9911796707
TMI Blog2018 (5) TMI 1640X X X X Extracts X X X X X X X X Extracts X X X X ..... f predecessor. There is no independent discussion in this order. Thus, the findings have been upheld by the ITAT, and therefore, we do not see any reasons to deviate ourselves from those finding. Misc. expenses to be written off - Held that:-After taking into consideration the finding of the ld.CIT(A), we are of the view that lump-sum addition confirmed by the ld.CIT(A) is little on the higher side, because the assessee has contended that if written off is not allowable, then actual expenses incurred during the year ought to be allowed. In other words, case of the assessee is that by following mercantile system of accounting, it has incurred various expenses, which has been written off in this year. Therefore, to meet ends of justice, assessee deserves a further relief of 5,00,000/-. In other words, addition confirmed by the ld.CIT(A) of 15,00,000/- is restricted to 10,00,000/- (Ten Lakhs) only, and thus the assessee gets a further part relief. Accordingly, this interconnected ground raised in the appeal of the Revenue and CO of the assessee is partly allowed. Deemed dividend u/s 22(22)(e) - Held that:- When the CIT(Appeals) as well as Tribunal concurrently held that looking to lar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ition to the extent of 3,00,000/-. X X X X Extracts X X X X X X X X Extracts X X X X ..... rious chemicals, active pharmaceutical ingredients to its subsidiaries in US and UK, whereas it has sold similar products to other parties as well at much higher rate. Thus, in the opinion of the TPO, when the internal unrelated party price i.e. internal comparable uncontrolled price ("CUP" for short) are available, then assessee ought to have determined the ALP of its internal transaction by using CUP method instead of TNMM adopted by the assessee. The ld.AO reproduced details in tabular form exhibiting description of items sold by the assessee. Geographical locations of its AE i.e. US, UK and Europe, quantity of items sold, rate at which products sold, internal CUP, difference and total adjustment required to be made. Such details are available on page no.5 and finding of the ld.TPO and findings of the ld.TPO is also available in the order of theld.CIT(A). On the basis of CUP method, the ld.TPO recommended for making upward adjustment in the price of products sold to these AEs. Similarly, he applied same analogy for making upward adjustment in respect of contract research receipts. The ld.TPO made recommendation for adjustment of ₹ 8,65,17,574/- on two items i.e. sale of va ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ervices, services for procurement of raw material and management services. TPO made adjustments with regard to first two categories. Appellant followed TNMM method for calculating arms length price which was changed by the assessing officer to CUP method and then worked out variation as adjustment. Apart from this, assessing officer made adjustment in contract research services by applying resale margin method. As regards change of method from TNMM to cup, the issue is squarely covered by the orders of my learned predecessors for assessment years 2002 -03, 2003-04 and 2004-05 (covering all appeals prior to this assessment year). The relevant extract of the order for assessment year 2004-05 is quoted below- "in so far as the method of variation of arms length prices is concerned, the provisions of the act are very clear, in as much as it is the assessee who has a right to choose the best applicable method for the purpose of calculation of arms lengthprices analysts AO finds serious defects in the said method and he fulfils the preconditions prescribed under section 92C (3) of the act. Under the scheme of the act, the AO is required to find out the arms length price based on any o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erence in appellant's PBIT at 24.87% as compared to average PBIT of such similar entities at 18.36%. The arguments given by the TPO are similar and therefore this issue is covered by the earlier appellate decision in the appellant's own case in the similar facts and circumstances. Appellant also submitted decision of ITAT Ahmedabad in the case of Schutz Dishman biotech private Ltd (a sister concerns in the similar line of business) for assessment year 2002-03 in ITA number 554/AHD/2006 dated 15 February 2008. The relevant part of the decision is quoted below- "We find no fault with the TNMM method adopted by the assessee on the above facts of the case. Even the honourable apex court in the case of Morgan Stanley & Co has clearly upheld the adoption of TNMM method as most appropriate method and the relevant particular line from the judgement reads as under- "as regards income attributable to the P E, we hold that the transactional net margin method was the appropriate method for determining the arm's length price in respect of transactions between Morgan Stanley & Co and MSAS' even the honourable special bench of this tribunal in the case of Aztec software and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 4.6 Crores. Out of these adjustment of ₹ 2.96 crores was made in the case of USA subsidiary and balance in the case of UAE subsidiary. It is a matter of record that the appellant has charged US $ 4000 per month per Full Time Employee (FTE) to its AE for carrying out research activities. The appellant has charged the same rate to Non - AEs which is very much evident from the copy of invoices which are placed on record at pages nos.179 to 182 of Paper Book - II. While appellant received US dollar 11.90 lakhs from these two AEs at the rate of $4000 per men month, appellant also received USdollar 9.55 lakhs from three non- AEs at the same rate of $4000 per men month for contract research work. I find that even if CUP is to be applied for these transactions, the comparable instances of charging price to Non-AEs prove that the transactions are entered into at ALP and therefore no adjustments are called for. It is also submitted by the appellant that it has entered into arrangement whereby it has carried out contract based research activity. As per the terms and conditions for contract research mentioned by the appellant, the entire risk of outcome of the said research was to be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r the assessee. 