9911796707
TMI Blog2022 (7) TMI 1497X X X X Extracts X X X X X X X X Extracts X X X X ..... ising in the appeals .Therefore all the appeals were taken up together for hearing. We shall first deal with the cross-appeals pertaining to the Asst.Year 2006-07 and our decision rendered therein on common issues will apply mutatis mutandis to the other appeals. 3. Assessee's Appeal : Asst.Year 2006-07 4. At the outset Ld.Counsel for the assessee pointed out that the present appeal had come up in the second round before the ITAT. Giving a brief background of the appeals, Ld.counsel for the assessee began by pointing out that the assessee company was engaged in the business of manufacturing of chemicals comprising of dyes, specialty chemicals, agrochemicals, bulk drugs and commodity chemicals. That the assessment framed for the impugned year u/s 143(3) r.w.s 144C of the Act on 22/10/10 had travelled in appeal to the ITAT via the Dispute Resolution Panel(DRP) route, who vide their order dated 29/10/12 in ITA No.3118/Ahd/2010 set aside the following issues to the AO for reconsideration: i) Transfer Pricing Adjustment a) commission received from Associate Enterprise(AE) of Rs. 2,71,82,980, and b) on account of sale of goods to AE'S/subsidiaries including quantity discount give ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... both totalling to Rs. 1,74,69,516/-. The ld.counsel for the assessee pointed out that the ld.CIT(A) had upheld the adjustment amounting to Rs. 1,00,09,905/- while he had deleted the other adjustment, and accordingly, the assessee is in appeal against adjustment upheld by the ld.CIT(A). 8. With regard to the same, the ld.counsel for the assessee contended that in the first round it had been demonstrated to the ITAT that the TP study report adopted the CUP method for comparison of sale of goods made to AE and while doing so had made comparison of identical goods sold to non-AE's to justify ALP. But while doing so, he contended it was pointed out to the ITAT, that a mistake had crept in and in one of the cases relating to item with product code-111108, the comparison had been done with an item of different product code i.e. 110308; that before the Tribunal, report from the Chartered Accountant (CA) stating that sale of the said products had been so erroneously compared, was filed, and accordingly, ITAT had sent the matter back to the TPO to determine the ALP afresh. The ld.counsel for the assessee pointed out that in the second round both the authorities below, i.e. TPO/ AO and the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mum adjustment. The calculation of the assessee in respect of this product is distinguishable because of the reason that the difference in price after adjustment as per assessee was only 383.4, however, as against that, the difference in price after adjustment as per TPO was 1081.1. Therefore, the assessee has calculated the scope of adjustment of Rs. 35,49,901/-. In this connection, the assessee has sought permission for the production of additional evidence, as discussed supra. It was noted by the assessee on verification of sale transaction that there was a discrepancy, informed through a separate petition seeking permission of admission , quote "3. Re. Summary of comparative data for sales made to AE and non AEs' for Financial Year 2005/06 submitted as part of audited accounts placed @ page 95 of the paper book reproduced as Annexure A of the order of Transfer Pricing Officer, the assessee submits that on verification of the sale transaction with AE / Non AE, discrepancy in the nature of sale of product code 111108 (product name Novatic Brown R Pure) to non AE parties was through oversight shown as sale of product code 110308 (product name Novatic Olive R Pure). A certificated ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 5 35,04,032 110308-No vatic Olive R Pure 111108 -Novatic Brown R Pure 6813 24-9-05 Dystar TextiJeFarben GMBH 2900 52,75,467 110308-Novatic Olive R Pure 111108-Novatic Brown R Pure 6829 30-9-05 Dystar TextileFarbenGMBH 1000 18,22,212 110.108-Novatic (Olive R Pure 111108-Novatic Brown R Pure 7073 09-11-05 Dystar TextileFarben GMBH 900 15,76,294 110308-Novatic-Olive R Pure 111108-Novatic Brown R Pure 7167 30-11-05 Dystar TexlileFarben GMBH 900 15,86,016 110308-Novatic Olive R Pure 111108-Novalic Brown R Pure 7200 16-12-05 Dystar TextileFarben GMBH 300 5,29,741 110308-Novatic Olive R Pure 111108-Novatic Brown R Pure 7201 16-12-05 Dystar TextileFarben GMBH 680 11,95,465 110308-Nova lie Olive R Pure 111108-Novaiie Brown ; R Pure 7225 26-12-05 Dyslar TextileFarben GMBH 925 16,32,036 110308-Novalic Olive R Pure 11108-Novatic Brown R Pure 7296 30-12-05 Dystar TexlileFarben GMUJJ 2000 35,14,600 110308-Novatic Olive R Pure 111108-Novalie Brown R Pure 7428 31-01-06 Dystar TextileFarben GMBH 2000 35,44,540 110308-Novalic Olive R Pure 111108 -Novatic Brown RPure 7475 19-0 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the authorities below had failed to adjudicate the issue in accordance with the directions of the ITAT. The ld.counsel pointed out that certificate of the CA clearly listed all the details relating to impugned transaction in which error had been committed. He contended that the Revenue authorities could very well have enquired into the veracity of the details and adjudicated the issue. 