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TMI Blog2016 (4) TMI 1316X X X X Extracts X X X X X X X X Extracts X X X X ..... te disallowance out of interest expenditure cannot be made. Ground no.2, is allowed Disallowance on account of PF and ESIC - paid beyond the prescribed date under the relevant statute but before the due date of filing of return of income under the Income Tax Act - Held that:- As decided in assessee's own case for the assessment year 2002–03 [2016 (1) TMI 752 - ITAT MUMBAI] as held the amount of employees contribution etc. deposited before the filing of return, cannot be disallowed u/s 43B - we allow assessee’s claim of deduction in respect of payment made towards PF contribution and ESIC. Decided in favour of assessee Deduction in respect of DEPB credit un/s 80HHC - Held that:- There is no income to the assessee in terms of section 28(iiid) having considered the submissions of the assessee in the light of the relevant statutory provisions and the decision of the Hon'ble Supreme Court in Topman Exports [2012 (2) TMI 100 - SUPREME COURT OF INDIA], we find force in the submissions of the assessee. Moreover, it is seen, similar issue arose in assessee’s own case for assessment year 2001–02 restore the matter back to the file of the Assessing Officer to allow assessee’s claim in t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t year 2001–02 in assessee’s own case wherein the Tribunal had decided the issue by following the decision of the Hon'ble Supreme Court in Hero Export v/s CIT [2007 (11) TMI 13 - SUPREME COURT OF INDIA] as held principle of attribution is applicable to cases falling u/s 80HHC(3)(b) and therefore, part of indirect cost has to be apportioned to expenses incurred for earning export incentives. 10% of total income has been held as fair estimate in this case Treatment of foreign exchange fluctuation gain as business income for grant of deduction under section 80HHC - Held that:- There is no dispute to the fact that foreign exchange gain was directly as a result of export made by the assessee. As observed from the order of the learned Commissioner (Appeals) similar relief was also granted to the assessee in the preceding assessment year. In view of the above, we do not find any infirmity in the order of the learned Commissioner (Appeals) Netting of interest expenditure against interest income for computation of deduction under section 80HHC - Held that:- In assessment year 2002–03, it is noticed that while dealing with identical issue, the Tribunal followed its earlier decision in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Arising out of ITA No.4063/Mum./2010), ITA No.274/Mum./2007 And C.O. No.121/Mum./2007 (Arising out of ITA No.274/Mum./2007) - - - Dated:- 29-4-2016 - Shri Saktijit Dey, Judicial Member And Shri Ashwani Taneja, Accountant Member For the Assessee : Shri Nitesh Joshi For the Revenue : Shri N.K. Chand ORDER PER BENCH Cross appeals by the assessee the Department and cross objection by the assessee for the assessment year 2003 04 and appeal by the Department and cross objection by the assessee for the assessment year 2004 05, are directed against separate orders of the learned Commissioner (Appeals) 10, Mumbai. 2. As these cross appeal and cross objection pertain to the same assessee and involve common issues arising out of materially similar set of facts and circumstances, they were heard together and as a matter of convenience, therefore, all the cross appeals / cross objection are being disposed off by way of this consolidated order. ITA no.641/Mum./2007 Assessee s Appeal Assessee has raised five grounds in this appeal. 3. Ground no.1, relates to disallowance of assessee s claim of deduction under section 35(2AB) of the Income Tax Act, 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t controverting the fact that similar issue was decided in assessee s own case by the Tribunal, preferred to rely upon the observation of the Assessing Officer and the learned Commissioner (Appeals). 8. We have considered the submissions of the parties and perused the material available on record. As could be seen from the facts on record, the Assessing Officer has not disputed that assessee has incurred the expenditure of ₹ 3,23,93,782. The dispute is with regard to assessee s claim of deduction under section 35(2AB) @ 150% of the expenditure incurred. The Assessing Officer, though, has allowed the actual expenditure incurred by the assessee on research and development, he has disallowed weighted deduction @ 150% on the ground that assessee has failed to furnish copy of agreement with the prescribed authority. It is noticed by us that similar issue arose in assessee s own case in assessment year 2002 03 and the Tribunal after considering the submissions of the parties vis a vis deduction claimed under section 35(2AB), held as under: 3.4. We have gone through the submissions made by both the sides as well as facts of the case and the position of law emerging out from ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... year and, therefore, the assessee was not entitled to the benefit. The CIT(Appeal) accepted this view of the Assessing Officer and dismissed the appeal, however, the Income Tax Appellate Tribunal (hereinafter referred to as the Tribunal ) has come to the conclusion that the assessee would be entitled to weighted deductions of the aforesaid expenditure incurred by the assessee in terms of the Section 35(2AB) of the Act and in coming to this