TaxTMI 
TaxTMI 
2012 (12) TMI 458
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.... short "FMGC"). The main business of the company is export and import of home and personal care products, beverages, export of rice and marine products, export and import of soap and toiletries. The assessee has also been paying royalty to Uniliver PLC on domestic and export sales. During the year, the assessee had made following international transactions with the Associate Enterprises (for short "A.Es"). S. No. Name of Transaction A.Y. 06-07 (Rs.) Method Used 1. Purchase of raw materials 41,73,50,931 TNMM 2. Import of finished goods 2,86,74,892 TNMM 3. Sale of raw material 128,23,81,580 TNMM 4. Export of rice & marine products 23,37,76,216 TNMM 5. Export of manufactured home and personal care products 267,38,18,733 TNMM 6. Export of manufactured beverages 270,91,33,327 TNMM 7. Import of machineries 218,165 TNMM 8. Export of machineries 65,730 TNMM 9. Royalty paid to Unilever 66,72,53,896 TNMM 10. Recovery of expenses for common corporate resources (corporate audit) 67,20,96,855 TNMM 11. Recovery of expenses for common corporate resources (intra....
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....nt of expenses received from intra group services was also made and final adjustment of Rs. 362,29,41,800, was made in the value of international transactions. The other adjustment which was made on account of royalty, R&D cess, advertisement and sales promotion expenses, etc., the TPO held that the same would get subsumed by the adjustment of Rs. 356.44 crores. Against the said order of the TPO, the assessee filed a Writ Petition before the Jurisdictional High Court, being WP no.2244 of 2008, inter alia, on the ground that the same has been passed in violation of natural justice as proper opportunity of filing the document before the TPO was not given and additional reply and submissions were to be filed. The Jurisdictional High Court set aside the TPO's order dated 7th March 2008, with a direction that opportunity of placing of the documents and hearing be given to the assessee and the fresh order should be passed following the cannon of natural justice after considering the assessee's fresh statements. 5. In the fresh transfer pricing proceedings, the assessee raised various objections which included preliminary objection of making the reference to the TPO without satisfying ....
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....relating to the relevant year under consideration and the data can only be matching by the relevant year's data of the industry. In support of his conclusion, he relied upon the decision of the Tribunal, Delhi Bench, in Mentor Graphics and other decisions; (ii) Regarding the assessee's argument that only such data of comparables as was available in public domain during the financial year of the transaction can be used for comparability analysis, he held that the assessee has nowhere taken a stand that transfer pricing were fixed on the basis of profitability of comparable cases. Further, Indian transfer pricing regulation nowhere refers to the requirement of availability of data in public domain, the assessee being in particular business activity is expected to know profitability of that business at different point; (iii) Regarding compliance of conditions laid down under section 92C(3) of the Act, he held that the assessee does not satisfy these conditions laid down as the transfer pricing has not been determined by the assessee in accordance with the TNMM; (iv) Regarding bench marking at segmental level, he held that the assessee has not substantiated the identification and alloc....
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....60 4. Tata Tea Ltd. 13.73 5. Colgate-Palmolive (I) Ltd. 14.71 6. Britannia Industries Ltd. 9.21 7. Dabur India Ltd. 17.27 8. Glaxosmithkline Consumer Health Care Ltd. 13.08 9. Godrej Consumer Products Ltd. 18.35 10. Marico Ltd. 10.95 11. Mc dowell & Co. Ltd. 4.97 12. Nirma Ltd. 14.10 Mean 12.87 In comparison to that the assessee company's operating results were as under:- Particulars Amount (Rs. in lakhs) for the year ended 31.3.2006 Sales 12,27,106 Add: Other income from services rendered 12,667 Total Operating Income (A) 12,39,773 Less: Operating Expenses (10,74,649) Less: Depreciation (12,882) Operating Profit (B) 152,242 Add: Other income 20,022 Less: Interest (1,678) Profit for the year 1,70,586 OM (B/A) 12.28% 8. The TPO noted that the assessee has not carried out product comparability and FAR analysis. For example, the assessee has included companies like Bata India Ltd., Mc Dowel & Co. Ltd., which are prima-facie engaged in manufacturing of entirely different products. The TPO thereafter issued a show cause ....
