TaxTMI 
TaxTMI 
TaxTMI 
2016 (4) TMI 1316
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.... of this consolidated order. ITA no.641/Mum./2007 - Assessee's Appeal Assessee has raised five grounds in this appeal. 3. Ground no.1, relates to disallowance of assessee's claim of deduction under section 35(2AB) of the Income Tax Act, 1961 (for short "the Act") amounting to Rs. 1,61,96,892. 4. Brief facts relating to this issue are assessee company filed its return of income for the impugned assessment year on 1st December 2003, declaring loss of Rs. 3,15,35,060, under the normal provisions and paid tax of Rs. 5,44,980 under section 115JB of the Act. Subsequently, assessee on 31st March 2005, filed a revised return of income declaring loss of Rs. 5,25,97,009, under the normal provisions and computed tax of Rs. 1,09,148, on the book profit declared under section 115JB. During the assessment proceedings, the Assessing Officer noticed that assessee had debited an amount of Rs. 3,23,93,782 to the Profit & Loss account on account of research and development expenditure and claimed deduction under section 35(2AB) for an amount of Rs. 4,85,90,676. When called upon by the Assessing Officer to justify the deduction claimed with supporting evidence, it was submitted by the assessee t....
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....ction claimed under section 35(2AB), held as under:- "3.4. We have gone through the submissions made by both the sides as well as facts of the case and the position of law emerging out from the decisions relied upon by the parties before us. The brief facts are that deduction u/s 35(2AB) was claimed by the assessee in respect of research and development expenses incurred at New Mangalore and KRS Gardens research centre. Application was made with DSIR dated 28.03.2001, copy of which is enclosed at pages 37 to 68 of the paper book. The recognition of the research unit was granted by the DSIR vide its letter dated 03.07.2002 for New Mangalore unit (copy available at P.B. 68) and letter dated 04.12.2002 for KRS Gardens research unit (copy available at page no.69 of the paper book). In view of these facts, it clearly emerges out that assessee had made the applications well in time. Thereafter, granting of approval by the competent authority was not in the control of the assessee. It has been further brought to our notice that there was no delay on the part of the assessee in supplying any information to the approval authority, if and when asked by it. In other words, the delay, in the....
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....old that the assessee fulfils the conditions laid down in the aforesaid provisions. The discussion, which is undertaken by the Gujarat High Court while interpreting the aforesaid provisions, is extracted below: "7. .........The lower authorities are reading more than what is provided by law. A plain and simple reading of the Act provides that on approval of the research and development facility, expenditure so incurred is eligible for weighted deduction. 8. The Tribunal has considered the submissions made on behalf of the assessee and took the view that section speaks of: (i) development of facility; (ii) incurring of expenditure by the assessee for development of such facility; (iii) approval of the facility by the prescribed authority, which is DSIR; and (iv) allowance of weighted deduction on the expenditure so incurred by the assessee. 9. The provisions nowhere suggest or imply that research and development facility is to be approved from a particular date and, in other words, it is nowhere suggested that date of approval only will be cut-off date for eligibility of weighted deduction on the expenses incurred from that date onwards. A plain reading clearly manifes....
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....y section 35(2AB). In this regard also we have noted that the assessee has made requisite compliance as has been required by the prescribed competent authority and compliance of all the procedural requirements has been examined by the competent authority while granting approval. In our considered view, we should look substantive compliance of the provisions. Documentation in any particular format and its approval in a particular manner is not object of this action. In any case, all these aspects have been examined by the competent authority while granting approval, thus the AO should not have denied benefit of deduction on his whims and fancies. We find that the assessee has rightly placed reliance on the judgment of coordinate bench in the case of ACIT vs. Meco Instruments (supra) and Sri Biotech Laboratories India Ltd., supra, in support of his claim. 3.6. Thus, taking into accounts all the facts and circumstances of the case as well as aforesaid judgments, we find that the assessee is eligible for deduction u/s 35(2AB) and the same was wrongly denied to the assessee, and therefore, we direct the AO to grant the benefit of deduction u/s 35(2AB). Ground no.1 of the assessee's ap....
