AI Drafter 
TaxTMI 
TaxTMI 
2018 (6) TMI 1535
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....ion 92CA(3) of the Income Tax Act, 1961 in all these three years. On appeal, the ld.CIT(A) partly upheld such adjustment and partly deleted. Therefore, both the parties are impugning orders of the ld.CIT(A) on this issue. We deem it appropriate to take this issue together raised in all these three years. 3. Brief facts of the case are that returns of income for the assessment years 2007-08 to 2009-10 were filed on 31.10.2007, 30.9.2008 and 29.9.2009 declaring loss at (-)46,78,40,252/-, Rs. 18,53,52,406/- and Rs. 2,54,05,015/- respectively for the assessment years 2007-08 to 2009-09. There is no dispute between parties that cases of the assessee for all these years were taken up for scrutiny assessment and due notice under sections 143(2)/142(1) were issued and served upon the assessee. Since there were international transactions of the assessee with its AE, therefore reference under section 92CA(1) were sent by the AO to the TPO in all these years. The ld.TPO has passed orders under section 92CA(3) of the Act on 20.10.2010, 28.10.2011 and 22.1.2013 respectively. The international transactions undertaken by the assessee with its AE in these years were taken note by the ld.TPO,....
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....1,109 TNMM 11. DISHMAN USA, INC Contract Research service 2,06,84,000 TNMM 12. DISHMAN EUROPE LTD. Apportionment of insurance premium 11,78,932 TNMM 13. DISHMAN EUROPE LTD. Reimbursement of expenses 1,84,13,221 TNMM 14. DISHMAN Australasia pty Ltd. Short term loan 1,05,51,694 TNMM 15. Dishman Pharma & Chemicals (Shanghai) Co. Ltd. Short term loan 10,05,10,000 TNMM 16. Dishman Europe Limited Short term loan 22,74,113 TNMM 4. Let us first take the facts in the assessment year 2007-08 on this issue. It is pertinent to note that in the value of international transactions of Rs. 177,72,94,788/- extracted above, the ld.TPO recommended upward adjustment of Rs. 11,12,88,512/-. The adjustments were made qua four components viz. (a) adjustment in sale price of Rs. 4,78,99,891/-; (b) interest on loan of Rs. 87,19,932/-; (c) guarantee fees of Rs. 5,18,22,200/- and insurance of Rs. 28,46,489/-. The ld.CIT(A) has gone into all these transactions and deleted adjustment recommended qua sale price, guarantee fees, but upheld adjustment qua insuran....
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....rable 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 honourablespecial 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 transactions are available for comparison, determination of arms length- an easy task. But it is not so in most of the transactions rarely one is able to locate the Identical transaction. In such cases arms length price is determined by taking the comparable transaction in: comparable circumstances and make suitable adjustment for the differences. Similarly in the present case also the PBIT of the assessee company is exactly similar or nearby with that of the other....
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.... the detailed reasons and judicial decision given by the TPO which is quoted earlier, the adjustment in respect of interest made by the TPO is confirmed. - However, while making adjustment in respect of interest, TPO did not allow set off of interest already charged by the appellant. Since the interest worked out by the This is total interest which should've been charged at ALP, obviously Interest already charged by the appellant has to be reduced making TP adjustment. Accordingly assessing officer is directed to reduce interest already charged by the appellant from the total interest chargeable from the AEs. The adjustment of such net amount computed is confirmed, (c) Guarantee fees- TPO made the adjustment on account of commission in respect of corporate guarantee provided by the appellant to its AE. Applicant submitted that corporate guarantee does not come under the purview of TP adjustments. Appellant relied upon the decision of ITAT Hyderabad in which it Is held that for providing corporate guarantee in obtaining loans by AE, no adjustment can be made. ITAT in the case of Four Soft Ltd. vs. DCIT,Circle - 1(3), Hyderabad :(1TA No. 495/Hyd/10) dated 09-09-2011 held as....
