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2017 (5) TMI 476 - AT - Income TaxDisallowance u/s.10B - Held that - When it is found that at the relevant time the Development Commissioner granted the approval of 100% EOU in favour of the assessee-Company, which came to be subsequently ratified by the Board of Approval and as observed hereinabove as such the ratification shall be from the date on which the Development Commissioner granted the approval, both the learned CIT(A) as well as the learned Tribunal have rightly held that the assessee was entitled to deduction under Section 10B of the Act as claimed. We confirm the view taken by both the authorities below holding that the assessee was entitled to 100% EOU as claimed. See PCIT, GANDHINAGAR Versus ECI TECHNOLOGIES PVT. LTD 2015 (5) TMI 230 - GUJARAT HIGH COURT Disallowance on account of write-off of trade advances - Held that - There is no dispute that the assessee has actually written off ₹ 13,98,298/- being advance to the supplier. There is also no dispute relating to the return of moulds by the assessee on finding them not suitable for the purposes of its business. The undisputed fact is that the advance of ₹ 13,98,298/- was given by the assessee in its ordinary course of business. Therefore, any write off is a business loss incurred in the ordinary course of its business. Therefore, we do not find reason to interfere with the findings of the ld. CIT(A). Transfer Pricing adjustment - Held that - After giving a thoughtful consideration to the orders of the authorities below and after understanding the factual matrix, we fail to understand how the assessee is expected to explain the quantification of the varying difference in the discount given by two unrelated parties. The assessee could not have approached the two unrelated parties and have asked them to explain why they were giving discount to the assessee. The upward adjustments made by the TPO are uncalled for and, therefore, calls for no interference with the findings of the First Appellate Authority. Revenue appeal dismissed.
Issues Involved:
1. Deduction under Section 10B of the Income Tax Act. 2. Write-off of trade advances as business loss. 3. Transfer Pricing adjustment related to the sale of raw materials. Issue-wise Detailed Analysis: 1. Deduction under Section 10B of the Income Tax Act: The primary issue was whether the assessee was entitled to a deduction under Section 10B of the Income Tax Act for the Assessment Year (A.Y.) 2009-10. The Assessing Officer (A.O.) had disallowed the deduction on the grounds that the ratification by the Board of Approval (BoA) was not obtained until after the assessment order was passed. The Commissioner of Income Tax (Appeals) [CIT(A)] allowed the deduction, citing that the approval granted by the Development Commissioner was subsequently ratified by the BoA, which relates back to the original date of approval. This position was supported by the CBDT Instruction dated 09/03/2009. The Tribunal upheld the CIT(A)'s decision, noting that the Hon’ble Jurisdictional High Court of Gujarat had also ruled in favor of the assessee on this matter, confirming that the assessee was entitled to the deduction under Section 10B. 2. Write-off of Trade Advances as Business Loss: The second issue was whether the write-off of trade advances amounting to ?13.98 lakhs could be considered a business loss. The A.O. disallowed the write-off, arguing that the assessee, not being in the banking business, could not claim such a write-off. The CIT(A) reversed this decision, recognizing the write-off as an actual business loss incidental to the assessee's business. The Tribunal agreed with the CIT(A), emphasizing that the advance was given in the ordinary course of business and the write-off was justified due to the cancellation of the order and non-recovery of the advance from the supplier. 3. Transfer Pricing Adjustment Related to the Sale of Raw Materials: The third issue involved a Transfer Pricing adjustment of ?5,55,03,842/- related to the sale of surplus raw materials (copper wires) to the assessee's Associated Enterprise (AE). The A.O. and Transfer Pricing Officer (TPO) questioned the varying discounts received from suppliers and the basis for these discounts. The CIT(A) found that the purchase prices from third parties were not disputed and that the discounts were commercially rational, given the quantity and terms of purchase. The Tribunal upheld the CIT(A)'s findings, noting that the assessee could not be expected to justify the varying discounts from unrelated suppliers and that the upward adjustment by the TPO was unwarranted. Conclusion: The Tribunal dismissed the Revenue's appeal on all grounds, affirming the CIT(A)'s decisions in favor of the assessee. The cross objection by the assessee was deemed academic and required no adjudication. The order was pronounced in open court on 02-05-2017.
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