TaxTMI 
TaxTMI 
2013 (9) TMI 567
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....-04. 4. The relevant facts giving rise to appeals for assessment year 2003-04 are that the assessee is a Public Limited Company. During the relevant assessment year, assessee company is engaged in the business of manufacturing and trading in petrochemicals, polyester, fiber intermediates, textiles, generation and distribution of power, operation of jetties, investments and oil exploration and refining crude oil. Assessee filed return of income on 1.12.2003 declaring an income of Rs.3057,94,65,355/- u/s 115 JB of the Income Tax Act, 1961 (the Act) and income of Rs.639,95,07,211/- under the normal provisions of the Act. Assessing Officer made assessment vide assessment order dated 30.1.2006 at Rs.2719,68,29,460/- under normal provisions of the Act and Rs.3879,08,06,960/- u/s 115JB of the Act. AO has stated that tax under the normal provisions is more than the tax under the provisions of section 115JB of the Act, hence, assessee-company is assessed under normal provisions of Act, i.e. u/s 143(3) of the Act at Rs.2719,68,29,460. Being aggrieved, assessee filed appeal before the ld.CIT(A) disputing the various additions/disallowances made by AO while computing the income. Ld. CIT(A) ....
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....ing aggrieved, assessee filed first appeal before the First Appellate Authority. 6.3 Ld.CIT(A) considering the fact that the said issue was decided by ITAT Special Bench Mumbai, in assessee's own case for the assessment year 1986-87 reported in 88 ITD 273 (SB) and the Tribunal confirmed its earlier decision in assessee's own case for assessment years 1984-85 and 1986-87 that the sales tax subsidy granted to the assessee is in the nature of capital receipt not liable to tax. That in subsequent year, ITAT has allowed similar claim of assessee and even in the preceding assessment year i.e. assessment year 2002-03, the claim of deduction of notional sales tax was held in the nature of capital receipt not liable to tax. Ld. CIT(A) has accepted the contention of the assessee and held that the claim of deduction of notional sales tax of Rs.1252,83,84,360/- is a capital receipt not liable to tax. It is relevant to state that assessee took alternative submissions before ld. CIT(A) that if the amount of subsidy is regarded as revenue receipt then such sales tax incentives received should be allowed as a deduction under section 43B of the Act while computing the total income of the assesse....
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....TA No.49 & 1101/Bom/91 for assessment year 1987-88 treated the said notional sales tax as revenue receipt liable to tax on the ground that such sales tax subsidy is an operational subsidy. The AO also placed reliance on the decision of the Hon'ble Apex Court in the case of Sahani Steel and Press Works Ltd. 228 ITR 253. Being aggrieved the assessee filed appeal before the first appellate authority. 4.3 On behalf of the assessee it was contended that the sales tax exemption given under the schemes by the Government of Maharashtra and Government of Gujarat are towards the objective of dispersal of industry, development of backward area and generating employment opportunities, hence, the same is in the nature of capital receipt not liable to tax. It was contended that the subsidy is not in the nature of operational subsidy intended and supplementing profit of the assessee nor it is in the nature of grant for meeting the cost of plant and machinery. Such subsidy is in the nature of capital receipt not liable to tax. It was contended that the said issue was considered by Special Bench of ITAT, Mumbai in assessee's own case for A.Y 1986-87 reported at 88 ITD 273(SB) and the Tribunal co....
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....is covered in favour of the assessee by the Special Bench decision of the Tribunal in assessee's own case reported in 88 ITD 273. In the light of the said decision of the Special Bench in assessee's own case, the order of ld. CIT(A) to hold that the claim of deduction of the assessee of notional sales tax of Rs. 1024,34,61,999/- is to be held as capital receipt not liable to tax. 4.7 Respectfully following the above decision of the Special Bench of ITAT in assessee's own case we uphold the order of ld. CIT(A) that the claim for treatment of notional sales tax of Rs. 1024,34,61,999/- is capital receipt. Hence, we uphold the order of ld. CIT(A) on this issue and ground No.1 of the appeal taken by the department is rejected. Since ground No.1 in assessee's appeal is an alternative ground, we hold that ld. CIT(A) has rightly held that it is not necessary to go into the alternative plea of the assessee as claiming the notional sales tax as deductible under section 43B of the Act. Therefore, ground No.1 of the appeal taken by the assessee is rejected." 6.6 In view of above we agree that issue involved and facts are identical and respectfully following the decision of the Special Be....
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....erit in the contention of ld. AR. We consider it prudent to reproduce para 5.6 of the said order which reads as under : "5.6 We have carefully considered the submissions of the ld. representatives of the parties and orders of the authorities below. We have also considered the cases relied upon by the authorities below as well as the cases cited by ld. A.R (supra). There is no dispute to the fact that the assessee's own funds are far in excess of the interest free loans and advances given by the assessee to its subsidiary companies . The Hon'ble Bombay High Court has held in the case of Reliance Utilities & Power Ltd.(supra) that if there were funds available both interest free and overdraft / or loans taken, then presumption would arise that investment would be out of interest free funds generated or available with the company. It was held that if interest free funds were sufficient to meet the investments made, in that case a presumption is established that the borrowed capital was used for the purpose of business and the interest expenditure is deductible under section 36(1)(iii) of the Act. The similar view has also been considered by the Hon'ble Calcutta High Court in Wool C....
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.... 9.1 This ground of appeal of assessee is connected with Ground No.4 of the appeal of the department which reads as under : "4. On the facts and in the circumstances of the case and in law, the ld. CIT(A) erred in deleting the disallowance u/s 14A of Rs.105.10 crores incurred for earning exempted income." 9.2 The relevant facts are that the assessee had earned interest income of Rs.345,69,24,696/- which is exempt u/s 10(23G) of the Act. Assessee reduced the said amount while computing the total income, both under the normal provisions of the Act as well as u/s 115JB of the Act. The assessee stated that it had not incurred any expenditure towards earning of the said exempt income. AO however, estimated the amount of Rs.100.47 crores being proportionate interest on borrowed funds and Rs.4.63 crores being proportionate administrative and other expenses towards earning the exempt income and disallowed the same u/s 14A of the Act. Being aggrieved, assessee filed appeal before the First Appellate Authority. 9.3 On behalf of the assessee, it was contended that interest, administrative and other expenses were incurred by assessee in the normal course of carrying on its business ....
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....towards the exempt income. Ld. CIT(A) has stated that formula adopted by AO is not correct. The ld. CIT(A) has stated that for working out the percentage of borrowed funds utilized for general purposes, AO should have considered total availability of funds and not only borrowed funds. The ld. CIT(A) has stated that amount of interest allocable towards the exempt income on proportionate basis comes to Rs.22,25,00,000/- and accordingly, has restricted the disallowance of interest to Rs.22.25 crores as against Rs.100.47 crores made by AO. Therefore, assessee as well as the department are in appeal before the Tribunal. 9.5 At the time of hearing, ld. AR submitted that total investment made is of Rs.6722.72 crores which includes investment on which assessee has earned exempt income u/s 10(23G) of Rs.345.69 crores. Ld.AR submitted that the assessee has net own funds of Rs.27638.60 crores besides net profit after tax and before depreciation stood at Rs.7565.40 crores. Hence, its investment cannot be said to be part of the borrowed funds which had been utilized for making investment. Ld. AR submitted that similar disallowance were made by AO in the preceding assessment year 2002-03. How....
