TaxTMI 
TaxTMI 
2018 (5) TMI 1640
X X X X Extracts X X X X
X X X X Extracts X X X X
....IT(A)-VI, Ahmedabad dated 16.12.2010. Assessment order was framed under section 143(3) on 22.12.2008 by the Addl.CIT, Range-1, Ahmedabad. On receipt of notice, the assessee has filed cross-objection in this appeal bearing no.89/Ahd/2011. ITA No.2447/Ahd/2011 is also directed at the instance of the Revenue, but against order of ld.CIT(A) dated 5.7.2011. Proceeding in this appeal has arisen out of an assessment order passed under section 143(3) r.w.s. 147 of the Income Tax Act, 1961 dated 30.12.2010. In other words, assessment was reopened and addition made in re-assessment proceedings travelled to the ld.CIT(A), which have been deleted. The Revenue is aggrieved with those deletions. The grounds of appeal of the Revenue in ITA No.692/Ahd/2011 reads as under: "1. The ld.CIT(A) erred in law and on facts in deleting the addition of Rs. 8,65,17,574/- made on account of TPO order under section 92CA(3) of the I.T.Act by rejecting the TNMM selected by the assessee. 2. The ld.CIT(A) erred in law and on facts in deleting the addition of Rs. 18,45,974/- made on account of miscellaneous expenses." 4. Brief facts of the case are that assessee has filed its return of income f....
X X X X Extracts X X X X
X X X X Extracts X X X X
....tal adjustment required to be made. Such details are available on page no.5 and finding of the ld.TPO and findings of the ld.TPO is also available in the order of theld.CIT(A). On the basis of CUP method, the ld.TPO recommended for making upward adjustment in the price of products sold to these AEs. Similarly, he applied same analogy for making upward adjustment in respect of contract research receipts. The ld.TPO made recommendation for adjustment of Rs. 8,65,17,574/- on two items i.e. sale of various products and contract research services. Recommendation made by the ld.TPO have been given effect by the AO in his assessment order dated 22.12.2008. 6. Dissatisfied with the adjustment, assessee carried the matter in appeal before the ld.CIT(A). The assessee has field written submissions contending therein as to why CUP was not an appropriate method for determining ALP of products sold by the assessee. It further contended that the ld.TPO has not recorded any finding as to how TNMM adopted by the assessee was not an appropriate method. Without pointing out fault with the method of assessee, the ld.TPO ought to have not jumped into an alternative method. The assessee has appraised....
X X X X Extracts X X X X
X X X X Extracts X X X X
....04-05 is quoted below- "in so far as the method of variation of arms length prices is concerned, the provisions of the act are very clear, in as much as it is the assessee who has a right to choose the best applicable method for the purpose of calculation of arms lengthprices analysts AO finds serious defects in the said method and he fulfils the preconditions prescribed under section 92C (3) of the act. Under the scheme of the act, the AO is required to find out the arms length price based on any of the five methods prescribed under the act. Under the act no particular preferences given to a particular method compared to other methods. it is also mandatory on the part of the AO to give a clear finding as to how to and why the method adopted by the assessee cannot give a true and correct picture of arms lengthprices. Moreover, the AO has to justify and give reasons as to why the method adopted by him is more scientific inaccurate in determining the arm's length price is compared to the method adopted by the assessee. In the facts of the present case, the assessee has adopted transactional net margin method (TNMM for short). The assessee has justify the said method by s....
X X X X Extracts X X X X
X X X X Extracts X X X X
....en the honourable apex court in the case of Morgan Stanley & Co has clearly upheld the adoption of TNMM method as most appropriate method and the relevant particular line from the judgement reads as under- "as regards income attributable to the P E, we hold that the transactional net margin method was the appropriate method for determining the arm's length price in respect of transactions between Morgan Stanley & Co and MSAS' even the honourable special bench of this tribunal in the case of Aztec software and technology services Ltd has held that the computation of arms length price is effect to exercise. Each case depends on its own facts and circumstances. In many cases where identical or almost similar uncontrolled transaction is areavailable for comparison, determination of arms length price is an easy task. But it is not so in most of the transactions and rarely one is able to locate and identical transaction. In such cases arms length price is determined by taking this survey comparable transaction in comparable circumstances and make suitable adjustment for the differences. Similarly in the present case also the PB IT of the assessee company is exactly simil....