8. The ld.CIT-DR while impugning order of the ld.CIT(A) submitted that Shri R.I.Patel, CIT-DR has filed written submissions, vide letter dated 26.6.2015. Copy of such submissions under signature of Shri B.Y. Chavan, Jt.CIT (TPO), Ahmedabad are available on record. She relied on these submissions. 9. We have duly considered rival contentions and gone through the record. The ld.TPO has not pointed out defects in TNMM applied by the assessee for demonstrating ALP of its international transactions. Without any reasons, he simply changed method and held that CUP method is more appropriate method for determining ALP of international transaction entered into by the assessee with its AEs. We find that in the Asstt.Years 2003-04 and 2004-05, the Tribunal has accepted that TNMM is the most appropriate method for determining ALP of assessee's transactions with its AE. In the present assessment year, the assessee has compiled the details in tabular form submitting as to why CUP is not appropriate method. Such details have been reproduced by the ld.CIT(A) and they read as under: Sr. No. Product ALP Adjustment in Rs. Reasons why comparison is not proper 1 Ammonium Tr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Australia 11558 272.49 Belgium 81000 242.42 Iran 16000 228.63 Japan 1600 303.52 Taiwan 24 459.30 UK 5 694.35 Total 110787 246.10 AE - 11,100 246.34 Europe From the above given table, it is very much clear that the appellant has charged price at ₹ 246.34 to the AE than the average price charged at ₹ 246.10 to Non-AE. Hence, there is no question of making Transfer Pricing Adjustments. 5 PhenyleTrimethyle Ammonium Chloride 5,48,053/- The appellant would like to point out that there is a mistake on part of ld. TPO in taking average price at ₹ 299.27 instead of ₹ 246.10. Summarise table of quantity sold to Non-AEs and average price thereof is given hereunder for ready reference to clarify the issue : Country Qty. Avg. Rate Argentina 600 535.67 Australia 11558 272.49 Belgium 81000 242.42 Iran 16000 228.63 Japan 1600 303.52 Taiwan 24 459.30 UK 5 694.35 Total 110787 246.10 AE - USA 8280 233.08 In the given case, the appellant has charged average price ₹ 233.08 to AE whereas average price to Non-AE work out to be to ₹ 246.10 which is certain ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... derate 6,63,789/- * FAR Analysis : As Above. Quantity Factor : Only one instance has been taken into consideration by the ld. TPO i.e only 10 Kgs sold to customer in Brazil, whereas the appellant has sold 400 kgs. to AE. Certainly this instance is not comparable looking into huge difference in quantity as well as only one transaction has been entered into by the Appellant with such Non AE. Geographical factors : As (1) Above. (d) Regularity of transaction : As (1) above. 11 Tetra Ammonium Hydrogen Sulphate Butyle 47,18,827 FAR Analysis : As Above. Quantity Factor : The instances taken by the ld. TPO has summarised as under : Country Qty. Avg. Rate Germany 500 663.84 Japan 600 630.00 Netherland 1000 762.65 USA 100 962.50 Total 2,200 713.10 AE- Europe 17306 440.43 All three instances are not comparable as there is huge difference in quantity of the product sold to AE and Non-AEs. Geographical factors : As Above (1). Regularity of transaction : As above (1). 12 Tetra Butyle Ammonium Hydrogen Sulphate 24,931 For the smallness of amount it is not considered. 13 Tetra Ammonium Bromide Ethyle 1,35,57,000/- F ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r : The instances taken by the ld. TPO has summarised as under : Country Qty. Avg. Rate Germany 500 743.52 Japan 300 635.04 Netherland 2000 766.50 Total 2800 748.31 AE- USA 1300 291.71 The appellant has entered into only one transaction with above mentioned Non-AE and therefore they can never be compared with the price charged and in any case there due to quantity, geographical difference, comparison cannot make transfer pricing adjustments. Geographical factors : As Above (1). Regularity of transaction : As above (1). 18 Myristyl DBA Chloride Powder 59,71,613 * FAR Analysis : As Above. Quantity Factor : Only one instance has been taken into consideration by the ld. TPO i.e only 25 Kgs sold to customer in Egypt, whereas the appellant has sold 24,494.40 kgs. to AE. Certainly this instance is not comparable looking into huge difference in quantity as well as only single transaction has been entered into by the appellant with such Non AE. Geographical factors : As (1) Above. Regularity of transaction : As (1) above. Upward adjustment of ₹ 4,68,04,255/- in respect of contract research receipts : At the outset the appellant mos ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tity basis for computation of ALP for its sales to its subsidiaries. According to the ld.DR, the assessee ought to have adopted net transactional method instead of profit margin of enterprise as a whole. A reference to the order of the ITAT Mumbai in the case of UCB India P.Ltd. Vs. ACIT, 121 ITD 13 1(Mumbai) has been made. 11. We have gone through these submissions as well as finding of the ld.CIT(A). It is pertinent to observe that the ld.TPO in the order dated 21.10.2008 has not made any such analysis. He has not pointed out the alleged defect as contended in the written submissions. The analogy adopted by the TPO in the order