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....5.09 crore respectively as on 31st March 2003. He further found, during the previous year relevant to assessment year 2003-04, assessee has made payments on account of job works to these subsidiaries to the tune of Rs. 1.26 crore and Rs. 1.01 crore respectively. On a comparative analysis, he found that the funds advanced to the subsidiaries are nearly 6 times and 11 times of the job work charges paid. He further found that the advances are on account of various expenses incurred on behalf of subsidiary companies which have to be recovered by the assessee. The Assessing Officer was of the view that the assessee should either have recovered the same during the previous year or it should have charged interest on the same. He observed, while on one hand, assessee was incurring costs on account of interest the subsidiary is benefiting by availing interest free funds. 13. As far as Strides Research and Specialties is concerned, the Assessing Officer observed, it is a separate and distinct profit centre as the division was hived off into a separate company w.e.f. 1st April 2002. He observed, as per the scheme of arrangement, the excess of book value of asset over the liabilities as reduc....
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...., pursuant to demerger, the debit balance to the CRAM division was treated as advance to the new company. Learned Authorised Representative submitted, the so called advance is a mere book entry and there was no actual cash out flow from the assessee to the said company towards such demerger. Learned Authorised Representative submitted, though, advance to Indian subsidiary companies were made from the earlier assessment year and also continued in subsequent assessment years, the Assessing Officer has not made any disallowance up to assessment year 2002-03 or even in subsequent assessment year 2004-05 to 2006-07, though, assessments were completed under section 143(3) of the Act. He submitted, in fact in assessment year 2004-05, against the disallowance made by the Assessing Officer, assessee preferred appeal before the learned Commissioner (Appeals) accepting assessee's claim deleted the addition and Department accepted the decision of the learned Commissioner (Appeals) by not preferring any appeal before the Tribunal. He submitted, from assessment year 2005-06, the Assessing Officer himself did not make any disallowance under section 36(1)(iii). Thus, it was submitted by the asses....
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....ommissioner (Appeals) and the Department accepted the decision of the learned Commissioner (Appeals) by not referring any further appeal. All these facts invariably prove that the advances made are on account of commercial expediency as the assessee has a close business connection with the subsidiaries. The Hon'ble Supreme Court in Hero Cycle Ltd. (supra), while approving its earlier decision in CIT v/s S.A. Builders, [2007] 288 ITR 001 (SC) held as under:- "12. Insofar as loans to the sister concern/subsidiary company are concerned, law in this behalf is recapitulated by this Court in the case of S.A. Builders Ltd. v. CIT (Appeals) [2007 (288) ITR 1/158 Taxman 74]. After taking note of and discussing on the scope of commercial expediency, the Court summed up the legal position in the following manner:- '26. The expression "commercial expediency" is an expression of wide import and includes such expenditure as a prudent businessman incurs for the purpose of business. The expenditure may not have been incurred under any legal obligation, but yet it is allowable as a business expenditure if it was incurred on grounds of commercial expediency. 27. No doubt, as held in Ma....
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....resent case. In view of the aforesaid, we hold that as the advance made to the subsidiary are on account of commercial business / business expediency, proportionate disallowance out of interest expenditure cannot be made. Ground no.2, is allowed. 19. Ground no.3, assessee has challenged the disallowance of Rs. 16,82,953, and Rs. 10,888, on account of PF and ESIC respectively. 20. Brief facts are, during the assessment proceedings, the Assessing Officer on a perusal of tax audit report found that there was a delay in remittance of employer's and employees' contribution to P.F. He also found similar delay in respect of payment of ESIC dues. He, therefore, called upon the assessee to explain why the expenditure incurred should not be disallowed under section 43B, and treated as assessee's income in terms of section 2(24)(x) r/w section 36(1)(va). In response to the query raised by the Assessing Officer, it was submitted by the assessee that payments were made within the grace period and further it was submitted as the payments were made before the due date of filing of return of income for the assessment year under consideration, no disallowance under section 43B, can be made after....
