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2017 (2) TMI 449 - AT - Income TaxDisallowance u/s 40(A)(9) - reimbursement of expenses of appellant made to its Staff Recreation club - Held that - This issue is covered by the decision of the co-ordinate bench of this tribunal in assessee s own case for the Asst Year 2003-04 Disallowance of deduction u/s 80HHC of the Act on total company as against the individual product wise claimed by the assessee - Held that - We find that as agreed by the ld AR that this issue is covered against the assessee by the decision of the Hon ble Apex Court in the case of IPCA Laboratory Ltd vs DCIT 2004 (3) TMI 9 - SUPREME Court as held that while computing the business profit for the purpose of section 80HHC of the Act, all the trading results of different units of the business of the assessee are to be aggregated and deduction u/s 80HHC of the Act would be allowable only when there is positive income of the business after such aggregation. Transfer pricing adjustment - comparable selection - Held that - Auction and Private Businesses are different in terms of the functions performed, risks assumed and hence should not be combined for the purpose of comparison. The auction business of the assessee is comparable with auction purchases with third parties. Price charged by the assessee on the international transactions computed on the basis of segmental results of Auction and Private Business is at Arm s Length and no adjustment need to be made thereon. In view of the above conclusion, the other contentions put forth on behalf of the assessee do not require any consideration. Disallowance of expenditure incurred on payment of cess on green leaf from composite income - Held that - Hon ble Calcutta High Court in the case of CIT vs A.F.T. Industries Ltd reported in (2004 (7) TMI 81 - CALCUTTA High Court) wherein it was held that the same was to be fully allowed from the composite income. Claim of depreciation - Held that - For purpose of computing the WDV of depreciable assets used in tea business, only 40% instead of 100% of depreciation allowable at the prescribed rate should be deducted.
Issues Involved:
1. Addition of notional interest on advances made to Haldia Petrochemicals Ltd. 2. Disallowance of expenditure on employees' recreation club under Section 40A(9) of the Income-tax Act. 3. Computation of deduction under Section 80HHC on a global basis versus individual product basis. 4. Adjustment to Arm’s Length Price (ALP) for international transactions. 5. Disallowance of expenditure on payment of cess on green leaf. 6. Allowance of depreciation as claimed by the assessee. Issue-wise Detailed Analysis: 1. Addition of Notional Interest on Advances to Haldia Petrochemicals Ltd: The first issue was whether the CIT(A) was justified in upholding the addition of ?1,18,71,000 towards notional interest on advances made to Haldia Petrochemicals Ltd (HPL). The assessee argued that the advances were made as a promoter and were to be adjusted against equity contributions, thus no interest was charged. The AO taxed notional interest at 12%, but the Tribunal set aside the issue to the AO for fresh consideration, following its earlier decision in the assessee’s case for the Assessment Year 2006-07. 2. Disallowance of Expenditure on Employees' Recreation Club: The next issue was the disallowance of ?5,50,000 under Section 40A(9) for expenses incurred towards the employees' recreation club. The assessee contended that these were employee welfare expenses and not contributions to any fund or trust. The Tribunal, following its earlier decision in the assessee’s case for Assessment Year 2003-04 and other precedents, directed the AO to delete the disallowance, stating that such reimbursements do not fall under Section 40A(9). 3. Computation of Deduction Under Section 80HHC: The third issue was whether the CIT(A) was justified in upholding the deduction under Section 80HHC on a global basis rather than on an individual product basis. The AO had aggregated the trading results of all businesses, following the Supreme Court’s decision in IPCA Laboratory Ltd. vs. DCIT. The Tribunal agreed with the AO and dismissed the assessee’s appeal, as the issue was covered against the assessee by the Supreme Court’s decision. 4. Adjustment to Arm’s Length Price (ALP): The fourth issue involved the adjustment made by the TPO/AO to the Arm’s Length Price (ALP) for international transactions. The assessee argued that the auction and private sales segments were distinct and should not be combined for comparison. The Tribunal agreed with the assessee, noting the different functions and risks in each segment. It held that the auction business was comparable with auction purchases from third parties and allowed the assessee’s appeal on this ground. 5. Disallowance of Expenditure on Payment of Cess on Green Leaf: The fifth issue was whether the CIT(A) was justified in deleting the disallowance of ?3,69,88,000 on payment of cess on green leaf. The AO had disallowed the expense based on the Gauhati High Court’s decision, but the CIT(A) followed the Calcutta High Court’s decision in CIT vs. A.F.T. Industries Ltd., which allowed the deduction from composite income. The Tribunal upheld the CIT(A)’s decision, noting that the Supreme Court had approved the Calcutta High Court’s decision in the case of M/s Apeejay Tea Co Ltd. 6. Allowance of Depreciation: The last issue was whether the CIT(A) was justified in allowing the depreciation as claimed by the assessee. The AO had disallowed the claim to keep the matter alive, pending the Supreme Court’s decision. The Tribunal upheld the CIT(A)’s decision, following the Calcutta High Court’s ruling in CIT vs. Suman Tea & Plywood Industries Pvt Ltd., which was approved by the Supreme Court in CIT vs. Doom Dooma India Ltd. Conclusion: The Tribunal partly allowed the assessee’s appeal for statistical purposes and dismissed the revenue’s appeal, upholding the CIT(A)’s decisions on the disallowance of notional interest, employees' recreation club expenses, and depreciation, while directing fresh consideration on the notional interest issue and allowing the assessee’s appeal on the ALP adjustment.
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