passed under section 92CA is that CUP method is far better method than TNMM. How, TNMM is not applicable on the given set of facts has nowhere been discussed by the TPO in the impugned order. Therefore, the ld.DR cannot improve the case of the TPO at this level. More so when, consistently from the Asstt.Year 2002-03, it has been held that method adopted by the assessee is an appropriate method. In the assessee's own case, this aspect has been accepted upto the level of ITAT. There is no justification for disturbing of that method by taking different opini ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... allowable, then actual expenses incurred during the year ought to be allowed. In other words, case of the assessee is that by following mercantile system of accounting, it has incurred various expenses, which has been written off in this year. Therefore, to meet ends of justice, assessee deserves a further relief of ₹ 5,00,000/-. In other words, addition confirmed by the ld.CIT(A) of ₹ 15,00,000/- is restricted to ₹ 10,00,000/- (Ten Lakhs) only, and thus the assessee gets a further part relief. Accordingly, this interconnected ground raised in the appeal of the Revenue and CO of the assessee is partly allowed. 16. Now we take ITA No.2447/Ahd/2011 (Revenue's appeal) 17. In the first ground of appeal, grievance of the Revenue is that the ld.CIT(A) has erred in deleting addition of ₹ 2,41,04,933/- which was added by the AO with the aid of section 2(22)(e) of the Income Tax Act. 18. Brief facts of the case are the AO has observed that during the assessment proceedings of A.Y 2006-07, it was seen that Schutz Dishman Biotech P.Ltd. ("SDBPL" for short) has given loans to the assesee. Assessee holds 22.3% share holding of SDBPL. Thus, the ld.AO was of the view t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e that appellant had lot of business transactions with M/s Schutz Dishman Biotech Ltd. There were transactions of purchase of raw material as well as temporary accommodation deposits. Assessing officer of M/s Schutz Dishman Biotech Ltd initiated action under section 201 (1) by treating the transaction with appellant company as deemed dividend and the said company was treated as assessee in default for not deducting TDS in assessment year 2004-05 and 2005-06. In both the years, CIT(A)-XXl, Ahmedabad by order dated 28-09-2010 held that transactions entered into by the appellant which its associate concern would not attract the provisions of section 2(22)(e) of the act. And accordingly there would not be any obligation to deduct tax under section 194 and therefore the assessee cannot be treated as the assessee in default within the meaning of section 201(1) of IT act. The relevant extract of the said appeal order in para-six is quoted below- "There is large number of debit and credit transactions. Meaning thereby, the appellant has given and received funds as and when required to and from its associate concern. It is not on account whereby loans and advances have been given to the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the assessing officer is not confirmed. 8. A perusal of the aforementioned findings of the Id. CIT(A) shows that he has followed the findings given in A.Y. 2006-07 wherein the First Appellate Authority has followed the decision taken in the case of SDBPL. We find that the appeal of SDBPL travelled up to the Hon'ble Jurisdictional High Court of Gujarat wherein the Hon'ble High Court was seized with the following question of law for consideration;- "Whether on facts and in law the ITAT wax right in cancelling the order passed u/s 201(1) and 201 (A) of the Act, without appreciating that the amount advanced was in the nature of deemed dividend u/s 2(22)(e) of the Act'.'" 9. And the relevant findings of the Hon'ble High Court reads as under:- 4. It can thus be seen that the Commissioner as a matter of fact found that the payments were not in the nature of current adjustment. There was movement of fund both ways on need basis. The transactions in the nature of loans and advances are usually very few in number whereas in the present case, such transactions are in the form of current accommodation adjustment entries. The Commissioner therefore, held that th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he case of M/s.Farson Fibres s. Ito, Tax Appeal No.1070 of 2010 (Guj) wherein it has been held that if TDS has been deposited prior to the due date of filing of return, then no disallowance has to be made. The ld.CIT(A) has rightly deled the disallowance, and we do not find any error in this ground of appeal. It is rejected. 25. In the result, the appeal of the Revenue is dismissed. 26. Now we take assessment year 2006-07. 27. In this year, the assessee and Revenue are in cross appeals i.e. Revenue's appeal is ITA No.817/Ahd/2011 and assessee's appeal is in ITA No.773/Ahd/2011, against order of the ld.CIT(A) dated 3.1.2011. These appeals have arisen from the proceedings under section 143(3) of the Act. 28. The assessee and Revenue have also filed appeal being ITA No.3086 and 2957/Ahd/2013 against the order of the ld.CIT(A) dated 31.10.2013. These appeals arose from penalty proceedings under section 271(1)(c) of the Act. Penalty order was passed by the AO on 30.3.2012. 29. First we take ITA No.817/Ahd/2011 filed by the Revenue. However, if any ground found to be inter-connected with ground of appeal taken by the assessee, then we will take up those grounds together. 30. In th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r adjustment. There are instances where sales to associate enterprises are at higher prices than non-associate enterprise reflecting that sales were made at arm's length prices. In of the submissions of the appellant, the adjustments made by adopting method will not survive. Accordingly the adjustments made under the transfer pricing provisions are deleted." 