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TMI Blog2023 (6) TMI 1384X X X X Extracts X X X X X X X X Extracts X X X X ..... based on net sales as against the export sales made by the SEZ and the said method of accounting had been continuously followed by the assessee for the earlier assessment years also - HELD THAT:- No such submissions / practice were cited before the Assessing Officer/TPO or before the DRP or before us to buttress its contention. Further, the contention raised by the assessee in its written submissions were fully considered by the TPO while passing the order, reproduced hereinabove and we do not find any reasons to agree with the contentions of the assessee, more particularly, when the assessee has not filed any document in support of the bifurcation of forex exchange loss for import of raw material used for domestic sales as well as for the exports. Hence, we do not find any reasons to interfere with the order of the TPO and accordingly, this ground is dismissed. - SHRI R.K. PANDA, VICE PRESIDENT AND SHRI LALIET KUMAR, JUDICIAL MEMBER For the Assessee : Shri PVSS Prasad, AR For the Revenue : Shri T. Vijay Bhaskar Reddy, CIT-DR ORDER PER LALIET KUMAR, JM: This appeal of the assessee is directed against the assessment order of ACIT, Central Circle 1(2), Hyderabad dated 29.10.2019 pa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a suo-moto adjustment of 0.5% as a commission from its associated enterprise enterprise which is higher than the rate of guarantee commission of 0.22% charged by State Bank of Hyderabad in uncontrolled transactions with the Appellant. Interest on receivables 8. The Ld. DRP/AO have erred in endorsing the Ld. TPO's action of applying the rate of interest at 7.5% on the receivables from its associated enterprises by equating it incorrectly with the Indian investment in bank deposits etc and proposing an adjustment of Rs. 12,42,15,444/- as imputed interest on alleged delayed trade receivables. 9. The Ld. AO/TPO have erred in treating trade receivables from AEs as a separate international transaction. 10. The Ld. DRP/AO ought to have appreciated that the trade receivables arise in the normal course of business and are not to be treated as unsecured loans for levy of interest. 11. The Ld. DRP/AO ought to have appreciated that the Assessee did not charge any interest on receivables from its Non-AEs and that not charging any interest to its AEs on the trade receivables is consistent with the arm's length principle while applying the CUP method for determining the ALP. (iii) Allocat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... held as under : 8. We have heard the rival contentions of the parties and perused the material available on record. The issue of whether the corporate bank guarantee given by the assessee on behalf of its AE is an international transaction or not, is no more res integra, as the explanation to section 92B of the Act itself had made it abundantly clear that if the assessee is providing the capital financing, including any type of long term or short term borrowing, lending or guarantee , purchase or sale etc., then such transaction shall be considered as international transaction. Undoubtedly, the assessee has given Corporate Guarantee on behalf of its AE, which fact has not been disputed by the assessee either before the TPO or before the DRP and, therefore, we are of the opinion that the corporate guarantee given by the assessee is an international transaction and, therefore, the same has rightly been held so by the lower authorities. 8.1 Having held that the corporate guarantee issued by the assessee on behalf of its AE is an international transaction, the sequator to that is whether the corporate guarantee estimated by the DRP to the tune of 1% on the amount guaranteed as a corpor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ollowing manner : 9. We have heard the rival submissions and perused the material on record. From the perusal of the order passed by the TPO, it is clear that both the lower authorities have given an elaborate reasoning for coming to the conclusion that the delay in receiving the receivables is an international transaction and is required to be bench marked in accordance with law. We are reproducing hereinbelow the chart filed by the assessee which is to the following effect : APACHE FOOTWEAR INDIA PVT. LTD / AY 2018-19 Export Receivables Realisation pattern during A.Y. 2018-19 Particulars Total Number of Invoices during the A.Y. 2018-19 Amount Export Invoice value in Rs. % of invoices realized to total invoices raised during the year A) Realised within credit period 3,001 6,48,15,77,864 91.22 B) Realised beyond credit period of 60 days 10 days 241 36,27,20,363 5.10 10-20 days 204 18,88,04,889 2.66 20-30 days 45 7,11,80,351 1.00 30-45 days -- -- -- 45-60 days -- -- -- =60 days 29 11,63,338 0.02 Sub total (B) 519 62,38,68,941 Total (A) + (B) 3520 7,10,54,46,805 10. From the perusal of the Chart, it is absolutely clear that there were 519 invoices valued at Rs.62,38,68,941/- for whic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ia Pvt. Ltd ITA No.6530/Del/2016 (supra) had decided the issue against the assessee. In view of the above, the decision relied upon by the assessee is of no help to assessee. 