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....tained, particularly when own funds of the assessee company were far in excess of the total amount of investment made. We are of the considered view that similar facts are applicable in the assessment year under consideration and also for the reasons stated hereinabove in paras 7.2 and 7.3, we hold that proportionate disallowance of interest of Rs.22.25 crores made by ld. CIT(A) is not justified as the assessee's own funds are far in excess than the interest free advance given by assessee and the investment made, which is giving exempt interest income to the assessee. 9.7 In so far as disallowance of administrative expenses u/s 14A of the Act is concerned for earning exempt income of Rs.345,69,24,696/-, we are of the considered view that by following the order of ld. CIT(A) for the preceding assessment year i.e. Assessment Year 2002-03, it will be fair and reasonable to restrict the disallowance to 1 % of the exempt income which works out to Rs.3,45,69,250/-. However, in regard to disallowance u/s 14A for computing book profit u/s 115JB of the Act, we observe that similar issue had come up before the Tribunal, Mumbai Bench in the case of Reliance Industrial Infrastructure Ltd V/....
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....s form part of profits of business and therefore 90% thereof cannot be reduced for computing the profit for deduction allowable under section 80HHC of the Act. AO did not agree with the assessee and excluded 90% of miscellaneous income by invoking Explanation (baa) to Section 80HHC(4C) of the Act. In appeal, before ld. CIT(A) he has stated that none of the items of income detailed at page 23 of the impugned is in the nature of operational income and accordingly confirmed the action of AO in excluding 90% of the said receipts under Explanation (baa) for computing deduction u/s 80HHC of the Act. Hence, assessee has disputed the above order of ld. CIT(A) as ground No. 5(a) of the appeal before the Tribunal, which reads as under : "5.(a) The ld. CIT(A) erred in confirming the reduction of profit of the business by 90% of Miscellaneous income of Rs.51,67,11,270/- while computing deduction u/s 80HHC of the Act The appellant submits that on the facts and circumstances of the case the Miscellaneous income is in the nature of profit of business eligible for deduction u/s 80HHC of the Act. 10.3 AO did not accept the contention of the assessee that 90% of only net interest expenses s....
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....t appeal, the ld. CIT(A) after considering the submissions of the assessee stated that restriction contained in section 80IA(9) is referable to a specific undertaking, the profit of which are deductible u/s 80IA/80IB and also eligible for deduction under another section in Chapter -VI-A of the Act. That the restriction under this sub-section will apply where one unit got deduction u/s 80IA and the same unit gets deduction under the other section. Ld. CIT(A) has stated that the deduction u/s 80HHC had been claimed and allowed to the assessee only with reference to exporting units, the details of which are mentioned at page 27 of the impugned order. He further stated that the deduction u/s 80IA/80IB has been allowed with reference to 9 other units engaged in power generation and infrastructure activity, details of units are stated by the ld. CIT(A) at page 27 of the impugned order. The ld. CIT(A) has stated that he agrees with the assessee that for computation of deduction u/s 80HHC with reference to the exporting unit, profits allowed as deduction u/s 80IA/80IB with reference to those exporting units allowed may be reduced and not entire claim u/s 80IA/80IB of the assessee in respec....
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....asis of business profit worked out under normal provisions of Act. In view of above, the assessee has disputed the order of ld. CIT(A) by taking Ground No.5(d) and (e) of the appeal and the department has taken Ground No.7 of the appeal before the Tribunal. The said grounds read as under : "5.(d) The ld. CIT(A) erred in confirming the restriction of the eligible export profit u/s 80HHC(3) of the Act by applying the provisions of section 80HHC(1B) of the Act for computing book profit u/s 115JB of the Act. "5.(e) The ld. CIT(A) erred in holding that all the provisions of section 80HHC of the Act applied while reducing the book profits by eligible amount of export profit u/s 115JB of the Act. Ground No.7 by department: "7. On the facts and in the circumstances of the case and in law, the ld. CIT(A) erred in directing the AO to compute the deduction u/s 80HHC under the provisions of section 115JB with reference to profit and per profit and loss account." 10.8 In respect of Ground No.5(a) taken by assessee, we have heard ld. Representatives of the parties and have carefully considered the orders of authorities below. During the course of hearing ld.AR submitted that Misce....
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....e covered by Explanation (baa) to section 80HHC of the Act. Hence, we uphold his order in excluding 90% of said Miscellaneous income while computing deduction u/s 80HHC of the Act. Therefore, Ground No.5(a) of the appeal taken by assessee is rejected. 10.10 In respect of Ground Nos.5(b) and (c ) of the appeal taken by assessee in excluding 90% Gross interest receipt of Rs.705,60,40,765/- u/s 80HHC of the Act, ld. AR submitted that above issue is now covered by the decision of the Hon'ble Apex Court in the case of M/s ACG Associated Capsules (P.) Ltd. v. CIT [2012] 247 CTR 382 (SC), wherein Their Lordships have held that 90% of net receipts are to be excluded under Explanation (baa) to Section 80HHC of the Act for determining the profits of business. Ld. DR has not disputed above contention of ld. AR. 10.11 In view of above submissions and considering the decision of the Hon'ble Apex Court in the case of M/s ACG Associated Capsules (P.) Ltd. (supra) and also the fact that similar issue was also considered by ITAT, Mumbai Bench in assessee's own case for assessment year 2002-03 vide order dated 28.5.2012 (supra), we direct that 90% of net interest receipt after reducing interes....
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..... CIT(A) in deleting the inclusion of excise duty and sales tax in the total turnover for the purpose of computing deduction under section 80 HHC of the Act, it was conceded that above issue is covered in favour of the assessee not only by the decision of the Hon'ble Jurisdictional High Court on which reliance has been placed by the ld. CIT(A) (supra) but is also covered by the decision of the Hon'ble Apex Court in the case of CIT vs. Laxmi Machine Works, 290 ITR 667. The Hon'ble Apex Court in the case of Laxmi Machines Works (supra), has been held that excise duty has to be excluded from the total turnover for the purpose of computing deduction under section 80 HHC of the Act. Further the Hon'ble Jurisdictional High Court as held in the case of Sudarshan Chemical Industries Ltd.(supra) that sales tax is not to be included in the total turnover for computing deduction under section 80 HHC of the Act. Hence, we uphold the order of the ld. CIT(A) and reject Ground No.6 of the appeal taken by the department." 10.16. In view of above, we uphold the order of ld.CIT(A) and reject Ground No.5 of the appeal taken by department. 11. In respect of Ground No.6 of the appeal taken by the....
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....ccordingly rejected the ground of appeal taken by the department. We consider it prudent to reproduce paras 8.18 and 8.19 of the order dated 28.5.2012 as under : "8.18 In respect of ground No.7 of the appeal of the department disputing the order of ld. CIT(A) in directing the AO to compute the deduction under section 80 HHC of the Act under the provisions of section 115JB with reference to the profits as worked out on the basis of adjusted book profits, it was submitted by ld. A.R that this issue is now covered in favour of the assessee by the decision of the Hon'ble Apex Court in the case of CIT vs. Bhari Information Tex System Pvt. Ltd., 340 ITR 549 and ld. D.R has not disputed the above contention of ld. A.R. 8.19 We agree with the ld. A.R that this issue is covered in favour of the assessee as the Hon'ble Apex Court in the case of Bhari Information Tex System Pvt. Ltd. (supra), after considering the decision of the Special Bench of ITAT, Mumbai in the case of DCIT vs. Syncome Formulations (India) Ltd. 108 TTJ 105 and has held that deduction under chapter VIA of I.T Act has to be worked out not on the basis of regular income tax profits but it has to be worked out on the b....
