TaxTMI 
TaxTMI 
2019 (2) TMI 1414
X X X X Extracts X X X X
X X X X Extracts X X X X
....e payment of employee's contribution towards superannuation fund. 2. The learned CIT(A) has erred in law and on the facts of the case in confirming the action of AO in not allowing sett-off of brought forwards losses/unabsorbed depreciation of Rs. 11,02,365/- of earlier years against the income of current years or to be carried forward to the succeeding assessment years. 3. The learned CIT(A) has erred in law and on the facts of the case in confirming the action of AO in adding prior period income of Rs. 4,29,490/- to the total income of the appellant after treating the same as taxable u/s 41 of the Act. 4. The learned CIT(A) has erred in law and on the facts in not appreciating the fact that prior period income amounts to Rs. 3,76,358/- instead of Rs. 4,29,490/- and in any case the former should have been added to the total income. 5. The learned CIT(A) has erred in law and on the facts in confirming the action of AO in not allowing prior period expenditure of Rs. 18,79,653/-. 6. Alternatively learned CIT(A) ought to have confined the disallowance only to the extent of net prior period expenditure, after reducing the prior period income of Rs. 3,76,358/-, amounting ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... such reference. 16. In any case the whole reference u/s.92CA(1) of the Act and consequent order are bad and illegal and hence deserves to be quashed. 17. The learned CIT(A) has erred in law and on facts of the case in confirming the action of AO in not allowing deduction of Rs. 19,02,690 u/s.10B of the Act on account foreign exchange gain earned by eligible units. 18. The learned CIT(A) has erred in law and on the facts of the case in confirming the action of learned AO in not granting deduction u/s.10B of the Act on revised gross total income. 19. Both lower authorities have passed the orders without properly appreciating the fact and that they further erred in grossly ignoring various submissions, explanations and information submitted by the appellant from time to time which ought to have been considered before passing the impugned order. This action of the lower authorities is in clear breach of law and Principles of Natural Justice and therefore deserves to be quashed. 20. The learned CIT(A) has erred in law and on facts of the case in confirming action of the ld.AO in levying interest u/s.234A/B/C of the Act. 21. The learned CIT(A) has erred in law and on f....
X X X X Extracts X X X X
X X X X Extracts X X X X
....assessee's case however is that relevant due date has to be seen not from the relevant month of salary but the one pertaining to its payment. He then files a computation chart indicating it to have paid above employees' PF/ESI contributions on 22.05.2009 and 28.05.2009 as against the due dates thereof following on 20.06.2009. The Revenue fails to dispute this factual position. We therefore quote this tribunal's co-ordinate bench decision in Kanoi paper & Industries Ltd. vs. ACIT 75 TTJ 448 that the relevant date in such case is that of month of the actual payment of wages/salaries. We therefore rely on the above co-ordinate bench decision and direct the Assessing Officer to delete the impugned disallowance as well." 4. In effect thus while any delayed deposit of PF/ESI is to be disallowed, in terms of Hon'ble Gujarat High Court's judgment in the case of Gujarat State Road Transport Corporation (supra), the question as to whether there is a delay or not may be decided by the Assessing Officer in the light of above observations by the coordinate bench. The assessee will get relief, if found admissible, on that basis. 5. In the result, appeals of the assessee....
X X X X Extracts X X X X
X X X X Extracts X X X X
....l Tribunal in the identical facts and circumstance in the case of Suzlon Energy Ltd.(supra) has restored this issue to the file of the AO for fresh adjudication. Therefore, respectfully following the same we are inclined to restore the issue on hand to the file of AO for fresh adjudication and in accordance to the provision of law as well as after considering the order of this Tribunal in the case of Suzlon Energy Ltd. (Supra). Thus, the ground of appeal of the assessee is allowed for statistical purpose. 6.2 In the result, the appeal filed by the assessee is allowed for statistical purposes. 7. The second issue raised by the assessee is that Ld. CIT(A) erred in upholding the order of the Assessing Officer by not allowing the set off of the brought forward losses/unabsorbed depreciation amounting to Rs. 11,02,365/- against the current year income as well as not allowing the same to be carried forward to the succeeding assessment years. The assessee during the year has set off of previous year's losses of Rs. 11,02,365/- against the current year income as mentioned in the statement of the total income. However, the Assessing Officer during the assessment proceedings observed that....
