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TMI Blog2016 (5) TMI 265X X X X Extracts X X X X X X X X Extracts X X X X ..... . 12. 2008 178, 30, 01, 600/- I. T. A. /5474/Mum/2009-AY. 200405: 2. The first effective ground(GOA-1&2)of appeal, raised by the AO, is about deletion of disallowance of interest amounting to Rs. 1. 76crores. During the assessment proceedings, the AO observed that an amount of Rs. 11. 78 crores were shown as Capital Work in Progress (CWIP)as on 31/03/ 2004, that the assessee had claimed interest expenditure of Rs. 15. 80 crores. He directed the assessee to show cause as to why proportionate interest relatable to CWIP should not be disallowed. After considering the submission of the assessee, the AO disallowed the sum of Rs. 1, 76, 81, 096/-out of the interest expenditure, as interest relatable to CWIP. He computed the disallowance at the rate of 15% of the amount of CWIP. 2. 1. Aggrieved by the order of the AO, the assessee preferred an appeal before the First Appellate Authority(FAA). After considering the submission of the assessee, he held that the issue had been decided in favour of the assessee by his predecessor in the immediately preceding year, that the appeals filed by the Department against the order of his predecessor for the AY. s. 2000-01 and 2001- 02 had been dism ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed in favour of the assessee by the order of the Tribunal for the earlier years. The AR further relied upon the cases of Indo Nippon Chemicals Ltd. (261ITR275)and Mahalaxmi Glassworks Private Ltd. (318ITR116). We find that the Tribunal vide its order dated 30/11/ 2009, in the assessee's own case for the AY. 2002-03 had restored the matter to the file of the AO for giving effect to the provisions of section 145A in entirety and not restricting its operation to the value of closing stock alone, that in the set aside matter, the AO did not grant any relief, that the FAA granted relief to the assessee holding that no addition was required if one strictly followed the provisions of section 145 A of the Act, that the AO filed an appeal before the Tribunal challenging the order of the FAA, that the Tribunal vide its order dated to 2/05/2013 dismissed the appeal, filed by the AO. We find that while deciding the appeal for the AY. 2003-04(supra)has held as under: "2. 2. Before us, Authorised Representative(AR)stated that the Tribunal vide order dated 30. 11. 2009 (ITA2242/Mum/2006/-AY. 2002-03)had restored back the matter to the file of the AO, that the AO did not give effect to the order ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ack to the file of the AO. He would decide the issue after hearing the assessee. Ground no. 4 is decided in favour of the assessee, in part. 5. Fifth ground of appeal is about exclusion of 90% of the certain business receipts from the profit of the business for the purpose of computing deduction u/s. 80 HHC of the Act. While computing the deduction available 80HHC of the Act, the AO excluded Insurance Claim(Rs. 24. 11 lakhs), Sales of Chemicals and Scrap(Rs. 1. 33 Crores), Sales tax set off(Rs. 67. 04 lakhs), Registration charges written back(Rs. 5. 53 Crores)and Sales tax Refund(Rs. 43. 69 lakhs). The FAA deleted the exclusions made by the AO. 5. 1. Before us, DR stated that the matter could be decided on merits. The AR stated that issues regarding the Insurance claim and sale of chemicals and scrap was decided by the Hon'ble Bombay High Court in the case of Pfizer Limited(330 ITR62). She also referred to the case of Sony India (P. )Ltd. (118TTJ865). With regard to Sales tax refund and sales tax set off she relied upon the case of Alfa Lavel (India)Ltd. (295ITR451). For registration charges written back the AR relied upon the cases of Bisazza India Ltd. (ITA No. 1027 of 2010)and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it is found that in the case of Sony India Pvt. Ltd. (supra)the issue has been discussed as under: "7. As regards the other issue raised in ground No. 2 of the Revenue's appeal relating to the inclusion of miscellaneous income of Rs. 2, 16, 97, 607 in profits of the business for the purpose of computing deduction under s. 80HHC, it is observed that while computing the deduction allowable to the taxpayer company under s. 80HHC, the miscellaneous income of Rs. 2, 16, 97, 607 was excluded by the AO from the profits of the business relying on Expln. (baa) below s. 80HHC. Before the learned CIT(A), it was contended on behalf of the taxpayer company that the miscellaneous income received by it did not constitute any receipts of a nature similar to the items given in Expln. (baa). It was contended that the said income was comprised of receipts by way of sale of scrap, amounts written back, sale of spare parts, etc. and the same being derived directly from the business activities of the taxpayer company, they could not be excluded from the profits of the business for the purpose of computing deduction under s. 80HHC. Reliance in support of this contention was placed on behalf of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... profit after reducing unabsorbed depreciation. Before us, the AR fairly conceded that the issue stand decided against the order of the Tribunal for the AY. 2003-04, dated 16. 01. 