TaxTMI 
TaxTMI 
2016 (8) TMI 1350
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....xpenses of Rs. 1,20,000/-, foreign travel expenses of Rs. 11,24,043/-, oil and petrol expenses of Rs. 72,804/-, PF/ESIC contributions of Rs. 9,939/-, directions given to Assessing Officer for not excluding interest income of Rs. 1,01,75,905/-, exchange gain of Rs. 8029/-, provisions written back of Rs. 1,40,77, 969/- and scrap sale of Rs. 38,56,085/- for the purpose of computing section 80HHC deduction, reversing upward transfer pricing adjustment of Rs. 2,96,10,000/- and in further holding that excise duty and sales tax are not to be included in total turnover for computing section 80HHC deduction; respectively. 3. The assessee's cross appeal ITA 1670/Ahd/2006 involves two substantive grounds assailing correctness of the lower appellate order confirming Assessing Officer's action in not treating its interest income of Rs. 1,01,75,905/- as business income for the purpose of section 80HHC deduction and upholding disallowance of loss on traded items to the tune of Rs. 13,67,412/-; respectively. 4. We come to assessee's latter appeal ITA 343/Ahd/2012 raising sole issue of disallowance of loss on traded items as in its former appeal. It emanates from the case file that the instant ap....
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....its return for A.Y.2002-03 on 31st October, 2002 showing income of Rs. 92,62,68,920/- under the normal provisions and a book profit of Rs. 94,03,09,000/-. Assessment order u/s. 143(3) of the I. T. Act was passed on 21.03.2005 determining total income of Rs. 1,04,55,77,950/-. Subsequently order u/s. 154 of the I. T. Act was passed on 4.8.2005 revising the total income at Rs. 1,05,20,44,197/- . While completing the assessment, the A.O has allowed excess deduction u/s. 80HHC of the I.T. Act. The deduction was worked out on the basis of total turnover of Rs. 4,07,65,78,758/-. The Excise Duty and Sales Tax collected by the assessee were not considered as part of the total turnover which has resulted in excess allowance of deduction u/s. 80HHC of the I. T. Act and has rendered the assessment erroneous and prejudicial to the interests of revenue. Besides,' the following issues have not been examined by the A. O (i) Loss in traded goods (ii) Trial run expenses v/s. trial run product/on and claim for depreciation on such Plant & Machinery. (iii) The outcome of show-cause notice issued by the Central Excise Authorities. (iv) Expenditure on energy and fuel in view of expenditu....
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....ere does not appear to be any dispute that this tribunal in assessment year 2000- 01 has rejected similar Revenue's pleas. Learned Departmental Representative pleads that the assessee has not filed the relevant details of these foreign travel expenses. Shri Patel takes us to pages 48 to 50 of the paper book categorically demonstrating all relevant dates, payment channel, particulars followed by corresponding sums in a tabulated form. No irregularity or infirmity is pointed out therein. We find no reason to interfere in the lower appellate findings under challenge. This third substantive ground also meets the same fate as the former two. 11. Revenue's fourth substantive ground assails correctness of the CIT(A)'s order deleting oil and petrol expenses disallowance amounting to Rs. 72,804/- made in the course of assessment alleging failure in filing log books along with other contemporary evidence. The Assessing Officer invoked the impugned disallowance @ 20% of the gross claim on estimation basis only. The CIT(A) deletes the same quoting Assessing Officer's failure in pin pointing specific defects in assessee's claim. There is no dispute that the assessing authority has already ac....