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e of $4000 per men month for contract research work. I find that even if CUP is to be applied for these transactions, the comparable instances of charging price to Non-AEs prove that the transactions are entered into at ALP and therefore no adjustments are called for. It is also submitted by the appellant that it has entered into arrangement whereby it has carried out contract based research activity. As per the terms and conditions for contract research mentioned by the appellant, the entire risk of outcome of the said research was to be taken by the principals' i.eDishmanFZE and Dishman USA. As per submission, the appellant was to carry out only the research activity, irrespective of the outcome of such research and for that activity, the appellant was to be compensated in terms of men month hours' basis. In other words, the principals are getting the entire contract research work done by the appellant and takes the risk and as a corollary, the rewards too. The bills issued for contract research work for AEs and non-AEs are identical in which man months was the basis of billing. In the absence of formal contracts, the TPO considered these transactions as normal s....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... of international transaction entered into by the assessee with its AEs. We find that in the Asstt.Years 2003-04 and 2004-05, the Tribunal has accepted that TNMM is the most appropriate method for determining ALP of assessee's transactions with its AE. In the present assessment year, the assessee has compiled the details in tabular form submitting as to why CUP is not appropriate method. Such details have been reproduced by the ld.CIT(A) and they read as under: Sr. No. Product ALP Adjustment in Rs. Reasons why comparison is not proper 1 Ammonium Tributyle Ammonium Chloride 10,70,529/- The appellant has sold 9,800 Kgs at average rate of Rs. 144.51 to Dishman USA AE. The ld. TPO has compiled the identical products sold to various customers in respective countries and has adopted their average rate of Rs. 253.47. Details of which given on page no. - of Paper Book. Reasons for non-comparable are as under : Function Performed, Risk Assumed and Assets Employed i.e FAR factors are not taken into consideration while comparing prices charged to AE with non-AE. Quantity Factor : The instances taken by the ld. TPO so far as quantity is concerned are at all not comparab....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... like to point out that there is a mistake on part of ld. TPO in taking average price at Rs. 299.27 instead of Rs. 246.10. Summarise table of quantity sold to Non-AEs and average price thereof is given hereunder for ready reference to clarify the issue : Country Qty. Avg. Rate Argentina 600 535.67 Australia 11558 272.49 Belgium 81000 242.42 Iran 16000 228.63 Japan 1600 303.52 Taiwan 24 459.30 UK 5 694.35 Total 110787 246.10 AE - USA 8280 233.08 In the given case, the appellant has charged average price Rs. 233.08 to AE whereas average price to Non-AE work out to be to Rs. 246.10 which is certainly within limit of 5% and therefore as per 2^nd Proviso S. 92C(2)of the Act no transfer pricing adjustment is required to be made. Without prejudice to above, the appellant submits that in any case the instances are not comparable at all due to quantity and geographical factors 6 Sodium Picosumlphat 78,713/- No comments for the smallness of amount. 7 Tetrabutyl Ammonium Bromide 31,81,642/- FAR Analysis : As Above....
X X X X Extracts X X X X
X X X X Extracts X X X X
....king into huge difference in quantity as well as only one transaction has been entered into by the Appellant with such Non AE. Geographical factors : As (1) Above. (d) Regularity of transaction : As (1) above. 11 Tetra Ammonium Hydrogen Sulphate Butyle 47,18,827 FAR Analysis : As Above. Quantity Factor : The instances taken by the ld. TPO has summarised as under : Country Qty. Avg. Rate Germany 500 663.84 Japan 600 630.00 Netherland 1000 762.65 USA 100 962.50 Total 2,200 713.10 AE- Europe 17306 440.43 All three instances are not comparable as there is huge difference in quantity of the product sold to AE and Non-AEs. Geographical factors : As Above (1). Regularity of transaction : As above (1). 12 Tetra Butyle Ammonium Hydrogen Sulphate 24,931 For the smallness of amount it is not considered. 13 Tetra Ammonium Bromide Ethyle 1,35,57,000/- FAR Analysis : As Above. Quantity Factor : The instances taken by the ld. TPO has summarised as under : Country Qty. Avg. Rate Brazil 63 608.86 Japan 100 650.70 ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....larity of transaction : As above (1). 17 Tetra ButyleAmm. Hy. 3,53,418 FAR Analysis : As Above. Quantity Factor : The instances taken by the ld. TPO has summarised as under : Country Qty. Avg. Rate Germany 500 743.52 Japan 300 635.04 Netherland 2000 766.50 Total 2800 748.31 AE- USA 1300 291.71 The appellant has entered into only one transaction with above mentioned Non-AE and therefore they can never be compared with the price charged and in any case there due to quantity, geographical difference, comparison cannot make transfer pricing adjustments. Geographical factors : As Above (1). Regularity of transaction : As above (1). 18 Myristyl DBA Chloride Powder 59,71,613 • FAR Analysis : As Above. Quantity Factor : Only one instance has been taken into consideration by the ld. TPO i.e only 25 Kgs sold to customer in Egypt, whereas the appellant has sold 24,494.40 kgs. to AE. Certainly this instance is not comparable looking into huge difference in quantity as well as only single transaction has been entered into by the appellant with such No....
