TaxTMI 
TaxTMI 
2019 (9) TMI 438
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....ing officer (hereinafter referred as "AO") under section 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. ....
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....ble year's data in the supplementary economic analysis and holding that current year (i.e. Financial Year 2008-09) data for comparable 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 o....
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....following the directions of the Hon'ble DRP and allowing deduction in respect of contribution of Rs. 22,50,000 and Rs. 50,00,000 made to Ranbaxy Community Healthcare Society (RCHS) and Ranbaxy Science foundation respectively 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) ....
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....ppreciate that the deduction claimed by the appellant under sections 80IB/ 1C of the Act was duly supported by audit report(s) in Form 10CCB and accounts maintained in SAP/ ERP based elaborate, comprehensive and robust accounting system/ software. 10.4 That the Ld.AO/ DRP exceeded jurisdiction in holding that the appellant 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....
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....on facts and in law in not adjudicating the issue of allowability of claim of deduction of Rs. 8,17,97,608, being the demand raised by Ministry of Chemicals & Fertilizers, Government of India. 17. That the Ld.AO/DRP erred on facts and in law in not adjudicating the issue of adjustment of exchange fluctuations on External Commercial Borrowings, Hedging contracts in relation thereto and hedging charges 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 cons....
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....uring activities. iii. There is no intangible property right own by the AE's. 5.2 In view of the above, the assessee claimed that the AE's assume the lesser risk and carry a less complex function as compare to it. Accordingly, assessee considers its AE's as tested in its transfer pricing study. 5.3. The assessee to determine the ALP of the international transactions with the AE's grouped all international transaction in 4 classes which are recorded on Page Nos. 2 & 3 in the order of the TPO. The basis of categorizing 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, ma....
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.... markets. 5.11. The issue of selection of tested party in the assessee's case was heard by the ITAT Delhi bench reported in 2008-TIOL-75-ITAT-Del wherein it was observed that the less complex tested party should be selected in such a way that the relevant information should be available in the public domain. Further the tested party should be compared with the comparables available in the similar geographical situation. 5.12. The TPO also observed that the assessee was held as tested by the Tribunal in its case reported in 2008-TIOL-75-ITAT-Del wherein it was also observed that the comparison should 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 regulat....
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.... - 5.35%. 5.21. In view of the above facts, the TPO issued SCN to the assessee proposing the upward addition/adjustment amounting to Rs. 1245.66 Crores. 5.22. The assessee against such show cause notice submitted its comments on new comparables and the filter used by the TPO. Accordingly, the assessee provided 4 other companies to consider as comparables having current R&D expense 3% to 4% of sales, namely Alembic LTD., Cadila pharmaceuticals ltd., Ipca laboratories ltd. and Orchid chemicals & Pharmaceuticals Ltd. 5.23. Considering the objection raised by the assessee, TPO accepted some of the points related 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 amoun....
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....ar data should be taken for benchmarking international transaction. The action of the TPO is upheld. 5.3. Objection 3.3 to 3.5 are on the selection of comparables based on different filters. The assessee has stated that TPO has erred while applying these filters which have resulted into inaccurate comparables. 5.3.1. As noticed from the submission of the assessee, there is no disagreement on the use of net worth, manufacturing sales to total sales and sales turnover filters. The TPO has used net fixed assets to total sales filter as 25% whereas assessee has restricted it to 15%. Export sales to sales is considered at 25% by the TPO whereas assessee has taken the 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. ....
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.... be made to ITAT, Hyderabad's decision in the case of ADP P Ltd (2011-Tll-44- ITAT-Hyd-TP) and M/s Deloitte Consulting India P Ltd: ITA No. 1082/Hyd/2010 dated 22.7.2011. In the aforesaid decisions, the threshold limit of 25% was accepted by the ITAT. In the case of ST Microeletronics (2011-TII- 63-ITAT-DEL-TP) also this limit has been impliedly upheld. The rationale of 25% threshold limit provided in section clause (a) & (b) of sub-section (2) of section 92A of the Act which define the term "Associated Enterprise". This gives a good indication for applying the bright line test for the purposes of RPT also. Therefore, this Panel declines to interfere with the stand by the TPO in this regard. 5.3.5. Filters are 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 avail....
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....so, this company is in collaboration with Department of Biotechnology, Govt. of India. TPO has given elaborate reason why this company should be accepted as a comparable on page no. 36 to 39 of the TP order. Therefore, DRP is confirming the order of the TPO. Alembic Ltd., Ipca Laboratories Ltd., Orchid Chemicals & Pharmaceuticals Ltd., Neuland Laboratories Ltd, Orchid Chemicals & Pharmaceutical Ltd, Natco Pharma Ltd. and Ajanta Pharma Ltd. The TPO has given the reason why R &D filter should be at 4%. This filter is upheld by the DRP in the earlier paragraphs. Therefore, there is no justification to include these companies, since they are failing in R&D filter. Therefore, the action of the TPO is upheld. 5.4. in objection 3.6, the assessee has asked for economic adjustment 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....
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....le, still the addition made by the TPO is as per law. As it is established jurisprudence on taxation, equity is an alien concept in tax laws. Therefore, this objection of the assessee is rejected. 6. In objection 4, the assessee has stated that TPO has not relied on the sound TP principles and judicial pronouncements in India. For the ready reference, objection 4 is reproduced below: 4. That the Ld. AO/TPO has erred in disregarding sound TP principles and judicial pronouncements in India in undertaking the TP adjustment. 6.1. On examination, DRP finds that the various ITAT decisions has been acknowledged by the TPO and distinction on facts and law made based on the facts of the case, DRP relies on the decision in the case of Interra Information Technologies (India) (P.) Ltd. -Vs- Deputy Commissioner of Income-tax, Circle 11(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 decide....
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.... 2008-09 being ITA No. 196/Del/2013 vide order dated 25-4- 2016, reported in 68 taxmann.com 322, held that AE's are accepted as tested party being the least complex for comparability analysis of international transaction of the assessee. The relevant extract of the order is reproduced as under: "18. We have carefully considered the rival contentions. We have also perused the relevant paragraphs of the several documents relied upon before us in the form of two paper book volumes, One supplementary paper book and one decision paper book on transfer pricing issues. 19. Generally, in transfer pricing comparability analysis, the tested party is usually the party participating in a transaction for which profitability most reliably can be ascertained and for which the reliable data of comparables can be found and the tested party will typically be the party 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 deter....
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....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 tested party (where needed). The tested party normally should be the less complex party to the controlled transaction and should be the party in respect of which the most reliable data for comparability is available. It may be the local or the foreign party. If a taxpayer wishes to select the foreign associated enterprise as the tested party, it must ensure that the necessary relevant information about it and sufficient data on comparables is furnished to the tax administration and vice versa in order for the latter to be able to verify the selection and application of the transfer pricing method." 24. The OECD guidelines at Para no.3.18 provides as under:- "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 ch....
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.... may be available easily, readily and in abundance. However the first step is to look at the FAR study of that party and if found to be complex than other party, then such party should be rejected as tested party and preference may be given to another entity which is least complex and is having reasonably reliable data for comparability. Therefore, the driving force in selection of tested party should be the least complex FAR of the party than the volume of comparable data. In this background, we proceed to decide the issue. 26. Appellant has entered into advance pricing agreement under section 92CC of the Act on 07 August 2015 with CBDT for AY 2014-15. According to Para, 1(F) of that agreement tested party means associated parties as listed in Appendix 1. According to the annexure-1, it has been agreed between the parties that the TNMM with PLI of operating profit margin computed based on audited financials of AE, being the tested party, shall be the 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 o....
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....of starting the first step of comparability analysis for this year as the nature of international transactions, FAR of appellant and AEs respectively are similar. The availability of data is also on the similar lines as agreed in APA. Though the critical assumptions referred to a set of taxpayer related facts, it mentions that this APA would not have any effect on other years. May that be the case, but the concept and the methodology laid down in APA can have the guidance value for the revenue authorities for the purposes of comparability analysis. The main intent of the advance pricing agreements is to protect the fair share of the revenue of the states in simple and efficient manner and to protect the tax base. Need for Advance pricing agreements are emerging out of current global complex economic situations and its impact on revenue of tax compelling governments to intensify and streamline their transfer pricing compliance efforts to reduce the disadvantage in staking their claim for tax. Higher risk of disputes 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 o....