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....been that it has derived the impugned interest receipts in the nature of recovery of interest. It paid interest of Rs. 12,73,02,750/- on term, working capital and other loans. It further pleaded to have deployed surplus funds arising from operation to recover part of interest cost without any investment being made on long term basis. The Assessing Officer in assessment order reiterated 'derived from' principle to exclude the impugned interest sum from section 80HHC deduction claim. 14. The CIT(A) accepts assesseee's argument as follows:- "14.1.6 I have considered the findings of the Assessing Officer in the assessment order and also went through the submission as made by the A.R. and the judicial findings relied upon by him. In the above referred decisions, it is seen that the A.R. relied on the findings of Hon'ble Bombay High Court in the case of CIT Vs. Nagpur Engineering Co. 245 ITR 806.. wherein according to the A.R., the Hon'ble Court has held that interest income from fixed deposits are eligible profits of the business while computing deduction U/s. 80HHC of the I.T. Act. The A.R. has also mentioned that the Hon'ble Supreme Court has dismissed Special Leave Pet....
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....n the amount of interest paid and therefore, there is no cause for exclusion and hence the exclusion of interest income amounting to Rs. 1,01,75,905/- as made by the Assessing Officer is rejected. The appellant succeeds in this ground of appeal in this issue." 15. We have heard rival submissions. There is no dispute that this very issue arose in assessment year 2000-01 as well before the tribunal. A co-ordinate bench in its order dated 05-12-2008 restored the same back to the Assessing Officer with a clear-cut direction that in case the impugned interest receipts are held to be business income netting formula is to be allowed as per case law CIT vs. Shri Ram Honda Power Equipments (2007) 289 ITR 475 (Del) as well as tribunal's special bench decision in Lalsons Enterprises Vs. DCIT (2004) 82 TTJ 1048 (Del) (SB). Sri Patel fails to point out any exception in the impugned assessment year since we do not see an finding in the lower authorities' orders on the crucial aspect as to whether the interest income in question is business income or not. We follow the same course of action as in the earlier assessment year. The Assessing Officer shall decide this issue afresh. The assessee sha....
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....ex court in (2014) 364 ITR 144 (SC) CIT vs. Punjab Stainless Steel Industries interprets 'turnover' component in section 80HHC to mean only amounts of sale proceed received in respect of goods in which the concerned assessee is dealing with. The CIT(A) observes in lower appellate findings that assessee's scrap is natural outcome of its manufacturing process. Learned Departmental Representative points out that the assessee has not filed any material highlighting the impugned scrap to have been generated from export activities. He does not point out any exception to earlier assessment year's facts vis-a-vis those of the impugned assessment year. Nor is there any finding at Assessing Officer's behest that the impugned scrap is in respect of the goods in which the assessee is not dealing with. We find no reason to deviate from our earlier order. This Revenue's argument is rejected. We partly accept the Revenue's arguments on this substantive ground qua section 80HHC deduction issue involving four components of interest, foreign exchange gains, provisions written back and scrap sale; for statistical purposes as indicated in preceding paragraphs. 21. The Revenue's next substantive assai....
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.... quoting Deltamethrin price hereinabove for 125 tones, claimed to have sold 100.9 tones Deltamethrin @ 161.20 US $ per kg followed by further supply of 24.5 tones of B Cisthemic Acid to its domestic associate enterprise at average price of 164.20 per kg in furtherance to the very supply agreement. The assessee submitted that it had supplied 18 tones of the impugned Deltamethrin at cost + markup of 55% coming to average price of 126.20 US $ per kg. It strengthened the point justifying sale price of Deltamethrin supply in question to be as per its agreement stipulations. 25. The Transfer Pricing Officer issued further show cause notice as to whether the assessee's domestic sale of B Cisthemic Acid to its domestic enterprise was covered under the supply agreement dated 03-07-1999 or not. The assessee's reply came on 25-11-2004. It sought to explain that B Cisthemic Acid sales fell under 'Deltamethrin and its intermediates' category clause of the agreement. It further stated to have supplied this latter chemical in lieu of Deltamethrin agreement. The Transfer Pricing Officer thereafter served section 133(6) notices to assessee's domestic associate enterprise M/s. Aventis CropScience I....
