9911796707
TMI Blog2019 (4) TMI 1382X X X X Extracts X X X X X X X X Extracts X X X X ..... nted out that any of such expenditure and payment both exceeds specified limit. In view of this, ground of assessee is partly allowed. Valuation of work in progress (WIP) - - method of valuation and its cost components disputed - allegation that inventory classification is not as per requirement of schedule VI of Companies The Act, 1956 - AS-2 - HELD THAT:- Undisputed position that in subsequent years learned assessing officer has accepted method of valuation as well as cost component included for inventory valuation of inventory, addition made by learned assessing officer in current year cannot be sustained Disallowance u/s 36 (1) (iii) - interest paid on borrowed funds at higher rate - interest free or interest at lower rate on advances to subsidiary or sister concern - no nexus been proved that amount is advanced out of borrowed funds - HELD THAT:- Fact shows that for year ended on 31/3/2011 assessee have given an outstanding loan and advances to sister concern unrelated parties amounting to ₹ 41.27 Crores. However assessee has also stated that it has share capital and reserves and surplus as per audited accounts available as on that date shows that assessee has non- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Disallowance of deduction u/s 80 IB/IC by applying provisions of section 80 IA (8) read with section 80 IB (13) and 80 IC (7) - rate of technical knowhow fee on value of goods transferred from perfumery dividend to eligible unit should be 2.75% as against 2.5% declared by appellant - no such adjustment in subsequent year - HELD THAT:- This fact has not been controverted by learned departmental representative. Therefore, it is a fact that in subsequent year claim of assessee has been accepted by learned assessing officer and not disputed whereas in this year it has been disputed. Therefore, it is apparent that when claim of assessee has been accepted in subsequent year on identical facts and circumstances, which is not disputed, therefore there is no reason to sustain any such addition during year. Deduction u/s 80IB/80IC - excess profitability in eligible unit for tax holiday - fair market value of goods transferred is higher in terms provisions of section 80 IA (8) read with section 80 IB (13) and 80 IC (7) - HELD THAT:- identical issue with respect to applicability of rule 8 of Central Excise valuation rules, ( 2000) has been applied by learned assessing officer to deter ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lar brands. Further in later on years ld AO himself has not adjusted the legible profit on this account, therefore, it is apparent that ld AO himself do not think that such adjustment is required to be made. Therefore, brand market value is also not determined by learned assessing officer Disallowance of claim of purchase of sandalwood oil - Addition based on seized papers - year of assessment - HELD THAT:- Seized document does not belong to AY 2010-11 but for Ay 2011-12. There is no material shown to us by the LD CIT DR, which authorizes us to impute the seized papers pertaining to later years for making addition in the earlier years. Revenue has also not initiated any redressal mechanism provided in the act. No reasons are given by the ld AO or ld CIT (A) to extrapolate those seized documents for AY 2010- 11. We have also taken cognizance of those papers in AY 2011-12 and upheld addition on those papers n appeal of assessee for that year. Therefore, in view of above facts, no addition is warranted in this AY on the basis of the seized papers Transfer pricing adjustment - interest on loan to wholly owned subsidiary in Switzerland - whether ? Swiss LIBOR should be taken for b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ch, impugned adjustment is on arbitrary and mechanical basis. CIT(A) deleting adjustment of deduction u/s 80IB/IC on account of notional royalty in respect of Tulsi Brand in excess of 1% being payable by eligible units to M/s. Dharampal Satyapal Sons P. Ltd. Deserves to be upheld as same rate was applied and accepted even by AO in respect of non-eligible units. Reduction of claim u/s 80 IB/80 IC on account of processing charges of betel not at rate of 3% in place of 2.5% taken by assessee - HELD THAT:- AO has taken an incorrect view that on account of job charges to its associate concern for processing beetling has resulted into over statement of profit of industrial undertaking eligible for deduction u/s. 80IB/80IC. finding of CIT(A) is well reasoned as he has held that rate approved by Regional Director is maximum rate and there could no ground or basis for treating same for any adjustment in terms of provisions of section 80IA(10) r.w.s 80IB(13) and 80IC(7) of The Act. It is relevant to note that same rate of processing charges @ ₹ 2.5 per Kg is being paid by both eligible as well as non-eligible units and as such, impugned adjustment is on arbitrary and mechanical ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ser s coastal Project s private limited pertains to Messer is SR credits private limited and not to assessee company - HELD THAT:- there is no material or evidence on record to establish that consideration received by M/s. S.R. Credits P. ltd. is received or transferred to assessee or has been utilized by assessee and as such, allegation of colourable device is unsubstantiated and uncorroborated. Mere fact that shares have finally been purchased by foreign institutional investors furthermore strengthens fact that transaction is genuine and fully acted upon by respective parties. It is not case of assessing officer that assessee has breached or contravened any provisions of Income tax The Act, 1961 and as such impugned addition is on hypothetical basis and total disregard to principle of real income. In view of above facts we do not find any infirmity in order of learned CIT capital in deleting whole addition on account of profit on sale of shares of Messer s coastal Project private limited which in fact pertains to Messer is SR credits private limited and not to assessee. Disallowance of eligible income u/s 80 IB/80 IC by applying provisions of section 80 IA (8) - fair market ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... For The Revenue : Shri Sanjay I Bara, CIT DR ORDER PER PRASHANT MAHARISHI, A. M. 1. These are four cross appeals filed by Assessing Officer i.e. Deputy Commissioner of Income tax, Central Circle 4, New Delhi [ Ld AO] and assessee, M/S Dharampal Styapal Limited for two assessment years i.e. AY 2010-11 and 2011-12, involving similar issues. Therefore, arguing counsels of both sides argued them together and hence, for sake of convenience, all these four appeals are disposed of by this common order. 2. Coming to assessment year 2010 11, in ITA number 3738/Del/2016 is preferred by Assessee against consolidated order passed by learned Commissioner of Income Tax (Appeals) 44, New Delhi dated 29/2/2016 for assessment year 2005 06 to 2011 12 raising following grounds of appeals 1 (i) That on facts and circumstances of case, Ld. CIT(A) has erred in upholding validity of issue of notice u/s 153A of I.T. The Act, 1961 and consequential assessment even though it is not based on any incriminating material seized during course of search. ( ii) That on s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ry and without any ground or basis. ( iii) That in any case, impugned disallowance is without appreciating proviso to section 201(1) of I.T. Act, 1961. 4. That finding of conclusion of CIT(A) in respect of value of work in progress is illegal and arbitrary as valuation of work in progress is based on regular system of accounting and based on legal and accounting principles. 5(i) That CIT(A) having accepted claim of assessee that there is no case of any disallowance of interest paid on borrowed funds to extent of ₹ 2,02,14,239/- u/s 36(l)(iii), it is not open to issue direction for charge of interest on notional basis in respect of advances to sister concerns for purpose of business. ( ii) That these directions are illegal, arbitrary and beyond jurisdiction. 6(i). That on facts and circumstances of case, Ld. CIT(A) was not justified in restricting disallowance to ₹ 4,37,504/- u/s 14A without appreciating that impugned disallowance is without recording satisfaction in terms of provisions of section 14A(2) of The Act. ( ii) That appel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion 153 A of The Act. 9(i). That on facts and circumstances of case, Ld. CIT(A) was not justified in confirming disallowance of deduction under section 80IB/IC by applying provisions of section 80IA(8) read with 80IB(13) and 80IC(7) of The Act, on ground that rate of technical knowhow fee on value of goods transferred from perfumery division to eligible unit should be @2.75% as against 2.5% declared by appellant. ( ii) That adjustment of cost and consequential claim of deduction u/s 80IB/80IC is illegal, arbitrary and based on conjectures and surmises. ( iii) That action of lower authorities is illegal, arbitrary and without jurisdiction as same is not in conformity with provisions of section 153 A of The Act. 10(i). That on facts and circumstances of case, Ld. CIT(A) was not justified in upholding disallowance of deduction u/s 80IB/80IC to extent of ₹ 3,50,357/- by increasing value of goods transferred from Canpack division to eligible units on ground that fair market value of goods transferred is higher in terms provisions of section 80IA(8) read with 80IB(13) and 80IC(7) of The A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... brand Rajnigandha , allegedly owned by Head Office. ( ii) That Ld. CIT(A) was not justified in holding that brand Rajnigandha was owned by head-office and not by eligible undertakings and as such eligible units should pay royalty for usage of same. ( iii) That adjustment of royalty and consequential claim of deduction u/s 80IB/80IC is illegal, arbitrary and based on conjectures and surmises. ( iv) That action of lower authorities is illegal, arbitrary and without jurisdiction as same is not in conformity with provisions of section 153 A of The Act. 13(i). That Ld. CIT(A) erred on facts and in law in sustaining disallowance of purchase of sandalwood oil to extent of ₹ 54,94,24,290/- holding same to be bogus. ( ii) That Ld. CIT(A) erred on facts and in law in endorsing allegation of assessing officer that bogus bills were obtained by appellant from two companies, viz., M/s. SurvaVinayak Industries Limited (in short SVIL ) and M/s. Allied Perfumery Private Limited (in short APL ) , in order to inflate purchase of sandalwood oil. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... claim u/s 80IB/80IC of ₹ 10,17,34,012/- made by AO by increasing value of goods transferred from Noida units to eligible units treating them processed goods and by reducing 80IB/80IC to that extent. 2. Whether on facts in circumstances of case, Ld. CIT(A) has erred in law on facts in directing AO to calculate royalty @ 2.5% of raw material without excise duty as against 3%, rate approved by Min. of Company Affairs in respect of goods transferred from perfumery division to eligible units. 3. Whether on facts in circumstances of case, Ld. CIT(A) has erred in law on facts in deleting reduction of claim u/s 80IB/801C of ₹ 3,27,04,671/- made by AO by taking into account expenditure (depreciation of fixed assets of corporate office and expenses of depots) of ₹ 3,27,04,671/- incurred by businesses of assessee for providing services to eligible undertakings which has not been allocated to eligible undertakings and by reducing deduction u/s 80IB/80IC of The Act, to that extent. 4. Whether on facts in circumstances of case, Ld. CIT(A) has erred in law on facts in deleting reduction of claim u/s 80IB/8 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... - made on account of lesser rate of job work charged from sister concerns in comparison to other related parties. 13. Whether on facts in circumstances of case, Ld. CIT(A) has erred in law on facts in holding that profit arising out of sale of shares of M/s Coastal Project (P) Ltd. pertains to M/s S.R. Credits (P) Ltd. and not to assessee company, thus, ignored colourable device adopted by assessee to avoid taxes. 14. That order of CIT(A) is perverse, erroneous and is not tenable on facts and in law. 15. That grounds of appeal are without prejudice to each other. 4. Narrating facts, assessee appellant is a company engaged in business of manufacturing and trading in pan masala, Guthkha, zarda , perfumery compounds and herbs, mouth freshener, salt, spices, snack food, natural spring water and processing of silver etc. assessee filed its return of income on 31/9/2010 declaring total income of INR 34,12,08,416/ however since minimum alternate tax liability u/s 115JB of The Act was higher, assessee paid tax on book profit of INR 1,37,77,57,881/ . Meanwhile search and seizure operations in terms of provi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ound number 1 of appeal. Hence, it is dismissed. 