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2019 (2) TMI 1414
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.... u/s.36(1)(va) of the Act on account of alleged late 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 ....
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.... necessary on account of pricing adopted by the appellant and without providing an opportunity of being heard to the appellant prior to 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 err....
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....o dispute that hon'ble jurisdictional high court's decision in CIT vs. Gujarat State Road Transport Corporation (2014) 366 ITR 170 (Guj) upholds such a disallowance in principle. The 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 decide....
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....efore us has submitted that the due date for depositing the employee's contribution towards PF/ESI should be seen from the date of the payment and not from the due date. In this regard, we note that the Jurisdictional 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 y....
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....confirmed the order of the Assessing Officer by observing as under: "4.2. The submissions of appellant are considered. I am of the view that issues related to losses/unabsorbed depreciation, so far as, their determination is concerned, 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 ....
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....come from the statement of income. 16. The assessee in compliance to it submitted that prior period expenses amounting to Rs. 18,79,653/- were debited to the Profit & Loss account after adjusting the prior period income of Rs. 3,76,358/- only. Thus, in 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. Acco....
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....art of prior period adjustment, i.e., set off of prior period expenses must be allowed against prior period income. Reliance is placed on "DCIT vs. Dishman Pharmaceuticals & Chemicals in ITA No.692/Ahd/2011 & others". 19. On the other hand, the Ld. DR supported the orders 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 ....
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....is to be added to the total income of the assessee." 22. The facts of the case on hand are identical to the facts of the case as discussed above, i.e., in ITA No.692/Ahd/2011. Therefore, respectfully following the same, we are inclined to reverse the orders of the authorities below. Accordingly, 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 sa....
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....s, we note mismatch between the finding of the Assessing Officer vis-a-vis submissions made by the assessee before the Ld. CIT(A). 30. However, we note that the assessee is very much entitled to claim the credit of tax paid under MAT against the income computed under the normal provisions under section 115JAA of the Act, which reads 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) o....
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.... OP/OC. 39. However, the TPO disagreed with the submission of the assessee and worked out the average PLI after selecting 5 companies. The necessary details of the companies selected and the working of PLI of such companies stand as under: Sr. No. Company Operating Revenues in Rs.Cr. Operating Cost Rs.Cr. Operating Profit in Rs.Cr. OP/Cost % 1. Embio Ltd. 77.05 64.21 12.84 19.99689 2. Harman 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 Rev....
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....pricing because of difference in facts and comparables in each of the years, the submission made is not acceptable. In any case, the earlier decisions do not have precedence value unless the facts are same. Further, these decisions are not binding. It is further noted that appellant has not pointed out any differences in the functions, assets or the risk profile of the comparables adopted by the TPO, this has to be kept in view while considering the decision in respect of all the above contentions raised by the appellant. ] 7.7. With reference to difference 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 judicia....
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....s. However, if there are specific reasons for abnormal profits or losses or other general reason's as to why they should not be regarded as comparables, Ihen they can be excluded-for comparability. It is for the Assessee to demonstrate existence of abnormal factors. On facts, as the assessee has not shown any factors for abnormal profits, no comparable can be excluded for that reason (contra view in Quark Systems & Sap Labs noted); Unless such specific reasons are shown by the appellant, there is no reason to exclude any functionally comparable company from the list of comparables and hence, 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 r....
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.... companies should also be excluded. For the purpose of classification of companies on the basis of net sales or turnover, we find that a reasonable classification hcis to be made. Dun & Bradstreet & Bradstreet and NASSCOM have given different ranges. Taking the Indian scenario into consideration, we feel that the classification made by Dun & Bradstreet is more suitable and reasonable. In view of the same, we hold that the turnover filter is very important and the companies having a turnover of Rs. 1.00 crore to 200 crores have to be taken as a particular range and the assessee being in that range having turnover of 8.15 crores, the companies which also have turnover 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....
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.... The burden of proving that the transactions with the AE is at arms' length is on the assessee. If the Transactionai Net Margin Method ("TNMM") is adopted, the comparison has to be made between the net margin realised from the operation of the uncontrolled parties' transaction and net margin derived by the assessee on similar international transactions. The comparison should be between the net margins on transaction basis and not at enterprise level; (ii) U/s 92CA(3), the TPO is entitled to consider material in public domain which, though not available to the assessee at the time of the TP study, is relevant for the financial year; (iii) Ordinarily only the data pertaining to the financial year of the transaction 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 relat....
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....ge in the risk profile and profitability of the company. Further, the turnover differences is to be seen on Log scale. That is a company having 10 times turnover or 10 percent of the turnover can be easily included among the comparables while a company with differences more than hundred times turnover or less than one percent turnover will have to be excluded. 7.11. In the present case, it is seen that operating revenue of the appellant as per books is 16.3 crores. The companies which are choosing for comparability have the turnover range of 37 crores to 240crores. Thus the highest turnover company is having turnover of only 14.8 times. In fact the company having a turnover lower than this particular comparable is having higher profit margin. In view of this, I do not find 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 a....