conclusion, the Tribunal has relied upon the judgment of Gujarat High Court in Commissioner of Income Tax v. Claris Lifesciences Ltd., 326 ITR 251(Guj). We have gone through the aforesaid judgment of the Gujarat High Court and find that Gujarat High Court detailed in nouncertain terms that the cut-off date mentioned in the certificate issued by the DSIR would be of no relevance. What is to be seen is that the assessee was in indulging in R D activity and had incurred the expenditure thereupon. Once a certificate by DSIR is issued, that would be sufficient to hold that the assessee fulfils the conditions laid down in the aforesaid provisions. The discussion, which is undertaken by the Gujarat High Court while interpreting the aforesaid provisi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f approved, has to be allowed for the purpose of weighted deduction. 10. We are in full agreement with the reasoning given by the Tribunal and we are of the view that there is no scope for any other interpretation and since the approval is granted during the previous year relevant to the assessment year in question, we are of the view that the assessee is entitled to claim weighted deduction in respect of the entire expenditure incurred under Section 35(2AB) of the Act by the assessee. 3. We are in full agreement with the aforesaid approach of the Gujarat High Court. No substantial question of law, therefore, arises. The appeal is dismissed. 3.5. It is noted by us that similar view has been taken by Hon ble Madras High Court in the case of CIT vs. Wheels India Ltd. (supra). Thus, keeping in view the clear position of law and the facts of this case, stand of the Revenue on this issue is rejected. The other issue raised by the AO in disallowing the deduction was that no agreement has been entered as contemplated by section 35(2AB). In this regard also we have noted that the assessee has made requisite compliance as has been required by the prescribed competent author ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e to explain why proportionate interest relating to advance made to the subsidiary should not be disallowed out of the interest expenditure claimed. In response to the query raised by the Assessing Officer, it was submitted by the assessee, as far as Global Remedies Ltd. and Caryl Laboratories Ltd. are concerned, the advances to them are towards conversion charges since they have a 100% dedicated plant for meeting assessee s manufacturing requirements to certain market segments. As far as advances made to Strides Research and Specialties, it was submitted, the Contract Research Manufacturing Division (CRMD) was hived off w.e.f. 1st April 2002, by virtue of a Court order and as per the scheme of arrangement framed by the Court, out of the amount of ₹ 30,69,31,123, which was appearing in the books of account. an amount of ₹ 23 crore was treated as advance and balance amount which pertains to inter division expenditure post hive off was treated as advance and required to be repaid by the subsidiary. The Assessing Officer referring to the balance sheet of the assessee observed investment in Global Remedies Ltd. and Caryl Laboratories Ltd. are to the tune of ₹ 2.61 cro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ppellate authority. 14. Learned Commissioner (Appeals) also confirmed the disallowance more or less relying upon the observations of the Assessing Officer. 15. Learned Authorised Representative reiterating the stand taken before the Departmental Authorities, submitted that Global Remedies Ltd. and Caryl Laboratories Ltd., are 100% subsidiaries of the assessee and during the relevant financial year, they are having dedicated plants to meet assessee s manufacturing requirements. It was submitted, assessee paid job work, data conversion charges for suply of goods. Thus, the advances made are on the basis of commercial expediency. He further submitted, in any case of the matter, the advances made being out of interest free funds / internal accruals available with the assessee no disallowance out of interest expenditure can be made. In support of such contention, he relied upon the decision of the Hon'ble Supreme Court in Hero Cycles P. Ltd. v/s CIT, [1997] 379 ITR 347 (SC). As far as advance to Strides Research and Specialties, learned Authorised Representative submitted that assessee had demerged its CRAM division to form a separate company w.e.f. 1st April 2002, as per the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... und of commercial expediency in the earlier assessment year or subsequent assessment year has not been controverted by the Department., As far as the advance to Strides Research and Specialties is concerned, it is evident on record that there was no actual cash outflow. When the CRAM division of assessee company was hived off and the separate company was formed as per the scheme of arrangement framed by the Court, the debit balance standing in the books in the name of CRAM was treated as advance. Thus, as could be seen, the assessee has actually not made any advances to Strides Research and Specialties, in strict sense of the term. Moreover, the Department has also failed to establish nexus between the borrowed funds and advances made. One more crucial factor which cannot be ignored is, though, similar advances have been made to the Indian subsidiary in preceding as well as subsequent assessment years, the Assessing Officer has never disallowed proportionate interest expenditure, even