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TMI Blog2018 (5) TMI 581X X X X Extracts X X X X X X X X Extracts X X X X ..... tted by Ld.AR that grounds raised by assessee and Revenue in their respective appeals are more or less identical on the transfer pricing issues, barring slight difference in corporate tax issues. 2.1. For sake of convenience Ld.AR started arguing for Assessment Year 2005-06. Assessment Year 2005-06 2.2. Brief facts of the case for the year under consideration are as under: Assessee filed its return of income for year under consideration declaring loss of Rs. 1,65,43,08,282/- on 31/10/2005. The case was selected for scrutiny and statutory notices were issued, in response to which representatives of assessee appeared before Ld.AO from time to time and filed requisite details. 2.3. Ld.AO during assessment proceedings observed that assessee is a company engaged in business of manufacture of optical and magnetic, storage media. The product range includes recordable compact discs (CD-R) rewritable compact disc (CDRW), pre-recorded CD/DVD, digital versatile discs in optical media and compact cassettes, micro floppy disks and digital audio tapes in magnetic media segment. 2.4. Ld.AO referred case to Transfer Pricing Officer (TPO), as assessee undertook international transactions with ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s is recorded by Ld.TPO in paragraph 10.2 at page 32-33 of his order that assessee refused to furnish relevant data of tested party selected by it and having regard to decision of this Tribunal in the case of Ranbaxy Laboratories Ltd vs. ACIT reported in 167 Taxmann 30., Ld.TPO rejected submissions of assessee regarding AE as tested party since its details were not easily available in public domain to test comparability. 2.9. It is recorded by Ld.TPO that details were called for in respect of products sold by assessee in domestic market and to submit profitability from exports to Associated Enterprises and to non-Associated Enterprises in response to which, assessee vide order sheet entry dated 18/02/2008 informed that no details of above could be prepared. 2.10. Ld.TPO accordingly rejected transfer pricing studies conducted by assessee by observing as under: "In view of the above stated reasons, the transfer pricing analysis carried out by the assessee was held as unreliable. The transfer pricing methodology of assessee was not found acceptable due to following reasons:- (i) The selection of GDM as a tested party was incorrect as both sales and cost were controlled transactio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be disallowed for purposes of deduction under section 10 B of the Act, more so since assessee failed to produce any order of extension of time for this purpose by RBI. 2.13. Ld.AO after considering submissions made by assessee rejected the claim and denied benefit under section 10 B, as there was no direct and proximate nexus between the said income and manufacturing activity of eligible undertaking. 2.14. Ld.AO observed that assessee during the year credited P&L account of eligible unit by a sum of Rs. 46,10,308/- and Rs. 1,09,59,410/- under the head 'miscellaneous income'. Ld.AO rejected said sums as in eligible under section 10 B, since it had no direct and proximate nexus with the manufacturing activity of assessee. 2.15. Ld. AO observed during the assessment proceedings that assessee incurred Rs. 37,73,17,928/- towards expenditure on royalty and fees for technical services. It was observed that royalty was paid in connection with grant of license/ intellectual property rights to assessee by various parties like Phillips, Hitachi, Thaiyo, Samsung and others for manufacture of products. Ld.AO called for party wise details and observed that total amount paid was to an extent ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e contract constituted profit and gains derived from the business of the undertaking eligible for deduction under section 10B of the Act. 3. That the Commissioner of Income-tax (Appeals) erred on facts and in law in disallowing a sum of Rs. 57,40,656 alleging the same to be incurred for earning exempt dividend income invoking provisions of section 14A of the Act. 3.1 That the Commissioner of Income-tax (Appeals) erred on facts and in law in observing that ".................. when the appellant is having both interest bearing and interest free funds, it cannot be said that from which bucket investment in mutual fund has been made as the money in fungible ............" 3.2 That the Commissioner of Income-tax (Appeals) erred on facts and in law in holding that since the appellant has taken long term loan of Rs. 2,94,35,40,490, it could not be said that the investment in mutual fund to the tune of Rs. 1,52,64,47,694 has not been made out of the borrowed funds. 