TaxTMI 
TaxTMI 
2013 (9) TMI 306
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.... that similar addition made in the earlier year has been deleted. It was also submitted that in case addition was required to be made into the closing stock, adjustment has also to be made in the purchases as well as in the opening stock. CIT(A) after considering the submissions of the assessee observed that similar issue had been considered in assessment year 2002-03 in which the CIT(A) had held that full effect of provision of section 145A were required to be given by including tax duty etc., in the opening stock/purchases also and not only in the closing stock. CIT (A) thereafter held that addition made by AO in the closing stock was confirmed and directed the AO to make similar adjustment in the opening stock. Aggrieved by the said decision, the assessee is in appeal before Tribunal. 3.2 We have heard both the parties, perused the records and considered matter carefully. The dispute is regarding adjustment to be made on account of tax, duty etc., under the provisions of section 145A. Under the said provisions, the valutiaon of purchases and sale of goods and inventory is required to be made in accordance with the method of accounting regularly employed by the assessee and fu....
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....tion of CIT (A) for allowing the claim in the next year has not been given effect to by the AO. It was also submitted that the assessee will be satisfied if the claim was allowed in the next year. We have considered the matter carefully, we do not see any difficulty in allowing the claim in next year as the CIT(A) has given a clear finding that deduction was made in the next year and the amount was also paid next year. The order of CIT (A) holding that the claim has to be allowed next year is, therefore upheld. The AO will thus allow the deduction in assessment year 2004-05. 5. The dispute raised in ground no.1(d) is regarding disallowance of Rs. 58,91,675/- in respect of bad and irrecoverable debt written off during the year. The assessee had claimed deduction of Rs. 58,91,675/- on account of bad debt written off. The assessee filed names and addresses of debtors alongwith amount written off and the date of raising the bill, before the AO and also made legal submissions on the issue. The assessee explained that the company sold its product in various divisions to various types of customers and many a times amounts were not received from the parties in respect of sales made to t....
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....h the assessee has no objection. We, therefore, restore the issue to the file of AO for a fresh decision after allowing opportunity of hearing to the assessee to show that the debt had been taken into account in computation of income of the earlier year. 6. The dispute raised in ground no. 1 (e) is reagarding disallowance of Rs. 5,32,69,000/-. The AO on examination of quantitative details of trading goods and manufacturing goods noted that there was under statement of closing stock. The assesse explained that the lower stock was because of shortage, free samples and giveaways under the company's bonus scheme. It was also submitted that it was a common practice amongst all pharmaceutical companies to distribute physician samples amongst doctors, hospitals and other users for promoting the sale of goods. It was pointed out that the closing stock did include quantities and values of samples, but since the samples were distributed free of cost, these were reflected as part and parcel of the cost of goods sold in the accounts. This is nothing but sale promotion expenditure. The AO however observed that the assessee when asked to file the names and addresses of the persons, physicians....
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....uch details if required. He also filed the details for the month of March giving names and addresses of the doctors which ran into several pages. It was argued that it was a common practice to distribute free samples and such claims have also been allowed in the past. The disallowance has been made only from this assessment year. The claim should, therefore, be allowed considering the past histroy. Learned DR on the other hand submitted that the burden was on the assessee to establish that the expenditure on account of samples was genuine and had been actually incurred which cannot be discharged without giving full details. It was also submitted that the disallowance could always be made in the subsequent year even if no disallowance had been made in the past. Reliance was placed on the decision of Tribunal in case of Good Year India Ltd. ( 66 TTJ 164) 6.3 We have perused the records and considered the the rival contentions carefully. The dispute raised in this ground is regarding disallowance of expenses on account of free samples. The total claim of expenses on this account is Rs. 5,32,69,000/-. The assessee did not file the names and addresses of persons/physicians/doctors to....
