TaxTMI 
TaxTMI 
2020 (10) TMI 834
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.... Rs. 44,49,536/- by reducing the value of opening work in progress in an illegal and arbitrary manner even though the valuation of work in progress is based on regular system of accounting and accepted legal and accounting principles. (ii) That even otherwise, the assessing officer has not made in any adjustment in the value of closing work in progress and as such there is no ground or basis for any such adjustment or addition in opening work in progress. 2. That various additions and disallowances made by AO and confirmed by DRP are highly illegal, arbitrary and without proper appreciation of facts as per specific grounds raised. 3. That on facts and circumstances of the case, the Id. Assessing officer was not justified in making disallowance of Rs. 3,33,157/- u/s 36(l)(iii) on illegal and arbitrary basis without appreciating that these advances are for the purpose of business and even otherwise these advances are not out of borrowed funds. 4 (i). That on facts and circumstances of the case, the Id. Assessing officer has erred in making an addition of Rs. 2,46,100/- to the income of appellant on the ground that job work charges recovered from a ....
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....ith 10% markup thereon constituted arm's length price of the value of inter-unit transfer. (iv) Further without prejudice, that the assessing officer erred on facts and in law in not appreciating that markup, if any, was liable to be added only to the job work/ processing costs incurred by the manufacturing unit. (v) That adjustment of cost and consequential claim of deduction u/s 80IB/80IC is illegal, arbitrary and based on conjectures and surmises. 8(i) That on facts and circumstances of the case, the Ld. Assessing officer was not justified in disallowing claim of statutory deduction under section 80IB/IC, to the extent of Rs. 26,53,575/-, by applying provisions of section 80IA(8) read with 80IB(13) and 80IC(7) of the Act, on the ground that the fair market value of goods transferred from 'Silverfoil Division' to eligible undertaking was higher than that declared by the appellant. (ii) That adjustment of cost and consequential claim of deduction u/s 80IB/80IC is illegal, arbitrary and based on conjectures and surmises. 9(i) That on facts and circumstances of the case, the Ld. Assessing officer was not justified in making disallowance o....
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....iation on fixed assets installed at head office / depots to eligible units. (ii) That adjustment of depreciation and consequential claim of deduction u/s 80IB/80IC is illegal, arbitrary and based on conjectures and surmises. 12(i). That on facts and circumstances of the case, the Ld. Assessing officer was not justified in making the disallowance of claim of statutory deduction u/s 80IB/80IC to the extent of Rs. 5,29,68,064/- by applying provisions of section 80IA(8) read with 80IB(13) and 80IC(7) of the Act on the ground that the eligible undertakings should have paid royalty to Head Office for using the brand 'Rajnigandha', allegedly owned by the Head Office;. (ii). That the Ld. Assessing officer was not justified in holding that brand 'Rajnigandha' was owned by head-office and not; by the eligible undertakings and as such the eligible units should pay royalty for usage of the same. (iii). That adjustment of royalty and consequential reduction of claim of deduction u/s 80IB/80IC is illegal, arbitrary and based on conjectures and surmises. 13(i) That on facts and circumstances of the case, the Ld. Assessing officer erred on facts and in ....
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....loan advanced to associated enterprise by relying on TPO's order. (ii) That the assessing officer and TPO has erred on facts and in law in applying interest rate of 12.60% p.a. on the basis of SBI prime lending rate + 300bps on the loan advanced by the appellant to its wholly owned subsidiary, namely, DS Business AG as against interest at the rate of 3% p.a. charged by the appellant. (iii) That the assessing officer and TPO has erred on facts and in law in considering the average Prime Lending Rate of SBI as the arms length rate of interest without appreciating that such rate is applicable on loans availed in India in domestic currency. (iv) That the loan was advanced by the appellant to its associated enterprise in foreign denominated currency and accordingly LIBOR rates prevailing in the international market should be considered for benchmarking and not SBI prime lending rate. 15(i) That the lower authorities have erred in charging interest u/s. 234A, 234B & 234C of the Act without application of mind. (ii) That the charge of interest is not justified on facts and under the law. 16. That the appellant craves leave to add, alte....
