TaxTMI 
TaxTMI 
2020 (5) TMI 531
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....- crores for the Taloja Plant as NIL inter alia holding that the plant had received patented technology and support for manufacturing of float glass from Asahi Glass Company, Japan in lieu of royalty payment and no independent company which provide such services free of charge. 2. In deleting the addition amounting to Rs. 84,93,675/- made on account of provision for gratuity to book profit as per provision of section 115JB of the Income Tax Act 1961." 3. Appellant, M/s. Asahi India Glass Limited (hereinafter referred to as 'the taxpayer') by filing the present appeal sought to set aside the impugned order dated 03.02.2014 passed by the ld. Commissioner of Income-tax (Appeals)-XX, New Delhi in an appeal challenging the orders passed by the ld. TPO/AO qua the assessment year 2008-09 on the grounds inter alia that :- "1. That the learned OT(A) erred on facts and under the law in upholding the action of the assessing officer in making disallowance of Rs. 963964/- u/s 14A read with Rule 8D of the IT Rules under the normal provisions of the IT Act and u/s 115JB. No nexus between the interest paid on borrowed funds and tax free income was established by the authorities below. At an....
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....nsactions with its AE as under :- International Transaction Automotive Float Method Purchase of raw material 66.7 - TNMM Import of stores & machinery spares 8.94 0.076 TNMM Import of clear float and reflective glass - 4.17 TNMM Purchase of Capital Goods 44.53 - TNMM Import of refractories bricks & machinery - 34.61 TNMM Royalty for use of technical knowhow 4.29 14.65 TNMM Fee for Technical consultancy services, repair & maintenance, exhibition, engineering services 3.3 7.15 TNMM Commission Income on Sales - 1.33 TNMM 7. The taxpayer in order to benchmark its international transactions used Transactional Net Margin Method (TNMM) with Operating Profit/Sales (OP/Sales) on an entity-wise basis as the Profit Level Indicator (PLI) as the Most Appropriate Method (MAM), chosen 5 comparables having margin of 2.5% as against taxpayer's margin of 9.76%. To demonstrate arm's length nature of its royalty payment, taxpayer had adopted comparable rate for Sona Koya Steering Ltd. at 3%. However, TPO considered it expedient to analyze both the segments viz. float glass and automotive glass segments and called for segmental result of th....
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....d that licence technology availed by the taxpayer from AGC Japan has failed to generate any economic value for taxpayer's business and thereby reduced the amount to Rs. 2,20,00,000/- on account of royalty to nil by using CUP method. Detail of royalty payment made by the taxpayer in its float glass division is as under :- Particulars Amount (INR crores) Patent Details Float Glass (Taloja) 2.22 4940479 Float Glass (Roorkee) 7.16 US 2005/ 0028559 Reflective Glass 3.59 US RE 40, 315E Mirror 0.20 190380 Total 13.17 12. The detail of margin of taxpayer's two plants, namely, Tajola and Roorkee plants for manufacture of float glass is as under :- Particulars Taloja Roorkee Float Glass Segment revenue - - - External 27,250 22,725 49,975 Inter segment sales (Net of excise duty) 1,275 4,445 5,720 Total revenue 28,525 27,170 55,695 Segment result -108 2,240 2,132 Operating Profit / Sales -0.40 9.86% 4.27% 13. It is also not in dispute that from the Tajola plant, the taxpayer makes an operating profit margin of (-) 0.40% thus failed to generate any economic value of the licensed technology to its business. 14. Ld. CIT (A) dele....
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....f the order dated 26.02.2018 passed by the coordinate Bench of the Tribunal in ITA No.2183/Del/2014 goes to prove that identical issue as to determining ALP of royalty paid by the taxpayer company for its Tajola plant of the taxpayer at nil has been decided in favour of the taxpayer by returning following findings :- "46. We have considered the rival arguments made by both the sides, perused the orders of the Assessing Officer and the ld. CIT(A) and the Paper Book filed on behalf of the assessee. We have also considered the various decisions cited before us. We find the TPO made an addition Rs. 4.09 crores to the total income of the assessee by disallowing payment of royalty by the assessee to its AE being at arm's length price. We find the ld. CIT(A) deleted the addition made by the AO/TPO, the reasons of which have already been reproduced in the preceding paragraphs. We do not find any infirmity in the order of the ld. CIT(A) on this issue. We find the assessee before the TPO had given analysis of the comparables with an average/mean margin of 8.66%. The details of which are as under :- Company Name Sales (Cr.) Total cost (TC) (Cr.) Operating Profit (OP) (Cr.) OP/Sales....
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....he general public holding 44.76%, therefore, the AEs were not in a position to wield significant influence over assessee's business as its performance and commercial expediency were subject to intense scrutiny by shareholders of the companies which are listed on BSE and NSE. We further find the Revenue has accepted the royalty paid at the rate of 3% by Sona Steering Systems Ltd. to its AE which is much more than 1.71%. Further, in the immediately preceding year 2006-07, the Tribunal had directed the TPO to include Bharat Glass Tube Ltd. and Triveni Glass Ltd. as comparables. If these two companies are included as comparables, the average margin comes to 1.39% which is much less than the operating margin of 6.02% of the assessee company. 48. We find the Hon'ble Delhi High Court in the case of CIT vs. EKL Appliances Ltd. (supra) has held that the financial health of the assessee could never be a criterion to judge the allowability of an expense. There was no authority for that. So long as the expenditure or payment has been demonstrated to have been incurred or laid out for the purpose of business; it was no concern of the TPO to disallow it on any extraneous reasoning. He was expe....
