TaxTMI 
TaxTMI 
2013 (11) TMI 1239
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....ue has raised the following grounds of appeal: 1. On the facts and circumstances of the case of the case and in law the Ld. CIT(A) has erred in allowing the relief with regard to disallowing the interest expenditure made by the Assessing Officer of Rs. 5,64,10,000/- which was incurred by the appellant on its entire borrowings for the purposes of its business. 2. On the facts and circumstances of the case of the case and in law the Ld. CIT(A) has erred in allowing the relief to the enhancement of the returned income due to determination of the arm's length adjustment with regard to the Appellant's international transactions from Associated Enterprises. 3. The appellant craves to add or amend any ground any grounds of appeal before the appeal is heard or disposed off. 4. It is prayed that the order of the Ld. CIT(A) be cancelled and that of the Assessing Officer may be restored. 4. The issue in Ground No. 1 raised by the Revenue is against the disallowance of interest expenditure. 5. The brief facts relating to the issue are that the Assessing Officer during the cours....
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....ning balance in the notes of account and as per Note-6 the interest income on such sick advances was not recognized by the assessee. The learned A.R. for the assessee stressed that the said advances were not interest free loan and assessee was always charging interest on the said loan. During the year under consideration, nothing was advanced to the said parties and thus total loan of the earlier years was brought forward. It was stressed by the learned A.R. for the assessee that no addition is warranted during the year because of the same reasoning as before the Tribunal in assessment years 2003-04 and 2004-05. The learned A.R. for the assessee also clarified that the said company was going for winding up. 9. We have heard the rival contentions and perused the record. The issue arising in the appeal filed by the Revenue is in relation to the interest chargeable on the advances made by the assessee in the earlier years. During the year under consideration a sum of Rs. 59.55 crores was due from M/s Hindustan Max G.B. Ltd., which was joint venture company promoted by the assessee company. The assessee had advanced the said amount to M/s Hindustan Max G.B. Ltd. against supply of ra....
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....diary M/s Hindustan Max G.B. Ltd. was based on commercial expediency and advancing of amount was for business purposes. Consequently, the interest paid on borrowings was held to be allowable deduction under section 36(1)(iii) of the Act in view of the ratio laid down by the Hon'ble Apex Court in S.A. Builders v. CIT 288 ITR 1. 11. We find that the issue in the present appeal is identical to the issue before the Tribunal in assessee's own case relating to assessment years 2003-04 and 2004-05. Admittedly, the assessee had paid interest on the borrowings made from its parent company in the earlier years and no fresh borrowings had been made during the year under consideration. The interest expenditure had been allowed in the hands of the assessee from year to year. Further the advances to M/s Hindustan Max G.B. Ltd. were also made in the earlier years and the balance is brought forward from the preceding year on which in the earlier years the assessee was charging interest. However, the interest on the said loan had not been recognized during the year under consideration as M/s Hindustan Max G.B. Ltd. had gone before the BIFR because of financial constraint. In the above said circu....
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....rred towards tax paid on salary of expatriate employee. 16. The brief facts relating to the issue are that the assessee had shown salaries amounting to Rs. 13,74,846/- as prior period expenses as per Annexure-XI , clause 22(b) of the Profit & Loss Account. The Assessing Officer noted that the said expenses did not pertain to the financial year 2004-05 and pertained to financial year 2003-04. As the assessee had booked the expenses in the succeeding year the same were held to be not allowable expenditure and addition of Rs. 13,74,846/- was made on this account. 17. The CIT (Appeals) upheld the order of the Assessing Officer. 18. The assessee is in appeal against the same. The learned A.R. for the assessee pointed out that the nature of the expenditure was the tax on salary of foreign expatriate wherein the salary was paid up to December, 2003. However, certain information required for computing the final tax liability of the said foreign employee was available to the assessee in April, 2004 only. Hence, the final tax liability of Rs. 13,74,846/- was paid in April, 2004. The learned A.R. for the assessee pointed out that as per Note-7 annexed to the computation of income fil....