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....s justified and addition is accordingly dismissed." 5. In the assessment year 2008-09, the ld.TPO has recommended upward adjustment in the value of international transactions at Rs. 11,99,88,464/-. He has recommended such adjustments on three accounts viz. (a) adjustment in sale price of Rs. 5,05,24,457/-; (b) interest on loan of Rs. 1,02,58,808/- and (c) guarantee fees of Rs. 5,92,05,199/-. On appeal, the ld.CIT(A) has deleted adjustment qua item no.(a) and (c) i.e. adjustment in sale price and guarantee fees. The ld.CIT(A) confirmed adjustment recommended for charging of interest on loan partly. In this year, the ld.CIT(A) has not recorded any independent finding rather followed her predecessor's order in the assessment year 2007-08. This fact has not only been noted by the ld.CIT(A) in the impugned order, rather the finding of the ld.CIT(A) recorded in the assessment year 2007-08 has been reproduced. 6. The facts in the assessment years 2009-10: In this assessment year, the ld.TPO has recommended upward adjustment of Rs. 14,94,92,409/- in the value of international transactions extracted (supra). He commended adjustment on three counts viz. (a) adjustment in sale price of ....
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....4 and 2004-05 have been upheld by the ITAT. The ld.CIT(A) has considered this aspects and thereafter held that in the case of assessee TNMM is the right method. 8. On due consideration of order of the ld.CIT(A), we are of the view that along with these appeals, we have heard appeals of the assessee for the assessment years 2005-06 and 2006-07, where similar issue was involved. We have taken note of the order of the ld.CIT(A) passed in the assessment year 2005-06. The assessee in its submissions has prepared a comparative table exhibiting profit, arm's length price adjustments and why comparison made by the TPO was not proper. In other words, the assessee has highlighted factors responsible for not applying CUP method on its transactions. After making analysis of such details and following the orders of earlier years, we have upheld the order of the ld.CIT(A) and the finding recorded by us in the assessment year 2005-06 in assessee's own case on this issue reads as under: "9. We have duly considered rival contentions and gone through the record. The ld.TPO has not pointed out defects in TNMM applied by the assessee for demonstrating ALP of its international transac....
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.... method the same has to be realigned and readjusted by applying a different method for deter mining ALP. Once the transaction is at ALP under a particular method the said transaction has to be accepted as a transaction entered into at ALP and the same cannot be disturbed thereafter by applying a different method for determining the ALP." 10. In the written submissions, the ld.TPO has reiterated observation made in the order passed under section 92CA dated 21.10.2008. Apart from the observation of the 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 131(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 date....
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....s at arm's length, because the margin shown by it are higher than the average margin shown by the comparable entities, and therefore no adjustment can be made. The ld.CIT(A) has rightly deleted such adjustment in this year, and the order of the ld.CIT(A) is upheld qua first issue. 10. Next common item in all these three years is adjustment recommended in ALP of interest rate required to be charged by the assessee from its AE on the loans given by it. 11. Brief facts of the case are that in the assessment year 2007-08, he assessee has extended foreign currency loan amounting to Rs. 24,50,70,500/- to Dishman Europe Ltd., and Rs. 5,36,70,000/- to Dishman Pharma Solution AG. The assessee has charged total interest of Rs. 40,93,995/- at the rate of LIBOR plus 1%. The ld.TPO has observed that one of the AEs. borrowed funds from European bank at the rate of EURIBOR plus 3.75%. The ld.TPO confronted the assessee as to why this rate be not taken for benchmarking rate of interest required to be charged by the assessee. In response to the query of the AO, it was contended by the assessee that loan had been granted to the AE in order to create infrastructure facilities for the smooth ope....
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.... In our opinion, the ld.TPO failed to appreciate the fact that the assessee is the tested party and not the AE. The factum of business requirement in a foreign country at what rate of interest funds are being borrowed by the AE is totally irrelevant aspects. The question before the TPO was at what rate an Indian concern should provide loans in dollar denomination to an unrelated party from India. The AE has obtained loans from European market, which is altogether a different currency and the requirement of AE could be different for that. There may be higher rate of interest prevailing for borrowing funds, but at what rate the loan could be made from India in dollar denomination ?. The assessee has pointed out that LIBOR is the prevailing rate and it has charged LIBOR plus 1%. No defect has been pointed out in this rate. Only thing is that one of the AEs has obtained loan from European market, therefore, the ld.TPO has applied that rate. To our mind this action of the ld.TPO could be justified if he has pointed out that a tested party in India has granted loan to its AE in dollar denomination at a higher rate than the LIBOR plus 1%. It is also pertinent to note the cost of the funds....