14. So far as the argument of the assessee that the assessee is a debt free company and therefore, no borrowed fund was used for making supplies to it s A.E. and therefore, is not liable to be compensated for the delay in receiving the receivable is concerned, the same in our view, suffers from inherent flaw as in the T.P. analysis, the TPO is required to examine whether the assessee had supplied the product / services to it s A.E. at Arm s Length Price or not ? If by providing the services / goods at a discounted rate or permitting the assessee to receive the payment after a long period of 60 days or 90 days, then it will amount to permitting the A.E. to use the working capital of the assessee for the purposes of earning the profit. No prudent business man would venture into 22 Apache Footwear India Pvt.Ltd. this kind of activity and permit a third party to use the working capital of the assessee and earn profit thereon. In the present case, though the assessee was required to maintain the T.P. Study and file ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ection 37 if actually incurred. Subject to this factual verification the claim is allowed. 6. It was the submission of the Ld. CIT- that the decision relied upon by the Ld. CIT(A) was set-aside by the Hon ble Supreme Court as the Court has not considered Revenue question that ITAT has not followed the decision in the case of Concept Pharmaceuticals Ltd vs. ACIT (43 SOT 423). Referring to the above decision, it was the submission that the coordinate Bench did not allow the weighted deduction on expenditure incurred outside the R D facility. Ld. CIT- relied on the grounds raised. 7. In response, Learned Counsel for the Assessee referred to the decision of the Hon ble Gujarat High Court in the case of CIT v. Cadila Health Care Ltd [2013] (214 Taxman.com 672) to submit that the issue has been crystallised in favour of the assessee and Hon ble Supreme Court has referred further three questions which were not answered and that does not affect the decision already given and the order of Gujarat High Court has not been set-aside. He further referred to the Explanation-2 to section 32(2AB) and relied on the following case law:- (i) ITAT Ahmedabad decision in the case of Intas Pharmaceutical ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be substantial question of law and referred to the Hon ble High Court to hear the aforesaid three questions of law. However, the judgment already passed by the Gujarat High Court has not been set-aside. As Ld. CIT(A) has followed the Coordinate Bench decision, which was approved by the Gujarat High Court and as no contrary High Court judgment has been placed on record, we approve the order of the CIT (A) and reject the Revenue contentions. 22. Following the above order, the Tribunal again in assessee s own case for A.Ys. 2013-14 and 2014-15 vide ITA Nos.1772 and 1773/Hyd/2017 order dt.14.09.2018 decided the issue in favour of the assessee by observing as under : 7. Considered the rival submissions and perused the material on record.We find that similar issue came up for consideration before the coordinate bench of this Tribunal in assessee s own case for Ays 2011-12 and 2012-13 (supra), wherein the coordinate bench has held as under: 9. We have considered the rival contentions and perused the case law placed on record. In the decision of Concept Pharmaceuticals Ltd (supra) the Coordinate Bench did not allow the expenditure spent outside the R D unit but the Bench has not considered ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the order of the Tribunal in the case of the assessee for A.Ys. 2011-12 to 2014-15 before the Hon ble High Court and the same are pending for adjudication before the Hon ble High Court. 25. In the present case, undisputedly, the assessee had filed letter from Axis Clinical along with its balance-sheet and profit and loss account which is on record wherein it is clearly mentioned that the said Axis Clinicals have not claimed any benefit / weighted deduction u/s 35(2)(AB) of the Income Tax Act, 1961. 