TaxTMI 
TaxTMI 
2016 (5) TMI 265
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.... 31, 96, 429/- 2005-06 31. 10. 2005 77, 28, 70, 724/- 26. 12. 2008 178, 30, 01, 600/- I. T. A. /5474/Mum/2009-AY. 200405: 2. The first effective ground(GOA-1&2)of appeal, raised by the AO, is about deletion of disallowance of interest amounting to Rs. 1. 76crores. During the assessment proceedings, the AO observed that an amount of Rs. 11. 78 crores were shown as Capital Work in Progress (CWIP)as on 31/03/ 2004, that the assessee had claimed interest expenditure of Rs. 15. 80 crores. He directed the assessee to show cause as to why proportionate interest relatable to CWIP should not be disallowed. After considering the submission of the assessee, the AO disallowed the sum of Rs. 1, 76, 81, 096/-out of the interest expenditure, as interest relatable to CWIP. He computed the disallowance at the rate of 15% of the amount of CWIP. 2. 1. Aggrieved by the order of the AO, the assessee preferred an appeal before the First Appellate Authority(FAA). After considering the submission of the assessee, he held that the issue had been decided in favour of the assessee by his predecessor in the immediately preceding year, that the appeals filed by the Department against ....
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....ng the course of hearing before us, representatives of both the sides agreed that the issue stands decided in favour of the assessee by the order of the Tribunal for the earlier years. The AR further relied upon the cases of Indo Nippon Chemicals Ltd. (261ITR275)and Mahalaxmi Glassworks Private Ltd. (318ITR116). We find that the Tribunal vide its order dated 30/11/ 2009, in the assessee's own case for the AY. 2002-03 had restored the matter to the file of the AO for giving effect to the provisions of section 145A in entirety and not restricting its operation to the value of closing stock alone, that in the set aside matter, the AO did not grant any relief, that the FAA granted relief to the assessee holding that no addition was required if one strictly followed the provisions of section 145 A of the Act, that the AO filed an appeal before the Tribunal challenging the order of the FAA, that the Tribunal vide its order dated to 2/05/2013 dismissed the appeal, filed by the AO. We find that while deciding the appeal for the AY. 2003-04(supra)has held as under: "2. 2. Before us, Authorised Representative(AR)stated that the Tribunal vide order dated 30. 11. 2009 (ITA2242/Mum/200....
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....ue to the file of the AO for fresh adjudication. Following the same the issue of excise duty on closing stock is also remitted back to the file of the AO. He would decide the issue after hearing the assessee. Ground no. 4 is decided in favour of the assessee, in part. 5. Fifth ground of appeal is about exclusion of 90% of the certain business receipts from the profit of the business for the purpose of computing deduction u/s. 80 HHC of the Act. While computing the deduction available 80HHC of the Act, the AO excluded Insurance Claim(Rs. 24. 11 lakhs), Sales of Chemicals and Scrap(Rs. 1. 33 Crores), Sales tax set off(Rs. 67. 04 lakhs), Registration charges written back(Rs. 5. 53 Crores)and Sales tax Refund(Rs. 43. 69 lakhs). The FAA deleted the exclusions made by the AO. 5. 1. Before us, DR stated that the matter could be decided on merits. The AR stated that issues regarding the Insurance claim and sale of chemicals and scrap was decided by the Hon'ble Bombay High Court in the case of Pfizer Limited(330 ITR62). She also referred to the case of Sony India (P. )Ltd. (118TTJ865). With regard to Sales tax refund and sales tax set off she relied upon the case of Alfa Lavel (India)....
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.... Respectfully, following the above judgment we decide the issue of sales tax set off against the AO. As far as exclusion of sale of scrap is concerned it is found that in the case of Sony India Pvt. Ltd. (supra)the issue has been discussed as under: "7. As regards the other issue raised in ground No. 2 of the Revenue's appeal relating to the inclusion of miscellaneous income of Rs. 2, 16, 97, 607 in profits of the business for the purpose of computing deduction under s. 80HHC, it is observed that while computing the deduction allowable to the taxpayer company under s. 80HHC, the miscellaneous income of Rs. 2, 16, 97, 607 was excluded by the AO from the profits of the business relying on Expln. (baa) below s. 80HHC. Before the learned CIT(A), it was contended on behalf of the taxpayer company that the miscellaneous income received by it did not constitute any receipts of a nature similar to the items given in Expln. (baa). It was contended that the said income was comprised of receipts by way of sale of scrap, amounts written back, sale of spare parts, etc. and the same being derived directly from the business activities of the taxpayer company, they could not be exc....