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....l this led to shifting of profits at assessee's behest to its overseas associate enterprise. We note from page 292 of the paper book that assessee itself in its letter dated 08-10-2004 made it clear that arms length price of its Deltamethrin was US $ 161.20 per kg instead of that charged @ 126.20 US $ per kg. All this resulted in the impugned upward adjustment of US $ 6,30,000/- computed in rupee terms coming to Rs. 2,96,10,000/- being proposed in TPO's order dated 10- 03-2005. The Assessing Officer accordingly framed consequential assessment. 27. We come to the lower appellate proceedings now. The CIT(A) deletes the impugned upward transfer pricing addition as follows:- "16.6 I have perused the remand report received by the Transfer Pricing Officer. The Transfer Pricing Officer has not adversely commented upon the contentions of the A.R. of the appellant company that there is no loss of revenue to the Government of India. 16.7 On the other hand the A.R. of the appellant company had submitted that the transaction between the Indian AE and the appellant company is not an international transaction, but only a domestic transaction. The purchase price paid by the AE will reduce th....
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....he appellant company are assessed to tax at the same maximum margin rate applicable to the company a change in the price of goods sold by the appellant company to its Indian AE would not affect the tax revenue of Government of India taken as a whole. This is because the tax saving to one company will result in tax gain to the other company on equal amounts. On the other hand if the appellant company had sold the same goods to its AE abroad at the higher rate, it could have gained a total amount of Rs. 48.72 Lacs as per the detailed working furnished by the A.R. of the appellant company. In this manner the A.R. of the appellant company concluded that the transaction as undertaken by the appellant company and its Associated Enterprise has not resulted in a tax benefit to the multinational group as a whole as held by the Transfer Pricing Officer. 16.12 I have considered the facts of the case and the contentions of the parties to the appeal. On a careful consideration of the factual matrix of the case it has been seen that the higher selling price adopted by the appellant company for supply of material to the Indian AE has not resulted in shifting of profits abroad or in the reduct....
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....sed in all contemporary provisions. Sub-rule (a); as it was in the impugned assessment year defines an un-controlled transaction to mean a transaction other than that between two associate enterprises; whether resident or non-resident. We keep in mind the same and proceed further to Rule 10B prescribing arms length price for the purpose of section 92C(2) of the Act by using any of the six method as the most appropriate method as enumerated in clause (a) to (f); respectively in the given sequence in chapter 10 of the Act. The last clause (f) relevant for any other appropriate method hereinabove contains a specific rule 10AB. This is admittedly not germane to the issue before us. We find that only clause (a) to (e) hereinabove pertaining to 'CUP' and 'TNMM' methods are relevant for the instant adjudication. We find it a fit case to repeat that the assessee had employed TNMM method for charging @ cost + 55% markup i.e. an indirect method for declaring its ALP. The TPO adopted its direct sale price @ 161.2 US $ per kg for making the impugned upward adjustment. We do not find a single observation even in his order rejecting assessee's TNMM method before adopting the agreement price in....
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....2002-03 is the first full-fledged business of year after introduction of chapter X transfer pricing provision incorporated in the act. The TPO's order dated 10-03-2005 does not even issue a show cause notice disagreeing with assessee's TNMM method. He has rather proceeded to adopt CUP method(supra) again by ignoring the fundamental condition of applying the same. Same is the case with learned CIT(A) who has proceeded on revenue neutral implication without even taking into section 92(1) r.w.s. 92C and 92C(4) proviso along with rules discussed hereinabove at length. There is hardly any dispute that this chapter and the rules notified thereunder prescribe that an arms length price is not the price an assessee is charging or paying for being a party in the international transaction in question but it is the price i.e. to be paid or charged in such a comparable controlled transaction in comparison to a comparable un-controlled transaction. We repeat that the TPO has not kept in mind this fine distinction. We accordingly reverse his action on this sole legal principle. Needless to say, the CIT(A) has already deleted the impugned adjustment. We find no reason to interfere in the lower a....