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....ter allowing opportunity of hearing to the assessee 7. Ground no. 1(f) relates to transfer pricing issue and will be taken up later. 8. The dispute raised in ground no. 1(g) is regarding deduction of Rs. 91,55,000/- in respect of contribution to LIC Group Insurance Scheme. The learned Senior Counsel at the time of hearing of the apeal did not press this ground. The ground is, therefore, dismissed as not prressed. 9. The ground no. 1 (h) is regarding disallowance of Rs. 5,00,000/- out of discount and commission expenditure claimed by the assessee. The AO noted that the assessee had claimed discount and commission of Rs. 1,89,87,006/-. The AO observed that the assessee had been asked to submit complete details along with names and addresses of the parties with supporting evidences. But the assessee had filed only the broad details. No quantitaive details or any supporting evidence were filed to prove the genuineness of expenses. The AO further observed that the assessee could have at least produced few supporting vouchers/bills on a sample basis to prove genuineness, which has also not been done. AO, therefore, disallowed a sum of Rs. 5,00,000/- on estimate as not incurred w....
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.... below and placed reliance on the finding given in the respective orders. 9.3 We have perused the records and considered the the rival contentions carefully. The dispute raised is regarding estimated disallowance of Rs. 5,00,000/- out of discount and commission expenses of Rs. 1,89,87,006/- claimed by the assessee. The assessee could not submit complete details along with names and addresses of the parties with supporting evidence which was specifically requisitioned by the AO. Such details were also not been filed before CIT(A), and, therefore, he upheld the disallowance. It has been submitted before us, that similar claim had been made by the assessee both in earlier years and in the subsequent years and no disallowance has been made even in the scrutiny assessment u/s 143 (3). In our view, merely because no disallowance had been made in earlier years or in subsequent year cannot be the basis for making claim for relief in this year, because it is not possible for the AO to make detailed examination of each and every issue relating to assessment every year. This year he has taken up the matter for detailed examination and found that the expenses were not supported by details a....
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.... therefore, urged that the addition made may be deleted. The learned DR on the other hand supported the order of CIT(A) and placed reliance on the findings given in his order. 10.2 We have perused the records and considered the rival contentions carefully. The dispute is regarding estimated disallowance out of sales promotion expenses. The assessee has claimed sales promotion expenses of Rs. 5,45,77,106/-. Estimated disallowance of 20,00,000/- had been made by AO as the assessee could not file full details relating to the claim. CIT(A) reduced the disallowance to Rs. 10,00,000/-. It has been submitted before us, that no disallowance had been made in the earlier years or in the subsequent year even in the scrutiy assessments made by the AO. Comparative details of such claim with respect to earlier years has been filed which shows that the claim made by the assessee this year is at 1.59% of sales compared to 2.2% of sales in the immediate preceding year. Thus the claim made by the assessee is lower this year compared to the immediate preceding year, in which it has been allowed fully. Even if the assessee has not filed full details the disallowance is required to be made by AO on ....
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....er. 11.3 We have perused the records and considered the matter carefully. The dispute is regarding estimated disallowance of Rs. 10,00,000/- out of travelling, conveyance and vehicle expenses of Rs. 11,21,56,760/-. The AO had made estimated disallowance on the ground that full details of expenses with names and addresses of the parties had not been given. CIT (A) has confirmed the disallowance. We find that the issue is similar to the disallowance of sales promotion expenses which we have dealt with earlier. In the absence of full details and evidence the AO is justified in making the estimated disallowance. However such disallowance has to be computed on an objective basis on the basis of material available on record. In this case we find that the claim made by the assessee is at 3.2% of total sales compared to 3.30% of total sales in the immediate preceding year. There is no material placed on record before us to show that the claim made by the assessee is excessive. No part of the claim can also be disallowed on account of personal uses in respect of vehicles etc. as the assessee is a company. Therefore in our view on the facts of the case disallowance made is not justified. ....
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....13.1 The AO noted that the assessee had claimed deduction of Rs. 2,48,57,018/- u/s 80-IB of the IT Act., which also included deduction in respect of DEPB income. The AO disallowed the claim in respect of DEPB income on the ground that DEPB income was not derived from the business of the undertaking following the judgment of Hon'ble Supreme Court in case of Sterling Foods Ltd. Vs. CIT ( 237 ITR 579) and some other judgments. In appeal CIT (A) confirmed the disallowance made by AO, aggrieved by which the assessee is in appeal before Tribunal. 13.2 We have heard both the parties, perused the records and considered matter carefully. The dispute is regarding allowability of claim of deduction u/s 80-IB in respect of DEPB income. We find that the issue is covered by the judgment of Hon'ble Supreme Court in case of Liberty India Ltd. ( 317 ITR 218) to which both the parties agreed. The Hon'ble Supreme Court in the said case have held that section 80-IB did not cover the profit from the sources beyond the first degree and only the profit of the eligible business of undertaking could be allowed as deduction. It was also held that duty drawback and DEPB were not profit derived from the el....
