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2016 (10) TMI 1303 - AT - Income TaxRecomputation of deduction claimed by the assessee u/s 80IB - CIT(A) had summarily rejected the claim of the assessee that R D activities carried on had no bearing with Pondicherry Unit - HELD THAT - As stated in the annual report for financial year 2004-05 that R D carried out by the assessee was to absorb the technology for air assisted direct injection for two stroke engines and product launch was proceeding as per schedule for Indian three wheeler application. It is not disputed by the lower authorities that products manufactured at Pondicherry Unit and Maraimalainagar Unit though similar were not identical. That the products were different is clear from the list enumerated in paper book page 110 - products were different - R D unit itself as such was situated in Maraimalainagar Unit. This is evident from letter dated 15.4.2004 of Ministry of Science and Technology of New Delhi giving recognition to the R DRP Unit placed at paper book page 62. When the assessee asserted that R D was exclusively for Maraimalainagar Unit and for its products in our opinion without any evidence being brought on record the lower authorities should not have taken a view that such expenditure was also relatable to Pondicherry Unit - reallocation of R D expenditure was not called for in the facts and circumstances of the case. Such reallocation of R D expenditure and the consequent reduction in claim u/s 80IB of the Act stands deleted. Benefit of deduction u/s 80IB denied - Foreign exchange fluctuation gain/loss - HELD THAT - . Rule of consistency requires that when foreign exchange loss is considered as expenditure for calculating deduction u/s 80IB of the Act in earlier years when there is a surplus in a subsequent year it should not be excluded. When a similar set of facts permeates through a number of years and there is nothing on record to show that a different view was required to be taken on such set of facts though rule of res judicata does not apply to income tax proceedings rule of consistency has to be applied unless there is a gross violation of law which calls for a deviation. We are of the opinion that the lower authorities erred in not allowing the claim of deduction u/s 80IB of the Act on foreign exchange gains. Reallocation of electricity and rental expenditure incurred for the Head Office to the Pondicherry Unit while working out deduction u/s 80IB - HELD THAT - As decided in own case 2011 (4) TMI 1342 - ITAT CHENNAI it was held by this Tribunal that assessee could not show why the Head Office expenditure ought not have been allocated in proportion to total turnover. The facts and circumstances being the very same we do not find any reason to interfere with the order of the CIT(A) in this regard. Ground Nos. 9 10 are dismissed. Claim of deduction by the R D Unit of Maraimalainagar Unit disallowed - HELD THAT - Assessee being already into the line of manufacturing fuel injection systems developing the technology for an improved version of fuel injection system cannot be considered as a new venture at all. In taking this view we are just fortified by the judgment of Apex Court in Alembic Chemical Works Co. Ltd 1989 (3) TMI 5 - SUPREME COURT - We also note from the break-up of expenditure given by the assessee in page 64 of the paper book that these were salaries travel and administrative expenditure technical guidance components consumables and tools preliminary fee etc. These payments do not give any enduring benefit to the assessee nor result in acquisition of any capital asset. In the circumstances we are of the opinion that the disallowance was not called for. Such disallowance stands deleted. Upward adjustment for notional interest calculated on the advances given by the assessee to its wholly owned subsidiary called M/s Amtec Precision Products Inc in USA - HELD THAT - Finding a comparable uncontrolled transaction where a loan was given to an entity which was subsidiary to the tested party and whose capital stood completely eroded due to loss was not practical or feasible. The simple reason is that no other person would have given any loan to such an entity whatever might be the interest rate since the chances of recovery was negligible. In such a situation when there could have been no reasonably identifiable comparable uncontrolled transaction computation of comparable uncontrolled price by applying of Rule 10B(1) fell at the threshold. Section 92C(1) prescribes computation of ALP by comparable uncontrolled price method resale price method cost plus method profit split method transactional net margin method and any other method prescribed by the Board could have been applied. In our opinion the question of benchmarking the transaction of the nature mentioned applying any of the methodology prescribed in sec.92C(1) did not arise at all due to the particular facts and circumstances. According to us fastening of an interest rate on the assessee when there was no comparable uncontrolled rate that could have been identifiable was incorrect. We therefore have no hesitation in deleting the addition made by the Assessing Officer/TPO. Interest u/s 234A - HELD THAT - We are of the opinion that this matter can be looked into by the Assessing Officer and if there was no delay in filing the return question of levy of interest u/s 234A of the Act would not arise. Accordingly this ground is allowed for statistical purposes. Addition based on TDS certificates - payment to the assessee fell u/s 194J of the Act and sec. 194C was mentioned by mistake - HELD THAT - Assessee had placed before the Assessing Officer letter dated 5.6.2013 issued by M/s Visteon Climate Systems India Ltd where they had mentioned that they had received some testing service from the assessee on which it had made a provision of Rs. 32 lakhs in its accounts. It was also mentioned by the said party that the payment to the assessee fell u/s 194J of the Act and sec. 194C was mentioned by mistake. It is also not disputed that Form 16A was updated by the deductor. In such circumstances we are of the opinion that the addition ought not have been made just for a reason that a mistake was committed by the deductor in the TDS certificate issued. In addition there was nothing on record to show that assessee had rendered any services which could earn it income of Rs. 1.6 crores. In our opinion the addition was not called for. Such addition stands deleted. Ground of allowed. Deduction u/s 80IA claimed on windmill division - HELD THAT - We find that the issue raised by the assessee is squarely covered in its favour by the judgment of the Jurisdictional High Court in the case of Velayudhaswamy Spinning Mills P. Ltd. 2010 (3) TMI 860 - MADRAS HIGH COURT - The SLP filed by the Department against the said judgment was dismissed by the Apex Court. In such circumstances we are of the opinion that prior year depreciation could not have been forcibly set off against the income of the assessee when the initial assessment year for which the assessee preferred the claim was different. We therefore allow Ground raised by the assessee.
