TaxTMI 
TaxTMI 
2019 (4) TMI 1867
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....ejudice to one another : 1. The order passed by the Dispute Resolution Panel (DRP) u/s 144C of the Act is ab initio bad in law and therefore the order passed by the Addl. CIT u/s 143(3) pursuant to the said order of the DRP is also bad in law and should be annulled. Without prejudice to the generality of the above ground, the DRP erred in passing the impugned order u/s 1 44C in violation of the provisions of that section and further erred in not giving the Appellant a reasonable opportunityof being heard in the matter and in passing the impugned order without fully appreciating the submissions made and the material placed before it during the course of the hearing. 2. Expenditure debited to Profit and loss account Rs. 15,33,86,228/- On the facts and in the circumstances of the case and in law the Appellant contends that the learned Addl. C.I.T. erred in proposing and the DRP erred in confirming disallowance of the following sums treating the same as capital expenditure and also further erred in coining to conclusion that these expenses were not incurred for the purposes of the business of the Appellant: No Particulars Amount Amount ....
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....DRP also erred in holding that the liability on account of premium could not be ascertained till the date of redemption of the bonds. The claim of the Appellant be allowed. 4. Provision for Warranties - Rs. 31,03,16,452/- On the facts and in the circumstances of the case and in law the Appellant contends that the learned Addl C.I.T. erred in proposing and the DRP erred in confirming treatment of the provision for warranties made as at 31-03-2009 as inadmissible expenditure on the ground that this provision is in the nature of contingent liability and hence not an ascertained liability. The learned Addl C.I.T/DRP erred in coming to the conclusion that the Appellant had been unable to pass the tests prescribed by the Supreme Court in the case of Rotork India Ltd. The findings of the learned Addl C.I.T/DRP that in view of certain alleged infirmities and deficiencies the liability for warranty was not an ascertained liability, are perverse and, being contrary to facts are bad in law. The Claim of the Appellant be allowed 5. Disallowance U/s.40A(9) Rs. 2,59.650 representing the actual expenses incurred and Rs. 12,00,000/- being contribution to Mahindr....
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....ernate contention of the Appellant in the matter of computation of disallowance u/s 14A accepted in earlier years. The Addl. C.I.T. further erred in proposing and DRP erred in confirming the Investment in Trust as Taxfree Investment while making calculation of disallowance under section 14A read with Rule 8D. The learned Addl C.I.T. ought to have treated the investment in trust as Taxable investment since it is a private trust and income earned therefrom is taxable in the hand of the Trust. 8. Adjustment u/s 92CA(3) to Arm's Length Price of international transaction adjustment of Rs. 4,62,38,658/- On the facts and in the circumstances of the case and in law. the learned Addl C.I.T./TPO erred in proposing and the DRP erred in confirming addition to the income of the Appellant a sum of Rs. 1,25,40,000 being adjustment in respect of corporate Guarantee and Rs. 3,36,98,658 by way of notional interest on the basis of Transfer Pricing Officer's order u/s 92CA on account of the determination of Arm's Length Price (ALP) on international transactions with an Associated Enterprise rejecting the contention of the Appellant that the same was not warranted....
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....e Appellant to claim deduction under the proviso to the section at any subsequent point of time. The addition be deleted. 11. Disallowance of weighted deduction under section35(2AB) Rs. 165,13.63.447/- On the facts and in the circumstances of the case and in law the learned Addl C.I.T. erred in proposing and the DRP erred in confirming disallowance of claim for weighted deduction u/s 3o(2AB) with reference to expenditure of Rs. 165,13,63,447incurred on in-house Scientific Expenditure rejecting the contention of the Appellant that it was entitled to the said deduction and also that non-receipt of form 3CL from DSIR was not determinative of the issue. The learned Addl C.I.T/DRP ought to have appreciated that submission of report in form 3CL was neither the obligation of the Appellant nor within its control and therefore cannot be a ground for sustaining disallowance. The learned Addl. C1T be directed to allow the claim of the Appellant. 12. Disallowance u/s. 40a(ia) of Dealer Incentive Rs. 128,09.72,000/- and Service Coupon Rs. 38,92,51,000/- On the facts and in the circumstances of the case and in law the learned Addl C.I.T. erre....