X X X X Extracts X X X X
X X X X Extracts X X X X
....rned, is to be done as per records of the earlier years and in those years only. It is not the case of appellant that losses properly determined in the earlier years have not been allowed during the current year. The issue of determination of losses of earlier years cannot be agitated during the current year. The ground of appeal is dismissed." 10. Being aggrieved by the order of the Ld. CIT(A), the assessee is in appeal before us. 11. The Ld.AR before us submitted that assessee is eligible for set-off of brought forward losses and unabsorbed depreciation. Hence, a direction may be given to Assessing Officer to compute correct amount of brought forward business loss and unabsorbed depreciation following the law after taking into account the orders passed by Hon'ble Appellate tribunal authorities in assessee's case. 12. On the other hand, the Ld. DR supported the order of the authorities below. 13. We have heard the Ld. Representatives appeared for the respective parties. We have perused the relevant materials available on record. At the outset, we note that the Ld. CIT-A rejected the ground of appeal of the assessee by observing that the issue of determination of losses of the....
X X X X Extracts X X X X
X X X X Extracts X X X X
....n effect the balance amount of Rs. 15,03,295/- (Rs. 18,79,653 - Rs. 3,76,358) was debited in the P&L Account. As per the assessee, the prior period expenses should be treated in the manner of prior period income. 16.1. However, the Assessing Officer disregarded the submission of the assessee by observing that there is no provision for allowing the prior period expenses from the total income of the assessee. However, there is provision for charging the prior period income u/s 41(1) of the Act. Therefore, the Assessing Officer disallowed the same and added the sum of Rs. 4,29,490/- to the total income of the assessee. 17. The aggrieved assessee preferred an appeal to the Ld. CIT(A). The assessee before the Ld. CIT(A) submitted that the adjustment on account of prior period income and expenses is representing the actual expenses incurred by the assessee for the business. Therefore, the claim of the assessee is legitimate. Accordingly, the assessee requested the Ld. CIT(A) to allow the adjustment of prior period income with the prior period expenses. 17.1. However, the Ld. CIT(A) disregarded the contention of the assessee and confirmed the order of the Assessing Officer by observin....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ers of the authorities below. 20. We have heard the rival contentions and perused the materials available on record. 21. At the outset, we find that the Hon'ble Tribunal Ahmedabad in the identical facts and circumstances in the case of DCIT vs. Dishman Pharmaceuticals & Chemicals in ITA No.692/Ahd/2011 & others have decided the issue in favor of the assessee for AY 2005-06 & others dated 23/05/2018. The relevant extract of the order is reproduced as under: "59. With the assistance of the ld.representatives, we have gone through the record carefully. The ld.AO while assessing prior period income of Rs. 46,50,648/- has observed that since it is taxable income offered by the assessee itself, an item has to be included in the total income of the assessee on the principles of taxability on accrual or receipt basis. This has been offered by the assessee on receipt basis. Therefore, it is to be taxed, with regard to the allowance of prior period expenditure, the ld.AO has observed that such item cannot be allowed because it is not ascertainable whether this expenditure has been crystallized in the current year or not. According to the AO, bills and vouchers were not produced by the as....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ordingly, we set aside the order of the Ld. CIT(A) and direct the Assessing Officer to delete the addition made by him. Hence, the grounds of appeal of the assessee are allowed. 23. The next issues raised by the assessee in ground Nos.7 & 8 are that the Ld. CIT(A) erred in confirming the order of Assessing Officer by not allowing the MAT credit of Rs. 17,26,221/- u/s 115 JAA of the Act. 23.1. The assessee in the year under consideration has reduced MAT credit from the book profit determined u/s 115JB of the Act. However, the Assessing Officer was of the view that no such MAT credit is allowable against the income determined u/s 115JB of the Act. Accordingly, the Assessing Officer sought an explanation from the assessee vide order-sheet entry dated 10/12/2013. The assessee did not make any reply to the query raised by the Assessing Officer. Accordingly, the Assessing Officer disallowed the same and added to the income determined u/s 115JB of the Act. 24. The aggrieved assessee preferred an appeal to the Ld. CIT(A). The assessee before the Ld. CIT(A) submitted that it is very much entitled to the credit of the MAT amount paid in the earlier and current year against the income comp....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... as under: 75[Tax credit in respect of tax paid on deemed income relating to certain companies. 76 115JAA. (1) Where any amount of tax is paid under sub-section (1) of section 115JA by an assessee being a company for any assessment year, then, credit in respect of tax so paid shall be allowed to him in accordance with the provisions of this section. 77[(1A) Where any amount of tax is paid under sub-section (1) of section 115JB by an assessee, being a company for the assessment year commencing on the 1st day of April, 2006 and any subsequent assessment year, then, credit in respect of tax so paid shall be allowed to him in accordance with the provisions of this section.] 78[(2) The tax credit to be allowed under sub-section (1) shall be the difference of the tax paid for any assessment year under sub-section (1) of section 115JA and the amount of tax payable by the assessee on his total income computed in accordance with the other provisions of this Act: 31. In view of the above, we are of the view that the entire matter needs re-examination afresh by the Assessing Officer. Accordingly, we set aside the issue to the file of Assessing Officer for fresh adjudication follo....