X X X X Extracts X X X X
X X X X Extracts X X X X
....TPO, it has been contended in the written submissions that the assessee has carried out comparability under TNMM at entity level and not at transactional level. He contended that the assessee has used TNMM on entity basis for computation of ALP for its sales to its subsidiaries. According to the ld.DR, the assessee ought to have adopted net transactional method instead of profit margin of enterprise as a whole. A reference to the order of the ITAT Mumbai in the case of UCB India P.Ltd. Vs. ACIT, 121 ITD 13 1(Mumbai) has been made. 11. We have gone through these submissions as well as finding of the ld.CIT(A). It is pertinent to observe that the ld.TPO in the order dated 21.10.2008 has not made any such analysis. He has not pointed out the alleged defect as contended in the written submissions. The analogy adopted by the TPO in the order passed under section 92CA is that CUP method is far better method than TNMM. How, TNMM is not applicable on the given set of facts has nowhere been discussed by the TPO in the impugned order. Therefore, the ld.DR cannot improve the case of the TPO at this level. More so when, consistently from the Asstt.Year 2002-03, it has been held that method ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....er taking into consideration the finding of the ld.CIT(A), we are of the view that lump-sum addition confirmed by the ld.CIT(A) is little on the higher side, because the assessee has contended that if written off is not allowable, then actual expenses incurred during the year ought to be allowed. In other words, case of the assessee is that by following mercantile system of accounting, it has incurred various expenses, which has been written off in this year. Therefore, to meet ends of justice, assessee deserves a further relief of Rs. 5,00,000/-. In other words, addition confirmed by the ld.CIT(A) of Rs. 15,00,000/- is restricted to Rs. 10,00,000/- (Ten Lakhs) only, and thus the assessee gets a further part relief. Accordingly, this interconnected ground raised in the appeal of the Revenue and CO of the assessee is partly allowed. 16. Now we take ITA No.2447/Ahd/2011 (Revenue's appeal) 17. In the first ground of appeal, grievance of the Revenue is that the ld.CIT(A) has erred in deleting addition of Rs. 2,41,04,933/- which was added by the AO with the aid of section 2(22)(e) of the Income Tax Act. 18. Brief facts of the case are the AO has observed that during the assessm....
X X X X Extracts X X X X
X X X X Extracts X X X X
....IT(A) was convinced after verification that the issue is covered by the decision of the First Appellate Authority. The relevant findings of the Id. CIT(A) for A.Y. 2003-04 reads as under:- "It is not in dispute that appellant had lot of business transactions with M/s Schutz Dishman Biotech Ltd. There were transactions of purchase of raw material as well as temporary accommodation deposits. Assessing officer of M/s Schutz Dishman Biotech Ltd initiated action under section 201 (1) by treating the transaction with appellant company as deemed dividend and the said company was treated as assessee in default for not deducting TDS in assessment year 2004-05 and 2005-06. In both the years, CIT(A)-XXl, Ahmedabad by order dated 28-09-2010 held that transactions entered into by the appellant which its associate concern would not attract the provisions of section 2(22)(e) of the act. And accordingly there would not be any obligation to deduct tax under section 194 and therefore the assessee cannot be treated as the assessee in default within the meaning of section 201(1) of IT act. The relevant extract of the said appeal order in para-six is quoted below- "There is large numb....
X X X X Extracts X X X X
X X X X Extracts X X X X
....id assessment year in which the issue is decided in favour of the appellant. In view of this, by following the appeal order in assessment year 2006-07, addition on account of deemed dividend in respect of financial transactions with SDBPL made by the assessing officer is not confirmed. 8. A perusal of the aforementioned findings of the Id. CIT(A) shows that he has followed the findings given in A.Y. 2006-07 wherein the First Appellate Authority has followed the decision taken in the case of SDBPL. We find that the appeal of SDBPL travelled up to the Hon'ble Jurisdictional High Court of Gujarat wherein the Hon'ble High Court was seized with the following question of law for consideration;- "Whether on facts and in law the ITAT wax right in cancelling the order passed u/s 201(1) and 201 (A) of the Act, without appreciating that the amount advanced was in the nature of deemed dividend u/s 2(22)(e) of the Act'.'" 9. And the relevant findings of the Hon'ble High Court reads as under:- 4. It can thus be seen that the Commissioner as a matter of fact found that the payments were not in the nature of current adjustment. There was move....
X X X X Extracts X X X X
X X X X Extracts X X X X
....llowance is to be made. The ld.AO did not accept this contentions, but the ld.CIT(A) has accepted it. 24. On due consideration of the above facts, we find that the issue in dispute is squarely covered in favour of the assessee by the decision of Hon'ble Gujarat High Court in the case of M/s.Farson Fibres s. Ito, Tax Appeal No.1070 of 2010 (Guj) wherein it has been held that if TDS has been deposited prior to the due date of filing of return, then no disallowance has to be made. The ld.CIT(A) has rightly deled the disallowance, and we do not find any error in this ground of appeal. It is rejected. 25. In the result, the appeal of the Revenue is dismissed. 26. Now we take assessment year 2006-07. 27. In this year, the assessee and Revenue are in cross appeals i.e. Revenue's appeal is ITA No.817/Ahd/2011 and assessee's appeal is in ITA No.773/Ahd/2011, against order of the ld.CIT(A) dated 3.1.2011. These appeals have arisen from the proceedings under section 143(3) of the Act. 28. The assessee and Revenue have also filed appeal being ITA No.3086 and 2957/Ahd/2013 against the order of the ld.CIT(A) dated 31.10.2013. These appeals arose from penalty proceedings under sect....
