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2009 (7) TMI 1270 - AT - Income TaxDisallowance of interest and administrative expenses - HELD THAT - Ld. Counsel for the assessee fairly stated that none of the authorities below has gone into the Rule 8D of Income-tax Rules, 1962 as inserted by the IT (Fifth Amdt.) Rules, 2008 w.e.f. 24-3-2008. Accordingly, he requested the Bench to set aside this issue to the file of the Assessing officer to reconsider the whole issue in the light of Rule 8D. The Ld. DR conceded the position. Accordingly, we set aside this issue to the file of the Assessing officer with the direction to re-adjudicate the same afresh in accordance with law after providing reasonable opportunity of being heard to the assessee. This issue of the assesse s appeal is allowed for statistical purposes. Deduction u/s 80IB on PAA plant - DEPB benefit - HELD THAT - We find that in the case of ELTEK SGS P.Ltd. 2008 (2) TMI 17 - DELHI HIGH COURT has allowed the claim on duty drawback. Since this High Court is in favour of the assessee and one High Court i.e., Hon'ble Punjab and Haryana High Court against the assessee, applying the case law of Hon'ble Apex Court in the case of CIT v. Vegetable Products Ltd 1973 (1) TMI 1 - SUPREME COURT , the beneficial view, which is in favour of the assessee is to be adopted. Respectfully following, the above, we allow the claim of the assessee and this common issue in both the appeals of the assessee is allowed. Deduction on the amount of deduction u/s 80IA and 80IB - reduced while calculating the deduction u/s 80HHC - HELD THAT - In the case of M/s. SCM CREATIONS 2008 (3) TMI 223 - MADRAS HIGH COURT , it is noticed that, the amendment brought out in Chapter VIA of the Act and introduction of section 80IA(9) was not brought to the notice of the Hon ble High Court. The Hon ble Special Bench of Chennai in the case of Rogini Garments 2007 (4) TMI 122 - ITAT, CHENNAI has already considered the case law of J.P. Tobacco Products P.Ltd. 1996 (8) TMI 29 - MADHYA PRADESH HIGH COURT and has also considered the amended provisions of section 80IA(9) of the Act. Respectfully following the Special Bench of Chennai in the case of Rogini Garments (supra), which now stands confirmed by a Five Members Special Bench, Delhi, we are of the view that relief u/s 80-IA should be deducted from the profits and gains of the business before computing relief u/s 80HHC of the Act. Accordingly, this issue of the assessee s appeal is decided against the assessee and in favour of the Revenue. Accordingly, this issue of the assessee s appeal is dismissed. Deduction u/s 80HHC - sale proceeds of DEPB license - HELD THAT - It is noticed that this issue relates to computation of deduction u/s.80HHC vis- -vis the income from DEPB. The Ld. Counsel for the assessee contended that this issue can be restored back to the file of the AO in view of the amendment as brought by Taxation Laws (Amendment) Act, 2005 w.e.f 1-4-1998 by virtue of which clause (iiid) is inserted in Section 28 and also Second , third and fourth provisos as inserted by this amendment. The Ld. Counsel for the assessee stated that neither of the authorities below has gone into the amended provisions and accordingly this issue can be set aside to the file of the Assessing officer. The DR also conceded this position. Accordingly, we set aside this issue to the file of the AO with the direction that the AO shall recomputed the deduction u/s.80HHC of the Act, in view of the amendment by the Taxation Laws (Amendment) Act, 2005 w.e.f 1 4-1998, after giving proper and reasonable of being heard to the assessee. Accordingly, this issue of the assessee s appeal is allowed for statistical purposes. Addition on account of transfer pricing adjustment - Arm s Length Price - manufacturing sale of Intermediates, dies, colours etc - two subsidiaries based in USA and UK namely, AAI and AEL - CUP method - HELD THAT - We are of the view that the CUP method compares the price charge for property transferred in a controlled transaction to the price charged for property transferred in a comparable uncontrolled transaction in comparable circumstances. If there is any difference between the two prices, this may indicate that the conditions of the commercial and financial relations of the associated Enterprises are not at arm s length and, that