X X X X Extracts X X X X
X X X X Extracts X X X X
....arman Finochem Ltd. 131.78 91.4 40.38 44.17943 3. Malladi Drugs & Pharmaceuticals Ltd. 192.53 166.8 25.73 15.42566 4. Shilpa Mediare Ltd. 240.67 172.07 68.6 39.8675 5. Tonira Pharma Ltd. [Merged] 37.02 33.19 3.83 11.53962 AVERAGE 26.20% 40. In view of above the TPO made Rs. 2,33,75,787/- on account of transfer pricing adjustment as detailed under : Description Amount in Rs. Operating Cost as per books (computed in para 5.1 of show cause notice) 14,74,60,808.00 Profit at Arms length Price (ALP) @ 26.20% of operating cost 3,86,34,731.70 Operating Revenue (at ALP)(A) 18,60,95,539.70 Operating Revenue (Price) received as per books (computed in para 5.1 of show cause notice) (B) 16,27,19,752.00 Shortfall being adjustment u/s.92CA (C=A-b) 2,33,75,787.70 5% of the price shown in the books (i.e. international transaction in cost amounting to Rs. 17,06,08,079/- (Sale and purchases) 85,30,404/- Accordingly, the AO added the sum of Rs. 2,33,75,787.00 the total income of the assessee. 41. Aggrieved assessee preferred an appeal to the Ld. CIT(A). The assessee before the Ld. CIT(A) submit....
X X X X Extracts X X X X
X X X X Extracts X X X X
....rence in profit rates, the issue was also raised before the transfer pricing officer as discussed by him in para 6.7. After considering the discussion made by the transfer pricing officer in para 6.7 where TPO has also pointed out various judicial pronouncements, I am of the considered opinion that under Indian transfer pricing system, what is required to be seen is the reasons for supernormal profit and if there are some specific reasons, for supernormal profits, then the profit ratio of such comparable is required to be suitably modified to nullify the effect of reason resulting in such supernormal profit. Following judicial pronouncements is also important: Trilogii E-Business Software India vs. DClT (lTAT Bangalore) [140 ITD 540] : (Date of pronouncement) 23. 11.2012, AY 2007-08 Transfer Pricing: Comparables cannot be ignored on ground of abnormal profits/losses if they are functionally comparable The assessee provided software research & development services to its' USA based AE and was remunerated on a 'cost plus' basis. The assessee claimed that applying the TNMM and using operating profits to cost as the Profit Level Indicator ("PLI"), its PLI of 9.98% ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e, considering the discussion made by the TPO, and in the light of discussion above, this ground taken by the appellate is rejected. 7.8. Now the issues related to exclusion of companies having turnover difference is considered. The appellant wants that only comparables turnover within the range of 50 percent turnover should be considered. There is no reason given for this. Does a difference in turnover result into high profits? Is it necessary so in the industry or in the market in which the appellant is working? No such examples are shown by the appellant. Does a big size result into only the economies? It is now said that there are more diseconomies rather than economies resulting from a big size. It is rightly said that " Small is;Beautiful". 7.9. Coming to the judicial decisions on the issue, some of the judicial findings with the case references are as below: 7.V.J.Trilogy E-Business Software India us. DCIT (ITAT Bangalore) [140 ITD 540) November 23, 2012 (Date of pronouncement), AY :2007-08. Transfer Pricing: Turnover filter is an important criteria in choosing comparables (i) para 12: The ICAI TP Guidelines note on this aspect lay down in para 15.4 that a ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....nover of 1.00 to 200.00 crores only should be taken into; consideration for the purpose of making TP study. " (ii) para 19: A reading of the provisions of Rule 10B(2) of the Rules shows that uncontrolled transaction has to be compared with international transaction having regard to the factors set out therein. Before us there is no dispute that ,the TNMM is the most appropriate method for determining the ALP of the international transaction. The disputes are ..with regard to the comparability of the comparable relied upon by the TPO. (iii) In this regard we find that the provisions of law as the decisions clearly lay down the principle that the turnover ; filter is an important criteria in choosing the comparables. The assessee's turnover is Rs. 47,46,66,638. It would therefore fall within the category of companies in the range of turnover between 1 crore and 200 crores (as laid down in the case of Genesis Integrating Systems (India) Pvt. Ltd, v. DCIT, ITA No.1231/Banq/2010). Thus, companies having turnover of more than 200 crores have to be eliminated from the list of comparables as laid down in several decisions referred to by the Id. counsel for the assessee. Thus t....