3.3 That the Commissioner of Income-tax (Appeals) erred on facts and in law in not appreciating that the funds from internal accruals and equity available with the appellant were invested in mutual funds from which ex ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing principal item of product sold as per form 3CEB as sales to AE and 1,15,99,46,265 units being the balancing figure considering total units of principal and non principal item of sold as per form 3CD, as sales to non-AE. 4.6 Without prejudice that the Commissioner of Income-tax (Appeals) erred on facts and in law in computing profitability from sales made to AE and non-AE, by ignoring directly identified royalty expenditure. 4.7 Without prejudice that the Commissioner of Income-tax (Appeals) erred on facts and in law in ignoring profitability of AE and non AE segment computed as per the certificate issued by Chartered Accountant. 4.8 Without prejudice that the Commissioner of Income-tax (Appeals) erred on facts and in law in not allowing benefit of +/- 5% as per proviso to section 92C(2) of the Act. The appellant craves leave to add, alter, amend or vary from the aforesaid grounds of appeal before or at the time of hearing. 4. Ground No.1 This ground has been raised by assessee against the deduction disallowed by authorities below under section 10 B of the Act amounting to Rs. 3,53,61,363/- being export proceeds that were held to be unrealised. 4.1.Ld.AR submitted ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ealised within the period allowed by Circular dated 01.07.2005. 4.7. Before us also Ld.AR has not placed evidence on record to substantiate the realisation of export proceeds of Rs. 3,53,61,363/ was on or before the period allowed by Circular dated 01.07.2005. We therefore set aside this issue to Ld.AO for granting one more opportunity to assessee to substantiate by way of evidence regarding receipt of said sum on or before the period allowed by Circular dated 01.07.2005 to the satisfaction of Ld.AO. In the event no evidence is provided by assessee, the addition may be upheld. 4.8. In the result the ground raised by assessee stands allowed for statistical purposes. 5. Ground No. 2 This ground raised by assessee against disallowance of deduction under section 10 B of the Act on account of sale of forward exchange contract amounting to Rs. 4,25,37,688/-. 5.1. Ld.AR submitted that assessee earned by way of exchange fluctuation gain net of Rs. 51,15,567/- on sale of forward exchange contract amounting to Rs. 4,25,37,688/-and Rs. 7,47,56,086/-. It was submitted that gain on sale of forward contract was due to exchange fluctuation rate as forward contracts are devices to hedge for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s of computing disallowance as per Rule 8D, Assessing Officer has to record satisfaction regarding expenditure that is allocable for earning exempt income, having regards to accounts of assessee. He submitted that there is no such satisfaction that has been recorded by Ld.AO and therefore disallowance made by him is without jurisdiction. 6.3. On the contrary Ld. CIT DR placed reliance upon orders of authorities below. 6.4. We have perused the submissions advanced by both the sides in the light of records placed before us. 6.5. We agree with submissions advanced by Ld.AR in respect of non applicability of Rule 8D for year under consideration. Accordingly we are of considered opinion that Assessing Officer was wrong in computing disallowance under section 14 A as per formula laid down by Rule 8D. 6.6. However as per section 14 A (1) disallowance is called for, the moment assessee earns exempt income, for which no suo moto disallowance has been made by assessee. 6.7. We accordingly set aside this issue back to file of Ld. AO for recomputation of disallowance under section 14 A as per law. 6.8. Accordingly this ground raised by assessee stands allowed for statistical purposes. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... customer and the actual value of international transactions. The Hon'ble Jurisdictional High Court vide order dated 14.3.2013 (in ITA Nos 1828/2010, 1829/2010 & 1254/2011) had dismissed the revenue's appeal against the said order of the Tribunal. The Special Leave Petition (SLP) of the revenue against the said order has also been dismissed by the Supreme Court vide order dated 2.1.2014. Reliance is also placed on the judgment of Hon'ble High Court in the case of Sony Ericsson Mobile Communications India (P) Ltd. vs. CIT 374 ITR 118 wherein it has been held as under: "77. As a concept and principle Chapter X does not artificially broaden, expand or deviate from the concept of "real income". "Real income", as held by the Supreme Court in Poona Electricity Supply Co. Ltd. v. CIT [1965] 57 ITR 521, means profits arrived at on commercial principles, subject to the provisions of the Act. Profits and gains should be true and correct profits and gains, neither under nor over stated. Arm's length price seeks to correct distortion and shifting of profits to tax the actual income earned by a resident/domestic AE. The