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..... At the outset, we would like to state that out of the 12 companies considered by us in the above submission inadvertently Marico Limited was wrongly considered as forming a part of the BSE FMCG Index as on 31.3.2006 instead of Radico Khaitan Limited. The correct composition of the BSE FMCG Index as on 31.3.2006 and the respective margins of the companies comprising BSE FMCG Index as on 31.3.2006 are as under: S.no. Company's Name O.M (%) 13. I.T.C. Ltd. 19.13 14. Bata India Ltd. 1.30 15. Nestle India Ltd. 17.60 16. Tata Tea Ltd. 13.73 17. Colgate-Palmolive (I) Ltd. 14.71 18. Britannia Industries Ltd. 9.21 19. Dabur India Ltd. 17.27 20. Glaxosmithkline Consumer Health Care Ltd. 13.08 21. Godrej Consumer Products Ltd. 18.35 22. Radico Khaitan Ltd. 8.41 23. Mc dowell & Co. Ltd. 4.97 24. Nirma Ltd. 14.10 Mean 12.87% We request you to consider the above data for the Company Level Benchmarking. Your goodself ....
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....e Home Products Ltd., Lotte India Corporation Limited, Parle Biscuit Pvt. Limited and Agro Tech Foods Limited. We enclose herewith in Annexure 3 a revised statement of comparable companies with their operating margins. Further we would like to point out that our margin for the current financial year was lower largely because the company was engaged in afierce battle with another competitor in the topend detergents business which constitutes about 20% to 25% of the company's turnover and as a result of the said business was incurring losses. It is therefore submitted that we should also be allowed to make suitable adjustments to the operating margin to reflect the margin in respect of the company by excluding the detergents business since our international transactions in respect of export of goods do not include export of detergents. Therefore, for the above reasons, we urge you to accept the list of comparable companies used by us for the purpose of determining the benchmark, as correct and proceed accordingly." 10. The assessee's submissions were rejected and finally the TPO made the adjustment in the following manner:- "9. The operating profit margins in case of 8 co....
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....e should be the arithmetic mean. (ii) Second limb of the provision, provides the facility of option to the taxpayer if price varies by an amount not exceeding +/-5% of such mean. Thus, the option is available to the taxpayer in the case where variation in price is only upto 5% as found through arithmetic mean. If the variation in price is more than 5%, the taxpayer has no option and Arm's Length Price shall be determined as per the first limb of the proviso. Circular No. 12 of CBDT dated 23.8.01 issued in the shape of press note by the Ministry of Finance (Depth Of Revenue), Government of India, makes its intention clear for not making any adjustment if the price adopted by the taxpayer was upto 5% less or upto 5% more than the Arm's Length Price determined by the AO. In effect, transfer pricing shown by the taxpayer was not disturbed if such price fell within the range of +/-5% of determined price. But if the variation in the disclosed price and the determined Arm's Length Price was more than the above limit, then the Circular provided that transfer price declared by the taxpayer was not to be accepted and adjustment for the variation was required to be made. Thi....
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.... on account of Royalty receivable from Nepal Liver Ltd. Rs. 20,29,222 6. Adjustment made on account of payment of royalty to Uniliver N.L. Rs. 1,63,649 7. Adjustment made on account of advertisement and sales promotion expenses Rs. 27.09 lakhs 8. Advertisement and sales promotion expenses Rs. 27.09 lakhs 15. However, he observed that these additions are not to be separately made as the same will get subsumed on account of adjustment of Rs. 356.44 crores. 16. Lastly, he made an adjustment of under-charging for common corporate audit service and intra-group service for a sum of Rs. 5,85,41,008. Thus, finally, the total adjustment was made at Rs. 3,68,79,26,000, comprising of the following:- (i) TP adjustment at the entity level - Rs. 356.44 crores; (ii) Research innovation and development related services - Rs. 6,49,85,000; (iii) Undercharging of common corporate audit services and intra group services - Rs. 5,85,41,000. 17. Aggrieved by the adjustment made by the TPO, the assessee filed its objection before DRP wherein detail objection with regard to each and every finding of the TPO and the adjustment made were submi....
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....; Arm's length margin by TPO @ 17.48% (OP/cost) 105.78 Arm's length price of the export transaction as per TPO 710.96 Range @ 95% 675.41 Range @ 105% 746.50 HUL Transactions with AE at 689.89 crores is within the range of 675.41 crores and 746.50 crores. Therefore, the transactions are at arm;s length. Thus, under both the scenario, he submitted that at the very thresh hold, the entire adjustment of Rs. 356.44 crores gets deleted. In support of this contention that only A.E. transactions are to be looked into for the purpose of bench marking, he relied upon various Tribunal decisions. 19. He further submitted that if a comparison of operating margin at segmental level is taken into consideration vis-a-vis A.E. and non-A.E. transactions, then the assessee has earned more operating profit margin in relation to A.E. transaction as compared to non-A.E. transaction. In support of this, he submitted a detail statement of segmental level accounts analysis of sales/operating cost, operating margin on sales as well as on cost of various segments like home care products, beverages, rice and marine, crabsticks, etc., and pointed out that in all the s....