though, assessments have regularly been completed under section 143(3) of the Act. In fact, in assessment year 2004 05, the disallowance made by the Assessing Officer on the ground of commercial exped ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for the purpose of business is wider in scope than the expression for the purpose of earning profits vide CIT v. Malayalam Plantations Ltd. [1964 53 ITR 140 (SC), CIT v. Birla Cotton Spinning and Weaving Mills Ltd. [1971 82ITR 166 (SC)], etc.' 13. In the process, the Court also agreed that the view taken by the Delhi High Court in CIT v. Dalmia Cement (P.) Ltd. [2002] 254 ITR 377/121 Taxman 706 wherein the High Court had held that once it is established that there is nexus between the expenditure and the purpose of business (which need not necessarily be the business of the assessee itself), the Revenue cannot justifiably claim to put itself in the arm-chair of the businessman or in the position of the Board of Directors and assume the role to decide how much is reasonable expenditure having regard to the circumstances of the case. It further held that no businessman can be compelled to maximize his profit and that the income tax authorities must put themselves in the shoes of the assessee and see how a prudent businessman would act. The authorities must not look at the matter from their own view point but that of a prudent businessman. 18. The principle laid by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssing Officer to verify and compute the disallowance. 23. Learned Authorised Representative submitted, the issue is covered by the decision of the Tribunal in assessee s own case for the assessment year 2002 03. 24. Learned Departmental Representative, though, did not dispute the contention of the assessee that issue is covered by the decision of the Tribunal but he nevertheless supported the reasoning of the learned Commissioner (Appeals). 25. We have considered the submissions of the parties and perused the material available on record. As could be seen, the issue in dispute is whether the employees and employer s contribution to PF and ESIC are allowable deduction in case it is paid beyond the prescribed date under the relevant statute but before the due date of filing of return of income under the Income Tax Act, 1961. It is observed, identical issue arose in assessee s own case for the assessment year 2002 03, in ITA no.1727/Mum./2006 dated 16th December 2015, the Tribunal, after following its own decision in assessee s case for assessment year 2001 02, allowed assessee s claim with the following observations: 5.2. We have gone through the facts of the case. Th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... led upon the assessee to justify the same. In response to the query raised, it was submitted by the assessee, the transfer of credits under the DEPB has not resulted in any profit, hence, no amount is deductible under section 28(iiid) of the Act. It was submitted by the assessee, it had incurred losses on sale of DEPB credits amounting to ₹ 51,59,166. It was contended as the assessee had incurred losses on sale of DEPB credit, there are no amount of profit in terms of section 28(iiid), hence, assessee did not exercise option to chose between duty draw back or DEPB rates of differences. The Assessing Officer, however, was not convinced with the reply of assessee. He was of the view that whatever amount received on transfer of DEPB credit, when credited to the Profit Loss account, has to be treated as profit as per section 28(iiid). He, therefore, concluded that as the assessee has received ₹ 6,04,98,305, on transfer of DEPB licence, but has credit the amount of ₹ 5,17,53,249, 90% of the said amount is to be reduced from profit of business for computing deduction under section 80HHC. Being aggrieved of such disallowance of deduction under section 80HHC, assessee p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... year 2001 02. The Tribunal, while deciding the issue in appeal preferred by the Department held as under: After considering the rival submissions and perusing the relevant material on record we find that the issue raised through this grounds is no more res integra in view of the judgment of the Hon'ble Supreme Court in the case of Topman Exports v. ITO [(2012) 67 DTR 185 (SC)] in which it has been held that when DEPB is sold by a person, his profit on transfer of DEPB will be sales value of DEPB less its face value. It has further been held that DEPB is chargeable as income u/s 28(iiib) in the year in which such person applies for DEPB against the exports and profit on sale of DEPB is chargeable under section 28(iiid) in the year in which he transfers DEPB. Respectfully following the precedent we set aside the impugned order on this issue and direct the Assessing Officer to allow the claim in accordance with the aforesaid judgment of the Hon'ble Supreme Court. 