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....e facts of the present proceedings also as stated by the learned assessing officer. 5. During the course of assessment proceedings it was found that assessee had entered into international transaction during the year and therefore the matter was referred to the transfer pricing officer - one (1) u/s 92CA (1) on 12/9/2014 for determining the arm's-length price. Pursuant to the such reference, The Additional Commissioner Of Income Tax, Transfer Pricing Officer - 1 (1), New Delhi (the learned TPO) passed an order on 19/1/2016 wherein the arm's-length price with respect to interest on loan given by the assessee to its associated enterprise to the tune of Rs. 78,019,356 was made. Consequently draft assessment order was also passed on 29/3/2016 wherein over and above the transfer pricing adjustment, several other additions were made and the income of the assessee was assessed at Rs. 1,463,707,764/-. The assessee filed objection u/s 144C of the act before The Dispute Resolution Panel - I, New Delhi (the learned DRP). Such objections were disposed of by giving direction on 16 December 2016. Consequent to that the assessment order was passed u/s 143 (3) of the act on 30/1/2017 determi....
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..... 4 Addition in respect of Job charges recovered at lesser late from sister concern M/s. Dharampal Premchand Ltd. 2,46,100/- AO : Page 6 Para 13.3 DRP : Page 14 Para 7.3 Page 108 Para 98-99 Hon'ble ITAT upheld the order of CIT(A) deleting the addition. 5 Disallowance u/s 14A 2,76,28,704/- AO: Page 7 Para 13.4 DRP: Page 16 Para 8.2 Page 30-32 Para 36-37 Disallowance deleted on the ground that AO has not recorded dissatisfaction with respect of suo moto disallowance offered by the assessee. (In the present case also, the assessee has made suo moto disallowance and dissatisfaction of the AO is missing) 6 Disallowance of loss arising from sale of commodities on commodity exchange on account of speculative loss u/s 43(5) of the Act 5,74,71,113/- AO: Page 9 Para 13.5 DRP: Page 21 Para 9.3 NA (Fresh issue) The claim of business loss is covered under clause (d) of proviso to section 43(5) as per which transaction carried out on recognized stock exchange shall be considered as non speculative transactions. In the present case, the claim of loss is arising out of commodity transaction carried out on Multi Commodity Exchange (MCX)....
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.... adjustment in cost of services allocated to eligible undertakings by head office in terms of provisions of section 80IA(8) 11,34,91,501/- AO : Page 18 Para 13.9 DRP: Page 35 Para 13.3 Page 47-69 Para 62-63 Adjustment Deleted. The Hon'ble Tribunal has held that loading of mark up on allocated cost of goods/services is not justified as this is mere allocation of third party costs to eligible and non eligible units and there is no value addition by the head office. 11 Disallowance of deduction under section 80IB/80IC - allocation of depreciation on fixed assets installed at head office and Manufacturing unit to eligible units 1,99,44,908/- AO: Page 19 Para 13.10 DRP: Page 37 Para 14.3 Page 97-101 Para 81-85 Adjustment Deleted. The Hon'ble Tribunal held that deprecation of asset located at one place cannot be allocated to other. 12 Disallowance of deduction u/s 80IB/80IC by applying provisions of sec.80IA(8) for use of brand 'Rajnigandha' 5,29,68,064/- AO: Page 21 Para 13.11 DRP: Page 38 Para 15.3 Page 70-72 Para 64-67 Adjustment Deleted. The Hon'ble Tribunal held that there can be no royalty in respect of brand owned by the assessee ....
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....wances is general in nature, no specific arguments were advanced, therefore, same is dismissed. 11. Ground number 1 is addition on account of the reduction in value of the opening work in progress by Rs. 4,449,536/- based on the assessment order for last year where in from the closing stock above sum were reduced and therefore to derive at the correct profit ld AO reduced the opening stock for this year. . The learned assessing officer noted that order for assessment year 2011 - 12 the issue of Under valuation of stock of work in progress in the form of semi finished goods and unpacked finished goods amounting to Rs. 4,449,536 was discussed and same was reduced from the computation of taxable income of the assessee company. Therefore on the same corollary the value of opening stock for the year under consideration should have been less by the above sum and therefore this addition was made. The coordinate bench in assessee's own case for earlier year has decided this issue as Under:- "15. Ground number 4 of appeal is with respect to valuation of work in progress. learned assessing officer in para number 23 - 25 of assessment order noted that special auditor reported that....
