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TMI Blog2015 (5) TMI 1238X X X X Extracts X X X X X X X X Extracts X X X X ..... ing Officer to delete this ALP adjustment. Disallowance of interest out of interest paid on account of not taking deposit from M/s. Mitsu Limited - AO observed that the assessee-company had given deposit of Rs.1 crore to Bilakhia Property Private Limited as per lease deed for taking the premises on lease from the said company and that the assessee-company had given part of the said premises on rent to M/s. Mitsu Limited without charging any deposit - HELD THAT:- CIT=A agreed with the contention of the Assessing Officer, that the interest bearing funds were not utilized by the assessee-company wholly and exclusively for business purpose; however, in the end he has deleted the addition in question. Hence, there is a contradiction between the observation and conclusion in the order of CIT(A) on this issue. In view of the above, both parties agreed that let the matter be restored to the file of CIT(A) on this issue as there is a contradiction in the observation and conclusion in the order of the CIT(A). Agreeing to same, we set aside the order of CIT(A) on this issue and restore the same matter back to him with the direction to decide this issue as per facts and law, after providi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ith details of country of visit, the assessee could not give any justification about the purpose of visit and accordingly the Assessing Officer disallowed the same - HELD THAT:- We find that the ad-hoc disallowance at 1/10th of the expenditure incurred on foreign travelling expenses has been made by the Assessing Officer and the CIT(A) has deleted the addition in question, after verifying the details of the same. Moreover, similar relief has been given by ITAT in assessee s own case for Assessment year 2002-03 to 2004-05 which has not been disputed by the Revenue - In view of the same, the order of the CIT(A), whereby he has deleted the addition, is hereby confirmed. Disallowance of depreciation claimed on HT lines for electricity supply in respect of Vapi-1 unit and Silvassa Unit - As per AO the assessee-company has not owned the HT Lines and was claiming depreciation on it - assessee, submitted that the assessee-company is the de-facto owner of the HT lines and dispute was about the allowability of depreciation on assets not legality of ownership of the company and this alternative submission of the assessee was not adjudicated by the lower authorities - HELD THAT:- Agreeing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Act. Accordingly, we are not inclined to interfere in the findings of the CIT(A) who has rightly directed the Assessing Officer to include the same as part of income from business for the purpose of calculation of deduction u/s 10B. MAT Computation u/s 115JB - addition made to book profit u/s 115JB in respect of loss on wind farm project - AO added loss of windmill as negative income for calculating the book profit u/s 115JB - AO has made the addition to the book profit stating that loss represents negative profit - HELD THAT:- we find that the intention of legislature u/s 115JB appears to tax the book profit excluding the profit from industrial undertaking as mentioned and also from business of generation of power. As per the section 115JB, the loss shall not include depreciation or the amount of profits derived by an industrial undertaking from the business of generation / generation distribution of power. Thus, from the provisions of the Act, it is clear that the intention of the legislature is not to tax the profits of an industrial undertaking which is entitled for 100% exemption and also the profit from generation of power. In view of these provisions of law, the CI ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... income of the appellant company on account of determining the Arm s Length Price of the international transactions. The action of the Learned Commissioner of Income-tax (Appeals) is contrary to the facts and law and deserves to be deleted. 4. The Learned Commissioner of Income-tax (Appeals) has erred in upholding the disallowance of interest of Rs.1,00,00/- made by the Learned Assessing Officer on the basis of loss of notional interest on account of not taking deposit from M/s. Mitsu Limited. The action of the Learned Commissioner of Income-tax (Appeals) is contrary to the facts and law and deserves to be deleted. 5. On appreciation of the facts and circumstances of the case and law, the Learned Commissioner of Income-tax (Appeals) has erred in confirming the action of the Learned Assessing Officer of excluding following items of income while granting deduction u/s 80IB:- (Amount Rs.) Silvassa-I Silvassa-II Other operating income:- DFRC / DEPB 3,66,330 4,05,233 Other Income Cash discount received ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ays. The difference of 34 days was considered excessive and interest amount equivalent to interest on 34 days sales was proposed as an adjustment, which worked out to Rs.1,52,08,915/-. 5.1 Matter was carried before the First Appellate Authority, wherein various contentions were raised on behalf of assessee and having considered the same, CIT(A) upheld the action of the Assessing Officer on the issue, by observing that the Arms Length Price in respect of interest not charged on credit period to customers as well as the subsidiary shall be the international bench mark rate. While confirming the addition in respect of international transactions made by the transfer pricing officer on merit, the CIT(A) directed the Assessing Officer to re-work the addition by applying the international bench mark rate i.e. the LIBOR rate or the American rate of interest as applicable to the transaction and add the resultant amount only to the total income on account of undercharging of interest on loan and notional interest as excess credit period. 