TaxTMI 
TaxTMI 
TaxTMI 
2019 (9) TMI 438
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....ion 143(3) read with section 144C of the Income Tax Act,1961 (hereinafter referred as "The Act") dated 30.01.2014 as per the direction of learned Dispute Resolution panel (hereinafter referred as DRP)-II dated 27.12.2013. 2. The assessee has raised the following grounds of appeal as under:- "1. That on the facts and circumstances of the case, and in law, the Assessment Order dated 30.01.2014 passed under section 143(3) r.w.s. 144C of the Income Tax Act, 1961 (The Act') in pursuance of the directions issued by the Learned Dispute Resolution Panel ('Ld. DRP') is illegal and bad in law. 1.1 That the Ld. DRP erred on facts and in law in confirming the additions/ disallowances proposed in the draft assessment order passed by the assessing officer, without judiciously considering the factual and legal objections filed against the said order. 1.2 That the DRP erred on facts and in law in not directing the assessing officer to delete various additions/ disallowance, which were squarely covered in favour of the appellant by the order(s) of the appellate authorities for earlier years. 1.3 That the DRP erred on facts and in law in not independently considering/ dire....
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....e companies should be used despite the fact that the same was not necessarily available to the appellant at the time of preparing TP documentation; 3.3 resorting to arbitrary rejection of low profit making companies based on erroneous and factually incorrect reasons; 3.4 selecting random companies as comparables without providing a search strategy and thereby undertaking cherry picking of comparables with the sole objective of making the adjustment; 3.5 modifying the search strategy consistently applied by the appellant and including certain companies that are not comparable to the appellant in terms of functions performed, assets employed and risks assumed; 3.6 by not allowing appropriate economic adjustment for research and development expenses undertaken to enhance comparability; 3.7 not appreciating that TP adjustment cannot exceed the total profit made by the overseas AEs from the international transactions entered into with the appellant company. 4. On the facts and in the circumstances of the case and in law, the Ld. AO/DRP has erred in disregarding sound TP principles and judicial pronouncements in India in undertaking the TP adjustment. 5. That the Ld.....
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....y under the provisions of sections 37 of the Act. 7.1 That Ld. AO erred on facts and in law in holding that the aforesaid amounts constituted donation, eligible for deduction under section 80G of the Act. 7.2 That the Ld. AO/DRP erred on facts and in law in holding that payments made by the appellant were in the nature of advertisement and publicity expense on which tax was required to be deducted at source and consequently the contribution claimed was disallowable under section 40(a)(ia) of the Act. 8. That the Ld. AO/DRP erred on facts and in law in disallowing Rs. 11,68,23,115 under section 14A of the Act, by applying the formula prescribed in Rule 8D of the Income Tax Rules, 1962 ("the Rules"). 8.1 That the Ld. AO/DRP erred on facts and in law in proceeding to make disallowance under section 14A of the Act simply on the basis of method/ formula prescribed in Rule 8D of the Rules, without appreciating that: (a) there is nothing on record to dispute the contention of the appellant that no expenditure, over and above expenditure suo-moto disallowed by the appellant was actually incurred in relation to the exempt income; (b) preconditions for applying Rule 8D as p....
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....lant was not eligible to claim deduction under sections 80-IB/ 80-IC of the Act for the year under consideration, without appreciating that on identical facts deduction had always been allowed in the earlier year(s) (except for assessment year 2008-09). 10.5 That the AO/ DRP erred on facts and in law in alleging that the appellant violated the provisions of sub-sections (5) and (8) of section 80IA of the Act. 10.6 That the Ld. AO/ DRP erred on facts and in law, in misinterpreting the applicable legal provisions and placing reliance on judicial precedents not applicable to the facts of the assessee's case while confirming the disallowance of entire deduction claimed under sections 80-lB and 80-IC of the Act. 10.7 That the Ld. AO/DRP erred on facts and in law, in proposing alternate computation mechanism (particularly in paras B-1, B-2, C and D of the impugned order) to arrive at the profits eligible for deduction under sections 80-lB and 80-IC of the Act, disregarding the method prescribed under the Act. 10.8 That the Ld. AO/DRP erred on facts and in law in not evaluating the additional information filed by the assessee in support of deduction claimed under section 8....
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....to the cost of capital assets, and allowing depreciation thereon as part of actual cost of the depreciable assets. 18. That the Ld. AO/DRP erred in making arbitrary/ extraneous observations based on conjectures/ surmises and unsound presumptions, which are not in accordance with the facts of the case. 19. That the Ld.AO erred on facts and in law in law in charging interest under sections 234B and234DoftheAct. 20. That the Ld.AO erred on facts and in law in withdrawing interest under section 244A of the Act. 21. That the above grounds of objection are independent of, and without prejudice to one another. 22. That the appellant craves leave to alter, amend or withdraw all or any grounds herein or add any further grounds as may be considered necessary either before or during the hearing." 3. The issues raised by the assessee in Ground Nos. 1 and 18 to 22 are general and consequential in nature. Therefore, no separate adjudication is required for the same. Hence, we dismiss the same. 4. The interconnected issue raised by the assessee in Ground Nos. 2 to 4 is that the Ld. DRP erred in confirming the addition made by the AO /TPO amounting to Rs. 145,13,17,725/- on acco....
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....ng the international transactions in 4 classes is detailed as under: "4.5. Characterisation of AEs 4.5.1. Based on above analysis of the functions performed, assets employed and risks assumed by the RLL and the AEs, it is possible to characterize the AEs into the following classes: * Class I: For Class I transactions, RLL's AEs act as a distributor of pharmaceutical products exposed to normal risks while performing only marketing and distribution functions. * Class II: For Class II transactions, RLL's AEs act as a secondary manufacturer and distributor exposed to normal risks while carrying out secondary manufacturing, marketing and distribution of pharmaceutical products. * Class III : For Class III transactions, RLL's AEs act as a market research and support service providers exposed to normal risk. 5.4. The assessee accordingly Bench Marked the transaction with the AE's using different methods and PLI for different classes of the transactions as detailed under: Class Method PLI Class I TNMM OP/sales Class II TNMM OP/sales Class III TNMM OP/TC Class IV CUP - 5.5. The assessee further filed the country wise list of its AE's with whom....
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....ould be carried out with the similar entity in that very country because geographical situations in several ways may influence the transfer pricing. 5.13. Further, the TPO observed that social economic and geographical factors play a significant role in the marketing of the drugs. For example, a drug might be subsidized in one country but not in another country, the demand of the drug of AIDS, cancer, may be more in one geographical region but not in other. 5.14. In addition to the above, the TPO further observed that the accounting policies, depreciation rate, government regulation about IP and drug pricing of the comparables would be different from the assessee. Similarly, the assessee and foreign parties have different accounting year which needs to be recast in the required suitable manner. 5.15. In view of the above and after considering the order of ITAT Delhi (supra), the TPO concluded that the selection of comparables from a different geographic region is not acceptable treating the AE's as the tested party. Accordingly, TPO rejected the TP study and required the assessee to provide the supplementary transfer pricing report considering the assessee as the tested party....
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....lated to comparable selected and filters suggested by the assessee. The TPO accordingly used revised comparables and filters. As such the TPO worked out the new PLI (OP/OC ratio) at 21.36% as the average mean of the comparables. 5.24. Further, the assessee demanded the economic adjustment on account of non- operating expenses such as R&D expenses, legal expenses related to FDA proceedings. 5.25. After considering the submission made by the assessee as above, TPO revised the PLI of the assessee at 9.94%. 5.26. Accordingly, the TPO computed the upward adjustment amounting to Rs. 461,17,50,000/- i.e., difference between the ALP and actual price charged by the assessee. The AO after getting TPO report in his draft assessment order made an addition taking the basis of TPO order amounting to Rs. 461,17,50,000/- to the total income of the assessee. 5.27. The aggrieved assessee preferred an appeal before the Ld.DRP who partly allowed the appeal of the assessee by observing as under:- "5.1. In objection 3.1, the assessee has reiterated the objection dealt with in grounds of objection 2.1 to 2.5 by stating that the TPO has rejected even the supplementary economic analysis conducte....
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....same as 30%. The related party filter is taken at 15% by the assessee whereas TPO has taken it as 25%. However, major dispute is on account of total R&D/sales filter, Export sales filter and RPT filter. These are discussed in the following paragraphs. 5.3.2. R&D/sales filter The assessee has, in principle, agreed that R&D filter is an appropriate filter. However, the only limited question is whether it should be at 3% or 4%. The TPO has given the reason in his TP order on Page 32 and 33. The assessee has R&D expenses to the total sales at 9.93%. Compared to a normal company, this is substantial R&d expenditure. The TPO has countered the argument of the assessee in Para 10.4. The assessee is incurring substantial R&D expenditure and this is growing. Pharmaceutical companies are driven by R&D and assessee is in the higher bracket of Pharmaceutical companies which are leading in R&D activities. Therefore, TPO is correct in applying R&D filter at 4% of R&D/Sales. DRP does not find any reason to change this filter. 5.3.3. Export sales filter The TPO has used export sales filter at 25% whereas the assessee is using at 30%. There is not merit in the argument of the assessee th....
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....e a means to get good comparable companies and they are not an 'end' in itself. On going through the order of the TPO, DRP finds that the filters are rationally applied to reduce the number of comparables to a manageable level for an in-depth analysis of the functions performed, assets employed and risks undertaken. In view of this, there is no merit in the argument of the assessee that filters are arbitrarily employed. No exact comparable is available in reality. The endeavor is to find out a comparable which is in the similar line of business and having similar assets and risks profile. The TPO cannot be faulted for selecting these comparables so long as the TPO has shared these comparables with the appellant through the show cause notice. Reliance is placed on the decision of DCIT vs. Deloitee Consulting India Pvt. Ltd. (ITA Nos. 1082 & 1084 of 2010). " 40. ....... We find that there are several factors such as market risks, environmental risk entrepreneurial risk and functional risk etc., which affect this matter and which ultimately affect the results of the company. All the aforesaid factors make it Impracticable to any authority to find out exact duplicate comp....