32. With the assistance of the ld.representatives, we have gone through the record. It is pertinent to observe that the assessee is engaged in the business of bulk drugs and fine chemicals. It had entered into various international transactions with its "AE" for sale of bulk drugs and fine chemicals. The assessee has bench marked its international transactions by adopting TNMM method. The TPO did not accept this method as most appropriate method and observed that the assessee should have supported its transactions at ALP for following CUP method as most appropriate method. We have discussed this issue while dealing with the appeal of the Revenue in the assessment year 2005-06 in the earlier part of this order. We have specifically observed that this issue has been come up for consideration starting from assessment year 200 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ears that while filing return of income the assessee has included an amount for additions in the total income. When it realized the provision made for gratuity for the year under consideration, then it had filed an application and submitted to the AO that current year's claim only ₹ 20,69,905/-. This amount could be disallowed. The ld.CIT(A) has rightly appreciated the controversy and has rightly directed that AO that only for the provision made in the current year could be disallowed and not opening balance. Therefore, after looking into the finding of the ld.CIT(A), we do not find any error in it. This ground of appeal is rejected. 36. Ground no.3: Grievance of the Revenue is that the ld.CIT(A) has erred in directing the AO to allow correct figure of depreciation. 37. Brief facts of the case are that the assessee has claimed depreciation of ₹ 13,67,45,462/- in the return of income. During the assessment proceedings, it has made a revised claim at ₹ 14,15,32,235/-. This claim was disallowed by the AO by observing that the assessee failed to file revised return of income. The ld.AO has made reference to the decision of Hon'ble Supreme Court in the case of Goetze ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of taking loan, rather it was considered as business transaction because both parties were maintaining current account wherein loans are being taken consistently. This issue has been examined in the assessment years 2005-06 wherein we have followed the orders of the ITAT in earlier years in the case of SDBL. Even the Hon'ble High Court has confirmed the order of the ITAT in tax appeal no.958 and 959 of 2015. Section 2(22)(e) of the Act is not applicable on the transactions between these two parties. Considering our finding in the Asstt.Year 2005-06, we do not find any merit in this ground of appeal. It is rejected. No.692 /Ahd/2011 and 7 Others ACIT Vs. Dishman Pharmaceuticals & Chemicals 44. Ground No.6 and 7: These grounds are inter-connected with ground nos.26 and 27 taken by the assessee in its appeal i.e. ITA No.773/Ahd/2010. 45. The issue involved in all these grounds relates to computation of correct figure for the grant of deduction under section 10B of the Act. 46. Brief facts of the case are that in the return of income, the assessee has claimed deduction under section 10B of the Act at ₹ 33,19,35,229/- in respect of EOU units at Bavla and Naroda. The assessee ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e do not any merit in this fold grievance raised by the Revenue. It is rejected. 49. Next three fold grievances are common. The grievance of the Revenue in these folds of grievances relates to allocation of expenditure incurred towards packing material, clearing and forwarding expenses, administrative and interest expenses. It is pertinent to observe that where mixed accounts and common management is there, then certain overhead expenses required to be allocated at the level of HO, but if an assessee is maintaining separate books accounts and demonstrate all expenditure incurred by it; identifiable and allocatable, then on estimate basis such expenditure cannot be allocated on the basis of turnover or quantum of sales. The ld.CIT(A) has observed that accounts of the assessee were audited. It has maintained separate accounts. The AO did not pin-point specific defects in the expenditure debited by the assessee. In other words, if the AO is able to lay his hand on a particular expenditure, which is meant for EOU units, but debited either to the HO or in non-EOU units, then probably he would be justified in allocating expenditure on estimated basis. But no such exercise has been carri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Special Bench Indore Bench has been upheld by the Hon'ble Delhi High Court. Discussion made by the ITAT qua this issue reads as under: "11. We also find that the decision of Special Bench of Tribunal in the case of Maral Overseas Ltd. (supra) was upheld by Hon'ble Delhi High Court in the case of Hritnik Export Pvt. Ltd.(ITA No. 219/2014 & 239/2014 order dated 13.11.2014) wherein Hon'ble High Court dismissed the appeal of Revenue by holding as under:- By way of these appeals, the Revenue has challenged the orders passed by Income Tax Appellate Tribunal (Tribunal, for short) dated 11th September, 2013 and 24th October, 2013 relating to assessment years 2008-09 and 2009-10, respectively. Tribunal has followed the decision of their Special Bench in the case of Maral Overseas Ltd. versus Additional Commissioner of Income Tax decided on 20th March, 2012, in which it has been held:- "78. Section 10B sub-section (1) allows deduction in respect of profits and gains as are derived by a 100% EOU. Section 10B(4) lays down special formula for computing the profits derived by the undertaking from export. The formula is as under :- Profit of the business of the Undertaking ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion of profits derived by an assessee from the export of goods. I.T.A.T., Special Bench in the case of International Research Park Laboratories v. ACIT, 212 ITR (AT) 1, after following the aforesaid Circular, held that straight jacket formula given in sub-section (3) has to be followed to determine the eligible deduction. The Hon'ble Supreme Court in the case of P.R. Prabhakar; 284 ITR 584 had approved the . A.Y. 2007-08 principle laid down in the Special Bench decision in International Reserarch Park Laboratories v. ACIT (supra). In the asses see's own case the I.T.A.T. in the preceding years, after considering the decision in the case of Liberty India held that provisions of section 10B are different from the provisions of section 80IA wherein no formula has been laid down for computing the eligible business profit. 