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....ation. It was also submitted that the miscellaneious income included scrap sales, sundry sales etc,. which should be excluded as the same went to reduce the cost of goods produced. CIT(A) however, did not accept the contentions raised and following the decision of his predecessor in assessment year 2002-03 confrimed the order of AO, aggrieved by which the assessee is in appeal before Tribunal. 15.3 Before us learned Senior Counsel argued that the AO had assessed the various receipts mentioned in this ground as income from business and not as income from other sources. As regards the interest on deposits, export incentives and indentin commission, he was agreeable to reduction of 90% as per Explanation (baa) provided only the net amount was reduced in view of the judgment of Hon'ble Supreme Court in case of Associated Capsules (343 ITR 89). In relation to insurance claim it was submitted that the same was covered in favour of the assessee by the Judgment of Hon' High Court of Bombay in case of Pfizer (330 ITR 62). The interest on delayed payment, it was pointed out, had been received from the customers which was integral part of the business operation and, therefore, it could not....
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....ion and, therefore, should not be covered by the Explanation (baa). We agree with the submissions made as in our view interest on delayed payment has the same characteristics as the sale price and, therefore it has to be taken as arising from business operations and is not required to be reduced as per Explanation (baa). The insurance claim, it has been pointed out is covered in favour of the assessee by the judgment of Hon'ble High Court of Bombay in case of Pfizer ( 330 ITR 62). Earlier Hon'ble High Court of Bombay in case of Dresser Rand India Pvt. Ltd. (323 ITR 429) had held that insurance claim was covered by Explanation (baa). however in that case, Hon'ble High Court had proceeded on the conclusion made by the Counsel of the assessee that insurance claim was also covered by the judgment of Hon'ble Supreme Court in case of CIT Vs K. Ravindranathan Nair (295 ITR 228). Hon'ble High Court in case of Pfizer after detailed examination have held that insurance claim has to be taken as an integral part of income arising from the business operations and is not required to reduced as per Explanation (baa). We, therefore, set aside the order of CIT (A) on this point and hold that 90% of....
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.... orders of authorities below. 16.3 We have perused the records and considered the rival contentions carefully. The dispute is regarding exclusion of interest on FD and interest on income tax refund from the profit of business while computing deduction u/s 80HHC. The interest on income tax refund has to be treated as income from other sources and, therefore, the entire amount is required to excluded from the profit of business while computing deduction u/s 80HHC. The learned senior Counsel also fairly agreed that the assessee had no objection if the interest on FD was also excluded from the profit of business providing the netting was allowed to the assessee. We find the claim reasonable because only the net income after deducting the expenses incurred for earning of the income has to be excluded from the profit of business. We, therefore, hold that net FD interest has to be excluded fully from the profit of business. The issue of netting is, however, restored to the file of AO for passing a fresh order after necessary examination and after allowing opportunity of hearing to the assessee. 17. The ground no. 1 (p) is regarding reduction of 90% of the value of reversal of revalu....
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....d to such income. The amount has already been assessed as business income by the AO and, therefore, it would be fully eligible for deduction u/s 80HHC. We hold accordingly. 18. The dispute raised in ground no. 1 (q) is regarding reduction of the deduction allowed u/s 80-IB from the profit of business while computing deduction u/s 80HHC. The AO while computing deduction u/s 80HHC has reduced from the profit of business an amount of Rs. 2,43,59,001/- being the deduction allowed u/s 80-IB. 18.1 The assessee disputed the decision of AO and submitted before CIT (A) that only a sum of Rs. 135054 and not Rs. 2,48,57,018/- should be reduced from the business. CIT(A), however, did not accept the contentions raised and agreed with the AO that deduction allowed u/s 80-IB has to be reduced from the profit of business and accordingly upheld the action of the AO. aggrieved by which the assessee is in appeal before Tribunal. 18.2 We have heard both the parties, perused the records and considered matter carefully. The dispute raised in this ground is whether the deduction allowed u/s 80-IB has to be reduced from the profit of business for the purpose of computation of deduction u/s 80HHC. In....