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.... for R&D expenses. The main argument of the assessee is that R&D has high risk and rate of obsolescence of drugs and technology is very high; the R&D expenditure has a declining return and productivity; therefore, there should be economic adjustment to the margin of the assessee; further, the assessee has stated that there needs to be an adjustment because of loss of contribution of sales in the US market. 5.4.1. TPO has rejected this claim of the assessee because it is difficult to quantify a reasonably accurate adjustment as contemplated in Rule 10B(3)(ii). 5 4.2. DRP has considered the submission of the assessee carefully. The R&D expenditure has certainly contributed to the revenue of the assessee. It is difficult to quantify the risk of R&D in a pharmaceutical company. Assessee is a full risk bearing entities. Therefore, it is unscientific to say that such adjustment should be made in the hands of the assessee forgetting that the comparables also need to be adjusted fn the same way. In the scarcity of data about the comparables, it is impossible to carry out such adjustments. Therefore, DRP unholds the action of the TPO. 5.5. In objection 3.7, the assessee has contend....
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....1), New Delhi (2012-ITS-2021-ITAT) dated October 31, 2012, wherein it is held that the facts are most important while deciding the cases in transfer pricing proceedings and the application of the ratio of the ruling in one case depends on the facts and circumstances of that case. In the absence of discussion of the facts of case decided by the Hon'bie ITAT or the High Courts or the Supreme Court, it is not j possible to appreciate how the ratio is applicable to the present case. In view of this, this Ground of objection of the assessee is rejected. Further, it should be mentioned that TPO has relied on the decision of the ITAT in the case of the assessee itself." 6. Being aggrieved by the order of the Ld. DRP, the assessee is in appeal before us. 7. The Ld. AR at the outset submitted that its AE's had been accepted as a tested party in its case by the order of this ITAT in ITA 196/Del/2013 vide order dated 25-4-2016, reported in 68 taxmann.com 322. Accordingly, the AR contended that the AE's of the assessee should be treated as the tested party. The ld. AR also claimed that in the subsequent assessment years, the TPO had accepted the AEs of the assessee as the tested party.....
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.... with least intangibles. 20. As per section 92C(1) of the Act, ALP of the international transact is required to be determined using any of the profit based prescribed methods, being the Most Appropriate method (MAM) having regard to the nature of transaction or class of transactions. However, in order to determine the MAM for determining the ALP, it is first necessary to select the 'tested party'. The transfer pricing legislation in India does not provide any guidance on the concept of 'tested party'; however, there are some decisions on this issue, which can be of great help. 21. In order to understand the concept of tested party, one need to refer to the transfer pricing legislations of developed countries where the principles of transfer pricing have been in use for a long time and act as a guiding force for all the developing economies. The transfer pricing guidelines issued by the US Internal revenue services under section 482 provide and discuss the concept of transfer pricing. Section 1.482-5 of the US Transfer Pricing Regulations state that 'the tested party will be the participant in the controlled transaction whose operating profit attributable t....
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.... "3.18 When applying a cost plus, resale price or transactional net margin method as described in Chapter II, it is necessary to choose the party to the transaction for which a financial indicator (mark-up on costs, gross margin, or net profit indicator) is tested. The choice of the tested party should be consistent with the functional analysis of the transaction. As a general rules, the tested party is the one to which a transfer pricing method can be applied in the most reliable manner and for which the most reliable comparables can be found i.e. it will most often be the one that has the less complex functional analysis. 3.19 This can be illustrated as follows. Assume that company a manufactures two types of products, P1 and P2 that it sells to company B, an associated enterprise in another country. Assume that A is found to manufacture P1 products using valuable, unique intangibles that belong to B and following technical specification set by B. Assume that in this P1 transaction, A only performs simple functions and does not make any valuable, unique contribution in relation to the transaction. The tested party for this P1 transaction would most often be A. Assume now that ....
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....e method to benchmark the covered transactions in the case. In order to select the comparables regional benchmarking shall be applied in case country-bycountry benchmarking is not feasible the same shall be preferred over regional bench marking. In that appendix, CBDT has agreed to benchmark South African, Ireland and Romania AEs benchmarking region as Europe. In case of Nigeria, Malaysia and Morocco the regional benchmarking has been accepted of Asia. In case of South Africa, Peru the benchmarking of Europe and in case of Egypt, Brazil and Thailand benchmarking of Asia is accepted. According to Parano.5, it is also emphatically mentioned that foreign AEs are the tested parties. It is also important to notice that how this agreement has been reached between the parties. Page No 500 where in it is held that applicant i.e. appellant is an entrepreneur manufacturer where in the functions performed by it are (a) R & D for both the products and processes (b) Production and supply of formulations and APIs (c) Provision of technical support and quality control process for the AEs (d) Application for regulatory approvals from foreign governments (e) Management support In ....
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.... may be reduced by the advance pricing agreements. On the same intentions and objects, the ld. TPO is also required to compute the ALP of the International transactions of the Assessee for this year. Therefore, the agreement entered into by CBDT with the assessee, which has considered all the aspects of the manner of determination of ALP which are also similar for the this year, should be given highest sanctity and therefore mechanism suggest in that agreement should be necessarily followed in determining ALP of the transactions for this year. 29. Though in the APA signed by the assessee there is no "roll back provisions" for the year under appeal, however we analyses the circumstances, which provides for applying that rule. Rule 10MA of the Income tax Rules 1962 provides for the roll back provisions as under :- '10MA. (1) Subject to the provisions of this rule, the agreement may provide for determining the arm's length price or specify the manner in which arm's length price shall be determined in relation to the international transaction entered into by the person during the rollback year (hereinafter referred to as "rollback provision"). (2) The agreement sha....
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....Rule 10 MA of Income tax Rules 1962 in applying the methodology as accepted in APA for the impugned year in appeal. 30. As the FAR Analysis of the year under APA as well as the year under appeal are similar and it is also an established fact that the tested parties selected by the APA i.e. foreign AEs are least complex and adequate financial data for comparison on region basis/country basis are available and further the financial transactions are same, we hold that based on APA for A Y 2014- 15 the selection of tested party should be taken as Foreign AE for the current year too. 31. On looking at the TP Study report of the assessee placed at page Nos. 409 to 478 of Paper Book Volume-II as well as the order of TPO it is apparent that assessee has also adopted region based analysis and also country by country analysis of comparable where they are available. Therefore, in the TP study report as far as the tested party is concerned we do not agree with the observation of the TPO that no comparables are available. It runs contrary to the finding of the CBDT in APA. 32. Coming back to the order of coordinate bench in case of assessee for AY 2004-05 it is apparent that tribunal h....
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....ssed by the TPO and those were discarded for the basic reason that the companies those quoted by the assessee were dealing in product distribution whereas the TPO was of the view that the AE was nothing but 'front office' of the assessee and simply engaged in marketing activity. After due consideration of the issue, the Hon'ble Bench had observed thus: "16.1 (on page 47) It is clear that arm's length price is to be determined by taking result of comparable transactions and those transactions must be in comparable circumstances. It is therefore required to have a proper study of specific characteristics of controlled transaction. It is also required that there should be proper study of functions performed to match the identical situations under which functions have been performed. Then risk profile is also required to be compared. We may like to add that there are so many perspectives which were required to be compared and in this connection the Hon'ble Courts have also suggested so, such as, comparison of functional profile, similarity in respect of assets employed and a thorough screening of the comparables etc. Hence, in the present case, it is necessary to....
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....ed by the assessee with TKC, the submission made on behalf of the assessee was as under: "26, 1 to 3** . ...4. TKS is the entrepreneur company and has created significant marketing intangibles over the years. It uses its marketing intangibles to generate the work and assumes all the market, price and product risks. TKC came out the work on its own, only parts of the job are sub-contracted to the assessee for its convenience. Futher, being an entrepreneur company, it is difficult to determine the profits of ATKC with respect to work downloaded to India (as the revenue received for work off-shored to India cannot be separately identified). Further, the revenue generated from the services provided by the assessee would form only a small part of the entire operations. The value of engineering drawing and design services rendered by the assessee to TKC for AY 2002-04 was Rs. 1,58,43,923/- and for AY 2004-05 it was Rs. 1,45,77,704/-. The value of service forms approximately 6% to 7% of the Cost of Sales to TKC. HENCE, THIS Shri Rahul Mitra argued, shows that testing the margins of TKC would not serve the purpose of determining the arm's length nature of the transactions undertak....
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....sisted upon from the taxpayer." In substance, a foreign entity (a foreign AE) could also be taken as a tested party for comparison. 11.2. At this juncture, we would like to refer to the United Nation's Practical Manual on Transfer Pricing for Developing Countries wherein the selection of the tested party has been dealt with. This Manual has been the work of many authors which included India, Norway, Nigeria, Italy, USA, Netherlands, Brazil, China, OECD, Japan etc. For ready reference, the relevant portion of it observation is extracted as under: "5.3.3. Selection of the Tested Party: 5.3.3.1. When applying the Cost Plus Method, Resale Price Method or Transactional Net Margin Method (see further Chapter 6) it is necessary to choose the party to the transaction for which a financial indicator (mark-up on costs, gross margin, or net profit indicator) is tested. The choice of the tested party should be consistent with the functional analysis of the controlled transaction. Attributes of controlled transaction(s) will influence the selection of the test party (where needed). The tested party normally should be the less complex party to the controlled transaction and shoul....
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....the course of proceedings that the segmental financial statement of GMDAT was not reliable, the assessee reiterates that the segmental data relied upon for benchmarking international transactions relating to import of CKD Kits and components was completely reliable and was based on sound allocation keys. To substantiate its claim, the assessee has also furnished a report on factual findings certified by the statutory auditors - Deloitte Anjin LLC. 11.2.5 Moreover, we find that the DRP had not considered in great detail the plea of the assessee as to why GMDAT should not be selected as the tested party for analyzing the inter-company transactions. Instead, the DRP had, in a cryptic manner, concluded that the results of assessee have to be compared with the stand alone results of Mahindra & Mahindra in the automotive segment. 11.2.6 In this connection, we tend to recall the ruling of the Hon'ble Jurisdictional High Court [Special Civil Application No.8179 of 2010 dated 31.8.2010] in the case of AIA Engineering Ltd. v. Dispute Resolution Patel through Secretary-DRP & 1. After due consideration of rival submissions, the Hon'ble Court had ruled thus - "16. . . . . .If t....