X X X X Extracts X X X X
X X X X Extracts X X X X
....why adjustments made by the TPO are not justified. The reasons given are- difference quantity sold, different geographical area, difference in timing, frequency of transactions, smallness of difference etc. If all these reasons are considered, there is hardly any material difference calling for adjustment. There are instances where sales to associate enterprises are at higher prices than non-associate enterprise reflecting that sales were made at arm's length prices. In of the submissions of the appellant, the adjustments made by adopting method will not survive. Accordingly the adjustments made under the transfer pricing provisions are deleted." 32. With the assistance of the ld.representatives, we have gone through the record. It is pertinent to observe that the assessee is engaged in the business of bulk drugs and fine chemicals. It had entered into various international transactions with its "AE" for sale of bulk drugs and fine chemicals. The assessee has bench marked its international transactions by adopting TNMM method. The TPO did not accept this method as most appropriate method and observed that the assessee should have supported its transactions at ALP for followi....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ording to the ld.CIT(A) it is not a fresh issue. The AO should have considered the correct amount for disallowance. The ld.CIT(A) also observed that disallowance of opening balance cannot be made. 35. With the assistance of the ld.representatives, we have gone through the record. It appears that while filing return of income the assessee has included an amount for additions in the total income. When it realized the provision made for gratuity for the year under consideration, then it had filed an application and submitted to the AO that current year's claim only Rs. 20,69,905/-. This amount could be disallowed. The ld.CIT(A) has rightly appreciated the controversy and has rightly directed that AO that only for the provision made in the current year could be disallowed and not opening balance. Therefore, after looking into the finding of the ld.CIT(A), we do not find any error in it. This ground of appeal is rejected. 36. Ground no.3: Grievance of the Revenue is that the ld.CIT(A) has erred in directing the AO to allow correct figure of depreciation. 37. Brief facts of the case are that the assessee has claimed depreciation of Rs. 13,67,45,462/- in the return of income. Dur....
X X X X Extracts X X X X
X X X X Extracts X X X X
....d No.5: In this ground of appeal, grievance of the Revenue is that the ld.CIT(A) has erred in deleting the addition f Rs. 81 lakhs which was added by the AO with the aid of section 2(22)(e) of the Act by upholding that loans obtained from SDBL is to be treated as deemed dividend. Such transaction was not considered as of taking loan, rather it was considered as business transaction because both parties were maintaining current account wherein loans are being taken consistently. This issue has been examined in the assessment years 2005-06 wherein we have followed the orders of the ITAT in earlier years in the case of SDBL. Even the Hon'ble High Court has confirmed the order of the ITAT in tax appeal no.958 and 959 of 2015. Section 2(22)(e) of the Act is not applicable on the transactions between these two parties. Considering our finding in the Asstt.Year 2005-06, we do not find any merit in this ground of appeal. It is rejected. No.692 /Ahd/2011 and 7 Others ACIT Vs. Dishman Pharmaceuticals & Chemicals 44. Ground No.6 and 7: These grounds are inter-connected with ground nos.26 and 27 taken by the assessee in its appeal i.e. ITA No.773/Ahd/2010. 45. The issue involved in all t....
X X X X Extracts X X X X
X X X X Extracts X X X X
....that be a fact, then how the AO could allocate such amount to such units ? The assessee has been maintaining separate books of accounts and debited actual expenditure in each unit. Therefore, the ld.CIT(A) is justified in holding that custom duty which is not incurred by the assessee on the imports of rawmaterial meant for EOU units cannot be allocated. We do not any merit in this fold grievance raised by the Revenue. It is rejected. 49. Next three fold grievances are common. The grievance of the Revenue in these folds of grievances relates to allocation of expenditure incurred towards packing material, clearing and forwarding expenses, administrative and interest expenses. It is pertinent to observe that where mixed accounts and common management is there, then certain overhead expenses required to be allocated at the level of HO, but if an assessee is maintaining separate books accounts and demonstrate all expenditure incurred by it; identifiable and allocatable, then on estimate basis such expenditure cannot be allocated on the basis of turnover or quantum of sales. The ld.CIT(A) has observed that accounts of the assessee were audited. It has maintained separate accounts. The....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ssee has claimed deduction after including interest income, sale of scrap, sundry balance written off, exchange rate fluctuations and incremental turnover and disbursement of subsidy from the government. These items were held to be eligible for grant of deduction under section10B of the Act. The ITAT in the case of Sonic Technology has further observed that order of the Special Bench Indore Bench has been upheld by the Hon'ble Delhi High Court. Discussion made by the ITAT qua this issue reads as under: "11. We also find that the decision of Special Bench of Tribunal in the case of Maral Overseas Ltd. (supra) was upheld by Hon'ble Delhi High Court in the case of Hritnik Export Pvt. Ltd.(ITA No. 219/2014 & 239/2014 order dated 13.11.2014) wherein Hon'ble High Court dismissed the appeal of Revenue by holding as under:- By way of these appeals, the Revenue has challenged the orders passed by Income Tax Appellate Tribunal (Tribunal, for short) dated 11th September, 2013 and 24th October, 2013 relating to assessment years 2008-09 and 2009-10, respectively. Tribunal has followed the decision of their Special Bench in the case of Maral Overseas Ltd. versus Additio....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ed from the eligible profits for the purpose of computing deduction u/s 10B of the Act. As per the computation made by the Assessing Officer himself, there is no dispute that both these incomes have been treated by the Assessing Officer as business income. The CBDT Circular No. 564 dated 5th July, 1990 reported in 184 ITR (St.) 137 explained the scope and ambit of section 80HHC and the mode of determination of profits derived by an assessee from the export of goods. I.T.A.T., Special Bench in the case of International Research Park Laboratories v. ACIT, 212 ITR (AT) 1, after following the aforesaid Circular, held that straight jacket formula given in sub-section (3) has to be followed to determine the eligible deduction. The Hon'ble Supreme Court in the case of P.R. Prabhakar; 284 ITR 584 had approved the . A.Y. 2007-08 principle laid down in the Special Bench decision in International Reserarch Park Laboratories v. ACIT (supra). In the asses see's own case the I.T.A.T. in the preceding years, after considering the decision in the case of Liberty India held that provisions of section 10B are different from the provisions of section 80IA wherein no formula has been laid down....