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....sp; (2,979) (11,217) (14,196) (98,692) Operating Margin (%) on sales OP/OC -2.72% -6.20% -4.89% -5.17% Operating Margin (%) on cost OP/OS -2.64% -5.84% -4.66% -4.92% HUL Particulars A.E. Rs. INR Non-A.E. Rs. INR Total Rs. INR 56.01% 43.99% Sales 7,176,094 5,635,806 12,811,900 Add: DEPB/Export Licences (31,234) 620 (30,614) Sales 7,144,860 5,636,426 10,873,435 Operating Cost 6,539,235 5,627,579 12,29,316 Operating Margin 636,859 8,227 520,584 Operating Margin (%) on sales OP/OC 8.87% 0.15% 4.06% Operating Margin (%) on cost OP/OS 9.74% 0.15% 4.24% 20. In support of this contention that internal comparables are preferable over external comparables even under the TNMM, the learned Sr. Counsel heavily relied upon the Third Member decision of the Tribunal in Technimont ICB Pvt. Ltd. v. ACIT, ITA no.4608 & 5085/Mum./2010, order dated 12th July 2012, and drew our attention to Para-10 of the said order. He submitted that without going into the ....
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....goes to the very root of the issue involved. The learned Departmental Representative submitted that if the nature of international transactions taken by the assessee company is taken into consideration then it would be seen that the same are on income as well as expenditure side. The assessee itself has bench marked its international transactions at the entity level which shows that original approach of the assessee was to bench mark international transactions at the entity level by aggregating all the international transactions. The assessee came out for the first time the idea of bench marking at the segmental level before the TPO in the second innings only. These segmental results furnished before the TPO were un-audited and the assessee was unable to substantiate even a single segment. For this, he referred to the findings of the TPO given at Page-10. He submitted that the TPO has analyzed the segmental data and has given a detail reasons for rejecting the same. The so called audited segmental data which was provided to the DRP on 16th September 2010, the DRP has rejected the same after calling the comments of the TPO. Regardless of that, he submitted that the audited segmental....
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.... the associate enterprises. Since the margin from the independent transactions and international transactions cannot be computed separately, unless the margin is applied on the entity level, the arm's length price of the international transaction cannot be computed. In view of the above, he submitted that the adjustment made by the TPO is justified and ought to be confirmed. 26. After making the aforesaid submissions, he also submitted the statement for the ALP determination of the international transactions to counter assessee's submissions on account of safe harbour range of +/- 5%. Total AE Transaction Non AE Transaction Sales of the assessee 12271.79 A 689.89 11581.9 Since non-AE transactions are at arm's length hence apply the arm's length margin i.e., 17.48% to arrive at the cost 11581.90/117.48% Cost 10748.65 B 890.03 9858.61 Apply the arm's length margin on the cost used to earn the AE sales C 155.58 Arm's length price of sales made to the AEs D=B+C 1045.61 Difference of Arm's length price and the price at which the inter....
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....eby applying operating margin of 17.48%, otherwise it will lead to absurd results. The TPO should have taken only the A.E. transactions i.e., international transactions for the purpose of bench marking and not the entire turnover. Regarding the working of +/- 5% given by the learned Departmental Representative, he submitted that there is inherent contradiction while working out the cost as he has worked out the cost in proportion to the entire sales of the assessee. Even otherwise also, by whatever yardstick, whether bench marking the operating margin at the entity level for the entire transactions (i.e., A.E. or non-A.E) or whether going by A.E. transactions, the assessee's case falls within the range of +/- 5% as stated in the foregoing paragraphs and no fault has been found in such a working even by the learned Departmental Representative. Thus, on the thresh hold itself, the entire adjustment made by the TPO should be deleted. 28. Both the parties have also addressed us in detail with regard to the adjustment which has been added separately by the TPO and also the various other adjustments relating to royalty, etc., which has been subsumed by the TPO in the figure of Rs. 356....
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....ctions only, which were at Rs. 689.89 crores and if the arm's length margin taken by the TPO at 17.48% is applied, then the same falls within the safe harbour range of +/- 5%. Even otherwise also, if the said markup of 17.48% is applied at the entity level, then also, the difference is 3.32% which also falls within the safe harbour range of +/- 5%. The said working submitted by the learned Sr. Counsel has already been reproduced in the foregoing paragraph no.18. We have to examine firstly, as to whether the bench marking should be done at A.E. transactions only or for the entire transactions (including A.E. as well as Non-A.E.) and secondly, whether the adjustment in ALP by the TPO falls within the safe harbour range of +/- 5%. 30. Provisions of section 92 provides that "any income arising from an international transaction shall be computed having regard to the ALP". Thus, the ALP has to be on international transaction and not in relation to assessee's entire sales or turnover. The second proviso to section 92C, though brought in statute by the Finance Act, 2009, w.e.f. 1st October 2009, provides that "if the variation between ALP so determined and the price at which internation....