X X X X Extracts X X X X
X X X X Extracts X X X X
....n can be considered. The proviso to Rule 10B (4) which permits the use of data relating to other than the financial year in which the international transaction has been entered into; being not more than two years prior to such financial year does not mean that one can insist on the use of multi-year data but it has a limited role only when the data of earlier years reveal facts which could have influenced on determination of the TP in relation to the transaction being compared. As the assessee has not made out a case that taking the data for only the current financial year will not present the correct and fair financial result of the comparables, the claim for multi-year data cannot be entertained; (iv) While in principle, comparables having an abnormal difference of turnover and distorted operating profits have to be excluded for determining the ALP, the claim that as the assessee revenue is about Rs. 20 crores, comparables having more than 50 crores and less than 5 crores of turnover should be excluded is not acceptable because no specific fact has been brought on record to show that due to the difference in turnover the comparables become non-comparables. It is accepted ec....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ind any reason to reject any of the comparable and hence addition made by the assessing officer/transfer pricing officer is being confirmed. For the reasons discussed above, I do not find any logic that only turnover range of 50 percent should be considered. Thus the grounds of appeal related to transfer pricing adjustment are dismissed." 45. Being aggrieved by the order of the Ld. CIT(A) assessee is in appeal before us. The Ld. AR before us filed a paper book running from the page of 1 to 284, and Annexure A to F and submitted as under: "At the outset, the issue is covered by the decision of ITAT in Assessee's own case for earlier years as follows wherein application of "Turnover filter" has been upheld: - Schutz Dishman Biotech P.Ltd. vs. DCIT - ITA 954/Ahd/2012 - Asst.Year 2007-08 (Annexure"B") - DCIT vs. Schutz Disman Biotech Pvt.Ltd. - ITA 2060/Ahd/09 and others - Asst.Year 2006-07 (Annexure"E"); In view of orders of earlier years as above, "Turnover filter" ought to have been applied by TPO. Accordingly, range of 50% based on assessee's turnover will be Rs. 24,40,79,628/- on the higher side. Hon'ble ITAT, in assessee's own case for AY 2007- 08, has approved the a....
X X X X Extracts X X X X
X X X X Extracts X X X X
....OT 489 (Bang) (Annexure "D"). 46. On the other hand, the Ld. DR relied on the order of the authorities below. 47. We have heard the rival contentions and perused the materials available on record. In the instant case, the issue relates to the selection of companies selected by the TPO for comparables. The assessee claims that the comparable companies having turnover within the range of 50% of the assessee company should be selected for comparables to determine the ALP. In this regard, we find that the Hon'ble ITAT in the own case of the assessee in ITA No. 954/Ahd/2012 for AY 2007-08 vide order dated 05.06.2018 has upheld the selection of companies within the range of 50% of the turnover of the assessee company. The relevant extract of the order is reproduced as under: "8. We have duly considered rival contentions and gone through the record. As observed earlier, the Revenue and the assessee have not disputed selection of appropriate method i.e. TNMM; selection of tested party i.e. assessee; selection of profit level indicator i.e. operative profit/operative cost. They are only disputing on selection of comparables. The assessee has selected four comparables viz. Advik Laborat....