12. The ld.DR however relied upon the orders of the Revenue authorities. 13. We have heard contentions of both the parties and have gone through the orders of the ITAT in the first round and order of the TPO/AO and the ld.CIT(A) passed in the second round. The issue relates to TP adjustment made of Rs1,00,09,905/- on account of sale of products by the assessee to its AE. The contention of the assessee before the ITAT in the first round was that in its TP report, the comparison done by the assessee with similar transaction with non-related parties had been erroneously done where the products were not the same. Additional evidence had been filed before the ITAT by way of certificate of a CA in this regard, and the ITAT had clearly directed the TPO to consider the issue de novo in the restored-procee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 13.3 We may add that our finding as above shall not be treated as a precedent, considering the peculiar facts in which it has been so held. Ground No.1 of the appeal is allowed in the above terms. 14. Ground No.2 of the assessee's appeal reads as under: "The ld.CIT(A) has erred in law and on facts in confirming disallowance by AO of Rs. 47,87,776/- prior period expenditure claimed by the appellant. The ld.CIT(A) ought to have allowed claim of prior period expenses crystallized during the year and correctly claimed by the appellant." 15. The ground relates to disallowance made on account of prior period expenses claimed by the assessee. The facts relating to the issue, as brought out in para-7.1 and 7.2 of the CIT(A)'s order are that the assessee had claimed prior period expenses of Rs. 1,11,31,209/- and after netting off prior period income of Rs. 71,74,782/-,had claimed net expenses of Rs. 39,56,427/-.The AO denied the benefit of netting off and disallowed Rs. 1,11,31,209/-as prior period expenses. The matter was carried by the assessee to the ITAT who vide para 9 Page no. 46 of the decision directed the AO to examine the exact nature of liability, its crystallization and natu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the claim after holding that the appellant was not able to substantiate the claim. The appellant before me has argued that the expenses related to previous year were constantly debited by the appellant to prior period expenses account and in many cases the bills were received by the company after the close of accounting year and therefore, the liability was finalized and crystallized during the F. Y. 2005-06. However, the appellant has not substantiated the said claim before AO or before me and thus disallowance of prior period expense is justified and confirmed. 7.4.2. The second issue is with regards to allowing netting off benefit of the prior period income amounting to Rs. 71,74,782/- as against prior period expense. The Hon'ble Tribunal directed the appellant to demonstrate the nature of prior period income. The appellant during the assessment proceedings has demonstrated nature of period income only to the tune of Rs. 63,43,433/- and accordingly the AO has provided only to that extent. The appellant before me has not substantiated anything about the nature of prior period income amounting to Rs. 8,31,349/- and accordingly, the addition as sustained by the AO amounting ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sideration. What was that evidence on the basis of which the assessee had claimed that the said liability had in fact crystallized during the year under consideration. We have also noted that there was an alternate plea of assessee that the income which pertained to earlier years was received during the year amounting to Rs. 71,74,782/-. Even in this regard, there is no explanation about the nature of the income. How an income of earlier year had also earned during the year under consideration was to be demonstrated by the assessee. There is no evidence on record about the source of such income and what will be the impact of its taxability during the year under consideration. How it was termed as an income of earlier years if it was earned during the year under consideration. Since all such information is not available on record, therefore the natural justice demands to restore this issue back to the stage of the AO to be decided in the light of the observations made hereinabove, after providing a reasonable opportunity of hearing to the assessee. In the result, both the grounds of the assessee may be treated as allowed for statistical purposes only." 18. He thereafter pointed out ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the prior period income. If that be so, according to the Tribunal, it would be unfair not to recognise the expenditure also of the prior period. 