profit which would have accrued had arm's length conditions prev ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... paragraph 10.2-10.3 of Ld. TPO order that assessee failed to furnish entire details in respect of financials of tested party being GDM Dubai. He submitted that only function of GDM Dubai was to market manufactured products of assessee. And therefore sale invoices assumed paramount importance. He further submitted that assessee had not furnished details of profitability in terms of internal division. Further it is observed from limited financials of tested party placed at page 351 of paper book that there were related party transactions entered into by AE which could be separated only on the availability of invoices. In respect of comparables adopted by assessee it was submitted by Ld.CIT DR that these were foreign comparables for which vital financial details were neither furnished nor were available on public domain as has been observed by Ld. TPO in para 17 at page 65 of his order. * In respect of 2nd limb of argument Ld. CIT DR submits that this issue attained finality regarding arms length price of international transactions cannot exceed maximum arm's length price that is amount received by associated enterprise from customer and actual value of international transactions ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... unts due according to original terms of the receivables. A provision is made for the difference between the carrying amount and the recoverable amount. Bad debts are written off during the year in which they are identified. Revenue recognition Revenue comprises the invoice value of goods sold net of valueadded tax and discounts, after eliminating sales within the group. Revenue from sale of goods is recognised when significant risks and rewards of ownership of the goods are transferred to the buyer." 7.6. Further at page 354 it is observed that he has entered into related party transaction. 7.7. Thus the entire financial analysis is based on sales made by AE and therefore in our considered opinion sale invoices are relevant for purposes of analysing and benchmarking transaction with assessee. Ld.AR took plea before us that assessee do not have control over its AE and therefore it is not possible to obtain the financials as called for by Ld.TPO. It is difficult to buy this argument as independent auditor prepared financials after taking into consideration invoices and evidences supporting the amounts and disclosure in financial statements as recorded at page 344. In fact th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the case of CIT vs. Global Vantage Pvt.Ltd in TA No. 1828/2010 vide order dated 14/03/13. To succeed in this argument assessee shall provide all the details to ascertain the correct value of transaction received by A.E. 7.11. Accordingly this ground raised by assessee stands allowed for statistical purposes. 8. Accordingly appeal filed by assessee stands partly allowed for statistical purposes. 8. ITANo.1139/Del/2013 (Department's appeal) A.Y. 2005-06 1. Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) was justified in concluding that misc. income of Rs. 46,1 0,308/- was eligible for calculating deduction u/s 10B of the Act. 2. Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) was justified in deleting the disallowance made of Rs. 11,50,83,837/- on a/c of royalty and technical know-how in view of decision of the Hon'ble Apex Court in the case of Southern Switchgear LtdVs.CIT 232 ITR 359 & Kirlosker Oil Engineer Ltd. VS.CIT [1994] 206 ITR 13 ? 3. Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) was justified in restricting the disallowance u/s 14A to Rs. 57,40, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s keep on being invented by different players for which they own IPR. Ld.CIT DR submitted that manufacturer of product has capability to produce product however needs license of such IPR for production and has to pay royalty. Assessee in the present case is using technology licensed by various intellectual property parties like Philips, Hitachi, Taiyo, Samsung among others for manufacture of products against payment of royalty. Ld.CIT DR submitted that as assessee failed to provide details, assessing officer disallowed 25% of total royalty expenditure by placing reliance upon decision of Hon'ble Supreme Court in the case of Southern Switchgear Ltd vs. CIT (supra). 9.2. He submitted that agreement between assessee and parties categorically shows that latter would be granting assessee an indivisible, non-exclusive, non-transferable right and license to use the know-how and technical information for manufacture of product during the term of agreement within specified territory. Ld. CIT DR submitted that assessee has made payment to parties for know-how that has been made available to assessee which has resulted in benefit of enduring nature to assessee as assessee acquired right to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as per terms of agreement to contract out the manufacturing of HP branded products to HP approved 3rd parties and to appoint distributors for sale or distribution of HP branded products within the territory. 