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....tisfied cumulatively, which are as under: (a) Income arising from; (b) International transaction and (c) Entered into with the associate enterprise. 5.5 So far as condition (c) is concerned, if is admitted facts that the DEL and DPS are wholly owned subsidiary companies of the Appellant and therefore they are associate enterprise of the Appellant as per the provisions of S.92A of the Act. The Appellant most respectfully submits that providing bank guarantee is admittedly (a) not a purchase of Purchase, sale or lease of tangible or intangible property; (b) not a provision of service as the Appellant is not engaged info business of providing guarantee; (c) not a lending or borrowing money; (d) not any other transaction having a bearing on the profits, income, losses or assets or (d) not an allocation or apportionment of any expenditure. Hence, the Appellant most respectfully submits that corporate guarantee is not covered by any of the transactions as defined u/s 92B of the Act and therefore it is out of the purview of the transfer pricing provisions. Once, if is established that providing corporate guarantee to the banks is not an international tr....
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....he ITAT, Ahmedabad Bench in the case of Micro Ink Ltd. Vs. ACIT, 63 taxmann.com 353 wherein it has been held that corporate guarantee given by the assessee on behalf of its subsidiary company is the nature of quasi-capital or shareholding activity and not in the nature of "provision of service", and therefore, such transactions is to be excluded from the scope of international transactions under section 92B. 18. On the other hand, the ld.DR relied upon the order of the TPO. It was further contended that the by Finance Act, 2012 a retrospective amendment has been effected in Section 92B wherein corporate guarantee is now included in the definition of international transaction. 19. On due consideration of the above facts and circumstances, we are of the view that consistently it has been held that providing of corporate guarantee does not fall within the ambit of international transactions. For buttressing ourselves, we would like to make reference to the following decisions: i) Suzlon Energy Ltd. Vs. ACIT, 81 taxmann.com 190; ii) Dr. Reddy's Laboratories Ltd. ACIT, 81 taxmann.com 398 (Hyd); iii) Aban Offshore Ltd. DCIT,76 taxmann.com 147 (Chennai-Tri....
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.... assessment year 2009-2010, the assessee has income of Rs. 1,30,352/- and claimed expenditure of Rs. 13,36,441/-. 24. The case of the Revenue is that the income pertaining to any period has to be accounted for either on receipt basis or accrual basis. Once the assessee has shown income, it is to be taxed. But expenditure could be allowed if the assessee is able to demonstrate that such expenditure was incurred for earning of such income. According to the ld.Revenue authorities, the assessee has failed to demonstrate that this expenditure was incurred for earning such prior period income. Accordingly, the ld.AO did not allow set off expenditure against prior period income. 25. With the assistance of ld.representatives, we have gone through the record carefully. It is pertinent to note that along with this appeal, we have heard appeals for the assessment year 2005-06 and 2006-07. In the assessment year 2006-07, the assessee has prior period income at Rs. 46,50,648/- and it has debited prior period expenditure of Rs. 43,11,114/-. The net differential amount of Rs. 3,39,534/- has been credited to profit & loss account and offered for taxation. The AO did not allow set off prior p....
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.... Ahmedabad and Surat Diamond Association. According to the assessee there were heavy rains and request came from Municipal Corporation. In order to fulfill the social responsibility, it has given the amounts. On due consideration of the facts, we are of the view that there cannot be any doubt about the genuineness of the payment. The payment was made to Municipal Corporation towards corporate social responsibility. This is an essential expenditure for keeping relationship smooth and the society at large. This expenditure deserves to be allowed to the assessee. Therefore, we allow this expenditure and delete disallowance. 31. Ground No.9 (Assessment Year 2007-08), ground nos.4 and 5 (Assessment Year 2008-09) and Ground No.3 (Assessment year 2007-08 : Department's appeal). 32. Brief facts of the case are that the assessee has debited the following expenditure in the assessment year 2007-08: a) Library books : Rs.14,84,530/- b) Club Membership Fees : Rs. 7,20,000/- c) R&D Expenses : Rs. 2,20,003/- d) Deferred Revenue Exps. : Rs. 7,55,689/- Total Rs.31,80,222/- 33. According to the AO, the assessee failed to produce any d....