3. Having heard learned counsel for the parties and having perused the documents on record, we see no reason to interfere. Firstly, the expenditure of Rs. 67.881acs is a fraction of the total income of the assessee company declared at Rs. 105.88 crores. Further, even the Revenue does not dispute that the company would be taxed at the same rate in the present assessment year or during earlier year. It is also not disputed that prior period income was declared by the assessee during the current year which is also accepted by the Revenue. No question of law therefore, arises." 19. The ld.counsel for the assessee therefore contended that entire prior period expenses be allowed. On the other hand, the ld.DR relied upon the order of the authorities below. 20. We have heard rival contentions. The disallowance of prior period expenses to the tune of Rs. 47,87,776/- has been made since the assessee was unable to show that the said expenses crystallized during the year. We have noted that the assessee has consistently pleaded that it had been ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pe Ltd., that it had paid commission of GBP 1,54,530/- to the assessee which was added by the TPO in absence of any benchmarking/TP study. The assessee claimed that instead of receipt of commission, it was required to pay such commission to its AE, however, as the said liability was not honored by the assessee, the said commission was reversed by its Associated Enterprise. During proceedings before the ITAT,in the first round, the assessee placed its statement of account in the books of AE, Atul Europe Ltd., as evidence and the ITAT set aside the matter to the AO for re-examination. Thereafter, the AO made a reference u/s 92CA of the Act for computation of Arm's length price and asked the assessee to substantiate its claim. In response the assessee reiterated that it was required to pay such commission to its AE and has not received the same and as the said liability was not honored by the assessee, the said commission was reversed by its Associated Enterprise. The assessee further produced the letter from its AE along with the statement of account in the books of Atul Europe Ltd, showing the commission recorded. The TPO however rejected the claim of the claim of the assessee w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the non-payment of commission. In the books of the appellant, such commission was not at all accounted for. Even if accounted, over a period of time the same would have been revenue neutral as originally in earlier years it would have been shown as expenditure and for the year under consideration, the same would have been shown as income. For the year under consideration, AO has only added commission income only on the basis of accounting entry passed by the AEL which is not correct indication of commission income in the hands of the appellant. At original stage, the complete ledger accounts and certificate from AEL were not placed on record. However, the same were placed on record and therefore, Hon'ble ITAT had set aside the matter back to the file of the AO. AO, based on the finding of TPO, did not consider these evidences in their entirety. The basis of the addition is the ledger account of commission in the books of the AEL. 5.2.2. Now, the appellant has produced entire ledger account for all the years involved and a certificate from the said AEL to substantiate its stand that neither the commission was claimed as expenditure nor the same is shown as income. Under th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ly in light of the fact that the associated enterprise is a wholly owned subsidiary of the assessee. 5.2 Further it can be seen that the purported additional evidence produced by the assessee is a mere statement of account signed by the General Manager of the AE on 29/07/2011. It is very surprising to note that the assessee could not produce even such statement of account earlier even though it pertains to its AE which is a wholly owned subsidiary of the assessee. The additional evidence is neither an extract of the ledger account from the books of the AE nor it is verified by independent auditor. Considering the above there is a big question mark on the documents produced by the assessee of even being evidence, leaving alone the question of its admissibility. Considering the above discussion, the evidence produced is rejected. As a result, the adjustment of Rs. 1,21,60,877/- remains. ( 1,54,530 Pounds X 78.6959 = Rs. 1,21,60,877/-)." 