33. Respectfully following the aforesaid decisions of the Hon'ble Supreme Court and co ordinate bench of the Tribunal, we restore the matter back to the file of the Assessing Officer to allow assessee s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... recovered by it. The Transfer Pricing Officer was of the view that either the assessee should have recovered the expenditure incurred from subsidiary or it should have charged interest. The Transfer Pricing Officer observed while on the one hand the assessee was incurring interest expenditure on the credit facilities availed, on the other hand, the subsidiary companies are benefiting by availing interest free funds from the assessee. He, therefore, opined that a charge has to be made on account of interest receivable by the assessee from the subsidiary companies on the extended credit facility provided to them. From the information available on record, he found that a sum of ₹ 10.56 crore is outstanding as advances from subsidiary companies. He, therefore, called upon the assessee to work out the interest on such advances outstanding from subsidiaries. As stated by the Transfer Pricing Officer, assessee without prejudice to its claim that no interest is chargeable submitted a note working out the interest on advances made by applying rate of 6.9% per annum which as per the Transfer Pricing Officer is the weighted average rate on the loan availed by the assessee. Though, whil ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee from interest free funds / internal accruals and no borrowed funds were utilised for incurring such expenditure. Therefore, as there was no cost to the assessee in respect of the interest free advances, no charge on account of notional interest on the advance to subsidiary should be made. Learned Authorised Representative submitted, the assessee had not actually advanced any amount in cash to the A.Es. The expenditure incurred by the assessee was inextricably connected with the conduct of assessee s business. Such fact is evident from the significant sales generated by the A.E. in respective of jurisdictions in the succeeding assessment years. Learned Authorised Representative submitted, as the expenditure incurred was for commercial / business expediency, notional interest cannot be computed on the advance made to subsidiaries. Without prejudice to the aforesaid submissions, learned Authorised Representative submitted, in any case of the matter, if the advancement of interest free funds to the subsidiary is treated as international transaction, the interest rate to be applied by using LIBOR instead of INR rate. He submitted, during the relevant year, the prevailing LIBOR ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e rate of interest applicable, the learned Departmental Representative submitted, domestic Prime Lending Rate (PLR) is to be applied. 39. We have considered the submissions of the parties and perused the material available on record. As far as the contention of the learned Authorised Representative that the interest free advances to the overseas subsidiary on account of reimbursement of expenditure is not an international transactions and the transfer pricing provisions are not applicable, we are not convinced with the same. On a reference to section 92B of the Act, it is observed that after amendment effected vide Finance Act, 2012, with retrospective effect from 1st April 2002, the definition of international transactions as provided under the Explanation (i) to section 92B, has been expanded to include the following transactions. Explanation.-For the removal of doubts, it is hereby clarified that- (i) the expression international transaction shall include- (a) the purchase, sale, transfer, lease or use of tangible property including building, transportation vehicle, machinery, equipment, tools, plant, furniture, commodity or any other article, product or thin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... icing provisions, it has to be seen whether a particular transaction between the related parties is at arm s length. Therefore, it has to be seen whether under similar circumstances, assessee would have entered into such transaction with unrelated parties. If the facts on record suggest that the assessee would not have entered into such type of transactions with unrelated parties, then the transaction between the related parties cannot be considered to be at arm's length. There is no dispute to the fact that while the assessee has incurred cost by availing credit facility it has advanced interest free funds by not charging interest on the expenditure incurred on behalf of the subsidiaries. Therefore, certainly, a benefit has accrued to the subsidiary on account of the assessee whereas a part of the profit base of the assessee on account of cost incurred on credit facility has been shifted to the subsidiary which otherwise could have been avoided if the surplus funds were available with it. In these circumstances, the principle of commercial expediency would not come into play. Therefore, in our view, as the assessee has not charged interest on outstanding receivables from the o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r observed, as per the record pertaining to earlier assessment year proportionate interest was disallowed on account of investment made for establishing subsidiary overseas. On the basis of those facts, Assessing Officer called upon the assessee to explain why in the impugned assessment year also interest proportionate to investment in overseas company should not be disallowed. In response to the query raised to the Assessing Officer, it was submitted by the assessee that 30% of its sales turnover was generated from Central and South American market. Therefore, investment made in overseas subsidiary is inextricably connected with the export business of the assessee. Therefore, the investment is wholly and exclusively for the purpose of business. It was further submitted, investment made in overseas subsidiary having been made out of surplus fund / internal