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.... un-controlled transactions. The CBDT, vide Circular no.12/2001 dated 23rd August 2001, laying down the guidelines for applying the newly introduced transfer pricing regime stated as under:- "However, this is a new legislation. In the initial years of its implementation, there may be room for different interpretations leading to uncertainties with regard to determination of arm's length price of an international transaction. While it would be necessary to protect our tax base, there is a need to ensure that the taxpayers are not put to avoidable hardship in the implementation of these regulations." In the background, the Board has decided the following: "(i) The Assessing Officer shall not make any adjustment to the arm's length price determined by the taxpayer, if such price is up to 5% less or up to 5% more than the price determined by the Assessing Officer. In such cases the price declared by the taxpayer may be accepted." This concept was given statutory form in the Finance Act, 2002, by providing the proviso to section 92C(2). Thus, the statute itself recognises that if the variation between ALP so determined and the price at which international transaction has bee....
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...., in our conclusion, by whatever approach, bench marking is done, the entire adjustment made by the TPO falls within the safe harbour of +/- 5%. Insofar as the calculation furnished by the learned Departmental Representative is concerned, we do not find any merit in the said calculation in view of our analysis given above. Thus, at the very thresh hold level itself, the entire adjustment made by the TPO stands deleted. 35. It has been admitted by both the parties that if bench marking is being done at the entity level either for the A.E. transaction or for the entire transactions, then there is no requirement of any further adjustments as all the adjustments made by the TPO/Assessing Officer including that of Research Innovation and Development Related Services and Undercharging for Common Corporate Audit and Intra Group Services will get automatically subsumed including those adjustments also relating to royalty, etc. as done by the TPO. 36. In view of the above findings, the other arguments with regard to the segmental accounts vis-a-vis internal comparables and that the assessee's profit margin on A.E. transactions are far more than the non A.E. transactions and various ot....
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....ase, export department etc. With reference to the head office expenses it was submitted that the expenses that were not allocated are those which in any case have to be incurred by assessee irrespective of the existence of new undertaking eligible for deduction. Without prejudice to the above contention, it was also reiterated the contention before AO and the DRP that if the common head office expenses are to be allocated for computing the profits, then on the same basis the common income credited to the Profit & Loss A/c but not allocated by assessee to industrial units be allocated accordingly. With reference to the allocation of research expenses the learned Counsel relied on the judgment of the jurisdictional High Court in the case of Zandu Pharmaceuticals Works Ltd. v. CIT in ITA No.8/Mum/2007 dated 12.9.2012. He also referred to the orders of the Coordinate bench of the ITAT in assessment years 1985-86 and 1986-87,1988-89 wherein in some orders one of us Accountant Member is a party, to submit that there is no need for allocating the expenses. In reply the learned DR informed the facts of the allocation and relied on the orders of AO. It was his submission that the ITAT in th....
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.... made for the assessee. Learned counsel was unable to pinpoint what was wrong in such direction and how such directions went against the aforesaid principle regarding allocation of expenses. It is for this reason that for the assessment year 1985-86 in Misc. Application filed by the assessee numbered as MA No. 670/Mum/2006 arising out of ITA No. 4997/Bom/1990, this Tribunal in its order dated 15th June 2007 held as under: "As regards the allocation of common expenses incurred by the assessee at head office, the assessee has furnished all the details. Having regard to this, it cannot be said that all common expenses not relating to specific units need such a blanket allocation as is done by the departmental authorities. But at the same time we cannot accept the assessee's contention that all the common expenses at the head office have not contributed to the earning of income of the units, which are entitled for relief u/s.80HH and 80-I of the Act. If such expenses are not allocated in some reasonable manner, it will only distort and result in arriving at higher income of in the hands of eligible units. We, therefore, direct the Assessing Officer not to allocate the expenses of ch....
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....for consideration. Keeping in mind the directions in earlier years, AO is directed to reworkout the common expenses accordingly. 41. With reference to the research expenses and the interest expenses which were allocated for the first time, allocation of the research expenses is covered by the decision of the jurisdictional High Court in the case of Zandu Pharmaceuticals Works Limited in Income Tax Appeal No.8 of 2007 dated 12.09.2012 whereinthe Hon'ble High Court has considered the issue as under: "8. There is no dispute that the assessee is entitled to the benefits of the provisions of sections 80-HH, 80-I and 80-IA. Section 80-I provides that where the gross total income of an assessee includes any profits and gains derived from an industrial undertaking, there shall be allowed, in computing the total income of the assessee, a deduction from such profits and gains an amount equal to twenty per cent thereof. Section 80-IA provides that where the gross total income of an assessee includes any profits and gains derived from any business of an industrial undertaking, there shall be allowed, in computing the total income of the assessee, a deduction from such profits and gains o....