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....1.2005 at the office premises of M/s Swati International. During the course of survey action, Mr. Vinayak M.Kokate, (V.M.Kokate) proprietor of these three concerns, stated on oath on 6.1.2006 that all his above concerns were opened for giving entries only and no business was conducted in these concerns. AO has stated that these three concerns of Mr.Kokate has allegedly supplied material to the following concerns of Shri Pawan Kumar Agarwal (Shri P.K.Agarwal): i) M/s Bheeshma Iron and Steel Pvt. Ltd. ii) M/s Deveshwar Steels Pvt. Ltd. iii) M/s Hit Iron and Steel Pvt. Ltd. iv) M/s Gulraj Ispat Pvt. Ltd. v) M/s Singhal Bros vi) M/s Surajbhan Rajkumar Pvt. Ltd. vii) M/s Shree Durga Iron and Steel Pvt. Ltd. viii) M/s Agarwal Corporation AO has stated that aforesaid parties supplied material to assessee. Therefore, assessee vide questionnaire dated 11.8.2005, was asked to furnish details and supporting documents in support of genuineness of transactions with aforesaid P.K.Agarwal Group concerns during the year under consideration. AO has stated that meanwhile inquiries were also conducted with P.K.Agarwal Group of concerns to verify genuineness of transaction. ....
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....r and capitalized as well. The assessee also enclosed the details of assets for which material had been utilized, its quantum and its value forming part of plant and machinery and claimed depreciation @25% in the relevant previous year. It was contended that material had been properly accounted for in its books of account and its treatment is recorded in the accounts. It was stated that out of the total purchases of Rs.895,13,277/-, a sum of Rs.256,29,005/- has been capitalized in the latter half of the previous year relevant to the assessment year 2003- 04 as part of plant and machinery and assessee has claimed depreciation of Rs.32,03,626/-. On behalf of the assessee, it was also contended that the beneficiary of such payment is non other than vendor i.e. suppliers and vendors have confirmed having sold goods to the assessee and received payments against such purchases. That there is no allegation by any party to the transaction that money have been given back to the assessee. AO did not accept the contention of the assessee and treated the transaction non-genuine. AO disallowed the claim of depreciation, as claimed by the assessee. Assessee filed appeal before ld. CIT(A). 13.....
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.... of having supplied the material to the appellant company. However, in view of the confession made by Shri V.M. Kokate, proprietor of M/s Laxmi Exports which was shown to have supplied the goods to Surajbhan and Shri Durga, the statement of Shri P.K. Agarwal carries no weight. It was the claim of Shri P.K. Agarwal that M/s Laxmi Exports had directly supplied the materials to the appellant company on behalf of Surajbhan and M/s Shri Durga. He also admitted that neither he nor any other representative of the two companies were present at the time of loading or unloading of the material claimed to be supplied to the appellant company through Laxmi Exports. When M/s Laxmi Exports has not supplied any material, the claim of Shri Agarwal of supplying material to the appellant company remains unsubstantiated. Moreover, some other companies of Shri P.K. Agarwal had also claimed to have supplied certain material to the appellant company in F.Y. 2004-05. This material was claimed to have been purchased by P.K. Agarwal Group of Companies from M/s Rashi International, another proprietary concern of Shri Kokate. However, when the department made enquiries regarding the transportation of these g....
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....hat Shri P.K.Agarwal stated, he did not know Shri Vinayak M.Kokate. Ld. AR also referred page 225 of the paper book, which contains description/details of assets and items, and stated that the same had been accounted to plant on which the assessee has claimed depreciation in the various assessment years and in the assessment year under consideration, the assessee has capitalized only Rs.256,29,005/- as WIP, on which depreciation of Rs.32,03,625/- is claimed. Ld.AR submitted that the assessee made payments by account payee cheques in settlement of purchase bills and there is no evidence that money paid by cheque has ever been paid back to the assessee. AR submitted that all the material purchased from Durga ansd Surajbhan were dully accounted for in the books of account. Merely, that there was a denial by a third person, with whom assessee has no concerned, the purchases cannot be treated as non-genuine. AR submitted that the disallowance of depreciation should be deleted. 13.6 On the other hand, ld. DR made his submissions justifying the orders of authorities below. He referred to pages 324 to 356 of the paper book which is a copy of statement of Shri Vinayak M Kokate. He referr....
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....not disputed the fact that the assessee made payment by account payee cheques to Shri P.K.Agarwal and there is no evidence on record that after encashment of those cheques the said amount was returned back to the assessee. On the other hand, we have considered the statement of Shri P.K.Agarwal. He has stated that goods were transported by suppliers and manufactures to the customers directly including the assessee and goods were never sent to his premises. He further stated that on getting confirmation of dispatch/receipt of goods, the bills were raised. We observe that in the financial year relevant to the assessment year under consideration Shri P.K.Agarwal stated that M/s Laxmi Exports supplied iron and steel goods to the assessee and his concern made bills on receipts of confirmation of dispatch /receipt of goods. AO made inquiries and found that the trucks through whom goods were supplied at the premises of assessee are the numbers of scooter, van, Maruti-800. The above findings of the AO validly raise doubt and create suspicion that the invoices/bills relied upon for transporting the goods at the assessee's premises are not genuine because steel admittedly could not be supplie....
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....by AO of Rs.389,78,979/- to 50% to the extent of Rs.1,94,89,489/- on account of chartered hire charges paid to associate enterprise viz Reliance Europe Limited". 14.2 The relevant facts are that AO made adjustment of Rs.389,78,979/- on account of charter hire charges paid by the assessee to its associate Enterprises M/s REL as per order of TPO. However, ld. CIT(A) by following his order for assessment year 2002-03, upheld the adjustment made by TPO to the extent of 50% i.e. by confirming adjustment of Rs.1,95,00,000/- out of Rs.389,78,979/- and thus giving relief of Rs.194,78,979/-. 14.3 At the time of hearing, ld. Representatives of both the parties submitted that this issue is covered by earlier order of the Tribunal dated 28.5.2012 for assessment year 2002-03 and the Tribunal restored the matter to the file of the AO for his fresh adjudication. It was submitted that since facts are identical in this year, matter may be restored to AO. 14.4 We have considered orders of authorities below and submissions of ld. Representatives of both parties. We have considered order of the Tribunal dated 28.5.2012 (supra). We observe that the Tribunal in its order dated 28.5.2012 (supra)....
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....documentary evidence and hence the disallowance made by AO shall be deleted" 15.1 The relevant facts are that the assessee has made payment of export commission of Rs.55727.45 EUROS equivalent to Rs.28,64,536/- to its associate entity namely M/s REL Infocom B.V, Netherlands (hereinafter referred to as RIB) for providing assistance in negotiating and obtaining export orders from European countries for its petro chemical products in terms of agreement dated 1.4.2002 entered into between the assessee and RIB. The assessee company paid commission at the rate of 3% of FOB value of the export orders obtained by RIB for the assessee for exporting petro chemical products to Europe. The TPO has stated that the assessee has paid commission in the range of 1.5% to 3% of FOB value of exports of other petrochemical products through its commission agents to unrelated parties. The TPO stated that in his view the average rate of commission 1.67 % can be considered as ALP of the commission payable by assessee to RIB and accordingly worked out the commission payable at ALP by the assessee to RIB at Rs.15,94,592/- and suggested the adjustment of Rs.12,69,944/- (Rs.2864536 - Rs.1594592). The assess....