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.... appeal at any time before signing of the agreement; or (ii) the application of rollback provision has the effect of reducing the total income or increasing the loss, as the case may be, of the applicant as declared in the return of income of the said year.' On reading above rule, it is clear that if the International transactions are same in the year of APA and the year for which roll back is applied, roll back is allowed to the assessee on certain normal condition of filing return of income, Report of accountant and a request in specified format. Off course, it has also normal revenue safeguarding exclusion clauses of income going below the returned income and where ITAT has passed an order on the subject. Therefore even the rules provide that if the International Transactions are same in the year of APA and in the past year than both the parties, assessee and CBDT may agree for applying the agreements contained in APA agreed. In the present case, it is not disputed that the international transactions in both the years are not same. Therefore, we draw support from Rule 10 MA of Income tax Rules 1962 in applying the methodology as accepted in APA for the impugned year....
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....he view that there is no dispute on this principle as it is well recognized and well accepted in all those decisions. This too has been held by coordinate bench in the case of the assessee for A.Y. 2004-05. We have perused those decisions and applied the same in reasoning and our findings. For the sake of brevity we refer the decision of coordinate bench in General motors India (P.) Ltd. (supra) where in majority of the decisions were considered on the issue of selection of 'tested party' and it held as under :- '11.1. We shall now proceed to peruse the judicial views on the issue. The case laws relied on by the assessee is as under: (i) Mastek Limited v. Addl. CIT in ITA No.3120/Ahd/2010 dt.29.02.2012: In this case, the question came up for consideration before the earlier Bench of this Tribunal was as to whether a minute examination of functional profile is necessary for the selection of comparables and the answer given was that functional profile must be first examined and after that proceed to select the comparable. In this case, the comparables chosen by the assessee were discussed by the TPO and those were discarded for the basic reason ....
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....in product distribution whereas the TPO was of the view that the AE was nothing but 'front office' of the assessee and simple engaged in marking activity. In this context, we are of the view that in order to determine the 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." We are in agreement with the findings of the earlier Bench (supra) that such a selected party should be least complex and should not be unique. (ii) Development Consultants (P.) Ltd. v. ACIT 136 TTJ 129 & followed by Sony India (P.) Ltd. v. Dy. CIT [2008] 114 ITD 448/315 ITR 150 (Delhi): The issue before the Tribunal was that the CIT (A) had confirmed the adjustments to the international transactions of the assessee with its AEs based at Bahamas, USA without considering the submissions and the financial of the AEs explaining the facts etc. In case of the merits of the case for international transactions entered by the assessee with TKC, the submi....
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....s findings that - "58. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . The tested party normally should be the party in respect of which reliable data for comparison is easily and readily available and fewest adjustments in computations are needed. It may be local or foreign entity, i.e., one party to the transaction. The object of transfer pricing exercise is to gather reliable data, which can be considered without difficulty by both the parties, i.e., taxpayer and the revenue. It is also true that generally least of the complex controlled taxpayer should be taken as a tested party. But where comparable or almost comparable, controlled and uncontrolled transactions or entities are available, it may not be right to eliminate them from consideration because they look to be complex. 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. The taxpayer is not then entitled to take a stand that such data cannot be called for or insisted ....
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....g with the back-up computations were furnished before the TPO in the transfer pricing documentation [Source: Pages 113 to 210 of the Transfer Pricing Study]. This contradicts the assertion of the learned DR that the assessee had not furnished any financial information of the comparable companies. 11.2.2 The United Nation's Practical Manual on Transfer Pricing also contradicts the TPO's argument that GMDAT should not be selected as the tested party as the comparable companies selected by the assessee doesn't fall within his jurisdiction and he can neither call for any additional information nor scrutinize their books of accounts etc., 11.2.3 However, we find inconsistency in the stand of the TPO to the effect that while rejecting the assessee's approach for selecting GMDAT as the tested party by citing a reason that there was no reliable data available for both GMDAT and comparables and, therefore, GMDAT cannot be taken as the 'tested party', however, on the same breath, as rightly highlighted by the assessee, the TPO had taken GMDAT as the tested party while making adjustment to transaction relating to payment of royalty by GMI to GMDAT. ....
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.... had never sought withdrawal of the objections filed by it. The impugned order also causes immense prejudice to the petitioner as recorded hereinabove. In the circumstances, the impugned order of the Dispute Resolution Panel, therefore, cannot be sustained. . . . . . ." 11.3 We shall now peruse the case laws on which the learned DR had placed reliance in the findings of the Hon'ble Mumbai Tribunals in the cases of (i) Aurionpro Solutions Ltd. v. Addl. CIT in ITA No.7872/Mum/2011 dated 12.4.2013; and (ii) M/s Onward Technologies Ltd. v. DCIT (OSD) in ITA No.7985/Mum/2010 dated 30.4.2013. (i) In the case of Aurionpro Solutions Ltd. (supra), the issue before the Hon'ble Bench was that the assessee engaged in the business of software development and web designing services and that the assessee had lent loans to its AEs stationed at USA, Singapore and Bahrain. The assessee had claimed that the said loans as working capital advanced to its 100% subsidiary outside India. When the issue was referred to TPO, the TPO took a view that as in a third party comparable situation, advances would bear interest and, therefore, need to charge a markup as per CUP met....
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....he contention of the ld. AR in considering the profit of the foreign AE as 'profit A' for the purposes of comparison with profit or comparables, being 'profit B', to determine the ALP of transaction between the assessee and its foreign AE, misses the wood from the tree by making the substantive section 92 otiose and the definition of 'internal transaction' u/s 92B and rule 10B redundant. This is patently an unacceptable position having no sanction of the Indian transfer pricing law. Borrowing a contrary mandate of the TP provisions of other countries and reading it into our provisions is not permissible. The requirement under our law is to compute the income from an international transaction between two AEs having regard to its ALP and the same is required to be strictly adhered to as prescribed. This contention is, therefore, repelled." With have duly perused the findings of the Hon'ble Bench cited supra. In this connection, we would like to point out that various Tribunals have taken divergent views in respect of selection of 'tested party'. To illustrate, the earlier Bench of this Tribunal in the case of Mastek Limited ITA No.3096/Ahd....
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....y divergent views of the coordinate benches and after considering them coordinate bench has reiterated all the principles noted by us for selection of tested party. Hence, we also draw staunch support from that decision. 35. Therefore, for the reasons stated above, ground no 2.2 of the appeal is allowed with a direction that overseas associated enterprises are accepted as 'tested party' being the least complex of the transacting entity for the year for comparability analysis of international Transactions of the assesseeappellant. 36. As we have already decided the first step of comparability analysis in ground no 2.2 of the appeal we set aside other grounds nos. 2 to 7 except 2.2 to the file of TPO to compute ALP of the international transactions accordingly. In the result ground nos. 2 to 7 except ground no.2.2 are allowed for statistical purposes. Needless to say that ld. TPO/AO shall give due weightage to the Advance pricing agreement signed by the assessee with CBDT on other issues also (other than the issue of 'selection of tested Party') for determination of ALP and in case of any divergent view, the assessee shall be granted an adequate oppo....
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....g the question. If that is the position even with regard to a question of law, the position will be a fortiori with regard to a question of fact. If the Tribunal wants to take an opinion different from the one taken by an earlier Bench, it should place the matter before the President of the Tribunal, so that he could have the case referred to a Full Bench of the Tribunal consisting of three or more members for which there is provision in the IT Act itself." 10.2. We also find that the Hon'ble supreme court case of Ambika Parsad Mishra Vs. State of U.P.and Others vide writ petition no 1543 of 1977 vide order dated 09-05-1980 has taken the similar view as taken by the Hon'ble High court (supra) as under: "Thus we get the statutory perspective of agrarian reform and so, the constitutionality of the Act has to be tested on the touchstone of Art 31A which is the relevant protective armour for land reform laws. Even here, we must state that while we do refer to the range of constitutional immunity Art. 31Aconfers on agrarian reform measures we do not rest our decision on that provision. Independently ofArt. 31A, the impugned legislation can withstand constitutional invasion a....