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....h is closest to the above stated range is "Tonira Pharma Ltd." (Pg. 46 of TPO's order) having turnover of Rs. 37.02 crore. It is a settled law that only one comparable is also a good comparable. Accordingly, even if ALP is determined taking that company as a base, then also the shortfall would be within the range of 5% (Pg.227 of P/B), as available to the assessee as per the proviso to S.92C(2). Hence, even on that score, no TP adjustment is warranged. Hence, impugned addition deserves to be deleted. - Secondly, Super-normal profit making companies are also required to be excluded from the comparison as the same would give distorted picture of ALP comparison. Reliance is placed on: - PCIT vs. Barclays Technology Centre India (P.) Ltd. - (23018) 95 taxmann.com 170 (Bom) (Annexure "F"). - Google India (P.) Ltd. vs. DCIT - 55 SOT 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....
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....effort is being made to compare related party transactions undertaken by the assessee with the uncontrolled transactions undertaken by the comparable, and thus arrive at a conclusion as to whether transaction bench mark is at arm's length or not. For example, a chosen company, though functionally comparable has entered international transactions beyond a percentage with related parties, it is quite possible that its overall profit may have distorted due to such transaction rendering it as uncomparable. There are so many other circumstances which are required to be examined under FAR analysis, and due to this, adjudicator is required to apply appropriate filter in order to work out comparables which have not under any influence of the related party transactions. Hon'ble Bombay High Court in the case of CIT Vs. Pentair Water India (P.) Ltd., 381 ITR 216 concluded that turnover is obviously a relevant 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 turn....
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....C. 49. The Ld. DR before us has not brought anything on records suggesting that the revenue has preferred an appeal against the order of the Ld. CIT(A). 50. Because of the above, we do not want to deviate from the finding of the Hon'ble ITAT in the own case of the assessee as discussed above. Therefore we direct the AO/ TPO to select comparable companies having the nearest turnover to the assessee company. In the instant case, we note that there is a single company as discussed above having the nearest turnover to the assessee company. Therefore we direct the AO/TPO to select that company and make suitable adjustments within the provisions of law. 51. From the above, we note that the assessee succeeds in its appeal by turnover criteria as directed above for the selection of comparable companies. Therefore we refrain ourselves from adjudicating the issue of super profit as indicated by the assessee. Thus the grounds of appeal of the 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 ....
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....ich is allowable to an assessee as a deduction under s. 10B is profits and gains derived by the assessee from 100 per cent EOU. Thus, the amount which qualifies for deduction should be profits and gains directly arising from the activity of conducting the business of the EOU. The income which accrues to an assessee from an activity which is not directly from the conduct of business of the EOU may be an income incidental to the business of EOU but the same cannot be held to be an income derived from the EOU. In the instant case, the assessee has derived the income in question because of his making an investment in EEFC account. To make a deposit in EEFC account is not an activity of actual conduct of the business of the EOU. It is a step removed from the actual conduct of the business of the EOU. Hence, the said income cannot be held to be a profit actually derived from EOU as the same is due to the variation in value of foreign currency and not the value of goods 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. ....
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....ties. We have perused the relevant materials available on record. At the outset, we find that the Hon'ble Ahmedabad Tribunal in the identical facts and circumstances has decided the issue in favor of assessee in the case of ITO vs. Banyan Chemicals P.Ltd. 117 ITD 376 (Ahd)(TM). The relevant extract of the order is reproduced hereunder: "18. On a perusal of this chart, we find that the receipt of Rs. 15,51,239 includes Rs. 15,31,518 as the gain on the sales realization in US Dollar on the date of its receipt and deposit in EEFC account and balance Rs. 19,721 is with regard to exchange gain on import payment. Therefore, the assessee would be entitled to the deduction under section 10B with regard to exchange gain of Rs. 15,31,518 only which is the gain on the day of deposit of US$ in the EEFC Account. In my opinion, therefore, the assessee should be granted deduction under section 10B of the Act with regard to exchange gain of Rs. 15,31,518. I hold accordingly." 59. Since the facts are identical to the facts 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....
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....aw material as also extent of and how the variations arisen. However, the ld. AO did not accept the explanation of the assessee and busing his earlier order for the assessment year 2002-03 to 2006-07, an addition of Rs. 62,63.591/- on account of items consumed less than the standard norms and further addition of Rs. 1,43,79,263/- on account of items consumed more than the standard norms were made. These two additions were challenged before the ld. First Appellate Authority, who folloiwng his order of the assessment year 2006-07 while following the order if the Tribunal in the case of assessee for the assessment years 2002-03, 2003-04 and 2004-05 deleted the impugned additions. 14. At the outset. ld. counsel for the assessee has placed on record copy of the order of the Tribunal passed in the assessment year 2005-06 an 2006-07 in ITA No.2060/Ahd/2009 and 3l41/Ahd/2011 wherein similar addition has been deleted. The ld. First Appellate authority has followed the order of the Tribunal passed in the assessment years 2002-03, 2003-04 and 2004-05. The relevant observation of the ld.CIT(A) reads as under: "4.3 Decision: I have carefully perused the assessment ord....