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....rative] rate plus mark up of 3%. When the issue landed up before the DRP, the DRP had, after analyzing the issue, directed the AO/TPO to compute the interest on loans to AE @ 14% per annum thereby enhanced the transfer pricing adjustment. Aggrieved assessee took up the issue with the Tribunal. The Hon'ble Tribunal, after due consideration of the issue in depth and for the reasons recorded therein, directed the AO/TPO to determine the arm's length interest at Libor plus 2% on the monthly closing balance of advances during the FY. We have, with due regards, perused the issue and the findings of the Hon'ble Bench in detail. Ironically, the main issue before the Bench was the percentage of the interest to be calculated on the loan advanced by the assessee to its foreign AEs. We are, therefore, of the view that this case is not directly applicable to the issue under dispute. (ii) In the case of M/s. Onward Technologies Ltd. (supra) as relied on by the Revenue, it is observed that the assessee, a parent company had international transaction with its AEs. With regard to IT enabled services provide to its AEs, the assessee had chosen six comparables with its foreign AEs as a....
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....he most appropriate method for determining the arm's length price, first it is necessary to select the 'tested party' and such a selected party should be least complex and should not be unique, so that prima facie cannot be distinguished from potential uncontrolled comparables". The Hon'ble Calcutta Tribunal in the case of Development Consultants (P.) Ltd. (supra) had recorded its findings that "33. Based on facts and our findings of the case, after due consideration of all the facts, we conclude that the analysis undertaken by the assessee to determine the arm's length price of the international transaction with Datacore USA is correct and on the basis of the analysis it is seen that transaction undertaken by the taxpayer with Datacore US is at arm's length for both the assessment years." Thirdly, the Hon'ble Delhi Tribunal in the case of Ranbaxy Laboratories Limited (supra) took a stand that- 'If the taxpayer wishes to take foreign AE as a tested party, then it must ensure that it is such an entity for which the relevant data for comparison is available in public domain or is furnished to the tax administration.' Then, the United....
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....ore we are bound to follow the same. We cannot change the stand with the view taken by the ITAT in the own case of the assessee. Regarding this we find support & guidance from the judgment of Hon'ble Madras High Court in the case of CIT v. L.G. Ramamurthi 1977 CTR (Mad.) 416 : [1977] 110 ITR 453 (Mad.) wherein it was held as under: "No Tribunal of fact has any right or jurisdiction to come to a conclusion entirely contrary to the one reached by another Bench of the same Tribunal on the same facts. It may be that the members who constituted the Tribunal and decided on the earlier occasion were different from the members who decided the case on the present occasion. But what is relevant is not the personality of the officers presiding over the Tribunal or participating in the hearing but the Tribunal as an institution. If it is to be conceded that simply because of the change in the personnel of the officers who manned the Tribunal, it is open to the new officers to come to a conclusion totally contradictory to the conclusion which had been reached by the earlier officers manning the same Tribunal on the same set of facts, it will not only shake the confidence of the public in jud....
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....he antiseptic effect of that Article is sufficient to immunise the Act against invalidation to the extent stated therein. The extreme argument that Art. 31A itself is void as violative of the basic structure of the Constitution has been negatived by my learned brother, Bhagwati, J. in a kindred group of cases of Andhra Pradesh. The amulet of Art. 31A is, therefore, potent, so far as it goes, but beyond its ambit it is still possible, as counsel have endeavoured, to spin out some sound argument to nullify one section or the other. Surely, the legislature cannot run amok in the blind belief that Art. 31A is omnipotent. We will examine the alleged infirmities in due course. It is significant that even apart from the many decisions upholding Art. 31A, Golak Nath's case decided by a Bench of 11 Judges, while holding that the Constitution (First Amendment) Act exceeded the constituent power still categorically declared that the said amendment and a few other like amendments would be held good based on the doctrine of prospective over-ruling. The result, for our purpose, is that even Golak Nath's case has held Art. 31A valid. The note struck by later cases reversing Golaknath does....
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....fore the Hon'ble Gujarat High Court, therefore we do not find any reason to refer the matter to the Special Bench as argued by the ld. AR for the assessee. 10.5 In view of the identical issue raised before us in the ground of appeal no. 2 which has already been considered by the ITAT Delhi, we are taking the same view and accordingly the ground of appeal of the assessee is allowed for statistical purposes. 10.6 As we have restored the issue to the file of the TPO for fresh adjudication considering the AE's as tested party, other grounds nos. 3 and 4 do not require to be adjudicated separately. Therefore, we dismiss the same. 11. The issue raised by the assessee in the ground no. 5 and 6 is that the Ld. DRP erred in holding the compensation on ESOP amounting to Rs. 6,84,523/- is not allowable and the reversal of compensation of ESOP amounting to Rs. 21,79,471/- as income of the assessee which was not allowed as a deduction in earlier years. 12. The assessee has granted certain employee stock option plan to its employees wherein employees were vested with certain right to take the share of the company at a price lower than the market price within the vesting period. The asses....
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....view of the above, the AO held that reversal of Rs. 21,79,471/- in respect of option not exercised by the employee is in the nature of income as assessee could not demonstrate whether such expenses were disallowed as a deduction in the respective years. Accordingly, the AO made the addition of Rs. 21,79,471/- to the income of the assessee. 13. The aggrieved assessee carried the matter to Ld. DRP and submitted that such an option had been granted to employees with an objective to increase the productivity of employees and to increase the profit of the assessee. Therefore, the difference between the market price and exercise price of a share is expenses which are incurred wholly and exclusively for business. 13.1. The assessee also submitted that once the option has been granted to the employee it is binding on a company to issue the shares as and when the employee exercises his right. Therefore, the liability on part of assessee crystallizes at the time of granting ESOP. The same principle has also been laid down by the SEBI. Therefore, the same is allowed in the year in which it is claimed. 13.2. However, Ld. DRP disregarded the contention of the assessee and confirmed the ac....
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....iability due to exchange rate fluctuation on a revenue account. The Assessing Officer did not allow deduction u/s 37. When the matter finally reached the Hon'ble Supreme Court, their Lordships noticed that the word "expenditure" has not been defined in the Act. They held that : "the word "expenditure" is, therefore, required to be understood in the context in which it is used. Section 37 enjoins that any expenditure not being expenditure of the nature described in sections 30 to 36 laid out or expended wholly and exclusively for the purposes of the business should be allowed in computing the income chargeable under the head "profits and gains of business or profession". In sections 30 to 36 the expression "expenditure incurred", as well as allowance and depreciation, has also been used. For example depreciation and allowances are dealt with in section 32, therefore, the parliament has used expression "any expenditure" in section 37 to cover both. Therefore, the expression "expenditure" as used in section 37 made in the circumstances of a particular case, covers an amount which is really a "loss" even though the said amount has not gone out from the pocket of the assessee'. ....
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...."a contract to do or not do something, if some event, collateral to such contract does not happen". We need to determine as to whether the liability arising on the assessee-company for issuing shares at a discounted premium can be characterized as a contingent liability in the light of the definition of contingent contract. From the stand point of the company, the options under ESOP 2000 vest with the employees at the rate of 25% only on putting in service for one year by the employees. Unless such service is rendered, the employees do not qualify for such options. In other words, rendering of service for one year is sine qua non for becoming eligible to avail the benefit under the scheme. Once the service is rendered for one year, it becomes obligatory on the part of the company to honor its commitment of allowing the vesting of 25% of the option. It is at the end of the first year that the company incurs liability of fulfilling its promise of allowing proportionate discount, which liability would be actually discharged at the end of the fourth year when the options are exercised by the employees. Now the question arises as to whether the liability at the end of each year can be c....
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....by an assessee is deductible notwithstanding the fact that its quantification may take place in a later year. The mere fact that the quantification is not precisely possible at the time of incurring the liability would not make an ascertained liability a contingent. 9.3.4 Almost to the similar effect, there is another judgment of the Hon'ble Supreme Court in the case of Rotork Controls India (P.) Ltd.v. CIT [2009] 314 ITR 62/180 Taxman 422. In that case, the assessee-company was engaged in selling certain products. At the time of sale, the company provided a standard warranty that in the event of certain part becoming defective within 12 months from the date of commissioning or 18 months from the date of dispatch, whichever is earlier, the company would rectify or replace the defective parts free of charge. This warranty was given under certain conditions stipulated in the warranty clause. The assessee made a provision for warranty at Rs. 5.18 lakh towards the warranty claim likely to arise on the sales effected by the assessee. The Assessing Officer disallowed the same on the ground that the liability was merely a contingent liability and hence not allowable as deduction u/....
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.... we cannot follow the decision of coordinate bench in case of the assessee itself for earlier years. No other contrary decision has been brought to our notice by ld. DR. Therefore order of AO is reversed holding that Rs. 10333543/- being deferred employees compensation debited to the profit and loss account is allowable u/s 37(1) of the Act. 42. Ld. AO has further held that even otherwise this deduction is hit by provision of section 40a(ia) of the act and as no tax is deducted on this payment it is disallowable. No such provision for deduction of tax at sources on this expenditure has been brought to our notice. Therefore we hold that provisions of section 40a(ia) does not apply to 'payment of salaries' for the year under appeal. Hence, this argument of the revenue is also rejected. In the result ground no 8 of the appeal is allowed." 18. In view of the identical issue raised before us in the ground of appeal no. 5 which has already been considered by the ITAT Delhi as discussed above, we are taking the same view. Accordingly we allow the deduction of the ESOP expenses. Hence the ground of appeal no. 5 of the assessee is allowed. Regarding the reversal of ESOP expen....