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....difference between rent received by Ridge Business Centre P.Ltd from a third party and the amount of Rent received by the Appellant from Ridge(Rs. 20.37 Cr - Rs. 1.68 Cr) . Both on facts and in law the addition made by the learned Addl. CIT/DRP is bad in law and be deleted. The learned Addl C.I.T. be directed to delete the addition made by him. 16. Disallowance of deduction for Difference in Exchange of Rs. 251.63 crores On the facts and in the circumstances of the case and in law the learned Addl C.I.T. erred in proposing and the DRP erred in not allowing deduction for difference in exchange of Rs. 251.63 crores as claimed by the Appellant in the computation of income. The Learned Addl CIT/DRP ought to have accepted the contention that there is no requirement in the Law to capitalize the difference in exchange to the capital assets acquired by the Appellant as also the loss arising due to difference in exchange was not contingent in nature and therefore was allowable as revenue deduction while computing the taxable income of the Appellant. Without prejudice to the aforesaid contention that the difference in exchange was allowab....
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.... 19. Adjustment under section 145A for unutilised CENVAT credit -Rs. 22,95,00,000/- On the facts and in the circumstances of the case and in law the learned Addl C.I.T. erred in adding to the income of the Appellant Rs. 22,95,00,000 (out of Rs. 5069 lacs erroneously computed by the DRP) u/s 145A and/or s 28 of the Act rejecting the contention of the Appellant that no such addition was called for under those sections. The principles applied by the learned Addl. CIT/DRP in making this addition are contrary to facts and the position in law and hence the addition merits being deleted in its entirety. The DRP further erred in holding that 'adjustment to closing stock does not warrant any corresponding adjustment to opening stock of the same year' and further that 'adjustment in purchases is to be allowed only to the extent of unutilized CEXVAT credit available at the end of the year for raw material still in the closing stock of the assessee', both rulings being contrary to among others, the scheme of the Act itself. Without prejudice to the aforesaid contention the learned Addl. CIT erred in not allowing deduction for Rs. 53.60 ....
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.... 2. Foreign Travel -Acquisitions related 40,87,493 3. Professional fees - Acquisitions related 5,99,57,981 4. Legal charges - relating to acquisition 93,04,454 5. Professional fees - Foreign consultancy fees for acquisition 37,33,491 8,93,61,609 E. SSBU Meeting for JLR acquisition (Travelling Expenses) 1,83,279 1,83,279 TOTAL 15,33,86,228 6. The Dispute Resolution Panel following the ITAT order for earlier years i.e., 2006-07 and 2007-08 has held that this expenditure is capital in nature and no intervention is required. On the issue of depreciation on those assets, the DRP had followed the order of DRP in A.Y.2008-09 and has directed the assessee to suo-moto submit the details of capital assets that have come into existence on incurring the expenditure and the definite cost of acquisition of such capital asset, to the Assessing Officer within 7 days of the receipt of the directions so as to enable him to quantify the depreciation allowable correctly. Further, ITAT on similar issue in the assessment year 2006-07 and 2007-08 has deci....
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....ding years on the basis of any records of warranties expired. Therefore it cannot be said that warranty provision account has been maintained faithfully and reliably to represent the liability on account of warranty in a true and fair manner and unutilized warranties have been offered to tax as and when the warranties expire. 4.11. Therefore, we agree with the AO's observation in para 5.3 of the draft order that there was a balance of Rs. 106.42 crores in the provision account as on 1.4.2008 and the utilization during the year was only 54.27 crore which clearly indicated that the provision made in the preceding years did not have any scientific basis. The AO has allowed the deduction on actuals basis and disallowed the excess of provisions. On facts of the case, the order of AO is reasonable and correct. Accordingly we uphold the aforesaid disallowance. 4.12. The assessee has also not been able to establish the stability and certainty of facts and the principles applied in its method of calculation of the provision over various years. We find that in Rotork India Ltd. case of SC, the warranty provision was held as an ascertained liability since the provision w....
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....s that details of reversal of provision made in earlier years has not been provided. Further submissions of the ld. Counsel of the assessee in this regard are as under:- "The difference is negligible Average utilization of provision is in the range or 70%. As per AS 1 notified under section 145 a provision essentially involves making an estimate of a liability whose amount cannot be determined with substantial degree of accuracy. In the light of this DRP's mandate to provide vehicle-wise data of warranties expired and provision reversed is unrealistic since vehicles are sold on a daily basis and total number of vehicles/tractors sold during the year itself is 376701. The Supreme Court held that provision for warranty was an allowable expenditure when it arises from manufacture and sale of an army of sophisticated goods. So the entire army or mass of goods has to be collectively viewed as one and not on a vehicle by vehicle basis as intended by the DRP In view of facts noted by the DRP the issue should not be referred back to the AO unlike in the earlier years." 12. Upon careful consideration, we find that ITAT in assessee....