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....he appellant was quoted in the assessment order and as per that appellant clearly stated that only provision was created in the cases of doubtful debts. Since the deduction is specifically excluded for the provision for bad and doubtful debts by amendment to this section, appellant cannot claim such deduction. Appellant relied upon the decision of Vijaya bank for which different provisions are applicable. In the case of bank, the deduction is allowable even in respect of provisions. When statute is very clear that provision for bad and doubtful debts are not allowable as deduction, there is no question of allowing such claim to the appellant. Accordingly the disallowance made by the AO is confirmed." 37. With the assistance of the ld.representatives, we have gone through the record carefully. We find that the ld.CIT(A) has considered judgment of the Hon'ble Supreme Court and observed that it is distinguishable on facts. The assessee has not actually written off debts, and therefore, its claim cannot be allowed. The ld.CIT(A) has rightly upheld the disallowance. We do not find any error in this ground of appeal, hence it is rejected. 38. Ground no.11 (Assessment Year 2007-08);....
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....s, payables etc; are required to be stated at-the exchange rate prevailing as on the date of the balance sheet. The gain or loss arising on translation of foreign currency assets as on the date of the balance sheet are charged to revenue i.e. debited or credited to profit and loss account. The above entries are the entries-of the nature stated in the paragraphs above. We hereby request you not to disallow the same as these are the expenses wholly an exclusively incurred for the purpose of business, it is not of the personal or capital nature. The entries have to be passed in order to show the true and fair view of the results of the company and the assets and "At .the outset, the Appellant submits that now this issue is covered by the series- of decisions of the Supreme Court, which are relied upon and extract- of which is reproduced hereunder for ready reference: * Oil & Natural Gas Crop.Ltd, vs. CIT322ITR 180 (SC) * CIT vs. Woodward Governor India IP.) Ltd. 312 ITR 254 ISO It is most, respectfully submitted that the Appellant has satisfied the test laid down by the Supreme Court of India in the case of Woodward (supra), and therefore t....
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.....2006.-07, the Appellant is consistent and definite in making entries in the books in respect of losses and gains as the case may be. (h) whether "the method 'adopted by the assessee for making entries in the books both in respect of losses and gains is as per nationally accepted accounting standards: *yes. The Appellant has following Accounting Standard AS - 11 issued by the Institute of Chartered Accountants of India. (j) whether the system adopted by the assessee is fair and reasonable or is adopted only with a view to reducing the incidence of taxation The system adopted by the Appellant is fair and reasonable and is not adopted with a view to reduce the incidence of taxation. In fact the Rule 115 of the Income Tax Rules provides that that all the assessee should convert their foreign exchange assets into Indian Rupees-on the last .day of the previous year. In CIT vs. R. B. Construction 202JTR 222 (AP)(FB), it has been held that if rule is not considered, the decision becomes per incuram. In as much as the Appellant has following the accounting treatment which is in conformity with Accounting Standard 11 issued by the ICAI. Various authorities hav....
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....taken, receivables, payables etc. Gain or loss arising on transactions of foreign currency assets as on the date of balance sheet are charged to the revenue i.e. debited or credited to the profit & loss account. It is also pertinent to mention that the assessee has pointed out that in assessment year 2006-07 it has a gain of Rs. 12,41,640/- which was offered for taxation. Similarly, foreign exchange loan loss amounting to Rs. 74,35,540/- determined as on 31.3.2007 and claim has been reversed on 1.4.2007. This has been offered for taxation in the next assessment year i.e. A.Y.2008-09. If the ld.Revenue authorities are accepting the gains on account of foreign exchange fluctuations as taxable then how and why the loss could be denied to the assessee? No specific finding has been recorded about the nature of loans and how such losses on account of fluctuations loss could be disallowed. Therefore, taking into consideration all the facts that ld.Revenue authorities have failed to examine the issue by keeping in mind taxation of gains in earlier and subsequent years on the same loans, and failed to record any specific finding as to how in such circumstances the loss could be denied, we d....
