TaxTMI 
TaxTMI 
2018 (11) TMI 990
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....erred on facts and in law in making an addition of Rs. 73,99,46,465 to the appellant's income on account of the alleged difference in arm's length price of exports made by the appellant to its associated enterprises. 3. That the assessing officer erred on facts and in law in making an addition of Rs. 98,88,047 to the appellant's income on account of the alleged difference in arm's length price of interest charged by appellant from its associated enterprises. CORPORATE TAX ISSUES 4. That the assessing officer erred on facts and in law in reducing the deduction claimed by appellant under the provisions of section 10B of the Income-tax Act, 1961 ('the Act') to NIL in respect of eligible unit at A-164, Noida by setting off the losses of other units. Date of Hearing 05.07.2018 Date of Pronouncement 03 .10.2018 5. That the assessing officer erred on facts and in law in not allowing deduction under section 10B of the Act in respect of foreign exchange gain of Rs. 2,53,81,255 by holding the same to be income not derived from the industrial undertaking. 6. That the assessing officer erred on facts and in law in not allowing deduction under sectio....
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....64, Noida by setting off the losses of other units. 5. That the assessing officer erred on facts and in law in not allowing deduction under section 10B of the Act in respect of foreign exchange gain of Rs. 23,87,05,343 by holding the same to be income not derived from the industrial undertaking. 6. That the assessing officer erred on facts and in law in not allowing deduction under section 10B of the Act in respect of scrap sales of Rs. 1,49,48,144 by holding the same to be income not derived from the industrial undertaking. 7. That the assessing officer erred on facts and in law in disallowing a sum of Rs. 6,87,14,859 (net of depreciation), being 25% of the expenditure on royalty of Rs. 36,64,79,248 paid to various parties, as capital expenditure relying upon the decision of Supreme Court in the case of Southern Switchgear Ltd.: 232 ITR 359. 8. That the assessing officer erred on facts and in law in disallowing a sum of Rs. 2,57,60,916 invoking provisions of section 14A of the Act read with Rule 8D of the Income-tax Rules, 1962 ('the Rules'), holding the same to be expenses attributable towards investments made for earning of exempt dividend inc....
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....erest charged by appellant from its associated enterprises. 4. That the assessing officer erred on facts and in law in making an addition of Rs. 1,29,00,171 to the appellant's income on account of notional interest by recharacterising the share application money paid to the associated enterprise as loan. CORPORATE TAX ISSUES 5. That the assessing officer erred on facts and in law in reducing the deduction claimed by appellant under the provisions of section 10B of the Income-tax Act, 1961 ('the Act') in respect of eligible unit at A-164, Noida by setting off the losses of other units. 6. That the assessing officer erred on facts and in law in not allowing deduction under section 10B of the Act in respect of scrap sales of Rs. 8,61,23,941 by holding the same to be income not derived from the industrial undertaking. 7. That the assessing officer erred on facts and in law in arbitrarily reducing a sum of Rs. 12,13,80,604 on account of royalty disallowance from the profit of the eligible undertaking. 8. That the assessing officer erred on facts and in law in disallowing a sum of Rs. 19,58,46,433 (net of depreciation), being 25% of t....
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....any. Thus the assessment order is being finalized in accordance with the directions of the Dispute Resolution Panle-1, New Delhi. 4. The Assessing Officer vide order dated 30/12/2012 passed an assessment order thereby making various additions. 5. Being aggrieved by the Assessment Order, the assessee has filed the present appeal before us. 6. The Ld. AR submitted that Ground No. 1 is general in nature. Hence Ground No. 1 is dismissed. 7. As regards Ground No. 2 relating to exports to AE, the Ld. AR submitted that during the relevant assessment year, the assessee supplied CD's, Floppies etc. to its overseas AEs, viz., Global Data Media FZ LLC, Dubai ('GDM'), European Optic Media Technology Gmbh ('Europtic'} and OM&T BV ('OM&T') worth Rs. 544.76 crores. The AEs were engaged in re-selling/ distribution of such products. For benchmarking the aforesaid international transaction, the assessee selected TNMM as the Most Appropriate Method ('MAM') applying Operating Profit/Sales ('OP/Sales') as the Profit Level Sl. Particulars Amount in INR 1 On A/c of exports made to the A.E 73,95,75,860/- 2 On A/c of interest on loan to Subsidiary co 1,58,81,963/- TOTAL 75,54,57,823/- Indicator....