9.9. From the clauses referred to by Ld.AO in his order, it appears that, assessee acquired merely right to draw upon technical knowledge of foreign companies for a limited purpose of carrying on its business, and that foreign companies did not part with any of their assets absolutely for ever or for a limited period of time, that they continued to have the right to use their knowledge and, even after agreements had run their course, their rights in this behalf was not lost, that assessee had not, therefore, acquired any asset or advantage of an enduring nature for benefit of its business and that payments were, therefore, revenue in nature and were deductible. 9.10. Accordingly we do not find any infirmity in the findings of Ld. CIT (A) and the same is upheld. 9.11. In the result the ground raised by revenue stands dismissed. 10. Ground No. 3 Revenue raised this ground in respect of relief granted by Ld.CIT (A) in respect of disallowance under section 14 A. As we have ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessee and made addition in hands of assessee to the extent of provision shown as bad and doubtful. The Ld. AO rejected the assessee's contentions on the ground that assessee claimed it to be ascertained liability but has not given any documentary evidence regarding the actuarial valuation of the same. The Ld.AO was of the opinion that if there are any hopes of getting back part of debt, the debt cannot be categorised as bad debt and that being a provision assessee does not know the exact amount of debt which has become bad. Further Ld.AO was of the opinion that as these debts pertains to 10 A/10 B units, assessee has not established whether these amounts have been offered for taxation as income in any earlier years to be eligible for bad debt. 12.3. Ld.AO observed that assessee treated interest income of Rs. 2,17,02,726/- as business income derived from industrial undertaking eligible for grant of exemption under section 10 A/10 B. Assessee was asked to show cause vide letter dt. 07/03/06 as to why interest income should not be treated as income from other sources, as it has not been derived from industrial undertaking and accordingly be disallowed for the purpose of deduction un ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fficer (Ld.TPO) for determining arm's length price. During the Transfer Pricing proceedings Ld.TPO observed that most appropriate method applied by assessee was CUP in respect of sale of finished products to GMI. The methodology adopted was as under: I. entire sales to GMI (AE) during financial year 2002-03 were sorted on the basis of packing and memory size; II. comparable sales to all independent uncontrolled parties in Europe were also sorted on the basis of packing and memory size and; III. average sale price to GMI was adjusted on the account of adjustment for expenses of intermediary, adjustment for geographical differences, freight differentials. 12.7. Ld.TPO accepted adjustment made by assessee on account of freight adjustment but disagreed with adjustment computed on account of selling and distribution expenses of GMI. Ld.TPO observed as under: "7.5.3. The contention of the assessee company was that balance expenses are entirely for promoting export sales other than those to GMI. These include salary and allowances, staff welfare expense, rent, printing & stationery, postage telegram, telephone, advertisement and publicity, sales promotion & execution expenses an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... with section 92CA(1) of the Act. 3. That the Commissioner of Income-tax (Appeals) erred on facts and in law in not appreciating that reference made by the assessing officer to the TPO under section 92CA(1) of the Act without recording satisfaction that it was necessary or expedient so to do was unlawful and adjustment made by the TPO/assessing officer on the basis of such reference was invalid. 4. That the Commissioner of Income-tax (Appeals) erred on facts and in law in not holding that the international transactions entered into with the associated enterprise were at arm's length and no adjustment to the prices thereof was called for being made. 5. That the Commissioner of Income-tax (Appeals) erred on facts and in law in disregarding the adjustments made to the prices of international transactions of export to Glyphics Media Inc. (GMI) on account of geographical difference, for determining the arm's length price applying Comparable Uncontrolled Price (CUP) method holding that such adjustments were not correctly made. 6. That the Commissioner of Income-tax (Appeals) erred on facts and in law in holding that the benchmarking analysis in the instant case is to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd in law in not appreciating that the adjustment on account of geographical difference was made on the basis of instances of purchase of similar product by an unrelated party in Europe and USA during the relevant previous year. 14. That the Commissioner of Income-tax (Appeals) erred on facts and in law in upholding the adjustment on account of selling and distribution expenses incurred by the appellant at Rs.O.38 per CD allegedly being selling and distribution expenses incurred in distributing the products in non US locations. 