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....ecision of Tribunal in assessment year 2002-03 (Supra). The learned DR placed reliance on the orders of authorities below. 20.3 We have perused the records and considered matter carefully. The assessee had incurred the SAP expenses in assessment year 2002-03 in which it had been treated as capital expenditure. The AO however did not allow depreciation in that year as the project had become operational in the next year i.e. in assessment year 2003-04. In assessment year 2003-04, the claim of depreciation has been disallowed by the authorities on the ground that the assessee had not made the claim in the return of income. The case of the assessee is that the claim was made by way of filing additional ground before CIT (A) after receipt of the order of Tribunal in assessment year 2002-03 as by that time limitation period for revising the return for assessment year 2003-04 had expired. The claim being legal claim has, therefore, to be allowed. We agree with the submission of learned Senior Counsel that the judgment in case of Goetze (India) Ltd.(Supra) does not restrict the power of appellate authorities to consider the legal claim even if the same had not been made in the return of....
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....d order confirmed the disallowance after observing that the claim was pending in dispute before the Tribunal for assessment year 2003-04. It was pointed out that the order of Tribunal in assessment year 2002-03 has become final and, therefore, the claim has to be allowed in this year. The learned DR placed reliance on the orders of authorities below. 21.4 We have perused the records and considered matter carefully. The dispute is regarding allowability of claim of long term capital loss from sale of Goa property in assessment year 2003-04. The authorities below have given a clear finding that the sale had taken place vide agreement dated 12.4.2002 which pertain to assessment year 2003-04. However the claim in assessment year 2003-04 has not been allowed by the authorities below on the ground tha the claim had not been made by way of filing revised return as held by Hon'ble Supreme Court of India in case of Goetze (India) Ltd. (Supra). The Hon'ble Supreme Court in the said case have only held that the AO in assessment order cannot entertain any claim other than the claim made in the return or revised return of income. Further it has also been made clear in the said judgment that ....
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....rom M/s Unichem Laboratories. TPO, therefore, asked the assessee to explain as to why the TP adjustment should not be made based on the purchase rate of Unichem Laboratories. 22.2 The assessee explained that the mateial purchased from M/s Unichem Laboratories Ltd. had been used by the assessee for manufacturing of the product but the said raw material developed higher level of impurity as compared to the raw material imported by the assessee from AE. The product i.e. " Concor " was the trademark developed by the associate enterprise and the assessee did not want to compromise on the reputation of the group. The assessee had, therefore, imported the raw material at a higher price. It was also submitted that the AE had sold the same ingredient to other group entities at a higher price. Therefore, it was submitted that the price at which the assessee had imported was lower than the market price. The assessee had produced a certificate dated 1.3.2005 of the general manager of the assessee company stating that the material purchased locally was showing high level of impurity compared to the imported product. 22.3 The TPO however rejected the certificaate as being non contemporary ....
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....he pharma division in case of the assessee was 15.90%. Therefore, it was submitted that no adjustment was required. It was also argued that the material purchased from M/s Unichem Laboratories Ltd. was of a lower quality as it did not pass particle size test and bulk density test which determine the quality of the product. It was also submitted that the TPO had not accepted the claim of superior quality of the assessee on the ground that the same was not supported by any independent evidence. It was submitted that the assessee had now obtained an independent third party certificate regarding the superior quality of the material imported by the assessee. The assessee has also obtained the comparative rate of sale in the domestic of similar product manufactured by Torrent Pharma and Unichem Laboratories which show that the assessee was importing at higher rate. It was requested that the said additional evidence may be admitted as the assessee was made aware about these additional evidences only after order of CIT (A). He placed reliance on the order of Jaipur bench of Tribunal in case of Electra (Jaipur) (P) Ltd. Vs. IAC ( 26 ITD 236), in which it has been held that if the evidence p....