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....earlier, we do not base the conclusion on Art. 31A. Even so, it is fundamental that the nation's Constitution is not kept in constant uncertainty by judicial review every season because it paralyses, by perennial suspense, all legislative and administrative action on vital issues deterred by the brooding threat of forensic blowup. This, if permitted, may well be a kind of judicial destabilisation of State action too dangerous to be indulged in save where national. crisis of great moment to the life, liberty and safety of this country and its millions are at stake, or the basic direction of the nation itself is in peril of a shakeup. It is surely wrong to prove Justice Roberts of the United States Supreme Court right when he said." 10.3 We also note that the impugned issue has been admitted by the Hon'ble Gujarat High Court in Tax Appeal No. 853 of 2016 against the order of the ITAT Delhi Bench "I" New Delhi bearing ITA No. 196/DEL/2013 for the AY 2008-09. The relevant proposed question of law as framed before the Hon'ble Court reads as under: [1] " Whether on the facts and circumstances of the case and in law, the ITAT was justified in directing to delete the addition of ....
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....elhi high court and in notes to account the assessee mentioned that company reserves its right to offer the tax u/s 41(1) in case matter decides against it. 12.3. AO noted the facts above from the notes to accounts and issued a notice to the assessee to explain the same. 12.4. In response to the notice, the assessee submitted that the difference between market price and the issue price is a benefit to employees. Therefore, deferred employee compensation is a component of employee remuneration and actual loss to the company. Therefore, this is only a mode of discharging the liability of employees, and it is an ascertained liability. Accordingly, the assessee contended that the amount debited/amortized in ITR of earlier years had been correctly claimed by following Hon'ble Supreme court in case of Madras Industrial Investment Corporation Ltd. Vs. CIT (225 ITR 802). 12.5. However, AO disregarded the contention of the assessee and held that employees compensation of Rs. 6,84,523/- has not been crystallized during the year under consideration. Accordingly the same is not allowable expenses. The AO also observed that amount of benefit granted to assessee is in the nature of bonu....
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.... 17. We have heard the rival contentions of both the parties and perused the material available on records. At the outset, we find that in the identical facts & circumstances in the own case of the assessee, the ITAT in the AY 2008-09 being ITA No. 196/Del/2013 vide order dated 25-4- 2016, reported in 68 taxmann.com 322, held as under: "41. We have carefully considered the rival contentions. The issue is now squarely covered in favour of the assessee by the decision of Hon'ble Madras high court in PVP Ventures (supra), where in it is held that amount of difference between the market value of the shares issue under ESOP allotted to the employees debited to the profit and loss account in accordance to SEBI guidelines is an ascertain liability and allowable as revenue expenditure u/s 37(1) of the Act. It is also noteworthy that the decision in the case of the assessee in earlier years where this deduction was denied has been considered by the special bench of tribunal in case of Biocon Ltd. (supra) as under :- "9.2.8 Though discount on premium is nothing but an expenditure u/s 37(1), it is worth noting that the Hon'ble Supreme Court in the case of CIT v. Wood....
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....heme. It is only when all such conditions are fulfilled and the employees render services during the vesting period that the question of any ascertained liability can arise. He submitted that during the entire vesting period, it is only a contingent liability and no deduction is admissible under the provisions of the Act for a contingent liability. The options so granted may lapse during the vesting period itself by reason of termination of employment or some of the employees may not choose to exercise the option even after rendering the services during the vesting period. It was, therefore, argued that the discount is nothing but a contingent liability during the vesting period not calling for any deduction. In the opposition, the learned AR submitted that the amount of discount claimed by the assessee as deduction is not a contingent liability but an ascertained liability. He stated that in the ESOP 2000, there is a vesting period of four years, which means that the options to the extent of 25% of the total grant would vest with the eligible employees at the end of first year after rendering unhindered service for one year and it would go on till the completion of four years. ....
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.... arisen in the accounting year, the deduction should be allowed although the liability may have to be quantified and discharged at a future date. What should be certain is the incurring of the liability. It should also be capable of being estimated with reasonable certainty though the actual quantification may not be possible. If these requirements are satisfied the liability is not a contingent one. The liability is in praesenti though it will be discharged at a future date. It does not make any difference if the future date on which the liability shall have to be discharged is not certain." From the above enunciation of law by the Hon'ble Supreme Court, it is manifest that a definite business liability arising in an accounting year qualifies for deduction even though the liability may have to be quantified and discharged at a future date. We consider it our earnest duty to mention that the legislature has inserted clause (f) to section 43B by providing that "any sum payable by the assessee as an employer in lieu of any leave at the credit of his employee" shall be allowed as deduction in computing the income of the previous year in which such sum is actually paid. With this l....
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....coming entitled to exercise options at the end of the vesting period and it is only then that the actual amount of discount would be determined, is akin to the quantification of the precise liability taking place at a future date, thereby not disturbing the otherwise liability which stood incurred at the end of the each year on availing the services. 9.3.6 As regards the contention of the ld. DR about the contingent liability arising on account of the options lapsing during the vesting period or the employees not choosing to exercise the option, we find that normally it is provided in the schemes of ESOP that the vested options that lapse due to nonexercise and/or unvested options that get cancelled due to resignation of the employees or otherwise, would be available for grant at a future date or would be available for being re-granted at a future date. If we consider it at micro level qua each individual employee, it may sound contingent, but if view it at macro level qua the group of employees as a whole, it loses the tag of 'contingent' because such lapsing options are up for grabs to the other eligible employees. In any case, if some of the options remain unves....
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....same amount of provision has suffered tax the in the earlier years, then this the cannot be made subject to tax in the year under consideration. The learned AR in support of his claim has also filed the details demonstrating the years in which such amount was suffered to tax. The details are placed on record. 22. However, we note that such details were not provided by the assessee before the lower authorities. Therefore we are inclined to restore this issue to the file of the AO for fresh adjudication in accordance with the provisions of law after considering the details filed by the assessee before us. Hence the ground of appeal of the assessee is allowed for statistical purposes. Hence the ground of appeal no 6 of the assessee is allowed for statistical purpose. 23. The issue raised by the assessee in ground no 7 is that the Ld. DRP erred in confirming the disallowance of deduction in respect of contribution of Rs. 22,50,000/- and Rs. 50,00,000/- made to Ranbaxy community healthcare society ( for short RCHS) and Ranbaxy Science Foundation (for short RCF). 24. The assessee company made a contribution of Rs. 22,50,000/ to RCHS and Rs. 50,00,000/- to RSF and claimed as dedu....
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....xy Community Healthcare Society and Ranbaxy Science Foundation. Furthermore regarding failure to deduct tax on this sum, Ld. DR. could not point out particular section, which warrants deduction of tax at sources on this payment. Therefore, we also hold that in absence of specific section under which the tax is required to be deducted on such contribution without their being any service rendered by the recipient of the contribution disallowance u/s 40a(ia) also cannot be made. In the result ground no.9 of the appeal is allowed." 30. In view of the identical issue raised before us in the ground of appeal no. 7 which has already been considered by the ITAT Delhi as discussed above, we are taking the same view. Accordingly, we allow the ground of appeal of the assessee. 31. The issue raised by the assessee in the ground no. 8 is that the Ld. DRP erred in confirming the addition for Rs. 11,68,23,115/- made by the AO under section 14A of the act. 32. The AO during the assessment proceedings observed that the assessee in its balance sheet as on 31/03/2009 had shown investments of Rs. 621.21 Crores in Indian companies and Rs. 3021.22/- crores in foreign subsidiaries. The assessee ....
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....orted the order of authorities below. 37. We have heard the rival contention and perused the material available on records. At the outset, we find that in the identical facts & circumstances in the own case of the assessee, the ITAT in the AY 2008- 09 being ITA No. 196/Del/2013 vide order dated 25-4-2016, reported in 68 taxmann.com 322, held as under: "51. We have carefully considered the rival contentions. In this case assessee himself has disallowed Rs. 3311708/- which itself is far more in excess of exempt income. Hon'ble Delhi high court in Joint Investments (P.) Ltd. v. CIT [2015] 59 taxmann.com 295/233 Taxman 117/372 ITR 694 has held that:- "9. In the present case, the AO has not firstly disclosed why the appellant/assessee's claim for attributing Rs. 2,97,440 as a disallowance under s. 14A had to be rejected. Taikisha Engg. India Ltd. (supra) says that the jurisdiction to proceed further and determine amounts is derived after examination of the accounts and rejection if any of the assessee's claim or explanation. The second aspect is there appears to have been no scrutiny of the accounts by the AO-an aspect which is completely unnoticed by....