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....sessee vide letter dated 8.10.2010 has also filed an additional ground of appeal which reads as under : "The AO erred in not allowing exemption u/s 10(23G) of the Income Tax Act, 1961 in respect of interest amounting to Rs.10,81,84,252/- on Deep Discount Bonds of Reliable Internet Services Limited while computing total income under the normal provision of the Income Tax Act and book profit u/s 115JB of the Act" The appellant submits that AO ought to have allowed exemption u/s 10(23G) of the Income Tax Act, 1961 while computing total income under the normal provision of the Income Tax Act and book profit u/s 115JBj of the Income Tax Act, 1961" 17.1 In respect of admission of additional ground, the ld. AR conceded that it is a fact that assessee has not made the claim of exempt income of interest of Rs.10,81,84,252 on investment of Rs.70 crores in the Deep Discount Bonds of Reliable Internet Services Limited before the AO as well as before the CIT(A). However, he submitted that all the relevant facts are on record and relevant Schedule "F" of Printed Account also proves that the assessee made investment of Rs.345.69 cr. on which interest income is exempt u/s 10(23G) of the A....
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....being ITA No. 4537/Mum/2007 18. Ground No.2 of the appeal taken by department reads as under : "2. On the facts and in the circumstances of the case and in law, the ld. CIT(A) erred in restricting the allowance of depreciation to Rs.39,03,53,90,481/- to Rs.4977,74,24,949/- as against the appellant claim of Rs.4977,74,24,949/- and thus granting relief of Rs.1074,20,34,468/-" 19. Brief facts giving rise to the above ground of appeal are that the assessee had not claimed depreciation in earlier years on various plants /units on the ground that depreciation was optional as per decision of the Hon'ble Apex Court in the Mahendra Mills (2000) 243 ITR 56 (SC). AO allowed depreciation relating to those plants/units to the assessee in earlier years and accordingly reduced written down value (WDV) of the said plants/units. During the assessment year under consideration, the assessee claimed depreciation on the said plants/units in view of amendment made of granting of depreciation compulsory in terms of Explanation-5 to Section 32 (1) of the Act. The depreciation so claimed was on the basis of WDV as per assessee's record i.e. WDV of the year after which the deprecation had not been ....
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....erative expenses of Rs.3,99,96,448/-. 20.1 Assessee capitalized in its books of accounts pre-operative expenses of Rs.3,99,96,448/- but claimed as revenue expenses while computing the total income. AO disallowed the claim for deduction on the ground that such expenses were incurred on the erection of plant and machinery in units which had not commenced production during the year under consideration. It is relevant to state that the details of expenses are stated by the ld. CIT(A) at pages 10 to 12 of the impugned order. Being aggrieved, assessee filed appeal before the First Appellate Authority. 20.2 Ld. CIT(A) after considering the submissions of the assessee has interalia stated that the expenditure in question had been incurred by assessee on expansion of the existing business of the assessee-company. Therefore, the said expenditure has to be considered as regular business expenditure of revenue in nature. He has stated that the various items of expenditure claimed are mainly on employee's cost, utilities, repairs and maintenance, travelling, printing and stationary and other administrative expenses. These expenses are primarily in the nature of revenue expenditure. He has....
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....oubtful debt of Rs.4,75,50,260/-. 21.1 Relevant facts are that the AO while computing book profit u/s 115JB of the Act added a sum of Rs.475,50,260/- being provision for doubtful debts by relying upon provisions of Clause (c ) to explanation (1) of Section 115JB(2) of the Act on the ground that it represented unascertained liability. It is relevant to state that the assessee had added such provisions while computing taxable income under normal provisions of Act. Being aggrieved, assessee filed appeal before the First Appellate Authority and contended that the provisions for doubtful debts was made with reference to ascertained non-recoverable amounts. It was also contended that provision for doubtful debts could not be termed as unascertained liability and no adjustment was required to be made to the book profit on that account. Reliance was also placed on the decision of Hon'ble Bombay High Court in the case of CIT V/s Echjay Forgings Pvt. Ltd (251 ITR 15) wherein it was held that provision for doubtful debts did not constitute unascertained liability. Ld. CIT(A) after considering the submissions of assessee and the decision of Hon'ble jurisdictional High Court (supra) directed....
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.... of the Act provides for levy of MAT on the basis of book profit of the company. As per Explanation (1), after sub-section (2), the expression "book profit" means net profit as shown in the profit and loss account in previous year in accordance with the provisions of Parts II and III of Schedule VI to the Companies Act, 1956 as increased or reduced by certain adjustments, as specified in that section. We observe that by the Finance (No.2) Act, 2009 a new clause (i) in Explanation (1) to sub-section(2) of the said Section has been inserted with retrospective effect from 1.4.2001 so as to provide that if any provisions for diminution in the value of any assets has been debited to the profit and loss account, it is to be added to the net profit as shown in the profit and loss account for the purpose of computation of book profit. It is relevant to state that similar amendment was also made by the said Finance Act with retrospective effect from 1.4.1998 in section 115JA of the Act by inserting a new clause (g) in the Explanation after sub-section (2) of the said Section. Thus, the said amendment to add back the provisions for diminution in the value of any assets is to be added to the ....
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....e assets side of the Balance Sheet to the extent of corresponding amount so that, at the end of the year, the amount of loans and advances/debtors is shown as net of the provisions for the impugned bad debts. Their Lordships also considered the genesis of amendment in the context of section 36(1)(vii) of the Act and therefore held that the amendment made retrospectively in that way will not effect the book profit. 11. However, in the case before us, it is not the case of the assessee that it has actually reduced the loans and advances or the debts and if it is so then there is no need to make provision for such bad and doubtful debts, and the assessee could write off the said amount instead of stating it as provision for bad and doubtful debts. On the one hand, the assessee has reduced the amount of Rs.75 Lakhs from the profit and loss account, but not write off/reduced the loans and advances in the Balance Sheet. Hence the decision of the Hon'ble Karnataka High Court does not apply to the case of the assessee before us. 12. In view of the Above, we hold that the decision of the ld. CIT(A) to place reliance on the decision of the ITAT, Mumbai Bench dated 12.2.2010 (supra) and....
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....ty. 22.2 Ld. CIT(A) after considering the decision of Special Bench of ITAT in the case of Punjab State Industrial Development Corporation Ltd. V/s DCIT (102 ITD 1)(SB)(Chd) and the decisions of Hon'ble Bombay High Court in the case of CIT V/s Central Bank of India 264 ITR 522 (Bom), CIT V/s United Collieries Ltd (203 ITR 857 (Cal), Distributors (Baroda) Pvt Ltd V/s Union of India 155 ITR 120 (SC), State Bank of Indore V/s CIT 275 ITR 23 (MP) held that while computing the deduction u/s 80M, only actual expenses incurred for earning the dividend income should be taken into consideration and there is no question of taking expenditure on estimated or presumption basis. Therefore, Ld. CIT(A) has deleted the said addition of Rs.47,00,000/- made by AO. Hence this appeal by the department. 22.3 At the time of hearing, ld. DR relied on the order of AO and whereas ld. AR submitted that the above issue is covered in the assessee's own case vide order of the Tribunal dated 30.4.2008 for the assessment year 2001-02 and referred pages 54 to 62 of the paper book at which copy of the said order is placed. 22.4 We have considered the submissions of the ld. Representatives of the parties a....