80. In view of the above discussion, question no. 2 is answered in affirmative and in favour of the assessee. Accordingly, the assessee is eligible for claim of deduction on export incentive received by it in terms of provisions of section 10B( 1) read with section 10B(4) of the Act." The aforesaid view is in consonance with the decision of this Court da ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... would be deemed to be a part of the business income. Thus, will be treated as profit derived from business of the undertaking. These cannot be excluded. Even otherwise, when we apply Sub-section (4) to Section 10B, the entire amount received by way of duty draw back would not become eligible for deduction/exemption. The amount quantified as per the formula would be eligible and qualify for deduction/exemption. The position is somewhat akin or close to Section 80HHC of the Act, which also prescribes a formula for computation of deduction in respect of exports. In view of the aforesaid, we do not find any merit in the present appeal and the same is dismissed." Karnataka High Court in Commissioner of Income Tax, Central Circle versus Motorola India Electronics (P) Ltd., ITA No. 428/2007, decided on 11.12.2013, reported as [2014] 46 taxmann.com 167 (Karnataka) has also taken a similar view, wherein it has been held:- "By Finance, Act, 2001, with effect from 01.04.2001, the present Sub- section (4) is substituted in the place of old Sub-section (4). No doubt Sub- section 10(B) speaks about deduction of such profits and gains as derived from 100% EOU from the export of articl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... differential amount of ₹ 3,39,534/- has been credited to profit & loss account. The ld.AO has appreciated these facts and taxed prior period income of ₹ 46,50,648/- offered by the assessee during this assessment year. He did not allow deduction of alleged prior period expenditure of ₹ 43,11,114/-. This view of the AO has been confirmed by the ld.CIT(A). Thus, in ground nos.1 and 2 the assessee has pleaded that prior period expenditure of ₹ 43,11,114/- be allowed to it as deduction and in case it is not allowable, then alternatively, it has pleaded that net differential amount of ₹ 3,39,534/- be only taxed out of prior period income. 59. With the assistance of the ld.representatives, we have gone through the record carefully. The ld.AO while assessing prior period income of ₹ 46,50,648/- has observed that since it is taxable income offered by the assessee itself, an item has to be included in the total income of the assessee on the principles of taxability on accrual or receipt basis. This has been offered by the assessee on receipt basis. Therefore, it is to be taxed, with regard to the allowance of prior period expenditure, the ld.AO has observ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hese grounds are inter-connected with each other. Grievance of the assessee is that the ld.CIT(A) has erred in confirming addition of ₹ 4,76,876/- which was added by the AO with the aid of section 14A r.w. Rule 8D of the Income Tax Rules. 62. Brief facts of the case are that the assessee has shown dividend income of ₹ 3,53,08,748/- which has been claimed as exempt income under section 10(34) of the Income Tax Act. The assessee did not offer any expenditure for disallowance under section 14A. The ld.AO thereafter found interest expenditure debited by the assessee at ₹ 7,28,42,748/-. The ld.AO calculated disallowance as per Rule 8D and made addition of ₹ 4,76,876/-. Before the ld.CIT(A) it was contended that Rule 8D is applicable from the assessment hear 2008-09 as held by the Hon'ble Bombay High Court in the case of Godrej & Boyce Vs. CIT. The ld.CIT(A) agreed to this proposition of the assessee, but observed that since the assessee has not offered any expenditure for disallowance under section 14A, therefore, some disallowance has to be made. In this way, the ld.CIT(A) has confirmed the disallowance made by the AO. 63. With the assistance of the ld.represe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 94/-. 66. Brief facts of the case are the ld.AO has made reconciliation of income reflected in the TDS certificate with the income shown in the accounts. He found that the assessee has income of ₹ 2,89,521/- from Travel Mat Services P.Ltd. and ₹ 27,773/- under the head job work income. On the basis of TDS certificate, he worked out a sum of ₹ 3,17,294/-. This income was not included by the assessee, hence when it was confronted by the AO vide order sheet entry dated 24.12.2009, the assessee has admitted this income and agreed for addition. Accordingly, the ld.AO made addition. Appeal to the CIT(A) did not bring any relief to the assessee. 