X X X X Extracts X X X X
X X X X Extracts X X X X
....Assessment Year 2009-10, relates to duty draw back in the form of DEPB benefits. As per Section 28, clause (iii-c), . A.Y. 2007-08 any duty of customs or excise repaid or repayable as drawback to a person against exports under Customs and Central Excise Duties Draw Back Rules, 1971 is deemed to be profits and gains of business or profession. The said provision has to be given full effect to and this means and implies that the duty draw back or duty benefits would be deemed to be a part of the business income. Thus, will be treated as profit derived from business of the undertaking. These cannot be excluded. Even otherwise, when we apply Sub-section (4) to Section 10B, the entire amount received by way of duty draw back would not become eligible for deduction/exemption. The amount quantified as per the formula would be eligible and qualify for deduction/exemption. The position is somewhat akin or close to Section 80HHC of the Act, which also prescribes a formula for computation of deduction in respect of exports. In view of the aforesaid, we do not find any merit in the present appeal and the same is dismissed." Karnataka High Court in Commissioner of Inco....
X X X X Extracts X X X X
X X X X Extracts X X X X
....in the eligible profit for the purpose of grant of deduction under section 10B of the Act. 56. In view of the above discussion, we do not find any merit in the appeal of the Revenue. It is dismissed. 57. Now we take appeal of the assessee i.e. ITA No.773/Ahd/2011. 58. Ground nos.1 and 2 taken by the assessee are inter-connected. The assessee had prior period income of Rs. 46,50,648/-. It has debited prior period expenditure of Rs. 43,11,114/-. It has adjusted both these amounts. A net differential amount of Rs. 3,39,534/- has been credited to profit & loss account. The ld.AO has appreciated these facts and taxed prior period income of Rs. 46,50,648/- offered by the assessee during this assessment year. He did not allow deduction of alleged prior period expenditure of Rs. 43,11,114/-. This view of the AO has been confirmed by the ld.CIT(A). Thus, in ground nos.1 and 2 the assessee has pleaded that prior period expenditure of Rs. 43,11,114/- be allowed to it as deduction and in case it is not allowable, then alternatively, it has pleaded that net differential amount of Rs. 3,39,534/- be only taxed out of prior period income. 59. With the assistance of the ld.representativ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....then the expenditure which was incurred under different heads ought to be set off against that income. Therefore, we are of the view that net differential amount of Rs. 3,39,534/- ought to be assessed as income of the assessee. We allow both these grounds of appeal for statistical purpose and direct the AO to allow set off prior period expenditure against prior period income and only net income is to be added to the total income of the assessee. 61. Ground Nos.3 to 5: These grounds are inter-connected with each other. Grievance of the assessee is that the ld.CIT(A) has erred in confirming addition of Rs. 4,76,876/- which was added by the AO with the aid of section 14A r.w. Rule 8D of the Income Tax Rules. 62. Brief facts of the case are that the assessee has shown dividend income of Rs. 3,53,08,748/- which has been claimed as exempt income under section 10(34) of the Income Tax Act. The assessee did not offer any expenditure for disallowance under section 14A. The ld.AO thereafter found interest expenditure debited by the assessee at Rs. 7,28,42,748/-. The ld.AO calculated disallowance as per Rule 8D and made addition of Rs. 4,76,876/-. Before the ld.CIT(A) it was contended t....
X X X X Extracts X X X X
X X X X Extracts X X X X
....gnitude which has been worked out by the AO with help of Rule 8D. To our mind, ends of justice would be met, if an adhoc disallowance of Rs. 3,00,000/- be sustained for earning of tax free income. We allow this ground of appeal partly and confirm the addition to the extent of Rs. 3,00,000/-. 65. Ground Nos.6 to 9: In these grounds of appeal, grievance of the assessee is that the ld.CIT(A) has erred in confirming addition of Rs. 3,17,294/-. 66. Brief facts of the case are the ld.AO has made reconciliation of income reflected in the TDS certificate with the income shown in the accounts. He found that the assessee has income of Rs. 2,89,521/- from Travel Mat Services P.Ltd. and Rs. 27,773/- under the head job work income. On the basis of TDS certificate, he worked out a sum of Rs. 3,17,294/-. This income was not included by the assessee, hence when it was confronted by the AO vide order sheet entry dated 24.12.2009, the assessee has admitted this income and agreed for addition. Accordingly, the ld.AO made addition. Appeal to the CIT(A) did not bring any relief to the assessee. 67. Before us, the ld.counsel for the assessee contended that it be remitted to the file of the AO f....