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.... of such expenditure in relation to income which does not form part of the total income under the said Act. In other words, the requirement of the Assessing Officer embarking upon a determination of the amount of expenditure incurred in relation to exempt income would be triggered only if the Assessing Officer returns a finding that he is not satisfied with the correctness of the claim of the assessee in respect of such expenditure. Therefore, the condition precedent for the Assessing Officer entering upon a determination of the amount of the expenditure incurred in relation to exempt income is that the Assessing Officer must record that he is not satisfied with the correctness of the claim of the assessee in respect of such expenditure. Sub-section (3) is nothing but an offshoot of sub-section (2) of Section 14A. Sub-section (3) applies to cases where the assessee claims that no expenditure has been incurred in relation to income which does not form part of the total income under the said Act. In other words, sub-section (2) deals with cases where the assessee specifies a positive amount of expenditure in relation to income which does not form part of the total income under the sa....
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....elf determine the amount of expenditure is that he must record his dissatisfaction with the correctness of the claim of expenditure made by the assessee or with the correctness of the claim made by the assessee that no expenditure has been incurred. It is only when this condition precedent is satisfied that the Assessing Officer is required to determine the amount of expenditure in relation to income not includable in total income in the manner indicated in sub-rule (2) of Rule 8D of the said Rules. It is, therefore, clear that determination of the amount of expenditure in relation to exempt income under Rule 8D would only come into play when the Assessing Officer rejects the claim of the assessee in this regard. If one examines sub-rule (2) of Rule 8D, we find that the method for determining the expenditure in relation to exempt income has three components. The first component being the amount of expenditure directly relating to income which does not form part of the total income. The second component being computed on the basis of the formula given therein in a case where the assessee incurs expenditure by way of interest which is not directly attributable to any particu....
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....xpenditure which the assessee claims to have incurred in relation to income which does not part of the total income. Moreover, the satisfaction of the Assessing Officer has to be arrived at, having regard to the accounts of the assessee. Hence, sub-section (2) does not ipso facto enable the Assessing Officer to apply the method prescribed by the rules straightaway without considering whether the claim made by the assessee in respect of the expenditure incurred in relation to income which does not form part of the total income is correct. The Assessing Officer must, in the first instance, determine whether the claim of the assessee in that regard is correct and the determination must be made having regard to the accounts of the assessee. The satisfaction of the Assessing Officer must be arrived at on an objective basis. It is only when the Assessing Officer is not satisfied with the claim of the assessee, that the Legislature directs him to follow the method that may be prescribed. In a situation where the accounts of the assessee furnish an objective basis for the Assessing Officer to arrive at a satisfaction in regard to the correctness of the claim of the assessee of the expendit....
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....of a matter of law or fact upon which the validity of the exercise of the power is predicated". (M.A. Rasheed v. State of Kerala [1974] AIR 1974 SC 2249*). A decision by the Assessing Officer has to be arrived at in good faith on relevant considerations. The Assessing Officer must furnish to the assessee a reasonable opportunity to show cause on the correctness of the claim made by him. In the event that the Assessing Officer is not satisfied with the correctness of the claim made by the assessee, he must record reasons for his conclusion. These safeguards which are implicit in the requirements of fairness and fair procedure under article 14 must be observed by the Assessing Officer when he arrives at his satisfaction under sub-section (2) of section 14A. As we shall note shortly hereafter, sub-rule (1) of rule 8D has also incorporated the essential requirements of sub-section (2) of section 14A before the Assessing Officer proceeds to apply the method prescribed under sub-rule (2)." 18. It is in this context we feel that the findings recorded by the CIT (A) and the Tribunal are appropriate and relevant. The clear findings are that the assessee had sufficient funds for mak....
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....ssee should be considered for the disallowance in conformity with clause (f) of the explanation 1 to section 115JB. 45. We have heard the rival contention and perused the materials available on records. At the outset, we find that in the identical facts & circumstances in the own case of the assessee, the ITAT in the AY 2008- 09 being ITA No. 196/Del/2013 vide order dated 25-4-2016, reported in 68 taxmann.com 322, held as under: "55. We have carefully considered the rival contentions. The ld. AO has imputed the addition u/s 115JB of the Act as disallowance computed u/s 14A, read with Rule 8D of the Income Tax Rule, 1962. As we have already deleted the disallowance as per ground No.10 of the appeal wherein we have held that the amount of disallowance cannot be worked out by ld. AO without recording satisfaction on examination of books about the correctness of disallowance made by the assessee which in this case has been made by assessee of Rs. 3311708/-.We have also held that disallowance cannot exceed the amount of exempt income. Hence, now no disallowance survives u/s 14A of the act so far as normal computation of total income of the appellant. The AO has added to the ....
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....et profit of the various facilities along with the deduction claimed. Name of the Plant Sales Net Profit Deduction u/s.80IB/80IC GOA PLANT (80IB) 122.21 21.70 06.51 NEW TABLET PLANT-1 57.72 2.45 2.45 NEW TABLET PLANT -II 290.95 - (No deduction claimed) NEW SGC PLANT 108.62 40.25 40.25 NEW TABLET PLANT-III 96.77 9.64 9.64 TOTAL 385.32 74.04 58.85" 48. The AO during the assessment proceedings observed that the auditor in the form no. 10CCB issued by him made certain comments as narrated below: i) The sale effected by the industrial undertakings eligible for deduction under section 80IB/ 80IC of the Act have been recorded at the sale price which was charged from the customers. Thus the assessee has violated the provisions of section the 80IA read with section 80IC(7) of the Act. As such the assessee was required to record the sales at a price at which the products were transferred by the eligible undertaking to the other unit of the assessee namely selling and distribution department. It is because of the fact that the assessee has not allocated the cost incurred by its selling and distribu....
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....with the products manufactured by the eligible undertaking. Thus only 30% of the total research and development expenses were considered reasonable to apportion to these eligible undertakings. As such in the earlier year the basis of allocation of 30% of the total research and development expenses was accepted by the Revenue. iv. There was an established system to work out the profit for each industrial undertaking which is eligible for deduction. Further profit determined for each industrial undertaking was duly certified by the auditor in his audit report in form 10CCB. The miscellaneous income in respect of which the deduction was claimed was having direct nexus with the activities of the industrial undertaking. Accordingly these were determined as per the established system applicable to the eligible undertakings. v. The other incomes which are not eligible for deduction under section 80IB/80IC of the Act were not considered while determining the profit of the eligible undertakings. As such there was the proper compliance of the provisions of section 80IA(5) of the Act. vi. The selling and the distribution unit is not a separate undertaking which requ....
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....under section 80IB/80IC of the Act were pending for the assessments under section 147 of the Act. Therefore it cannot be concluded that the deduction was allowed to the assessee in the identical facts and circumstances in the earlier years. iv. The selling and the distribution unit of the assessee is in itself are profit centre and carries out a distinct activity. Therefore the income of such unit cannot be attributed to the manufacturing activity of the eligible undertaking. Therefore the profit of this unit needs to be reduced from the profit of the eligible undertaking. As such the activity carried out by the eligible undertaking cannot be merged with the activity of selling and distribution unit. v. Similarly the profit earned by the assessee on account of the use of the brand name namely Ranbaxy cannot be merged with the profit of the eligible undertaking. 50. In view of the above, the AO disallowed the deduction claimed by the assessee under section 80IB/80IC of the Act for Rs. 58,85,85,232/- and added to the total income of the assessee. 51. Aggrieved assessee preferred an appeal before the Ld. DRP against the order of AO. 52. The DRP confirmed the....
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.... Income tax Act, 1961, is rejected." 53. In view of the above order of predecessor DRP on the identical issue, it did not examine the issue again and therefore followed the decision of DRP-II in AY 2008-09. Accordingly, DRP upheld the order of AO. 54. Against the order of the DRP, the assessee preferred an appeal before us. 55. 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 25.04.2016 has decided the impugned issue in its favor. 56. On the other hand, the Ld. DR vehemently supported the order of authorities below. 57. We have heard the rival contention and perused the materials available on record. In view of the brief facts and circumstances discussed in the previous paragraph, we find that the impugned issue is covered by the order of Delhi ITAT in the case of assessee in which the exactly the same issue was adjudicated for the assessment year 2008-09 in ITA No. 196/Del/2013 dated 25.04.2016 in its favour. The relevant extract of the order is reproduced as under: "68. We have carefully considered the rival contentions. Durin....
