TaxTMI 
TaxTMI 
2019 (11) TMI 147
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.... foreign currency at Rs. 1,52,82,274/-, addition due to attribution of staff salary to SEZ units at Rs. 2,07,68,143/- and disallowance u/s 40(a)(ia) at Rs. 26,04,156/-. Aggrieved assessee preferred appeal before Ld. CIT(A) and succeeded. 3. Now aggrieved revenue is in appeal before the Tribunal raising following grounds of appeal; On the facts and in the circumstances of the case the Ld. CIT(A):- 1.Whether on the facts and in circumstances of the case the Ld. CIT(A) has erred in summarily deleting the addition of gain from foreign currency made at Rs. 1,52,82,274/- holding, in a summary manner that the same is business income, without giving any factual finding regarding the details and nature of receipt of foreign income fluctuation. 2. On the facts and in the circumstances of the case the Ld. CIT(A) has erred in deleting the proportionate addition of Rs. 2,07,68,143/- made on account of attribution of common salary of staff to the SEZ Units, without giving any factual finding, despite the fact that neither the assessee has disallowed such expenses in the return of income nor filed the details of such expenses disallowable, despite sufficient opportunities given by the AO ....
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....other sources. 3.4 That this income was rightly been shown as business income as the gain/loss from foreign currency fluctuation was arising during the course of business and was incidental to business. It was not the case that the assessee was involved in foreign currency transaction separately. Rather the gain in foreign currency fluctuation was outcome of business activity. 8. Ld. Counsel for the assessee placed reliance on the judgment of Hon'ble Supreme Court in the case of Sutlej Cotton Mills Ltd vs. CIT reported in 116 ITR 1 and relying on this judgment, learned CIT(A) has rightly held that this item partake the character of business income and prayed for allowing the claim. 9. Per contra Ld. Departmental Representative vehemently argued supporting the order of Ld. A.O. 10. We have heard rival contention and perused the records placed before us. Grievance of the revenue is against the deletion of addition of foreign exchange fluctuation ain of Rs. 1,52,82,274/-. Ld. A.O treated it as "income from other source" not eligible for exemption u/s 10AA of the Act as not directly related to the business of the assessee. 11. Ld. CIT(A) deleted the impugned addition observin....
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....Zone units running at Hyderabad and Pune. Therefore the issue is squarely covered by the judgment of Hon'ble Supreme Court in the case of Sutlej Cotton Mills Ltd (supra) and the Ld. CIT(A) has rightly deleted the addition treating the amount as part of relief eligible for exemption u/s 10AA of the Act. Even otherwise the assessee is required to pay tax on the book profit u/s 115JB of the Act and the alleged amount has already been added in the book profit and thus subjected to tax. This fact has also been highlighted in the finding of Ld. CIT(A). We therefore in the facts and circumstances of the case and respectfully following the judgment of Hon'ble Supreme Court, find no reason to interfere in the finding of Ld. CIT(A). Accordingly Ground No.1 of the revenue stands dismissed. 14. Now we take up Ground No.2 & 3 of the revenue wherein the issue relates to disallowance of salary expenditure of Rs. 2,07,68,143/- alleged to have been wrongly claimed by the assessee as part of Non SEZ units. Brief facts relating to this ground are that the Ld. A.O observed that a sum of Rs.. 71,74,65,462/- is debited as salary and wages in the Profit & Loss Account of non SEZ units while the correspo....
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....ce is not made to TPO. However, in such cases, the AO must record in the body of the assessment order that due to the Board's instruction on this matter, the transfer pricing issue has not been examined at all." (iv) That as per provisions of Section 92BA domestic transfer pricing applies where aggregate of such transactions entered into by the assessee in the previous year exceeds a sum of Rs. 5 Crores. In case of the assessee, according to the AO the specified domestic transfer pricing figure is Rs. 3,46,13,572/- which is less than 5 Crores hence the provisions of Specified Domestic Transaction as per Section 92BA does not apply. (b )(i) That even otherwise the AO was factually incorrect in mentioning that 8 employees mentioned are in Non SEZ whereas out of 8 employees, 5 employees' salary is debited in SEZ. The salary debited to SEZ unit comes to Rs. 2,12,90,074/- whereas even according to the AO, the attributable salary comes to Rs. 2,07,68,143/- only. The assessee has, therefore, attributed more salary to SEZ as calculated by the AO. (ii) The addition made of Rs. 2,07,68,143/- is illegal and wrong for the following reasons:- (a) That the AO has no power to deci....