X X X X Extracts X X X X
X X X X Extracts X X X X
....evant factor to be considered for comparability. Hon'ble High Court has relied upon the decision of Hon'ble Delhi High Court in the case of CIT Vs. Agnity India Technologies (P.) Ltd., (2013) 36 taxmann.com 289. Thus, there are conflicting decisions in favour or against the application of turnover filter. However, the ld.Revenue authorities have not brought to our notice of any judgment of the Hon'ble jurisdictional High Court which prohibits application of turnover filter. Therefore, we are of the view that the ld.CIT(A) has rightly made an analysis that smaller companies having turnover of Rs. 3 crores could not be considered as comparable with the assessee who has turnover of Rs. 15.84 crores. Similarly, the company who has turnover of more than Rs. 30 crores could not be compared with the assessee. Thus, we do not find any error in the order of the ld.CIT(A) on this aspect, and if we uphold the turnover filter then the ground of appeal raised by the Revenue is required to be rejected. Accordingly, we reject the grounds of appeal raised by the Revenue. 10. So far as adjustments confirmed by the ld.CIT(A) is concerned, we find that the assessee has demonstrated that Welcure Dr....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e assessee are allowed. 52. The next issue raised by the Assessee in this appeal is that Ld.CIT(A) erred in not allowing deduction of Rs. 19,02,690/- u/s.10B of the Act on account of foreign exchange gain. 53. The assessee in the year under consideration has shown an income of Rs. 13,60,598/- on account of fluctuation in foreign exchange. The assessee in respect of such income claimed the deduction u/s 10B of the Act. However, the Assessing Officer was of the view that the income represented by foreign currency fluctuation is not arising from the export activity as amended u/s.10B of the Act. Therefore, the Assessing Officer disallowed the deduction u/s 10B of the Act in respect of such income of Rs. 13,60598/- only and added to the total income of the assessee. 54. The aggrieved assessee preferred an appeal to the Ld. CIT(A). The assessee before the Ld. CIT(A) submitted that the income on account of foreign exchange fluctuation was directly linked with the export business of the assessee. Therefore, the same should be allowed as deduction u/s.10B of the Act. However, the Ld. CIT(A) disregarded the contention of the assessee and confirmed the order of the Assessing Officer by o....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ods exported. The view is supported by the decision of the Hon'ble Supreme Court in the case of Pandian Chemicals Ltd. vs. CIT (2003) 183 CTR (SC) 99 : (2003) 262 ITR 278 (SC) and Liberty India vs. CIT [2009] 317 ITR 218. Therefore, it is held that exchange fluctuation gain is not an income derived from the qualified activity given in section 10B and so the action of assessing officer in not allowing deduction under section 10B based on the reasons given by him in para 9 of the assessment order (which are not repeated here) are upheld. 8.5. However, so far as the computation of disallowance of deduction under section 10B is concerned, the assessing officer should verify whether the export turnover includes exchange rate fluctuation gain or not and if it is found that the same is not included here then the assessing officer should recompute the disallowance made on account of disallowing deduction under section 10B on exchange rate fluctuation gain, The ground of appeal number 15 is thus partly allowed. 8.6. As far as ground number 16 related to deduction under section 10 B on revised gross total income is concerned, it is seen that appellant has not pointed out the additi....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ts of the case reported in 117 ITD 376 in the case of Banyan Chemicals P.Ltd.(supra), the ground of the assessee's appeal is allowed. 60. The last issue raised by the assessee in ground No.18 is that the Ld. CIT(A) erred in not granting deduction u/s.10B of the Act on the revised gross total income. 61. At the outset, we note that it is a settled law that whatever disallowances will be made in respect of their unit/undertaking/company eligible for deduction u/s.10B of the Act, then the deduction will be claimed by the assessee will be enhanced by the amount of the disallowances. In this regard, we find relevant to refer the necessary portion of Circular No.37 of 2016 issued by CBDT dated 02.11.2016 which is reproduced below:- "3. In view of the above, the Board has accepted the settled position that the disallowances made under sections 32, 40(a)(ia), 40A(3), 43B, etc. of the Act and other specific disallowances, related to the business activity against which the Chapter VI-A deduction has been claimed, result in enhancement of the profits of the eligible business, and that deduction under Chapter VI-A is admissible on the profits so enhanced by the disallowance." 61.1. In vi....
X X X X Extracts X X X X
X X X X Extracts X X X X
....he relevant observation of the ld.CIT(A) reads as under: "4.3 Decision: I have carefully perused the assessment order and the submissions given by the appellant. The addition was made by the A. O. by following the order of the A.O. for A. Y. 2002-03. The similar addition was also made by the A.O. for A. Y. 2006-07 while deciding of the appellant for that year. The addition have been deleted by me by following the order of the ITAT, Ahmedabad in the case of the appellant for A. Ys. 2002-03, 2003- 04 & 2004-05. Accordingly, the addition made by the A. O. in this year is also directed to be deleted. Therefore, the additions of Rs. 1,43,79,263/- on account of inflation of purchase of raw materials and Rs. 62,63,591/- u/s. 69 of the Act is directed to be deleted. The grounds of appeal are accordingly allowed." 15. We have considered rival submissions and gone through the record. We find dial the Tribunal has discussed this issue from para 4 to 4.1 in the assessment year 2005-06 and in para 9 in assessment year 2006-07. Basically, the Tribunal has followed order passed in the assessment year 2003-04 and 2005-06 on this issue and confirmed the order of the ld.CIT(A). Considering ....