2015 (supra). We find that the Tribunal had dealt the issue as under: "4. Ground no. 3 is about disallowance of deduction u/s. 80HHC of the Act. During the assessment proceedings the AO found that the assessee had made claimed deduction u/s. 80HHCof Rs. 10, 22, 55, 280/-against the gross total income of Rs. 34, 59, 62, 609/- , that it had also made a claim of brought forward losses and depreciation of Rs. 93, 08, 73, 001/-, that the gross total income had been considered before the set off of brought forward losses and depreciation. As per the AO it was an incorrect method, that the assessee was required to set off the brought forward losses and depreciation from the gross total income before the claim of deduction under Chapter VIA in view of provisions of Section 32(2) r. w. s. 72(2)of the Act, wherein the same was to be considered first before allowing any deduction u/s. 80HHC. He referred to the judgment of the Hon'ble Supreme Court in the case of Ipca Laboratories Limited(266 ITR 521)and held that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... price paid for purchase of PTC, the assessee filed a copy of invoice in respect of purchase of same material from an unrelated party namely Tatva Chintan(TC). The AO found that the name of the product in the bill issued by TC, was Triethyl Benzyl Ammonium Chloride. As the name of the product purchased by the assessee from GIL and the name mention in the invoice of TC did not match, the AO held that the assessee had failed to provide the necessary and comparable evidence relevant to purchase of PTC from its sister concern. He, accordingly, disallowed 20% of the purchase value i. e. Rs. 6. 94 lakhs invoking the provisions of section 40A(2)(b) of the Act. 7. 1. During the appellate proceedings, before the FAA, the assessee submitted that product name PTC and Triethyl Benzyl Ammonium Chloride was one and the same product, that the AO was factually wrong in stating that assessee did not provide the necessary and comparable evidence with regard to purchase from a sister concern. The assessee filed a copy of a certificate issued by TC before the FAA, wherein it was certified that the first was the common name whereas the second was specific name of the product. As per the assessee, that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ransaction entered into by the assessee with its AE and that entered with unrelated entity viz. difference in geographical markets difference on account of reseller versus end-user, that out of total volume sold 74% of the volume was sold to G-USA, that remaining export was made to the non-AE entities. Alternatively, it was submitted that in case party wise computation of price/Kg. of Diacamba sold to non-AE. s was to be considered then only those parties should have been considered to whom more than 5000 Kg. s of Diacamba was sold, that in such a case the average price charged to non-AE. s was USD 14. 64 per Kg. , that the average price charged by the assessee to G-USA was USD 14. 11, that it would meet the arm's length principle by exercising the provision to section 92C(2), that the TPO had not made adjustment in the price for certain differences such as custom duty registration, cost selling and distribution expenses, that the assessee had incurred expenses like commission freight and warehousing, while making sales to non-USA market, that USA and non-USA market were completely different, that while determining the ALP, for the year 2002-03, the TPO had allowed the adjustment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessee and had no other business activity, that any profit/loss occurring to the AE was on account of the products purchased from the assessee, that the AE had incurred a net loss of 10. 98% on sales, that 74% of the sale was made to G-USA, that there was no evidence of shifting of profit by the assessee to its AE, that it had charged USD 14. 11 per Kg. from its AE for the goods supplied, that the average sale price to non-AEs of USD 14. 64 per Kg. resulted in adjusted APL of USD13. 99 per Kg. In our, opinion there is no legal or factual infirmity in the order of the FAA. Therefore, confirming the same we decide ground no. 9 against the AO. ITA/5348/Mum/2009-AY. 2004-05: 9. Grounds of appeal No. 1 & 2, filed by the assessee, deals with Un-utilised modvat credit. While deciding the appeal filed by the AO(GOA-3)we have decided the issue against the AO, in part and matter has been restored back to the file of the AO. Following the same first two grounds stand allowed in favour of the assessee, in part. AO has to verify the facts as directed in the earlier part of our order. 