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....ilar issue came before the Tribunal in assessee's own case for A.Y. 2001-02, wherein Hon'ble Tribunal has allowed relief to the assessee, relevant para of the Tribunal's order is reproduced below: "6. After considering the rival submissions and perusing the relevant material on record we find that the Hon'ble Supreme Court in the case of CIT v. Alom Extrusions Ltd. [(2009) 319 ITR 306 (SC)] has held that the amendment to first proviso and the omission of the second proviso to section 43B by the Finance Act, 2003 is retrospective. In that view of the matter any amount referred to in section 43B, being the sum payable by the employer shall be allowed as deduction if it is paid before the due date of filing of the return. The Hon'ble Delhi High Court in the case of CIT v. Aimil Ltd. [(2010) 321 ITR 508 (Del.)] has held that if employees' share is deposited before the due date then no disallowance is called for. In reaching this conclusion, the Hon'ble Delhi High Court relied on the judgment of the Hon'ble Supreme Court in the case of CIT v. Vinay Cement Ltd. [(2007) 213 CTR (SC) 268] in which it was held that the amount of employees contribution etc. deposited before the filing of r....
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.... the assessee that only profit on transfer of DEPB credit is covered by the newly inserted section 28(iiid), however, did not accept the same and confirmed the assessment order on this issue. 30. Learned Authorised Representative submitted, the face value of DEPB credit during the year was Rs. 6,56,57,201, whereas, the assessee sold such credit at net value of Rs. 6,04,98,035, thereby incurred a loss of Rs. 51,59,166. Learned Authorised Representative referring to the decision of the Hon'ble Supreme Court in Topman Exports v/s CIT, [2012] 342 ITR 49 (SC), submitted, the face value of DEPB credit would be covered by section 28(iiib), hence, entitled to deduction under section 80HHC. He submitted, profit arising on transfer of such credits would be covered by section 28(iiid), hence, the limitation provided in Fourth provision under section 80HHC(3) would only apply to such profits. Learned Authorised Representative submitted, the assessee would be entitled to deduction in respect of face of value of DEPB credit as no disallowance under Fourth proviso to section 80HHC(3) can be made because the DEPB have been transferred at a loss. Learned Authorised Representative submitted, ot....
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.... pricing adjustment relating to disallowance of interest on the advances made to overseas subsidiaries. 35. Brief facts are, the assessee is engaged in the business of manufacturing of generic pharma and nutritional products. It exports formulations, packing material and bulk drugs to its overseas group of companies hereinafter called A.Es. Though, the assessee had subsidiaries located in U.S.A., Mexico, Switzerland, Brazil, Uruguay, U.A.E. and South Africa, however, subsidiaries located in U.S.A., Brazil and Mexico are engaged in manufacturing activities. Other subsidiaries are engaged in trading activities only. During the relevant previous year, assessee entered into international transactions with its A.E. as under:- Sr. no. International Transaction Amount (Rs. in crore) Method Applied 1. Sale of packing material and bulk drug 6.37 TNMM 2. Export of finished goods 58.47 Cost Plus 3. Sale of equipment 0.46 TNMM 4. Reimbursement Received - Rs. 0.60 crore Paid Rs. 2.52 crore 3.12 Actual 36. In the course of assessment proceedings, the Assessing Officer noticing that assessee has entered into international transactions with its A.E. made a reference to the ....
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....icing Officer, interest chargeable is on account of financial cost which has nothing to do with profit at the operational level. Accordingly, he determined the arm's length price for the interest free credit extended to the assessee at Rs. 13,05,113 and made an adjustment. In terms of the adjustment made by the Transfer Pricing Officer, the Assessing Officer completed the assessment. Though, the assessee challenged the addition made on account of transfer pricing adjustment of the advances made to the subsidiary but the learned Commissioner (Appeals) dismissed the same by observing that the assessee was not able to justify its claim that no interest should be charged on the interest free advances to the subsidiary. Learned Commissioner (Appeals) observed, as the assessee was paying heavy interest on borrowing, whereas it has advanced money free of interest to subsidiary, the TPO was justified in determining the ALP of interest free advances. 37. Learned Authorised Representative submitted, the transfer pricing provision contained under Chapter-VI of the Act, is a computation provisions and not a charging provision. When the assessee has not charged any interest on the advance ....