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....xport entitlements become available. There must be, for the application of the words "derived from", a direct nexus between the profits and gains and the industrial undertaking. In the instant case the nexus is not direct but only incidental. The industrial undertaking exports processed seafood. By reason of such export, the Export Promotion Scheme applies. Thereunder, the assessee is entitled to import entitlements, which it can sell. The sale consideration therefrom cannot, in our view, be held to constitute a profit and gain derived from the assessee's industrial undertaking." The Supreme Court held that there must be for the application of the words "derived from" a direct nexus between the profits and gains and an industrial undertaking. Sections 80-I and 80-IA also use the expression "derived from". If there must be a direct nexus between the profits and gains and an industrial undertaking, it must follow equally that there must be a direct nexus between an industrial undertaking and the expenses which are sought to be apportioned/attributable to it. Expenses which do not relate to an industrial undertaking/unit under consideration and they relate to other units or to the ....
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.... (supra), the expenses attributable to any other unit or the head office expenses which have no relevance to the industrial undertaking cannot be deducted in respect of the said undertaking while computing the profits and gains of the undertaking. Accordingly, we have no hesitation in directing AO to delete the interest expenses so allocated to the Unit. The grounds are partly allowed to the above extent. Ground Nos. 20 to 23. 44. These grounds are against the claim of deduction of Rs. 17,09,27,843 under section 10A and Rs. 7,69,86,126 under section 10B on Pune Tea Export Unit and Khandla Unit. The facts are similar to the grounds raised above from Ground Nos. 16 to 19 on section 80-IB and section 80-IC. AO in line with the stand taken for arriving at the unit profits has allocated the same common expenses, research expenditure and interest expenditure on the basis of the turnover to these units. Since the facts are similar and working is similar, the directions given in the above grounds will equally apply to these grounds as well. Accordingly, AO is directed to exclude certain common expenses as directed above and totally exclude the research expenditure and interest expend....
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....de provision of Rs. 7,77,60,972/- which included Rs. 6.77 crores relating to the earlier years, as liability on account of retirement pension plan. The expenditure had been claimed as deduction during the previous year. Therefore, the Assessing Officer was of the view that the liability is towards the discretionary retirement pension payment to its employees as supplementing amount otherwise payable by LIC under the approved Superannuation Fund. Since there is a departure from the pension payable by the LIC, the assessee has found that the amount of pension payable by the LIC was to be inadequate and accordingly, the assessee made the payment to its retired employees under this plan by supplementing the amount otherwise payable by the LIC. The Assessing Officer observed that the assessee failed to furnish the original retirement pension plan, the retirement pension was not approved or recognized under the provisions of the IT Act and therefore, the expenditure was not covered under the provisions of sec. 36(1)(iv). According to the Assessing Officer this provision is specifically made and inadmissible u/s 40A(9) and was merely a provision and not an ascertained liability. It was al....
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....vision of IT Act. and as observed by the Assessing Officer and the CIT(A) the pension scheme as formulated by the assessee for meeting the extra payment over and above the amount payable under LIC scheme. The Hon'ble Supreme Court in the case of Bharat Earth Movers (supra) has taken into consideration the principle laid down in the case of Metal Box Company of India Ltd. v. Their Workmen reported in 73 ITR 53 and held that for making liability incurred by the assessee under leave encashment scheme proportionate with the entitlement earned by the employees of the company, was entitled to deduction out of the gross receipts of the accounting year during which the provision is made for the liability. The liability was not a contingent liability. It was observed that what should be certain is the incurring of the liability. It should also be capable of being estimated with reasonable certainty though the actual quantification may not be possible. 45.1 Thus, as held by the Hon'ble Supreme Court (supra) that if the liability on account of pension scheme is capital of being estimated with reasonable certainty, then it is allowable. However, in the case in hand, the dispute is regarding....
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....efore, AO worked out the disallowances of the same amount of Rs. 9,81,98,817 while completing the assessment in pursuance of the DRP directions. The learned Counsel referred to the submissions made before AO and the DRP placed in the paper book to submit that assessee has not incurred any expenditure in earning the exempt income. After considering the rival arguments, we are of the opinion that large amount of investment could not be made without any secretarial assistance. We are of the opinion that an adhoc amount of 0.5% on the income claimed as exempt would be reasonable to consider as expenditure incurred for earning exempt income under section 14A. Therefore, AO is directed to work out the disallowances at 0.5% of the income claimed exempt. With these directions, the ground 25 is considered partly allowed. Ground Nos. 26 & 27 50. These two grounds pertain to payment of an amount of Rs. 4.6 crores made to the suppliers for termination of arrangement for supply of Sugar Candies and an amount of Rs. 14.25 crores made to suppliers for termination of the arrangement for manufacture of toothpaste and shampoos. Assessee claimed the first amount to the extent of Rs. 4.6 crores ....