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....ution made to RCF & RCHS are expenditure for the purpose of promoting the business of the company and is allowable as business expenditure u/s 37 of the Act. 24.2. However, the AO rejected the contention of the assessee by observing that the earlier year case is pending before the Hon'ble High Court of Delhi. Accordingly, the AO rejected the submission of the assessee and held that the assessee entitled for deduction u/s 80G of the Act. The AO further observed that the recipients did not show the amount as taxable receipts but accounted as donations. 24.3. The AO also noticed that the assessee has also not deducted TDS on such expenditure, therefore the same cannot be allowed as deduction u/s 40(a)(ia) of the Act. Hence, the AO disallowed the said expenditure as business expenditure u/s 37 of the Act. 25. The aggrieved assessee preferred an appeal before the Ld.DRP who has confirmed the order of the AO. 26. Being aggrieved by the order of the DRP, the assessee is in appeal before us: 27. The Ld. AR before us submitted that in the identical facts and circumstances in the own case of the assessee for the A.Y. 2008-09, ITAT Delhi Tribunal in ITA No. 196/Del/2013 dated 25.04.....
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.... 14A r.w.r. 8D of Income Tax Rules, the assessee submitted that it has its own fund in the form of average share capital and reserve & surplus of Rs. 2692.16 Crores whereas the average investment is of Rs. 625.60 Crores only. Therefore, it is clear that the investment has been made out of its own fund of the assessee. 32.2. The assessee further submitted that it has itstreasury division who look after the company's fund management. Accordingly, a proportionate amount of Rs. 69,39,512/- about shares of Indian company has already been disallowed u/s 14A of the Act. 32.3. However, AO disregarded the contention of the assessee and held that assessee could not establish the nexus between its fund and investment made. The assessee also did not maintain any separate books or separate bank accounts. The assessee has a separate treasury fund division and personnel working there who are getting huge salary only to make the key decision of investments. Further, without the approval of top managements such big investments cannot be made. 32.4. Accordingly, the AO calculated the expenses disallowable under Rule 8D(2)(ii) for Rs. 9,24,69,627/- and under rule 8D(2)(iii)Rs. 3,12,93,000/- and....
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....ed to mean that the entire taxexempt income is to be disallowed. The window for disallowance is indicated in s. 14A, and is only to the extent of disallowing expenditure "incurred by the assessee in relation to the tax exempt income". This proportion or portion of the tax exempt income surely cannot swallow the entire amount as has happened in this case." Therefore, according to us, as such no further disallowance u/s 14A can be imputed. Furthermore, we did not find any satisfaction of the AO with regard to examination of the books of account of the assessee that how disallowance already offered by assessee of Rs. 3311708/- which are also certified by the tax auditor is incorrect. In absence of such satisfaction AO does not have any authority to invoke provisions of Rule 8D. On this count also the addition cannot be upheld. Hon'ble Delhi high court in case of CIT v. Taikisha Engg. Ltd. [2015] 54 taxmann.com109/229 Taxman 143/370 ITR 338 has held as under :- 13. We need not, therefore, go on to sub Rule (2) to Rule 8D of the Rules until and unless the Assessing Officer has first recorded the satisfaction, which is mandated by sub-Section (2) to Section 14A of the Act and s....
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....n accordance with any prescribed method, as mentioned in sub-section (2) of Section 14A of the said Act. It is only if the Assessing Officer is not satisfied with the correctness of the claim of the assessee, in both cases, that the Assessing Officer gets jurisdiction to determine the amount of expenditure incurred in relation to such income which does not form part of the total income under the said Act in accordance with the prescribed method. The prescribed method being the method stipulated in Rule 8D of the said Rules. While rejecting the claim of the assessee with regard to the expenditure or no expenditure, as the case may be, in relation to exempt income, the Assessing Officer would have to indicate cogent reasons for the same. Rule 8D "As we have already noticed, sub-section (2) of Section 14A of the said Act refers to the method of determination of the amount of expenditure incurred in relation to exempt income. The expression used is - "such method as may be prescribed". We have already mentioned above that by virtue of Notification No.45 of 2008, dated March 24, 2008, the Central Board of Direct Taxes introduced Rule 8D in the said Rules. The said Rule 8D also mak....
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.... artificial figure - one half percent of the average value of the investment, income from which does not or shall not form part of the total income, as appearing in the balance sheets of the assessee, on the first day and the last day of the previous year. It is the aggregate of these three components which would constitute the expenditure in relation to exempt income and it is this amount of expenditure which would be disallowed under Section 14A of the said Act. It is, therefore, clear that in terms of the said Rule, the amount of expenditure in relation to exempt income has two aspects - (a) direct and (b) indirect. The direct expenditure is straightaway taken into account by virtue of clause (i) of sub-rule (2) of Rule 8D. The indirect expenditure, where it is by way of interest, is computed through the principle of apportionment, as indicated above. And, in cases where the indirect expenditure is not by way of interest, a rule of thumb figure of one half percent of the average value of the investment, income from which does not or shall not form part of the total income, is taken.' 15. Even earlier the Bombay High Court in Godrej and Boyce Mfg. Co. Ltd. (supra) had refe....
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.... situation where the assessee claims that no expenditure has been incurred by him in relation to income which does not form part of the total income under the Act. Under the proviso, it has been stipulated that nothing in the section will empower the Assessing Officer, for an assessment year beginning on or before April 1, 2001, either to reassess under section 147 or pass an order enhancing the assessment or reducing the refund already made or otherwise increasing the liability of the assessee under section 154.' 16. Equally illuminating are the following observations in Godrej and Boyce Mfg. Co. Ltd. (supra) ". . . However, if the assessee does not maintain separate accounts, it would be necessary for the Assessing Officer to determine the proportion of expenditure incurred in relation to the dividend business (i.e., earning exempt income). It is for exactly such situations that a machinery/method for computing the proportion of expenditure incurred in relation to the dividend business has been provided by way of section 14A(2)/(3) and rule 8D." 17. More important and relevant for us are the observations in Godrej and Boyce Mfg. Co. Ltd. (supra) on requirement and st....
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...., Suzlon Energy Ltd. (supra) and East India Pharmaceutical Works Ltd. (supra) would be relevant if the satisfaction of the Assessing Officer is in issue, and such question of satisfaction is with reference to the accounts".' Therefore, in view of above two decisions of Hon'ble jurisdictional High court we hold that no such further disallowance over and above what is admitted by the assessee can be made. Hence, ground no. 10 of the appeal of the assessee is allowed and disallowance of Rs. 74066105/- u/s 14A of the Act is directed to be deleted." 38. In view of the identical issue raised before us in the ground of appeal no 8 which is already considered by the ITAT Delhi, we are taking the same view and delete the addition made by the AO. Hence the ground no of the appeal of the assessee is allowed. 39. The issue raised by the assessee in the ground no. 9 is that the Ld. DRP erred in confirming the upward adjustment for Rs. 11,68,23,115/- while computing the book profit under section 115JB of the Act for the disallowance made u/s 14A of the Act. 40. The AO while computing the book profit u/s 115JB of the Act, also added Rs. 11,68,23,115/- as disallowed u/s 14A as per....
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.... (iii) EssarTeleholdings Ltd. [IT Appeal No. 3850 (Mum.) of 2010, dated 29-7- 2011]; (iv) J.K. Paper Ltd. [IT Appeal Nos. 979 (Ahd.) of 2006 & 4027 & 4080 (Ahd.) of 2008]; (v) National Commodity Derivatives Exchange Ltd. [IT Appeal No. 2923 (Mum) of 2010, dated 26-8-2011]; and (vi) Quippo Telecom Infrastructure Ltd. [IT Appeal No. 4931 (De1hi) of 2010, dated 18-2-2011]. Respectfully following the propositions laid down in the previously mentioned decisions, we direct the Ld. AO to exclude the amount of addition of Rs. 7,66,40,105/- made u/s.14A, while computing the book profit u/s.115JB.In view of this we allow ground no.11 of the appeal." 46. In view of the identical issue raised before us in the ground of appeal no. 9 which is already considered by the ITAT Delhi, we are taking the same view and delete the addition made by the AO. Hence the ground of appeal of the assessee is allowed. 47. The issue raised by the assessee in the ground no. 10 is that the Ld. DRP erred in rejecting the entire deduction claimed by the assessee u/s 80IB/IC of the Act amounting to Rs. 58,85,85,232/-. 48. The assessee in the year under consideration has claimed a deduction for Rs. 5....
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....ave been allocated to the tune of 30% in the ratio of sales to the eligible undertakings without adducing any justification. iv) The interest cost has been allocated on the basis of net average capital employed to the eligible undertakings and for this no justification was provided. 48.1. The AO in addition to the above also observed that the assessee had not provided the financial statements of the eligible undertakings separately as required under rule 18BBB(2) of Income Tax Rules. The assessee has just provided the income and expenditure account which was prepared for self-serving purposes. 48.2. The assessee as a whole group has shown losses even though it has declared gross turnover amounting to Rs. 4,151.79 Crores. However, the assessee in respect of eligible undertaking has declared profit @19.22% despite having very less turnover amounting to Rs. 385.32 Crores and claimed the deduction under section 80IB/ 80IC of the Act against such profit. 49. In view of the above, the AO sought clarification from the assessee by issuing a show cause notice to justify the claim under section 80IB/80IC of the Act. The assessee in compliance to it submitted as under: i. It has c....
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....cturing undertakings. In addition to the above the head office also performing other functions relating to strategic planning, investor relations, corporate communications, dealing with various departments/ministries of the government of India, corporate affairs, shareholders servicing, raising equity and other funds and compliance of applicable legal provisions. Therefore the head office expenses were allocated to the eligible undertaking to the tune of 75%. However, the AO disagreed with the contention of the assessee by observing as under: i. The assessee is not maintaining separate books of accounts for each industrial undertaking which is the violation of the provisions of section 80IA(7)/ r.w.r. 18BBB(2) and 80IB/80IC of the Act. Therefore the auditor has taken the global sale price while determining the deduction under section 80IB/80IC of the Act. Similarly there was no basis for allocating the head office expenses and research and development expenses to the tune of 75% and 30% respectively to the eligible undertakings. The profit and loss account prepared for each eligible unit using SAP/ ERP system was meant for self-serving i.e. management. Therefore the global sa....
