.

12. Disallowance of Forward Contract Loss:
The Tribunal deleted the disallowance of Rs. 26,01,697/- on account of forward contract loss, following its decision for A.Y. 2009-10 and the jurisdictional High Court decision in CIT vs. Badrida Gauridu(P) Ltd., recognizing the loss as incidental to business activities and not speculative.

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