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....s mentioned in para 12.15 of the said order. He submitted that the similar reasoning are applicable in the assessment year under consideration and the order of the ld. CIT(A) should be confirmed. The Ld. DR did not dispute above contention of ld. AR. 23.4 We have considered the submissions of ld. Representatives of the parties and the orders of authorities below. We have also considered the earlier order of the Tribunal dated 28.5.2012 (supra) and specifically para 12.15 (supra) thereof. In the absence of any other facts on record, we following earlier order of the Tribunal confirm the order of ld. CIT(A) by rejecting Ground No.11 of the appeal taken by department. 24. Ground No.12 of the appeal taken by the department reads as under : "On the facts and in the circumstances of the case and in law, the learned CIT(A) erred in deleting the commission of Rs.8,12,24,327/- paid by the assessee company to its associate viz. Reliance Europe ltd. 24.1 Relevant facts giving rise to this ground of appeal are that the assessee exported Paraxylene and Orthoxylene amounting to Rs.486 crores to its associated entity. The assessee applied, in respect of this exports CUP method to dete....
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....sions of assessee vide para 20.3 deleted the said adjustment after considering the interest cost to the associated enterprises for the amount of advance given to the assessee and the average rate of commission paid to the third party. The said para of ld. CIT(A)'s impugned order i.e. para 20.3 reads as under : "20.3 I have carefully considered the facts of the case, submissions of the appellant and the order of the TPO. The admitted facts on record are that the appellant had paid commission to its AE at an average rate of 3%. The appellant has also used the Comparable Uncontrolled Price Method for arriving at the arms length price. The distinctive factors of this international transaction which materially affect the arms length price are: i) The AE had made an upfront interest free advance payment of USD 115 million, to the appellant to be adjusted against the value of the exports made by appellant to AE; ii) The AE had taken a loan of USD 115 million from Standard Chartered Bank, UK to provide the said export advance to the appellant and had incurred an interest cost @ 1.5% on the said loan taken; iii) The AE undertook the risk of collection of export proceeds from the....
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....@ 1.67% to the unrelated parties. The AR emphasized that in all the international transactions with unrelated parties where commission was paid at 1.67%, there was no advance payment received by the appellant in respect of the price of the goods. Besides, recovery and other related risks were on the appellant's account. In contrast, REL had made an upfront interest free advance payment of USD 115 million to the appellant which was adjusted against the value of the exports made by the appellant to REL from time to time. For the purpose of making the said advance payment, REL had taken a loan of USD 115 million from Standard Chartered Bank, UK and incurred an interest cost on the same. It was pointed out that as per the audited financial statement of REL for the financial year 31st December 2003, an interest cost of approximately USD 1.67 million was incurred by REL in respect of the said loan. This interest cost incurred by REL worked out to approximately 1.45% of the sales made by the appellant through REL. Since this interest cost was incurred by REL only for the purpose of providing export advance to the appellant under the Master Export contract dated 23rd January 2002, the said....
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.... consideration. If the said cost of interest and the average rate of commission paid by assessee to the third party is taken into consideration, effective rate of commission payable to unrelated parties comes at 3.12% as against 3% average rate of commission paid by the assessee to its associated enterprises REL on the export as per the agreement. We also observe that the similar adjustment made by AO in the preceding assessment year 2002-03 were deleted by ld. CIT(A) and the department did not dispute the said order of ld. CIT(A) in appeal before the Tribunal. Since above facts have not been disputed by the department, we observe that the ld. CIT(A) has rightly deleted the adjustment of Rs.8,12,24,327/- made by AO in respect of transaction entered into by the assessee with its associated enterprises REL. Hence Ground No.12 of the appeal taken by department is rejected. 25. Now we take up appeals for assessment year 2004-05 being ITA No.884/Mum/2009 filed by assessee and ITA No.1724/Mum/2009 filed by department. 26. First we first take up the appeal of assessee for our consideration. 27. Ground No.1 of appeal of the assessee reads as under : "1. The ld. CIT(A) erred in ....
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....sion is taken in respect thereof, the same will ipso facto be applicable to this ground of appeal of the assessee. 28.2 We have considered the orders of authorities below and the submissions of ld. Representatives of the parties. We observe that during the year under consideration viz assessment year 2004-05, the assessee has given interest free loans to its subsidiaries aggregating to Rs.7121.94 crores as on 31.3.2004. The corresponding figure of such interest free loans to subsidiaries as on 31.3.2003 stood at Rs.6716.12 crores. Thus, the incremental loans given to subsidiaries during the year under consideration is to the extent of Rs.405.82 crores. AO has stated that, during the assessment proceedings the assessee stated that the assessee had given loans and advances of Rs.7121.94 crores to its subsidiaries as on 31.3.2004 out of its own funds and internal accruals except to the extent of Rs.65,10,77,116/- as per auditor's report filed. The amount of interest on the advances of Rs.65.11 crores works to Rs.3,21,079/-. Accordingly, AO disallowed the said interest. In the first appeal, the assessee contended that the assessee's own funds as on 31.3.2004 stood at Rs.31718.92 cro....
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....ision that may be taken, will ipso facto apply to this ground of appeal. 29.2 We observe that the above ground has been considered by the Tribunal vide paras 9.1 to 9.8 hereinabove. The Tribunal vide para 9.6 by following its earlier order dated 28.5.2012 in assessee's own case for preceding assessment year 2002-03 on similar facts has held that proportionate disallowance of interest is not justified as the assessee's own fund are far in excess than the interest free advances given by assessee and the investment made which is giving exempt income to the assessee. 29.3 At the time of hearing, ld. Representatives of the parties have categorically stated the findings given in assessment year 2003-04 will be applicable for the assessment year 2004-05 as well. Since, we have held vide para 9.6 that ld. CIT(A) is not justified to make proportionate disallowance of interest as assessee's own funds are far in excess interalia than the investment made which is giving exempt interest income to the assessee, and have held that the disallowance of interest as computed by ld. CIT(A) by applying Rule 8D read with section 14A of the Act is not justified. 29.4 In so far as disallowance of....
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....(d) The ld. CIT(A) erred in holding that full amount of claim for deduction u/s 80IA/80IB of the Act shall be reduced from eligible export profits u/s 80HHC of the Act as provided in section 80IA(9) of the Act. The appellant submits that the restrictions for deduction u/s 80IA(9) of the Act shall be directed to be worked out in proportion of export turnover to total turnover of the eligible units u/s 80HHC of the Act. 4(e) The ld. CIT(A) erred in confirming the decision of the AO in restricting the profits eligible for deduction u/s 80HHC(3) to 30% thereof by invoking sub- section (1B) of section 80HHC of the Act while computing book profits u/s 115JB of the Act; The appellant submits that the "book profits" shall be reduced by amount of eligible export profit computed u/s 80HHC(3) without considering the provisions of sub-section (1B) of Section 80HHC of the Act; 4(f) The ld. CIT(A) erred in holding that all the provision of section 80HHC of the Act applied while reducing the book profits by eligible amount of export profit u/s 115JB of the Act." 30.1 However, these Grounds of appeal are also connected with Ground Nos.5 and 6 of the appeal taken by department. "5....