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....r group entities were operating in different geographical locations and the transactions were with AE and therefore independent. 22.8 The assessee has also argued that there was major difference between quality of the product produced by the AE which was a branded item compared to the low quality goods manufactured by Unichem Laboratories Ltd. It has been argued that the material produced from Unichem Laboratories Ltd. did not pass the particle size test and bulk density test which determine the quality of the product. A certificate dated 1.3.2005 from the factory manager of the assessee had been produced which had been rejected by the authorities below as being not contemporary. In our view the quality of the product is important as it affects the comparability of the transactions. Quality of product has influence on the pricing of the product. There was however no independent evidence produced before the lower authorities to show superior quality of assessee's product. The assessee vide letter dated 8.2.2010 has filed an additional evidence before the Tribunal in the form of a quality certificate from Bee Pharma Labs (Pvt.) Ltd. an independent accredited third party and also c....
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....lso undertakes investments in share. Segmental information is not available 5. KPL International Ltd. No information has been provided on the basis of which this company has been regarded as comparable to the assessee 6. Nikhil Adhesives Ltd. This company deals in synthetic adhesives and emulsion products. 7. Signet Fincon Ltd. No information has been provided on the basis of which this company has been regarded as comparable to the assessee 23.1 The TPO observed that though under TNMM product similarity was not essential, there has to be close similarity in the functions performed, asset employed and risk assumed between the international transaction and uncontrolled transaction. It was observed by him that annual reports of the comparables had no information to show functional similarity between the assessee and comparables. He, therefore, held that the comparables selected by the assessee were not proper and accordingly rejected the same. The AO, noted that the assessee was trading in goods after importing from the AE which contained both pigments and non pigments. The assessee was also trading in goods purchased from non AE parties. AO, t....
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.... earned by the manufacturers of pigments in India was lower than the margin of 5% earned by the assessee. It was further submitted that Berger Pain had imported the same product at a higher rate. 23.4 TPO however did not accept the contentions raised. It was observed by him that the higher rate charged by the AE to the group entities was not comparable as it was a controlled transaction and sales were made in different geographical locations. Regarding the comparative case of import by the Berger Paint of Irodine at a price higher than the assessee, the TPO observed that it was a single instance in which the end customer had purchased the product which was not comparable to the case of the assessee who was a distributor in India. The TPO also did not accept the plea based on anti dumping duty on the ground that the anti dumping duty had been levied vide notification no. 30/2005 applicable from 2005 onwards and, therefore, the international transaction under reference which related to financial year 2002-03 were not subjected to anti dumping duty. The TPO also observed that the assessee had not provided copies of all submissions made before anti dumping authorities despite specif....
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....so. CIT(A), therefore, did not see any merit in the appeal filed by the assessee and accordingly confirmed the adjustment made by AO on account of import of pigments. Aggrieved by the decision of CIT(A) the assessee is in appeal before Tribunal. 23.7 Before us the learned Senior Counsel reiterated the submissions made before lower authorities that low margin in case of pigment was not because of higher import price but because of lower sale price due to severe competition in the domestic market. It was pointed that the anti dumping duty levied by the Government clearly showed that the assessee was importing the products at a very low price. It was futher submitted that though the anti dumping duty order was dated 30 November 2004, a copy of which was placed at page 380 of the paperbook but the period of enquiry was 1.4.2002 to 30th September 2003 as was clear from the details given at page 380 of the paperbook. Therefore, it cannot be said that the anti dumping duty was not relevant to the period under consideration. The learned Senior Counsel also argued that comparison with non AE trading was not proper as the said segment did not contain pigment trading. It was also submitted....
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.... the Government was based on the order from other department which was not relevant as the action taken by other department is not important for determination of arm's length price. Reliance for the said proposition was placed on the decision of Tribunal in case of Sadio Formation (2011/TII/02 ITAT). It was thus argued that the adjustment made by TPO on the basis of intenal comparable was quite reasonable and has to be upheld. 23.9 In reply, the learned Senior Counsel submitted that the assessee had treated the pigment and other products as one segment and on that basis it had prepared the transfer pricing study. It was pointed out that it was the TPO who had split into pigment and other segment and, therefore, it was required that for comparison with pigment segment, he should have considered independent third party pigment traders. The non AE segment with which the TPO had made comparison dealt with different products and, therefore could not be considered as comparable as it was not possible to make any accurate adjustment because of different market conditions and other differences. For proper comparison, it was pointed out, the comparable should be trading in pigments impor....