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....h was set in AY 2007-08 the assessee did not claim any deduction for that year in view of the provision of section 80A(2) of the Act as the gross total income of the assessee was negative. 73. In case of New Tablet Plant-III, this is the first year of deduction and assessee has claimed the same in return of income and it is under dispute in this appeal. 74. It is argument of the ld. AR that it is the well settled proposition of law that where the act provides for the deduction for a certain term period the revenue is required to examine the claim of deduction and its eligibility to examine whether all statutory conditions are satisfied in the first year in which the appellant claims the deduction. If revenue does not disturb the claim of the assessee in that year, it is not open to revenue to disallow the deduction in the subsequent years. The various authorities cited by the ld. AR are specifically on the point in favour of the assessee. The contention of the revenue that this is the first year in which the methodology of claim of deduction of the assessee is being verified is not accordance with the previous assessment orders passed by the AO with respect to ded....
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....er section 80-I of the Act was available to an assessee in the assessment year relevant to the previous year in which the industrial undertaking begins to manufacture or produce articles or things (such assessment year being the initial assessment year) and each of the seven assessment years immediately succeeding the initial assessment year. This necessarily implied once the issue as to eligibility under section 80-I of the Act was examined and allowed in the initial assessment, the same was allowable in the subsequent years also unless there was any material change in the succeeding years. 70. It is well settled law that the principles of res judicata do not apply to income tax proceedings and assessment for each year is an independent proceeding. It is now equally well established that issues that have been settled and accepted over a period of time should not be revisited in subsequent assessment years in absence of any material change which would justify the change in view. 71. The Supreme Court in the case of RadhasoamiSatsang (supra) has held that unless there is a material change in justifying the revenue to take a different view the earlier view which has....
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....Similar view has been expressed by this court in the case of Modi Industries Ltd. (supra). In this case, while considering a claim of deduction made by an assessee under section 80J of the Act, this High Court held as under:- "The second question relates to the claim of the assessee for deduction under Section 80J of the Income Tax Act in respect of its new unit namely 10 ton Furnance Division and Steel Unit 'B'. This case pertains to the assessment year 1976-77. A perusal of the order of the Assessing Officer would reveal that for the first time, claim under section 80J of the Act was made by the assessee in the assessment year 1973-74. The assessee was denied that claim by the Assessing Officer. For this reason, the Assessing Officer denied the claim in this assessment year as well, taking note of the fact that the matter pertaining to 1973-74 was pending before the Income Tax Tribunal. It is a matter of record that the appeal filed by the assessee for the assessment year 1973-74 was allowed by the Income Tax Appellate Tribunal. The effect thereof was that the assessee was granted the requisite deduction under Section 80J of the Act for the assessment ye....
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....ere is yet another aspect which needs to be considered. By virtue of section 80-I(5) of the Act, deduction under section 80-I of the Act is available to an assessee in respect of the assessment year (referred to as the initial assessment year) relevant to the previous year in which the industrial undertaking begins to manufacture or produce articles or things, or to operate its cold storage plant or plants or the ship is first brought into use or the business of the hotel starts functioning or the company commences work by way of repairs to ocean-going vessels or other powered craft. Such deduction is also available for the seven assessment years immediately succeeding the initial assessment year. Surely in cases where an assessee is held to be eligible for deduction in the initial assessment year, the same cannot be denied in the subsequent assessment years on the ground of ineligibility since the set of facts which enable an assessee to claim to be eligible for deduction under section 80-I of the Act occur in the previous year relevant to the initial assessment year and have to be examined in the initial assessment year. In such cases, where the facts on the basis of which the de....
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....ditions for grant of tax holiday had to be examined, denial of relief in the subsequent years would not be permissible without disturbing the assessment in the initial assessment year. The relevant extract from the decision of the Gujarat High Court in Saurashtra Cement & Chemical Industries (supra) is quoted below:- "The next question to which the Tribunal addressed itself, and no our opinion rightly, was whether the Tribunal was justified in refusing to continue the relief of tax holiday granted to the assessee-company for the assessment year 1968-69, in the assessment year under reference, that is, 1969-70, without disturbing the relief granted for the initial year. It should be stated that there is no provision in the scheme of s. 80J similar to the one which we find in the case of development rebate which could be withdrawn in subsequent years for breach of certain conditions. No doubt, the relief of tax holiday under s. 80J can be withheld or discontinued provided the relief granted in the initial year of assessment is disturbed or changed on valid grounds. But without disturbing the relief granted in the initial year, the ITO cannot examine the question again and de....
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....e Revenue. 29. In RadhasoamiSatsangSaomiBagh v. CIT [1992] 193 ITR 321/60 Taxman 248 (SC) this Court did not think it appropriate to allow the reconsideration of an issue for a subsequent assessment year if the same "fundamental aspect" permeates in different assessment years. In arriving at this conclusion, this Court referred to an interesting passage from Hoysteadv.Commissioner of Taxation 1926 AC 155 (PC) wherein it was said: "Parties are not permitted to begin fresh litigation because of new views they may entertain of the law of the case, or new versions which they present as to what should be a proper apprehension by the court of the legal result either of the construction of the documents or the weight of certain circumstances. If this were permitted, litigation would have no end, except when legal ingenuity is exhausted. It is a principle of law that this cannot be permitted and there is abundant authority reiterating that principle. Thirdly, the same principle, namely, that of setting to rest rights of litigants, applies to the case where a point, fundamental to the decision, taken or assumed by the plaintiff and traversable by the defendant, has not bee....
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....AR explained in detail how the ERP system works and how it generates individual profit and loss account and balance sheet of the Industrial units. In the present business environment and looking to the nature of the business and the size of the operation of the company, it is apparent that it is multi product, multi-location company. The assessee has made a claim of various units, which is submitted before us from Page Nos.974 to 1038 of Paper Book Volume No.IV. The details of this is tabulated as under:- Name of the unit Date of Audit report as per Rule 18BBB Supported by the balance sheet and profit and loss account of the unit Page No. of PB Volume IV Goa Unit 31.01.2012 Yes 974-986 New Tablet Plant-I 31.01.2012 Yes 987-999 New Tablet 31.01.2012 Yes 1000-1012 Plant-II New SCG Plant 31.01.2012 Yes 1013-1025 New Tablet Plant-III 31.01.2012 Yes 1026-1038 79. On examination of the above stated balance sheet and profit and loss account of the above industrial undertaking where the claim of the deduction of the assessee is worked out and certified by the Independent accoun....
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....t talk about maintenance of 'separate books of accounts'. Provisions of section 80IA(7) are as under :- "(7) 38[The deduction] under sub-section (1) from profits and gains derived from an 39[undertaking] shall not be admissible unless the accounts of the 39[undertaking] for the previous year relevant to the assessment year for which the deduction is claimed have been audited by an accountant, as defined in the Explanation below sub-section (2) of section 288, and the assessee furnishes, along with his return of income, the report of such audit in the prescribed form40 duly signed and verified by such accountant." 80. Rule 18BBB of the Income tax rules governing the certificate by an accountant provides as under :- 98"[Form of audit report for claiming deduction under section 80-I or 80-IA or 99[80-IB or section 80-IC]. 18BBB . (1) The report of the audit of the accounts of an assessee, which is required to be furnished under sub-section (7) of section 80-IA or sub-section (7) of section 80-I, except in the cases of multiplex theatres as defined in subsection (7A) of section 80-IB or convention centres as defined in sub-section (7B) of sec....
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....The Assessing Officer found that the assessee had not maintained a separate trading and profit and loss account for the goods manufactured. In the assessment year in question, it appears that the assessee had sold raw wool, wool waste, textile, and knitting cloths. When a query was raised, the assessee contended that, business exigencies in the assessment year in question, it had sold the above items. However, according to the assessee, the sale of raw wool, wool waste, etc., would not disentitle it from claiming the benefit under section 80IA of the Act on the total sum of Rs. 51,82,666/- at the rate of 30%. Department found that the assessee has not maintained the accounts for manufacture of yarn actually produced as a part of industrial undertaking. Consequently, the Assessing Officer worked out, on his own, the manufacturing account, as indicated in his Order, giving a bifurcation in terms of quantity of raw wool produced. On Appeal before hon'ble court it was held as under :- "4. In our view, the findings given by ITAT and the High Court are findings of fact. In this case, we are not concerned with the interpretation of Section 80IA of the Act. On facts, we find t....