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.... the assessee did not press this ground, in view of the fact that similar issue was decided against the assessee in the assessment year 2002-03, as stated in para 8.1 hereinabove. iii) In respect of Ground Nos.4(e) and 4(f) of the appeal taken by assessee, we have considered this issue vide paras 10.12 and 10.13 and by following the decision of the Hon'ble Apex Court in the case of Ajanta Pharma Ltd (supra), it is held that 100% of export profit is eligible for deduction u/s 80HHC of the Act and has to be reduced under Clause (iv) of Explanation to Section 115JB of the Act and accordingly Ground Nos.4(e) and 4(f) of the appeal of assessee are allowed in favour of assessee. iv) In respect of Ground No.4(d) of the appeal of assessee read with Ground No.5 of the appeal of department, the Tribunal by following its order for assessment year 2002-03 dated 28.5.2012 in assessee's own case (supra) has held in para 11.1 hereinabove to exclude profits allowed as deduction under section 80 IA / 80 IB of the Act of those three exporting units only for the purpose of computing deduction under section 80 HHC of the Act and not to exclude the amount of deduction allowed under section 80 IA ....
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....t been derived from manufacturing and other export related activities of the assessee. AO stated that 90% of Rs.40.44 crores shall be reduced from the profit of business for the purpose of claim of deduction u/s 80HHC of the Act. Being aggrieved, assessee filed appeal before the First Appellate Authority. 31.1 Ld. CIT(A) vide para 8.5.2 of the impugned order has held that Telecom Marketing Services is a part of business activity carried on by assessee like other business activities of Oil and Gas Exploration, Refining of Crude Oil, Manufacturing and Trading of Petrochemicals, Polyester, Fiber Intermediates, Textiles, Generation and Distribution of Power, Operation of Jetties and related infrastructure etc. The activity of Telecom Marketing Services has been considered as a part of total turnover. He has stated that Telecom Marketing Services is a business activity whereby handsets were procured and sold, various units were setup and full fledged selling activity was carried out for marketing such telecom services. These services by their nature were an organized business activity and their receipts are not similar to the nature of brokerage, commission, interest, rent, charges r....
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....to allow deduction u/s 80HHC of the Act in respect of the income from Telecom Marketing Services shown by the assessee by considering our above observations and the details as may be furnished by the assessee before him. Hence, Ground No.6 of the appeal taken by department is allowed for statistical purposes. 32. Ground No.5 taken by assessee is in regard to disputing the order of ld. CIT(A) in confirming the disallowance of expenses on account of traveling of spouses of executives of assessee at Rs.31,02,294/- 32.1 At the time of hearing, ld.AR conceded that the above issue on similar facts had been decided against the assessee in the preceding assessment year i.e. AY-2002-03 by the Tribunal in assessee's own case. Ld. AR also conceded that the facts are identical in the assessment year under consideration. 32.2 In view of above submissions of ld. AR and following the earlier order of the Tribunal in the preceding assessment years i.e. assessment year 2002-03 and 2003-04, we confirm the order of ld. CIT(A) by rejecting Ground No.5 taken by assessee. 33. Ground No.6 of the appeal taken by assessee is as under : "6 (a) The ld. CIT(A) erred in confirming the action of ....
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....rred in confirming the disallowance u/s 92C of the Act to the extent of Rs.1,56,78,000/- out of the charter hire charges paid to its associate enterprise M/s Reliance Europe Limited (REL) by your appellant; The appellant submits that the charter hire charges paid by the appellant to REL are at arm's length price and no adjustment is called for to such payments" 34.1 This ground is connected with Ground No.3 of the appeal by the department which is as under : "3. On the facts and in the circumstances of the case and in law, the ld. CIT(A) erred in reducing the adjustment made by AO of Rs.3,62,52,128/- on account of charter hire charges paid to associate enterprise viz Reliance Europe Limited". 34.2 At the time of hearing, ld. Representatives of both the parties submitted that this ground is similar to Ground No.8 of the appeal of assessee and Ground No.10 of the appeal of department for assessment year 2003-04 and whatever decision is taken therein will ipso facto apply to this assessment year as well. 34.3 We have considered the submissions of ld. Representatives of the parties and the orders of authorities below. We agree with ld. Representatives of the parties that....
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....d 29.01.2009 of the Act. 36.1 At the time of hearing, ld. AR conceded that the above issue is covered again the assessee by the decision of the Hon'ble Apex Court in the case of JCIT V/s Rolta India Limited (2011) 330 ITR 470 (SC) wherein Their Lordships have held that interest u/s 234B is payable on failure to pay advance tax in respect of tax payable u/s 115JA of the Act. It may be mentioned that section 115JA of the Act is in pari-materia to section 115JB of the Act. Hence, the Additional Ground of appeal taken by the assessee is dismissed. 37. Now we take remaining grounds of appeal taken by department in ITA No. 1724/Mum/2009( Assessment Year : 2004-05) 38. Ground No.2 taken by department reads as under : "2. On the facts and in the circumstances of case and in law. The ld. CIT(A) erred in restricting the allowance of depreciation to Rs.3696,35,88,8236/- as against appellant's claim of Rs.4534,19,85,910/- and thus granting relief of Rs.8,37,83,97,084/-" 38.1 At the time of hearing, ld. Representatives of the parties submitted that this ground is similar to Ground No.2 of the appeal taken by department for assessment year 2003-04 and the decision taken therein wi....
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....assessment year under consideration i.e. assessment year 2004-05. Hence Ground No.7 of the appeal taken by department is rejected. 41. The department has also taken additional Ground of appeal that ld. CIT(A) on the facts and in the circumstances and in law, has erred in holding that deduction u/s 80HHC for the purpose of computing income u/s 115JB has to be computed on the basis of "adjusted book profits" and not on the basis of profits computed under normal provisions of IT Act, 1961. 41.1 At the time of hearing, ld. Representatives of both the parties conceded that this issue is covered in favour of assessee by the decision of Hon'ble Apex Court in the case of CIT vs. Bhari Information Tex System Pvt. Ltd., 340 ITR 549, that deduction under Chapter-VI of the Act is to be worked out not on the basis of regular income but has to be worked out on the basis of adjusted book profit u/s 115JB of the Act. Accordingly, we uphold the order of ld. CIT(A) and reject additional ground of appeal taken by the department. 42. Now we take up the appeals for our consideration for the assessment year 2005-06 being ITA No.885/Mum/2009 filed by assessee and ITA No.1725/Mum/2009 filed by de....
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.... At the time of hearing, ld. Representatives of both the parties submitted that the facts and the issue are identical with ground No.2 of the appeal filed by the assessee for assessment year 2003-04 and whatever decision is taken in respect thereof, the same will ipso facto be applicable to this ground of appeal of the assessee. 45.2 We have considered the orders of authorities below and the submissions of ld. Representatives of the parties. We observe that during the year under consideration viz assessment year 2005-06, the assessee has given interest free loans to its subsidiaries aggregating to Rs.7703.73 crores as on 31.3.2005. The corresponding figure of such interest free loans to subsidiaries as on 31.3.2004 stood at Rs.7121.94 crores. Thus, the incremental loans given to subsidiaries during the year under consideration is to the extent of Rs.581.79 crores. AO has stated that, during the assessment proceedings the assessee stated that the assessee had given loans and advances of Rs.7703.73 crores to its subsidiaries as on 31.3.2005 out of its own funds and internal accruals except to the extent of Rs.570 crores/- as per auditor's report filed. The amount of interest on th....