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....92B, the expression "International Transaction" would include capital financing including receivable or any other due arising during the course of business. Therefore, assessee's claim that interest free advances would not constitute international transaction is not acceptable. Learned Departmental Representative submitted, once the interest free advances are held to be coming within the ambit of international transaction, then determination of arm's length price of such transaction is imperative. He submitted, the interest free advance is in effect extended credit period granted to the A.E. for receivables. Hence, arm's length price has to be determined as per method prescribed under section 92C. He submitted, since the assessee has exported goods to A.Es and non-A.Es and there is delay in realisation of export proceeds from both there is internal CUP available to bench mark its transactions. Therefore, the same needs to be applied to bench mark the international transaction and TNMM is not a preferable method. Learned Departmental Representative submitted, the contention of the assessee that the loan is for business expediency would have no effect as the assessee advance....
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....ble securities or any type of advance, payments or deferred payment or receivable or any other debt arising during the course of business; (d) provision of services, including provision of market research, market development, marketing management, administration, technical service, repairs, design, consultation, agency, scientific research, legal or accounting service; (e) a transaction of business restructuring or reorganisation, entered into by an enterprise with an associated enterprise, irrespective of the fact that it has bearing on the profit, income, losses or assets of such enterprises at the time of the transaction or at any future date;" 40. On a plain reading of clause (c) of Explanation-(i) to section 92B, it is evident that any type of advance payment or deferred payment or receivable or any other debt arising during the course of business including capital financing would come within the scope of "International Transaction". Thus, the assessee having incurred expenditure on behalf of its overseas A.Es which are receivables from the A.Es comes within the meaning of "International Transactions". Therefore, contention of the learned Authorised Representative that re....
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....otice through the working submitted before the Departmental Authorities that the average cost of borrowings to the assessee is 4.84%. The learned Authorised Representative has also submitted a working showing the average LIBOR rate of financial year 2002-03 at 1.698%. In a number of decisions, different benches of the Tribunal have consistently held that in such type of international transaction, domestic PLR rate cannot be applied and the rate of interest has to be quantified either with reference to LIBOR or EURIBOR depending upon the country and currency in which the transaction has taken place. Considering the facts of the present case, we are of the considered opinion that LIBOR rate of 1.698% plus 300 basis point would be the appropriate interest rate applicable to the international transactions relating to advancement of interest free loan / extended credit facility to the overseas A.E. Accordingly, we direct the Assessing Officer / Transfer Pricing Officer to compute the interest on the interest free advances paid to the A.E. Ground no.5, is partly allowed. 41. In the result, assessee's appeal is partly allowed. ITA no.274/Mum./2007 - Department's Appeal C.O. no.121/Mu....
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...., did not find merit in the submissions of the assessee. The Assessing Officer, after considering the loan taken and investment made in overseas subsidiary yearwise observed that borrowed funds have been diverted for making investment. Hence, interest on such borrowed funds is not allowable as business expenditure. Accordingly, the Assessing Officer working out interest cost of 10% on the investment in subsidiary from assessment year 2000-01 to 2003-04 and computed the total disallowance out of interest expenditure at Rs. 8,05,87,632. Being aggrieved of such disallowance, assessee preferred appeal before the learned Commissioner (Appeals). 44. Before the first appellate authority, it was submitted by the assessee by furnishing a fund flow statement that assessee had sufficient interest free funds to invest in overseas subsidiaries. However, learned Commissioner (Appeals) observed that assessee had not disputed the allegation of the Assessing Officer that borrowed funds were not utilised for investment in shares of overseas company. 45. As far as the claim of commercial expediency is concerned, the learned Commissioner (Appeals) observed, assessee has not demonstrated how the inve....