7. Second ground of appeal is with respect to disallowance u/s 40A (3) of The Act amounting to ₹ 33,90,712/ . learned assessing officer noted that special auditor has reported that expenses aggregating to INR 33,90,712/ have been made in violation of provisions of section 40A (3) of The Act. In submission of assessee, there was no denial of fact that cash expenditure in excess of INR 20,000/- has been made. However assessee submitted that said payment have been made which are covered under rule 6DD of income tax rules as expenditure was incurred by staff and later on adjusted reimbursed to payee. As per detailed produced by assessee, said expenditure has been incurred which does not fall in any of exceptions provided under rule 6DD of IT rules and therefore learned assessing officer disallowed same applying provisions of section 40A (3) of The Act holding that there is a contravention of above provision. 8. Learned CIT A dealt with above disallowance as per para number 6.3 of his order. He confirmed disallowance holding that employees are not agent of assessee company therefore; reimbursem ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... onsidering disallowance. 12. We have carefully considered rival contention and perused orders of lower authorities. We have also perused audit report u/s 142 (2A) of The Act. Assessee has made cash payment in excess of INR 20,000/- on 11 occasions for purchase of silver from Mineral And Metal Trading Corp (MMTC) amounting to INR 2424212/ and also made reimbursement to various employees of INR 9 66500/ . Therefore assessee has made a total payment of ₹ 3390712/- in excess of INR 20,000 each and therefore auditor reported same as disallowable u/s 40 A (3) of The Act. claim of assessee is that payment of INR 2424212/ has been made to a government agency and therefore it cannot be disallowed, as there is no doubt about genuineness of payment. payment is supported by receipt from mineral and metal trading Corp for purchase of silver to be used in business of assessee. However, on careful consideration of details of payment made we find that mineral and metal trading Corp is though a government undertaking but a public listed company, therefore it cannot be said that payment is made to government. Further, no business exigency or any other situation falling in t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in form of semi finished goods and for unpacked goods was given as per para number 10 of audit report. Learned AO noted that difference in valuation of opening inventory of work in progress after loading of indirect cost as per accounting standard 2 was ₹ 28766959/-, hence, it resulted into net understatement of profit of ₹ 2872806/ . Assessee explained before assessing officer that company has valued its inventory as per accounting policy adopted as per accounting standard two issued by ICAI. It was further stated that assessee has already included cost of conversion and cost related to freight, insurance, and job work charges in valuation of raw materials and further sample copy of valuation sheet was provided. It was further shown that certain indirect expenditure is also considered by special auditor cannot form part of valuation of inventory as per accounting standard two of ICAI. Therefore, it was stated that no adjustment because of valuation of closing stock should be made. Assessee further stated that issue is decided in favour of assessee on this aspect for assessment year 2004 05. Learned AO rejected explanation of assessee and relied upon audit report of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t necessarily be a corresponding adjustment made in opening stock as on 1st April, 1998. 17. He further submitted that Further, considering entirety of facts, adjustment in value of opening and closing stock would be a revenue neutral exercise and no fruitful purpose would be served in undertaking such exercise. In this connection, reference may be made to decision of Supreme Court in case of CIT v. Excel Industries Ltd. [2013] 358 ITR 295 where in it is held that Income-Tax department to not to indulge in fruitless litigation where no loss of revenue is involved. In view of factual and legal position clarified above, impugned addition is not sustainable on facts and under law particularly when assessing officer himself has accepted valuation of closing stock AY 2013-14. 18. Learned departmental representative relied upon orders of lower authorities. However, he did not controvert that there is no change in method of valuation of closing stock employed by assessee in impugned assessment year as compared to assessment year 2013 14 and subsequently assessing officer has accepted method of valuation adopted by assessee in subsequent years. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... diture to assessee under provisions of section 36 (1) (iii) of The Act. On questioned by ld AO, assessee explained that assessee has given above funds to group companies out of retained earnings of assessee company and borrowed funds have not been utilized. It was further stated that borrowed funds have been utilized only for expansion of business. It was further stated that rate of interest specified by special auditor is also not correct. However, learned assessing officer rejected contention of assessee and disallowed interest expenditure of INR 2 0214239/ holding that it has not been incurred wholly, necessarily and exclusively for purpose of business of assessee company. When this issue was agitated before learned CIT A, he upheld disallowance. He held that he has perused bank statement contained in paper book filed by assessee where loan were advanced to sister concerns from cash credit account having negative balances. Therefore, he held that immediate source for advancing loan to sister concern and associated concerns are cash credit account borrowings from bank. He further stated that as in assessment year 2004 05 amount is required to be disallowed as per interest pa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to be examined in totality and it is not open to consider entries in bank account in a distorted and isolated manner. He further relied up on several judicial precedents as under : i. CIT v. Reliance Industries Ltd. [2019] 410 ITR 466 (SC) ii. CIT Vs. Bharti Televenture Ltd. 51 DTR 98 (Del.) iii. CIT Vs. Tin Box Co. 260 ITR 637 (Del.) iv. CIT v. Reliance Utilities Power Ltd. [2009] 313 ITR 340 (Bom) 23. He submitted that in light of factual and legal position clarified above, there is no case of any disallowance of interest u/s 36(1)(iii) of Income Tax The Act, 1961. 24. Learned departmental representative vehemently supported order of learned assessing officer and learned CIT A. He submitted that when assessee has borrowed interest bearing funds at higher rate of interest and has diverted same towards lower interest earning advances to sister concerns, learned AO has correctly disallowed above sum. With respect to Nexus of funds, he stated that assessee has made payment from cash credit account of assessee and therefore Nexus is clearly proved. 25. We ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... interest or without charging interest, honourable Supreme Court in 410 ITR 466 in para number 33 has held as under:- 33. We do not see how when Assessing Officer's views are that in cases of interest-free loans and interest given by assessee to its subsidiary companies are in above sums, still, principle laid down by this court that if there are funds available to them interestfree and overdraft or loans taken, would not apply. This view of Assessing Officer is ex facie contrary to settled principle that a presumption would arise that investment would be out of interest-free funds generated or available with company. Then, borrowed capital in hand in that case and interest expenditure was deductible under section 36(1) (iii) of Income tax The Act, 1961. Tribunal held that interest-free fund available to assessee is sufficient to meet its investment. It can be presumed that investments were made from interest-free funds available with assessee. This position clearly emerges from record and for current assessment year as well. We do not see how a different view in facts and circumstances can be taken. If Tribunal had followed earlier view and on facts ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... learly attracted, hence, disallowance of INR 50268833/ was made applying provisions of section 14 A read with rule 8D of The Income Tax Rules. Ld CIT(A) has allowed substantial relief to assessee and has directed assessing officer to exclude growth oriented investments while applying Rule 8D(2)(iii). Also, regarding application of Rule 8D(2)(ii), ld CIT(A) held that investments which have been made through cash credit account, rate of interest in cash credit account should be adopted. However, assessee aggrieved with order of lower authorities has preferred this ground before us. 28. Learned authorised representative submitted that assessee has only earned exempt income to extent of ₹ 15,96,000/- which is corroborated from Schedule 16 of P L a/c placed at Page 165 of PB Vol.1 and also taken note by Special Auditor. Further, assessee has made suo motu disallowance of ₹ 4,37,504/- in return of income which is also acknowledged by assessing officer. It is pertinent to mention that all investments are out of own funds of assessee and as such there is no nexus between interest bearing funds and investment yielding tax free income. Ld AO and CIT (A) have fa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Indswift Ltd. 26,000 53,16,647 51,47,192 Dhampur Sugar 37,500 50,76,226 Nil Total 15,96,000 5,20,19,721 4,54,16,313 30. There is no dispute to effect that assessee has its own funds to extent of more than ₹ 590 crores and as such all these investments are fully covered from own funds and there is no case of any disallowance under rule 8D(2)(ii). Also, there being no case of any direct or indirect claim of interest in connection with investment, disallowance u/s 14A read with Rule 8D, if any, has to be restricted to 0.5% of average investment as specified in Rule 8D2(iii). Further, disallowance as per rule 8D(2)(iii) has to be computed only in respect of investments yielding exempt income and accordingly assessing officer is not justified in applying formula prescribed in Rule 8D t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... He further submitted without prejudice to above submission, in case any disallowance u/s 14A is called for, same should be restricted to extent of exempt income of ₹ 15,96,000/- only. legal position to this effect is well supported from decision of Hon ble Supreme Court in case of Pr. CIT v. State Bank of Patiala [2018] 259 Taxman 314 (SC) and Delhi High Court in case of Joint Investments Pvt. Ltd. Vs. CIT [2015] 372 ITR 694 (Del). relevant head note in case of Pr. CIT v. State Bank of Patiala [2018] 259 Taxman 314 (SC) is as under: Section 14A, read with section 263, of Income-tax The Act, 1961 - Expenditure incurred in relation to income not includible in total income (Computation of) - Assessment year 2010-11 - In course of assessment, Assessing Officer made addition on account of apportionment of expenses against exempted income under section 14A - Commissioner passed a revisional order directing Assessing Officer to enhance amount of addition under section 14A - Tribunal set aside revisional order as well as consequent assessment order passed by Assessing Officer enhancing addition made under section 14A - High Court upheld order of Tribunal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed assessing officer without recording any satisfaction about correctness of claim of assessee of computing disallowance of INR 437504/- or examining contention of non utilization of borrowed funds for making investment in shares, applied provisions of rule 8D and made a disallowance of INR 50268833/ and reduced it from already disallowed sum of INR 437504/ by assessee. Therefore, net disallowance of ₹ 49831329/ was made. As is well known, section 14A of The Act relates to expenditure incurred in relation to income not includible in total income. Sub-section (1) of section 14A provides that for purposes of computing total income under Chapter IV, no deduction shall be allowed in respect of expenditure incurred by assessee in relation to income, which does not form part of total income under The Act. As per sub-section (2) of section 14A, Ld . Assessing Officer would determine amount of expenditure incurred in relation to such income which does not form part of total income in accordance with method as may be prescribed, if having regard to accounts of assessee, he is not satisfied with correctness of claim of assessee in respect of such expenditure. Method for such purpose ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s business losses pertaining to financial year 2001 02 in 2002 03 had not been taken into account while computing deduction u/s 80 IB /IC of the Act. 39. Learned authorised representative at time of hearing of appeal submitted that he does not want to press this ground of appeal. Therefore, it is dismissed. 