15. That the Commissioner of Income-tax (Appeals) erred on facts and in law in holding that the appellant failed to come up with documentation to show that it treats the US and European market differently. 16. That the Commissioner of Income-tax (Appeals) erred on fact and in law in holding that the appellant did not produce adequate documentation for claiming adjustment on account of purchasing power priority considering the various variables, such as, interest rate, exchange rate, price level, etc. 17. That the Commissioner of Income-tax (Appeals) erred on facts and in law in disregarding prices paid for purchase of CDs in European and US by Im ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re the transfer prices fell short of the tolerance band of 95% of the arm's length price. 26. That the Commissioner of Income-tax (Appeals) erred on facts and in law in holding that for benchmarking analysis, each international transaction is to be compared with the arm's length price determined and the TPO was correct in following such a methodology. 27. That the Commissioner of Income-tax (Appeals) erred on facts and in law in holding the interest income of Rs. 2, 17,02,726/- in respect of deposits kept as margin money for LCs, etc., and income from other sources. 28. That the Commissioner of Income-tax (Appeals) erred on facts and in law in not appreciating that interest income on deposits kept as margin money for LCs., etc., were derived from industrial undertaking and hence eligible for deduction under section 10A/10B of the Act. 29. Without prejudice, that the Commissioner of Income-tax (Appeals) erred on facts and in law in not allowing deduction for interest expense against the above interest income on margin money for LCs, etc., holding that nexus between the two were not established. 30. Without prejudice, that the Commissioner of Income-tax (Appeal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vel and the cost of operations for the distributor in USA is much higher. Also, it has been stated that, the distributor in USA is dealing only in CDs exported by the assessee from India and is therefore, incurring significantly higher selling expenses on distribution/resale of products in that country. 20. Having regard to the above we accept the claim of the assessee for adjustment. The CIT(A) or the TPO have not denied or disputed any of the above factual submission to the assessee. A rejection of a claim for general consideration for granting an economic adjustment which on the face of fit is tenable is not a correct way to disregard the facts brought on record. The revenue ought to have appreciated the business and the nature of the market. The observation of the TPO that the export price of 10.4-II- 0 (Jewel-case CD box) to LG Electronics Inc. in USA was Rs. 13.59 per CD while sale prices of the same product in Poland and German, was Rs. 12.4 per CD is also found to be misconceived and therefore for the reasons stated above we allow the adjustment as claimed by the assessee. 21. Accordingly if the aforesaid adjustment is applied it is seen that the transaction of the as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... records placed before us. 13.6. On perusal of the order passed by this Tribunal for assessment year 2002-03 it is observed that factual matrix prevailed therein is identical to assessment year 2003-04, presently under consideration. There is no dispute by Ld.AO that the associated enterprise incurred loss for year under consideration. Further there is no allegation by Ld.TPO regarding deficiency in absence of any details, for purposes of computing ALP. Further assessee for year under consideration placed reference to Big Mac , as has been referred by this Tribunal in order for assessment year 2002-03 (supra) in assessee's own case(which has been reproduced herein above). It has been submitted that there is no factual changes and the international Transactions are same in both years with similar circumstances. 