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....parties and perused all the relevant material available on record. For AYs 2003-04, 2005-06 & 2006-07, the Tribunal held as under:- "7.8. On perusal of observations by Coordinate Bench of this Tribunal in assessee's own case for assessment year 2002-03 (supra) which has been reproduced in earlier part of this order, it is observed that during assessment year 2002-03, assessee filed before Ld. TPO sufficient evidence to substantiate its claim of ALP not exceeding maximum amount received by Associated Enterprises from customers and actual value of international transactions. However in the present case having regard to our observation from financials of AE, assessee has failed to establish by way of sufficient evidence before Ld. TPO, regarding actual value of international transaction received by AE. It is also observed from the relevant para 21 (supra) reproduced hereinabove this Tribunal refrained from dealing with the other objections raised by assessee therein since the Hon'ble Bench was convinced with the arguments of Ld. AR regarding actual value of transactions received by AE therein. 7.9. Considering totality of facts, we find it is necessary to se....
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....ore, we direct the TPO in the event assessee is able to provide complete financials of foreign AE along with complete financials of relevant comparables required to benchmark the international transaction. We further direct the TPO to consider the foreign AE to be tested party and then verify whether the Foreign AE could be considered as least complex with minimum adjustments and for which comparables are available easily on public domain. Thus, we are remanding back this issue to the file of A.O/TPO. Needless to say, the assessee be given opportunity of hearing by following principles of natural justice. Ground No. 2 is partly allowed for statistical purpose. 10. As regards to Ground No. 3 relating to Transfer Pricing addition in respect of interest on loan given to foreign A.E, the Ld. AR submitted that the assessee had granted loan to its foreign AE, viz., Peraround Ltd., Cyprus and received interest of Rs. 99,17,287 thereupon @ Euribor + 200 basis points, which was equivalent to 6.41%. The assessee for the purpose of benchmarking the aforesaid transaction and computing ALP thereof, considered returns available on investment opportunities in India (bank FD, certificate of dep....
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....Hyderabad ITAT) * Mylan Laboratories Ltd. Vs ACIT: 63 taxmann.com 179 (Hyderabad ITAT) * Soma Textiles & Industries Ltd. Vs Addl. CIT: 81 taxmann.com 67 (Ahmedabad ITAT) Accordingly, the adjustment made by TPO on account of difference in ALP of interest calls for being deleted. 11. The Ld. DR relied upon the Assessment Order. 12. We have heard both the parties and perused all the relevant material available on record. It can be seen that interest rate in respect of loan advanced to foreign AE should be computed based on interest rate applicable to currency in which loan has to be repaid. The assessee had granted loan to its foreign AE, viz., Peraround Ltd., Cyprus and received interest of Rs. 99,17,287 thereupon @ Euribor + 200 basis points, which was equivalent to 6.41%. The assessee for the purpose of benchmarking the aforesaid transaction and computing ALP thereof, considered returns available on investment opportunities in India (bank FD, certificate of deposit, commercial paper etc.) as reduced by the country risk premium of investing in the Indian market, which was equivalent to 4.69% (7.88%- 3.19%). The aforesaid loan was granted by assessee ....
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....s of other units. The Ld. AR submitted the present issue stands settled in favour of the assessee by the decision of Supreme Court in the case of CIT vs Yokogawa India Ltd.: 391 ITR 274, wherein, it has been held that, the state of deduction for section 10A would be while computing across total income of eligible undertaking under Chapter IV of the Act and not at the state of computation of total income under Chapter VI of Act, i.e. before setting off losses of other units. 14. The Ld. DR relied upon the Assessment Order. 15. We have heard both the parties and perused all the relevant material available on record. The issue of claiming deduction u/s 10B of the Act in respect of eligible unit without setting off losses of other units stands settled in favour of the assessee by the decision of Supreme Court in the case of CIT vs Yokogawa India Ltd.: 391 ITR 274, wherein, it has been held that, the state of deduction for section 10A would be while computing across total income of eligible undertaking under Chapter IV of the Act and not at the state of computation of total income under Chapter VI of Act, i.e. before setting off losses of other units. Ground No. 4 is allowed. 1....