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....oned above, the company has paid an amount of Rs.4.6 crores to Makson Nutrition Food Private Ltd. (MNFPL) towards final settlement to cancel rescind the sourcing arrangement that the company had with them for conversion of sugar confectionary products. A copy of the termination agreement between the company and MNFPL is enclosed in Annexure-2. The remaining provision of Rs. 3.4 crores was written back since the same was no longer required. It is submitted that the amount of RS.4.6 crores paid to Makson Nutrition Food Private Limited(MNFPL) towards final settlement to cancel/rescind the sourcing arrangement is a genuine business expense justified by commercial expediency and that the same is fully allowable under sec. 37(1) of the Act. As regards the write back of RS.3.4 crores the same is not taxable in financial year 2005-06 as the same was not claimed as a deductible expense and added back in the statement of total income in the year in which provision was made. Actual Expenses incurred against provisions included under exceptional items of earlier years disallowed in the computation of those years. The Company had made provision of RS.16,51,18,000 in the earlier years b....
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....ensation of RsA.60 crores was paid to M/s. Max Sugar Candies on account of settlement for the loss of business to M/s. Max Sugar and that the same was allowable u] s.30(7)(i) of the Income-tax Act. Similarly, claim is made by the assessee in objection No.19 relating to payment of Rs.14.25 crores for termination of manufacturing of toothpaste and shampoo. The Assessing Officer has discussed the issue in para 12 of the assessment order and has recorded a finding that the payments made by the assessee are in the nature of capital expenditure because the enduring benefit to the assessee would be in the form of avoiding future losses on account of continuation of such arrangements. The DRP has carefully considered the issue and agrees with the assessee that no new assets or any enduring benefit has been created. The Assessing Officer has not doubted the genuineness of the amount settled and the actual payment of expenditure is a capital expenditure as it has been paid in respect of termination of a contract which was otherwise spread over a number of future years. The recipient have forgone their right to produce these products for future years and thus the right has been acquired by th....
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....greement was made by which assessee agreed to pay Rs. 46 crores for cancellation of all arrangements w.e.f. 10.05.2005. Assessee has provided an amount of Rs. 30.44 crores in the books of account in the assessment year 2005-06 out of which AO allowed an amount of Rs. 22.44 crores in that year. The provision made of Rs. 8 crores was not claimed in that year with a note that the compensation will be claimed in the year of payment. Since the final agreement was entered in this year assessee claimed amount of Rs. 4.6 crores as an expenditure while adding back the balance provision in the books of account. As seen from the above facts, we are of the opinion that assessee has claimed the amount of Rs. 4.60 crores as Revenue expenditure as no right has been acquired by terminating the conversion agreement entered with the said company. It is a business decision and since assessee is still in the business of food and beverages the expenditure is rightly claimed as revenue expenditure. The principles laid down by the Hon'ble Supreme Court in the above referred four judgments equally apply to the facts of the case. Therefore, AO is directed to allow the amount of Rs. 4.6 crores claimed. 5....
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....n the payment, in the interest of justice, we restore this part of the claim to the file of AO. 55. Coming to the next payment of Rs. 4.75 crores paid to M/s MUL Dentpro (P) Ltd, here also clause-1 states that an amount of Rs. 0.25 crores was for compensation towards sharing the cost pertains to the said company. This amount is similar to the payment made to M/s MNFPL discussed above and for the reasons stated therein this has to be allowed as a revenue expenditure. However, vide clause-2 of this agreement placed at page No.1287 of the paper book, the assessee company agreed to compensate a sum of Rs. 4.5 crores to the said company towards covenant of non-compete fees for a period of 2 years on the same terms and conditions as specified in the earlier agreement with M/s. Prime Healthcare Products (incidentally both the agreement are signed by the same person Mr. Manek Shah, may be associated companies as the terms of the agreement are same). Since the issue of non-compete fees is restored to the file of AO as it was not examined in the interest of justice, we refer this payment of Rs. 4.5 crores to the file of AO. Assessee is free to make its submissions about the claim before A....