13.7. Accordingly respectfully following decision of coordinate bench of this Tribunal for assessment year 2002-03 (supra), we are of considered opinion that the claim of assessee for adjustment in respect of sale and distribution expenses of GMI as well as adjustment for geographical differences should be granted, as all relevant details have been filed by assessee for the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts made with the bank for obtaining letters of credit. However Ld. CIT (A) has placed reliance upon various decisions as under: * Hon'ble Supreme Court in the case of Sterling foods reported in 237 ITR 517 * Hon'ble Supreme Court in the case of Orissa Warehousing Corporation reported in 237 ITR 589 * Hon'ble Madras High Court in the case of South India shipping Corporation's reported in 240 ITR 24 * Hon'ble Kerela High Court in the case of Nanji Topen Bhai & Co vs. ACIT reported in (2002) 23 ITR 192 * Hon'ble Kerala High Court in the case of Joseph Thomas reported in 253 ITR 553 * Hon'ble Kerela High Court in the case of K.Ravinderanathan Nair vs. DCIT reported in 262 ITR 669 * Hon'ble Delhi High Court in the case of CIT vs. Shri Ram Honda Equip reported in (2007) 158 Taxmann 474 14.6. On perusal of all the above referred decisions, it is observed that these were cases where interest was derived by assessee from temporary parking of surplus funds in short-term deposits. In K. Ravindranathan Nair's case (supra), in dealing with a similar issue, Hon'ble Kerala High Court held as under: ". . .The interest from short-term deposits received by the appellant is not t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reproduced herein above. However we observe in the facts of present assessee there are local sales made by assessee and assessee during the year has advanced various loans, as per the profit and loss account. Since there is no bifurcations that has been provided by assessee either before us or before the authorities below it cannot be assumed that entire interest income claimed by assessee could be linked with the export activity. 14.8. We accordingly set aside this issue back to Ld.AO to identify interests earned from deposits which have been made with banks for obtaining letters of credit. Assessee is directed to provide entire details regarding letters of credit obtained from bank for its export activities, in lieu of which interest has been earned. Ld.AO shall then verify the details and allow such interest to be included in computation of deduction under section 10 A/10 B which has been earned by assessee on such letters of credit having direct nexus with the deposits made for export activities. In the event assessee is unable to provide relevant details of the letters of credit in view of which interest has been earned, disallowance shall be confirmed. 14.9. Accordingly th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2001-02 vide order dated 19.6.2007 in ITA 2448/Del/06 which has however, not been accepted by department and appeal has been filed u/s 260A of the Act on this issue. 5. The appellant craves leave to add, alter, or amend any grounds of appeal raised above at the time of hearing." 16.1. Ground No. 1 is general in nature and therefore do not call for any adjudication. 16.2. Ground No. 2 has been raised by revenue against bad debts amounting to Rs. 3,88,50,137/-being deleted by holding that these are unascertained liabilities. 16.3. Ld.AR at the outset submitted that Hon'ble Supreme Court in the case of CIT versus HCL Commet Systems & Services Ltd., reported in 305 ITR 409 has held that provisions for bad and doubtful debts being ascertained liability are not required to be added in the matter of computation. He submitted that subsequent to the decision of Hon'ble Supreme Court, an amendment has been made in section 115 JB by Finance Act 2009 with retrospective effect from 2001, and the issue now has to be decided against assessee. 16.4. Ld. CIT DR supported the view of the Ld. AO. 16.5. We have perused the submissions advanced by both the sides on the basis of records placed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... during the year under consideration. There is no evidence that has been brought on record by department to establish that assessee has been carrying on with activity of sales/purchase of shares. Under such circumstances applicability of Explanation to section 73 has to be construed in a narrow sense, which indicates where the income is derived from business activity of sales/purchase of shares. We therefore do not find any infirmity in the observations of Ld. CIT (A) and uphold the same. 17.5. Accordingly this ground raised by the revenue stands dismissed. 18. Ground No. 4 This ground has been raised by revenue as Ld. CIT (A) allowed claim of assessee in excluding expenses of Rs. 77,82,74,563/- and income of Rs. 82,49,35,310/- in respect of Greater Noida Unit, which is eligible for deduction under section 10 B from computation of book profits. 