2010 (4) TMI 889 - AT - Income Tax

Transfer pricing - adjustment - held that - AO has given more importance to the imports made by the assessee from China as the assessee had paid lesser price to Chinese DETPCL though the purity percentage was quite high or equivalent to the purity given by the AE of the assessee in Danmark. - addition delete. Written off of sundry creditor - set off from bad debts - held that - the assessee has taken only to the P&L account by reducing the net profit from the bad debts written off. In our opinion as rightly held by the ld CIT(A), the AO made double addition. Disallowance of ESIC contribution paid after the due date but before filing of returns Held that - In the case of Alom Extrusions Ltd. (2009 (11) TMI 27 - SUPREME COURT ) - addition made by the AO in respect of ESIC contribution deleted and the respective ground is allowed Disallowance of provision for non recoverable advance - AO made the disallowance on the ground that it is merely a provision which is not allowable business expenditure Held that - There is no basis for making the provision in respect of non-recoverable advances; we therefore, confirm the addition made by the AO In favor of revenue Lease premium written back from eligible profits for deduction u/s 80IB. assessee pleaded that the same is to be allowed, if the expenditure was debited to the P&L account in the earlier years Held that - This aspect has not been considered by the AO - assessee also argued that this issue has been decided in favour of the assessee in assesee s own case for assessment year 2001-02 and 2003-04 - issue in respect of the lease premium written back to the file of the AO - assessee is also directed to file the P&L account of the respective years, if any in which the said expenditure was debited. Restriction of deduction u/s 80HHC invoking section 80IB (13) r,.w.s 80IA(9) of the Act Held that - Assessee fairly submitted that this issue has been decided against the assessee in asseesse s own case - issue is decided against the assessee and accordingly, the ground of the assessee is dismissed against assessee

Issues Involved:
1. Deduction under Section 80IB for interest received from debtors.
2. Deduction under Section 80HHC for interest received from debtors.
3. Addition under Section 92CA(3) concerning Arm's Length Price (ALP) of international transactions.
4. Addition under Section 41(1) for sundry creditors written back.
5. Disallowance of ESIC contribution paid after the due date but before filing returns.
6. Disallowance of amortization of lease premium.
7. Disallowance of provision for non-recoverable advances.
8. Disallowance of claim for bad debts written off.
9. Reduction of various incomes from eligible profits for deduction under Section 80IB.
10. Restriction of deduction under Section 80HHC invoking Section 80IB(13) read with Section 80IA(9).

Detailed Analysis:

1. Deduction under Section 80IB for Interest Received from Debtors:
The Revenue contended that interest received from debtors should not be considered for deduction under Section 80IB as it is not derived from the industrial undertaking. The CIT(A) directed the AO to allow the deduction, stating that the interest is inextricably linked with the industrial undertaking. The Tribunal upheld the CIT(A)'s decision, referencing the principles laid down in the case of Concept Pharmaceuticals, confirming that interest received from debtors is eligible for deduction under Section 80IB.

2. Deduction under Section 80HHC for Interest Received from Debtors:
The Revenue argued that interest from debtors should not be considered for deduction under Section 80HHC as it is not derived from export business. The CIT(A) allowed the deduction, stating that the interest has a direct nexus with the business. The Tribunal agreed, noting that the interest is part of the sale consideration and cannot be reduced by 90% as per Explanation (baa) to Section 80HHC.

3. Addition under Section 92CA(3) Concerning ALP of International Transactions:
The AO made an adjustment based on the TPO's determination of the ALP for the import of DETPCL from an associated enterprise. The CIT(A) deleted the addition, noting that the assessee purchased DETPCL from the domestic market at a higher rate and initially had quality concerns with Chinese DETPCL. The Tribunal upheld the CIT(A)'s decision, agreeing that the price paid to the associated enterprise was at arm's length considering comparable uncontrolled transactions.

4. Addition under Section 41(1) for Sundry Creditors Written Back:
The AO added Rs. 9,99,033 to the income for sundry creditors written back, which the CIT(A) deleted, stating the amount was already debited to the P&L account. The Tribunal confirmed the CIT(A)'s decision, agreeing that the AO made a double addition.

5. Disallowance of ESIC Contribution:
The assessee's ESIC contribution of Rs. 4,148 paid after the due date but before filing returns was disallowed by the AO. The CIT(A) deleted the disallowance, and the Tribunal upheld this decision, referencing the Supreme Court's ruling in CIT vs. Alom Extrusions Ltd.

6. Disallowance of Amortization of Lease Premium:
The CIT(A) disallowed the amortization of lease premium paid on a plot taken on lease from GIDC, following the Tribunal's previous decisions in the assessee's own case. The Tribunal confirmed this disallowance.

7. Disallowance of Provision for Non-Recoverable Advances:
The AO disallowed the provision for non-recoverable advances, which the CIT(A) upheld. The Tribunal agreed, stating there was no basis for the provision. The assessee's alternative plea for direction to allow in the year of written off was dismissed as the relevant assessment year was not before the Tribunal.

8. Disallowance of Claim for Bad Debts Written Off:
The AO disallowed the bad debts of Rs. 12,33,837, and the CIT(A) confirmed this. The Tribunal remanded the issue back to the AO for verification of whether the advances were for the purchase of raw materials, directing the AO to allow the claim if verified.

9. Reduction of Various Incomes from Eligible Profits for Deduction under Section 80IB:
The AO reduced interest from the bank, interest on ICD, miscellaneous income, and lease premium written back from eligible profits. The Tribunal upheld the reduction of the first three items as they were not pressed by the assessee. For the lease premium written back, the Tribunal remanded the issue to the AO for verification, directing consideration of the Tribunal's previous decisions in the assessee's own case.

10. Restriction of Deduction under Section 80HHC Invoking Section 80IB(13) Read with Section 80IA(9):
The CIT(A) restricted the deduction under Section 80HHC by invoking Section 80IB(13) read with Section 80IA(9). The Tribunal confirmed this restriction, referencing its previous decisions in the assessee's own case and the Special Bench decision in ACIT Hindusthan Mint & Agro Products P Ltd.

Conclusion:
The appeal of the Revenue was dismissed, and the Cross Objection of the assessee was partly allowed for statistical purposes.

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