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....loppy, disc, tape or any other form of electromagnetic data storage device;]' On reading of the above, it is apparent assessee has maintained separate books of accounts, which are on the SAP ERP system, which provides transaction-bytransaction ledgers, daybooks, cashbooks, and other books such as quantitative details and stock registers. The Ld. AO was of the view that as the books of accounts are maintained for the entity as a whole, it has not maintained separate books of accounts for the eligible industrial undertaking. It will further be appreciated that the primary purpose of maintaining separate books of account in any provision of the Act is only to enable the assessing officer to verify that deduction under any particular provision has been correctly computed. If from any system/ software, identified and separate accounts relatable to any particular unit/ undertaking are discernible and are capable of being generated, the same, in our view, is sufficient compliance with the requirement of maintenance of separate books of account, if any. However, it is to be noted in present era of technological evolution that old age notions of the maintenance of accounts and ....
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....and a certificate, as required, has been filed. This being so, the Assessing Officer has erred in holding that separate accounts were not maintained for the eligible business and that the assessee is, therefore, not eligible for deduction u/s. 80IB(10) of the Act." 83. Addressing the next arguments of the revenue that there are certain items of other income, which are reduced from the computation of total income then the manufacturing activity results in loss. For this, proposition LD. DR drew our attention to page no 51 of the assessment order where ld. AO has stated that assessee has earned Royalty Income of Rs. 18.91 Crs, (ii) export Incentives of Rs. 78.93 crores, (iii) sundries and miscellaneous income Rs. 33.74 Cr and Income from trading activity of Rs. 94.25 Crores totalling to Rs. 225.83 Crs. It was stated that the gross total income of the assessee is Rs. 178.64 Crores and if the above stated income are excluded i.e. of Rs. 225.83 Crores the total income of the assessee will result in to loss and therefore there is no profit in manufacturing activity of the assessee and hence no deduction is allowable to the assessee. On this aspect we have carefully perused the c....
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....f such head office expenses to the individual undertakings based on sales. This method of allocation has been consistently followed by the assessee since commencement, which is duly certified by the auditors and accepted in the assessments completed in the past. We do not find any irrationality in the al above allocation keys adopted by the assessee firstly and for the reason that it has been accepted by the revenue in past it cannot be disputed now in subsequent years without there being any change in the facts and / or law. Honourable Delhi high court in the case of EHPT India (P.) Ltd.(supra) where in allocation of expenses based on head counts and turnover is upheld to stress that there is no bar in law for common expenses to be allocated on a scientific/ rational basis to the eligible unit has held as under :- '10. The provisions of sub-section (4) of section 10A, relied upon by the Assessing Officer, apply for the purpose of segregating the profits of the business into export profits and domestic profits. It is a statutory formula for ascertaining what are profits derived from the export of the eligible items. It has to be read with sub-section (1). It says that ....
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....f the assessee was that the method adopted by him has been consistently accepted in the past and there was no justification for any departure. Accepting the submission, the Supreme Court held as under: "As stated above, we are concerned with the assessment years 1991-92 to 1997- 98. In the past, the Department had accepted the completed contract method and because of such acceptance, the assessee, in these cases, have followed the same method of accounting, particularly in the context of chit discount. Every assessee is entitled to arrange its affairs and follow the method of accounting, which the Department has earlier accepted. It is only in those cases where the Department records a finding that the method adopted by the assessee results in distortion of profits, the Department can insist on substitution of the existing method. Further, in the present cases, we find from the various statements produced before us, that the entire exercise, arising out of change of method from the completed contract method to deferred revenue expenditure, is revenue neutral. Therefore, we do not wish to interfere with the impugned judgment of the High Court." In the light of the ....
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....ucts and final products are sold in the open market. Sales of each of the unit are accounted in the profit and loss account by the appellant of that unit. It is not pointed out before us that what is the material or services that has not been accounted for by the assseess as sales and it is not at the market rate and what is the market rate of such product or services sold by those units. It is emphatically stated that there is no inter unit transfer of the goods or services. In view of the above, we do not have any option but to reject the objection of the revenue of invoking section 80 IA (8) of the Act on this issue. 87. It is one of the contention of revenue that selling and distribution activity is itself a separate profit center and therefore whatever services have been provided by the selling and distribution arm of the company to the eligible undertaking should have been charged and reduced from the profit of the industrial undertaking after valuing service of selling and distribution arm of the company at market rate. At present assessee has allocated it at cost. Therefore, ld. AO has invoked provisions of section 80 IA (8) of the act. It is not dispute that that ....
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....arketing division of the assessee-company and the sale price was noted by the Baddi Unit as per the final sale price of the product. But the fact is that the marketing divisions and the C&F are involved, therefore the sales are realized by the main marketing division. He has thus pleaded that the profit derived from "marketing function" cannot be dragged to the manufacturing unit for the purpose of claiming deduction u/s.80IC. The Special Provision is confined to certain Undertakings, as defined in the Statute, and such eligible undertakings are entitled for the deduction of the profit of such undertakings only. He has again drawn our attention that the only source of income should be the eligible source of income and not other sources of income, such as, profits of marketing division or profits on account of established brand. For the allocation of profit of manufacturing unit the mandate is very clear because Income Tax Rule, 1962 contains Rule 18BBB wherein as per sub-rule(2) a separate report is to be furnished by each undertaking and that report shall be accompanied by a profit & loss account and balance-sheet of that Undertaking as if the Undertaking is a distinct entity. He ....
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....#39; but all type of 'profits & gains' may not be an 'income' for tax purpose under the Act. The section in controversy i.e. Sec. 80 IC of the Act is embedded with both these terminology, reproduced verbatim :- "80IC (1) Where the gross total income of an assessee includes any profits and gains derived by an undertaking or an enterprise from any business referred to in sub-section (2), there shall, in accordance with and subject to the provisions of this section, be allowed, in computing the total income of the assessee, a deduction from such profits and gains, as specified in sub-section(3)". 10.2 The 'business' is prescribed in sub-section (2) in the following manner : (2) This section applies to any undertaking or enterprise (a) which has begun or begins to manufacture or produce any Article or thing ......... Therefore, 'manufacturing' is the first criteria for the eligibility of the 'business' to qualify for the deduction. Hence the 'profits' are required to be derived from a manufacturing undertaking which is producing the specified article. That 'profit' is inclusive in the &....
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....n manufacturing of certain article or thing. The business of the said enterprise/concern should be manufacturing of article or thing and the profit therefrom is eligible for deduction u/s.80IC if that profit is part and parcel of the gross total income. As noted hereinabove, profit is the difference between the purchase price and the cost of production along with the cost of bringing the product to market. This basic principle of accountancy, as appeared, have been adopted by Baddi Unit because as per Profit & Loss account, cost of material, personal cost and general expenses, corporate expenses were reduced from the sale price to arrive at the "profit before tax" i.e. Rs. 116,82,91,400/-. 10.3 It is not in dispute that for Baddi Unit the assessee has maintained separate books of accounts and therefore drawn a separate profit and loss account. In such a situation, whether the AO is empowered to disturb the computation of profit, is always a subject matter of controversy. From the side of the assessee, reliance was placed on Addl. CIT v. Delhi Press PatraPrakashan [2006] 10 SOT 74 (Delhi) (URO). In this case, the assessee was claiming deduction u/s.80IA in respect of a Unit....
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....dia operation and the AO had found that on the basis of global accounts the profits were determined on sales. In that case, marketing was said to be the primary activity for earning profit. The profit was directly due to operation in India. In that context the word "attributable" was considered and then it was held that such part of the income as it was reasonably attributable to the operations carried out in India is taxable. The expression "business connection" was also considered and then it was found that it will include a person acting on behalf of a non-resident and carried on certain activities is having business connection. A business connection has to be real and intimate and through which income must accrue or arise whether directly or indirectly to the non-resident. On those facts, since it was found that R&D activities were carried out by the assessee, therefore, 15% of the profit was allocated to the R&D activities and balance of the profit was attributable to the marketing activities in India. The said decision was entirely based upon the connectivity of the marketing operations with the profits. The CBDT Circular No.23 of 1969 dated 23/07/1969 was also taken into acc....