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....outstanding at Rs. 26,960.66 lakhs as on 31.3.2007, whereas the investment was at Rs. 13,129.22 lacs. It was also pointed out that the assessee has made investment in shares of CAD Middle East Pharmaceuticals Industries LLC of Rs. 177.10 lakhs; Dishman Pharma Solutions AG, Switzerland of Rs. 10,507.50 lakhs, Dishman Pharmaceuticals & Che. (Shanghai) Co. Ltd. of Rs. 1,469.07 lakhs. The dividend income of these companies was taxable, and they cannot be considered for Rule 8D. It was also brought to our notice of the ld.CIT(A) that the assessee has net profit of Rs. 6,190.974 lakhs hence, it was demonstrated that the assessee was having more funds than the investment and no interest expenditure is to be attributable for earning such dividend income. The ld.CIT(A) considered this aspect but on an estimated basis confirmed the adhoc disallowance. Before us, the ld.counsel for the assessee made reference to the following decisions: a) CIT Vs. Torrent Power Ltd., 363 ITR 474 (Guj); b) CIT Vs. Suzlon Energy Ltd., 354 ITR 630 (Guj) c) CIT Vs. Gujarat Power Corporation Ltd., 352 ITR 583 (Guj) d) CIT Vs. Hitachi Home & Life Solutions (I) Ltd., 41 taxmmann.c....
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....w that the assessee has remitted the above amount to non-resident without deducting TDS under section 195 of the Act, which according to the assessee, it was not supposed to do so in view of section 195 r.w. DTAA of those countries. The ld.AO did not accept this submissions of the assessee and disallowed an amount of Rs. 1,56,69,776/- under section 40(a)(ia) of the Act, which was confirmed by the ld.CIT(A). 51. It has been brought to our notice that similar issue has already agitated in the assessment year 2006-07 before the Tribunal. Accordingly, both the parties reiterated their respective submissions as were made for the assessment year 2006-07. 52. After hearing both the sides, we find that similar issue arose in the case of assessee in the assessment year 2006-07 and the Tribunal in ITA No.773/Ahd/2011 order dated 23-5-2018 allowed the claim of the assessee. Both the parties before us agreed that facts in the present case also similar to the assessment year 2006-07. Therefore, we deem it appropriate to take note of the finding of the Tribunal in the assessment year 2006-07. It reads as under: "80.We have duly considered rival contentions and gone through the rec....
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....UK, Dishman India and Dishman USA. The AO was of the view that allocation of expenditure was on higher side. He also observed that in subsequent year such expenses have been allocated amongst these concerns in the ratio of 40:40:20 based on advice given by the group chairman. On the basis of that ratio, the ld.AO has allocated this expenditure in this year also and worked out allowance expenditure out of Rs. 81,02,622/- debited under the head "Administrative services". He observed that it should be allowed at Rs. 49,89,517/-. A perusal of the assessment order would indicate that the ld.AO has assigned two reasons for making disallowance, viz. (i) non-deduction of tax, and (ii) higher allocation of expenditure in the hands of the assessee which were incurred on Dr.Henk Pluim. As far as first party is concerned, these are simply reimbursement of administrative expenses incurred by Dr.Henk Pluim outside India. They did not involve any element of income and TDS was not required to be deducted. As far as second party is concerned, the ld.AO failed to bring any material on record to justify the administrative expenses required to be incurred for availing services of Dr.Henk. It is totall....