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....s determined and paid in April, 2004. The said amount was charged to Profit & Loss Account in the year under consideration. In view of the above said facts and circumstances where the said liability to pay balance tax due on the salary of the foreign national was crystallized and paid in April, 2004, is to be allowed as an expenditure in the year under consideration as the same relates to the captioned assessment year. The liability being crystallized in the year under appeal and having been paid in the year under appeal, is to be allowed as a deduction in the year under consideration. Thus we direct the Assessing Officer to delete the addition of Rs. 13,74,846/-. The Ground No. 2.1 raised by the assessee is thus allowed. 21. The issue in ground No. 2.3 raised by the assessee and ground No. 2 raised by the Revenue are in relation to determination of arms' length price of the international transaction entered into by the assessee. 22. The brief facts of the case relating to the issue are that the DCIT, Circle-I, Chandigarh vide letter dated 10.9.2007 had referred certain international transactions under section 92CA(1) of the Act to the JCIT, Transfer Pricing, Chandigarh. The ....
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.... explanation was asked vis-à-vis the segmental Profit & Loss Account for domestic sales, exports to associated enterprises and exports to non-associated enterprises alongwith the basis for allocation of expenses among different segments. The reply of the assessee is incorporated under para 6.2 at pages 6 to 11 of the Transfer Pricing Report. The TPO thereafter show caused the assessee by way of order-sheet noting dated 7-10-2008, as to why fresh transfer pricing analysis should not be done. A list of comparables was confronted to the assessee by the TPO. The said companies were selected on the basis of usage of Pen-G and the data of financial year 2004-05 was considered. The assessee vide letter dated 13-10-2008 explained why the companies selected by the TPO should not be taken as comparables. The reply of the assessee is incorporated under para 6.4 at pages 12 and 13 of the transfer pricing order. After considering the submissions of the assessee the TPO applied provisions of Rule 10B(4) of the Income-tax Rules, which prescribe that for the purposes of benchmarking international transaction the data of comparables used would be the data for the year in which international ....
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....under Chapter 6-A of the Act. 24. Before the CIT (Appeals), the assessee made elaborate submissions which are reproduced under para 28 at pages 15 to 19 of the appellate order. The submissions were made by the assessee against the comparables filters by the TPO and also in respect of the comparables rejected by the TPO. The CIT (Appeals) after considering the facts of the case and after analyzing the related parties transactions, rejection of the comparables on insignificant use of Pen-G and also considering the proportion of trading sale in the case of two comparables filters chosen by the TPO, determined the arms' length price on the basis of operating profits over sales ratio at (-)1.64%. The ground of appeal raised by the assessee was thus partly allowed by the CIT (Appeals). 25. Both the assessee and the Revenue are in appeal before us against the said directions of the CIT (Appeals) relating to assessment year 2005-06. 26. The learned A.R. for the assessee pointed out that for doing the analysis of transfer price profit with associated enterprises, the transactional net margin method was used with operating profit over sales ratio as profit level indicator. It was fa....
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....nt Gujarat Biotech to be considered as comparable, similarly Standard Pharmaceuticals Ltd. had also to be rejected and the same proposition should be applied in the succeeding year to determine the arms' length price in the case of the assessee. 27. The learned D.R. for the Revenue in reply fairly admitted that for the TPO one of the criteria in filters was the manufacture of Pen-G. It was further pointed out by the learned D.R. for the Revenue that the data base was used to select the comparables and these are just tools to apply to many companies. However, filters are then to be applied to choose best comparable in order to compute arms' length price for international transaction. The learned D.R. for the Revenue pointed out that the assessee was a manufacturing company. So the first filter was to ignore the trading companies. One filter which was used both by the assessee and the TPO was the use of Pen-G, which was an accepted filter. Our attention was drawn to the report of the TPO at page 95 which talks about the nature of the assessee's business, under which it had been commented that the Pen-G was the critical raw material. The learned D.R. for the Revenue fairly admitted....
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.... as these were ignored in the preceding years. The learned A.R. for the assessee thus submitted in the case of adjustment in work-in-progress is allowed then the profits declared by the assessee were arms' length. Our attention was drawn to the computation at pages 5 to 9 of the Paper Book. Our attention was also drawn to the guidelines and various case laws which shall be referred by us in the paras hereinabove. 29. The learned D.R. for the Revenue pointed out the assessee had not applied filter of RPT and this year the Assessing Officer applied filter of more than 10% i.e. companies with RPT of more than 10% on sales turnover were to be rejected. However, as per the learned D.R. for the Revenue, the said filter was incorrect and benchmarking of 25% RPT filter should be applied and consequently the results of Aurobindo Pharma Ltd. should be used. The learned D.R. for the Revenue fairly admitted that after Standard Pharmaceuticals Ltd. with low utilization of Pen-G is ignored last year the same should be ignored during this year also. It was further contended by the learned D.R. for the Revenue that Aurobindo Pharma Ltd. was one of the comparables selected by the assessee then t....