X X X X Extracts X X X X
X X X X Extracts X X X X
....t made the statement that the outstanding balance was deposited before due date. However assessing officer found that there was difference in figures reported in 3CD report and groupings of accounts which appellant was not able to reconcile. Appellant could not substantiate the explanation given by it. In the absence of proper explanation, addition made by the AO is confirmed." 69. With the assistance of the ld.representatives, we have gone through the record. As observed in the earlier grounds of appeal, assessment order was passed on 26.2.2010. More than 8 years have expired when hearing in this appeal was taken place. If the assessee is unable to pin-point the facts whether these amounts have been paid in subsequent year and on actual payment basis deduction under section 43B has been allowed in subsequent years or not. We cannot keep the issue alive endlessly. It was for the assessee to place on record specific information qua specific ground. We do not find any error in the finding of the ld.CIT(A), hence, these grounds are rejected. 70. Ground no.12: Grievance of the assessee is that the ld.CIT(A) has erred in confirming addition of Rs. 2,86,051/-. 71. It emerges out....
X X X X Extracts X X X X
X X X X Extracts X X X X
....,674 b) Reimbursement of Administrative Services to Dishman Europe Ltd. 81,02,625/- c) Reimbursement of Insurance & Foreign Travel Expenditure to Dishman Europe Ltd. 24,28,570/- Total 1,12,01,869/- 77. The ld.AO has observed that the assessee has remitted the above amount to non-resident without deducting TDS under section 195 of the Act, and therefore, this deserves to be disallowed to the assessee. Dissatisfied with the disallowance, the assessee carried the matter in appeal and filed written submissions which has been reproduced by the ld.CIT(A) on page nos.33 to 36 of the impugned order. The explanation given by the assessee qua this items and reproduced by the ld.CIT(A) is worth to note. It reads as under: "10.2 In so far as items (b) and (c) relating to. "Reimbursement of Expenses" concerned; the appellant submits that this payment is made to non-residents who has incurred some expenditure for and on behalf of the assessee. The term "Reimbursement" has not been defined in the Act and hence its meaning has to be understood as in common parlance. As per Black's Law Dictionary the term "reimburse" means to pay back, to make resto....
X X X X Extracts X X X X
X X X X Extracts X X X X
....dom (82 ITD 106) (Mumbai ITAT). In another case, Bombay Tribunal in the case of Arthur Anderson (unreported) held that where the reimbursement is of actual expenses supported by bill no fox should be deducted. In Mahindra & Mahindra Ltd. vs. DC/T- [2005] 1 SOT896 (Mum), the ITAT held, after reviewing the case laws in the matter, that TDS u/s 795 is not required when the assessee directly incurred travelling and hotel expenses on Foreign Technicians and the same were not reimbursed to the foreign parties or the foreign technicians. In the case of CIT vs. Dunlop Rubber Co. Ltd., reported in 142 ITR 493 (CaL), the assessee company had paid its share of costs and expenses in relation to sharing the fruits of research and development as cost for impairing the information. The Hon'ble Calcutta High Court held that the amount received by the foreign company from the Indian company did not constitute income assessable under the Act. The assessee therefore submits that provisions of S. 195 on such reimbursement of expenditure are not attracted at all. 10.5 In so far as item (a) relating to professional service is concerned, the appellant submits that this payment is made to non....
X X X X Extracts X X X X
X X X X Extracts X X X X
....es expenses and this expenditure was incurred on the salary, travelling and other expenditure of one of the Senior Associates Dr. Henk Pluim who is responsible for procurement, chemical development, technology up gradation, R&D etc. It was also explained that the payment was made by Dishman Europe Ltd. to Dr. Henk Pluim which was reimbursed by the Appellant to Dishman Europe Ltd and debited under the head Administrative services expenditure. The Appellant vide letter dated 01/12/2009 also submitted and explained to the Id. AO that the entire expenditure of Dr. Henk Pluim was borne by Dishman India, Dishman USA and Dishman UK on the basis of services rendered by him and devotion of his time to all these three companies. It was also explained that the Group Chairman has finalized the allocation of expenditure considering the performance of service and devotion of time of Dr. Henk Pluim. However, the Id. AO did not appreciate this factum of the case and referred to letter dated 09/12/2009 (pi. refer page no.263-264) wherein the Appellant has mentioned that for subsequent year, the Appellant has allocated such expenditure to Dishman India, Dishman UK and Dishman USA in proportion to 40....