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....out of interest free funds. For such proposition, he relied upon the decision of the Hon'ble Jurisdictional High Court in CIT v/s Reliance Utilities and Power Ltd. [2009] 331 ITR 340 (Bom.), and HDFC Bank Ltd. v/s DCIT, W.P. no.1753 of 2016. Further, learned Authorised Representative submitted, there is enough documentary evidence brought on record to show that the overseas subsidiaries are acting as marketing arms of the assessee. He submitted, as a result of investment made by the assessee in establishing the overseas subsidiary, the sales in certain geographical locations has substantially increased. In this context, he drew the attention of the Bench to the transactions with the subsidiary companies. He submitted, from the aforesaid facts, it is clear that the assessee has a regular trade / business transaction with the overseas subsidiary, therefore, there is close business connection between the assessee and the overseas subsidiary. Thus, the commercial expediency having been established, no disallowance can be made in terms of section 36(1)(iii). In this context, he relied upon the decision of Hon'ble Madras High Court in Indian Commerce & Industries Co. (P) Ltd. v/s....
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....ties and also has stated before us, borrowed funds were utilised for the purpose for which they were availed by investing in fixed assets and working capital. Aforesaid, contentions of the assessee was not considered by the Departmental Authorities with any genuineness. When the Assessing Officer makes the disallowance of interest expenditure on the allegation that borrowed funds were utilised for the purpose of investment in subsidiary, the burden is on the Assessing Officer to establish the nexus between the borrowed funds and the investments made. Establishment of such nexus assumes more importance when it is found that along with borrowed funds, assessee had sufficient interest free funds available with him to make the investment. In such situation, as held by the Hon'ble Jurisdictional High Court in Reliance Utilities Pvt. Ltd. (supra), subsequently following in HDFC Bank Ltd. (supra), the presumption would be investment in subsidiary has been made out of own surplus funds available with the assessee. In the present case, the fact that assessee has sufficient interest free funds available with it, has not been controverted by the Department. In such circumstances, followin....
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....a fact that in assessment year 2002-03, considering that there was enough interest income against which the interest expenditure could be set-off, hence, there is no impact on the tax liability, the assessee might have accepted the decision of the learned Commissioner (Appeals). Moreover, it may be a fact that at relevant point of time, the assessee did not had the benefit of decision of the Hon'ble Jurisdictional High Court which could have led the assessee not to accept the decision of the learned Commissioner (Appeals). Thus, on over all consideration of the facts and circumstances of the case, we allow assessee's claim by deleting the addition of Rs. 8,05,87,632. Thus, we allow the ground raised by the assessee in cross objection and dismiss the ground raised by the Department. 49. In ground no.2, Department has challenged allowance of assessee's claim of deduction in respect of employer's contribution made towards PF / ESIC. 2. Before us, both the parties admitted, the issue arising out of the aforesaid ground is identical to ground no.3, raised by the assessee in its appeal in ITA no.641/Mum./2007, wherein, vide Para-21, the said issue is decided in favour of the asses....
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....in ITA no.1727/Mum./2006 dated 16th December 2015, it is noticed that while upholding the order of the learned Commissioner (Appeals) in assessee's own case claim of reduction in indirect cost by 10% of the export incentives the Tribunal followed its own order for assessment year 2001-02 in assessee's own case wherein the Tribunal had decided the issue by following the decision of the Hon'ble Supreme Court in Hero Export v/s CIT, [2007] 295 ITR 454 (SC). The relevant observations of the Bench is as under:- "7.1. It is noted by us that similar issue came up before the Tribunal in A.Y.2001-02, wherein the Tribunal has upheld the claim of the assessee by relying upon the decision of Hon'ble Supreme Court in the case of Hero Exports vs CIT 295 ITR 454, by making following observations: "16. Ground no.9 is against the direction of the learned CIT(A) to reduce 10% export incentives from the gross indirect cost by considering the same as indirect expenditure incurred in earning such incidence. Having heard the rival submissions it is noted that this ground is also covered in favour of the assessee by the judgment of the Hon'ble Supreme Court in the case of Hero Exports v. CIT [295....