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....ted the addition in the assessment order without complying with the directions of DRP. Before us a detailed note was submitted how the adjustment need not be made under the provisions, which is as under: "We give below an illustration explaining why the valuation of closing stock followed by the appellants should not be disturbed: Take a case where there is an opening stock of ten units purchased at Rs. 10/- per unit the excise duty paid on these units was Rs.2/- per unit. During the previous year 100 units of raw materials are purchased for an aggregate price of Rs.12/- per unit which includes a sum of Rs. 2/- per unit representing the excise duty payable by the manufacturer. Seventy units of raw materials are consumed in the manufacturing process and all such finished goods are sold prior to the end of the year. Accordingly, there would be a closing inventory of 40 units of raw materials. On the goods manufactured assessee is liable to pay excise duty at Rs.3/- per unit and ultimately it sells the finished goods for a price of Rs. 20/- per unit. The modvat credit would be available in respect of the Rs. 2/- per unit paid by the assessee at the time of purchase of the goods.....
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....ich was considered by the Supreme Court in the case of Indo Nippon Chemicals Ltd. (261 ITR 275) and the Supreme Court specifically held that merely because the mod vat credit is an irreversible credit available to the manufacturers upon purchase of duty paid raw materials it would not the amount to income which is liable to tax under the Act". 60. Assessee also relied on the decision of the Hon'ble Supreme Court in the case of Indo Nippon Chemicals Ltd. (261 ITR 275) to submit that the following the above principles, no adjustment is required. Considering the rival submissions, we are of the opinion that the matter has to be restored to the file of AO to decide the issue in the light of the legal principles and to particularly implement the directions given by the DRP. Assessee is also directed to submit the relevant data to AO. With these directions the ground 29 is allowed for statistical purposes. 61. Ground No.30 pertains to the issue of adjustment made on the capital subsidy received of Rs. 5.00 lakhs which AO adjusted in the WDV for the purpose of computation of depreciation. It was fairly admitted that this issue is against assessee. Therefore, the ground is rejected. ....
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.... No.1135/Kol/2010 the Coordinate Bench at Kolkata has examined this issue and decided as under: "6. In the present case before us the assessee has deducted tax u/s. 194C(2) of the Act being payments made to sub-contractors and it is not a case of non-deduction of tax or no deduction of tax as is the import of section 40a(ia) of the Act. But the revenue's contention is that the payments are in the nature of machinery hire charges falling under the head 'rent' and the previous provisions of section 194I of the Act are applicable. According to revenue, the assessee has deducted tax @ 1% under section 194C(2) of the Act as against the actual deduction to be made at 10% under section 194I of the Act, thereby lesser deduction of tax. The revenue has made out a case of lesser deduction of tax and that also under different head and accordingly disallowed the payments proportionately by invoking the provisions of section 40(a)(ia) of the Act. The Ld. CIT, DR also argued that there is no word like failure used in section 40(a)(ia) of the Act and it referred to only non-deduction of tax and disallowance of such payments. According to him, it does not refer to genuineness of the payment or ....
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....r section 143(1) for the assessment year 2005-06. Ground Nos. 32 to 32.3 is as under: "32. The learned AO erred in holding that the amount of interest received by assessee under section 244A of the Act vide intimation under section 143(1) for assessment year 2005-06 in April 2006 was liable to be taxed as assessee's income in assessment year 2006-07. 32.1 The learned AO failed to appreciate that the order under section 143(1) for A.Y 2005-06 was received by assessee only in April 2006 and hence the interest received with the order under section 14391) could not be taxed in A.Y 2006-07. 32.2 Without prejudice, the appellant submits that the learned AO failed to appreciate that, along with the receipt of intimation under section 143(1) for A.Y 2005-06 the appellant had also received notice under section 143(2) indicating that the appellant's case was selected for scrutiny which could only be on the basis that the appellant has claimed an exemption, deduction, allowance or relief which was inadmissible. 32.3 The learned AO ought to have held that the interest received by the appellant had not attained finality so as to constitute income in the hands of the appellant". 6....
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....certain. According to section 244A, the only condition for grant of interest is that there must be a refund due to the assessee under any provision of the Act. There is no other condition in the said provision affecting such right. Therefore, the moment a refund becomes due to the assessee, an enforceable debt is created in favour of the assessee and the assessee acquires a right to receive the interest. Sub-section (3) of section 244A only affects its quantification under certain circumstances and not the right of interest. The Supreme Court in the case of CIT v. Shri Goverdhan Ltd. [1968] 69 ITR 675 has observed that once a debt is created, then the liability cannot be said to be contingent merely because it is to be quantified at later date. Under section 244A, even the interest is quantified immediately whenever a refund is issued. Hence, the right to grant interest is absolute since existence of such right is not dependent on any event. It is well settled from the judgment of the Supreme Court rendered in the case of Kedarnath Jute Mfg. Ltd. v. CIT [1971] 82 ITR 363 that if an enforceable debt is created under a statute, then any subsequent event would not affect the existe....