10. Ground No. 3 is with regard to confirming reduction of 90% of business receipts while computing business ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rance claim formed part of the income of the business of the assessee and was liable to be considered as part of the profits of the business in view of Explanation (baa) to section 80HHC and held that 90 per cent. of the insurance claim could not be excluded. On appeal : Held, (i) that if the stock-in-trade of the assessee were to be sold, the income that was received from the sale of goods would constitute the profits of the business as computed under the head of profits and gains of business or profession. The income emanating from the sale would not be liable to a reduction of ninety per cent. for the simple reason that it would not constitute a receipt of a nature similar to brokerage, commission, interest, rent or charges. A contract of insurance was a contract of indemnity. The insurance claim in essence indemnifies the assessee for the loss of the stock-in-trade. The indemnification that was made to the assessee must stand on the same footing as the income that would have been realized by the assessee on the sale of the stock-in-trade. In these circumstances, the insurance claim on account of the stock-in-trade did not constitute an independent income or a receipt of a na ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e business for the purpose of computing deduction u/s. 80 HHC of the Act. We uphold the order of the FAA for the remaining four receipts. Ground number 3 is decided in favour of the assessee, in part. 11. Next ground deals with reduction of profits eligible for deduction u/s. 80HHC for the purpose of calculating book profits u/s. 115JB of the Act. During the course of hearing before us, representatives of both the sides agreed that identical issue has been decided in favour of the assessee by the Tribunal , while adjudicating the appeal for the AY. 2003-04 (supra). We find that the issue was dealt by the Tribunal as under: "12. Next ground of appeal pertains to deduction u/s. 80 HHC of the Act for purpose of calculating book profits u/s. 115JB of the Act. While deciding GOA no. 4 filed by the assessee, we have narrated the facts related with the question under consideration. 12. 1. Before us, Representative of both the sides conceded that issue was decided by the Tribunal in favour of the assessee. We find that originally the question was decided agaisnt the assessee. But, later on an appliaction was filed by the assessee u/s. 254 (2) of the Act before the Tribunal, who recal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) of the Act. It was brought to our notice that identical issue was decided by the Tribunal, while deciding the appeal for the AY. 2002-03 (ITA/916/Mum/2010 dtd. 03. 12. 2010). Relevant portion of the order reads as follow: "11. Even on merits there is no case for the Revenue. In fact the CIT(A) has analysed this issue elaborately and came to a conclusion that provisions of section 2(22)(e) are not attracted in the case of normal business transactions. The same principle was upheld by the Hon'ble Delhi High Court in the case of CIT vs. Raj Kumar 318 ITR 462 wherein this issue was elaborately discussed as under: - "Section 2(22)(e) of the Income-tax Act, 1961, shows that a payment would acquire the attributes of a dividend within the meaning of the provision if the following conditions are fulfilled : (i) the company making the payment is one in which the public are not substantially interested ; (ii) money should be paid by the company to a shareholder holding not less than ten per cent. of the voting power of the company. It would make no difference if the payment was out of the assets of the company or otherwise ; (iii) the money should be paid either by way of an adv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t in the case of Rohit Pulp and Paper Mills Ltd. v. Collector of Central Excise, AIR 1991 SC 754 and State of Bombay v. Hospital Mazdoor Sabha, AIR 1960 SC 610. The principles with regard to the applicability of the rule of construction are briefly as follows : (i) does the term in issue have more than one meaning attributed to it, i. e. , based on the setting or the context one could apply the narrower or wider meaning ; (ii) are the words or terms used found in a group totally "dissimilar" or is there a "common thread" running through them ; (iii) the purpose behind inserting of the term. In the instant case (i) the term "advance" has undoubtedly more than one meaning depending on the context in which it is used ; (ii) both the terms, that is, "advance" or "loan" are related to the accumulated profits of the company ; and (iii) the purpose behind the insertion of the term "advance" was to bring within the tax net payments made in the guise of loan to shareholders by companies in which they have a substantial interest so as to avoid payment of tax by the shareholders. The word M/s. Gharda Chemicals Ltd. "advance" which appears in the company of the word "loan" could only mean such ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eference to the TPO to determine the arm's length price(ALP) of the said transaction. On 23/1/2008, the TPO passed his order proposing certain adjustments. In pursuance of the order of the TPO, an adjustment of Rs. 5. 18 lakhs was determined in respect of usage charges paid to G-Aus. 17. 2. Before the FAA, in the appellate proceedings, the assessee explained that sale of chemicals in Australia compulsorily required a product registration and it was to be held by a company in Australia, that G-Aus was set up for the sole purpose of holding product registration to enable Gharada India sale in that region, that the Australian-AE held registration of certain products in Australia, that it had entered into an agreement with it on 18. 12. 