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....EL/2014) 19. Ld. CIT (A) deleted the addition of Rs. 84,93,675/- made by the AO on account of provision for gratuity to book profit u/s 115JB of the Act. 20. Ld. DR for the Revenue by relying upon the order passed by the AO contended that when the provision for gratuity has been made on the basis of actuarial and actual payment of gratuity is deferred to a later date on the happening of a certain event, namely, death or voluntary retirement of the employees which are unascertained events, the provisions made by the taxpayer is for ascertained liability, AO has rightly added back the same to the book profit of the taxpayer u/s 115JB of the Act. 21. However, on the other hand, ld. AR for the taxpayer contended that this issue has also been decided by the Tribunal in favour of the taxpayer by dismissing the appeal filed by the Revenue in AY 2007-08 in ITA No.2183/Del/2014 vide order dated 26.02.2018. 22. Undisputedly, identical issue has been decided by the coordinate Bench of the Tribunal in taxpayer's own case for AY 2007-08 (supra) by returning following findings :- "52. After hearing both the sides, we do not find any infirmity in the order of the ld. CIT(A). It is an admitt....
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....by the ld. CIT (A). 25. Ld. AR for the taxpayer challenging the impugned order passed by the ld. CIT (A) contended that since the taxpayer has suo motu disallowed an amount of Rs. 2,96,016/- u/s 14A of the Act on account of expenses incurred to earn the dividend income of Rs. 7,47,820/-, no further disallowance can be made as the AO has not recorded any satisfaction if the working given by the taxpayer is not correct and relied upon the decisions rendered by Hon'ble Supreme Court in Godrej & Boyce Co. Ltd. vs. DCIT 394 ITR 449 and Hon'ble Delhi High Court in the cases of CIT vs. Taikisha Engineering India Ltd. 370 ITR 338, CIT vs. Hero Management Service Ltd. 360 ITR 68 and Maxopp Investment Ltd. vs. CIT 347 ITR 272. 26. Ld. AR for the taxpayer further contended that the issue as to the similar disallowance made in the preceding year for 2007-08 has been restored to the AO by the Tribunal vide order dated 26.02.2018 (supra). Keeping in view the request made by the ld. AR for the taxpayer, we are of the considered view that this issue is also required to be restored to AO to decide afresh in view of the decision relied upon by the ld. AR for the taxpayer referred in the preceding ....
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....ion in the value of foreign currency held by it, on conversion into another currency, such profit or loss would ordinarily be a trading profit or loss if the foreign currency is held by the assessee on revenue account or as a trading asset or as a part of circulating capital embarked in the business. But, if on the other hand, the foreign currency is held as a capital asset or as fixed capital, such profit or loss would be of capital nature(emphasis supplied)" 57. At the end we may further observe that when profits are being taxed by the department in respect of such unmatured forward foreign exchange contracts then there was no reason to disallow the loss as claimed by assessee in respect of same contracts on the same footing. In this regard, we may refer to the details furnished by assessee vide their letter dt. August 05, 2010 to establish that the Department has assessed the Bank in respect of the profit shown by the Bank on restatement of outstanding forward foreign exchange contracts for A.Ys.2002-03 and 2003- 04. There is no dispute on this count and, therefore, we refrain from referring the details. 58. In view of the above discussion, we allow the assessee's appeal for....
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....sonable certainty. So, we are of the considered view that disallowance of Rs. 16,70,000/- is liable to be deleted, hence deleted. Ground No.2 is determined in favour of the taxpayer. GROUND NO.3 OF ASSESSEE'S APPEAL (ITA NO.1638/DEL/2014) 33. Ld. CIT (A) confirmed the disallowance of Rs. 39,09,11,373/- on account of foreign currency gain on the ground that taxpayer did not furnish any supporting document in respect of its claim to prove that the gain of reinstatement of liability of Foreign Currency Loan - External Commercial Borrowing taken for acquiring capital goods by applying the provisions contained u/s 43A of the Act. 34. Undisputedly, the taxpayer has raised External Commercial Borrowings (ECB) OF us $ 153 million during the AY 2006-07 which were utilized for importing the machinery and payment thereof was to be made primarily after 3 years meaning thereby no payment in respect of such ECB was made during the year under assessment and as such, the same was reinstated at the foreign currency rate as on 31.03.2008. The taxpayer has duly given the break-up of foreign currency gain of Rs. 52,43,15,371/- in para 13 of letter dated 21.11.2011, available at pages 131 to 135 o....
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....the cost of the fixed asset. Since in the instant case, the exchange gain is derived only on a notional basis and is unrealized, by applying the provisions of section 43A of the Act, the said gain needs to be reduced from the taxable income. We also find that the Learned Assessing Officer having accepted to the facts of the case and the relevant provision of the Income Tax Act in his remand report, ought not to have come on appeal before us on this issue. We also find that this issue is covered by the decision of the Supreme Court in the case of CIT vs Woodword Governor of India P Ltd reported in 312 ITR 254 (SC) wherein the principles were laid down for recognition of exchange gain/loss under various circumstances. Respectfully following the provisions of the act and the decision of the apex court, we are not inclined to interfere with the decision of the Learned CIT(Appeals). Accordingly, the ground no. 1 raised by the revenue is dismissed." 38. So, following the order passed by the coordinate Bench of the Tribunal on identical facts, the addition of Rs. 39,08,11,373/- on account of reinstatement of foreign currency loan is not sustainable, hence ordered to be deleted. So, gro....