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....learned Commissioner (Appeals). Ground no.4, is dismissed. 60. In ground no.5, the Department has challenged the decision of the learned Commissioner (Appeals) with regard to netting of interest expenditure against interest income for computation of deduction under section 80HHC. 61. In the course of assessment proceedings, the Assessing Officer noticing that the assessee had included interest earned on fixed deposit in the banks amounting to Rs. 89,82,566, in the business income for claiming deduction under section 80HHC, disallowed the claim by holding that such income being in the nature of income referred to any Explanation (baa) to section 80HHC(4B), 90% of such income has to be reduced from profit of business for computing deduction under section 80HHC. 62. In the appeal preferred by the assessee against the aforesaid decision of the Assessing Officer, learned Commissioner (Appeals) held that the interest received should be netted off against interest payment. He further held that if the interest is generated out of the margin money for issuing guarantee or opening of L/C the same is directly connected with the business of assessee. Hence, the interest income generated fro....
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....d by the Revenue and the same is dismissed." 64. There being no material difference in facts brought to our notice by the learned Departmental Representative, respectfully following the aforesaid decision of the Tribunal, we uphold the order of the learned Commissioner (Appeals) by dismissing ground no.5, raised by the Department. 65. In ground no.6, Department has challenged the decision of the learned Commissioner (Appeals) in directing the Assessing Officer to exclude excise duty and sales tax from the total turnover for computation of deduction under section 80HHC. 66. Brief facts are, while completing the assessment, Assessing Officer held that excise duty has to form part of total turnover for computing deduction under section 80HHC. Though, assessee had excluded the excise duty from the total turnover following the judgment of Hon'ble Jurisdictional High Court in CIT v/s Sudarshan Chemical Industries Ltd. [2000] 245 ITR 769 (Bom.), but the Assessing Officer reasoning that Department has filed SLP against the said decision of the Hon'ble Bombay High Court rejected assessee's contention. 67. The learned Commissioner (Appeals), however, following the decision of the....
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.... is dismissed." 69. There being no material difference in facts, respectfully following the decision of the co-ordinate bench of the Tribunal, we uphold the order of the learned Commissioner (Appeals) by dismissing the ground raised by the Department. 70. Ground no.7, raised by the Department relates to transfer pricing adjustment in respect of sale of finished goods. 71. Brief facts are, assessee is engaged in the business of generic, pharma and nutritional products. It exports formulation, packing material and bulk drugs to its group companies. As noted by the Transfer Pricing Officer, assessee has subsidiaries located in U.S.A., Mexico, Switzerland and Brazil, Uruguay, U.A.E. and South Africa. He also noted that the subsidiaries located in U.S.A., Brazil and Mexico are engaged in the manufacturing activities, whereas, other subsidiaries are engaged in trading activities. In the course of proceeding before him, the Transfer Pricing Officer after perusing the transfer pricing documents of the assessee and other relevant material found that margin shown by the assessee is much more than the margin of the comparable companies, however, the Transfer Pricing Officer called upon the....
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....nt came in appeal before the Tribunal. The Tribunal restored the issue back to the Assessing Officer / Transfer Pricing Officer for fresh consideration observing as under:- "17.6. We have gone through the submissions made by both the sides as well as orders of the lower authorities. It is noted by us that Ld. CIT-DR is factually correct in submitting that CIT(A) has deleted the addition without following the correct approach. The issues with regard to transfer pricing adjustment have to be resolved following a mechanism and complying with the provisions as contained in chaper X, dealing with the transfer pricing issues as contained in sections 92-92F and connected rules as contained in Rules 10A,10B,10C,10D and 10E of Income Tax Rules 1962. These sections and rules prescribe various methods that may be employed to establish arm's length price, explaining applicability of each method, the documentation required to be maintained and form of the certificate to be issued by auditors in this regard. These regulations provide that any income arising from the international transactions shall be determined having regard to the arm's length price. This issue has now been decided in variou....