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....ofit, then it was not reasonable on the part of the Revenue Department to further reallocate those expenses by curtailing the percentage of eligible profit. 10.6 From the side of the Revenue, ld. Special Counsel has argued that in terms of the provisions of section 80IA(5) the deduction is to be computed as if such eligible business is the only source of income of the assessee. According to him, the manufacturing profit was the only source of income and that alone should be accounted for in the P&L account to claim the deduction u/s.80IC of the Act. Ld. DR has explained that as per the view of the A.O. up-to 80% of the profit was the result of efficient marketing net work plus due to the brand name of the company. Only 6% was the manufacturing profit, per A.O. It is true that section 80IC does recognized the provisions of section 80IA. Refer, Sub-section (7) of section 80IC which prescribes as follows:- "Section 80IC(7) : The provisions contained in sub-section (5) and sub-sections (7) to (12) of section 80IA shall, so far as may be, apply to the eligible undertaking or enterprise under this section." Due to this reason, our attention was drawn on the pro....
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....by recording internal transfer of the product from Baddhi Unit to the head office marketing unit and that too at arm's length price. From the side of the appellant an argument was raised that what should be the arm's length price in a situation when a product is ultimately to be sold in the open market. Whether the AO is suggesting that an imaginary line be drawn to determine the profit of the Baddi Unit at a particular stage of transfer of products. Definitely a difficulty will arise to arrive at the sale price as suggested by AO on transfer of product from Baddi to head office. What could be the reasonable profit which is to be charged by the Baddi Unit will then be a subject of dispute and shall be an issue of controversy. On the contrary, if the sale price is recorded at the market price, which is easily ascertainable, that was recorded in the Baddi Unit account, the scope of controversy gets minimal. Rather, the intense contention of the Ld.AR is that the facts of the case have explicitly demonstrated that the goods manufactured at Baddi Unit were transported to various C&F agents across the country for sale purpose. Therefore, the eligible business is the manufacturin....
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.... an inference by describing these two words and thus have precisely noted that 'eligible business' has a different connotation which is not at par or identical with the "eligible profit". The matter we are dealing is not the case where business as a whole is transferred. This is a case where manufacturing products were sold through C&F in the market. Even this is not the case that first sales were made by the Baddi Unit in favour of the head office or the marketing unit and thereupon the sales were executed by the head office to the open market. Once it was not so, then the fixation of market value of such good is out of the ambits of this section. If there is no inter-corporate transfer, then the AO has no right to determine the fair market value of such goods or to compute the arm's length price of such goods. The AO has suggested two things; first that there must be inter-corporate transfer, and second that the transfer should be as per the market price determined by the AO. Both these suggestions are not practicable. If these two suggestions are to be implemented, then a Pandora box shall be opened in respect of the determination of arm's length price vis a vis ....
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....n divisions or units is not regarded as Revenue for the purpose of such financial reporting. As per the Accounting Standards an Enterprise Revenue ignores in house-sales that represent Revenue to one segment and Expense to another. In this connection, the AO has discussed the Hon'ble Supreme Court decision pronounced in the case of Liberty India (supra). The AO wanted to justify his attempt of segmentation on the basis of the theory that only the profits derived due to manufacturing activity can be said to be derived from eligible undertaking. It was contested by AR before us that the "segment reporting" is about the segregation of business and not about the segregation of any specific activity. In the case of Liberty India (supra) it was observed that the IT Act broadly provides two types of tax incentives, namely, investment linked incentives and profit linked incentives. The Court was discussing Chapter VIA which provides incentive in the form of tax deductions to the category of "profit linked incentives". The incentive is linked with generation of 'operational profit'. Therefore, the respected Parliament has confined the grant of deductions only derived from eligib....
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....ax just in the same way as it chargeable to income-tax under the Indian IT Act. The whole of his income arising in Raichur has legitimately been taxed under that Act. In that decision also, the word "business" was defined, i.e. business includes any trade, commerce or manufacture. It has also been said that all businesses, to which the said law applied, carried on by the same person shall be treated as one business for the purpose of the said Act. The question was about the manufacturing activity and it was contended that if a man is a manufacturer as well as a seller of goods, then in his case the term "part of a business" means carrying on all the two activities together and therefore constitute the part of the business. One of the Hon'ble Judges has said that the activities which the assessee carried on at Raichur was certainly a business of the assessee. On one hand, it was argued that the accrual of profit must necessarily be at the place where the sale proceeds are received or realized. But on the other hand, it was argued that the profits received relate (i) firstly to his business as a manufacture, (ii) secondly to his trading operations and (iii) thirdly to his busines....
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....proviso to section 5 of EPT Act. The said proviso was duly a reproduced in para-40 of the order and for ready reference typed below:- "Provided further that this Act shall not apply to any business the whole of the profits of which accrue or arise in an Indian State, and where the profits of a part of a business accrue or arise in an Indian State, such part shall, for the purposes of this provision, be deemed to be a separate business the whole of the profits of which accrue or arise in an Indian State, and the other part of the business shall, for all the purposes of this Act, be deemed to be a separate business." The point for consideration was that whether on those facts the third proviso to section 5 could be invoked. The manufacturing activity of making ground-nut oil was carried out at Raichur (Hyderabad) which was treated as a separate business within the meaning of the said proviso and thereupon it was claimed as exempt being carried out within the territorial jurisdiction of Indian State. So the Court has observed that to succeed in their claim, it is incumbent upon the assessee to show that there was in fact a part of a business and that the profit had a....
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....his section to accrue or arise in Bombay will only be the profits which may reasonably be attributed to that part of the operations carried on in Bombay, that is to say, to sale of part of its oil in Bombay. In this context, an observation was made that a trade is completed at a place where a business transaction is closed. Profits of a business are undoubtedly not "received" till the commodity are sold and they are ascertained only when the sale take place. This aspect has not been doubted or challenged even in the said order. But in the said order the question was that if a part of a business consisted of manufacturing activity and that activity can be segregated so as to compute the yield profit, then whether such profit accrue only at the place where the manufacture are sold. To answer this question, the Hon'ble Court has commented in para-49 that there was no express direction as to apportionment in the third proviso to section-5 of EPT Act. The opinion expressed was very specific that a profit can accrue in respect to that part of a business only when apportionment is possible. The Hon'ble Court has said that only on the said assumption that apportionment was possible....
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....se no fallacy or mistake was detected in the books of accounts of Baddi Unit prepared on stand alone basis through which the only source of income/profit was the manufacturing of the specified products. We therefore hold that the AO's action of segregation was merely based upon a hypothesis, hence hereby rejected. These two grounds Nos.6 & 7 are allowed." We have carefully perused this decision and note that the controversy in this ground of appeal with respect to applicability of section 80 IA (8) of the act, on marketing and other selling distribution as well as research and development services provided by the undertaking as a whole to the eligible industrial undertaking at the cost or market rate for working out the eligible profit for deduction, has been decided. Ld. DR could not point out any other contrary judgment to the decision cited by the Ld. AR. Therefore, we respectfully following the above decision of coordinate bench hold that provisions of section 80IA(8) of the act does not apply to the assessee on transfer of services of marketing division of the company to the eligible industrial undertaking whose profits are claimed as deductible. 88. Furt....
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....6 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-IA(7) would be complied with inasmuch as the same are directory and not mandatory. A similar view would have to be taken in the present case also inasmuch as the provisions are the same. Consequently, we do not find any fault with the conclusions arrived at by the Tribunal. No substantial question of law arises for our consideration. The appeal is dismissed." [Underline supplied by us] In this case, appellant has already filed the audit report and the profit and loss account of the units however; the profit and loss account was filed before ld. DRP but in any way available with ld. DRP and Ld. AO at the time of finalization of the assessment order. In the decision cited before us HonourableDelhi high court has held that even if the audit report is not filed then also the deduction cannot be denied if same is filed before finalization of assessment. Therefore case of the assessee stands on the better footing. No other contrary decision was put before us by revenue. Hence, we do not wish to agree to the contention of the reven....