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....e Assessing Officer to exclude scrap sales from the purview of deduction under section 10B. Scrap sales are sales made by assessee's existing exports business only. The Revenue has not been able to point out any other business from which such sales have been made. The issue is covered in favour of assessee by following decisions: i) GE BE (P) Ltd. Vs ACIT: 371 ITR 32 (Karnataka High Court) ii) DCIT vs EXL Service.com (I) (P) Ltd.: ITA No. 4459/Del/2013 (Delhi ITAT) iii) Sonic Technology India Inc. Vs ITO:ITA No. 2665/Ahd/2011 (Ahmedabad ITAT). 20. The Ld. DR relied upon the Assessment Order. 21. We have heard both the parties and perused all the relevant material available on record. Scrap sales are sales made by assessee's existing exports business only and the Revenue was not able to point out any other business from which such sales were made. The decisions relied by the Ld. AR are applicable in the present case. The Hon'ble Karnataka High Court in case of GE BE (P) Ltd. (supra) held as under: "11. Keeping in mind the principle laid down by the Apex Court, no doubt the assessee is not in the business of export of scraps but is in the bus....
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....the decision of this Tribunal in assessee's own case for the assessment years 2003-04, 2005-06 & 2006-07. 23. The Ld. DR relied upon the Assessment Order. 24. We have heard both the parties and perused all the relevant material available on record. The Tribunal in assessee's own case for A.Ys. 2003-04, 2005-06 and 2006-07 held as under: "9.7 Certain facts as observed by Ld. CIT(A) are that know-how are owned by owners and assessee was granted right to use for period of time till agreement continues to exist. And that upon termination, assessee has to discontinue manufacturing activities and sale of products where the use of such know-how is applicable. 9.8 Further Ld. AO observed that assessee has been using know-how since 2003. Ld. TPO observed that agreements entered into by assessee with these parties have been renewed from time to time automatically and assessee is allowed to sell products manufactured with the help of such know-how worldwide. Further agreement with M/s HP grants assessee an exclusive sub-license to reproduce, use and display the HP trade marks in the territory assigned to assessee and assessee is free as per terms of agreement to contra....
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....ons of Rule 8D. The Assessing Officer relied upon the decision of Daga Capital (ITAT) (SB) which stands overruled by the Mumbai High Court in the case of Godrej & Boyce vs. CIT: 328 ITR 81. The Ld. AR submitted that, even after coming into existence of Rule 8D, recording of satisfaction by the Assessing Officer qua nexus of exempt income earned with expenses incurred by assessee is a sine qua non, which is not complied with by the Assessing Officer in the present case. The Ld. AR relied upon the following decisions: * Maxopp Investment Ltd. vs CIT: 402 ITR 640 (SC) * Eicher Motors Ltd. Vs CIT: 398 ITR 51 (Delhi HC) * Associated Law Advisers Vs. ITO : 87 taxmann.com 148 (Delhi ITAT) Further, in absence of earning of exempt dividend income, the provisions of section 14A of the Act cannot be applied. In the present case, no exempt income has been earned by the assessee during the relevant Assessment Year. The Ld. AR relied upon the following decisions: * Cheminvest Ltd. Vs CIT: 378 ITR 33 (Delhi HC) * CIT vs Lakhani Marketing Inc.: 226 Taxman 45 (P&H HC) * CIT vs Chettinad Logistics (P.) Ltd.: 248 Taxman 55 (Madras HC) Accord....
