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of <h1>Tribunal rules in favor of assessee, remits issues for fresh assessment. Upholds FAA decisions citing precedents.</h1> <h3>DCIT, Circle-9 (1), Mumbai Versus Gharda Chemicals Limited And Vice-Versa</h3> DCIT, Circle-9 (1), Mumbai Versus Gharda Chemicals Limited And Vice-Versa - TMI Issues Involved:1. Deletion of disallowance of interest.2. Deletion of addition on account of unutilized MODVAT credit.3. Deletion of addition on account of excise duty on closing stock.4. Exclusion of 90% of certain business receipts from profit computation for deduction under section 80HHC.5. Disallowance of deduction under section 80HHC after reducing unabsorbed depreciation.6. Disallowance of purchase from a sister concern under section 40A(2)(b).7. Transfer pricing adjustment related to export pricing.8. Computation of long-term capital loss on liquidation of investment.9. Additional deduction under section 35(2AB) for in-house research and development expenditure.Detailed Analysis:1. Deletion of Disallowance of Interest:The AO disallowed Rs. 1.76 crores of interest expenditure, considering it related to Capital Work in Progress (CWIP). The FAA deleted this disallowance, citing consistency with prior years where similar issues were decided in favor of the assessee by the Tribunal and upheld by the Supreme Court in the case of Core Health Ltd. The Tribunal followed the same precedent and decided the issue against the AO.2. Deletion of Addition on Account of Unutilized MODVAT Credit:The AO added Rs. 3.14 crores to the closing stock value due to unutilized MODVAT credit. The FAA and Tribunal referenced earlier decisions, including those of Indo Nippon Chemicals Ltd. and Mahalaxmi Glassworks Private Ltd., which restored the matter to the AO for fresh adjudication, ensuring the provisions of section 145A were applied in entirety. The Tribunal remitted the issue back to the AO for fresh adjudication.3. Deletion of Addition on Account of Excise Duty on Closing Stock:The AO added Rs. 13.66 crores to the closing stock for excise duty. The FAA and Tribunal decided to restore the issue to the AO for fresh adjudication, aligning with the decision on MODVAT credit.4. Exclusion of 90% of Certain Business Receipts from Profit Computation for Deduction Under Section 80HHC:The AO excluded various business receipts from the profit computation for deduction under section 80HHC. The FAA deleted these exclusions. The Tribunal upheld the FAA's decision, referencing cases such as Pfizer Limited, Alfa Lavel (India) Ltd., and Sony India Pvt. Ltd. The Tribunal confirmed no exclusion of 90% was required for insurance claims, sales tax refunds, and sales tax set-offs.5. Disallowance of Deduction Under Section 80HHC After Reducing Unabsorbed Depreciation:The AO disallowed the deduction under section 80HHC, citing the need to reduce brought forward losses and depreciation first. The FAA and Tribunal upheld this disallowance, referencing the Supreme Court's decision in Ipca Laboratories Limited, which mandated reducing brought forward losses before claiming the deduction.6. Disallowance of Purchase from a Sister Concern Under Section 40A(2)(b):The AO disallowed 20% of purchases from a sister concern, totaling Rs. 6.94 lakhs, due to lack of comparable evidence. The FAA accepted the assessee's evidence, which included a certificate from an unrelated party confirming the product's identity. The Tribunal upheld the FAA's decision, finding no legal or factual infirmity.7. Transfer Pricing Adjustment Related to Export Pricing:The AO made a transfer pricing adjustment of Rs. 2.60 crores using the Comparable Uncontrolled Price (CUP) method. The FAA deleted this adjustment, noting the AE incurred losses, indicating no profit shifting. The Tribunal upheld the FAA's decision, confirming the transactions met the arm's length principle.8. Computation of Long-Term Capital Loss on Liquidation of Investment:The AO did not compute long-term capital loss on liquidation of G-USA, citing section 47(iv)/(v). The FAA did not adjudicate the issue, considering it linked to TP adjustments. The Tribunal restored the issue to the FAA for fresh adjudication, noting the need for separate consideration of capital loss computation.9. Additional Deduction Under Section 35(2AB) for In-House Research and Development Expenditure:The AO did not allow an additional 50% deduction for in-house R&D expenditure. The Tribunal restored the issue to the AO for fresh adjudication, referencing a certificate issued by the CBDT and prior Tribunal decisions, such as Claris Life Sciences Ltd. and Sandan Vikas (India) Ltd.Conclusion:The Tribunal's comprehensive analysis led to the restoration of several issues to the AO for fresh adjudication, ensuring compliance with legal precedents and proper application of tax provisions. The judgments consistently followed prior decisions, emphasizing adherence to established legal principles.
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