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....the assessee and affording due opportunity of being heard, the Transfer Pricing Officer shall pass a speaking and reasoned order meeting all the objections raised by the assessee. With the aforesaid direction, the issue is restored to the file of the Assessing Officer. Ground no.7, is allowed for statistical purposes. 75. In ground no.8, the Department has challenged the decision of the learned Commissioner (Appeals) in directing the Assessing Officer not to reduce the deduction computed under section 80HHC, while computing book profit under section 115JB. 76. Brief facts are, while computing the book profit under section 115JB, Assessing Officer reduced the deduction computed under section 80HHC, amounting to Rs. 2,78,66,066, being aggrieved of such computation, assessee challenged it before the learned Commissioner (Appeals). 77. In the course of proceedings before the first appellate authority, it was submitted by the assessee that in the preceding assessment year, the issue has been decided in favour of the assessee. Learned Commissioner (Appeals), following the decision of his predecessor-in-office, held that export profits deductible in calculating book profit have to be w....
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....cted to Mission Pharma Logistic Pvt. Ltd. 82. Brief facts are, the Assessing Officer in the course of assessment proceedings, while verifying assessee's claim of deduction under section 80HHC, noticed that during the relevant previous year, assessee had effected sales to another entity viz. Mission Pharma Logistic Pvt. Ltd. and claimed deduction under section 80HHC, on such sales. Assessing Officer observed that Mission Pharma Logistic Pvt. Ltd. is not doing any manufacturing activity and is only engaged in re-packing liberalising, kit packing, etc. He, therefore, opined that Mission Pharma Logistic Pvt. Ltd. is not eligible for deduction under section 10A. Referring to sub-section (4C) of section 80HHC, the Assessing Officer called upon the assessee to explain why deduction under section 80HHC on sales made to Mission Pharma Logistic Pvt. Ltd. should not be disallowed. Though, assessee objected to proposed disallowance by stating that the concerned company being a SEZ unit, sales effected to such unit will be considered as deemed export and, hence, eligible for deduction under section 80HHC, however, the Assessing Officer on the basis of his conclusion that Mission Pharma Logisti....
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....ls such products to any undertaking situated in SEZ which is eligible for deduction under section 10A, then such sales effected by the assessee shall be deemed to be export out of India for the purpose of section 80HHC. Thus, on a plain reading of the provisions contained in sub-section (4C) of section 80HHC, it becomes clear that to qualify as deemed export out of India three conditions are to be satisfied. Firstly, assessee claiming such deduction must have set-up an undertaking for manufacture or production of goods outside SEZ; secondly, the goods / products manufactured by it, should be sold to an undertaking situated in SEZ; thirdly, such SEZ units must be eligible for deduction under section 10A. In the present case, there is no dispute between the parties that assessee has satisfied conditions no.1 and 2. As far as condition no.3, is concerned, it is the allegation of the Assessing Officer that SEZ unit to which assessee has effected sales viz. Mission Pharma Logistic Pvt. Ltd. is not an eligible unit under section 10A, as it is not engaged in any manufacturing activity but is doing only re-packing, re-labeling and kit packing. However, on what basis, the Assessing Officer ....
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....r computation of deduction under section 80HHC. 92. This issue is similar to the issue raised in Ground no.5, by the Department in its appeal in ITA no.274/Mum./2007. Following the reasoning given in Para-60 and 61, we uphold the order of the learned Commissioner (Appeals) by dismissing the ground no.4, raised by the Department. 93. In ground no.5, Department has challenged the decision of the learned Commissioner (Appeals) in deleting the adjustment made to the arm's length price by the Assessing Officer and the Transfer Pricing Officer. 94. This issue is similar to the issue raised in ground no.7, by the Department in its appeal in ITA no.274/Mum./2007. Following the reasoning given in Para-70 and 71, we uphold the order of the learned Commissioner (Appeals) by dismissing the ground no.5, raised by the Department. 95. In the result, Department's appeal is dismissed. C.O. no.61/Mum./2011 (Assessee's Cross Objection arising out of Department's appeal in ITA no.4063/Mum./2010) 96. Ground no.1, relates to disallowance of deduction claimed under section 35(2AB) of the Act. 97. This issue is similar to the issue raised in Ground no.1, by the assessee in its appeal in ITA ....