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.... comparable companies which had profit margin at 23.04% which was applied to the exports made by the assessee to its associated enterprises and the arms' length price was determined at Rs. 1,17,94,05,367/-. The assessee had reflected the book value of revenue at Rs. 1,11,86,62,019/-. The Assessing Officer was thus directed to enhance the total income of the assessee by Rs.6,07,43,348/- against which the assessee would not be entitled to the deduction under section 10A, 10AA, 10B or under Chapter-VI-A of the Act. The assessee filed the objection under section 144C of the Act before the Dispute Resolution Panel-I, New Delhi, which upheld the order of the TPO. The Assessing Officer in the order passed under section 144C(13) r.w.s. 143(3) of the Act made the aforesaid addition against which the assessee has filed direct appeal before the Tribunal. 32. Admittedly the issue raised in the assessment years 2005-06 and 2006-07 against determination of arms' length price of international transaction is identical, so we proceed to decide the said issue by this consolidated finding after referring to the facts of both the captioned assessment years. 33. We have heard the rival contention....
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....ration was not available. However, the assessee computed the margins earned by the comparable company selected by it during the relevant financial year and found that the transaction was still in accordance with arms' length price. The TPO conducted fresh search during the assessment year 2005-06 and following filters were applied for rejecting non-comparables: * Only companies using Penicillin-G as raw material were selected. * Companies having no data for the financial year 2004-05 were rejected. * Companies predominantly engaged in trading activity were rejected. * Companies having negative net worth were rejected. 35. In assessment year 2006-07 the TPO also conducted fresh search applying the following filters: * Only companies using Penicillin-G as raw material selected * Companies having no data for the financial year 2005-06 rejected * Companies engaged in trading activity rejected * Companies having negative net worth rejected &nb....
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.... Aurobindo Pharma Ltd. 1.88% 2 Nectar Life Sciences Ltd. -1.64% 3 Standard Pharmaceuticals Ltd. 0.27% Mean 0.17% 41. While selecting the above said companies, the TPO disregarded the contention of the assessee about Aurobindo Pharma Ltd., which as per the assessee had significant related party transaction of approximately 23.19%. 42. The TPO in assessment year 2006-07 ultimately selected the following comparables for benchmarking assessee's international transactions: Company OP/ Sales 1 Aurobindo Pharma Ltd. 9.46% 2 KDL Biotech Ltd. -6,08% 3 Standard Pharmaceuticals Ltd. 5-75% Mean 3-04% 43. The TPO while making the final selection rejected Nector Life Sciences Ltd. due to related party transaction being greater than 10% of sales. 44. The CIT (Appeals) against the order passed by the Assessing Officer adopting the report of the TPO in assessment year 2005-06 rejected the company Standard Pharmaceuticals Ltd. which was using Pen-G as only 4.23% of the total raw material. The second comparable Aurobindo Pharma Ltd. was also rejected as the assessee had significant related pa....
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....onducts the search on the database before the close of the financial year or immediately thereafter and the data in the current year as required under Rule 10B(4) of the Income-tax Rules would not be available or the number of comparables would be very limited. In order to circumvent such exercise becoming as non-futile, the TPO is empowered to make use of such comparables and their data which can come into public domain subsequent to the search conducted by the tax payers. However, the data available at the time of comparability analysis should be used subject to the condition that it pertains to the current year under consideration. The provision of Rule 10B(4) of Income-tax Rules itself provide a rider that where such datas are not available then in such circumstances the data most appropriate of the preceding year should be used. We find that similar issue of user of current year data in view of the provisions of Rule 10B(4) of the Income-tax Rules arose before the Delhi Bench of the Tribunal in Actis Advisers (P.) Ltd. v. Dy. CIT [IT Appeal Nos. 5277 (Delhi) of 2011 & 958 (Delhi) of 2012, dated 12-10-2012] and it was held as under: "+ a bare perusal....