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....e above we hold that there is no legal infirmity in the order of the FAA. So, confirming the same, we decide ground no. 5 against the AO. 6. Ground No. 6 and 7 regarding profit after reducing unabsorbed depreciation. Before us, the AR fairly conceded that the issue stand decided against the order of the Tribunal for the AY. 2003-04, dated 16. 01. 2015 (supra). We find that the Tribunal had dealt the issue as under: "4. Ground no. 3 is about disallowance of deduction u/s. 80HHC of the Act. During the assessment proceedings the AO found that the assessee had made claimed deduction u/s. 80HHCof Rs. 10, 22, 55, 280/-against the gross total income of Rs. 34, 59, 62, 609/- , that it had also made a claim of brought forward losses and depreciation of Rs. 93, 08, 73, 001/-, that the gross total income had been considered before the set off of brought forward losses and depreciation. As per the AO it was an incorrect method, that the assessee was required to set off the brought forward losses and depreciation from the gross total income before the claim of deduction under Chapter VIA in view of provisions of Section 32(2) r. w. s. 72(2)of the Act, wherein the same was to be cons....
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....assessee had purchased 27, 392 cases of a product namely phase transfer catal (PTC) at the rate of Rs. 126. 67per Kg. , aggregating to Rs. 34. 70 lakhs from GIL. In order to justify the reasonableness of the price paid for purchase of PTC, the assessee filed a copy of invoice in respect of purchase of same material from an unrelated party namely Tatva Chintan(TC). The AO found that the name of the product in the bill issued by TC, was Triethyl Benzyl Ammonium Chloride. As the name of the product purchased by the assessee from GIL and the name mention in the invoice of TC did not match, the AO held that the assessee had failed to provide the necessary and comparable evidence relevant to purchase of PTC from its sister concern. He, accordingly, disallowed 20% of the purchase value i. e. Rs. 6. 94 lakhs invoking the provisions of section 40A(2)(b) of the Act. 7. 1. During the appellate proceedings, before the FAA, the assessee submitted that product name PTC and Triethyl Benzyl Ammonium Chloride was one and the same product, that the AO was factually wrong in stating that assessee did not provide the necessary and comparable evidence with regard to purchase from a sister concern. T....
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....ssee's export price as the ALP, that same constituted an appropriate benchmark for Indian TP regulations. The assessee also objected to use of CUP method and contended that there were various differences between the transaction entered into by the assessee with its AE and that entered with unrelated entity viz. difference in geographical markets difference on account of reseller versus end-user, that out of total volume sold 74% of the volume was sold to G-USA, that remaining export was made to the non-AE entities. Alternatively, it was submitted that in case party wise computation of price/Kg. of Diacamba sold to non-AE. s was to be considered then only those parties should have been considered to whom more than 5000 Kg. s of Diacamba was sold, that in such a case the average price charged to non-AE. s was USD 14. 64 per Kg. , that the average price charged by the assessee to G-USA was USD 14. 11, that it would meet the arm's length principle by exercising the provision to section 92C(2), that the TPO had not made adjustment in the price for certain differences such as custom duty registration, cost selling and distribution expenses, that the assessee had incurred expenses like....
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....SA entity, that it set up GUSA which could carry out registration marketing and distributing functions, that it had applied the TNMM four determining the ALP of the transactions, that G-USA dealt only in the products of the assessee and had no other business activity, that any profit/loss occurring to the AE was on account of the products purchased from the assessee, that the AE had incurred a net loss of 10. 98% on sales, that 74% of the sale was made to G-USA, that there was no evidence of shifting of profit by the assessee to its AE, that it had charged USD 14. 11 per Kg. from its AE for the goods supplied, that the average sale price to non-AEs of USD 14. 64 per Kg. resulted in adjusted APL of USD13. 99 per Kg. In our, opinion there is no legal or factual infirmity in the order of the FAA. Therefore, confirming the same we decide ground no. 9 against the AO. ITA/5348/Mum/2009-AY. 2004-05: 9. Grounds of appeal No. 1 & 2, filed by the assessee, deals with Un-utilised modvat credit. While deciding the appeal filed by the AO(GOA-3)we have decided the issue against the AO, in part and matter has been restored back to the file of the AO. Following the same first two grounds sta....