40. Ground number 8 of appeal is with respect to finding of learned CIT A in upholding disallowance of deduction u/s 80 IB/IC on ground that fair market value of goods transferred from Noida Division to eligible unit is higher in terms of provisions of section 80 IA (8) read with 80 IB (13) and 80 IC (7) of The Act for reason that in respect of unprocessed goods profit Mark up to extent of 2% instead of 10% as computed by assessing officer was restricted. With respect to processed catechu, he confirmed valuation by assessing officer and uphold markup of manufacturing expenses and profit rate at rate of 37.85% and 10% respectively. Assessee is further aggrieved in respect of processed cardamom where learned CIT A confirmed valuation done by assessing officer and uphold markup of manufacturing expenses and profit rate @ of 37.85% and 10% ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... igible unit to eligible undertaking. Thereafter learned assessing officer held that fair market value of said goods exceeds transfer value by a sum of INR 1 01734012/ . Above issue was contested by assessee before learned CIT A. Learned CIT A followed his own order for assessment year 2004 05 wherein i. in case of goods, which are not processed and sent to eligible units as such, he directed learned assessing officer to load profit margin of service charges rate of 2% on value of goods transferred which is directly sent without processing. ii. With respect to goods those are processed, he confirmed loading of average manufacturing expenses of 37.85% as processing value addition has taken place and further confirmed charging of profit at rate of 10%. iii. With respect to cardamom, he confirmed action of assessing officer of loading of manufacturing expenses at rate of 37.58 percent and profit at rate of 10% as per Excise rules subject to deduction of cost of Chilka transferred to other units from addition. 42. Therefore, assessee is aggrieved with order of learned CIT A has preferred this appeal. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... its. vii. It may be clarified that these products have been purchased for captive consumption and same is not tradable commodity. There has been no sale to any outside party and as such presumption about any profit or market value is irrelevant and misconceived. Further, special auditor has referred central excise rules for purpose of estimation of profit @ 10%. In this regard we may submit that reference to excise rules is wholly irrelevant and out of context as same have no relevance or bearing under Income Tax The Act. rate of 10% profit as per Rule 8 of Central Excise Valuation Rules is specifically for purpose of calculating excisable value of marketable goods and as such same cannot be made basis for estimating fair market value of consumable items in terms of section 80IA(8) read with section 80IB(13)/80IC(7) of The Act. VIII. It is pertinent to note that provisions of section 80IA(8) read with section 80IB(13)/80IC(7) of The Act authorizes an assessing officer to make adjustments in claim of deduction by substituting fair market value of goods transferred from non-eligible unit to eligible unit. section specifically talks about market val ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... are not sold by assessee but are used for consumption by him or on his behalf in production or manufacture of other articles, value of such goods that are consumed shall be one hundred and ten per cent of cost of production or manufacture of such goods. ] 47. Provisions of section 80 IA (8) provides that (8) Where any goods 39[ or services ] held for purposes of eligible business are transferred to any other business carried on by assessee, or where any goods 40[ or services ] held for purposes of any other business carried on by assessee are transferred to eligible business and, in either case, consideration, if any, for such transfer as recorded in accounts of eligible business does not correspond to market value of such goods 41[ or services ] as on date of transfer, then, for purposes of deduction under this section, profits and gains of such eligible business shall be computed as if transfer, in either case, had been made at market value of such goods 42[ or services ] as on that date : Provided that where, in opinion of Assessing Officer, computation of profits and gains of eligible business in manner hereinbefore spe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... goods. However in above prices there is no finding that in open market such semi finished goods are sellable or not. Explanation which defines market price provides that market price means price such goods would fetch ordinarily in open market. Therefore, there has to be a clear-cut finding that such goods are marketable, they have a sale price, and such sale prices determination is in open market. Therefore, it is apparent that market price can be more than cost and less than cost of goods. Therefore, any approach of loading of cost on goods, which are transferred from one undertaking to another undertaking without determination of market price of such goods, is not the mandate of provisions of section 80 IA (8) of The Act. Therefore any such attempt to substitute cost plus profit as market value of goods without finding out what could be market value of goods is not acceptable as it is not requirement of law. If views of lower authorities is subscribed to, then it will amount that market price can never be less than cost of goods sold and therefore it presumes a market where only profit exists. Such can never be situation. In view of this, we reject finding of lower authoriti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ble unit should be 2.75% as against 2.5% declared by appellant. 50. Ld assessing officer has made adjustment in claim of deduction u/s 80IB/IC on ground that technical knowhow fee/royalty @ 2.5% paid to Dharampal Satyapal Sons P. Ltd. (DSSP) in respect of goods transferred to Perfumery division is not in accordance with approval from Regional Director, Department of Finance Ministry, as per which ceiling rate of technical know-how fees was fixed @ 3%. Accordingly, assessing officer adopted technical know-how fee/ royalty @3% in respect of goods transferred to eligible units resulting in reduction of claim of deduction u/s 80IB/IC. The ld CIT(A) rejected action of assessing officer of adopting rate of technical know-how fee/royalty @ 3% on ground that it is maximum ceiling limit fixed by Regional Director and rate of 2.5% being mutually decided as per Technical Assistance agreement is in accordance with provisions of section 80IA(8) of The Act. However, CIT (A) directed AO to load 10% mark-up on technical know-how fee @2.5% paid by assessee and re-compute adjustment after taking rate @ 2.75%. CIT (A) is of view that since technical know-how fee/royalty on goods p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ges to Dharampal Satyapal Sons P. Ltd. @ ₹ 2.5/kg whereas maximum ceiling capped by Regional Director was ₹ 3/kg. Assessing officer made adjustment in claim of deduction u/s 80IB/IC by taking into account maximum rate of processing charges. CIT(A) deleted said adjustment in entirety after holding that maximum ceiling limit fixed by RD cannot be considered as basis for making adjustment u/s 80IA(10) of The Act. No mark-up of 10% was added. Relevant finding of CIT(A) is at Page 94 Para 9.3. In light of above, impugned adjustment made by CIT(A) by adding mark- up of 10% of rate of technical know-how/royalty is liable to be deleted and technical know-how/royalty @ 2.5% be considered on value of goods purchased and transferred. 52. Ld. CIT DR relied upon order of learned AO. 53. We have carefully considered rival contentions and perused orders of lower authorities. Learned auditor has noted that during year under consideration perfumery division unit has transferred perfumery products of INR 1530307821 to various manufacturing units including units eligible for deduction. Perfumery unit manufactures excisable products and transfer same t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... most importance to mention that goods transferred from Canpack Division to eligible unit has been valued strictly on basis of Rule 8 of central excise rule read with CAS-4 and as such observation of Special Auditor is factually incorrect. working of transfer value of goods as per excise rules and relevant excise rules and CAS-4 are placed at Page 23-25 26-37 of Supplementary paper book 2 from which it is self evident that goods has been transferred for captive consumption at 110% of cost in accordance with Rule 8 of Central Excise Rules. In view of above facts, impugned adjustment is on illegal and arbitrary basis and same may kindly be deleted as assessee has already loaded cost in accordance with Rule 8 of central excise rules. 56. Learned departmental representative vehemently supported order of learned assessing officer, he extensively read the order of the d AO and CIT A to support the addition. 57. We have carefully considered rival contention and found that identical issue with respect to applicability of rule 8 of Central Excise valuation rules, ( 2000) has been applied by learned assessing officer to determine fair market value of good ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ge 181) on ground that depreciation is unit and asset specific and same cannot be allocated on arbitrary basis. Since mark-up @10% has also been applied to allocated portion of depreciation, observation of CIT(A) while applying 10% mark-up is irrational and contrary to his own findings. It may be appreciated that it is a case of simple allocation of costs incurred on behalf of units and as such loading of mark-up on such allocation is in total disregard to provisions of section 80IA(8) r.w.s. 80IB(13) 80IC(7) of Income Tax The Act, 1961. Even otherwise, it may also be appreciated that allocation of common cost is in nature of reimbursement of expenses and as such, there is no valid ground or basis for attributing any profit on such reimbursements. 60. Learned authorised representative further referred to para number 21.3 of decision of learned CIT A for assessment year 2004 05 wherein he has allowed appeal of assessee and deleted above addition. He therefore submitted that it is applicable for this year also. 61. Learned departmental representative vehemently supported order of learned assessing officer and stated that it page number 177 of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of profit of 10% over such cost. Identical issue has been decided by coordinate bench in [68 taxmann.com 322] wherein contention of revenue was that selling and distribution activity is itself a separate profit centre , therefore whatever services have been provided by selling and distribution arm of assessee to eligible undertaking, should have been charged adding profit and reduced from profit of industrial undertaking after valuing services of selling and distribution arm of company by loading profit element. Coordinate bench has decided that no such profit markup is required to be added when only costs have been allocated and no identification of any specific services provided by such units to eligible unit is found. For holding so coordinate bench also relied upon decision of another coordinate bench in Cadila Healthcare Ltd. v. Addl. CIT [2012] 21 taxmann.com 483/67 SOT 110 (URO)(Ahd. - Trib.) and held as under:- 87. It is one of contention of revenue that selling and distribution activity is itself a separate profit center and therefore whatever services have been provided by selling and distribution arm of company to eligible under ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t which was only two years old could not fetch such high sale price. said Unit has shown high profit at ₹ 1,16,82,91,400/-. goods manufactured by said Unit were transferred to marketing division of assessee-company and sale price was noted by Baddi Unit as per final sale price of product. But fact is that marketing divisions and C F are involved, therefore sales are realized by main marketing division. He has thus pleaded that profit derived from marketing function cannot be dragged to manufacturing unit for purpose of claiming deduction u/s.80IC. Special Provision is confined to certain Undertakings, as defined in Statute, and such eligible undertakings are entitled for deduction of profit of such undertakings only. He has again drawn our attention that only source of income should be eligible source of income and not other sources of income, such as, profits of marketing division or profits on account of established brand. For allocation of profit of manufacturing unit mandate is very clear because Income Tax Rule, 1962 contains Rule 18BBB wherein as per sub-rule(2) a separate report is to be furnished by each undertaking and that report shall be accompanied by a profit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... all type of 'profits gains' may not be an 'income' for tax purpose under The Act. section in controversy i.e. Sec. 80 IC of The Act is embedded with both these terminology, reproduced verbatim :- 80IC (1) Where gross total income of an assessee includes any profits and gains derived by an undertaking or an enterprise from any business referred to in sub-section (2), there shall, in accordance with and subject to provisions of this section, be allowed, in computing total income of assessee, a deduction from such profits and gains, as specified in sub-section(3) . 