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....The gross yield to maturity ('YTM') of Tranche A was fixed at 6.10% p.a. and for Tranche B was 6.75% p.a., with compounding done on a semi-annual basis. The bond-holders also had an option of converting their FCCB's into equity shares anytime on or after 31.07.2007 until 11.06.2012. The assessee incurred expenses of Rs. 10,33,76,854 on issue of FCCB's and claimed the same as deduction in the return of income. The said expenditure, in accordance with the provisions of Section 78 of the Companies Act, 1956, was debited to Securities Premium account and not charged to P&L account. Accordingly, the same was claimed as deduction in the return of income as a separate line item. The Assessing Officer/ DRP disallowed the aforesaid FCCB issue expenses by holding that the same to be incurred on issue of shares and hence capital in nature. The Ld. AR submitted that, the FCCB's under consideration are liable for conversion into equity at the option of the bondholder and the same is not mandatorily required to be done. The bond-holder may opt to continue being a bond-holder instead of being a shareholder. Accordingly, the FCCB's under consideration, both in accounting books as well as tax retur....
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....Tranches of USD 75 million each. The gross yield to maturity ('YTM') of Tranche A was fixed at 6.10% p.a. and for Tranche B was 6.75% p.a., with compounding done on a semi-annual basis. The bond-holders also had an option of converting their FCCB's into equity shares anytime on or after 31.07.2007 until 11.06.2012. The assessee incurred expenses of Rs. 10,33,76,854 on issue of FCCB's and claimed the same as deduction in the return of income. These facts were not disputed by the Revenue at any point of time. The said expenditure, in accordance with the provisions of Section 78 of the Companies Act, 1956, was debited to Securities Premium account and not charged to P&L account by the assessee. Accordingly, the same was claimed as deduction in the return of income as a separate line item. The Hon'ble Delhi High Court in the case of CIT vs. Havells India Limited 352 ITR 376 had held that expenditure incurred on issue of debentures is to be allowed as revenue expenditure despite indications to effect that debentures are to be converted in near future into equity shares. Thus, the issue is squarely covered by the Hon'ble Delhi High Court decision. Ground No. 9 is allowed. 31. As regar....
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....372 ITR 605, wherein, it was held that, one time upfront discounted interest payment in respect of 5 years debentures was to be allowed as deduction in year of payment itself. The Ld. AR further submitted that the Apex Court also held that a different treatment towards interest in books of accounts could not be a factor which would deprive assessee from claiming entire expenditure as a deduction. Further, the Ld. AR submitted that the Courts in various decisions have also held that, premium on redemption of FCCB can be amortized over the life of FCCB and be claimed as deduction in the return of income. The Ld. AR pointed out the decision of Mumbai High Court in the case of CIT vs. S.M. Holding & Finance Pvt. Ltd.: 264 ITR 370. In that case, the assessee had issued zero interest unsecured redeemable convertible debentures of Rs. 100 each redeemable after 10 years at a premium of 100%. Assessee claimed before the assessing officer a spread over. Assessee claimed that the premium payable by it was Rs. 5,47,50,000 after expiry of 10 years. However, the assessee claimed deduction of Rs. 54,75,000 p.a. The Assessing Officer disallowed the assessee's claim for deduction of Rs. 54,75,000 o....
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....assessee was required to ascertain the future liability and create provisions in respect thereof. The Ld. AR reliance upon the decision of Supreme Court in the case of Taparia Tools Limited vs JCIT: 372 ITR 605, is very much applicable in the present case. The Apex Court further held that, one time upfront discounted interest payment in respect of 5 years debentures was to be allowed as deduction in year of payment itself. The Apex Court also held that a different treatment towards interest in books of accounts could not be a factor which would deprive assessee from claiming entire expenditure as a deduction. Further, the Courts in various decisions have also held that, premium on redemption of FCCB can be amortized over the life of FCCB and be claimed as deduction in the return of income. Thus, the Assessing Officer was not correct in disallowing the same. Ground No. 10 is allowed. 34. In result, ITA No. 6042/DEL/2012 for A.Y. 2008-09 filed by the assessee is partly allowed for statistical purpose. 35. The Ld. AR during the course of hearing submitted that the other Assessment Years i.e. 2009-10 and 2010-11 are identical. The Ld. DR submitted that the grounds of assessee's a....