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....firmed the order of the Assessing Officer. The Tribunal noted that for the AY. 1998-99 it had come to the conclusion that there was no justification to exclude 90 per cent. of the insurance claim. Besides this, the Tribunal held that the insurance claim formed part of the income of the business of the assessee and was liable to be considered as part of the profits of the business in view of Explanation (baa) to section 80HHC and held that 90 per cent. of the insurance claim could not be excluded. On appeal : Held, (i) that if the stock-in-trade of the assessee were to be sold, the income that was received from the sale of goods would constitute the profits of the business as computed under the head of profits and gains of business or profession. The income emanating from the sale would not be liable to a reduction of ninety per cent. for the simple reason that it would not constitute a receipt of a nature similar to brokerage, commission, interest, rent or charges. A contract of insurance was a contract of indemnity. The insurance claim in essence indemnifies the assessee for the loss of the stock-in-trade. The indemnification that was made to the assessee must stand on th....
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....profession", could not be excluded while calculating the deduction under section 80HHC" Respectfully, following the above referred judgments, we hold the 90% of the receipts of the assessee under the above three heads should not be excluded from the profit of the business for the purpose of computing deduction u/s. 80 HHC of the Act. We uphold the order of the FAA for the remaining four receipts. Ground number 3 is decided in favour of the assessee, in part. 11. Next ground deals with reduction of profits eligible for deduction u/s. 80HHC for the purpose of calculating book profits u/s. 115JB of the Act. During the course of hearing before us, representatives of both the sides agreed that identical issue has been decided in favour of the assessee by the Tribunal , while adjudicating the appeal for the AY. 2003-04 (supra). We find that the issue was dealt by the Tribunal as under: "12. Next ground of appeal pertains to deduction u/s. 80 HHC of the Act for purpose of calculating book profits u/s. 115JB of the Act. While deciding GOA no. 4 filed by the assessee, we have narrated the facts related with the question under consideration. 12. 1. Before us, Represen....
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....deals with deleting the addition of Rs. 24. 35 crores on account of excise duty on closing stock. Like earlier AY. the issue(GOA-4)is being restored back to the file of the AO for fresh adjudication. 16. Next ground of appeal pertains to deletion of addition of Rs. 44. 52 Crores made u/s. 2(22) (e) of the Act. It was brought to our notice that identical issue was decided by the Tribunal, while deciding the appeal for the AY. 2002-03 (ITA/916/Mum/2010 dtd. 03. 12. 2010). Relevant portion of the order reads as follow: "11. Even on merits there is no case for the Revenue. In fact the CIT(A) has analysed this issue elaborately and came to a conclusion that provisions of section 2(22)(e) are not attracted in the case of normal business transactions. The same principle was upheld by the Hon'ble Delhi High Court in the case of CIT vs. Raj Kumar 318 ITR 462 wherein this issue was elaborately discussed as under: - "Section 2(22)(e) of the Income-tax Act, 1961, shows that a payment would acquire the attributes of a dividend within the meaning of the provision if the following conditions are fulfilled : (i) the company making the payment is one in which the public are....
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....s this conundrum is noscitur a sociis. The rule has been explained both by the Privy Council in the case of Angus Robertson v. George Day [1879] 5 AC 63 by observing "it is legitimate rule of construction to construe words in an Act of Parliament with reference to words found in immediate connection with them" and the Supreme Court in the case of Rohit Pulp and Paper Mills Ltd. v. Collector of Central Excise, AIR 1991 SC 754 and State of Bombay v. Hospital Mazdoor Sabha, AIR 1960 SC 610. The principles with regard to the applicability of the rule of construction are briefly as follows : (i) does the term in issue have more than one meaning attributed to it, i. e. , based on the setting or the context one could apply the narrower or wider meaning ; (ii) are the words or terms used found in a group totally "dissimilar" or is there a "common thread" running through them ; (iii) the purpose behind inserting of the term. In the instant case (i) the term "advance" has undoubtedly more than one meaning depending on the context in which it is used ; (ii) both the terms, that is, "advance" or "loan" are related to the accumulated profits of the company ; and (iii) the purpose behind the ins....