67. Before us, the ld.counsel for the assessee contended that it be remitted to the file of the AO for verification. In case such income has been offered in subsequent year, then addition for this year deserves to be deleted. Since the assessee itself admitted the income before the AO such admission must be after verification of the facts. The assessment order was passed on 26.2.2010. The assessee is not sure if it was offered and whether it has been taxed in subsequent year or not. Therefore, for making a roving inquiry and ve ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... one through the record. As observed in the earlier grounds of appeal, assessment order was passed on 26.2.2010. More than 8 years have expired when hearing in this appeal was taken place. If the assessee is unable to pin-point the facts whether these amounts have been paid in subsequent year and on actual payment basis deduction under section 43B has been allowed in subsequent years or not. We cannot keep the issue alive endlessly. It was for the assessee to place on record specific information qua specific ground. We do not find any error in the finding of the ld.CIT(A), hence, these grounds are rejected. 70. Ground no.12: Grievance of the assessee is that the ld.CIT(A) has erred in confirming addition of ₹ 2,86,051/-. 71. It emerges out from the record that the assessee has made payment for purchase of some machinery. However, it could not purchase machinery and wrote off such advance for purchase of machinery in the accounts. The ld.CIT(A) disallowed the claim of the assessee on the ground that it was a capital loss and not a revenue loss in nature. 72. Before us, the ld.counsel for the assessee contended that the assessee is not required to demonstrate whether debts ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essee carried the matter in appeal and filed written submissions which has been reproduced by the ld.CIT(A) on page nos.33 to 36 of the impugned order. The explanation given by the assessee qua this items and reproduced by the ld.CIT(A) is worth to note. It reads as under: "10.2 In so far as items (b) and (c) relating to. "Reimbursement of Expenses" concerned; the appellant submits that this payment is made to non-residents who has incurred some expenditure for and on behalf of the assessee. The term "Reimbursement" has not been defined in the Act and hence its meaning has to be understood as in common parlance. As per Black's Law Dictionary the term "reimburse" means to pay back, to make restoration, to repay that is expended, to indemnify or make whole. As per the Concise Oxford Dictionary the term "reimburse" means repay (a person who has expended money) or repays (a person's expenses). 10.3 The above definitions make it clear that a pure reimbursement should not constitute a reward or compensation paid for a service rendered. Hence, a mere reimbursement of expenses cannot be construed as a "fee" for services rendered since what is achieved by a reimbursement is a m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n parties or the foreign technicians. In the case of CIT vs. Dunlop Rubber Co. Ltd., reported in 142 ITR 493 (CaL), the assessee company had paid its share of costs and expenses in relation to sharing the fruits of research and development as cost for impairing the information. The Hon'ble Calcutta High Court held that the amount received by the foreign company from the Indian company did not constitute income assessable under the Act. The assessee therefore submits that provisions of S. 195 on such reimbursement of expenditure are not attracted at all. 10.5 In so far as item (a) relating to professional service is concerned, the appellant submits that this payment is made to non-residents who do not have any Permanent Establishment (PE) in India and the compensation is paid for events occurring outside India therefore the same cannot be said to be from any business connection in India. The appellant submits that the said payments are exempt from tax in view of the CBDT Circular No. 786, dated 7th February, 2000. The relevant portion of which reads as under: "The deduction of tax at source under section 195 would arise if the payment of commission to the non-resident agen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Id. AO that the entire expenditure of Dr. Henk Pluim was borne by Dishman India, Dishman USA and Dishman UK on the basis of services rendered by him and devotion of his time to all these three companies. It was also explained that the Group Chairman has finalized the allocation of expenditure considering the performance of service and devotion of time of Dr. Henk Pluim. However, the Id. AO did not appreciate this factum of the case and referred to letter dated 09/12/2009 (pi. refer page no.263-264) wherein the Appellant has mentioned that for subsequent year, the Appellant has allocated such expenditure to Dishman India, Dishman UK and Dishman USA in proportion to 40:40:20. Accordingly the Id. AO adopted the same for the year under consideration and made addition of ₹ 31,13,104/-. The Appellant, in this connection submits that when for the year under consideration, the expenditure has already been allocated on the basis of advice given by the Group Chairman considering the efforts, services and devotion of time of Dr. Henk, then ,"" the action of Id. AO in adopting the mechanism for allocation of such expenditure for subsequent year is incorrect. The Appellant submits that in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... then the TDS has to be deducted. Keeping in view this decision in mind, let us examine the nature of payment made by the assessee. 