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....has been observed by DRP-II as under: We have considered the submissions of the assessee and have perused the material on record. It is seen that the assessee is not maintaining separate books of account balance sheet and profit and loss account of the units/undertakings in respect of .... is claiming deduction under section 80-I/80IC of the income Tax Act, 1961. Further, the assessee has not furnished proper separate report in respect of units/undertakings in the form No.10CCB as required under rule 18BBHB(2) of the income tax Rules, 1962 read with section 80IA(7) of the income Tax Act, 1961, in respect of which it is claiming deduction under section 80IB/80IC of the income tax Act, 1961. Also the assessee has not allocated expenses relating to manufacturing activity properly and has also not determined the profits of the units/undertakings in respect of which it is claiming deduction under section 80IB/80IC of the income tax Act as per the provisions of section 80IA(8) of the Income Tax Act, 1961. If the profit of these units/undertakings is calculated after attributing relevant expenses and after incorporating arm's length price, the income of these units/undertakings is loss....
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....2007-08 Rs. 376385228 It is eligible for deduction @100% of profit for the year New tablet plant- III 80IC 31.03.2008 1st 2008-09 Rs. 523509006 It is eligible for deduction @100% of profit for the year 69. In case of Goa plant, the deduction was claimed firstly in AY 2002-03 and subsequently issue was reopened for verification of this claim u/s 147 of the Act and subsequently in order u/s 143(3) rws 147 of the Act, the claim of the assessee was accepted. Hence, the claim was examined and allowed for this unit in the initial year. 70. Regarding claim of deduction u/s 80IC of the Act in case of New Tablet Plant-I the initial year of deduction is AY 2005-06. During the course of assessment proceedings, the assessee submitted copy of audited accounts of New industrial undertaking and submitted the basis for computation of the profit eligible for deduction for these undertakings. During the course of assessment proceedings assessee was specifically asked to explain the reasons and basis for apportionment of 30% R&D expenditure and 75% of the head office expenses to this new undertaking. Assessee explained vide letter 02.12.2008 and after going through the submissi....
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....he claim of deduction by the assessee for these two plants is the first year of examination of claim. Obviously new Tablet Plant-III has been set up during this year only and therefore AY 2008-09 is the first year of examination of the claim of the assessee by the AO. Before us the Ld. DR has not pointed out any changes in the facts or law relating to those yeas with the facts of this year with respect to deduction claimed by the assessee with respect to Goa plant and New tablet Plant -I. Therefore, deduction related to these plants cannot be questioned in this year afresh without disturbing the deduction in initial year of the claim. Our view is also supported by the decisions of various Hon'ble High courts, one of the leading judicial precedent quoted before us is of Hon'ble Delhi high court in case of CIT v. Delhi Press PatraParakashan (P) Ltd. [2013] 355 ITR 14/217 Taxman 288/34 taxmann.com 3 (Delhi) where in it is held that:- "69. The next controversy that needs to be addressed is whether it was open for the Assessing Officer to deny the benefit of section 80-I of the Act to the assessee having allowed benefit to the assessee in the preceding three years. It is cont....
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....- and if there was not change it was in support of the assessee- we do not think the question should have been reopened and contrary to what had been decided by the Commissioner of Income-Tax in the earlier proceedings, a different and contradictory stand should have been taken. We are, therefore, of the view that these appeals should be allowed and the question should be answered in the affirmative, namely, that the Tribunal was justified in holding that the income derived by the RadhasoamiSatsang was entitled to exemption under ss. 11 and 12 of the Income Tax Act of 1961." 72. The decision of the Supreme Court in the case RadhasoamiSatsang (supra) was on the facts where the question as to the entitlement for exemption under Section 4(3)(i) of the Income Tax Act, 1922 had not been granted for the assessment year 1939-40. The assessee had challenged the assessment order which was accepted by the Appellate Assistant Commissioner who upheld the assessee's claim for exemption. This view was consistently followed by the successive Assessing Officers till 1963-64. In these circumstances, the Supreme Court held that the view that had been settled and accepted over a period of year....
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.... It is relevant to note that assessments in the earlier years i.e. relating to assessment year 1988-89, 1989-1990 and 1990-1991 has not been disturbed by the Assessing Officer and there has been no change that could justify the Assessing officer adopting a different view in the assessment years 1991-92 and thereafter. As stated hereinbefore, in certain cases where the issues involved have attained finality on account of the subject matter of dispute having been finally adjudicated, the question of reopening and revisiting the same issue again in subsequent years would not arise. This is based on the principle that there should be finality in all legal proceedings. The Supreme Court in the case of Parashuram Pottery Works Co. Ltd. v. ITO [1977] 106 ITR 1 had held as under: "...........that the policy of law is that there must be a point of finality in all legal proceedings, that stale issues should not be reactivated beyond a particular stage and that lapse of time must induce repose in and set at rest judicial and quasi-judicial controversies as it must in other spheres of human activity...." 75. In the facts of the present case, where although the Assessing officer has allow....
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....e assessment years succeeding the initial assessment year, the conditions for availing the benefit are inextricably linked with the previous year relevant to the assessment year in which the new undertaking was formed. In such circumstances, it would not be possible for an Assessing Officer to reject the claim of an assessee for deduction under Section 80-I of the Act on the ground that the industrial undertaking in respect of which deduction is claimed did not fulfil the conditions as specified in Section 80-I(2) of the Act, without undermining the basis on which the deduction was granted to the assessee in the initial assessment year. This in our view would not be permissible unless the past assessments are also disturbed. 77. The Assessing Officers over a period of three years being assessment years 1988-89, 1989-1990 and 1990-1991 have consistently accepted the claim of the assessee for deduction under 80- I of the Act and it would not be open for the Assessing Officer to deny the deduction under Section 80-I of the Act on the ground of non fulfilment of the conditions under 80-I(2) of the Act without disturbing the assessment for the assessment years relevant to the previou....
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....hereof amounting to Rs. 90204832/- and New Tablet Plant-I u/s 80IC for which this is the 4th year of the claim and assessee has claimed 100% of the eligible profit amounting to Rs. 220579510/- as deduction, cannot be disallowed in this year. 76. Coming to the second argument that the revenue should follow the consistency and where position has been accepted and determined by the department after examination of the facts and where there is no change either in the facts or in law than the earlier decision taken by the revenue should be adhered to. Ld. DR did not point out any changes in the facts and/or law in the year in which deductions granted in earlier years with respect to impugned year. We have carefully considered the argument of the ld. AR and we do not see any dispute on the principle of consistency as it has already been propounded by Hon'ble Supreme Court and various other Hon'ble High Courts. The latest in point of time is Excel Industries Ltd. (supra) where Hon'ble Supreme court has held that:- '28. Secondly, as noted by the Tribunal, a consistent view has been taken in favour of the assessee on the questions raised, starting with the assessment ye....
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....Revenue to take a different view of the matter - and if there was no change it was in support of the assessee - we do not think the question should have been reopened and contrary to what had been decided by the Commissioner of Income Tax in the earlier proceedings, a different and contradictory stand should have been taken." 31. It appears from the record that in several assessment years, the Revenue accepted the order of the Tribunal in favour of the assessee and did not pursue the matter any further but in respect of some assessment years the matter was taken up in appeal before the Bombay High Court but without any success. That being so, the Revenue cannot be allowed to flip-flop on the issue and it ought let the matter rest rather than spend the tax payers' money in pursuing litigation for the sake of it.' 77. Therefore, following this principal also we are of the view that deduction for the year claimed by the assessee with respect to its Goa Unit and New Tablet Plant-I cannot be disturbed on the principle of consistency also. Further, this argument cannot be taken shelter regarding the claim of the assessee for New Tablet Plant-II, SGC Plant and New Tablet Pla....
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....diture to the various units. Regarding R&D expenditure the Assessee has also followed the practice apportioning 30% to the individual undertaking in the ratio of sales. This methodology is based on logical reasoning and consistently followed by the assessee which has been accepted by the revenue in past in case of assessment of the Assessee. The ld. AO has held that the Assessee has maintained common books of accounts and therefore as separate books of accounts are not maintained therefore profit cannot be ascertain correctly. We have examined these arguments and we are of the view that as Assessee is maintaining its financial and operational records on SAP ERP systems the Assessee can at any moment of time on any day after every transaction can produce the product wise, units wise, geography wise, independent profit and loss account and balancesheets. Therefore, in our opinion the contention of the ld. AO that common books of account are maintained and not separate books of account is devoid of any merit. As such, Assessee has contended that provision of section 80IB and 80IC does not provide that Assessee should maintain separate books of accounts with respect to eligible unde....
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.... the agreement, approval or permission, as the case may be, to carry on the activity signed or issued by the Central Government or the State Government or the local authority for carrying on the eligible business." This rule also does not provide for maintenance of "separate books of accounts".In view of the reading of section 80IA(7) and Rule 18BBB, we are of the view that law does not provide that for claiming deduction under those sections there is requirement to maintain separate books of accounts. 81. At this point of time we take note of the decision of Hon'ble Supreme court in case of Arisudana Spinning Mills Ltd. v CIT [2012] 26 taxmann.com 39/210 Taxman 233/348 ITR 385, which provides guidance on the issue of maintenance of separate account for the purpose of claiming deduction u/s 80IA of the Act. Facts before the Hon'ble Supreme Court were that the Assessing Officer found that the assessee-Company was engaged in the business of manufacturing of yarn. The assessee derived, during the relevant assessment year, a gross total income of Rs. 51,82,666/- from what it called 'manufacturing activity'. It denied that it had undertaken any trading activity dur....
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.... has maintained separate account of the profit eligible for industrial undertaking. In this case, an accountant has audited assessee's accounts of the eligible industrial undertakings and therefore it complies with the letter and spirit of the provisions of Income Tax Act. As mentioned earlier assessee has furnished the separate report of the undertaking which is accompanied by the profit and loss account of each of undertaking complying with the provisions of section 80IA(7) of the act and corresponding rule 18BBB of the Income tax Rules 1962. In view of this, the argument of the revenue that separate books of accounts are required to be maintained with respect to each unit does not have any support of the Income Tax Act or Rules framed thereunder. 82. Nonetheless, assessee has maintained books of accounts of the whole undertaking on SAP ERP systems from which on any day the independent profit and loss account and balance sheet as well as the respective ledgers, cashbook and bankbook and journal of any independent industrial undertaking is available. According to section 2(12A) of the income tax Act books of accounts have been defined as under :- '(12A)42a "books or ....