10.2 'business' is prescribed in sub-section (2) in following manner : ( 2) This section applies to any undertaking or enterprise ( a) which has begun or begins to manufacture or produce any Article or thing Therefore, 'manufacturing' is first criteria for eligibility of 'business' to qualify for deduction. Hence 'profits' are required to be derived from a manufacturing undertaking which is producing specified article. That 'profit' is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or thing and profit therefrom is eligible for deduction u/s.80IC if that profit is part and parcel of gross total income. As noted hereinabove, profit is difference between purchase price and cost of production along with cost of bringing product to market. This basic principle of accountancy, as appeared, have been adopted by Baddi Unit because as per Profit Loss account, cost of material, personal cost and general expenses, corporate expenses were reduced from sale price to arrive at profit before tax i.e. ₹ 116,82,91,400/-. 10.3 It is not in dispute that for Baddi Unit assessee has maintained separate books of accounts and therefore drawn a separate profit and loss account. In such a situation, whether AO is empowered to disturb computation of profit, is always a subject matter of controversy. From side of assessee, reliance was placed on Addl. CIT v. Delhi Press Patra Prakashan [2006] 10 SOT 74 (Delhi) (URO). In this case, assessee was claiming deduction u/s.80IA in respect of a Unit No.4. said Unit was showing profit @ 62%. As against that, AO has noticed that a margin of profit shown by assessee as a whole was only to extent of 10%. AO has there ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... able to operations carried out in India is taxable. expression business connection was also considered and then it was found that it will include a person acting on behalf of a non-resident and carried on certain activities is having business connection. A business connection has to be real and intimate and through which income must accrue or arise whether directly or indirectly to non-resident. On those facts, since it was found that R D activities were carried out by assessee, therefore, 15% of profit was allocated to R D activities and balance of profit was attributable to marketing activities in India. said decision was entirely based upon connectivity of marketing operations with profits. CBDT Circular No.23 of 1969 dated 23/07/1969 was also taken into account wherein it was opined that where a non-resident's sales to Indian customers are secured through services of an agent in India then that profit is attributable to agent's services. Meaning thereby because of close connection of agent's marketing activity proportionate profit was attributed to said activity. Contrary to this, there was no finding that upto extent of 80%, profit was attributed to assessee-comp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of efficient marketing net work plus due to brand name of company. Only 6% was manufacturing profit, per A.O. It is true that section 80IC does recognized provisions of section 80IA. Refer, Sub-section (7) of section 80IC which prescribes as follows:- Section 80IC(7) : provisions contained in sub-section (5) and sub-sections (7) to (12) of section 80IA shall, so far as may be, apply to eligible undertaking or enterprise under this section. Due to this reason, our attention was drawn on provisions of section 80IA(5) of IT The Act; reads as under:- Section 80IA(5) : Notwithstanding anything contained in any other provision of this The Act, profits and gains of an eligible business to which provisions of sub-section (1) apply shall, for purposes of determining quantum of deduction under that sub-section for assessment year immediately succeeding initial assessment year or any subsequent assessment year, be computed as if such eligible business were only source of income of assessee during previous year relevant to initial assessment year and to every subsequent assessment year up to and including assessment year for which ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... di Unit account, scope of controversy gets minimal. Rather, intense contention of Ld.AR is that facts of case have explicitly demonstrated that goods manufactured at Baddi Unit were transported to various C F agents across country for sale purpose. Therefore, eligible business is manufacturing of pharmaceutical products and only source of income was profit earned on sale of products. 10.8 An interesting argument was raised by ld. Special Counsel that provisions of section 80IA(8) prescribes segregation of profit in case of transfer of goods from one Unit to another Unit. But section 80IA(8) reads as follows:- 'Section 80IA(8) : Where any goods or services held for purposes of eligible business are transferred to any other business carried on by assessee, or where any goods [or services] held for purposes of any other business carried on by assessee are transferred to eligible business and, in either case, consideration, if any, for such transfer as recorded in accounts of eligible business does not correspond to market value of such goods [or services] as on date of transfer, then, for purposes of deduction under this section, profits and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... opened in respect of determination of arm's length price vis a vis a fair market and then to arrive at reasonable profit. Rather a very complex situation shall emerge. Specially when Statute do not subscribe such deemed intercorporate transfer but subscribe actual earning of profit, then impugned suggestion of AO do not have legal sanctity in eyes of law. 10.9 A very pertinent question has been raised by ld.AR Mr. Patel that what should be line of demarcation to determine sale price of a product if not market price. As far as present system of fixation of sale price of product is concerned, a consistent method was adopted keeping in mind several factors, depending upon market situation, we have been informed. But if assessee is compelled to deviate from consistent method of pricing, then any other suggestion shall not be workable because no imaginary line of profit can be drawn, precisely pleaded before us. So uncertainty is that on production cost what should be reasonable mark-up which shall cover up margin of profit of a manufacturing unit. And why at all this complex working of computation be adopted by this assessee when a very simple method is adopted ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s said that because of this reason concept of segment reporting was introduced in Indian Accounting Standards. Ld. Counsel Mr. Srivastava has argued that deduction u/s.80IC is a profit linked incentive. Only Operational Profit has to be claimed for 80IC deduction. According to him, each of eligible business constitutes a stand alone item in matter of computation of profit. For computation of profit of an eligible business word used is derived in section 80IC which is a narrower connotation, as compared to word attributable . In other words, by using expression profits derived by an undertaking , Parliament intended to cover such sources not beyond first degree, i.e. first degree of manufacturing activity. law pronounced by Hon'ble Supreme Court is final and should not be disputed. However, a judgement is to be correctly interpreted. 10.11 Finally, on question of segmentation of profit a vehement reliance was placed on an old precedent namely Ahmedbhai Umarbhai Co. (supra). Facts of that case was that assessee had owned three Mills at Bombay and one at Raichur (Hyderabad). assessee was manufacturing oil from groundnuts. produced at Raichur, Hyderabad ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n at different places determines also place of accrual of profit. The Act of sale is mode of realizing profits. If goods are sold to a third person at Mill premises, one could have said that profits arose by reason of sale. Profit would only be ascribed to business of manufacture and would arise at Mill Premises. Merely because a Mill owner has started another business organization in nature of sale depot, that cannot wholly deprive business of manufacture of its profits, though there may have to be apportionment in such a case between business of manufacture and business of shop keeping. question which was answered was that whether in respect of manufacturing business of assessee in Raichur, profits accrue or arise and if so, at what place. One of Hon'ble Judges has opined that manufacturing profit arise at place of manufacture and that sale profits arise at place of sale and that apportionment has to be made between two, though place of receipts and realization of profits is place where sales are made. Simultaneously it was also opined that manufacturing profit could not be said to have accrued at that place because there was nothing done from which profits could accrue. Ther ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urt has discussed problem with reference to certain decisions of English Courts and then made an observation that it had been held that if separation is possible in such cases, proper course is to follow that sever profits of two businesses and assess accordingly. result of discussion was that profits of two businesses were directed to be apportioned. Simultaneously, Hon'ble Court has also made an observation, quote It is true that these are cases where several businesses were amalgamated and carried on together, or more of which were not liable to tax or excess profits duty; but principle of apportionment upon which these cases were decided could, in my opinion, be applied with equal propriety to cases where one part of business is distinct and separate from other parts and is capable of earning profits separately. unquote. Hon'ble Judge was therefore very much concern about fact that business should be capable of earning profits separately. Rather, in subsequent paras it was further made clear that manufacturing profit could be sub-divided only if there was no insuperable/challenging difficulty in making such apportionment. A possibility was therefore discussed that the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... After detailed discussion, before we close controversy we would like to express that AO's proposition of segmentation of eligible profit of manufacturing unit was not altogether meaningless. This approach of AO cannot be brushed aside on fact of it. But at present, when method of accounting as applicable under Statute, do not suggest such segregation or bifurcation, then it is not fair to draw an imaginary line to compute a separate profit of Baddi Unit. Baddi Unit has in fact computed its profit as per a separately maintained books of account of eligible manufacturing activity. To implement method of computation at stand alone basis, as conveyed by AO, manufacturing unit has prepared a profit loss account of its manufacturing-cum-sale business activity. If Statute wanted to draw such line of segregation between manufacturing activity and sale activity, then Statute should have made a specific provision of such demarcation. But at present legal status is that Statute has only chosen to give benefit to any business of drug manufacturing activity which is incurring expenditure on research activity is eligible for this prescribed weighted deduction. segregation as suggested by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... allocated by assessee. In view of this ground, number 11 of appeal of assessee is allowed and AO is directed to not to markup any profit element on allocation of common cost to eligible undertaking. 