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..... In the facts of the present case the assessee during the course of proceedings before the TPO had been provided with material gathered by the TPO by way of fresh search and reasonable opportunity has been allowed to the assessee to rebut the finding of TPO in relation to the comparables selected and also comparables rejected by the TPO. The learned A.R. for the assessee fairly conceded during the course of hearing that there were no objections against the fresh study conducted by the TPO. However, the contention of the learned A.R. for the assessee was that the said filters should be uniformly applied for both the years under consideration in order to benchmark the international transaction. We find merit in the said stand of the assessee that in case where facts are identical from year to year, similar filters should be used for benchmarking international transactions. 49. In the facts of the present case we find that the TPO in assessment year 2005-06 had applied the following filters for rejecting non-comparables: * Only companies using Penicillin-G as raw material were selected. * Companies having no data for the fina....
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....panies. Both the said companies were rejected by the CIT (Appeals) as comparables but as per the learned A.R. for the assessee both the said comparables should be accepted as comparables. While applying the TNMM method, as per the learned A.R. for the assessee, the comparables were only required to be functionally comparable, irrespective of use of the proportion of Pen-G as percentage of the total raw material. We find merit in the contention of the assessee in this regard that where the companies are using Pen-G as raw material and are engaged in the manufacture of drugs fall within the ambit of the filter selected as part of transfer pricing search. The said companies are to use as filters irrespective of percentage of use of Pen-G to the total raw material, since the companies selected should be functionally comparable and not identical. In the above facts and circumstances, we are of the view that the results of Torrent Gujarat Biotech Limited and Standard Pharmaceuticals Limited both using Pen-G as raw material should be selected as comparables in order to benchmark the international transaction undertaken by the assessee. The learned A.R. for the assessee brought to our know....
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..... ITA No. 4.68(Del) 2009 *Sakata INX (India) Ltd. ITA No. Q8/JP/201O 55. The second objection raised by the assessee in relation to selection of Aurobindo Pharma Ltd. was that the said company incurred significant research and development expenses as against expenses incurred by the assessee company and in this regard reliance was placed on para 1.43 of OECD guidelines. The learned A.R. for the assessee also pointed out that on same ground of significant related party transaction, the CIT (Appeals) had rejected the said company as comparable in the assessment year 2005-06. The learned A.R. for the assessee thus submitted that in case Aurobindo Pharma Ltd. is considered as non-comparable then assessee's international transactions with its AEs would be consistent with the arm's length standard based on the proviso to section 92C(2) of the Act as referred below: Name of the company Particulars Margin KDL Biotech Ltd -6.08% Standard Pharmaceuticals Ltd 5.75% Arm's Length margin (Arithmetic Mean) (A) -0.17% Appellant's margin (B) -2.39% 56. The learned D.R. fo....
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.... 4. Actis Advisers Pvt. Ltd. (2012- Til-136 - ITAT- Del - TP) Relevant Paras 27, 28 & 29 58. The learned D.R. for the Revenue also referred to OECD guidelines and pointed out that the comparables picked up for benchmarking international transaction should have no controlled transaction. Elaborate submissions were made by the learned D.R. for the Revenue on the transfer pricing study undertaken by the assessee and fresh search of comparables by the TPO. 59. We find that the issue of exclusion of related party transaction and the extent of the said transaction arose before the Delhi Bench of the Tribunal in Actis Advisers (P.) Ltd. (supra). The Tribunal vide paras 27 to 29 held as under: 27. In the next fold of submissions, learned counsel for the assessee submitted that the assessee did not consider the companies which have more than 15% of the transactions with related parties. Learned TPO has observed that the companies who have related parties transaction in excess of 25% of operating revenue will only be excluded. The learned counsel for the assessee submitted that the following parties have transactions to sell more than 15% with related partie....
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....h can be propounded as laying down the ratio of law. The ITAT has just made a reference to a figure which may be relevant while adjudicating the issue in the facts of that case. It may be a guiding factor while considering the cases of the assessee in other appeals. But neither it is a ratio of law nor it can be given status of a statute, which has a binding effect on all other adjudicating authorities. The Act does not provide directly as to what percentage of a related party transaction has to considered for exclusion. However, if we look to the scheme of Income-tax Act, then it would be revealed that expression "associate enterprises" which is somewhat similar to that of "related party", has been defined in section 91A(2)(a) of the Act. According to this definition, if an enterprises holds 26% share in the other enterprises then it can be considered as an associate enterprises. Similarly, under sec. 40A(2)(b) of the Act, interested persons have been explained, if a person is having not less than 20% of voting power in a company then such person would be considered as substantial interest in the company. This section relates to examination of the cases where some undue benefit is....