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....ontention of ld. AO and Ld. DRP that assessee has not maintained separate books of accounts. We hold that assessee has maintained separate books of accounts from which correct profit can be deduced at any time of the each of the eligible undertaking. Our view also gets support from the decision of coordinate bench in case of in case of SMR builders (P) Ltd. (supra) where in it is held that:- "37. Section 80-IA(7) which is applicable to the provisions of Sec. 80-IB requires the accounts of the eligible undertaking to be audited and a certificate to be filed. The essence of this requirement is that, at any given time the financial position of the undertaking, should be ascertainable. The intent is that the profits of the undertaking eligible for the deduction can be properly identified. This requires maintenance of accounts in such a fashion that the sales of the eligible business are known, the expenses - both direct and indirect are identifiable and the common expenses are apportioned. The details filed before CIT(A) clearly demonstrate that in the case of the assessee, the profits of the eligible unit can be clearly ascertained from the accounts maintained. Expenses incurred fo....
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....tal income of the assessee is Rs. 3347340467/- and out of which deduction u/s 80 G of the act is a claimed at Rs. 11672734/- and deduction u/s 80 IB and IC of the act of Rs. 1366821506/- of the act totaling to Rs. 1378494420/-. This results in to taxable income for Rs. 1968846227/-. Therefore this ground of objection of the revenue is unsustainable in view of the clear provisions of section 80A of the income tax act. 84. Regarding allocation key of 'sales' for allocation of common expense , the R & D expenses primarily represents cost related to the development of 'new' medicinal products. It is only after innovation of the new product that the same is produced. In these circumstances, the appellant, in line with the traditional allocation methodology adopted in the earlier years apportioned 30% of such R&D expenses to the individual undertakings in the ratio of sales. Further, there is no evidence laid down by revenue that that in the event of the appellant deciding to commercially exploit the benefits of the R & D works, the products would be manufactured by the said units. Further on allocation of head office expenses we fully agree that it relates to costs th....
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....ioning profits accruing to the assessee under the several categories of businesses carried on by him in British India, it was held that the question as to the method of apportionment was essentially one of fact depending upon the circumstances of the case. It was recognized that in the absence of any statutory or fixed formula, any finding on the question would involve an element of guess work and that "the endeavor can only be to be approximate and there cannot in the very nature of things be great precision and exactness in the matter" (at page 552). In the recent judgment of the Supreme Court in CIT v. Bilahari Investment (P.) Ltd. [2008] 299 ITR 1/168 Taxman 95, the facts were these. The assessee was subscribing to chits and was maintaining the accounts on mercantile basis. The discount on the chits, which was actually the profit arising to the assessee, was declared at the end of the chit period, which at times exceed a period of 12 months. This method adopted by the assessee was being accepted by the department for a number of years. However, for the assessment years 1991-92 to 1997-98 the Assessing Officer took the view that the discount on the chits should be assessed every....
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....ification that how it distorts profit, in absence of compelling reasons to change i.e. 'just cause', we reject the stand of revenue in not accepting the above allocation methodology adopted by the appellant. 85. Coming to the next argument of the revenue that the sales recorded by the independent units are not Arm's length. For this argument of the revenue a deeper examination of sub-section 8 of section 80(IA) of the Act is required which provides for inter unit transfer of goods and services should be at the market value of the goods and services which means the price that such goods or services would ordinary fetch in the open market. Firstly ld. AR of the assessee has submitted that there is no inter unit transfer of any goods and services and therefore provisions of section 80(IA)(8) does not apply. This fact has remained uncontroverted. None of the transaction has been pointed before us, which shows that there is inter unit transfer of goods or services. Therefore in absence of any instances of such transfer of goods or services pointed out before us by revenue we are of the view that provision of section 80IA(8) are not attracted. 86. Further, it is submitt....
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....ransfer", hence it was expected to record the same at arm's length price. He has pleaded that the assessee is blowing hot and cold in the same breath. When it comes to transfer of services and goods, it opposes arm's length price adjustment and says that the expenses which have been incurred in past need not be taken into consideration. As discussed earlier, this logic do not commensurate with the provisions of the sections. Even then for argument sake if the expenses relatable to current year are to be apportioned; it was found that the assessee had not apportioned even a penny of the expenses in development and research of new products of Baddi Unit. 9.5 Next, Revenue's Counsel has drawn our attention on the profit & loss account of the eligible Unit, i.e. Baddi Unit, (refer Page No.87 of the paperbook). Ld. DR has said that sales to the tune of Rs. 1,19,13,22,749/- were recorded for the accounting period ended on 31.3.2006. He has pleaded that if the said Unit was to sale its products on stand alone basis, then the said Unit which was only two years old could not fetch such high sale price. The said Unit has shown high profit at Rs. 1,16,82,91,400/-. The goods man....
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....n these businesses in a business like manner and according to well established principles or accountancy." Unquote. He has also placed reliance on Liberty India (supra) . 10. We have heard both the side at length. The controversy as raised by the Addl. CIT Mr. Mahesh Kumar, officiating as AO, has serious repercussions on the subject of computation of "eligible profit" while claiming a deduction under the Statute. The adjustments as suggested by the AO while working out the manufacturing profit of an eligible Unit has a far reaching consequences on all such tax-payers; therefore we have to deal this issue carefully and little elaborately, so that we can reach to a logical conclusion. 10.1 To begin with, it is better to elucidate that the I.T. Act has only defined 'income' (Sec. 2(24)) as well as 'business' (Sec. 2(13)) but not the term "profit and gains". However, the section we have to deal with i.e. Sec. 80 IC revolves around the term 'profits and gains'. As per section 2(13) 'business' includes trade, commerce or manufacture. In auxiliary, as per section 2(24) 'income' includes (i) profits and gains. An 'income' has to have a ....
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....speaking, two components; i.e. raw-material plus value addition (it includes all overheads). Therefore, profit margin is price minus total cost. In manufacturing Unit, thus cost of conversion is production overheads, such as, direct labour cost and inextricably linked expenditure of production. In general, every manufacturing concern has fixed manufacturing capacity. So the objective of such concern ought to be to maximize the profit. Now the problem, as posed, is that let us assume that the said manufacturing unit is producing two products; viz. "A" & "B". For production of "A" product, let us say, there is less working hours, but fetching more value for less money. However, in the production of product "B" due to complex process of manufacturing it requires more working hours. For pricing product "B" the situation is that more money expenditure and may fetch less value. Therefore, in the processing department it is not possible to segregate the two components to determine the segregated margins. Keeping this accounting principle in mind, we revert back to the language of section 80IC which says that a deduction is permissible of such profits of a specified Undertaking engaged in ....
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....its earned earlier when the products were procured on P2P basis and the profits earned by the Baddi Unit, should be treated as a manufacturing profit. The AO has then said that earlier the assessee was procuring the products on P2P basis and showing the average profit at 80%, however, on the basis of average selling rate of the produces manufactured by Baddi Unit the average profit was gone up to 86%. The AO has therefore restricted the deduction only at 6%. He has placed reliance on Rolls Royce Plc (supra). In that case, the assessee was a UK based company carrying on marketing and sales activities in India through a subsidiary. The subsidiary was also rendering support services to the assessee, a UK based company. The assessee was carrying out manufacturing operations. It was held that 35% of its profits could be attributed to the marketing activities carried out in India and, therefore, chargeable to tax in India. The facts of that case were altogether different and there was a finding that undisputedly there was a PE in India and as per Indo-UK DTAA the income has to be taxed in India. An another fact was that there was no separate account of the assessee's India operation ....
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....l purpose could be served for the reduction of gross profit to a lower percentage of net profit, specially when the allegation of the A.O. was that there was an attempt to declare higher profit of Baddi unit to get more advantage of deduction. On perusal of the P&L account, it is an admitted factual position that the assessee has in fact debited certain expenses which have included head office expenses, such as, marketing expenses and corporate expenses. Meaning thereby the net profit of the Baddi Unit was not merely production cost minus sale price, but the difference of sale price minus all general expenses which were attributable to the sales. Therefore, it is not reasonable to say that unreasonably the profit was escalated. The difference between the two percentages of profit, i.e. about 28% ( G.P. - N.P.) thus represented the expenditure which could be said to be in respect of marketing network and brand of the product related expenses. The AO has not complained about the allocation of expenditure as made by the assessee while computing the profit of the Baddi Unit. Once the assessee has itself taken into account the related expenses to arrive at the net profit, then it was no....
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....usiness". Then the question is that what is the profit of such an eligible business? On careful reading of this sub-section, it transpires that the said eligible profit should be the only source of income. If we examine the separate profit & loss account of Baddi Unit, then it is apparent that the only source of income was the sales of the qualified products. In the said P&L A/c there was no component of any other sources of income except the sale price and otherwise also the assessee has confined the claim only in respect of the eligible profit which was derived from the sales of the pharmaceutical products. This section do not suggest that the eligible profit should be computed first by transferring the product at an imaginary sale price to the head office and then the head office should sale the product in the open market. There is no such concept of segregation of profit. Rather, we have seen that the profit of an undertaking is always computed as a whole by taking into account the sale price of the product in the market. 10.7 The Ld. AO has suggested that the assessee should have passed entries in its books of account by recording internal transfer of the product from Baddh....
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....anner hereinbefore specified presents exceptional difficulties, the Assessing Officer may compute such profits and gains on such reasonable basis as he may deem fit. Explanation : For the purposes of this sub-section, "market value", in relation to any goods or services, means the price that such goods or services would ordinarily fetch in the open market. Where any goods held for the purpose of the eligible business are transferred to any other business carried on by the assessee, then if the consideration for such transfer as recorded in the accounts of the eligible business do not correspond to the market value of such goods, then for the purposes of the deduction the profits and gains of such eligible business shall be computed as if the transfer has been made at the market value of such goods as on that date. Though the section has its own importance but the area under which this section operates is that where one eligible business is transferred to any other business. We again want to emphasis that the word used in this section is "business" and not the word "profit". We can hence draw an inference by describing these two words and thus have precisely noted that 'el....