the price in the uncontrolled transaction may need to be substitute for the price in the controlled transaction. In the cases, where controlled and uncontrolled transactions are comparable, then regard should be had to the effect on price of border business function other than just product comparability. The examples provided in the OECD guidelines of Transfer Pricing Guidelines for Multinational Enterprises and Tax Administration has discussed how the CUP method is to be applied. The Hon'ble Banagalore Special Bench in the case of Aztec Software Technology Services Ltd. 2007 (7) TMI 50 - ITAT BANGALORE has also held that taxpayer as a party to the transaction has full knowledge of transaction carried out and as a personal associate with that particular line of business, the assessee reasonably accepted to be not only aware about nuisance of that business and but also economic conditions and peculiar situation of that business. The Bench further held that the assessee knew even about the comparable uncontrolled transaction, and therefore it is reasonable to call upon the taxpayer to furnish controlled / un controlled transactions which are within taxpayer s special knowledge. Accordingly, the burden placed on the assessee is not discharged in the present case before us as the assessee has not filed the details before TPO or the Assessing officer. The relevant details, i.e. the transaction carried out of comparable controlled and uncontrolled transactions. In view of these facts, and in the absence of material, we have no alternative but to expect to set aside this issue to the file of the Assessing officer to decide the issue afresh after giving reasonable opportunity of being heard to the assessee. The assessee may show that sale price of the controlled transactions are at arm s length. If there are differences between the controlled and uncontrolled transactions, then the assessee is entitled to the benefit of adjustment for such differences under the T.P. Rules. The AO/TPO is directed to pass a fresh order in the light of the above observations. This mater is set aside in the entirely to the file of the AO of this issue. Penalty levied u/s 271(1)(c) - disallowance of claim u/s.80IA and addition of transfer pricing difference of ALP - HELD THAT - Assessee has stated in his explanation that very same Assessing officer had scrutinized the return for assessment year 2001-02 and had made disallowance of the assessee s claim and hence, was aware about the legal stand of the assessee. The assessee is merely canvassing the same stand in the subsequent assessment year ie. Assessment year 2002-03 and hence, there is no question of any concealment or filing of inaccurate particulars in the return of income. The assessee also put the certificate of the chartered Accountant as required u/s 80IA(7) of the Act which also clearly demonstrate the bona fide of the assessee in making this claim. Thus, we find that that it is a difference of opinion on legal point of view and the assessee s explanation has never been held to be false and without that the penalty u/s.271(1)(c) of the Act cannot be levied. In the similar circumstances, the Hon'ble jurisdictional High Court in the case of J.C.I.T. v. Kiran Sytex Private Ltd. 2006 (9) TMI 555 - GUJARAT HIGH COURT held that penalty levied for claim of deduction u/s.80HHC of the Act, which was disallowed while the claim of the assessee was that it was under a bona fide legal belief that it was entitled to the deduction. The Hon'ble High Court affirmed the findings of Tribunal quashing the penalty u/s.271(1)(c) of the Act. Since the facts being similar, we respectfully following the Hon'ble jurisdictional High Court delete the penalty u/s.271(1)(c) of the Act on this issue. As regards to confirmation of penalty on account of addition of transfer pricing difference on ALP, the matter in quantum appeal has been set aside to the file of Assessing officer, the penalty cannot survive at this stage. However, the Assessing officer is free to initiate the penalty u/s.271(1)(c) of the Act if the facts warrant so during the course of assessment of set aside proceedings and as per law. Accordingly, this appeal of the assessee is allowed as indicated above. In the result, the appeals of assessee s are allowed for statistical purposes and that of Revenue s appeal is dismissed.