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....Rs. 5,86,81,405/- 15. This ground relates to disallowance of Rs. 5,86,81,405 claimed by assessee as (ESOP) employee cost being the difference between the fair market value / the shares offered to employee on the date of the grant of option and the price at which they are offered to employee. 16. Upon careful consideration and after hearing both the Counsel and perusing the records we find that issue has been considered and decided by ITAT Special Bench in the case of Biocon Ltd., vs. Dy. CIT (ITA No.248/BANG/2010). Accordingly, we remit the issue to the file of the Assessing Officer to consider the issue in light of the ITAT Special Bench in the case of Biocon Limited. 16. Following precedent as above, we remit the issue to the file of the Assessing Officer with directions as above. Ground No.7: Disallowance u/s.14A of Rs. 47,54,99,000/- 17. In this issue, assessee has claimed that no expenses have been incurred for earning exempt income has been rejected by the Assessing Officer. The Assessing Officer has applied rule 8D and accordingly computed the disallowance and DRP has confirmed the same. Now, the ld. Counsel of the assessee has made following submissions befor....
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....Jurisdictional High Court, we hold that adjustment @3% should be made. 21. Re: The addition towards notional interest is of Rs. 3,36,98,658/-. In this regard, we find that the ITAT in assessee's own case in ITA No.586/Mum/2013 for A.Y.2008-09 has restored back the issue following the Tribunal order in earlier years for the AO to decide on the basis of LIBOR rate prevailing at the relevant point of time. It was directed that in case LIBOR rate is less than 6% then charging of interest rate @ 6% by the assessee should be taken as arm's length price (ALP). Following the above said order in assessee's own case, we direct accordingly and restore the issue to the file of the Assessing Officer with similar direction. Ground No.9:Determination of Loss of Rs. 2,29,79,716/- on transfer of capital assed used for R & D Activity 22. On this issue, ld. Counsel for the assessee fairly accepted that ITAT has decided the issue against assessee in A.Y.2006-07 and A.Y.2007-08. Accordingly, we uphold the order of the Assessing Officer on this issue following aforesaid precedent. Ground No.10: Addition u/s.40(a)(ia) in respect of year end provision of Rs. 18,37,00,791/- 23. On this issue....
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....eme Court has dismissed the SLP filed by Department against the order of the Bombay High Court vide SLP No 37462/2017 dated 12.01.2018. Service Coupon: The issue is whether TDS u/s 194C was required to be deducted failing which disallowance u/s 40a(ia) was made. Regarding Service Coupons the issue has been restored back to the AO for fresh adjudication. (M.A.No.397/ Mum/2012 for A.Y. 2007-08. Page No. 2-4, para 6.1.1) Similar directions have been given in AY 2008-09 and the issue is yet to reach finality 27. Upon careful consideration, we note that ITAT in assessee's own case for A.Y.2008-09 has held as under:- "61. After considering the relevant findings of the Assessing Officer and the decision relied upon by the learned Counsel, we find that the issue of dealer incentive has been decided by the Tribunal wherein, the Tribunal has decided the issue in favour of the assessee by holding that the dealer incentive is not covered by the provisions of section 194H as the sale was made on principal-toprincipal basis. Regarding the issue of service coupon, the same has been restored back to the file of the Assessing Officer. Thus, consistent with the....
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.... of Section 23. 33. Upon careful consideration, we note that ITAT in ITA No.586/Mum/2013 for A.Y.2008-09 has decided the issue as under:- "94. We have carefully considered the submissions of the parties and also perused the relevant findings of the Assessing Officer. It is not in dispute that the income from letting out the property to Ridge Business Centre has been assessed as business income right from the earlier years and the same position has been accepted by the Department. Once the income which has been derived from stock-in-trade and has been accepted as business income, then the computation has to be made under section 28and not under section 23. The assessee has duly shown the income received / accrued from Ridge Business Centre as business income, then any further rent realized by Ridge Business Centre form the third party cannot be said to have been earned / received or accrued to the assessee company. Thus, we are inclined to agree with the contention of the learned Counsel for the assessee that no further income can be attributed to the assessee once the rental income has been assessed as business income and not from the income from house property." 34.....
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....xpenditure stating that the same is a contingent liability. Also, for the loans taken for fixed assets, the same was required to be capitalized and hence the AO has disallowed this expenditure. 38. The DRP upon assessee's appeal has dealt with the issue as under:- "21.4. We have considered the assessment order, the facts of the case as well as the submissions of the assessee. Admittedly foreign exchange loss of Rs. 214 crores is on capital account and the assessee vide submission dated 18th December 2013 has submitted that depreciation on this amount may be allowed considering that the assets have been put to use for period less than 182 days during the year. However, the assessee has not been able to furnish the details of specific foreign exchange loans taken for capital purposes and identified and correlated the respective capital assets and when such assets have been put to use. It has submitted that foreign exhange loss on zero coupon FCCB Rs. 195.07 crore, and on HSBC loan 51.81 crores are of both capital and revenue purposes. The capital purpose loss on FCCB loan is 164.96 crores loan is 49.04 crores and on HSBC loan is 49.04 Crores. 21.5. From the balan....