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....ule of consistency. It was also pointed out that during the year Pen-G consumption by the said company was 3.58% of the total raw material, which was significantly lower than the ratio of Pen-G consumption to total raw material of 5.23% for assessment year 2005-06. In case the said company is removed from the comparable in the relevant assessment year, the international transactions of assessee in India would meet the arm's length standard as envisaged by Indian TP regulations. We are of the view that though there is some merit in the plea of the learned A.R. for the assessee but the same proposition cannot be applied as a universal law specially in view of the provisions of Rule 10B(4) of the Income Tax Rules, which mandates that the data of current year shall be applied in order to benchmark the international transaction. In a case where the data of one of the comparables applied in one of the year is at variance in the succeeding year because of non-fulfilment any of the filters selected for rejecting the non-comparable, then the data of the said year cannot be so applied as a filter to disregard the non-comparables in the succeeding year. However, we have already held in the pa....
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....purpose, this aspect of benefit of tolerance margin would also be looked into for the purpose of determining the arms' length price of international transaction, as held by the Special Bench of the Tribunal, the benefit of the standard deduction of 5% is allowable only if the difference is less than 5% in the arms' length price of international transaction. 65. In view thereof, the Assessing Officer/TPO applying the data of abovesaid companies in assessment years 2005-06 and 2006-07 respectively shall compute the arms' length price of international transactions in accordance with our guidelines in the paras hereinabove. The ground No. 2 raised by the Revenue, ground No. 2.3 raised by the assessee in assessment year 2005-06 and ground No. 6 raised by the assessee in assessment year 2006-07 are thus partly allowed. ITA No.1455/Chd/2010 :: Assessee's Appeal :: Asst. Year 2006-07 66. The assessee has raised following grounds of appeal: "1. That on the facts and in the circumstances of the case & in law, the Hon'ble DRP erred in confirming the draft assessment order of the Ld. AO on the following issues and directing the Ld. AO to assess income at Rs....
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....rs and deduction und section 80HHC was available on the DEPB. 3. That the Ld. AO erred on facts & in law, in making a disallowance of finance expenses of Rs. 82,530,000 by inadvertently holding that the appellant had utilized borrowed funds for giving interest free advances to its joint venture company i.e. Hindustan Max-GB Ltd. ('HMGB') without appreciating that the no advances have been made by the appellant company to HMGB during the year under consideration nor in the immediately preceding year. 3.1 That the Ld. AO erred on facts & in law in holding that the interest on loan funds borrowed by the appellant company cannot be allowed as a business expenditure either under section 36(1)(iii) or section 37 of the Act without appreciating that the interest expense incurred by the appellant during the year under consideration is on loan funds borrowed and utilized for working capital purposes and for new expansion and there is no nexus or diversion of funds to HMGB during the year. 3.2 The Ld. AO erred on facts a....
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....d in law, in enhancing the income of the appellant by Rs. 60,743,348 by holding that the appellant's international transactions do not satisfy the arm's length principle as envisaged under the Act and in doing so have grossly erred in: 6.1 on the facts and in circumstances of the case in determining the arm's length price of the international transactions entered into by the appellant. 6.2 on facts and in law in not allowing he +/- 5% range mentioned in proviso to section 92C(2) of the Act while computing the arm's length price for the Appellant's international transactions with AEs. 6.3 considering a company having significant related party transactions in he final comparable set despite himself having applied a quantitative filter rejecting companies having RPT more than 10 per cent. 6.4 disregarding multiple year/prior year's data as used by the appellant in the TP documentation and holding that current year (i.e. FY 2005-06) data for comparable compa....