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....he P&L A/c sale price was credited to computed the profit. There are certain expenditure which are notional expenditure and there are certain expenditure which are self-generated to create the brand value of a product. Naturally, the allocation of notional expenditure particularly in respect of self- generated brand is a matter of hypothesis and not a matter of realty. Logically it is not realistic to set apart a value of a self generated brand which had grown in number of years. 10.10 The segment reporting of profit is although in practice but the purpose of such reporting is altogether different. Such segment information is particularly useful for financial analysis, so that the management may keep a close watch on the performance of the diversified business lines. The areas of demarcation are business segment, geographical segment, etc. But as far as the Revenue of an enterprise is concerned while segmentation is required, then Revenue from sales to external customers are reported in the segmented statement of profit and loss. In an accounting system, an intra-company sale between divisions or units is not regarded as Revenue for the purpose of such financial reporting. As pe....
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.... manufacturing oil from groundnuts. The produced at Raichur, Hyderabad is partly sold at Raichur and partly in Bombay. The question was in respect of the liability under Excess Profit Tax Act (EPT Act) for the oil manufactured at Raichur but sold in Bombay. The controversy was that the assessee had contended that a part of the profits derived from sales in British India of the oil manufactured at Raichur was attributable to the manufacturing operations at Raichur which are an essential part of their business and that such profit must be excluded from the assessment under EPT Act. It was narrated that in other words, the Act brings within its ambit all income in the case of a person resident in British India which accrues or arises or which is deemed to accrue or arise to him in British India during the accounting year. If Sec. 5 of the Act stopped short at that stage, it was undoubted that in the case of the respondent who is a resident in British India all his income, no matter where it arose, within British India or without British India, would be chargeable to excess profits tax just in the same way as it chargeable to income-tax under the Indian IT Act. The whole of his income ....
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....e made between the two, though the place of receipts and realization of the profits is the place where the sales are made. Simultaneously it was also opined that the manufacturing profit could not be said to have accrued at that place because there was nothing done from which the profits could accrue. There was an interesting contradiction because of the divergent views and it was also expressed that it was a fallacy to regard the profits as arising solely at the place of sale. It was said that the revenue of the company are derived from a series of operation, including the purchase of raw-materials or partly manufactured articles, completely manufacturing its products and transporting and selling them, and receiving the proceeds of such sales. The essence of its profit-making business is a series of operations as a whole. 10.12 We have carefully perused this decision of the Hon'ble Supreme Court as cited by the Special Counsel Mr. Srivastava. At the outset, we want to place on record that the entire issue before the Hon'ble Supreme Court was in respect of third proviso to section 5 of EPT Act. The said proviso was duly a reproduced in para-40 of the order and for ready ....
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.... cases where one part of the business is distinct and separate from the other parts and is capable of earning profits separately." unquote. The Hon'ble Judge was therefore very much concern about the fact that the business should be capable of earning profits separately. Rather, in the subsequent paras it was further made clear that the manufacturing profit could be sub-divided only if there was no insuperable/challenging difficulty in making such apportionment. A possibility was therefore discussed that there could be apportionment of the net profit that accrue to the business of the assessee and one portion of it could be allotted to that part of the business which relates to the manufacture of the said commodity which was ultimately sold in the market. The Raichur factory certainly has business connection in British India for a part of the oil manufactured by it is sold through the Bombay establishment of the assessee. That all the operations of the Raichur business are not carried on in Bombay. Therefore, the profits that would be deemed under this section to accrue or arise in Bombay will only be the profits which may reasonably be attributed to that part of the operati....
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.... profit as per a separately maintained books of account of the eligible manufacturing activity. To implement the method of the computation at stand alone basis, as conveyed by the AO, the manufacturing unit has prepared a profit & loss account of its manufacturing-cum-sale business activity. If the Statute wanted to draw such line of segregation between the manufacturing activity and the sale activity, then the Statute should have made a specific provision of such demarcation. But at present the legal status is that the Statute has only chosen to give the benefit to "any business of drug manufacturing activity" which is incurring expenditure on research activity is eligible for this prescribed weighted deduction. The segregation as suggested by the AO has first to be brought into the Statute and then to be implemented. Without such law, in our considered opinion, it was not fair as also not justifiable on the part of the AO to disturb the method of accounting of the assessee regularly followed in the normal course of business. It is true that otherwise no fallacy or mistake was detected in the books of accounts of Baddi Unit prepared on stand alone basis through which the only sour....
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....see also did not contain any error or any fact, which could have shown that deduction claimed by the assessee, is erroneous. It is also important to note that no adverse remark is made either by the ld. AO or by ld. DRP on the balance sheet of the eligible undertakings though it were available before them for proper verification and examination. Ld. AR of the appellant has submitted a plethora of judicial precedents covering this issue on this issue we refer to the decision of Honourable Delhi high court on this issue rendered in case of Axis Computer India (P.) Ltd. (supra) where in it is held that "2. This Court has already interpreted the latter provisions and has held the same to be directory and not mandatory. The contention of the revenue was that unless and until the audit report is filed along with the return, the benefit of section 10A could not be available to the assessee. Recently, we have considered the identical provisions of section 80-IA(7) in the case of CIT v. Contimeters Electricals (P.) Ltd. [IT Appeal No. 1366 of 2008, decided on 2-12-2008] and held that as long as the audit report is filed before the framing of the assessment, the provisions of section 80-I....
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....ssessee. 90. Now we come to the last ground of objection raised by the revenue that this matter of examination of claim of the assessee should be set aside back to the file of ld. AO for fresh verification and for this ld. DR. relied on the decision of coordinate bench Amarnath Reddy (supra). Against this Ld. AR raised the objection that this issue should not be set aside as only law points are involved in this issue and no further facts are required to be examined. We have carefully considered the rival contentions on this issue. We have noted the above cited decision in Asstt. CIT v. Amarnath Reddy where in it is held as under :- '6. Now, let us examine whether the plea sought to be raised by the ld. D.R. can be admitted by the Tribunal or not. Though several authorities have been cited in the course of hearing, the basic judgment is that in the case of Hukumchand Mills Ltd. (supra). In that case, in order to arrive at the correct written down value of the assets, the Tribunal permitted the department to raise a plea to find out whether the assessee was allowed any depreciation under an enactment which was in force earlier, i.e., before the Indian Income-tax Act was mad....
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.... SaraswathiAmmal (supra) observed as follows at page 23 of the report : "We do not regard the last observation as a fetter on the Tribunal's jurisdiction to admit a new plea. For, the power to listen to a new contention and decide the appeal on that basis has been spelled out by the Supreme Court from the terms of the statute. The exercise of that power does not depend on the presence of any other factor, excepting that the new plea comes from a party to the appeal. Even in a case where fresh facts are called for to decide the new plea, the Tribunal would have jurisdiction to entertain that plea. How the Tribunal wishes to get at the relevant facts in order to decide the new point may be quite a different thing. The Tribunal may either remand the matter for the purpose, or proceed to investigate the facts themselves. In this part of the decision-making alone, there is scope for the play of the Tribunal's discretion. As to the very power to entertain a new plea, that is not to be ruled out, merely because a consideration thereof would call for further facts to be gone into. In Hukumchand Mills' decision [1967] 63 ITR 232, the Supreme Court laid down no fetter on th....
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.... therefore, all the more necessary that matter should be decided on merit without allowing one of the parties before the Tribunal to have another inning, particularly when such party had full opportunity to establish its case. Unnecessary remands, when relevant evidence is on record, belies litigant's legitimate expectations and is to be deprecated. Having regard to aforesaid principle, it is necessary to look into records to see whether there is sufficient material on record to dispose of the issue on merit and there is no need to remand the issue to provide a fresh inning to the revenue." Therefore, in view of the above decision and in absence of any fresh plea by any of the parties we donot intend to agree with the request of revenue to set aside this issue to the file of ld. AO. 91. In view of above ground no. 12 of the appeal of the assessee with respect to claim of deduction u/s 80IC and 80IB of the Act amounting to Rs. 1,36,68,21,506/- is allowed." 58. In view of the above, we note that the issue as discussed above is covered by the order of Delhi Tribunal. Moreover, we also note that the ld. DRP has also relied on the order of its predecessor which has been reve....
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....espectively. 64.1. The assessee further to calculate the capital gain/loss on such capital assets has allocated Rs. 5,40,962/- as sale proceeds against the land. The remaining amount of Rs. 5,01,59,038/- has been allocated to the sale proceeds against the building. Accordingly, the assessee reduced the block of the building by the amount of Rs. 5,01,59,038/- only. 64.2. However, the AO was not satisfied with the modus of operandi of allocation of sale consideration as made by the assessee due to following reason. i- The land was acquired in FY 1990-91 & 1995-96 and accordingly the value such land naturally be increased. ii- On the Other hand, the value of the building is always subject to depreciation. 64.3. Accordingly, it would be very improper to allocate only 1.06%, i.e. Rs. 5,40,962/- of consideration against the land and remaining 99% i.e. Rs. 5,01,59,038/- to the building. In View of such observation, the AO required to justify such apportionment of sale consideration. 64.4. However, the assessee didn't reply against such observation. 64.5. Hence, given the above discussion, the AO recalculated the consideration of the building amounting to Rs. 1,02,90,517/- ....