64. Ground number 12 of appeal of assessee is with respect to deduction of claim of deduction u/s 80 IB/80 IC to extent of INR 39571939/ in respect of royalty on use of brand name Rajinigandha by eligible units in terms of provisions of section 80 IA (8) read with section 80 IB (13) and 80 IC (7) of The Act. Learned assessing officer has noted that eligible undertaking is are manufacturing and selling their products under brand name Ranjnigandha is owned by corporate office of Assessee Company. Above brand as noted by him is a well-established brand, which has been used by eligible undertaking, is without making any provision for payment of royalty etc. in its books of accounts. These facts were also pointed out by special auditor and therefore as suggested by special auditor fair market value of transfer of Rajinigandha brand by corporate office to eligible units should also be considered at rate of 1% of sale value of finished products manufactured and sold in n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n to this effect is supported from order of learned transfer pricing officer for assessment year 2013 14 and 2014 15. He extensively referred to page number 38 69 of paper book number 2. He further submitted that royalty being an intangible is not covered under provisions of section 80 IA (8) of The Act as above provision only apply in case of goods and services. Therefore he submitted that AO is not justified in reducing claim of deduction by adjusting notional royalty in respect of brand RajaniGandha payable by eligible units to head office. 66. Learned departmental representative vehemently supported order of learned assessing officer and learned CIT A. He submitted that royalty is payable for use of brand owned by another unit of assessee for being used by eligible unit for manufacturing. He therefore submitted that user of above brand by eligible unit is a service and therefore provisions of section 80 IA (8) of The Act are applicable. 67. We have carefully considered rival contention and perused orders of lower authorities. Undisputedly brand originally is owned by assessee company and no royalty is paid by assessee to an outsid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e of purchases from APPL and part disallowance from purchases from SVIL. Relevant working of disallowance is at Page 84-85 of assessment order. AO has made such disallowance without appreciating use of actual quantity with reference to manufacturing carried out by assessee. CIT(A) has also disputed price of purchases from SVIL and APPL and has observed that purchases are inflated and adjustment was made in respect of overall purchase price based on quantity purchased from these two parties by referring to lowest price of other suppliers. However, quantum of purchase and use of it in manufacturing process was not disputed after making necessary verification of raw material used and quantity manufactures. It was corroborated from excise records. CIT (A), after considering overall facts of case, held that there is no dispute regarding correctness of quantity of Sandalwood oil purchases and recorded in books of assessee and only dispute is regarding value of purchases. Accordingly, CIT(A) applied minimum purchase rate from third party to quantity of Sandalwood oil purchased from SVIL and APPL. Relevant working is at Page 297-298 of CIT(A) s order. Disallowance was restricted to ₹ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ly made purchases of Sandalwood Oil from SVIL and APPL, which are independent third parties, and assessee is not answerable to internal affairs of these concerns. Further, statement of third parties have not been recorded so as to establish authenticity and genuineness of alleged seized annexure A-1 page 52 and as such computerized sheet of alleged annexure is of no evidentiary value in absence of any corroboration/cross examination. It is pertinent to note that manufacturing, sales are fully reconciled and corroborated with VAT return and excise records, and as such there could be no dispute with regard to correctness of quantitative trading results. Further, there is no adverse evidence on record regarding disputing quantum of purchases of sandalwood oil and reconciliation of purchases with production. It is self evident that whole addition is merely based on inferences and bald allegations, which are not supported from any documentary evidences. In any case, once correctness of purchases recorded in books is accepted, dispute regarding valuation of it is wholly irrelevant as revenue authorities cannot sit in armchair of assessee and decided reasonableness of an expenditure. It i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Learned departmental representative extensively read para number 70 102 of assessment order. It was stated that on perusal of annexure A 1 seized during course of search and seizure action and also various other an action it is apparent that assessee has made bogus purchases from Messer Surya Vinayak industries Ltd amounting to INR 7 22361646/ and from Messer Allied perfumers private limited of INR 1 78826010 totaling to INR 901187656 in all. He further submitted that such bogus purchases have been added by learned assessing officer giving conclusive reasons. He further went on there from and continued until para number 147 of assessment order and then stated that assessee has made bogus purchases from above two companies and therefore addition has been made in hands. 71. We have carefully considered rival contentions and perused orders of lower authorities. learned CIT A has decided whole issue and held that based on all evidences gathered during search and post search proceedings in case of appellant and Florian a group of cases, he is satisfied that there are enough evidences in form of seized documents and statement recorded during search and post searc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se 2 entities is a much higher rate compared to other undisputed parties. Therefore, he noted that purpose of mentioning quantity of goods as Central would oil ( C ) and sandalwood oil (SU) is just to inflate cost of sandalwood oil purchased and used for manufacturing purposes in perfumery division. He further reached at a conclusion that appellant has though purchase sandalwood oil from grey market but billing of it has been made by these two entities at higher cost. Accordingly, he held that entire quantity purchased from these two entities could not be ignored, as it will go against maintenance of quantitative records as per Central Excise rules and inconsistent results in terms of yield of finished goods. Therefore, he held that purpose of issuing bogus bill by these two entities is just to inflate purchase in amount and to increase amount of purchases in terms of rupees for sandalwood oil. Accordingly, he upheld that in fact assessee has purchased sandalwood oil from grey market, quantity of such purchases were entered into Central Excise register however for purpose of accounting and recording it in books of accounts assessee used these two entities and obtained bogus bills f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s recorded on 02.05.2011 wherein, he too have denied having received the payment other than by cheque or payment any cash in lieu of sales of material to the assessee company. The ld Assessing Officer himself has stated that the paper is dated 30.11.2010 that means the transaction in this paper are showing the transaction for the month of November 2010. The excess amount paid up to 31.10.2010 is mentioned. The balance is also shown up to 30.11.2010, therefore, it is apparent that this paper does not pertain to Assessment Year 2005-06 to 2009-10 but for Assessment Year 2011-12. None of the transaction showed in this paper pertain to the impugned Assessment Years mentioned before us. The Hon'ble Supreme Court in case of Sinhagd Technical Educational Society (Supra) has held that the incriminating material seized must pertain to assessment years in question. In that particular case the ITAT in [2011] 16 taxmann.com 101 (Pune)/[2012] 50 SOT 89 (Pune)(URO)/[2011] 140 TTJ 233 (Pune) has held in para no 9 that In the process, the AO totally missed the requirements of the law i.e. only the assessment year with the pending assessments and the assessment year with the assessment year spe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he admission process then above co-relation and assessment year wise ought to have been established. In the circumstances, we do not think that the tribunal's order raises any substantial question of law. On further appeal before Honourable Supreme court in [2017] 84 taxmann.com 290 (SC)/ [2017] 250 Taxman 225 (SC)/ [2017] 397 ITR 344 (SC)/ [2017] 297 CTR 441 (SC) held as under:- 15. At the outset, it needs to be highlighted that the assessment order passed by the AO on August 7, 2008 covered eight Assessment Years i.e. Assessment Year 1999-2000 to Assessment Year 2006-07. As noted above, insofar as Assessment Year 1999-2000 is concerned, same was covered under Section 147 of the Act, which means in respect of that year, there were re-assessment proceedings. Insofar as Assessment Year 2006-07 is concerned, it was fresh assessment under Section 143(3) of the Act. Thus, insofar as assessment under Section 153C read with Section 143(3) of the Act is concerned, it was in respect of Assessment Years 2000-01 to 2005-06. Out of that, present appeals relate to four Assessment Years, namely, 2000-01 to 2003-04 covered by notice under Section 153C of the Ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ary. It is for this reason the High Court has also given its imprimatur to the aforesaid approach of the Tribunal. That apart, learned senior counsel appearing for the respondent, argued that notice in respect of Assessment Years 2000- 01 and 2001-02 was even time barred. 19. We, thus, find that the ITAT rightly permitted this additional ground to be raised and correctly dealt with the same ground on merits as well. Order of the High Court affirming this view of the Tribunal is, therefore, without any blemish. Before us, it was argued by the respondent that notice in respect of the Assessment Years 2000-01 and 2001-02 was time barred. However, in view of our aforementioned findings, it is not necessary to enter into this controversy. 20. Insofar as the judgment of the Gujarat High Court relied upon by the learned Solicitor General is concerned, we find that the High Court in that case has categorically held that it is an essential condition precedent that any money, bullion or jewellery or other valuable articles or thing or books of accounts or documents seized or requisitioned should belong to a person other than the person referred to in S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... igh Court found that the machinery provided under section 153C read with section 153A equally facilitates inquiry regarding existence of undisclosed income in the hands of a person other than searched person. The provisions have been referred to in details in dealing with a challenge to the legality and validity of the seizure and action founded thereon. We do not find anything in this judgment which would enable us to hold that the tribunal's understanding of the said legal provision suffers from any error apparent on the face of the record. The Delhi High Court judgment, therefore, will not carry the case of the revenue any further. We, thus, do not find any merit in these appeals. Therefore as per principle enunciated by the Honourable supreme court, there has to be specific incriminating material for each assessment year assessed u/s 153A / 153C which is concluded and addition can be made based on that only. 30. Based on the page no 52 of annexure A/1 that is containing accounts as at 31/10/2010. Therefore, it relates to AY 2011-12 only. No documents were shown to us or referred to in the Assessment o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... This finding of facts is not disputed by revenue. Therefore it cannot be disputed that assessee has purchased the material. Now the issue is at what rate. If it s the case of the revenue that assessee has purchased goods at ₹ 100 But has booked purchases at ₹ 150 and received ₹ 50 back from the supplier in cash, then revenue should have brought on record the near about comparable prices of those material with reasonable evidences. These facts could have been proved either by the availability of the material in the market or also by the production cost of the supplier. Revenue has not brought on record any such material. Most of the part of the order justifying the addition in absence of this merely remains allegations without evidences. Additions in such a manner cannot be sustained. 