Issues Involved:
1. Thrusting of depreciation not claimed by the assessee. 2. Disallowance of interest and administrative expenses under Section 14A. 3. Disallowance of deduction under Section 80IA for a new power plant. 4. Disallowance of deduction under Section 80IB on DEPB credit. 5. Deduction under Section 80IA and 80IB to be reduced while calculating deduction under Section 80HHC. 6. Inclusion of excise duty in total turnover for deduction under Section 80HHC. 7. Interest capitalization and deduction. 8. Reduction of profits on account of sale proceeds of DEPB license while calculating deduction under Section 80HHC. 9. Addition on account of transfer pricing adjustment. 10. Penalty under Section 271(1)(c) for disallowance of claim under Section 80IA and addition of transfer pricing difference. Issue-wise Detailed Analysis: 1. Thrusting of Depreciation Not Claimed by the Assessee The Tribunal upheld the CIT(A)'s decision confirming the thrusting of depreciation not claimed by the assessee, citing the Special Bench decision in Vahid Paper Converters v. ITO. It was held that depreciation must be allowed while computing profits and gains for deductions under Chapter VI-A, regardless of whether the assessee claimed it in the return. 2. Disallowance of Interest and Administrative Expenses under Section 14A The Tribunal set aside the issue to the Assessing Officer (AO) to reconsider in light of Rule 8D of the Income-tax Rules, 1962. The AO was directed to re-adjudicate the issue afresh after providing a reasonable opportunity of being heard to the assessee. 3. Disallowance of Deduction under Section 80IA for a New Power Plant The Tribunal upheld the CIT(A)'s decision disallowing the deduction under Section 80IA, stating that the new power plant did not constitute a new industrial undertaking. The Tribunal noted that the new turbine alone could not be considered a new power plant as it relied on the existing boiler, making it an expansion of the existing undertaking rather than a new one. 4. Disallowance of Deduction under Section 80IB on DEPB Credit The Tribunal allowed the assessee's claim for deduction under Section 80IB on DEPB credit, citing the Delhi High Court's decision in CIT v. ELTEK SGS P. Ltd., which supported the inclusion of duty drawback as profits derived from the industrial undertaking. 5. Deduction under Section 80IA and 80IB to be Reduced while Calculating Deduction under Section 80HHC The Tribunal upheld the CIT(A)'s decision that deductions under Sections 80IA and 80IB should be reduced while calculating the deduction under Section 80HHC, in line with the Special Bench decision in ACIT v. Rogini Garments. 6. Inclusion of Excise Duty in Total Turnover for Deduction under Section 80HHC The Tribunal ruled in favor of the assessee, stating that excise duty should not be included in the total turnover for the purpose of calculating the deduction under Section 80HHC, following the Supreme Court's decision in CIT v. Lakshmi Machine Works. 7. Interest Capitalization and Deduction The Tribunal allowed the assessee's claim for interest deduction, following the Supreme Court's decisions in DCIT v. Core Health Care Ltd. and Munjal Sales Corporation v. CIT, which held that interest on borrowed capital used for business purposes is deductible. 8. Reduction of Profits on Account of Sale Proceeds of DEPB License while Calculating Deduction under Section 80HHC The Tribunal set aside the issue to the AO to recompute the deduction under Section 80HHC in light of the amendments by the Taxation Laws (Amendment) Act, 2005. The AO was directed to provide a reasonable opportunity of being heard to the assessee. 9. Addition on Account of Transfer Pricing Adjustment The Tribunal set aside the issue to the AO for fresh determination, directing the AO to consider the assessee's submissions and make necessary adjustments for differences between controlled and uncontrolled transactions. 10. Penalty under Section 271(1)(c) for Disallowance of Claim under Section 80IA and Addition of Transfer Pricing Difference The Tribunal deleted the penalty related to the disallowance of the claim under Section 80IA, citing a bona fide legal belief and absence of concealment or filing of inaccurate particulars. The penalty related to the transfer pricing adjustment was also set aside, with the AO free to initiate penalty proceedings during the reassessment if warranted. Conclusion: The Tribunal provided a detailed analysis and directions on each issue, ensuring compliance with legal precedents and providing opportunities for reassessment where necessary. The decisions reflect a balanced approach, considering both the assessee's and the Revenue's contentions.
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