81. Let us take first category of payment made towards professional charges. According to the assessee, non-resident was not having any permanent establishment in India or any business connection. Thus, such sum is not taxable in India and no question of deducting TDS would arise. Reference to circular no.786 dated 7.2.2000 is being made. The AO failed to bring on record any material showing that recipient is taxable in India. With regard to other two items i.e. reimbursement of administrative charges and reimbursement of insurance and foreign travel expenses are concerned, these expenses have been reimbursed to Dr.Henk Pluim who was responsible for procurement, chemical development and technological upgradation etc. These amounts have been calculated on the basis of services rendered and time devoted by him to three concerns viz. Dishman UK, Dishman India and Dishman USA. The AO was of the view that allocation of expenditure was on higher side. He also observed that in subsequent year such expenses have been allocated amongst these concerns in the rat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s Ltd., 306 ITR 402; ii) Chicago Pneumatic India ltd. Vs. DCIT, 15 SOT 252 (Bom); iii) JCIT Vs. Hero Honda Finlease Ltd., 115 TTJ 0752 (Del); iv) Asheesh Securities Ltd. Vs. DCIT, 297 ITR 317 (Del); v) Moser Bear India Ltd. Vs. JCI, 108 ITD 80 (Del); vi) SNC Lavalin/Acres Inc. Vs. ACIT, 15 SOT 1 (Del); vii) Kisan Discretionary family Trust Vs. ACIT, 113 TTJ 918 (Ahd) 84. The ld.CIT(A) also did not accept claim of the he assessee and observed that the assessee should have filed revised return. 85. With the assistance of the ld.representatives, we have gone through the record. In the judgment referred by the assessee before the ld.CIT(A) it has been held that decision of Hon'ble Supreme Court in the case of Goetze India puts a bar upon the power of the AO for maintaining any fresh claim if no revised return was filed. However, for appellate authorities, Hon'ble Supreme Court has not put any bar, and if a particular item is going to affect taxability of the assessee, then the appellate authorities would be justified in entertaining such claim. Details of assets are not in dispute. It has already claimed regular depreciation on these assets. The only question was w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fore the date due for filing the Income tax, returns. In this regard certificate of the CA was also produced and placed on record. As can be seen from above, that the assessee could not substantiate its claim for deduction u/s 145A of ₹ 28,01,598/-as worked out by the auditor. Accordingly the same is added back. Penalty u/s.271(l)(c) for furnishing inaccurate particulars of income is separately initiated." 1 2.2 The appellant has submitted in its written submission which is as under: "In this connection, the Appellant most respectfully submits that as per the guidelines issued by Institute of Chartered Accountant's of India, the Appellant can have either "inclusive method" for accounting entries with regard to MODVAT or "exclusive method". It is explained that in the "inclusive method", the purchase of raw material debited in the books of accounts is inclusive of the corresponding MODVAT element. It is submitted that if the Appellant is following this method then the closing stock has to be valued inclusive of MODVAT element. On the other hand, in the "exclusive method" the cost of raw material debited in the purchase account is net of MODVAT element. In this syst ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... R relied upon the orders of the AO. 92. We have duly considered rival contentions and gone through the record carefully. In the case of Narmada Chematur Petrochemicals (supra), Hon'ble High Court has observed that closing stock has to be valued at the option of the assessee i.e. at the cost or market price, whichever is lower. Duty of central excise on the goods manufactured i.e. assessable goods manufactured by the assessee does not form part of manufacturing cost. It can be termed as post manufacturing cost, and therefore, until and unless it is entered on one side as an item of cost, it cannot be taken as component of value of closing stock on the other side. True purpose of crediting the value of unsold stock is to balance the cost of those goods entered on the other side of the account. Now question is, how this judgment is applicable on the facts of the assessee before us. The assessee itself has worked out a negative figure of ₹ 28,01,598/-. But it is unable to explain how this figure has come. The ld.CIT(A) has observed that once the assessee has been claiming deduction, then it is for the assessee to explain. We have reproduced the finding of the AO, written submiss ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... written off for capital goods 2,86,051/- Add: Non deduction of TDS u/s.40(a(ia) 1,12,01,869/- Add: Impact of section 145A claimed as deduction 28,01,598/- Add: Misc. expenses written off 15,00,000/- Add: Disallowance u/s.10B 6,56,59,970/- 98. After hearing the assessee, he imposed penalty of ₹ 3,03,77,454/- for furnishing inaccurate particulars of income. Dissatisfied with the penalty order, the assessee carried the matter in appeal before the ld.CIT(A) who partly deleted penalty. The ld.CIT(A) has summarized his order as under: "3.3 To sum-up levy of penalty with reference to the following disallowances/additions is upheld. (1) Addition on account of non-reconciliation of TDS and income. (2) Addition of ESIC outstanding (3) Disallowance of sundry balances written off (4) Disallowance of MODVAT u/s.14A Penalty levied with reference to the following balance disallowances/additions is cancelled. (1) Addition of prior period income (2) Disallowance /s.14A (3) Disallowance u/s.40(a)(ia) (4) Disallowance of miscellaneous expenses (5) Disallowance of deduction u/s.10B AO is directed to re-compute the penalty accordingly. These grounds of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... far as the quantification of the penalty is concerned, the penalty imposed under this section can range in between 100% to 300% of the tax sought to be evaded by the assessee, as a result of such concealment of income or furnishing inaccurate particulars. The other most important features of this section is