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....Bhadra Raj Holdings P.Ltd. was concerned, it was contended before the AO that transactions with this holding company were in the nature of current accommodation adjustment entries as was evident from the assessee's ledger in the books of Bhadra Raj Holdings Pvt., and therefore, no addition can be made. Reliance was placed on the judgment of Hon'ble Gujarat High Court the case of Schutz Dishman Bio-tech P.Ltd., Tax Appeal No.958 & 959 of 2015 (Guj). It was further contended that in the case of Bhadraj Raj Holdings P. Ltd. dividend was already distributed and adjustment of the same be given. However, the ld.AO did not accept this explanation of the assessee, and treated both these amounts i.e. Rs. 72,38,698/- and Rs. 3,10,08,567/- standing as reserve funds in the accounts of B.R. Laboratories and Bhadraj Holdings Pvt. Ltd as deemed dividend income. Dissatisfied with the addition, the assessee carried the matter in appeal before the ld.CIT(A). The ld.CIT(A) however deleted addition in respect of deemed dividend on account of loan taken from B.R. Laboratories and confirmed the addition in the case of the loan taken from Bhadra Raj Holdings P.Ltd. 56. Both the assessee and Revenue ar....
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....re not in the nature of deposits, but merely adjustments and section 2(22)(e) of the Act would not be applicable. The ld.counsel for the assessee further drew our attention towards the order of the ITAT passed in the assessee's own case for the Asstt.Year 2003-04 and 2040-05. He placed on record copy of the Tribunal's order in ITA No.2015 & 2125/Ahd/2012. It appears that in these assessment years also there must be some reopening that is why second round of litigation is there. The ld.DR on the other hand relied upon order of the AO. He failed to controvert submission made by the ld.counsel for the assessee. 20. We find that in the Asstt.Years 2003-04 and 2004-05, the Tribunal has considered identical issue in assessee's own case. Following finding of the Tribunal deserves to be noted: "7. The Id. CIT(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 a....
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....here are five accounts relating to various transactions in the name of appellant and six accounts in the name of associate concern in the books of appellant. In these many accounts where a large number of debit and credit entries involving different business transactions. Apart from this, there are certain financial . transactions also in these accounts. The movement of funds was not for any period but was frequent and in both ways. Respectfully following the decision of Id CIJ (appeal) in the case of associate concern holding that transactions are not in the nature of loan and also decisions of jurisdictional ITAJ relied upon by the appellant, the addition on account of deemed dividend cannot survive in this year." Facts relating to the financial transactions with SDBPL are identical to the aforesaid 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 th....
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....the Bhadraja Holdings P.Ltd. are in the nature of current accommodation adjustment entries not in the nature of loans and advances so as to attract provisions of section 2(22)(e) of the Act. The assessee was maintaining a sort of current account with M/s.Bhadra Raj Holdings P.Ltd. and the assessee has not taken any loans and deposits from its sister concern during the year. It is therefore prayed that no addition be made under section 2(22)(e) of the Act. Alternatively, it is pleaded that at the most what could be added was only the accumulated amount of profit & loss account of the payer company and not the entire amount of alleged loan or advances. It is submitted that M/s.Bhadra Raj Holdings P.Ltd. has already declared and distributed dividend of Rs. 6,90,00,000/- and therefore while making addition under section 2(22)(e) of the Act in the hands of the assessee, adjustment against actual distribution of dividend is required to be given and only net amount of deemed dividend could be added. If this is the position, then as per clause (iii) of section 2(22)(e) of the Act set off of the said sum be granted, consequently, no addition survives under section 2(22) of the Act. 59. O....
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....urn of income, the assessee has claimed deduction under section 10B of the Act at Rs. 33,19,35,229/- in respect of EOU units at Bavla and Naroda. The assessee has submitted audit report inform No.56G of the Act. On analysis of the returns and documents, the ld.AO as of the view that the assessee is not entitled for deduction under section 10B on some of the items. Accordingly, he made adjustments and reduced deduction by a sum of Rs. 10,21,60,135/-. In other words, the ld.AO has computed the deduction at Rs. 22,97,75,094/-. Six points which have been considered by the AO for making adjustment in the computation of deduction are as under: i) Unrealised export excluded from the export turnover; ii) Other income not considered for eligible deduction u/s 10B ; iii) Custom Duty allocated on the basis of raw material imports in EOUs and Non-EOU ; iv) Packing expenses and packing material expenses allocated in proportion to quantum of sales in EOUs and Non-EOU ; v) Clearing and Forwarding exports expenses allocated in proportion to quantum of sales in EOUs and Non-EOU ; vi) Allocation of Administrative and Interest expenses in proporti....