27. Referring to the above, he pointed out that the assessee has not given any justifiable reasons for non-production of evidence earlier, and additional evidence now produced by the assessee was mere statement of account signed by the General Mana ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ee ,has rightly held that these evidences therefore could not be rejected merely for the reason they were not produced earlier. No other infirmity being pointed out in the evidences ,we agree with the Ld.CI(A) that the assessee has duly substantiated his explanation that the alleged commission income recorded in the name of the assessee in the Books of Atul Ltd.(AEL) was in fact only a reversal of earlier commission expenses booked by it on account of the same no longer being required to be paid. We therefore see no reason to interfere in the order of the Ld.CIT(A) deleting the adjustment on account of determination of ALP of commission allegedly paid by the AE to the assessee amounting to Rs. 1,21,60,877/-. Ground of appeal No.1 is dismissed. 30. Ground No.2 reads as under: "2. The ld.CIT(A) has erred in law and on facts in granting relief in respect of the addition made to the tune of Rs. 74,59,611/- being the adjustment on quantity discount claimed by holding that discount to the AEs is as per the commercial policy of the assessee company." 31. The issue relates to TP adjustment made to the international transaction of purchase of goods from AE's on account of quantity dis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e discount and adjustment to arm's length price were carried out ranging from 0 to 20%. The appellant has further produced working of such adjustments to it Arm's Length Price. In my opinion, the approach adopted by the appellant is reasonable and further the appellant has effectively demonstrated its commercial policy substantiating it with its sales to AE's and A/on AE's. It has been observed that the TPO has rejected this adjustment of the appellant merely because there was not written agreement to this effect. As stated earlier, the appellant has not executed any written agreement for quantity discount but the same is duly documented in the form of a commercial policy which is the practice adopted by the appellant since long. I further find that TPO during the original proceedings had allowed the quantity discount based on this very commercial policy. However, he restricted the adjustment on account of quantity discount claimed by the appellant with respect to only 4 products in which sales to AEs were less than Non-AEs. If that be so, the action of AO in not granting quantity discount based on well accepted commercial policy is not correct. Commercially, it is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing the addition of Rs. 1,37,33,547/- u/s.92CA(3) of the Act on account of "Transfer pricing" (b) That the ld.CIT(A) has erred in law in directing the TPO to give volume (i.e. quantity discount on the basis of artificial segmentation of the customers into five categories with discount ranging from 0 to 20% without backed by any actual data) 38. It was common ground that the issue raised by the Revenue in this ground related to block discount given by the assessee to its AE pertaining to which adjustment had been made by the AO/TPO amounting to Rs. 1,37,33,547/- which in turn was deleted by the ld.CIT(A) following his order in the preceding year i.e. Asst.Year 2006-07. It was admitted by both the parties that the issue was identical to that raised in ground no.2 of the Revenue's appeal in ITA No.908/Ahd/2016 pertaining the Asst.Year 2006-07. 39. In view of the above, our decision rendered in Asst.Year 2006- 07 on the issue at para-33 of our order above will apply mutatis mutandis to the above grounds also, following which we uphold the order of the ld.CIT(A) and dismiss the ground no.(a) and (b) raised by the Revenue. 40. Ground No.(c) reads as under: "That the ld.CIT(A) erre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the case of Godrej & Boycee Mfg. Co. Ltd. (supra) wherein it was held that method laid down under Rule 8D was applicable for Asst.Year 2008-09 and thus the AO was directed to re-work the disallowance by adopting reasonable method; that accordingly the AO in compliance of the direction of the Tribunal has given opportunity to the assessee to furnish details and evidences to prove that the investments in shares were made out of interest free funds and also requested the assessee to work out the disallowance under section 14A of the Act. In response thereto, the assessee furnished a report demonstrating availability of interest free funds and re-worked out disallowance of administrative expense of Rs. 2,25,000/-. The AO however rejected the claim of the assessee and re-worked out the disallowance as per Rule 8D of Rs. 48,02,383/-. The ld.CIT(A) noted that impugned year being Asst.Year 2007-08, Rule 8D could not be applied as per decision of Bombay High Court judgment in the case of Godrej & Boycee Mfg. Co. Ltd. (supra). He further noted that the assessee had placed report of CA to claim administrative expenses which was on scientific basis and which the AO has not disputed. Therefore ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... curred by the assessee. The counter of the Revenue to the same we find does not address this contention of the assessee and is purely presumptive, that considering the huge amount of administrative expenditure incurred some amount must relate to the earning of exempt income. But at the same time considering the quantum of investment made, some amount of expenses must have been incurred in relation to maintaining the same and earning income therefrom. Considering the entire facts and circumstances therefore the disallowance of expenses with respect to administrative expenses is restricted to Rs. l,00,000/-The balance disallowance of Rs. 13,00,410/- is directed to be deleted." 