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....his loan. 21.9. The Assessee has also credited Foreign exchange gain of Rs. 9.82 crore under the Revenue account being Foreign Exchange Loss accrued on Inter Corporate deposits given in Foreign currency. This gain has been treated by the Assessee on the Revenue account and accordingly gross foreign exchange loss on revenue account Rs. 47.46 Crores has been reduced by this amount and deduction of only the balance Rs. 37.64 crores has been claimed. The foreign exchange losses on various accounts have already been discussed and directions as appropriate have been issued. The AO is directed to treat this foreign exchange gain on ICDs on revenue account as shown by the assessee in the return and bring it to tax. 21.10. In the result the disallowance of foreign exchange loss Rs. 251.64 crores made by the AO is upheld and the AO is further directed to tax the foreign exchange gain of Rs. 9.82 crore on ICD." 39. Against this order, assessee has filed an appeal before us. 40. The submission of the ld. Counsel of the assessee on this issue are summarised as under:- "There is no provision in the Income Tax Act, other than s. 43A, which deals with tax treatment....
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....regards the gain or loss of revenue account, the same has to be dealt with in the revenue field. The AO in this regard has erred in holding that these are contingent as the same is contrary to the Hon'ble Apex Court decision in the case of CIT vs. Woodward Governor India P Ltd. However, we note that the ld. DRP has analyzed the nature of foreign exchange loss claimed by the assessee and decided the issue properly. The claim of the assessee that foreign exchange fluctuation loss irrespective of it being in the field of capital or revenue be allowed as revenue expenditure is not sustainable in the light of the above case law from Satlej Cotton Mills (supra) from the Hon'ble Supreme Court. The reference of the assessee regarding the income computation and disclosure standards (ICDS) notified u/s.145(2) w.e.f. AY 2017-18 does not help the case of the assessee. From the perusal of CBDT Circular 10/2017 dated 23/03/2017, it is observed that ICDS shall be applicable with the transaction years held therein in relation to A.Y.2017-18 and subsequent assessment year. Admittedly, in the present assessment year the said ICDS is not applicable, hence, the exposition of Hon'ble Apex Court decisio....
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....pany remains 2.40% only. Thus the AO has shown that net profit rate of the eligible unit is about 9 times higher than the overall profit rate of the company. The AO has also held that turnover of Rudrapur unit is only 12.96% of total turnover of the company and if the profit of the Rudrapur unit as claimed by the assessee is excluded, the business of the company is into loss. The AO has also found that annual return on investments in Rudrapur unit is 231.27% as against 11.12% ROI in case of the company. Further, assessee has claimed a deduction of 495.40 crores u/s 35(2AB) of the Act, but no part of this deduction has been allocated to Rudrapur unit. The assessee has also not allocated any interest expense to Rudrapur unit. The total investment in Rudrapur unit is Rs. 155 crores whereas the annual income from the unit is 359.67 crores. 47. For the above reasons, the AO has invoked the provision of Sections 80IA(8) and 80IA(10) of the Act and computed the profit of eligible unit @ 2.40% of turnover of such unit Rs. 1732.19 crores and computed the profit eligible for deduction Rs. 41.57 crores. However, the AO has held that the assessee is not eligible for any deduction u/s 80IC s....
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....ery previously used in its other business, the conditions in section 80IC(4) is not violated. Therefore it is hereby held that the assessee is eligible for deduction under Section 80-IC of the Act. Also, the AO has allowed deduction in AY 2005-06 for this expansion. 22.16. Regarding computation of profit of Rudrapur Unit, the assessee was requested to furnish various details regarding tractors produced at Rudrapur, Nagpur and Kandivali. The details submitted are as under - Model wise PBIT for F04, F05 & F09 - for RDPR 80IC F2004 RDPR NGPR KNDV QTY SP TOT COST PROFIT QTY SP TOT COST PROFIT QTY SP TOT COST PROFIT 265 Dl 2,284 212,785 181,667 31,118 6,259 204,559 176,206 28,352 824 200,349 186,518 13,830 275 Dl 226 228,693 185,051 43,643 7,267 218,371 179,605 38,766 81 219,840 191,749 28,091 295 Dl 475 Dl ....