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....ment 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 made applicable to the assessee. The Court held that the subject-matter of the appeal before the Tribunal was the question as to what should be the proper written down value of the assets for calculating the depreciation allowance under the Indian Income-tax Act. It was certainly open to the department, in the appeal filed by the assessee before the Tribunal, to support the finding of the AAC with regard to the written down value on any of the grounds decided against it. In the case before the Supreme Court, earlier enactment was to be referred to, whereas in the present case only a different provision of the same enactment has to be considered. Therefore, I see no reason as to why the plea of the ld. D.R. cannot be accepted. In the present case, of course, the department is the appellant unlike in the case of Hukumchand Mills Ltd. (supra). But, in my view, it makes no difference. The department is aggrieved by the deletion of disallowance of expenditure which disallowance was made under one particular provision....
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....t 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 the Tribunal's powers. That case, indeed, was a case where the new plea raised by the department before the Tribunal could not be considered without a further investigation into facts. Nevertheless, the Tribunal entertained the plea, and remitted the case to the ITO for the ascertainment of the relevant facts. The Supreme Court, in their decision upheld not only the Department's new plea, but also the Tribunal's order of remand based on the new plea." In the light of the above discussion, I agree with the view taken by the ld. J.M. to hold that the plea raised by the ld. D.R. is to be accepted and the matter is to be remanded to the Assessing Officer for considering the claim of the assessee for claiming deduction of unaccounted expenditure under section 37(1) of the Act.' In the above case the issue as set aside to the file of the ld. AO to decide and examine the facts in the course of hearing before the Tribunal, the revenue raised a fresh plea that th....
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....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 reversed by the ITAT as discussed above. In view of the above discussion and following the order of the ITAT Delhi in which the deduction claimed by the assessee under section 80IB/80IC was completely allowed based on reasoning discussed above. Hence the ground of appeal of the assessee was allowed. 59. The issue raised by the assessee in the ground no. 11 is that the Ld. DRP erred in disallowing the mark to market loss of Rs. 3,331.61 crores suffered by the assessee for protection of currency fluctuation. 60. At the outset, the ld. AR before us submitted that he had been instructed by the assessee not to press ground no. 11 as discussed above. Therefore we dismiss the same as not pressed. 61. The issue raised by the assessee in ground no 12 is that the Ld. DRP erred in enhancing the book profit by Rs. 1431,63,20,000/- while computing the book profit u/s 115JB of the Act by treating the mark to market loss as contingent in nature. 62. At the outse....
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....rvation, 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/- only being W.D.V as on 31st March 2008. Accordingly the balance amount of consideration of Rs. 4,04,09,483/-(5,07,00,000-1,02,90,517) was treated towards the land. Accordingly, the AO worked out the LTCG in respect of the land at Rs. 3,90,43,961/- only. 64.6. The AO accordingly increased the W.D.V. of the building by the amount of Rs. 3,98,68,521/- i.e.(5,01,59,038-1,02,90,517) and allowed depreciation @10% amounting to Rs. 39,86,852/-. Accordingly the W.D.V of building as on 31st March 2009 was worked out at Rs. 3,58,81,669/- i.e. (3,98,68,521-39,86,852) only. 65. The aggrieved assessee preferred an appeal before the Ld.DRP. 65.1. The assessee before the Ld. DRP filed a valuation report obtained from the approved valuer. In the valuation report, the assessee claimed that such apportionment of sale consideration had been arrived from the value as per the Audited Financial statement as well as Tax Audi....
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....dred 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 circumstances. But in the present case, no such exceptional circumstances were brought to our notice by the assessee. Therefore, we disagree with the value adopted by the assessee for the land and the building. But we also note that the AO has also not brought any reasonable basis for allocation the sale proceeds as discussed. To our mind, he should have referred the matter to the DVO for the valuation of the land and building for the allocating the sale proceeds, but he failed to do so. After considering the facts in totality, we allocate the sale value of the building as discussed above. Hence the ground of appeal of the assessee is partly allowed. 71. The issue raised by the assessee in ground no 14 is that the AO/DRP erred in treating the non-competent fee as capital in nature instead of revenue expenditure. 72. At the outset, the ld. AR b....
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....alt 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 provision which was contingent in nature and it has not been crystallized during the previous year because the Assessee approached the Delhi High Court challenging the stipulation in the Drug Price Control Order. There was interim stay in favour of the Assessee. Eventually that Writ Petition was allowed. The order of the Delhi High Court was challenged in the Honourable Supreme Court by the Revenue and the Revenue succeeded. The Assessing Officer and the Commissioner concurrently held that the Assessee was entitled to the deductions only in the year in which the liability was actually accruing and the amount was payable. Since there was interim stay the Authorities took the view that as and when the liability is actually incurred or discharged that the deduction could be claimed. Such concurrent view should not have ....
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....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 adjudicating thereon is an injustice to the claim to which the assessee is eligible. In view of this, we direct the Ld. AO to verify the claim and, if found in accordance with the decision of Honourable Bombay high court it may be allowed. Ground No 14 of appeal is allowed. 77. In view of the above order of ITAT Delhi, we are taking a similar view in the ground raised by the assessee before us. Hence the ground of appeal of the assessee is allowed with direction to AO for fresh adjudication as per the provision of the law. Hence the ground of appeal of the assessee is allowed for statistical purposes. 78. The issue in the ground no. 17 is that the Ld.AO/DRP erred in not adjudicating the issue of adjustment of exchange fluctuation on external commercial borrowings, hedging contracts and hedging ....
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....ct. 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 18 on disallowances / additions made by the AO / DRP. 3. That on the facts and circumstances of the case and in law, the AO has grossly erred in assessing the income at Rs. 2209,94,87,026 under the normal provisions and at Rs. 3393,89,47,810 u/s 115JB of the Act as against income of Rs. 20,11,96,824 and Rs. 3389,00,45,036 under normal provisions and section 115JB of the Act respectively declared by the assessee. 3.1. That the DRP erred on facts and in law in confirming the additions/ disallowances proposed in the draft assessment order passed by the AO, without judiciously considering the factual and legal objections filed against the said order. 3.2. That the DRP erred on facts and in law in not directi....
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....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 AO/DRP failed to appreciate that since the payments had already been made during the year under consideration and nothing was payable as at the end of the relevant year, the provisions of section 40(a)(ia) of the Act were not applicable. 6.4 Without prejudice, that the AO/DRP further failed to appreciate that since the payments were not taxable in the hands of RCHS, there was no warrant to make any disallowance under the provisions of section 40(a)(ia) of the Act. 6.5 Without prejudice, that the AO/DRP erred on facts and in law in resiling from the position taken in earlier years and not even allowing deduction in respect of ....
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....ustment, 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 year under consideration and merely relying on the findings for assessment years 2008-09 & 2009-10. 9.2 That the DRP erred in law in not directing the AO to allow the deduction u/s 80-IB & 80-IC of the Act though holding that issue of deduction is relevant only in the first year and none of the undertaking(s) were in the first year of operation/deduction. 9.3 That the DRP erred on facts and in law in holding the issue of disallowance of deduction under sections 80-IB & 80-IC to be academic, without appreciating that disallowance of....
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.... 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 assessee while filing the return of income. 10.5 Without prejudice, even otherwise, addition in respect of MTM gain, if at all, should be restricted only to the net gain, after adjustment of losses. 11. That the AO/DRP erred on facts and in law in disallowing Rs. 86,39,727, being the amount of non-compete fee paid by the assessee in the assessment year under consideration, by treating the same as capital in nature. 12. That the AO/DRP erred on facts and i....
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....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 in ground no 4 is that the LD. AO/DRP erred in treating the assessee as a tested party instead of AEs as the tested party. 85. An identical issue has been considered and decided by us in Assessee's appeal vide ITA No. 1782/DEL/2014 in the ground no. 2 to 4 vide Para no 10 of this order by allowing the same for statistical purposes. Please refer the relevant Para for our detailed dis....
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....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 created by the assessee for Rs. 3331.61 crores on account of MTM loss in the immediately preceding assessment year 2009-10 which was not allowed as a deduction in the assessment framed under section 143(3) r.w.s. 144C of the Act vide dated 30-1-2014 under normal computation of income. Similarly the provision for Rs. 1431.63 crores were treated as a contingent liability while dete....
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....ss 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 crores was suffered to tax under section 115JB of the Act in the immediate preceding AY 2009-10 whereas it has been written back in the year under consideration for Rs. 1969.13 crores. Thus the difference between amount of provision disallowed under section 115JB of the Act in the immediate preceding assessment year 2009-10 viz a viz the amou....