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....ct was available on the DEPB receipts. The assessee had raised specific ground before the D.R.P. in Delhi in this regard, which was rejected by the D.R.P. The Assessing Officer in view of the directions of D.R.P. in Delhi and in the absence of the supporting documents added back sum of Rs. 94,58,449/- as income of the assessee. 70. The assessee is in appeal against the said addition. The learned counsel for the assessee pointed out that the DEPB credit due to the assessee was credited in the earlier years but the assessee had not received total receipt and hence the excess was written off during the year under consideration and claimed as deduction. The learned A.R. for the assessee pointed out that the assessee had made a claim before the Grievance Cell, Ministry of Commerce by way of an appeal to consider the DEPB claim of bulk drugs supplied to SEZ Units at Kandla and copy of the said annexure is placed at pages 60 and 61 of the Act the Paper Book. The learned A.R. for the assessee further referred to the meeting of Grievance Redressal Committee on 15.5.2006 under which the assessee was also asked to attend, copy of which is placed at page 62 of the Paper Book-I. Further refe....
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..../-, which claim as per the assessee was rejected by DGFT. The second aspect of the claim of deduction was in relation to written off during the year as the same was received short to the extent of Rs. 18,43,753/-. The assessee vide ground No. 2 has raised the issue against the cumulative disallowance of Rs. 94,58,449/-. As pointed out in para hereinabove, the assessee was engaged in the business of export of the intermediaries and bulk drug manufactured by it. During the year under consideration, the assessee had debited sum of Rs. 94,58,449/- to the Profit & Loss Account under the head 'Export Incentive Written off'. The claim of the assessee was that the said amount was offered for tax in the earlier years and the same have not been received by the assessee and hence, the said write off. In respect of sum of Rs. 76,14,696/- relating to IPCA, DEPB., the said claim of the assessee in respect of the DEPB was rejected by DGFT as the same was not applied in time. The claim relates to exports made in the earlier year and the export incentive accrued to the assessee as income in financial year 2003-04. However, the applications for DEPB credit were made in the financial year 2004-05. Th....
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....ability of such write off of export incentives totalling Rs. 76,14,696/-. The said amount admittedly has been received by the assessee in assessment year 2008-09 and has been offered to tax. The case of the revenue is that recovery of the said amount had not crystallized during the year under consideration and the said write off was premature as the issue was still pending for consideration before the Ministry of Commerce. The perusal of the rejection letter dated 07.01.2005, 04/07.2005 and 17.01.2005 points out that the claim of the assessee in respect of DEPB on post export basis was rejected by the Kandla SEZ as the supplies made to SEZ were prior to implementation of Chapter X-A of the Customs Act i.e. prior to 11.05.2004, which were not eligible for DEPB benefit. The assessee filed an appeal before the Director General of Foreign Trade Grievance Cell, Ministry of Commerce, New Delhi, to consider the DEPB claim in the bulk drugs supplied to SEZ unit at Kandla. The said representation was made on 22.02.2006 and the claim of the assessee was that the claim of DEPB benefits of the assessee was rejected by the DC Office on the basis of CBEC Circular No. 11/2004 which in turn stated....
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....on 22.02.2006, which was not rejected by the Ministry of Commerce and the assessee had received the communication dated 09.05.2006 that the meeting of the Grievance Redressal Committee would be held on 15.05.2006, the issue is whether such write off is correct. The above facts infer that the said claim of export incentives was under consideration by the Ministry of Commerce and Industries, Government of India. The plea of the assessee was also that the rejection of claim on the basis of earlier circular, which was later reversed, was wrong and appeal was pending. The assessee had written off the export incentives totalling Rs. 76,14,696/- in the financial year 2005-06 i.e. even before the meeting of the Grievance Redressal Committee of Ministry of Commerce. We are of the view that such write off of the export incentive by the assessee during the year under consideration is premature in the abovesaid facts and circumstances of the case and is not an expense relatable to financial year 2005-06. Further, admittedly the assessee has received the said export incentives in the financial year 2007-08 itself establishes the case of the revenue. Accordingly, we are in conformity with the or....
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..... As per the details filed by the assessee, it transpires that the assessee had accounted for the export incentives receivable in the financial year 2003-04 and as referred to by us in paras herein above, the assessee had not claimed any deduction under section 80HHC of the Act in the assessment year 2004-05. As against its claim of DEPB, the amounts were short received by the assessee on 14.03.2006 and the balance was claimed as a deduction during the year ending 31.3.2006. The details in respect of the DEPB due, DEPB received and short fall in the DEPB credit are as under : "DEPB No. 3710000460 dated 14.03.06 Applied for Rs. 2,690,915.80 December, 2003 Received Rs. 1,614,400.00 Shortfall Rs. 1,076,515.80 DEPB No. 3710000461 14.03.2006 Applied for Rs. 3,592,065.94 January, 2004 Received Rs. 2,858,140.00 Shortfall Rs. 733,925.94 DEPB No. 3710000462 dated 14.03.2006 Applied for Rs. 85,762.73 Received Rs. 52,451.00 &....