accruals available with the assessee on which no interest payment is made proportionate interest should not be disallowed. The assessee submitted, as far as the long term borrowings are concerned, they have been utilised for investment in fixed asset and long term working capital requirement of the company. Short term borrowin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ative though agreed that in assessment year 2002 03, learned Commissioner (Appeals) s view in allowing deduction of interest expenditure under section 57(iii) was upheld by the Tribunal but he nevertheless submitted, assessee having not proved the commercial expediency, proportionate disallowance out of interest expenditure is valid. Learned Authorised Representative contesting the claim of the Department and also relying upon the ground raised in cross objection submitted, during the year assessee has sufficient interest free funds available with it by way of surplus and reserve and internal accruals to make the investment and there being no nexus established by the Department that borrowed funds were utilised for investment in shares of overseas companies, proportionate disallowance of interest expenditure cannot be made as presumption would be the investments made were out of interest free funds available with the assessee. Learned Authorised Representative referring to the balance sheet of the company as at 31st March 2003, submitted, while the total investment in overseas company were to the tune of ₹ 114 crore, interest free funds available with the assessee were of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... carry forward. He, therefore, submitted that as the reason on which the assessee accepted deduction under section 57(iii) in assessment year 2002 03 is absent in the impugned assessment year, his acceptance of decision of the learned Commissioner (Appeals) in respect of deduction under section 57(iii) in assessment year 22 03, should not operate against him in claiming deduction in the impugned assessment year under section 36(1)(iii). Learned Authorised Representative submitted, the investment made for acquiring shares of subsidiary companies is also for control over the subsidiary. Hence, interest expenditure is allowable under section 36(1)(iii). 48. We have considered the submissions of the parties and perused the material available on record. It is evident from the orders of the Departmental Authorities, though the assessee had contended that borrowed funds were utilised for acquiring fixed asset and working capital, whereas, interest free funds available through reserve and surplus and internal accruals were utilised for advance to the subsidiary but the Assessing Officer had rejected such claim of the assessee and disallowed proportionate expenditure from the interest ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... partmental Authorities that as a result of aspect of overseas subsidiary, there is substantial increase in sales in such geographical location. Therefore, the contention of the assessee that overseas subsidiaries are acting as the marketing arms of the assessee cannot be disputed or denied. Moreover, it is seen from the record that the assessee has regular business transactions with overseas subsidiary by supplying raw material, etc. for manufacture of goods. Further, the assessee has also sold finished goods to the A.Es. All these factors clearly establish that there is a business / trade relationship between the assessee and overseas subsidiary. That being the case, it cannot be said that investments made are not wholly and exclusively for the purpose of business. Thus, any interest expenditure attributable to such investment / advance to overseas subsidiary would be allowable under section 36(1)(iii) as it is wholly and exclusively for the purpose of business. As held by the Hon'ble Supreme Court in S.A. Builders (supra) and subsequently reiterated in Hero Cycles Ltd. (supra), commercial expediency has to be seen through the position of a prudent businessman and the Asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ction 80HHC, assessee has reduced the indirect cost of trading export by 10% of the export incentives and other income. He, therefore, called upon the assessee to justify the method adopted by the assessee. In response, it was submitted by the assessee that 10% of export incentive was reduced from indirect cost debited to Profit Loss account as the same was deemed to have been incurred for earning incentive. In this regard, assessee relied upon the Special Bench decision of the Tribunal in Surendra Engineering Corp. V/s ACIT, [2003] 86 ITD 212. The Assessing Officer, however, did not accept the contention of the assessee on the reasoning that Department has preferred appeal against the Special Bench decision of the Tribunal before the Hon'ble Jurisdictional High Court and accordingly, held that 10% deduction made by the assessee is not acceptable. Assessee challenged the action of the Assessing Officer before the first appellate authority. 52. Learned Commissioner (Appeals), after considering the submissions of the assessee in the light of the decision of the Tribunal Special Bench held that indirect cost has to be reduced by 10% of the export incentive for calculating pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... respectfully following the judgment of Hon ble Supreme Court as well as coordinate bench of Tribunal, we allow this ground in favour of the assessee. 