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....rect fact is that out of the 8 employees mentioned by the Ld. A.O, salary of 5 employees already stands debited to the SEZ units and the exemption has been claimed on the profits arrived after deducting the expenses of salary of the 5 employees to whom the total amount of Rs. 2,12,90,074/- was paid. Further the Ld. A.O has made the impugned disallowance without bringing any detail on record so as to prove that the alleged salary was payable in the non SEZ units. The assessee's books of accounts are duly audited and it has bifurcated the salary expenses correctly under non SEZ units and SEZ units. 20. Further in the case of the assessee for the determination of ALP in specified domestic transactions reference could have been made to the TPO but certainly the Ld. A.O has no power to make such disallowance. As per the provision of Section 92BA of the Act for the year under appeal the domestic pricing transfer provisions could apply if the aggregate of such transactions entered into by the assessee in the previous year exceeds a sum of Rs. 5 crores. But in the instant case the specified domestic pricing figure is Rs. 3,46,13,572/- which is less than Rs. 5 crores hence the provision of....
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....tever specifically mentioned in Section 115JB itself. 5.5 Very Interestingly, the AO has added Rs. 3,86,54,573/- while passing order u/s 28 to 44D & 115JB both, but now he is coming in appeal before your honour with one addition only i.e. disallowance of salary expenses. 5.6 Now the AO has come out before Hon'ble Tribunal with the issue of salary only. The addition made by the of Rs. 1,52,82,274/- of foreign exchange fluctuation has been left by him. This shows how confused the AO was while passing the order and while filing the appeal before your honour. 5.7 Now coming to section 115JB(f) referred by the AO, this clause fhas been introduced to add any amount of expenditure relatable to Section 10, Section 11 & 12. Correspondingly clause (ii) has been introduced to reduce the income relatable to Section 10, Section 11 & 12. Hence both there clauses are inserted in section 115JB to give exemption from MAT provisions related to Section 10, Section 11 & Section 12. It is worthwhile to note that section 10AA is not included here. 5.8 That MAT is already applicable on assessee and MAT has already been considered on whole amount. 5.9 Clause F is not the Clause which permits....
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....le commuting the income under Section 115-J has only the power of examining whether the books of account are certifies by the authorities under the Companies Act as having been properly maintained in accordance with the Companies Act. The assessing officer thereafter has the limited power of making increases ana reductions as provided for in the Explanation to the said section. To put it differently, the assessing officer does not have the jurisdiction to go behind the net profit shown in the profit and loss account except to the extent provided in the Explanation to Section 115-J." (ii) Hon'ble High Court of Calcutta in the case of Commissioner of Income Tax vs. Binani Cement Ltd. reported in 95 CCH 0186 KolHC held as under :- "Disclosure made in financial statements which is not to be construed as any qualification indicating any inaccuracy in the accounts. There was, thus no mistake on the part of the assessee in debiting the loss to the profit and loss account. Apex Court in Apollo Tyres (supra) held that Assessing Officer while computing the income under 115-J has only the power of examining whether the books of account are certified by the authorities under the Compan....
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....ovision for doubtful debts under cl. (c) of the Explanation to s. 115JA.-CIT vs. HCL Comnet Systems & Services Ltd. (2008) 219 CTR (Del) 226 affirmed." (iv) Hon'ble High Court of Bombay in the case of Commissioner of Income Tax vs. Adbhut Trading Co. (P) Ltd. reported in 79 CCH 0553 MumHC held as under:- "Once tile accounts including the P&L a/c are certified by the authorities under the Companies Act it is not open to the AO to contend that the P&L a/c has not been prepared in accordance with the provisions of the Companies Act, 1956 and make addition towards book profits under s. 115JB." (v) Hon'ble Supreme Court of India in the case of Malayala Manorama Co. Ltd. vs. Commissioner of Income Tax reported in 76 CCH 0536 ISCC held as under:- "We have heard tile learned counsel for the parties at length and carefully perused the written submissions filed by them. In our considered opinion, the controversy involved in this case is no longer res integra. A three Judge Bench of this Court in Apollo Tyres (supra) has clearly interpreted s. 115J of the 1961 Act. There is no scope for any further discussion." (vi) Hon'ble ITAT Mumbai Bench in the case of Tata Realty & ....