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....uted at 5% and maring in case of non pigment products imported from the AE was at 15% and in respect of non AE segment, the margin was 16%. The TPO has compared the margin of pigment segment with the margin of non AE segment and made adjustment accordinlgy. 23.11 The view taken by the TPO was that non AE segment was internal TNMM which was more suitable for comparison as the conditions were identical. The assessee gave the comparative case of import of the same product from Berger Paint but the same has been rejected by the TPO on the ground that it was an isolated instance of import by an end customer which was not comparable to the case of the assessee, which was a distributor. The argument of the assessee that the AE had sold the same product to other group entities at a much higher price has also not been accepted. The order of authorities below to reject the argument based on high sale price to other group entities is justified as the sale was in different geographical locations and the transactions being with AE were also controlled. 23.12 However the main argument of the assessee is that the pigment segment of the assessee could not be compared with non AE segment whic....
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....rnment on any product imported in India whether by way of predatory pricing policy or otherwise is a clear indication of the fact that the said product is being exported to the country by the foreign parties at a very low price which adversely affects the local business. As regards the period of anti dumping duty notification, it has been pointed out before us by the assessee that though the anti dumping duty order was dated 30.11.2004, the period of enquiry was 1.4.2002 to 30-9-2003 which is supported by the details given at page 380 of the paperbook which had been submitted before the lower authorities. Thus the anti dumping duty order cannot be considered irrelevant to the period under consideration. 23.14 As regards the argument of the revenue that anti dumping duty was only in relation to few products, it has been submitted by the assessee that the product IRI-100 in respect of which anti dumping had been levied was the main pigment dealt with by the assessee which accounted for 51.4% of pigment turnover. The assessee had given further details as placed at page 364 of the paperbook which show that the price of the product in the local market had been falling since December ....
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....o new products. (vi) Search for licence products. (vii) Information on engineering and scientific trends and training. (viii) International trends on finance and administration+ (ix) International banking contracts and issue of letters of comfort. (x) Advising on new trends on information technology and its implementation. (xi) Monitoring the setting up and working of the new project. (xii) Initiation/implementation of SAP. 24.1 The TPO asked the assessee to produce evidence regarding receipt of services under various heads mentioned in the agreement as well as payment of fees in the subsequent two years. The AO noted from the details filed that the payment of fees in each year was different which showed that the assessee was entering into annual agreement as per which the fees was increasing every year. As regards the evidence for receipt of services, the assessee explained that it received technical guidance whenever it required particularly in respect of new projects undertaken by it. It was pointed out that recently it had received technical assistance in respect of project of Thiamine Disulphide and the project ....
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....y him that the assessee had given general explanation without substantiating the claim. The assessee had given evidence only in respect of three out of twelve heads of services. Even during the appellate proceedings the assessee could not provide evidence in respect of all the services received during the year. CIT (A) therefore, confirmed the adjustment made by AO, aggrieved by which the assessee is in appeal before Tribunal. 24.3 Before us the learned Sernior Counsel assailed the order of CIT(A) confirming the adjustment made by AO/TPO. It was argued that adjustment under transfer pricing regulations had to be made on the basis of one of the prescribed methods only. The TPO had not followed any of the methods. He had made only estimated disallowance of expenses which is not permissible under transfer pricing regulations. It was also submitted that the fees paid by the assessee was not for fixed services. The assessee had the facility to obtain certain services which it availed from time to time depending upon the requirement. The fees paid by the assessee had been taken as part of the cost incurred in trading and marketing segment. For bench marking the transactions the assess....
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.... The said decision, therefore, will not apply to the facts of the present case. 24.5 We have perused the records and considered the rival contentions carefully. The dispute raised in this ground is regarding TP adjustment made by AO/TPO in relation to technical know how fess paid by the assessee at Rs. 1.57 crore to its parent in Gernamy. The details of the various services which parent company was required to provide to the assessee have been given in para 24 earlier. There are tweleve such services listed in the said para. The TPO on detailed examination concluded that during the year the parent company had provided services only under the three heads out of total twelve heads of services, which related to SAP implementation and quality control. The TPO has, therefore, held that no fees was required to be paid in respect of nine services and has, therefore, allowed only a sum of Rs .40 crore on average basis in respect of three heads which resulted into adjustment of Rs. 1.157 crore. The case of the assessee is that the parent as per the agreement was required to provide services as mentioned in the agreement from time to time as required by the assessee. The agreement did not....