33. With respect to the other seized material which have been dealt with by the ld Assessing Officer are dealt with at para No. 107 of the Assessment order as under:- 107. Certain other seized documents also confirm the fact that there is no product by the name of Sandalwood oil (C) or Sandalwood oil (SU) being supplied by M/s Surya Vinayak Industries Ltd. to M/s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e receipt as per MD (Shri Rajiv Gupta) is 12,694 Kg and as per Accounts it is 12,894. A different of 200 Kgs is there and in the remarks column it is mentioned that details are attached. And in this context entries of Page no. 67 are being referred. On this page bill wise detail of purchase from various parties of sandalwood oil for the period 1.4.10 to 31.12.2010 are mentioned. Page No.87 to 90 of Annexure A-11 of the Perfumery Division are now being referred to and discussed. In these pages DSL has calculated the average rate of its raw materials. In these pages also there is no mention of any raw material by the name of Sandalwood oil [C] or [SU]. What is there, is only sandalwood oil, whose average rate is mentioned at ₹ 62503/- per kg. In the same annexure in page no.83 to 86, DSL has made a chart of average rate or last rate whichever is higher as on 31.3.2010 for its raw materials. In this chart only the price of sandalwood oil is mentioned which ₹ 67,864/- per kg. and there is no [C] or [SU]. Further, page no.79 to 89 of Annexure A-15 contains the office of Form ER- 4 (Annual Return F.Y. 2008-09) which was submitted to the Excise Department. In annexure I (page ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e coordinate bench has given a categorical finding that this seized document does not belong to AY 2010-11 but for Ay 2011-12. There is no material shown to us by the LD CIT DR, which authorizes us to impute the seized papers pertaining to later years for making addition in the earlier years. Revenue has also not initiated any redressal mechanism provided in the act. No reasons are given by the ld AO or ld CIT (A) to extrapolate those seized documents for AY 2010- 11. The findings of ld CIT (A) are also for Ay 2011-012 and for the reason without application of mind that whether such seized documents are relevant for other AYs other than AY 2011-12, he confirmed the additions for those years. The coordinate bench has given a categorical finding that those papers are pertaining to AY 2011-12 only. We have also taken cognizance of those papers in AY 2011-12 and upheld addition on those papers n appeal of assessee for that year. Therefore, in view of above facts, no addition is warranted in this AY on the basis of the seized papers Accordingly, ground number 13 of appeal of assessee is allowed. 73. Now we come to ground number 14 of appeal of assessee which is against ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... alternative analysis and stated that as there is no credit rating available of associated enterprise, he adopted BB and D ratings for it. He further exercised powers under section 133 (6) and obtained average yield on long-term instruments from Crisil. Reply received for yield BBB grade corporate bond for 5-year period of 11.22%, which he considered for BB rated bonds yield 20% more than such bonds and accordingly held that 16.31% would be return rate. Therefore he calculated interest applying rate of interest at 16.31 percentage and computed interest that should have been charged by assessee of ₹ 110997973/ whereas assessee has booked interest of ₹ 22163283/ and stated that total interest chargeable would have been ₹ 88834690/ . Accordingly, he made an adjustment of ₹ 88834690/ u/s 92CA of The Act and passed an order on 23/12/2013. For AY 2010-11 the addition was made of RS INR 59551686/- . 74. The learned CIT (A) in para number 32.3 of his order has decided whole issue. He rejected contention of assessee that it is a shareholder activity rejecting that advancement of loan cannot be characterized as a shareholder activity and it is a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... terest rate based on Indian prime lending rate. He stated that this is based on logic that had borrowing entity approached banks in its own country of residence they would have paid interest on LIBOR plus rates. Further, he submitted that it is a settled legal position that in case of an associated enterprise transaction interest to be charged for benchmarking transaction of loans advanced by taxpayer to its foreign associated enterprise in foreign currency should be computed on basis of London interbank offered rate (LIBOR) and not as per domestic rates as such as prime lending rate offered by Indian banks as it has no relevance on such foreign currency loans. He further relied on decision of honourable Delhi High Court in case of CIT vs Cotton naturals private limited [ 55 taxmann.com 523] wherein it has been held that with respect to appropriate comparable rate of interest on foreign currency dominated loan interest rate should be market determine interest rate applicable to currency concerned in which loan has to be repaid. He further stated that in impugned case assessee has advance loan to its wholly owned subsidiary in Switzerland in foreign currency and same is repayable in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 5 has clearly held that there is no justification or cogent reason for applying prime lending rate for outbound loan transactions where Indian patent has advance loan to an associated enterprises abroad. In view of this finding of learned CIT A is not correct that prime lending rate should be applied. Though, learned CIT A is correct in holding that there is no stipulation about repayment currency in loan agreement, However in absence of any such clause in agreement it cannot be said that such loan is required to be repaid in Indian Rs. Only and therefore, PLR has been correctly applied where fact shows that loan has been granted in foreign currency. Honourable Gujarat High Court in 2018-TII-169-HC-AHM-TP in R/Tax Appeal No. 687 of 2018 of PRINCIPAL COMMISSONER OF INCOME TAX RAJKOT-1 Vs JYOTI CNC AUTOMATION PVT LTD has also held that since AE is situated in France, it is most appropriate to consider mark up on basis of average speed over LIBOR charged in France. Accordingly, orders of learned lower authorities are reversed with respect to applicability of Indian interest rate on such loan for benchmarking interest transaction of loan advanced. No other arguments were advanced b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t. 82. We have heard both parties. Learned CIT DR vehemently supported order of learned assessing officer and submitted that depreciation is required to be allocated to total expenditure incurred by eligible unit for purpose of working out right amount of eligible deduction. Learned authorised representative vehemently supported order of learned CIT A. 83. We have carefully considered rival contention and perused order of lower authorities. Learned assessing officer has made adjustment of claim of deduction u/s 80IB/IC on basis of observation of Special Auditor as per which depreciation of Head office must be allocated to eligible undertaking. Learned CIT(A) has deleted adjustment on reasoning that statutory claim of depreciation u/s 32 is on basis of asset put to use at specific location/unit and same cannot be allocated on pro rata basis. relevant finding of CIT(A) is as under : I have considered assessment order, written submissions and oral arguments of Ld AR. For AY 2004-05, I have considered issue and given relief to assessee in appellant case in appeal no.12/12-13/1038. My findings on this issue are reproduc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... facts and submissions of appellant. He has rightly held that depreciation on assets of one particular unit/division cannot be allocated to some other unit/division and as such, finding recorded by CIT (A) is well reasoned and based on sound legal principles. Further issue is also supported by decision of coordinate bench in case of ACIT v. Secure Meters Ltd. (ITA No. 542/Ju/2007 349/JU/2009) (28.08.2012) wherein Hon ble Tribunal upheld order of ld CIT (A) deleting adjustment of deduction u/s 80IB/IC on account of allocation of depreciation of assets in Head Office. relevant finding is as under : 2.8 above findings of ld. CIT (A) in our considered view are in consonance with decision of Hon'ble Apex Court in case of Rajasthan State Warehousing Corporation vs. CIT (supra). findings of Hon'ble Apex Court has also been tabulated in order of ld. CIT(A) at pages 20 and 21 of his order. ld. CIT(A) has given categorical findings that various assets at HO are used for day to day working at HO. These assets are not used for activities of two units at Bated and Barotiwala. At HO at Udaipur, company has to perform certain corporate functions and these as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oring fact that royalty payment at rate of 3% which was made to sister concern taken by AO was rate approved by regional Dir. Ld Assessing officer has made impugned adjustment of claim of deduction u/s 80IB/IC on ground that royalty @ 1% of net sales paid to M/s. Dharampal Satyapal Sons P. Ltd. (Third party) is less than rate approved by Regional Director of Central Government which is 3% and as such profit of eligible units and consequential claim of deduction 80IB/IC is inflated due to less royalty payment. Accordingly, claim of deduction was reduced by increasing royalty payment by eligible units by 2% of net sales in terms of provisions of 80IA(10) r.w.s. 80IB(13) 80IC(7) of Income Tax The Act, 1961. CIT(A) deleted adjustment on ground that rate fixed by Regional Director was maximum ceiling limit and same cannot be considered as fair value for adjustment in terms of provisions of section 80IA(10) r.w.s. 80IB(13) 80IC(7) of Income Tax The Act, 1961. 88. We have heard both parties on issue and considered order of learned lower authorities. learned CIT A has deleted above addition considering that M/s Dharampal Satyapal Sons Ltd. owns trade mark in fie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 77; 2.5 per Kg paid to M/s. Dharampal Satyapal Sons P. Ltd. (Third party) is less than rate approved by Regional Director of Central Government which is ₹ 3 per Kg and as such profit of eligible units and consequential claim of deduction 80IB/IC is inflated due to less payment of processing charges. Accordingly, claim of deduction was reduced by increasing Betel nut processing charges claimed by eligible units by ₹ 0.5 per Kg in terms of provisions of 80IA(10) r.w.s. 80IB(13) 80IC(7) of Income Tax The Act, 1961. ld. CIT(A) deleted adjustment on ground that rate fixed by Regional Director was maximum ceiling limit and same cannot be considered as fair value for adjustment in terms of provisions of section 80IA(10) r.w.s. 80IB(13) 80IC(7) of Income Tax The Act, 1961. 90. We have carefully considered rival arguments as well as order of lower authorities. We have considered assessment order, appellate order, written submission, and oral arguments of Ld. A and LD. DR . Ld Assessing Officer has made addition on account of report of special auditor suggesting that market rate of processing betel nut should be at maximum ceiling rate as approved by Regio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... officer has considered adjustment on basis of observation of special auditor. Special auditor is of opinion that Excise duty refund is an incentive received from government and it is in nature of other income and cannot be said to be derived from industrial undertaking. Accordingly, claim of deduction u/s 80IC was reduced. ld CIT(A) deleted addition on basis of decision of Hon ble Delhi High Court in case of sister concern of assessee in CIT v. M/s. Dharampal Premchand Ltd. 317 ITR 353 (Del) wherein Hon ble High Court held that excise duty refund is linked with manufacturing activity of assessee and same qualifies for deduction u/s 80IB of The Act. Hon supreme court in Hon ble Supreme Court in case of CIT v. Meghalaya Steels Ltd [2016] 383 ITR 217 (SC) has approved same. Therefore as honourable CIT A as decided whole issue following decision of honourable jurisdictional High Court, learned departmental representative also could not point out any contrary decision on this issue, we uphold order of learned CIT A in holding that excise duty refund is part of eligible income for deduction u/s 80 IC of income tax The Act. Accordingly, ground number 7 of appeal of learned assessin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iness AG. Action of assessing officer is on basis of report of Special auditor wherein Special Auditor has observed as per AS-11, foreign currency transactions must be reported on closing rate as on Balance sheet date and any difference must be recognized as profit or loss. Even though, action of assessing officer in computing foreign exchange fluctuation loss has reduced income of assessee during year under reference, however, said treatment is principally wrong and against scheme of The Act. It is further clarified that this very issue is present in all years