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....s. 80. The Ground No. 3 raised by the assessee is identical to ground of appeal No. 1 raised by the revenue in ITA No. 1360/Chd/2010 and in line with our decision in paras 10 & 11 hereinabove, we allow the claim of the assessee. The ground of appeal 3 is thus allowed. 81. The issue in ground No. 4 raised by the assessee is against disallowance of Rs. 96,15,144/- booked as commission expenses. 82. The brief facts relating to the issue are that during the year under consideration, the assessee had debited a sum of Rs. 2.60 crore under the head 'commission', which included a sum of Rs. 10,563,783/- on account of commission on exports and sum of Rs. 1,55,27,136/- on account of domestic sales. The assessee was show caused to furnish the complete details in respect of the said payments by the Assessing Officer. The assessee furnished details of commission agents and the amount of sales effected through them including the rate of commission. The Assessing Officer, from the details noted that the rate of commission paid to the most of the parties was approximately 2.9% on export sales and on domestic sales, it varied between 1% to 4%. The Assessing Officer also noted that in respe....
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....amount of Malachite Chemicals was incorrect and the sales amount in respect of the parties were wrong. It was pointed out by the ld. AR for the assessee that confirmations were filed before the DRP which are placed at page 305 of the Paper Book. He further submitted that similar commission paid in the succeeding year has been allowed. The case of the assessee was that the said parties were traders and were also acting as commission agents and the business of the assessee was conducted through such agents who were making purchases on behalf of other parties. It has been further pointed out that the observation of the Assessing Officer that the assessee was paying commission on the purchases made by the parties is incorrect as the said commission was being paid to persons who were acting as commission agents. In respect of the domestic sales and the commission thereon, it was pointed out by the ld. AR for the assessee that the Assessing Officer had disallowed the commission being higher than 3%. The plea of the assessee was that the commission had been paid to unrelated parties and during the assessment proceedings, no queries were made by the Assessing Officer in this regard. 85.....
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.... is Rs. 885,880/- on sale value of Rs. 2.98 crore @ Rs. 2.966%. The Assessing Officer has adopted the commission paid to M/s Malachite Chemicals at Rs. 455,257/-. The case of the assessee before us is that the commission agents are also traders of the drugs and are also acting as commission agents. The assessee is engaged in the manufacture of intermediaries and bulk drugs, which in turn are utilized by other concerns for the preparation of the final products. The assessee, through the said commission agents had sold the items manufactured by it to different concerns. The assessee has placed on record the confirmation from P.I. Mensangan Sakti in respect of receipt of commission of Rs. 40,97,199/-. The said certificate is placed at pages 305 of the Paper Book. We find merit in the case of the assessee. However, the necessary details in this regard are not available, in particular the plea of the Assessing Officer that the assessee had made sales to the said parties on which commission had been paid. We, therefore, remit this issue to the file of Assessing Officer to verify the claim of the assessee that the commission paid to the said concern had no connection with the sales made t....
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....t in the disallowance made by the Assessing Officer restricting to rate of commission to 3% as against the rates agreed upon between the parties. Reversing the order of the Assessing Officer, we delete the addition of Rs. 42,77,213/-. The Ground No. 4 raised by the assessee is, thus partly allowed. 88. The ground No. 5 raised by the assessee is against the disallowance made under section 14A of the Act read with Rule 8D of the Act. The case of the assessee was that the said provisions were not applicable as the assessee had made only one investment of Rs. 5 crore in 1996 in M/s Hindustan Max-GB Ltd. on which the assessee was receiving interest. However, since the said company had gone into liquidation, no interest was received from the said parties. It was further pointed out that at the time of investment, the dividend income was taxable and in any case, the investment was made to do business of purchase of raw materials from the said concern. Another contention of the ld. AR was that the said investment was made out of own funds and hence, no merit in the disallowance made by the Assessing Officer. 89. The brief facts relating to the issue are that the Assessing Officer fro....