18.1. Ld. CIT DR supported observations of Ld. AO. 18.2. Ld.AR submitted that this issue stands covered by decision of this Tribunal in assessee's own case for assessment year 2001- 02, which has been upheld by Hon'ble Delhi High Court in ITA No. 263/2008. We have perused submissions advanced by both sides in the light of records pla ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t has to be done in respect of all the 3 units eligible for deduction under section 10 A and 10 B of the act by increasing the amounts of expenditure related to the income to win section 10 A/10 B apply, if the same is debited to the profit and loss account. (iv) Adjustment of the book profit has to be done in respect of all the 3 units eligible for deduction under section 10 A and 10 B of the act by reducing the amount of income to which provisions of section 10 A/10 B apply, if the same is credited to the profit and loss account. (v) No separate treatment to be given to the interest income of Rs. 2, 17, 02, 726/-in computation of book profit as the entire income pertaining to the 10 A/10 B unit is to be reduced from the net profits as per the provisions of explanation (f) (ii) to section 115 JB (2) of the act if the same was credited to the profit and loss account." 18.4. Ld.AR submitted that order of this Tribunal for assessment year 2001-02 has been upheld by Hon'ble Delhi High Court's vide order dated 19/01/12 in ITA No. 263/2008. On perusal of this order we observe that revenue raised issue relating to computation of book profit under section 115 JB of the Act and wea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 8.3 herein above. 18.6. In view of the above, we do not find any merit in this ground raised by revenue. 18.7. Accordingly this ground raised by revenue stands dismissed. 18.8. In the result appeal filed by revenue stands partly allowed. 19. Assessment year 2006-07 Brief facts of the case are as under: Assessee filed its return of income declaring loss of Rs.(-) 19,34,62,334/- on 10/11/06. The case was selected for scrutiny and statutory notices were issued in response to which, representatives of the assessee appeared before Ld. AO and filed requisite details as called for. Ld. AO observed that assessee entered into international transaction and accordingly referred the case of assessee to Ld.TPO. 19.1. Ld. TPO after going through various submissions made by assessee observed as under: "Sales made by GDM: 10.2.1 As mentioned above GDM is a joint venture company of Imation Corp. and MBIL, where Imation Corp. has a major share of 51 %.In this case GDM was selected as a tested party by the assessee, accordingly all financial details of tested party must be available and produced during the transfer pricing proceedings. Vide order sheet entry dated' 02.02.2009, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of selection of tested party where relevant financial data with regard to tested party was not made available and has held as under:- "The tested party normally should be the party in respect of which reliable data for comparison is easily and readily available and fewest adjustments in computations are needed. It may be local or foreign entity, i:e., one party to the transaction. The object of transfer pricing exercise is to gather reliable data, which can be considered without difficulty by both the parties i.e. taxpayer and the revenue: It is also true that generally least of the complex controlled taxpayer should be taken as a tested party. But where comparable or almost comparable, controlled and uncontrolled transactions or entities are available, it may not be right to eliminate them from consideration because they look to be complex. If the taxpayer wishes to take foreign AE as a tested party, then it must ensure that it is such an entity for which the relevant data for comparison is available in public domain or is furnished to the tax administration. The taxpayer is not then entitled to take a stand that such data cannot be called for or insisted upon from the taxpa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... international transactions relating to sale of goods to GDM were not getting benchmarked by the methodology adopted by assessee. In fact significant percentage of international transactions undertaken between January 2006-March2006. Therefore, on the basis of detailed discussion made, facts and absence of details regarding controlled transactions made by tested party selected by the assessee, and on the basis of judicial decision cited above, selection of GDM Dubai as tested party is rejected. In the light of above facts, the assessee itself shall be selected as the tested party on the basis of discussions made in the order. 19.2. Ld.TPO rejected foreign AE to be the tested party and applied PLI as OP/TC, since cost being uncontrolled in nature. He proposed adjustment of Rs. 94,75,94,843/-towards the international transaction undertaken by assessee. 19.3. Assesse raised objection before DRP wherein the decision of Ld. TPO was upheld. 19.4. Accordingly Ld. AO passed final assessment order on 31/05/13 under section 143 (3) read with 144C of the Act making addition in respect of international transaction as recommended by DRP. 19.5. Ld.AO made addition in respect of claim of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt as the tested party, therefore violating the fundamentals of Transfer Pricing. 