i.e. 2005-06 to 2011-12 wherein in some years it has resulted in increase in taxable income whereas in some years it has resulted in reduction. CIT(A) has decided issue vide consolidated order wherein effect of addition/loss of such foreign exchange fluctuation of foreign currency loan has been nullified on basis of decision of Apex Court in case of CIT v. Tata Locomotive and Engineering Co. Ltd. [1966] 60 ITR 405(SC) and Sutlej Cotton Mills Ltd. v. CIT [1979] 116 ITR 1(SC) . Ld CIT (A) has rightly held that loan transaction being on capital account, gain or loss arising on fluctuation of foreign currency is capital in natur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... profits of eligible units of sister concern. Accordingly, addition in respect of difference of rates was made. Ld CIT (A) has deleted addition on ground that impugned addition is purely on notional basis and not sustainable under law. 99. We have heard rival contentions whole addition has been made by learned assessing officer on presumption that Assessee Company has charge of charges at rate of INR 3000 per KG to its group concern for doing job work for them and silver file division as against INR 4100 per KG charged to other parties and other units of company. This was remark of special auditor and it was stated that if it were done for eligible units of group concern then group concerns would be entitled for higher deduction by INR 377876. It is evident that addition of higher rate of job charges is on hypothetical basis and against concept of real income. Further, it is not open to assessing officer to sit in armchair of assessee and to make business decisions on arbitrary basis. Further, there is no provision in Income tax The Act, 1961 that warrants such adjustment and as such, action of assessing officer in increasing rate of job work charged from sister c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erred to order of learned assessing officer whereas learned authorised representative relied upon order of learned CIT A. 103. We have carefully considered rival contention and perused orders of learned lower authorities. learned CIT A is dealt with whole order as under:- I have considered assessment order, written submission and oral arguments of Ld. AR. After considering entire facts and evidences gathered by assessing officer, which are reproduced in assessment order. I have held in case of M/s. SR Credit PVt. Ltd. in appeal no. 102/13-14/1253 vide appellate order dtd. 21/03/2013 that it could not established that these transactions are pertaining to appellant not M/s. SR Credit Pvt.Ltd. Therefore, capital gain arising out and these transactions are taxable in hands of M/s. SR Credit Pvt.Ltd. My finding in case of M/s. SR Credit Pvt. Ltd. in above said appeal no is reproduced as under:- I have considered assessment order, written submission, report of assessing officer and oral arguments of LD AR during appellate proceedings. First arguments against jurisdiction of addition u/s. 153A. Ld. AR has relied on v ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s of Coastal Power Projects Pvt. Ltd. by appellant is arranged transaction to reduce profit by Dharampal Satyapal Ltd (DSL) as Dharampal Satyapal Ltd, is having taxable income and appellant is only showing loss. Main grounds and evidence relied by assessing officer are as under:- a) Dharampal Satyapal Ltd. has sold 18,12,500/- shares of M/s. Coastal Power Projects Pvt. Ltd. on 21/08/2009 to appellant for consideration of ₹ 82.50 crores which ultimately was sold by appellant for ₹ 110,99,93,126/- to F11s. vide purchase agreement dtd. 09/10/2009. An agreement was found during search dtd. 12/03/2008 for sale of shares amongst Dharampal Satyapal Ltd. F11s and Coastal Ltd. where consideration was shown as ₹ 100,29,47,500/-. Therefore, assessing officer concluded that shares were transferred to appellant at lower cost. ii) Though formal engagement letter was issued by M/s. SR Credits Pv t.Ltd. to Yes Bank, however, Mr. Namit of Yes Bank which has maintained escrow account has stated that initial meeting was held between various officers of namely Sh. Anil Goswami, GM, DSL, Rajiv Gupta (MD), DSL. Mr. Rajesh Gupta, Director, DSL and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h. Sumit of Yes Bank relied by assessing officer that initial meeting for transfer of said shares was held between Directors and Senior of Dharampal Satyapal Ltd. and Yes Bank was never confronted to assesse and is not even in record for assessing officer. Ld Assessing officer without seeing statement has incorporated content of such statement in assessment order. Even if it is presumed that at initial stage meeting were held between managing directors and directors and senior officer of Dharampal Satyapal Ltd and Yes Bank, it does not prove that transaction were sham as formal engagement letter was issued is name of appellant. appellant is definitely as associate entity of flagship company Dharampal Satyapal Ltd. Therefore, such initial meeting even it held as per statement relied by assessing officer in no way makes transaction unreal. Considering entire facts and circumstances of case, I do not agree with findings of assessing officer that transaction of transfer of shares of M/s. Coastal Power Projects Pvt. Ltd. does not pertain to appellant. Accordingly, I direct assessing officer to consider profit on sale of such transaction in hands of appellant. related ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... saction as in genuine. Therefore, I direct assessing officer to allow loss on sale of shares of M/s. Blue Wings Tower Travels Pvt. Ltd. 3rd ground of appeal is allowed. As, I have held that capital again is taxable in hands of M/s. SR Credit Pvt. Ltd. and there is no new fact brought on record. Therefore, addition on account of capital gain for share transaction for sale of shares of Coastal Power Project Pvt. Ltd. cannot be taxed in hands of appellant. Therefore, addition made on account of capital gain for share transaction for same shares of Coastal Power Project Pvt. Ltd. is deleted in appellant s hand. These grounds of appeal are hereby allowed. 104. On careful perusal of finding of learned CIT A it was found to be reasoned and based on settled legal principles. It may be appreciated that purchase and sale of shares of M/s. Coastal Projects P. Ltd. by assessee is properly documented and there is actual flow of consideration between parties. Further, assessing officer has not disputed genuineness of transaction and as such, impugned addition is merely on basis of conjectures and surmises. assessee is also produced all documents which ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of Rule 6DD and as such there is no case of any default u/s 40A(3) of I.T. The Act, 1961. 2. That finding of conclusion of CIT(A) in respect of value of work in progress is illegal and arbitrary as valuation of work in progress is based on regular system of accounting and based on legal and accounting principles. 3(i) That CIT(A) having accepted claim of assessee that there is no case of any disallowance of interest paid on borrowed funds to extent of ₹ 3,00,903/- u/s 36(l)(iii), it is not open to issue direction for charge of interest on notional basis in respect of advances to sister concerns for purpose of business. ( ii) That these directions are illegal, arbitrary and beyond jurisdiction. 4(i) That on facts and circumstances of case, Ld. CIT(A) was not justified in confirming disallowance to ₹ 43,10,566/- u/s 14A without appreciating that impugned disallowance is without recording satisfaction in terms of provisions of section 14A(2) of The Act. ( ii) That appellant has not incurred any expenditure for earning of exempt income and as such provision ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... visions of section 80IA(8) read with 80IB(13) and 80IC(7) of The Act, on ground that fair market value of goods transferred from Silverfoil Division to eligible undertaking was higher than that declared by appellant. ( ii) That adjustment of cost and consequential reduction of claim of deduction u/s 80IB/80IC is illegal, arbitrary and based on conjectures and surmises. 8(i) That on facts and circumstances of case, Ld. CIT(A) was not justified in upholding disallowance of deduction u/s 80IB/80IC to extent of ₹ 5,82,029/- by increasing value of goods transferred from Canpack division to eligible units on ground that fair market value of goods transferred is higher in terms provisions of section 80IA(8) read with 80IB(13) and 80IC(7) of The Act. ( ii) That profit mark up rate of 10% is highly arbitrary and without any valid basis or justification. ( iii) That adjustment of cost and consequential reduction of claim of deduction u/s 80IB/80IC is illegal, arbitrary and based on conjectures and surmises. 9(i) That on facts and circumstances of case, Ld. CI ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d. CIT(A) erred on facts and in law in endorsing allegation of assessing officer that bogus bills were obtained by appellant from two companies, viz., M/s. SurvaVinayak Industries Limited (in short SVIL ) and M/s. Allied Perfumery Private Limited (in short APL ) , in order to inflate purchase of sandalwood oil. ( iii) That Ld. CIT(A) erred on facts and in law in endorsing allegation of assessing officer that cash was received by appellant from above two concerns, that too, on basis of erroneous inferences/ assumptions on basis of certain seized documents. ( iv) That Ld. CIT(A) erred on facts and in law in relying upon ex-parte statements/ materials collected behind back of appellant, without allowing cross-examination and/ or confronting same to appellant, in gross violation of principles of natural justice. ( v) That Ld. CIT(A) erred on facts and in law in endorsing allegation of assessing officer that appellant obtained bogus bills towards purchase of sandalwood oil in order to reduce taxable income. 12(i). That on facts and circumstances of case, LD. CIT(A) was not justif ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eal in appeal of assessee for assessment year 2010 11 wherein because of reason that in subsequently from assessment year 2013 14 method and component of cost of inventory have been accepted by learned assessing officer we have deleted addition made for that year in appeal of assessee. Further similar reasons we reverse order of learned CIT A. Accordingly, ground number 2 of appeal of assessee is allowed. 110. Ground number 3 of appeal is with respect to disallowance of interest expenditure u/s 36 (1)(iii) of INR 3 00903 wherein national interest has been charged and advances to sister concern for purpose of business. Both parties agreed that this is identical to ground number 5 of appeal of assessee for assessment year 2010 11. On careful consideration of facts in this year also, and for reason that assessee has huge non-interest-bearing funds in form of share capital and reserves and surpluses more than amount advanced by assessee to its sister concern addition was deleted in that year. There is no change in facts and circumstances of case and therefore for similar reasons we reverse order of learned CIT A and direct assessing officer to delete disallo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... igible unit should be 2.75% as against 2.5% declared by appellant. Both parties agreed that this is similar to ground number 9 of appeal of assessee for assessment year 2010 11. While deciding ground number 9 of appeal has been allowed for reason that claim of assessee has been accepted in subsequent year on identical facts and circumstances. Therefore, for similar reasons we allow ground number 6 of appeal of assessee for this year too. 114. Ground number 7 of appeal of assessee is with respect to disallowance confirmed by learned CIT A of eligible income u/s 80 IB/80 IC to extent of INR 13634222/ by applying provisions of section 80 IA (8) on ground that fair market value of goods transferred from silver foil division to eligible undertaking was held than that declared by appellant. Brief facts of issue are that special auditor is reported that during year under consideration silver for unit has transferred goods of INR 9 7796985 to various units including INR 4 5266554/ to manufacturing units eligible for deduction u/s 80 IB/80 IC of income tax Act. Learned auditor has considered for arriving at transfer value of silver foil is on FIFO method considering ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 116. Learned departmental representative vehemently supported orders of lower authorities and submitted that when assessee has sold identical material to 3rd party then same is market price of goods as on that date and therefore assessee has reduced profit of non eligible unit and enhanced/increased profit of eligible unit and therefore above disallowance as rightly been made by lower authorities. 