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.... price of same models at other units. In this regard the assessee has submitted explanation vide letter dated 18th December 2013 as under:- * On the issue of computation of profits of the Rudrapur unit we have already made detailed submissions challenging the stand of the AO while questioning profitability of the Rudrapur Unit. We would like to rely on them. * In response to specific questions raised by you we annex herewith evidence to support cost advantage regard power consumption and details of manpower cost working. * We are attaching specimen bills for power consumed which shows lower tariff at Rudrapur as compared to Nagpur. * As regards man power cost per tractor we are annexing a working to substantiate the cost advantage. * As regards freight it may be clarified that the saving in freight has happened at Rudrapur after undertaking substantial expansion in as much as this substantial expansion included backward integration as explained in the earlier note. Because of this backward integration' some components which were earlier procured from outside Rudrapur came to be manufactured at Rudrapur this saving on inward freight c....
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....ver power cost per tractor produced has not been given. The assessee has also not given the details of power consumed per unit of tractor produced at Nagpur and Rudrapur to explain the low power cost per tractor at Rudrapur. 22.21. The assessee has also explained that certain components are manufactured at one unit and then transferred to other units for use in final product. However the assessee has not furnished any data regarding such components produced at other units and transferred to Rudrapur unit, cost of production of such components at other units, price at which it has been transferred to Rudrapur unit and whether a reasonable net profit on such components produced at other units have been accounted at other units and whether such transfers are at market price. The excessive profits at Rudrapur and loss in other business show that the transfer of components to Rudrapur unit from other units is not at market price rather this is the cause of loss in other business since the transfer to Rudrapur unit is not at arm's length price. The primary onus is on assessee to demonstrate that the transfer of components to Rudrapur unit is at arm's length. This onus ha....
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....s derived from Rudrapur Unit at the higher profit attributable to the unit. That it does not give weightage to a special locational and statutory advantage enjoyed by Rudrapur unit. That company has vide and varied business activity, profitability of each would be separate. That assessee's claim is duly supported by audited accounts and detailed working in the past. 51. As regards in per tractor sales price of various models from Rudrapur and Nagpur units, ld. Counsel submits that each model has various variants and price of each variant differs from that of others, that all India prices of the same variant are almost same for all plant locations. 52. He submitted that labour cost is direct cost at Rudrapur and not an allocated cost, that comparative rates for manpower cost at Rudrpur and Nagpur have been provided. The details of wages paid for workers for all the worker at Rudrapur and Nagpur is an unreasonable demand and the same information has otherwise been provided which is more than sufficient to support submission made by the assessee. 53. It has further been submitted that power cost is direct cost which is based on actuals. Hence, there is no question of comparin....
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....claimed to be lower than at Nagpur Unit. 56. Similarly, the Dispute Resolution Panel adverse inference on the prices of various models is also not sustainable in light of the assessee's explanation as above. 57. As regards the cost of inter unit transfers, the Dispute Resolution Panel is holding that proper detail has not been given to show that inter unit transfer has been properly done. The assessee's contention in this regard is that the details are given in audited accounts and audit report under section 80IC. In our considered opinion, this issue needs to be examined at the level of the Assessing Officer from detail as claimed by the ld. Counsel of the assessee to be available on record. 58. We further note that the DRP has found that assessee has incurred huge expenditure and claimed deduction also for Research and development expenditure. However, assessee has not allocated the same to this exempt unit. Assessee has not submitted the necessary details and has only submitted that these are mainly related to export models. We find that this general submission does not exonerate the assessee from submitting to the authorities below proper and cogent details of expenses....
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....e afresh as the decision of the Assessing Officer while giving effect to the earlier order in pursuance of the Tribunal order, will have the effect in this year also. Therefore, this ground is treated as allowed for statistical purposes." 63. We follow the aforesaid precedent and remit the issue to the file of the Assessing Officer with similar directions. Needless to add that the Assessing officer shall take into account the earlier orders passed in this regard and also the decision of Hon'ble Bombay High Court referred above. Ground No.20: Interest income of Rs. 84.10 Crores whether business income or income from other sources: 64. On this issue there is no discussion in the Assessing Officer's order. The DRP has directed the AO to assess the income under the income from other sources. The relevant discussion of the DRP on this issue is as under:- "27. It is further seen that as per assessment order, the AO has assessed income from other sources only Rs. 4,75,72,689/-. No discussion has been made in the assessment order in this regard. Neither any submission has been made during hearing. However, from the accounts, it is seen that other income of assessee compri....