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... a non-resident then either it should take a certificate from the AO under section 195(2) or deduct TDS on such payments. For this view, they are harping upon the decision of Hon'ble Karnataka High Court in the case of Samsung Electronics (supra). However, the Hon'ble Supreme Court did not concur with this view of Hon'ble High Court and observed that expression "chargeable under the provisions of the Act" is being employed under section 195(1) and if element of income is involved in the payments made by the assessee only then the TDS has to be deducted. Keeping in view this decision in mind, let us examine the nature of payment made by the assessee. 81. Let us take first category of payment made towards professional charges. According to the assessee, non-resident was not having any permanent establishment in India or any business connection. Thus, such sum is not taxable in India and no question of deducting TDS would arise. Reference to circular no.786 dated 7.2.2000 is being made. The AO failed to bring on record any material showing that recipient is taxable in India. With regard to other two items i.e. reimbursement of administrative charges and reimbursement of insurance a....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ion, the assessee has claimed additional depreciation on plant & machinery installed during the year of Rs. 2,93,19,329/-. This claim of additional depreciation has been rejected by the AO on the ground that the assessee did not file revised return and it could not claim enhanced depreciation. Dissatisfied with the action of the AO, the assessee carried the matter in appeal before the ld.CIT(A). It has relied upon the following decisions in supports of its claim: i) CIT Vs. M/s.Jai Parabolic Springs Ltd., 306 ITR 402; ii) Chicago Pneumatic India ltd. Vs. DCIT, 15 SOT 252 (Bom); iii) JCIT Vs. Hero Honda Finlease Ltd., 115 TTJ 0752 (Del); iv) Asheesh Securities Ltd. Vs. DCIT, 297 ITR 317 (Del); v) Moser Bear India Ltd. Vs. JCI, 108 ITD 80 (Del); vi) SNC Lavalin/Acres Inc. Vs. ACIT, 15 SOT 1 (Del); vii) Kisan Discretionary family Trust Vs. ACIT, 113 TTJ 918 (Ahd) 84. The ld.CIT(A) also did not accept claim of the he assessee and observed that the assessee should have filed revised return. 85. With the assistance of the ld.representatives, we have gone through the record. In the judgment referred by the assessee befor....
X X X X Extracts X X X X
X X X X Extracts X X X X
....requested to explain how this figure could at all be negative, because at the most, the effect could be nil but never negative. In this regard, as per order sheet entry dated 09.12.2009 on record, could not explain the basis of this working by Us auditor. It was contended that this amount had been worked for raw material only. As regards finished goods it was explained that as regards the the excise duty on closing stock of finished goods as on 31/03/2006, the assessee has paid the excise duty thereon in the subsequent Financial Year 2006- 07 before the date due for filing the Income tax, returns. In this regard certificate of the CA was also produced and placed on record. As can be seen from above, that the assessee could not substantiate its claim for deduction u/s 145A of Rs. 28,01,598/-as worked out by the auditor. Accordingly the same is added back. Penalty u/s.271(l)(c) for furnishing inaccurate particulars of income is separately initiated." 1 2.2 The appellant has submitted in its written submission which is as under: "In this connection, the Appellant most respectfully submits that as per the guidelines issued by Institute of Chartered A....
X X X X Extracts X X X X
X X X X Extracts X X X X
....urnish required details and substantiate its claim, assessing officer is justified in rejecting the appellant's claim. In view of this, this ground is dismissed." 91. The ld.counsel for the assessee while impugning the above finding submitted that there is no impact on taxability whether the assessee follows exclusive or inclusive method of accounting, hence no additions is called for under section 145A. He relied upon the judgment of the Hon'ble Gujarat High Court in the case of ACIT Vs. Narmada Chematur Petrochemicals, 327 ITR 369 (Guj). On the other hand, the ld.DR relied upon the orders of the AO. 92. We have duly considered rival contentions and gone through the record carefully. In the case of Narmada Chematur Petrochemicals (supra), Hon'ble High Court has observed that closing stock has to be valued at the option of the assessee i.e. at the cost or market price, whichever is lower. Duty of central excise on the goods manufactured i.e. assessable goods manufactured by the assessee does not form part of manufacturing cost. It can be termed as post manufacturing cost, and therefore, until and unless it is entered on one side as an item of cost, it cannot be taken as c....