5.2 Before us, the ld. Authorized Representative pointed out that interest amount equivalent to interest on 34 days sales was proposed as an adjustmen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uphold the grievance of the assessee and direct the Assessing Officer to delete this ALP adjustment. The assessee gets the relief accordingly. 21. To sum up, so far as ALP adjustments are concerned, we uphold the plea of the assessee in the terms indicated above, and we reject the grievance of the Assessing Officer. 5.3 Nothing contrary was brought to our knowledge on behalf of the Revenue. Facts being similar, following the same reasoning as mentioned above in the order of the Tribunal in assessee s own case for AYs 2002-03, 2003-04 and 2004-05, the order of the CIT(A) as well as Assessing Officer on this issue is set aside and Assessing Officer is directed to delete this ALP adjustment of Rs.1,52,08,915/- to income of assesse. 6. The next issue is with regard to the disallowance of interest of Rs.1,00,000/- made by the Assessing Officer out of interest paid on account of not taking deposit from M/s. Mitsu Limited. The Assessing Officer observed that the assesseecompany had given deposit of Rs.1 crore to Bilakhia Property Private Limited as per lease deed for taking the premises on lease from the said company. The Assessing Officer also observed that the assessee-compan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that any accrual receipt or profit on sale of DEPB and DFRC are not eligible for deduction U/s. 80IB of the Act. 7.1.1 Before us, the ld. Authorized Representative pointed out that in assessee s own case, the ITAT, D-Bench, Ahmedabad in ITA Nos. 1668 1669/Ahd/2006 and 2583/Ahd/2007 for Assessment Years 2002-03, 2003-04 and 2004-05, relying on the decision of Hon ble Supreme Court in the case of Topman Exports v. CIT [2012] 342 ITR 49, has set aside the issue to the file of the Assessing Officer for fresh adjudication. The relevant portion of the decision is as under:- 54. In ground No. 9, the Assessing Officer has raised the following grievance: On the facts and circumstances of the case and in law, the learned CIT(A) has erred in directing not to exclude the export benefit receivable of Rs.26,22,21,412/- from the manufacturing profits eligible for deduction u/s. 80IB of the Act without considering the fact that it has no direct or immediate nexus with the manufacturing activity of the assessee. 55. So far as this issue is concerned, with the consent of the parties, this issue stands restored to the file of the Assessing Officer for fresh adjudication in the light of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... x (Appeals) has erred in confirming the action of the learned Assistant Commissioner of Income Tax of excluding following items of income while granting deduction u/s. 80-IB:- Silvassa Daman Sale of export benefit 7805826 -47239 Insurance claim 20558386 594798 The action of the learned Commissioner of Income Tax (Appeals) is contrary to the facts and law and deserves to be deleted. 83. So far as this ground of appeal is concerned, learned representatives agree that this issue can be restored to the file of the Assessing Officer so as the matter can be decided in the light of Topman Exports decision (supra) on the question of sale of export benefits, and in the light of examining nexus of insurance receipts with the business activity. 84. Ground No. 8 is thus allowed for statistical purposes. 7.3.2 Facts being similar, following the same reasoning, this issue is also restored to the file of the Assessing Officer with directions to decide the same as per fact and law after providing due opportunity of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pointed out that this issue has been decided by ITAT, D-Bench, Ahmedabad in assessee s own in favour of the assessee in ITA No. 1668/Ahd/2006 for Assessment Years 2002-03, wherein it was held as under:- 45. Learned representatives fairly agree that all the above issues are also covered, in favour of the assessee, by order dated 17th July, 2009, in assessee's own case for the assessment year 1999-2000, even as learned Departmental Representative dutifully relied upon the orders of the authorities below. 46. We see no reasons to take any other view of the matter than the view so taken by the coordinate bench. Respectfully following the same, we uphold the order of the CIT(A) and decline to interfere in the matter. 8.2 Nothing congtrary was brought to our knowledge on behalf of Revenue. Facts being similar, following the same reasoning as mentioned above, the Assessing Officer is directed to delete Rs.1,12,815/- made by the Assessing Officer on account of telephone expenses. 8.3 Regarding electricity expenses of Rs.9,42,036/-, we find that electricity in bungalow was used by entire family members of Managing Director, so same cannot be said for business purpose. Acc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e no direct or immediate nexus with the manufacturing activity of the assessee as per ratio laid down by the Hon ble Apex Court in the cases CIT v. Sterling Foods (1999) 237 ITR 579 and Pandian Chemcials vs. CIT (2003) 262 ITR 278 [SC] 6.1) The ld. CIT(A) has granted relief to the assessee without considering the ratio laid down by the Hon'ble M. P. High Court in the case of D. P. Agrawal Vs. CIT 272 ITR 118 [MP] wherein it has been held that scrap income will not be eligible for deduction U/s.80IB of the Act? 6.2) On the facts and circumstances of the case and in law, the learned CIT(A) has erred in directing not to exclude the income of Rs.33,97,131/- earned by way of discount on purchase of DEPB license though it has no direct or immediate nexus with the manufacturing activity of the assessee. 