26. In our view, the reasons for filing the appeal before the Hon ble High Court cannot be said to be plausible reason for not accepting the decision passed by the co-ordinate Bench when admittedly, there is no change in facts. The Hon ble jurisdiction High Court in the case of State of Andhra Pradesh Vs. Commercial Tax Officer and another reported in 169 ITR 564 and also in the case of Mylan Laboratory [2022] 137 taxmann.com 178 (Telangana) had reiterated that the decision of the Co-ordinate Bench of the Tribunal is binding on the Assessing Officer in the following manner : 34. We are afraid such a view taken by the Assessing Officer can be justified. Rather, it is highly objectionable ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed by the Bombay High Court in Himgiri Buildcon Industries Ltd. v. Union of India 2021 (376) ELT 257. 39. Therefore, the stand taken by the Assessing Officer that since the decision of the Income Tax Appellate Tribunal in the case of the petitioner itself for the assessment year 2014-15 has been appealed against the issue in question has not attained finality, is not only wrong but is required to be deprecated in strong terms being highly objectionable. 40. The second view expressed by the Assessing Officer vis- -vis the decision of the Supreme Court in SMIFS (1 supra) is still more problematic. It is not open to the Assessing Officer to try to evade from the binding effect of a Supreme Court decision by trying to find out distinguishing features . Though unnecessary, we are still compelled to refer to Article 141 of the Constitution of India which says that the law declared by the Supreme Court shall be binding on all Courts within the territory of India. Therefore, it is the bounden duty of all authorities whether administrative or quasi judicial or judicial to follow the law declared by the Supreme Court. 41. While we agree with the learned Standing Counsel that the draft Assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 35(2)(AB) for the expenditure incurred by the assessee after getting approval in Form 3CL from DSR approving the expenditure for clinical trial expenses incurred outside approved R D facilities. Thus, this ground is allowed. GROUNDS 12 AND 13: 9. With respect to allocation of Head Office expenses, ld. AR for the assessee had drawn our attention to Paras 9.1 to 9.5 of the order of TPO which are to the following effect : 9.1 As seen from Form 3CEB, the assessee has reported the following Specified Domestic Transactions: Description Amount (in Rs.) Allocation of interest, bank charges and exchange loss on operations from other units to SEZ units 23,74,30,807 Allocation of formulation head office salaries to SEZ division on sales basis 20,64,64,037 9.2. It is seen from the page 74 of the TP Study Report that the assessee has adopted other method as the MAM to benchmark the above transactions. It is further seen that the assessee has allocated the interest, bank charges, exchange loss and head office salaries from other units to the SEZ unit based on sales made by each unit as follows : Particulars Amount (Rs.) Reference Total Sales 80,91,31,01,110 A SEZ Sales 17,91,82,97,495 B Formula ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... export sales made by the SEZ unit on the total export sales. Thereafter, the Assessing Officer/TPO had quantified the adjustment to Rs.1,39,35,455/-. The above said order was confirmed by the DRP on appeal. 11. It was the contention of the assessee before us that the allocation of the Head Office expenses should be based on net sales as against the export sales made by the SEZ. It was submitted in the written submissions at page 37 in Para 14.2 as under : a. Exchange loss also contains a portion which is due to import of raw material which is also used for sales made in domestic market and in exports by Units other than SEZ unit. b. The exchange loss may also include loss incurred on capital transactions as well. Such proportionate loss will not be considered if the forex loss is allocated based on the export sales. c. The export incentives will also be included in the net sales . Such export incentives will not be considered if the forex less is allocated based on the export sales alone. 12. On the other hand, ld.DR relied upon the orders passed by the lower authorities. 13. We have heard both sides and perused the material on record. It is the contention of the assessee that the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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