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.... fact that closing stock of year under reference has been carried forward as opening stock of next year; there is even otherwise no adverse revenue implication. Further, observations of Special auditor are arbitrary and seek to include other indirect costs in valuation of closing stock, which is illogical and contrary to accounting standard. He further submitted that in any case, assessing officer himself has accepted valuation of closing stock in AY 2013-14 onwards and no addition has been made in this regard. In these circumstances, addition in present year is inconsistent and not based on correct appreciation of facts of case and valuation of stock done by assessee, which is as per AS-2. Factual position to this effect is supported from assessment order for AY 2013-14 wherein no addition on this issue has been made. He submitted that even otherwise, in case any change is made to method of valuation of closing stock, corresponding effect has to be given to value of opening stock as well and as such action of assessing officer is only enhancing value of closing stock is mechanical and against principle laid down by Hon'ble Delhi High Court in case of CIT v. Mahavir Alluminium Ltd.....
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.... of valuation of closing stock has been accepted, which is on identical basis as in impugned AY, it shows that revenue has accepted same as correct in that year but has disputed it for this year. Only basis is he audit report u/s 142 (2A) of the Act. Learned departmental representative could not show us any reason to show that how method of valuation of closing stock as well as cost component included therein by assessee are different from those were adopted for assessment year 2013 - 14. In view of above, undisputed position that in subsequent years learned assessing officer has accepted method of valuation as well as cost component included for inventory valuation of inventory, addition made by learned assessing officer in current year cannot be sustained. In view of this, ground number 4 of appeal is allowed" 12. As the learned departmental representative could not point out any infirmity in the order of the coordinate bench for immediately preceding year where the corresponding addition has been deleted, we respectfully following the decision of the coordinate bench allow ground number 1 of the appeal of the assessee and direct the learned assessing officer to delete the add....
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....e not been utilized. It was further stated that borrowed funds have been utilized only for expansion of business. It was further stated that rate of interest specified by special auditor is also not correct. However, learned assessing officer rejected contention of assessee and disallowed interest expenditure of INR 2 0214239/- holding that it has not been incurred wholly, necessarily and exclusively for purpose of business of assessee company. When this issue was agitated before learned CIT - A, he upheld disallowance. He held that he has perused bank statement contained in paper book filed by assessee where loan were advanced to sister concerns from cash credit account having negative balances. Therefore, he held that immediate source for advancing loan to sister concern and associated concerns are cash credit account borrowings from bank. He further stated that as in assessment year 2004 - 05 amount is required to be disallowed as per interest paid to cash credit account of bank of assessee. Accordingly, he upheld disallowance partly. 21. Learned authorised representative vehemently contested disallowance confirmed by learned CIT - A and submitted that observation of ld....
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....ted that in light of factual and legal position clarified above, there is no case of any disallowance of interest u/s 36(1)(iii) of Income Tax The Act, 1961. 24. Learned departmental representative vehemently supported order of learned assessing officer and learned CIT - A. He submitted that when assessee has borrowed interest bearing funds at higher rate of interest and has diverted same towards lower interest earning advances to sister concerns, learned AO has correctly disallowed above sum. With respect to Nexus of funds, he stated that assessee has made payment from cash credit account of assessee and therefore Nexus is clearly proved. 25. We have carefully considered rival contention and perused orders of lower authorities. Fact shows that for year ended on 31/3/2011 assessee have given an outstanding loan and advances to sister concern unrelated parties amounting to Rs. 41.27 Crores. However assessee has also stated that it has share capital and reserves and surplus as per audited accounts available as on that date shows that assessee has non-interest-bearing funds available with him of INR 7 1 5,00,00,000. Therefore, it is apparent that non-interes....
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....hat a presumption would arise that investment would be out of interest-free funds generated or available with company. Then, borrowed capital in hand in that case and interest expenditure was deductible under section 36(1) (iii) of Income tax The Act, 1961. Tribunal held that interest-free fund available to assessee is sufficient to meet its investment. It can be presumed that investments were made from interest-free funds available with assessee. This position clearly emerges from record and for current assessment year as well. We do not see how a different view in facts and circumstances can be taken. If Tribunal had followed earlier view and on facts, then, there is no perversity when nothing contrary to factual material was brought on record by Revenue. In such circumstances, concurrent view on disallowance of interest was reversed and appeal of assessee to that extent was partly allowed. We do not see any substantial question of law arising from such a view of Tribunal." [underline supplied by us] 26. In view of above undisputed fact that non-or lower interest-bearing advances given to subsidiary or sister concern are less than interest free funds in form of share ....