Issues Involved:
1. Jurisdiction and authority of the Assessing Officer under Section 154 of the Income-tax Act, 1961. 2. Recalculation of deductions under Section 80IB. 3. Allocation of R&D expenditure. 4. Deduction eligibility of foreign exchange gains under Section 80IB. 5. Reallocation of Head Office expenditures. 6. Disallowance of R&D expenditure as capital expenditure. 7. Upward adjustment for notional interest on advances to a subsidiary. 8. Incorrect charging of interest under Section 234A. 9. Discrepancy in brought forward losses. 10. Non-grant of TDS credit. 11. Addition based on TDS certificates. 12. Deduction under Section 80IA for windmill division. Detailed Analysis: 1. Jurisdiction and Authority of the Assessing Officer under Section 154: The Revenue's appeal for the assessment year 2002-03 challenged the CIT(A)'s quashing of the Assessing Officer's order under Section 154. The Tribunal upheld the CIT(A)'s decision, stating that the Assessing Officer did not have jurisdiction to amend the assessment order based on an audit objection. The recalculation of the 80HHC deduction was beyond the scope of rectification under Section 154. Thus, the appeal was dismissed. 2. Recalculation of Deductions under Section 80IB: For the assessment year 2005-06, the assessee's appeal involved the CIT(A)'s confirmation of the recomputation of the 80IB deduction, resulting in an addition of Rs. 1,07,97,817. The Tribunal found that the reallocation of R&D expenditure to the Pondicherry unit was not justified, as the R&D activities were specific to the Maraimalainagar unit. Consequently, the recalculated deduction was deleted, allowing Ground Nos. 3 to 6 in favor of the assessee. 3. Allocation of R&D Expenditure: For the assessment year 2006-07, the sole issue was the reallocation of R&D expenditure to the Pondicherry unit. The Tribunal reiterated its earlier decision, stating that the reallocation was unwarranted as the R&D benefits did not extend to the Pondicherry unit. Thus, the appeal was allowed. 4. Deduction Eligibility of Foreign Exchange Gains under Section 80IB: The assessee's appeal for 2005-06 also contested the exclusion of foreign exchange gains from the 80IB deduction. The Tribunal held that consistency required the inclusion of such gains, as foreign exchange losses were previously considered as expenditure. Thus, the exclusion was deleted, allowing Ground Nos. 7 & 8. 5. Reallocation of Head Office Expenditures: The Tribunal upheld the reallocation of Head Office expenditures to the Pondicherry unit for the 2005-06 assessment year, citing a consistent approach from previous years. Therefore, Ground Nos. 9 & 10 were dismissed. 6. Disallowance of R&D Expenditure as Capital Expenditure: For the 2005-06 assessment year, the assessee's appeal involved the disallowance of Rs. 2,94,74,433 as capital expenditure. The Tribunal found that the expenditure was for the same product line and did not result in a new venture or acquisition of a capital asset. Thus, the disallowance was deleted, allowing Ground Nos. 11 & 12. 7. Upward Adjustment for Notional Interest on Advances to a Subsidiary: For the assessment years 2009-10 and 2010-11, the assessee contested the notional interest adjustment on advances to its subsidiary. The Tribunal held that the transaction could not be benchmarked using the CUP method due to the subsidiary's financial condition. The addition was deleted for both years, allowing the relevant grounds. 8. Incorrect Charging of Interest under Section 234A: For the 2010-11 assessment year, the Tribunal directed the Assessing Officer to verify the timely filing of the return and adjust the interest under Section 234A accordingly, allowing the ground for statistical purposes. 9. Discrepancy in Brought Forward Losses: The assessee's ground regarding brought forward losses for the 2010-11 assessment year was dismissed as the issue was resolved in subsequent rectificatory proceedings. 10. Non-Grant of TDS Credit: For the 2010-11 assessment year, the Tribunal directed the Assessing Officer to verify and grant the eligible TDS credit, allowing the ground for statistical purposes. 11. Addition Based on TDS Certificates: For the 2009-10 assessment year, the Tribunal deleted the addition of Rs. 160 lakhs based on erroneous TDS certificates, as the correct amount and section were subsequently updated by the deductor. 12. Deduction under Section 80IA for Windmill Division: The Tribunal allowed the assessee's claim for the 2009-10 assessment year, stating that prior year depreciation could not be forcibly set off against the income when the initial assessment year for the 80IA claim was different. Summary of Results: - Revenue's appeal dismissed. - Assessee's appeals for 2005-06 and 2009-10 partly allowed. - Assessee's appeal for 2010-11 partly allowed for statistical purposes. - Assessee's appeal for 2006-07 allowed.
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