7) On the facts and circumstances of the case and in law, the learned CIT(A) has erred in directing not to exclude the income of Rs.19,90,035/- earned from sale of scrap from the profits eligible for deduction U/s.10B, though same have no direct or immediate nexus with the manufacturing activity of the assessee 8) On the facts and circumstances of the case and in law, the l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lowing reasoning:- i) It has not been established that the debts have really become bad. ii) The sale on which the debt is claimed was booked in earlier years wherein the assessee was entitled for deduction u/s 80IB @100% on the profits and gains of industrial undertaking and no tax was paid on the profit element of such sales. iii) In the year under consideration, the undertaking of the assessee is eligible for deduction u/s 80IB @ 30%. Assessee could have claimed the bad debt in earlier years wherein it was eligible for deduction u/s 80IB@ 100% rather waiting till the years when the liability to pay the tax has arisen to the assessee @ 70% on the profits and gains of business. iv) The profit on the sale [which has been claimed as bad debt during the year] was claimed as exempt u/s 80IB in the earlier years and hence allowance of deduction on account of bad debt on the same sales during the year would amount to double deduction. 13.1 Matter was carried before the First Appellate Authority where the CIT(A) has granted relief to the assessee on the ground that the assessee submitted the details of each and every debtor alognwith reasons for writing off the same. He fu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Moreover, the appeal against the ITAT order has not been admitted by the Hon ble Gujarat High Court in Tax Appeal No.1927 of 2010. In view of the same, the order of the CIT(A), whereby he has deleted the addition, is hereby confirmed. 15. Next issue is with regard to disallowance of depreciation claimed on HT lines for electricity supply in respect of Vapi-1 unit (Rs.2,40,488/-) and Silvassa Unit (Rs.7,99,620/-). The Assessing Officer disallowed the depreciation claimed by the assessee-company on HT lines. He observed that the assesseecompany has not owned the HT Lines and was claiming depreciation on it. According to him, as per provisions of Income Tax Laws, depreciation can be allowed only to the owner of the assets. The Assessing Officer accordingly disallowed the depreciation claimed on HT Lines and the depreciation amount was added to the income of the assessee. 15.1In appeal, the CIT(A) allowed the depreciation on HT Lines. In this regard, the ld. DR submitted that the assessee is not owner of the property in question, therefore, the CIT(A) has wrongly allowed the claim of the assessee. On the other hand, ld. Authorized Representative for the assessee, submitted that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ction u/s 80IB of the Act. On appeal, the CIT(A) granted relief to the assessee by observing that scrap is natural outcome of the manufacturing process and the same is generated during the manufacturing process and thus, directly related to the source of business income. Similar view has been taken by the Coordinate Bench of the Tribunal in assessee s own case for AY 2002-03 to 2004-05 and the same was not disturbed by Hon ble Gujarat High Court in Tax Appeal No.15 of 2011. 17.1 Nothing contrary was brought to our knowledge on behalf of the Revenue. Facts being similar, we are not inclined to interfere in the findings of the CIT(A) who has rightly directed the Assessing Officer to include the same as part of income from business for the purpose of calculation of deduction u/s 80IB. Accordingly, the same is upheld. 18. Next issue is with regard to exclusion of discount earned on purchase of DEPB license while computing deduction u/s 80IB. The Assessing Officer excluded the discount earned on purchase of DEPB license of Rs.33,97,131/- while computing deduction u/s 80IB. 18.1 On appeal, the CIT(A) observed that DEPB license purchased was an element of purchase cost and any di ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ofit u/s 115JB. The Assessing Officer has made the addition to the book profit stating that loss represents negative profit. 20.1 Matter was carried before the First Appellate Authority, wherein various contentions were raised on behalf of assessee and having considered the same, CIT(A) granted relief to the assessee and the same has been opposed before us on behalf of the Revenue inter alia submitting that order of the CIT(A) be set aside in this regard and that of Assessing Officer be restored. On the other hand, the ld. Authorized Representative for the assessee supported the order of the CIT(A). 20.2 After going through rival submissions and material on record, we find that the intention of legislature u/s 115JB appears to tax the book profit excluding the profit from industrial undertaking as mentioned and also from business of generation of power. As per the section 115JB, the loss shall not include depreciation or the amount of profits derived by an industrial undertaking from the business of generation / generation distribution of power. Thus, from the provisions of the Act, it is clear that the intention of the legislature is not to tax the profits of an industrial ..... X X X X Extracts X X X X X X X X Extracts X X X X
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