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TMI Blog2013 (12) TMI 360X X X X Extracts X X X X X X X X Extracts X X X X ..... activity of manufacturing carried out in the said factory. He, therefore, disallowed the expenses aggregating to Rs. 16,65,272 incurred by the assessee in relation to Kavesar factory. Before the learned Commissioner of Income-tax (Appeals), it was submitted on behalf of the assessee that the factory at Kavesar was one of the several units of the assessee company and the business activities carried on at all these units was controlled from the head office at Lower Parel. It was contended that there being unity of control and management of finance as well as inter-lacing of funds and inter connection of all the business activities, mere discontinuation of one of the units did not amount to discontinuation of the business. Reliance in support of this contention was placed by the assessee on the decision of the hon'ble Supreme Court in the case Veecumsees v. CIT [1996] 220 ITR 185 (SC). Keeping in view the said decision of the hon'ble Supreme Court as well as all the relevant facts of the assessee's case, the learned Commissioner of Income-tax (Appeals) directed the Assessing Officer to allow the expenses claimed by the assessee in respect of Kavesar unit under the head "power, fuel an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... res. Since the issue of right shares was not for public subscription, a similar deduction claimed by the assessee under section 35D was disallowed in the assessments completed in the case of the assessee for the earlier years and following the same, the deduction claimed by the assessee under section 35D was disallowed by the Assessing Officer even in the year under consideration. The learned Commissioner of Income-tax (Appeals) confirmed the said disallowance following the decision of his predecessor in the assessee's own case for the earlier years. We have heard the arguments of both sides on this issue and also perused the relevant material on record. It is observed that the issue relating to the assessee's claim for deduction under section 35D came up for consideration before the Tribunal in the assessment year 1999-2000 and the same was decided by the Tribunal in favour of the assessee by its order dated September 21, 2006 passed in I. T. A. No. 1330/Mum/2003 holding that the assessee was entitled to deduction under section 35D. The issue, however, was restored by the Tribunal to the file of the Assessing Officer for the purpose of quantifying the amount of deduction. As sub ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rtly sustained by the learned Commissioner of Income-tax (Appeals). During the year under consideration, the assessee-company had entered into two international transactions with its associate enterprise, namely, Kansai Paint Co. Ltd., Japan. One of the said two transactions involved a payment of royalty for use of technical know-how by the assessee-company to Kansai Paint Co. Ltd., Japan amounting to Rs. 5,82,21,494. The said royalty was claimed to be paid for supply of technical know-how as per agreement and the rate of royalty was stated to be 5 per cent. of the domestic sales and 8 per cent. of the export. Before the Transfer Pricing Officer, it was submitted by the assessee that apart from the related party, it had entered into agreements with other non-related foreign parties for supply of technical know-how and since the data relating to the said nonrelated foreign parties was available, the comparable uncontrolled price (CUP) method was considered as the most appropriate method. It was pointed out that a royalty to E.I. Du Pont De Nemours and Co., USA ("Dupont" in short) for supply of technical know-how was agreed to be paid at the rate of 3 per cent. on the domestic sales ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s for supply of technical know-how. Accordingly, the arm's length rate of royalty paid/payable by the assessee to its associated enterprise M/s. Kansai Japan was taken by the Transfer Pricing Officer at 4 per cent. and since the arm's length price of the royalty at the rate of 4 per cent. worked out to Rs. 4,65,77,195 as against Rs. 5,82,21,494 shown by the assessee, the required transfer pricing adjustment was worked out by him at Rs.1,16,44,298 in the order dated February 28, 2005 passed under section 92CA(3). As per the said order, addition was made by the Assessing Officer to the total income of the assessee on account of transfer pricing adjustment in the assessment completed under section 143(3) vide an order dated March 7, 2005. The matter was carried before the learned Commissioner of Income-tax (Appeals) and it was submitted on behalf of the assessee before him that the technology availed of from Kansai Japan and Oshima Japan for which royalty at the rate of 5 per cent. was paid, was meant to be used in auto and general industries whereas the technology availed of from Depont USA was meant to be used only for Ford India Ltd. and its associate. It was also submitted that t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Transfer Pricing Officer by adopting the same method, i.e., CUP as adopted by the assessee and by following the procedure laid down in section 92CA as well as the relevant rules. He contended that the learned Commissioner of Income-tax (Appeals) has already allowed substantial relief to the assessee by taking the rate of 4.5 per cent. as the arm's length rate of the royalty and there is no case of any more relief deserved by the assessee on this issue. We have considered the rival submissions and also perused the relevant material on record. It is observed that comparable uncontrolled price method was followed by the assessee to determine the arm's length price of the royalty paid to its associated enterprise, namely, Kansai Japan on the ground that there being similar payment of royalty made to two unrelated parties, the internal comparable uncontrolled prices are available. These two parties taken by the assessee were Oshima Japan and Dupont USA and since the royalty paid to them on domestic sales for supply of technical know-how was 3 per cent. and 5 per cent., the arithmetic mean of royalty rate was worked out by the Transfer Pricing Officer at 4 per cent. as per the relev ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .5 per cent. holding the same to be fair and reasonable without giving any basis as required by the provisions of section 92CA as well as the relevant rules, we find merit in the contention of the learned Departmental representative that no further relief is warranted on this issue as claimed by the assessee in ground No. 4 of this appeal. We, therefore, find no merit in the said ground and dismiss the same. The next issue involved in ground No. 5 relates to the computation of deduction under section 80HHC and the assessee has challenged the action of the authorities below in this regard in including sale of raw materials amounting to Rs. 1,05,39,715 in the total turnover and exclusion of 90 per cent. of insurance claims, sales-tax refund, interest and lease rental receipts from the profits of the business while calculating the deduction under section 80HHC. At the time of hearing before us, the learned representatives of both sides have agreed that both aspects of the matter relating to computation of deduction under section 80HHC as raised in ground No. 5 are covered against the assessee by the orders of the Tribunal in the assessee's own case for the earlier years, i.e., asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e, therefore, confirmed the disallowance made by the Assessing Officer out of interest. We have heard the arguments of both sides on this issue and also perused the relevant material on record. It is observed that a similar issue was involved in the assessee's own case for the immediately preceding year, i.e., assessment year 2001-02 and the Tribunal vide its order dated March 28, 2012 deleted the disallowance made on account of interest holding that the assessee had sufficient interest-free funds at the relevant time to make investment in the shares of its subsidiary company. The Tribunal in this regard relied on the decision of the hon'ble Bombay High Court in the case of CIT v. Reliance Utilities and Power Ltd. [2009] 313 ITR 340 (Bom) wherein it was held that in the case involving common funds, there is a presumption that the investments are made from non interest bearing funds. Respectfully following the decision of the coordinate Bench of this Tribunal in the assessee's own case for the assessment year 2001-02 on a similar issue, we delete the disallowance made by the Assessing Officer and confirmed by the learned Commissioner of Income-tax (Appeals) and allow ground No. 6 of ..... X X X X Extracts X X X X X X X X Extracts X X X X
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