47. The ld.DR on the other hand relied on the order of the AO. 48. We have heard both the parties. The impugned year before us is Asst.Year 2007-08, and admittedly Rule 8D cannot be applied for working out the disallowance under section 14A as held by the Hon'ble Bombay High Court in the case of Godrej & Boycee Mfg. Co. Ltd. (supra). Therefore, the action of the AO in applying rule 8D to work out the disallowance is not in accordance with law, we hold. Further, we have considered decision of the ITAT in the p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ore, the assessee's claim of depreciation accordingly was revised and reduced and the difference added back to the income of the assessee in all the years, and it was on account of this re-working and adjustment of depreciation that the addition of Rs. 85,11,361/- had resulted in the impugned year. The ld.counsel for the assessee pointed out that the ld.CIT(A) upheld the addition noting that ITAT in Asst.Year 2006-07, 2008-08 and 2009-10 had held against the assessee on the same issue. Before us, the order of the ITAT for Asst.Year 2005-06 was also placed pointing out from para-9 to 13 thereby identical issue had been decided against the assessee. In view of the above, since admittedly identical issue has consistently been decided against the assessee in the preceding year i.e. Asst.Year 2005-06 to 2007-08, order passed by the ld.CIT(A) upholding the addition, we hold, calls for no interference. Addition therefore of Rs. 85,11,361/- on account of excess depreciation claimed is accordingly upheld. This ground of appeal is rejected. 54. In the result, appeal of the assessee for Asst.Year 2009-10 is dismissed. 55. We shall now take up the appeal of the Revenue in ITA No.1732/Ahd/20 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ration was in view of the order of the ITAT in Asst.Year 2006-07 in the first round before it. In Asst.Year 2006-07, the AO had complied with the directions of the ITAT and confirmed the additions to certain extent on this issue and matter had ultimately come up before us in ground no.2 raised by the assessee in its appeal in ITA No.823/Ahd/2016 for Asst.Year 2006-07. We have also noted that identical issue has been adjudicated by us in Asst.Year 2006-07 at para-20 above wherein we have allowed the claim of the assessee to prior period expenses. We therefore direct the AO to apply the said decision taken in Asst.Year 2006-07 to the issue. Ground No.1 is adjudicated as above. 61. Ground No.2 reads as under: (2) The CIT(A) has erred in directing to follow the order of the Hon'ble ITAT in the case of the assessee for A.Y.2006-07 and compute disallowance u/s 14A r.w.r. 8D whereas the Hon'ble ITAT had set aside the issue with a direction to examine/verify specific facts. The Id. CIT(A) has not appreciated that the facts of the year under consideration and the facts of A. Y.2006-07 may differ. 62. Issue relates to disallowance under section 14A of the Act read with Rule 8D of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as for A.Y.2006-07 whereas the Hon'ble ITAT had set aside the issue with a direction to examine/verify specific facts. The Id. CIT(A) has not appreciated the fact that the facts of the year under consideration and the facts of A.Y.2006-07 may differ." 66. The issue relates to disallowance of deduction under section 80IA of Rs. 21,42,48,271/- on the new power plant of the assessee. 67. The ld.counsel for the assessee reiterated that the ld.CIT(A) has no power in restoring the issue to the file of the AO. Our attention was drawn to para-46 of the order of the ld.CIT(A) which reads as under: "I am inclined with appellant. On the same issue with similar facts, my predecessor Id.CIT(A) in the case of appellant for AY 2008-09 following the Hon'ble ITAT decision in the case of appellant for AY 2006-07 (order dtd.13.7.2012 in ITA No.3118/Ahd/2010) directed the AO to modify the asstt.order of AY 2008-09 in the light of the decision of the Tribunal on this issue. Hon'ble ITAT, Ahmedabad 'D' bench vide order dated 11.10.2013 in ITA No.8/Ahd/2013 and ITA No.385/Ahd/2013 for AY 2008-09 against the appellant appeal, upheld the order of Id.CIT(A) and restored back the matt ..... X X X X Extracts X X X X X X X X Extracts X X X X
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