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....lar expenditure, which is meant for EOU units, but debited either to the HO or in non-EOU units, then probably he would be justified in allocating expenditure on estimated basis. But no such exercise has been carried out by the AO, therefore, we do not find any merit in this ground of appeal. Grounds of appeal raised by the Revenue in this connection are rejected. 50. As far as first fold grievance of the assessee is concerned, the ld.AO has excluded unrealized exports from export turnover. The ld.CIT(A) confirmed his action. 51. The ld.counsel for the assessee submitted that no doubt unrealized export has been excluded from the export turnover, then simultaneously these amount should be excluded from the total turnover while computing the eligible amount for grant of deduction under section 10B. 52 We find force in this contention, because if an item does not fall in export turnover, then it is to be excluded from total turnover also. We direct the AO to exclude unrealized exports from the export turnover as well as from total turnover for computing deduction admissible under section10B of the Act. 53. In the next fold grievance, assessee has pl....
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....ub-section (1) allows deduction in respect of profits and gains as are derived by a 100% EOU. Section 10B(4) lays down special formula for computing the profits derived by the undertaking from export. The formula is as under :- Profit of the business of the Undertaking X Export turnover Total turnover of business carried out by the undertaking 79. Thus, sub-section (4) of section 10B stipulated that deduction under that section shall be computed by apportioning the profits of the business of the undertaking in the ratio of turnover to the total turnover. Thus, notwith- standing the fact that sub-section (1) of section 10B refers the profits and gains as are derived by a 100% EOU, yet the manner of determining such eligible profits has been statutorily defined in sub-section (4) of section 10B of the Act. As per the formula stated above, the entire profits of the business are to be taken which are multiplied by the ratio of the export turnover to the total turnover of the business. Sub-section (4) does not require an assessee to establish a direct nexus with the business of the undertaking and once an income forms part of the business of the undertaking, t....
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....d in affirmative and in favour of the assessee. Accordingly, the assessee is eligible for claim of deduction on export incentive received by it in terms of provisions of section 10B( 1) read with section 10B(4) of the Act." The aforesaid view is in consonance with the decision of this Court dated 1st September, 2014 passed in ITA 438/2014, Commissioner of Income Tax-VII versus XLNC Fashions in which this court has held as under :- "Deduction under Section 10B of the Income Tax Act, 1961 (Act, in short) is to be made as per the formula prescribed by Sub-Section (4), which reads as under: "10B. Special provision in respect of newly established hundred per cent export- oriented undertakings- ......... ........... (4) For the purposes of sub-section (1), the profits derived from export of articles or things or computer software shall be the amount which bears to the profits of the business of the undertaking, the same proportion as the export turnover in respect of such articles or things or computer software bears to the total turnover of the business carried on by the undertaking". Sub-section (4), therefore, is the special provision....
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....taxmann.com 167 (Karnataka) has also taken a similar view, wherein it has been held:- "By Finance, Act, 2001, with effect from 01.04.2001, the present Subsection (4) is substituted in the place of old Sub-section (4). No doubt Subsection 10(B) speaks about deduction of such profits and gains as derived from 100% EOU from the export of articles or things or computer software. Therefore, it excludes profit and gains from export of articles. But Subsection (4) explains what is says that profits derived from export of articles or things or computer software shall be the account which bares to the profits of the business of the undertaking and not the profits and gains from export of articles. Therefore, profits and gains derived from export of articles is different from the income derived from the profits of the business of the undertaking. The profits of the business of the undertaking includes the profits and gains from export of the articles as well as all other incidental incomes derived from the business of the undertaking. It is interesting to note that similar provisions are not there while dealing with computation of income under Section 80HHC. On the contrary....