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.... 46.1 At the time of hearing, ld. Representatives of both the parties submitted that the above ground is similar to Ground No.4 of the appeal for assessment year 2003-04 and the submissions made in regard thereto and the decision that may be taken, will ipso facto apply to this ground of appeal. 46.2 We observe that the above ground has been considered by the Tribunal vide paras 9.1 to 9.8 hereinabove. The Tribunal vide para 9.6 by following its earlier order dated 28.5.2012 in assessee's own case for preceding assessment year 2002-03 on similar facts has held that proportionate disallowance of interest is not justified as the assessee's own funds are far in excess than the interest free advances given by assessee and the investment made which is giving exempt income to the assessee. 46.3 At the time of hearing, ld. Representatives of the parties have categorically stated the findings given in assessment year 2003-04 will be applicable for the assessment year 2004-05 as well. Since, we have held vide para 9.6 that ld. CIT(A) is not justified to make proportionate disallowance of interest as assessee's own funds are far in excess interalia than the investment made which is gi....
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.... why computation of book profit u/s 115JB of the Act should not be considered after applying sunset clause (1B) to Section 80HHC of the Act. On behalf of assessee, it was contended that no such corresponding amendment as made in section 80HHC of the Act has been made in section 115JB of the Act. Section 115JB is a deeming provision and a self-contained code for computing an alternative profit which would be liable to tax in absence of taxable profit under normal provisions of the Act. It was contended that adjustment to book profit can be made only to the extent and in the manner as provided u/s 115JB of the Act. The assessee referred clause (iv) of the Explanation to section 115JB of the Act and submitted that book profit so computed in the manner laid down shall be reduced as per clause (iv) of the Explanation. Thus amount of profits eligible for deduction u/s 80HHC computed under clauses (a),(b) or (c) of Sub-section (3) or Sub-section (3A) of Section 80HHC as the case may be has to be reduced while computing the book profit of assessee u/s 115JB of the Act. That sub-section (1B) of section 80HHC in no manner curtails the eligible deduction to be reduced from the book profit u/s....
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.... of executives of assessee at Rs.39,48,922/- 48.1 At the time of hearing, ld.AR conceded that the above issue on similar facts had been decided against the assessee in the preceding assessment year i.e. AY-2002-03 by the Tribunal in assessee's own case. Ld. AR also conceded that the facts are identical in the assessment year under consideration. 48.2 In view of above submissions of ld. AR and following the earlier order of the Tribunal in the preceding assessment year, we confirm the order of ld. CIT(A) by rejecting Ground No.5 of the appeal taken by assessee. 49. Ground No.6 of the appeal taken by assessee is as under : "6 The ld. CIT(A) erred in confirming the disallowance of depreciation of Rs.42,04,759/- on the capitalized value of goods purchased from Durga and Surajbhan in AY-2003-04. The Appellant submits that the cost of the goods purchased from the above parties were capitalized as plant and machinery in AY 2003-04 and were usd during the year under consideration and hence depreciation u/s 32 of the IT Act on such capitalized values of the goods is allowable. 49.1 During the course of hearing, ld. Representatives of both the parties submitted that this gr....
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.... orders of authorities below. We agree with ld. Represent atives of t he parties that the facts and issue are ident ical to the assessment year 2003-04. TheTribunal has considered this ground of appeal in paras 14.2 to 14.5 and following the order of the preceding assessment year i.e.2002-03 as mentioned in para 14.5 hereinabove, we have set aside the orders of authorities below for the reasons mentioned therein and restore the matter to the file of AO with a direction to make a reference to TPO to determine ALP in respect of hire charges of charter-vessels Relchem Isha by a speaking order, after considering such documents that may be filed by the assessee and after giving due opportunity of hearing to the assessee. Hence, Ground No.7 of the assessee's appeal and Ground No.3 of the appeal taken by department are allowed for statistical purposes. 51. Ground No.8 of appeal taken by the assessee is as under : "8. The ld. CIT(A) erred in confirming the disallowance u/s 92C of the Act of Rs.39,31,461/- in respect of the commission paid to its associate enterprises, Reliance Infocom B.V.(RIB) The appellant submits that it has rightly calculated the value of international transac....
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....he assessee stated that guarantees have been provided by it to Banks which are not its associated enterprises. That the assessee has not incurred any cost for providing guarantees and the same have been provided as part of normal commercial practice followed by bank of taking guarantee of parent company and /or directors. The assessee also contended that the transaction of providing guarantee does not fall within the definition of "international transaction" under section 92B of the Act. 52.3 TPO did not accept above contention of the assessee. He stated that providing guarantee to its associated enterprises by assessee is a clear evidence of benefit being provided. That if Trevira GmbH had requested any bank or third party to provide such guarantee for its loans, it would have had to pay guarantee fee/commission. 52.4 The assessee cited an instance where it itself had paid guarantee commission of 0.25% per annum to ICICI in respect of guarantee provided to it. Without prejudice to the above contention, the assessee submitted to TPO that the same rate may be applied in the instant case also, as the above comparable relates to assessee's own loan transaction within India with ....
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....computing ALP of 2.5% guarantee commission as comparable case. It was also contended that guarantee was given as a part of commercial exigency. Since such incidental benefit attributable solely to its being a part of a larger concern, it cannot be considered as providing any services or giving rise to any income which could be considered for application of transfer pricing provisions. The assessee also furnished details regarding guarantee commission charged by bank in India for giving non funded guarantees and it varies from 0.25% to 0.6%, the details thereof are given by ld. CIT(A) in table at page 43 of its impugned order as under : S.No. Document date Name of Bank providing guarantee Name of company Guarantee fees/commissionpayable 1 13.01.2005 HSBC Reliance Industries Ltd 0.25% pa 2 6.08.2007 HDFC Bank Ltd Reliance Industries Ltd 0.35% pa 3 4.10.2007 ICICI Bank Ltd Reliance Gas Transportation Infrastructure Ltd 0.25% pa 4 10.12.2007 Canara Bank Reliance Gas Transportation Infrastructure Ltd 0.50% pa 5 11.12.2007 ABN AMRO Bank Reliance Industries Ltd 0.60% pa 6 12.03.2005 Standard....
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....antee to the bank for the loan given to its associated enterprises because of business interest. Ld. AR submitted that the assessee has given guarantee to the bank and thus transaction is between the assessee and the bank, and it is unrelated party. It is not a transaction between the assessee and its associated enterprises and thus, cannot be termed as "international transaction" under section 92B of the Act. During the course of hearing the attention of the ld. AR was drawn to the amendment made by Finance Act, 2012 with retrospective effect from 1.4.2002 by way of Explanation to Section 92B whereby guarantee commission is now considered to be "international transaction", the ld. AR submitted that if any adjustment is to be made the guarantee commission could be considered at the lowest rate paid by assessee i.e. 0.25% and Rule 10B(1)(a) does not permit for taking the average rate while applying CUP method for making any adjustment on account of transactions with associated enterprises. Ld. AR submitted that rate of guarantee of 2.5% as considered by TPO is in respect of the parties where both are outside India and relates to furnishing guarantee in case of a finance company. He ....
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....rospective effect from 1.4.2002 by way of Explanation -(i) (c) of section 92B to include guarantee in the Expression "international transaction". Therefore, the contention of the ld. AR that providing of guarantee to the bank on behalf of its AE does not fall in the definition of "international transaction" has no merits. We agree with TPO that there is a benefit to assessee's AE by providing of guarantee by the assessee for the loan taken from bank by Trevira GmbH. The assessee has undertaken a risk on behalf of its AE, which in any case, of third party consideration, the same would not have been undertaken or would have charged a consideration for it by the assessee. Now, the question arises as to what should be the rate of guarantee commission at ALP. Ld. CIT(A) has given the details of guarantee commissions charged by bank in India for giving non-funded guarantees to third party and it varies from 0.25% to 0.6% per annum. On the other hand, TPO has compared the rate bearing risk at 2.5% by considering an external comparables of a finance company. However, it is a fact that while applying the external comparables, the TPO has not brought out any thing on record that under which ....