X X X X Extracts X X X X
X X X X Extracts X X X X
....(c) of the Act was issued on 26.2.2010 inviting explanation of the assessee as to why penalty under section 271(1)(c) of the Act be not imposed upon the assessee for concealing particulars of income or furnishing inaccurate particulars of income. The ld.AO has considered the following items of additions for imposing penalty under section 271(1)(c) of the Act: Add: Prior Period income 46,50,648/- Add: Disallowance u/s.14A 4,76,876/- Add: Income as per TDS certificate less shown 3,17,294/- Add: Unexplained ESIC Outstanding u/s.43B 2,40,940/- Add: Sundry balances written off for capital goods 2,86,051/- Add: Non deduction of TDS u/s.40(a(ia) 1,12,01,869/- Add: Impact of section 145A claimed as deduction 28,01,598/- Add: Misc. expenses written off 15,00,000/- Add: Disallowance u/s.10B 6,56,59,970/- 98. After hearing the assessee, he imposed penalty of Rs. 3,03,77,454/- for furnishing inaccurate particulars of income. Dissatisfied with the penalty order, the assessee carried the matter in appeal before the ld.CIT(A) who partly deleted penalty. The ld.CIT(A) has summarized his order as under: "3.3 To sum-up levy of penalty....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ate and fails to prove that such explanation is bona fide and that all the facts relating to the same and material to the computation of his total income have been disclosed by him, then, the amount added or disallowed in computing the total income or such person as a result thereof shall, for the purposes of Clause (c) of this sub-section, be deemed to represent the income in respect of which particulars have been concealed." 101. A bare perusal of this section would reveal that for visiting any assessee with the penalty, the Assessing Officer or the Learned CIT(Appeals) during the course of any proceedings before them should be satisfied, that the assessee has; (i) concealed his income or furnished inaccurate particulars of income. As far as the quantification of the penalty is concerned, the penalty imposed under this section can range in between 100% to 300% of the tax sought to be evaded by the assessee, as a result of such concealment of income or furnishing inaccurate particulars. The other most important features of this section is deeming provisions regarding concealment of income. The section not only covered the situation in which the assessee has concealed the income....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... Rs. 46,50,000/-. It is pertinent to observe that the assessee has prior period income of Rs. 46,50,648/-. It has claimed prior period expenditure which have been crystallized during this year against this income at Rs. 43,11,114/-. It has credited net income of Rs. 3,39,534/-. The ld.AO did not allow prior period expenditure, but assessed prior period income. While dealing with this issue in the quantum appeal, we have granted set off prior period expenditure against prior period income. Thus addition has not been confirmed by us in the quantum appeal discussed in the upper part of this order, hence, no penalty under section 271(1)(c) can be imposed upon these items. 104. We find that sub-clause (iii) of section 271(1)(c) provides mechanism for quantification of penalty. It contemplates that the assessee would be directed to pay a sum in addition to taxes, if any, payable him, which shall not be less than , but which shall not exceed three times the amount of tax sought to be evaded by reason of concealment of income and furnishing of inaccurate particulars of income. In other words, the quantification of the penalty is depended upon the addition made to the income of the asses....
X X X X Extracts X X X X
X X X X Extracts X X X X
....portion to quantum of sales in EOUs and Non-EOU, (e) clearing and forwarding exports expenses allocated in proportion to quantum of sales in EOU and non-EOU, and allocation of administrative and interest expenses in proportion to total sales in EOU and Non-EOUs. The ld.CIT(A) has considered this issue in the penalty order as under: "In the return of income appellant had claimed deduction u/s.10B of Rs. 33,19,35,229/- in respect of EOU at Bavla and Naroda. In the assessment order, an amount of Rs. 10,21,60,135/- (out of the said claim) was disallowed. In the appellate order this disallowance was reduced to Rs. 6,56,59,670/-. Penalty u/s.271(1)(c) was levied with reference to the amount confirmed by the CIT(Appeals). Subsequent to the appellate order dtd.03.01.2011 and impugned penalty order dtd.30.03.2012, order u/s.155 dtd.18.04.2013 was passed by the A.O. by allowing further deduction u/s.10B of Rs. 3,01,00,015/-. The further deduction was allowed accepting the contention of the appellant that it had realized export debtors to the extent of Rs.l6,28,59,717/- (out of the outstanding debtors of Rs. 17,52,50,303/-) within four years from the end of the previous year. In the ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....specially when there is nothing on record to show explanation offered by assessee was not bona fide or any material particulars were concealed or furnished inaccurate. Order of CIT(A) Upheld." It is also seen that in the case of CIT Vs. KAS Movie (P) Ltd. [2012] 207 Taxman 183 (Mag.) (Delhi), it was held that where claim of assessee for deduction u/s.80HHF was rejected on the ground that basic condition for claim of deduction U/S.80HHF was not satisfied by the assessee, levy of penalty u/s.271(l)(c) was not called for. Further, in the case of Geeta Prings (P.) Ltd. Vs. Asstt. CIT [2012] 247 CTR 620 (Guj.), it was held as under: - "the assessee had made full disclosure about the claim. The claim was also certified by the chartered accountant. Necessary declarations in the prescribed forms were made, May be, in the case of the assessee, such claim on merits was not granted. However, this did not mean that the assessee had concealed any income. Further, the issue ultimately at any rate was debatable since one High Court has already held in favour of the assessee. When no information as given in return was found to be incorrect, penalty could not be imposed."....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... concerned the first item on which penalty has been confirmed is addition of Rs. 28,01,598/-. This addition has been made with the aid of section 145A of the Act. 111. We have already set aside this issue to the file of the ld.CIT(A) while dealing with grounds raised by the assessee in its quantum appeal, hence, penalty cannot be imposed on this item. 112. Next item on which penalty has been challenged is on addition of Rs. 3,17,294/-. This addition was made by the AO on the ground that on reconciliation of income reflected in TDS certificate, the assessee has not offered any income of Rs. 3,17,349/-. The case of the assessee is that this amount has been offered in subsequent years because it was not realized in this year. Though on the basis of credit taken in the TDS certificate, addition has been made, but it is pertinent to observe that in every assessment year, the assessee has been offering prior period income. Thus, possibility of its reconciliation in subsequent year cannot be ruled out. The assessee cannot be deserved to be visited with penalty on this addition. 113. Next item relates to addition of Rs. 2,40,940/-. According to the AO as per 3CD reort, ESIC outsta....