2.3 That the assessing officer/TPO erred on facts and in law in selecting internal TNMM as most appropriate method by considering appellant as the tested party. 2.4 Without prejudice the assessing officer/TPO erred on facts and in law in disregarding segmental profitability computed by the appellant from sales made to AE and Non-AEs, which was duly certified by an independent Chartered Accountant. 2.5 That the assessing officer / TPO erred on facts and in law in erroneously computing the profitability from sales made to AE and non-AEs as under: (i) Allocating costs on the basis of the number of units sold; (ii) Considering incorrect number of units sold for such computation; (iii) Distributing of increase in stock between AE and Non-AE segment on the basis of sales value instead of sales quantity. (iv) ignoring the fact that appellant not only produces and sells principal product but also produces and sells the secondary products and the various products produced and sold by the appellant are of different kinds, having different cost and sale price; (v) ignoring the directly id ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ating that the aforesaid income constituted profits and gains derived from the business of the undertaking and were eligible for deduction under section 10B of the Act. 3.6 That the assessing officer erred on facts and in law in reducing foreign exchange loss of Rs. 2,90,79,685 from the total turnover while computing deduction under section 1OB of the Act in respect of A-164, Noida Unit. 4. That the assessing officer erred on facts and in law in disallowing a sum of Rs. 5,91,52,129 being 25% of expenditure on payment of royalty and fee for technical services of Rs. 31,54,78,020 holding the expenditure to the extent to be in the nature of capital expenditure following the decision of the Supreme Court in the case of Southern Switchgear Ltd. : 234 ITR 359. 4.1 That the assessing officer erred on facts and in law in observing that "although the nature of royalty payments is substantially revenue in nature, nevertheless, there is an element of capital cost also, which is linked to acquiring a trademark or a patent rights license for a fixed period, on an exclusive basis in relation to an assigned territory" . 4.2 That the assessing officer erred on facts and in law in not a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... That the assessing officer erred on facts and in law in not appreciating that idle funds available with the appellant were invested in mutual funds from which exempt dividend income of Rs. 1,37,48,911was earned. 5.9 That the assessing officer erred on facts and in law in not appreciating that expenditure on interest from loans and finance charges aggregating to Rs. 19,25,66,823 were incurred by the appellant for specific purposes for the business of the appellant and were not attributed to earning of the exempt dividend income. The appellant craves leave to add, alter, amend or vary from the above grounds of appeals before or at the time of hearing. 20.1. It has been submitted by Ld.AR as well as Ld. CIT DR that all the above issues stand squarely covered and identical to grounds raised by assessee for assessment year 2005-06. They have reiterated similar arguments in respect of each ground raised by assessee in the present appeal. 20.2. We have perused the submissions advanced by both the sides in the light of the records placed before us. 20.3. Ground No. 1 is general in nature and therefore does not require any adjudication. 20.4. Ground No. 2 raised by assessee herein i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erved that Coordinate Bench of Mumbai Tribunal in case of Anil L Shah vs. ACIT reported in 95 TTJ 216 has held that insurance claim etc. have direct nexus with industrial undertaking. And therefore, Ld.CIT(A) directed to include the miscellaneous income for deduction u/s 10B of the Act. We do not find any infirmity in the observations of Ld.CIT(A) and accordingly the same is upheld. 21.3. Since the facts and circumstances are same for the year under consideration, vis-a-vis the A.Y. 2005-06, therefore, this issue stands settled in favour of assessee. 21.4. Accordingly this ground raised by assessee is allowed for statistical purposes. 22. Ground No. 4 is in respect of disallowance of royalty and fee for technical know-how which was paid by way of licence to various patent holders like Philips, Samsung, Taiyo Hitachi to be capital expenditure in the hands of assessee. 22.1. It is observed that this ground is similar to Ground No.2 of revenue's appeal for assessment year 2005-06. 22.2. Both Ld.AR as well as Ld. CIT DR reiterated similar arguments as submitted for assessment year 2005-06. 22.3. It is observed that we have decided this issue in favour of assessee for assessment ..... X X X X Extracts X X X X X X X X Extracts X X X X
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