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.... the above issue is covered again the assessee by the decision of the Hon'ble Apex Court in the case of JCIT V/s Rolta India Limited (2011) 330 ITR 470 (SC) wherein their Lordships have held that interest u/s 234B is payable on failure to pay advance tax in respect of tax payable u/s 115JA of the Act. It may be mentioned that section 115JA of the Act is in pari-materia to section 115JB of the Act. Hence, the Additional Ground of appeal taken by assessee is rejected. 54. Now we take up the appeal filed by the department being ITA No.1725/Mum/2009 to deal with the remaining grounds of appeal. 55. Ground No.2 taken by department reads as under : "2. On the facts and in the circumstances of case and in law. The ld. CIT(A) erred in restricting the allowance of depreciation to Rs.30,39,12,73,741/- as against appellant's claim of Rs.36,80,84,20,643/- and thus granting relief of Rs.6,41,71,41,902/- 55.1 At the time of hearing, ld. Representatives of the parties submitted that this ground is similar to Ground No.2 of the appeal taken by department for assessment year 2003-04 and the decision taken therein will ipso facto apply to this ground of appeal. 55.2 We have considered....
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....ons of section 194C by not deducting TDS and remitting in Government account. In view of above, the Assessing Officer disallowed the said amount of Rs. 31,73,724/- and Rs. 1,27,89,065/- aggregating to Rs. 1,59,62,789/- u/s. 40a(ia) of the Act. The Assessing Officer rejected the contention of the assessee that no TDS was deductible on transmission charges as it was accepted by the CIT(A), Baroda inter-alia considering that section 194C is not applicable in the case of the assessee because transmission charges are incidental to the goods supplied; on the ground that the Department had gone in second appeal against the said orders of CIT(A) and the said appeals were pending before the ITAT. Being aggrieved, the assessee filed appeal before the first appellate authority. 57.2 Learned CIT(A) after considering the submission of the assessee that learned CIT(A), Ahmedabad vide its two orders, both dated 9.5.2007 had held that transmission charges are incidental in the process of supplying goods and part of the purchase cost and not covered by section 194C of the Act. Accordingly the orders passed by ACIT, TDS Circle, Ahmedabad u/s. 201(1A) both dated 21.8.2006 were dismissed. Hence, le....
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....f the Gas Metering Station at its own risk and cost. That for effecting deliveries of gas at the Gas Metering Station, GAIL (I) Ltd. shall install and maintain at its own cost the piping control regulation and metering equipment in the Gas Metering Station and all other accessories. Such equipment will remain the property of GAIL (I) Ltd., which shall have the right to remove the same within twelve months after the expiry of the contract. That the GAIL (I) Ltd. shall have the right to use of the assessee's land and utilities essentially required for the installation, operation and maintenance of the Gas Metering Station and allied equipment. For this purpose, all statutory approvals shall be obtained by GAIL (I) Ltd. That the title to the gas shall pass from GAIL (I) Ltd. to the assessee at the point of delivery of gas to the assessee. The delivery point is explained in the Article to be at the downstream flange of the pipeline at the outlet of the Gas Metering Station. That the cost of the gas as well as the transportation charges are to be fixed or determined by the Government of India which is likely to be market related in accordance with the current policy of the liberalizatio....
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....so provided that the title to the gas shall pass from GAIL to the assessee at the point of delivery of the gas to the assessee and the delivery point was at the downstream flange of the pipeline at the outlet of the Gas Metering Station. Therefore, though the assessee was separately charged the transportation charges in the invoice, in view of the fact that the property in the gas was transferred to the assessee only at his place, any expenditure incurred by GAIL on freight in order to carry the gas from the place of manufacture to the place at which it was required under the contact to deliver(i.e. at the downstream flange of the pipeline at the outlet of the Gas Metering Station in the assessee's premises), would become part of the amount for which the gas was sold by it to the assessee and would thus become price for the gas, from which no tax was deductible under section 194C of the Act. 57.8 In view of the above decision of the Tribunal (supra) and considering the facts of the case before us, we hold that the title to the gas has passed from GAIL to the assessee at the point of delivery of the gas to the assessee and the delivery point is at the downstream flange of the pip....
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....Since we have heard these appeals alongwith appeals for assessment year 2003-04 and the above issue has been considered by the Tribunal in paras 6.2 to 6.6 of this order and following the reasoning given in paras 6.5 to 6.6 , we uphold the order of ld. CIT(A) that the claim of treatment of notional sales tax is capital receipt. Hence, Ground No.1 of the appeal taken by department is rejected. As mentioned in para 6.6 and the facts that Ground No.1 in assessee's appeal is an alternative ground, we hold that ld. CIT(A) has rightly held that it is not necessary to go into the alternative plea of the assessee claiming the notional sales tax is allowable u/s 43B of the Act. Hence Ground No.1 of the appeal taken by assessee is also rejected. 61. Ground No.2 of assessee's appeal comprises of four parts vide which assessee has disputed the order of ld. CIT(A) in disallowing Rs. 56.88 crores u/s 14A read with Rule 8D of the Income Tax Rules, 1962 being expenditure incurred in relation to earning income exempt u/s 10(23G) and 10(34) of the Act while computing book profit as well as profit under the normal provisions of the Act. The assessee has also in the alternative ground disputed that....
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....115JB of the Act. 61.5 In view of above ground No.2 of the appeal of assessee is allowed in part by restricting the disallowance to Rs.1,10,45,000/- u/s 14A of the Act while computing total taxable income under the normal provisions of Act but no disallowance under section 14A be considered while computing the book profit u/s 115JB of the Act. 62. Ground No.3 taken by assessee is in regard to disputing the order of ld. CIT(A) in confirming the disallowance of expenses on account of traveling of spouses of executives of assessee at Rs.1,24,81,946/- 62.1 At the time of hearing, ld.AR conceded that the above issue on similar facts had been decided against the assessee in the preceding assessment year i.e. AY-2002-03 by the Tribunal in assessee's own case. Ld. AR also conceded that the facts are identical in the assessment year under consideration. 62.2 In view of above submissions of ld. AR and following the earlier order of the Tribunal in the preceding assessment years i.e. assessment years 2002-03 and 2003-04, we confirm the order of ld. CIT(A) by rejecting Ground No.3 of the appeal taken by assessee. 63. Ground No.4 of the appeal taken by assessee is as under : "....
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....th Ground No.5 of the appeal taken by department is as under : "On the facts and in the circumstances of the case and in law, the ld. CIT(A) erred in restricting guarantee commission at the rate of 0.38% in place of 2.5% of non funded guarantee given by the assessee for advancing loan to its associated concerns." 64.2 At the time of hearing, ld. Representatives of both the parties submitted that this ground is similar to Ground No.9 of the appeal of assessee and Ground No.6 of the appeal of department for assessment year 2005-06 and whatever decision is taken therein will ipso facto apply to this ground for this assessment year as well. 64.3 We have considered the above submissions of ld. Representatives of the parties and orders of authorities below. We agree with the ld. Representatives of the parties that similar issue has been considered by the Tribunal in preceding assessment year i.e. assessment year 2005-06 in paras 52.2 to 52.12 hereinabove. Since the facts and the issue in this assessment year i.e assessment year 2006-07 are identical to assessment year 2005-06, we for the reasons mentioned in paras 52.10 to 52.12 hereinabove uphold the order of ld. CIT(A) to char....