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....154. Therefore, interest on refund under section 244A(1) granted to the assessee in the proceedings under section 143(1)(a) would be assessable in the year in which it is granted and not in the year in which proceedings under section 143(1)(a) attain finality. 68. Therefore, while upholding in principle that the amount is to be taxed in the year of granting the refund, AO is further directed to examine whether assessee was entitled for any interest under the same provisions after an order under section 143(3) was passed and if so modify the order to the extent assessee's quantum of interest to be brought to tax. In case the entire interest granted was withdrawn by any order subsequently, the relief to the extent has to be provided to assessee. With these directions, the ground 32 is partly allowed. Ground No.33 69. Ground No.33 pertains to the disallowing an amount of Rs. 4,43,057 as unexplained income. In the course of the assessment while considering the write back of the provisions and making disallowance of the claim made for the expenditure during the year out of the provisions so made and after taking reconciliations from assessee, AO has come to the conclusion th....
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....ee claimed set off of unabsorbed depreciation of amalgamating company Vashisti Detergents Ltd. (VDL) for the assessment year 1996-97 and assessment year 1997-98 of Rs. 5,63,66,551 and Rs. 8,97,30,340 respectively (although the unabsorbed depreciation as per assessment order under section 143(3) dt. 29.01.99 for the assessment year 1996-97 was mentioned as Rs. 5,33,10,169). The AO was of the opinion that as per provisions of section 32(2) relating to carry forward and set off of unabsorbed depreciation had been amended by Finance (No.2) Act, 1996 w.e.f. assessment year 1997-98 and remained on the statute till assessment year 2001-02 and as per the amended provisions the unabsorbed depreciation was allowed to be carried forward only for a period of eight assessment years immediately succeeding the assessment year for which the aforesaid allowance was first computed. Thus, the unabsorbed depreciation for the assessment year 1996-97 which was deemed to be part of the depreciation allowance for assessment year 1997-98 as per the unamended provision of section 32(2) and the depreciation for assessment year 1997-98 could be carried forward only upto assessment year 2005-06. Assessee vide ....
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....ximum period of eight assessment years starting from assessment year 1997-98. (ii) Current depreciation for the year under section 32(1) (for each year separately starting from assessment year 1997-98 up to 2001-02) can be set off firstly against business income and then against income under any other head. (iii) Amount of current depreciation for assessment years 1997-98 to 2001-02 which cannot be so set off as per (ii) above, hereinafter called the 'Second unabsorbed depreciation allowance' shall be carried forward for a maximum period of eight assessment years from the assessment year immediately succeeding the assessment year for which it was first computed, to be set off only against the income under the head 'Profits and gains of business or profession'. C. In the third period (i.e., assessment year 2002-03 onwards) (i) 'First unadjusted depreciation allowance' can be set off up to assessment year 2004-05, that is, the remaining period out of maximum period of eight assessment years [as per B(i) above] against income under any head. (ii) 'Second unabsorbed depreciation allowance' can be set off only against the income u....
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....clear words used in the section, the benefit accruing to assessee cannot be denied. However, Circular No.14 of 2001 had clarified that under Section 32(2), in computing the profits and gains of business or profession for any previous year, deduction of depreciation under Section 32 shall be mandatory. Therefore, the provisions of section 32(2) as amended by Finance Act, 2001 would allow the unabsorbed depreciation allowance available in the A.Y. 1997-98, 1999-2000, 2000-01 and 2001-02 to be carried forward to the succeeding years, and if any unabsorbed depreciation or part thereof could not be set off till the A.Y. 2002-03 then it would be carried forward till the time it is set off against the profits and gains of subsequent years. 38. Therefore, it can be said that, current depreciation is deductible in the first place from the income of the business to which it relates. If such depreciation amount is larger than the amount of the profits of that business, then such excess comes for absorption from the profits and gains from any other business or business, if any, carried on by the assessee. If a balance is left even thereafter, that becomes deductible from out of income from ....
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....dvertisement in the cover page of the souvenir bring brought out, at Rs. 10,000. AO and the DRP did not accept the contentions of assessee. 78. After considering the submissions and examining the details, we are of the opinion that there is no need for disallowing the claim under section 80G made by assessee. There is evidence on record that assessee paid by way of cheque an amount of Rs. 10,000 to the said Parent Teachers Association for cover page in the souvenir and the material for advertisement was given in the name of "Rin Advance" with Mr. Amitabh Bachan and child star being the persons representing the products. This advertisement material was given to the Parent Teachers Association and they gave receipt along with the certificate for claim u/s 80G in the name of 'Rin Advance', a product of assessee. This could be a mistake but one cannot deny that the said payment was made by assessee. In fact, the whole amount of Rs. 10,000 could have been claimed as deduction as an advertisement under section 37(1). However, assessee restricted the same to an amount of Rs. 5,000 being the donation under section 80G. We do not see any reason to disallow the amount as the amount has be....