55. There being no material difference in the facts brought to our notice by the learned Departmental Representative, respectfully following the aforesaid decision of the co ordinate bench of the Tribunal, we uphold the order of the learned Commissioner (Appeals) by dismissing the ground raised by the Department. 56. Ground no.4, is in relation to treatment of foreign exchange fluctuation gain as business income for grant of deduction under section 80HHC. 57. Brief facts are, during the assessment proceedings, the Assessing Officer noticed that while computing deduction under section 80HHC, assessee has included the foreign exchange fluctuation gain of ₹ 17,61,491 in the business income. Assessing Officer, however, was of the view that export realisation is not directly relatable to the export turnover of the year. He observed that income arising out of exchange rate fluctuation has to be treated as income from other sources. Accordingly, he reduced the same from business income while computing deduction under sectio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2001 02. Learned Departmental Representative has not controverted the aforesaid factual position. On a perusal of the order dated 16th December 2015, in ITA no.1727/Mum./2006, for assessment year 2002 03, it is noticed that while dealing with identical issue, the Tribunal followed its earlier decision in assessee s own case for assessment year 2001 02, wherein the Tribunal has allowed assessee s claim on the basis of ratio laid down by the Hon'ble Supreme Court in ACG Associate Capsules P. Ltd. v/s CIT, [2012] 343 ITR 89 (SC), the relevant observation of the Bench is as under: 15.2. We have gone through the order of earlier year and submissions made before us. This issue came up before Tribunal in A.Y. 2001-02 wherein claim of the assessee was allowed by making following observations: 11. Ground no.6 of the Revenue s appeal is against netting of interest receipts for the purpose of deduction u/s 80HHC. The Assessing Officer, while computing deduction u/s 80HHC considered the gross amount of interest. The learned CIT(A), however, overturned this finding by holding that only the net amount of interest was to be considered. Having heard the rival submissions it is noticed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... year 2001 02 and 2002 03, in assessee s own case following the decision of the Hon'ble Supreme Court in CIT v/s Lakshmi Machine Works, [2007] 290 ITR 667 (SC). On a perusal of the order passed by the Tribunal in assessee s own case for the assessment year 2002 03, it is observed that the Tribunal while deciding the issue held as under: 16.1. It has been brought to our notice that this issue is covered by the order of the Tribunal of assessment year 2001- 02, wherein relying upon the Supreme Court decision in CIT vs. Laxmi Machine Works 290 ITR 667, it has been held that excise duty should be excluded from the total turnover for the purposes of section 80HHC. Relevant observations of the Tribunal s order are reproduced below: 12. Ground no.7 of the Revenue s appeal is against the direction of the learned CIT(A) to exclude the amount of excise duty on ₹ 8.92 crore from ₹total turnover for the purposes of computing deduction u/s 80HHC. The Assessing Officer included the amount of excise duty in ₹total turnover while computing deduction u/s 80HHC. The learned CIT(A) overturned the assessment order on this point. 13. After considering the rival s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ngth price of two segments by applying the margin earned by the assessee on its third party transactions. By following the aforesaid process, the Assessing Officer made an adjustment of ₹ 86,10,000. In terms of the adjustment made by the Transfer Pricing Officer, the Assessing Officer passed the draft assessment order by making addition of ₹ 86,10,000. Assessee challenged the addition before the learned Commissioner (Appeals). 72. The learned Commissioner (Appeals), after considering the submissions of the assessee vis a vis the facts and material on record, found that the method adopted by the Transfer Pricing Officer is not correct in view of various discrepancies / short comings as the Transfer Pricing Officer has not taken into consideration various facets of the transactions. The learned Commissioner (Appeals) held that the Transfer Pricing Officer has made comparison of sale price which were different in terms of packing and marketing. He observed, as far as U.S. market is concerned, the same is more mature and competitive as against smaller market at Cellopharm and Brazil, which forms Latin market part. He further observed, while the sales made to Brazil and C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le bench marking the transactions to compute arm s length price. It has been further suggested that TNMM method will be most appropriate method. No objection has been raised by the Ld. CIT-DR, in this regard. Therefore, keeping in view all the facts and circumstances of this case, we deem it appropriate to send this issue back to the file of the TPO who shall carry out afresh search and make fresh analysis and shall also keep in view the aforesaid objections raised by the assessee. The TPO shall also give adequate opportunity of hearing to the assessee to submit required details and documents, as per law, before deciding this issue afresh. Thus, with these directions, this issue is sent back to the file of AO/TPO. Thus ground no. 8 of Revenue s appeal is allowed for statistical purposes. 