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....sales value to Land & Building * SCHEDULE -II * Plot No. E2: Particular Plot E2 Total Price as per agreement A 29,800,000 Rupees Two Crores Ninety Eight Lacs Only Land value as of 2008 as per MIDC Rate B 2,858,800 Rupees Twenty Eight Lacs Fifty Eight Thousand Eight Hundred only. Value of building C=A-B 26,941.200 Rupees Two Crores Sixty Nine Lacs Forty One Thousand Two Hundred Only. * Plot No.E3: Particular Plot E3 Total Price as per agreement A 20,900,000 Rupees Two Crores Nine Lacs Only Land value as of 2008 as per MIDC Rate B 1,426,250 Rupees Fourteen Crores Twnety Six Lacs Two Hundred Fifty Only. Value of Building C=A-B 19,473,750 Rupees One Crores Ninety Four Lacs Seventy three Thousand Seven Hundred Fifty Only. For ANMOL SEKHRI CONSULTANTS PVT.LTD. Sd/- Authorised Signatory" We also note that the sale proceeds allocated by the assessee towards the land appear to be un-reasonable. In most of the cases, the value of the land appreciates, and the value of the building depreciates barring the in exceptional circumstance....
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....h adjudication. Hence the ground of appeal of the assessee is allowed for statistical purposes. 75. The issue raised by the assessee in the ground no. 16 is that the Ld. AO/DRP erred in not adjudicating the issue related to deduction of Rs. 8,17,97,608/- on account of demand raised by the Ministry of Chemicals & Fertilizers, Government of India. 76. While examining the issue raised before us, the ld. AR for the assessee brought to our notice that in the identical issue raised by the assessee in its case, the ITAT Delhi in the case no. 196/Del/2013 for the AY 2008-09 set aside the same to the AO for fresh adjudication. The relevant extract of the order is reproduced as under: "96. We have carefully perused the rival contention. Honourable Mumbai high court in case of Geoffrey Manners & Co. Ltd. (supra) Ltd has dealt with identical issue as under :- 3. It is submitted by Mr.Suresh Kumar, learned counsel appearing for the Revenue, that the Tribunal committed grave and serious error of law in allowing deduction for the provision made on account of liability towards contribution to DrugPrice Equalization Account (DPEA). This is ignoring the fact that the liability is mere prov....
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....he case of Glaxosmithkline Pharmaceuticals Ltd. (supra) for previous Assessment Years 1982-1983 and 1983-1984. These decisions have also been held as final. 6. The Tribunal in the instant case has followed the judgment of the Honourable Supreme Court in the case of Kedarnath Jute Mfg. Co. Ltd. v. CIT [1971] 82 ITR 363. In view thereof and finding that the Tribunal's order is in consonance with the facts and circumstances of the case, so also, the statutory liability having been created in the year in question and which has no bearing on the pending proceedings initiated by the Assessee or the dispute raised therein that we find that this question cannot be termed as substantial question of law." 97. Therefore respectfully following the decision of Honourable Mumbai high court we are of the view that claim of the assessee of Rs. 22306073/- on account of amount payable under Drug price Control Equalization is prima facie allowable. Further, we also agree with the argument of ld. AR that when the claim is made by the assessee by way of note then the ld. AO as well as DRP should have considered the claim of the assessee on merits. Not considering the issue and not adjudicatin....
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...., 1961 (The Act') in pursuance of the directions issued by the Dispute Resolution Panel ('DRP') is illegal, bad in law, void ab-inito and barred by limitation. 1.1. That on the facts and circumstances of the case and in law, the impugned order passed under section 143(3) r.w.s 144C of the Act is illegal and bad in law. 1.2. That the AO erred on facts and in law in passing the impugned order u/s 143(3) r.w.s. 144C even though neither any variation has been proposed by the Transfer Pricing Officer in its order passed under sub-section (3) of section 92CA of the Act nor is the assessee a foreign company. 1.3. That the AO erred in law and on facts in passing the impugned order u/s 143(3) r.w.s. 144C and not u/s 143(3) of the Act. 1.4. That on the facts and circumstances of the case and in law, the impugned order having been passed by the AO much beyond the limitation prescribed in section 153 of the Act [i.e.before 31st March 2014] is illegal and bad in law. 2. Without prejudice to the contention(s) of the assessee raised in ground of appeal no. 1 and in its sub-grounds on the legality of the Order, the assessee wishes to raise the grounds of appeal Nos. 3 to....
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....uction in the previous year(s), cannot be taxed as income of the assessee. 5.3 That the DRP erred in holding that the reversal of expense should be treated as income of the assessee, even if such expense was disallowed in earlier year(s), only because the matter had not attained finality, despite acknowledging that the same would tantamount to double taxation of the very same amount, 6. That the AO/DRP erred both on facts and in law in disallowing the contribution of Rs. 4,77,091 made to Ranbaxy Community Healthcare Society (RCHS), under the provisions of section 37(1) of the Act. 6.1 That the DRP erred in directing the AO to further examine the issue of non-deductibility of tax on the aforesaid contributions, without appreciating that subsection (8) of section 144C of the Act does not empower the DRP to issue any direction for further enquiry. 6.2 That the AO/DRP erred on facts and in law in holding that payments made by the assessee were in the nature of advertisement and publicity expense on which tax was required to be deducted at source and consequently the contribution claimed was disallowable under section 40(a)(ia) of the Act. 6.3 Without prejudice, that the ....
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....ount of exempt income. 7.6 Without prejudice, that the AO/DRP erred on facts and in law in computing disallowance, inter alia, on the ground that investments from which no exempt income was earned in the assessment year under consideration were also considered for the purpose of computation of disallowance under section 14A of the Act read with Rule 8D of the Rules. 8. That the AO/DRP further erred on facts and in law in making upward adjustment of Rs. 4,89,02,774 while computing book profits under section 115JB of the Act, without appreciating that: (a) adjustment, if any, could have only been made out of expenditure actually debited to the audited accounts; (b) the method/ formula prescribed in Rule 8D of the Rules was not relevant for computing book profits. 9. That the AO/DRP erred on facts and in law in not appreciating the facts in the case of the assessee and misinterpreting the same while making disallowance of entire deduction claimed under sections 80-IB and 80-IC of the Act. 9.1 That the DRP erred in law in not independently adjudicating the issue of eligibility of the assessee to claim deduction under section 80-IB & 80-IC of the Act in the assessment ....
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.... to disallowance of MTM loss (Rs. 3331.61 crore under normal provisions and Rs. 1431.63 crore under section 115JB of the Act) made while completing the assessment for AY 2009-10. 10.1 That the AO/DRP failed to appreciate that consistent with the stand taken by the assessing officer of disallowing MTM loss in the assessment order for AY 2009-10, the MTM gain in the assessment year under consideration ought not to have been treated as taxable income of the assessee. 10.2 That the AO/DRP erred on facts and in law in not appreciating that addition of MTM gain in the assessment year under consideration, when MTM loss was already disallowed in AY 2009-10, resulted in double addition of the very same amount. 10.3 That the DRP erred in upholding the action of the AO, merely on the ground that the assessee had offered the said amount to tax in the return of income, without appreciating the disallowance of MTM loss made by the AO in AY 2009-10. 10.4 That the DRP erred on facts and in law in upholding the action of the AO, failing to appreciate that taxable income has to be computed/ assessed as per the provisions of the tax and not simply on the basis of position taken by the ass....
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...., the learned Assessing Officer / Dispute Resolution Panel grossly erred in taxing the reversals of MTM losses amounting to Rs. 19,69,12,65,001/- while computing the book profits u/s.115JB of the Act without appreciating that an income which is otherwise not chargeable to tax under normal provisions of the Act cannot be brought to tax by virtue of Minimum Alternate Tax (MAT) provisions. 10.7. Without prejudice to the above, the Assessing Officer / Dispute Resolution Panel erred in not reducing the amount of provision for MTM losses amounting to Rs. 19,67\9,12,65,001/- reversed during the year and credited to the profit and loss account to the extent they have been added back in AY 2009-10 (being Rs. 14,31,63,20,000/-) while computing the book profits in terms of clause (i) to Explanation 1 to section 11JB(2) of the Act. The Appellant craves leave to alter, amend or withdraw all or any grounds or add any further grounds as may be considered necessary either before or during the hearing. 83. The issue raised by the assessee in the ground no 1 to 3, and 15 to 18 are in general and consequential in nature. Therefore, we dismiss the same. 84. The issue raised by the assessee i....
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....been considered and decided by us in Assessee's appeal vide ITA No. 1782/DEL/2014 in the ground no. 9 vide Para no 45 & 46 of this order in favour of the assessee. Please refer the relevant Para for our detailed discussion therein, we direct accordingly. Hence Ground no. 8 of the assessee is allowed. 94. The issue raised by the assessee in ground No. 9 is that the Ld. DRP erred by confirming the order of the AO by holding that the assessee is not eligible for deduction under section 80IB/ 80IC of the Act. 95. An identical issue has been considered and decided by us in Assessee's appeal vide ITA No. 1782/DEL/2014 in ground no. 10 vide Para no. 57 & 58 of this order in favor of the assessee. Please refer the relevant Para for our detailed discussion therein, we direct accordingly. Hence Ground no. 9 of the assessee is allowed. 96. The issue raised by the assessee in the ground no. 10 and the additional ground is that the Ld.DRP erred in confirming the action of the AO by treating the MTM gain of Rs. 1983,86,34,040/- as taxable income under the normal provision of tax, and Rs. 1969,12,65,001/- u/s 115JB of the Act. 97. At the outset, we note that the provision was crea....
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.... Therefore, the matter is not finally concluded and I hold that MTM gain during the year on similar transactions is subject to taxation while computing taxable income under normal provisions as well as under section 115JB. Since in last assessment order entire MTM loss was disallowed, treating the same as contingent liability, carried forward business loss and unabsorbed depreciation was reduced and available b/f loss for set off u/s.72 was restricted during AY 10-11 at Rs. 9,20,46,46,935/-. Base on the above remarks the taxable income of the assessee is computed under the normal provisions as well as for calculating the books profits u.s.155JB for AY 10-11 where by the MTM gain which is taxable during the year as well as the MTM loss of the earlier year is treated as contingent liabilkty." 99. From the above, we note that the amount written back by the assessee has already suffered the tax in the immediate preceding AY 2009-10. Accordingly, we hold that the amount written back by the assessee cannot be subject to tax either under normal computation of income or under section 115JB of the Act in the year under consideration. However, we find that the provision for Rs. 1431.63 ....