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....er of the Tribunal, so, ground no. 6 is decided against the AO. 17. Ground No. 7 pertains to deletion of addition of Rs. 5, 18, 210 made u/s. 92 CA (3)of the Act. During the assessment proceedings, the AO found that the assessee had entered into an international transactions with its associated enterprise (AE), Gharada Australia(G-Aus. ). The AO made a reference to the TPO to determine the arm's length price(ALP) of the said transaction. On 23/1/2008, the TPO passed his order proposing certain adjustments. In pursuance of the order of the TPO, an adjustment of Rs. 5. 18 lakhs was determined in respect of usage charges paid to G-Aus. 17. 2. Before the FAA, in the appellate proceedings, the assessee explained that sale of chemicals in Australia compulsorily required a product registration and it was to be held by a company in Australia, that G-Aus was set up for the sole purpose of holding product registration to enable Gharada India sale in that region, that the Australian-AE held registration of certain products in Australia, that it had entered into an agreement with it on 18. 12. 2012 pursuant to which GAus allowed the it to use the said product registration held by the AE,....
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.... Rs. 67. 99 crores based on assets revalued in the books of G-USA, as on 1. 10. 2004 which on 30/09/2004 before the valuation was equivalent to Rs. 44. 92 crores. He held adjustment of the 23. 06 crores will have to be made, that the adjustment would result in reworking of capital loss on liquidation of assets and the same time the claim of depreciation on intangible assets being registration rights would have to be reduced. On a querry by the AO in that regard, the assessee stated that in the event the TP adjustment proposed by the TPO were to be accepted capital loss on liquidation of investment held by the assessee in G-USA had to be recomputed, that after disallowance of revaluation of registration rights there would be a loss of Rs. 23. 06 crores, that the loss should be allowed to be carried forward and set off in the subsequent assessment years. After considering submission of the assessee, the AO held that the assessee had computed long term capital loss on shares of G-USA on liquidation of investment, the AE was hundred percent subsidiary company of the assessee, that it had taken over the 100% subsidiary company and all the assets and liabilities were taken over, th....
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....tal protection agencies, that for a registration the applicant would be required to submit a Dossier, that the AE had obtained registration, that the product registration was reviewed on a periodic basis for safety to human beings, animals and the environment, that fees were payable annually to maintain the registrations, that the AE had incurred significant registration cost for the production registration amounting to USD 1, 28, 6, 995. 33, that the above value was duly reflected as gross block in the books of the AE, that the valuer had considered the actual expenditure incurred on acquisition of registration rights as above while valuing the registration rights, that the AE had membership of three professional task force agencies formed under federal insecticide, fungicide, and rodenticide Act, that the membership of the above agencies was essential to maintain the registration of CPF and Diacamba, that the eligibility to sell the products by the assessee in USA depended solely on the ownership of the registration rights of the products as required by the law of that country, that the AO/TPO had made an adjustment of Rs. 23. 06 crores by rejecting the valuation of registration ....
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....ontransferability of the registration and restriction on sale of registration data were not in accordance with the facts on record, that the AE was dissolved and by operation of law licenses for the two products devolved on the assessee and they were not acquired by it, the book value of registration rights taken over by the it as USD1, 47, 30, 136, that it was much lower value compared to the valuation made by the valuer at USD15. 6 million, that the book value was also lower compared to the actual expenditure incurred of USD1, 58, 79, 306 on the registration of those products, that the TPO had merely rejected the valuation done by the valuer on the surmise without considering the evidences on record, that the adjustment made by the TPO by rejecting the revaluation of the registration right was not proper. Finally, he held that the consideration for registration rights, as adopted by the assessee as per the book value of Rs. 67. 99 crores in the books of the AE, had to be accepted. 18. 2. Before us, the DR relied upon the order of the TPO. The AR made the same submissions that were made before the FAA and supported his order. We have heard the rival submissions and perused t....
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....om holding company to subsidiary company or vice versa were not regarded as 'transfer', that the provisions of section 45 of the Act were not applicable. Accordingly, the AO did not carry out computation of capital gain/loss at all. Before the FAA, the assessee, vide its letter dated 6/4/2010, stated that computation of capital gain was made under section 46 (2) of the Act on the assets received on liquidation of the G-USA at fair value. The FAA did not adjudicate the ground raised by the assessee on the basis that the ground was linked to TP adjustment of Rs. 23. 06 crores and held that he had decided the issue in favour of the assessee, that the ground was consequential and had lost its relevance. 20. 1. Before us, the AR submitted that TP adjustments and recalculation of longterm capital loss were two different things, that they were not linked with each other, that separate adjudication was required with regard to allowability or otherwise of the long-term capital loss. The DR left the issue to the discretion of the bench. 20. 2. After hearing the rival submissions, we are of the opinion that the FAA should have decided the issue raised by the assessee. The TP adjustments....