74. On a careful reading of the observations of the co ordinate bench, it is noticed that they have disapproved the approach / method adopted by the Transfer Pricing Officer while determining the arm's length price as well as the conclusion drawn by the learned Commissioner (Appeals). Therefore, taking into consideration of relevant facts restored the matter back to the Transfer Pricing Of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the Tribunal in assessee s own case for the assessment year 2001 02. Learned Departmental Representative also agreed that the Tribunal has decided the issue in favour of the assessee. On a perusal of the order dated 3rd August 2012, in ITA no.6487/Mum./2004, for assessment year 2001 02, it is noticed, the co ordinate bench following the decision of Hon'ble Supreme Court in Ajanta Pharma Ltd. v/s CIT, [2010] 327 ITR 305 (SC), held as under: 17. Last ground of the Revenue s appeal is against the direction of the learned CIT(A) to reduce export profits based on book profit in the ratio of export turnover to total turnover and not the quantum of deduction as worked out u/s 80HHC for the purposes of working out ₹book profit liable for MAT u/s 115JB of the Act. 18. After considering the rival submissions and perusing the relevant material on record we find that this issue is directly covered in favour of the assessee by the judgment of the Hon ble Supreme Court in the case of Ajanta Pharma Ltd. v. CIT [(2010) 327 ITR 305 (SC)] in which it has been held that clause (iv) of the Explanation to section 115JB covers full export profits of 100% as ₹eligible profi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ligible for deduction. While coming to such conclusion, learned Commissioner (Appeals) observed the entity to which the assessee has effected sales is an unrelated party and the Assessing Officer has not brought any material on record to substantiate his conclusion. The learned Departmental Representative relying upon the observations of the Assessing Officer, submitted that in terms of section 80HHC(4C), assessee has to fulfill two conditions; firstly, the unit to which sales is effected must be situated in SEZ and secondly, such SEZ unit should be eligible for deduction u/s 10A. 84. Learned Departmental Representative submitted, though, the assessee fulfilled first condition but the second condition was not fulfilled as the assessee failed to establish the fact that Mission Pharma Logistic Pvt. Ltd. is eligible for deduction under section 10A. 85. Learned Authorised Representative strongly supporting the reasoning of the first appellate authority submitted, the Assessing Officer while disallowing assessee s claim of deduction 80HHC, has failed to substantiate his allegation with supporting evidence that Mission Pharma Logistic Pvt. Ltd. is not engaged in manufacturing activ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e material / evidence on the basis of which the Assessing Officer has concluded that the SEZ unit to which assessee has effected sales is not eligible under section 10A. Therefore, conclusion drawn by the Assessing Officer being merely on conjecture and surmises without substantiated by positive evidence cannot be accepted. More so, when he does not dispute the fact that Mission Pharma Logistic Pvt. Ltd. is an SEZ unit. In the aforesaid facts and circumstances, department has failed to establish / demonstrate with cogent material that Mission Pharma Logistic Pvt. Ltd. is not eligible for deduction under section 10A, we are not able to interfere with the findings of the learned Commissioner (Appeals). Accordingly, upholding the order of the learned Commissioner (Appeals) on this issue, we dismiss ground no.1, raised by the Department. 87. In ground no.2, Department has challenged the decision of the learned Commissioner (Appeals) in accepting assessee s claim of deduction under section 80HHC in respect of profit derived on transfer of DEPB credit. 88. This issue is similar to the issue raised in ground no.4, of assessee s appeal in ITA no.641/Mum./2007, dealt by us in the earl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssue is similar to issue raised in ground no.2, by the assessee in its appeal in ITA no.641/Mum./2007, wherein vide Para 16 and 17, we have partly allowed the claim of the assessee. Consistent with the findings given therein, we direct the Assessing Officer to re compute / charge interest in terms of our finding as aforesaid. Ground no.2, is also partly allowed. 100. In ground no.3, assessee has challenged the computation of book profit under section 115JB of the Act, after reducing the deduction under section 80HHC. 101. This issue is also similar to the issue raised by the Department in ground no.8, in its appeal in ITA no.274/Mum./2007, wherein we have dismissed the ground raised by the Department. The only difference is, the learned Commissioner (Appeals) has decided the issue against the assessee. However, there being no material difference in facts between the impugned assessment year and in assessment year 2003 04, consistent with the findings given in Para 75 and 76, we set aside the impugned order passed by the learned Commissioner (Appeals) on this issue and allow the ground no.3, raised by the assessee. 102. In the result, assessee s cross objection is partly al ..... X X X X Extracts X X X X X X X X Extracts X X X X
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