117. We have carefully considered rival contentions and perused orders of lower authority. Appellant has procured silver for from third-party vendors and transferred to eligible units at actual cost comprising procurement cost, processing cost, freight expenses et cetera on FIFO basis. Whereas learned assessing officer has taken average sale cost rate to 3rd party to file market value of such civil file to eligible undertaking claiming deduction u/s 80 IB/80 IC of The Act. It is apparent that silver foil item is sold to outsiders; actual price realized by assessee on sale of these items to third party is market value of product as on that date. However, assessee has purchased raw silver from third parties and as on date raw material purchased by assessee for eligible uni ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 9. Ground number 9 of appeal of assessee is with respect to disallowance of cost of service/common cost of eligible undertaking which is similar to ground number 11 of appeal of assessee for assessment year 2010 11. Both parties also confirmed that there is no change in facts and circumstances of case. While deciding issue in assessment year 2010 11 we have held that gross profit ratio of 10% over and above actual cost incurred by assessee cannot be imputed for working out eligible profit of unit. We have allowed ground number 11 of appeal of assessee for that year holding that there is no value addition made by these head office or branches to various cost allocated by assessee. For similar reasons we allow ground number 9 of appeal of assessee reversing order of learned CIT A. 120. Ground number 10 of appeal of assessee is with respect to disallowance of deduction u/s 80 IB/80 IC to extent of ₹ 5,51,62,247/ wherein learned assessing officer has made addition which is confirmed by learned CIT appeal that eligible undertaking should have paid royalty to head office for using brand allegedly owned by head office. Both parties confirmed that this ground ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Relevant working of disallowance is at Para no 138 of assessment order. Ld. AO has made such disallowance without appreciating use of actual quantity with reference to manufacturing carried out by assessee. Ld CIT (A) has also disputed price of purchases from SVIL and APPL and has observed that purchases are inflated and adjustment was made in respect of overall purchase price based on quantity purchased from these two parties by referring to lowest price of other suppliers. However, quantum of purchase and use of same in manufacturing process was not disputed after making necessary verification of raw material used and quantity manufactured. He corroborated it with excise records. Ld. CIT (A), after considering overall facts of case, held that there is no dispute regarding correctness of quantity of Sandalwood oil purchases and recorded in books of assessee and only dispute is regarding value of purchases. Accordingly, ld. CIT(A) applied minimum purchase rate from third party to quantity of Sandalwood oil purchased from SVIL and APPL. Relevant working is at Page 297-298 of CIT(A) s order. Disallowance was restricted to ₹ 84,54,88,059/- as against ₹ 123,92,46,117/- . T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed with VAT return and excise records, and as such, there could be no dispute with regard to correctness of quantitative trading results. Further, there is no adverse evidence on record regarding disputing quantum of purchases of sandalwood oil and reconciliation of purchases with production. Therefore, according to him it is self evident that whole addition is merely based on inferences and bald allegations, which are not supported from any documentary evidences. 125. He further submitted that in any case, once correctness of purchases recorded in books is accepted, dispute regarding valuation of it is wholly irrelevant as revenue authorities cannot sit in armchair of assessee and decided reasonableness of an expenditure. 126. It is not case of revenue that M/s. Surya Vinayak Industries Ltd. and M/s Allied Perfumers Pvt. Ltd. are related parties or provisions of section 80IA(8) or 80IA(10) are applicable and as such there is no ground or basis for any disallowance of purchases of Sandalwood Oil from M/s. Surya Vinayak Industries Ltd. and M/s Allied Perfumers Pvt. Ltd. keeping in view documentary evidences placed on record in form of bills, vouch ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... two companies and therefore addition has been made in hands. 130. We have carefully considered rival contentions and perused orders of lower authorities. learned CIT A has decided whole issue and held that based on all evidences gathered during search and post search proceedings in case of appellant and Florian a group of cases, he is satisfied that there are enough evidences in form of seized documents and statement recorded during search and post search proceedings which clearly establishes that Surya Vinayak industries Ltd and Allied perfumery private limited has not supplied goods namely Sandalwood oil to assessee and they have merely issued bogus bills to assessee and received cheques from assessee and paid back to assessee in cash after some adjustment in rate and apportioning excise duty. After giving this finding, he further held that Sandalwood oil is an excisable product and entered in excise registrar of perfumery compound division of assessee. He further noted that on date of search, there was no discrepancy in stock of sandalwood oil found which is apparent from assessment order where assessing officer himself has mentioned that during course of se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssuing bogus bill by these two entities is just to inflate purchase in amount and to increase amount of purchases in terms of rupees for sandalwood oil. However, there is no impact on quality details of purchases and consumptions. Accordingly, he upheld that in fact assessee has purchased sandalwood oil from grey market, quantity of such purchases were entered into Central Excise register however for purpose of accounting and recording it in books of accounts assessee used these two entities and obtained bogus bills from them at higher rate than what is actual purchases rates from grey market. These findings of learned CIT A are convincing, based on proper analysis of quantitative details maintained by assessee. These are further not controverted by both parties by producing any cogent evidence. 131. First contention that is raised by assessee is that issue squarely covered in favour of assessee by decision of coordinate bench for assessment year 2005 06 to 2009 10 in favour of appellant is devoid of any merit as those cases were decided on issue of whether there was any incriminating material found during course of search or not with respect to those assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le transaction. 134. Fourth arguments with respect to statement of 3rd parties and their records as well as computerized sheet does not have any evidentiary value in absence of corroboration of cross-examination of those parties is also devoid of any merit. In fact, these parties have dealings with assessee. Those parties have deposed against fact stated by assessee. Therefore if assessee finds that those parties have misquoted facts than it is duty of assessee to produce those parties before assessing officer with adequate evidence corroborating fact that those quote by these parties was erroneous. Assessee has not done anything to prove so. In view of this argument of corroboration or cross-examination is devoid of any merit. 135. Fifth arguments of assessee is that manufacturing and sales are fully reconcile uncorroborated with Vat t return and excise records also does not hold any water in view of fact that assessee has purchased material from grey market and replaced them with bills in books of accounts obtained from these two parties. Therefore, naturally manufacturing and sales would be reconciled and so VAT record and excise records. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of bill price as stated in those bogus bills issued by these two parties and purchased material from grey market at market rate, therefore assessee has paid market value of those goods in grey market. Therefore, difference, which can be added in hands of assessee, is difference between market rate of goods purchased and bill value in bogus bills issued by these two parties. learned CIT A has considered market price as minimum price paid by assessee with respect to various parties during year, whereas alternative claim of assessee is that such market price should be taken as average price of sandalwood oil during year. Claim of assessee is that because of several factors, which affect price of commodity such as quality, brand, nature, and type of product and therefore minimum price always, demonstrates lower quality material without brand and in smaller quantities. This is also apparent from fact that page number 298 of order of learned CIT appeal where to derive at minimum price of sandalwood oil he has taken a bill wherein assessee has purchased only hundred kilograms of material, where rate of sandalwood per KG is only INR 28142.40, whereas assessee has purchased total quantity ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ficer applied interest rate of 16.31% per annum applying state bank of India prime lending rate +400 bps on loans advanced by appellant to its wholly owned subsidiary where assessee has charge interest at rate of 3% per annum. Both parties confirmed that identical ground of appeal has been considered in assessee s appeal for assessment year 2010 11 vide ground number 14. It was further stated that there is no change in facts and circumstances of case. 140. We have carefully considered rival contention and find that identical ground of appeal of assessee for assessment year 2010 11 has been decided by us wherein relying on decision of honourable Delhi High Court in cotton natural private limited appeal of assessee was allowed on that ground. Therefore, for similar reasons ground number 12 of appeal for this year also is allowed. 141. Ground number 13 is with respect to charge of interest u/s 234A, 234B and 234C of The Act. Before us, no arguments were advanced by assessee. Therefore, it is dismissed. 142. Accordingly, appeal of assessee is partly allowed. 143. Now we come to appeal of learned assessing offic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ₹ 16,24,418/- made by AO on account prior period expenses. 8. Whether on facts in circumstances of case, Ld. CIT(A) has erred in law on facts in deleting addition of ₹ 10,96,21,278/- made on account of foreign exchange fluctuation, thus ignoring provision of AS-11. 9. Whether on facts in circumstances of case, Ld. CIT(A) has erred in law on facts in deleting disallowance of ₹ 1,98,85,294/- made by A O on The Act so' section 14A of Income Tax The Act, 1961 and thus restricting disallowance to extent of exempt income. 10. Whether on facts in circumstances of case, Ld. CIT (A) has erred in law on facts in directing to take basis of calculation from lowest purchases from third party, thus ignoring facts and evidences of bogus purchases unearthed during course of search and post search proceedings. 11. Whether on facts in circumstances of case, Ld. CIT (A) has erred in law on facts in deleting addition of ₹ 2,45,310/- made on account of lesser rate of job work charged from sister concerns in comparison to other related parties. 12. That order o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... This Is Identical to Ground Number 4 of Appeal of Learned Assessing Officer for Assessment Year 2010 11. Therefore for Similar Reasons Contained Therein We Dismiss Ground Number 4 of Appeal of Assessing Officer for This Year Too. 148. Ground Number 5 of Appeal of Learned Assessing Officer Is against Deleting Reduction of Claim U/s 80 IB 80 IC on Account of Royalty Payment to Sister Concern. Identical ground has been decided by us in appeal of learned assessing officer for assessment year 2010 11 wherein we have dismissed this ground of appeal. Therefore, for similar reasons we dismiss this ground of appeal also. 149. Ground number 6 of appeal of learned assessing officer is with respect to allowability of deduction u/s 80 IC in respect of excise duty refund considering same as an eligible income or not. Identical issue has been considered by us in appeal of learned assessing officer in ground number 7 for AY year 2010 11 wherein we have held that excise duty refund is an income eligible for purpose of deduction u/s 80 IB of income tax the act as it is derived from industrial undertaking. accordingly ground number 6 of appeal of learned ass ..... X X X X Extracts X X X X X X X X Extracts X X X X
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