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.... read with rule 8D at Rs. 3,93,000/-. Thereafter, while calculating book profit under section 115JB of the Act, the ld.AO increased the book profit by Rs. 3,93,000/-. The assessee has challenged including this disallowance under section 14A in the book profit before the ld.CIT(A), but did not succeed. Issue is now agitated before us. 66. The ld.counsel for the assessee submitted that disallowance under section 14A cannot be added to book profit under section 115JB in view of the decision of the Tribunal in the case of ACIT Vs. Suzlon Energy Ltd., ITA No.901/Ahd/2011 wherein the Tribunal has followed orders of the co-ordinate bench in the case of Cadila Pharmaceuticals Ltd. Vs. ACIT, ITA No.1146 and 1518/Ahd/2011 and Atul Ltd. Vs. ACIT, ITA No.8/Ahd/2013. He further submitted that it is settled position that calculation of book profit under MAT provisions should be without resorting to calculation made under section 14A read with rule 8D. Therefore, it is submitted by the ld.counsel that no adjustment is called for in respect of disallowance under section 14A while working out book profit under section 115JB of the Act. 67. On the other hand, the ld.DR while supporting the ord....
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.... Factor : The instances taken by the ld. TPO so far as quantity is concerned are at all not comparable, except one, as the Appellant has sold use quantity of 9800 Kgs, whereas comparable quantity is ranging from 22 kgs to 1950 kgs. The only comparable instance could be impugned product sold to DDC fine chemicals N.V. situated Document 2 at Belgium kgs is at average rate of Rs. 200.97. However, this is also not comparable for the reason of Geographical factor and Function Performed, Employment of Assets and Risk Assumption by AE. Hence, this is also not comparable instance. quantity is 10,000 (c) Geographical Factor :Non AES are situated different at Geographical area and therefore also they are not comparable. Because of the different geographical locations even the politic risks also vary so also the currency fluctuation risk. (d) Regularity of Transaction: The appellant submits that even when internal comparison is applied, what can be compared for the purpose of determining the ALP are the regular transactions and not the solitary or isolated tran....
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....ve, the appellant submits that in any case the instances are not comparable at all due to quantity and geographical factors No comments for the smallness of amount. 166 Document 5 7 Tetrabutyl Ammonium Bromide 31,81,642/- 8 Tetra Ammonium Bromide Tetra Ammonium Bromide Butyle 1,05,040/- Butyle 55,21,061/ (a) FAR Analysis: As Above. (b) Quantity factor : The instances is taken by the ld. TPO is summarised as under: Country Qty. Avg. Rate Isreal 28800 215.82 Japan 4300 280.63 Korea 3500 433.95 Netherland 1000 810.60 USA 10200 240.67 Total 47800 255.36 AE- 49054 190.50 Europe All five instances are not comparable as there is huge difference in quantity of the product sold to AE and Non-AE Even if the near quantity ie 20,800 taken into consideration then also average rate is Rs. 215.82, which is also for the required to be discounted considering the quantity factor i.e 28,800 Kgs to Non-AE against 49,054 kgs. to AE as well as graphical factors and certainly FAR. (c) Geographical factors: As Above. ....
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....sold to AE and Non-AEs. (c) Geographical factors: As Above (1). (d) Regularity of transaction: As above (1). For the smallness of amount it is not considered. Document 8 Hydrogen Sulphate 13 Tetra Ethyle 1,35,57,000/- Ammonium Bromide (a) FAR Analysis: As Above. (b) 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 Malaysia 25 437.80 USA 3000 252.02 Total 3,188 273.04 AE- 1,50,000 182.66 Europe 14 Tetra Ethyle 1,05,475/- Ammonium Bromide 15 Lidorain 3,22,720/- All four instances are not comparable is there is huge difference in quantity of the product sold AE and Non-AES. Even if nearer quantity is taken into consideration i.e 3000 at average rate ofRs. 252.02, then also it is for the required to be discounted considering huge difference of quantity sold to Non AE and AE i.e 3000 kgs. to non- AE against 1,50,000, as well as geographical factors and FAR Analysis. (c) Geographical factors: As Above (1). (d) Reg....