deeming provisions regarding concealment of income. The section not only covered the situation in which the assessee has concealed the income or furnished inaccurate particulars, in certain situation, even without there being anything to indicate so, statutory deeming fiction for concealment of income comes into play. This deeming fiction, by way of Explanation I to section 271(1)(c) postulates two situations; (a) first whether in respect of any facts material to the computation of the total income under the provisions of the Act, the assessee fails to offer an explanation or the explanation offered by the assessee is found to be false by the Assessing Officer or Learned CIT(Appeal); and, (b) where in respect of any fact, material to the computation of total income under the provisions of the Act, the assessee is not able to substantiate the explanation and the assessee fails, t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ides mechanism for quantification of penalty. It contemplates that the assessee would be directed to pay a sum in addition to taxes, if any, payable him, which shall not be less than , but which shall not exceed three times the amount of tax sought to be evaded by reason of concealment of income and furnishing of inaccurate particulars of income. In other words, the quantification of the penalty is depended upon the addition made to the income of the assessee. Since basis for visiting the assessee with penalty has been extinguished by deleting the addition by us for the reasons stated by hereinabove in the quantum appeal, therefore, there cannot be any penalty upon the assessee under section 271(1)(c) of the Act, and accordingly, we uphold the order of theld.CIT(A) on this issue. 105. Next item is with respect to addition of ₹ 15.00 lakhs out of misc. expenses. The assessee has claimed expenditure of ₹ 18,10,423/- under various heads viz. library books, club membership fees, R&D expenses and deferred revenue expenses. Expenditure of ₹ 14,84,530/- was claimed towards library books as revenue expenditure. On an ad hoc basis, a disallowance of ₹ 15 lakhs has b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... irmed by the CIT(Appeals). Subsequent to the appellate order dtd.03.01.2011 and impugned penalty order dtd.30.03.2012, order u/s.155 dtd.18.04.2013 was passed by the A.O. by allowing further deduction u/s.10B of ₹ 3,01,00,015/-. The further deduction was allowed accepting the contention of the appellant that it had realized export debtors to the extent of Rs.l6,28,59,717/- (out of the outstanding debtors of ₹ 17,52,50,303/-) within four years from the end of the previous year. In the written submission reproduced above, the Id. A.R. contended that deduction u/s.10B was claimed on the basis of the certificate of the Chartered Accountant in Form No.56G; thus, the claim was bonafide and appellant could not be said to have furnished inaccurate particulars or concealed income. In support thereof he relied on the cases cited at 147 TTJ 67 (Delhi), 136 ITD 177 (Indore Special Bench) and Ahmedabad Tribunal's decision in Kadam Exports Pvt. Ltd. Vs. ITO in ITA No.2890/A/2011. The deduction u/s.10B was claimed on the basis of the certificate of CA in No.56G. The disallowance made in the assessment order was reduced by order u/s.155 by the AO. All the necessary details in su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... also certified by the chartered accountant. Necessary declarations in the prescribed forms were made, May be, in the case of the assessee, such claim on merits was not granted. However, this did not mean that the assessee had concealed any income. Further, the issue ultimately at any rate was debatable since one High Court has already held in favour of the assessee. When no information as given in return was found to be incorrect, penalty could not be imposed." Keeping in view the facts of the case and the above stated case laws, I am of the view that impugned part disallowance of the deduction claimed u/s.10B does not attract the penal provisions of Section 271(l)(c). Penalty levied with reference to the said disallowance is not sustainable." 107. Further, in the quantum appeal, we have observed that unrealized export turnover excluded from the eligible profit for grant of deduction under section 10(B) ought to be excluded from the total turnover. We have directed the AO to re-calculate the deduction admissible to the assessee, after this exercise. The ld.CIT(A) in quantum appeal further did not concur with the contention of the AO that custom duty ought to be re-allocated ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Though on the basis of credit taken in the TDS certificate, addition has been made, but it is pertinent to observe that in every assessment year, the assessee has been offering prior period income. Thus, possibility of its reconciliation in subsequent year cannot be ruled out. The assessee cannot be deserved to be visited with penalty on this addition. 113. Next item relates to addition of ₹ 2,40,940/-. According to the AO as per 3CD reort, ESIC outstanding at the end of year was shown at ₹ 1,96,709/- whereas as per the groupings of balance sheet, ESI outstanding payable was of ₹ 4,53,004/-. The AO made addition of differential under section 43B of the Act. The case of the assessee is that in From No.3CD report outstanding was shown at ₹ 1,96,709/-. This amount has been added back. Therefore, the AO ought to have not taken cognizance of other amounts. On due consideration of the facts, we are of the view that on account of some difference of opinion, with regard to accounting entry this addition has been made. In the Form 3CD the assessee has shown outstanding of ₹ 1,96,709/- and this amount has been added back because it was not actually paid to ESI ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