2012 pursuant to which GAus allowed the it to use the said product registration held by the AE, that in lieu thereof it was agreed that assessee would pay usage charges products registration to its AE, that the usage charges was calculated in order to cover the general and administrative costs incurred by the AE for its operation, that for selling chloropyriphos(CPF)the AE procured registration data from Makhteshim Agan (Australia)Pty Ltd (MAA), that M ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le assets being registration rights would have to be reduced. On a querry by the AO in that regard, the assessee stated that in the event the TP adjustment proposed by the TPO were to be accepted capital loss on liquidation of investment held by the assessee in G-USA had to be recomputed, that after disallowance of revaluation of registration rights there would be a loss of Rs. 23. 06 crores, that the loss should be allowed to be carried forward and set off in the subsequent assessment years. After considering submission of the assessee, the AO held that the assessee had computed long term capital loss on shares of G-USA on liquidation of investment, the AE was hundred percent subsidiary company of the assessee, that it had taken over the 100% subsidiary company and all the assets and liabilities were taken over, that as per the provisions of section 47(iv)/ (v) transactions from the holding company to subsidiary company or vice versa were not regarded transfer, that provisions of section 45 of the Act were not applicable, that the computation of capital gains could not be carried out in respect of transactions with the AE, that adjustment of Rs. 23. 06 crores would result in rew ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cost for the production registration amounting to USD 1, 28, 6, 995. 33, that the above value was duly reflected as gross block in the books of the AE, that the valuer had considered the actual expenditure incurred on acquisition of registration rights as above while valuing the registration rights, that the AE had membership of three professional task force agencies formed under federal insecticide, fungicide, and rodenticide Act, that the membership of the above agencies was essential to maintain the registration of CPF and Diacamba, that the eligibility to sell the products by the assessee in USA depended solely on the ownership of the registration rights of the products as required by the law of that country, that the AO/TPO had made an adjustment of Rs. 23. 06 crores by rejecting the valuation of registration rights by an independent expert value, that the TPO had not read the valuation report in proper perspective, that the assessee had requested the valuer to further clarify the valuation report, that the valuer had reported that accurate determination of actually study costs paid by the that order was key in preparing the basis for valuing the total negotiated settlement p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... value compared to the valuation made by the valuer at USD15. 6 million, that the book value was also lower compared to the actual expenditure incurred of USD1, 58, 79, 306 on the registration of those products, that the TPO had merely rejected the valuation done by the valuer on the surmise without considering the evidences on record, that the adjustment made by the TPO by rejecting the revaluation of the registration right was not proper. Finally, he held that the consideration for registration rights, as adopted by the assessee as per the book value of Rs. 67. 99 crores in the books of the AE, had to be accepted. 18. 2. Before us, the DR relied upon the order of the TPO. The AR made the same submissions that were made before the FAA and supported his order. We have heard the rival submissions and perused the material before us. We find that the wholly owned subsidy of the assessee held registration rights in two products, that it had paid registration charges for selling those products in the US markets, that it had also paid other fees as required by the US laws, that it had incurred total expenditure of USD 1, 58, 79, 306 under the head registration charges, that the AE got t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sets received on liquidation of the G-USA at fair value. The FAA did not adjudicate the ground raised by the assessee on the basis that the ground was linked to TP adjustment of Rs. 23. 06 crores and held that he had decided the issue in favour of the assessee, that the ground was consequential and had lost its relevance. 20. 1. Before us, the AR submitted that TP adjustments and recalculation of longterm capital loss were two different things, that they were not linked with each other, that separate adjudication was required with regard to allowability or otherwise of the long-term capital loss. The DR left the issue to the discretion of the bench. 20. 2. After hearing the rival submissions, we are of the opinion that the FAA should have decided the issue raised by the assessee. The TP adjustments do not deal with computation/ re-computation of capital loss. Such computation will have its own consequences. The assessee had specifically mentioned that loss would have to be computed at Rs. 23. 06 crore as against Rs. 18. 2 to crores. As the FAA has not adjudicated the issue, so, in the interest of Justice, we are restoring back the issue to the file of the FAA for fresh adjudicati ..... X X X X Extracts X X X X X X X X Extracts X X X X
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