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....r rate of job charges is on hypothetical basis and against concept of real income. Further, it is not open to assessing officer to sit in armchair of assessee and to make business decisions on arbitrary basis. Further, there is no provision in Income tax The Act, 1961 that warrants such adjustment and as such, action of assessing officer in increasing rate of job work charged from sister concern M/s. Dharampal Premchand Ltd. is not sustainable under law. Order of CIT (A) is well reasoned and learned departmental representative could not controvert order of learned CIT - A therefore, addition in respect of job work has rightly been deleted by CIT (A). Accordingly, ground number 12 of appeal of learned AO is dismissed." 16. As the facts and circumstances are identical to the facts and circumstances prevailing in the immediate preceding year and the learned departmental representative could not point out any infirmity, therefore respectfully following the decision of the coordinate bench in assessee's own case, we direct the learned assessing officer to delete the addition/disallowance of Rs. 246,100/- on account of recovery of job charges at a lesser rate from a sister co....
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....at assessee has earned dividend income of INR 1576500/- and has investment in only on subsidiary or exempt interest-bearing investment amounting to INR 2458403027/-. Learned AO further noted that Assessee Company has borrowed funds during year, which have also been used for making investment. He further noted that Assessee Company has not apportioned any interest, which has been incurred to earning exempt income. Therefore auditor has worked out disallowance applying rule 8D of income tax rules 1962 amounting to INR 5 0268833/-. So, learned AO asked assessee to explain why disallowance of INR 5 0268833/- should not be made. Assessee stated that assessee has offered disallowance of INR 437504/- u/s 14 A of The Act at time of filing of return of income as per tax audit report. It was further stated that Assessee Company has earned only INR 1596000/- as dividend income and borrowed funds were not at all utilized for investment in shares hence disallowance cannot be made. Learned AO rejected explanation of assessee and stated that substantial expenditure has been incurred by assessee for earning exempt income and therefore provisions of section 14 A are clearly attracted, henc....
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....s is to be examined by Assessing Officer.[Para 41] ." 29. In light of above, disallowance u/s 14A read with rule 8D is not sustainable in absence of recording of satisfaction in terms of provisions of section 14A(2) of The Act. Further, it is relevant to note that appellant assessee has earned total exempt income of Rs. 15,96,000/- only from four investments amounting to Rs. 4,54,16,313/-, details of which are as under : Particulars Dividend Income Opening value Closing value as on 01.04.09 as on 31.03.10 Uflex Industries Ltd. 15,20,000 3,72,76,848 3,60,64,297 Godrej industries Ltd. 12,500 43,50,000 42,04,824 Indswift Ltd. 26,000 53,16,647 51,47,192 Dhampur Sugar 37,500 50,76,226 Nil Total 15,96,000 5,20,19,721 4,54,16,313 30. There is no dispute to effect that assessee has its own funds to extent of more than Rs. 590 crores and as such all these investments are fully covered from own funds and there is no case of any disallowance under rule 8D(2)(ii). Also, there being no case of any direct or indirect claim of interest in connection with investment, disallowance u/s....
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....book-2 as per which disallowance is worked out at Rs. 2,43,590/- only, which is less that disallowance already made by assessee in return of income i.e. Rs. 4,37,504/- and as such impugned disallowance of Rs. 4,98,31,329/- is not sustainable on law and facts and same may kindly be deleted. He further submitted without prejudice to above submission, in case any disallowance u/s 14A is called for, same should be restricted to extent of exempt income of Rs. 15,96,000/- only. legal position to this effect is well supported from decision of Hon'ble Supreme Court in case of Pr. CIT v. State Bank of Patiala [2018] 259 Taxman 314 (SC) and Delhi High Court in case of Joint Investments Pvt. Ltd. Vs. CIT [2015] 372 ITR 694 (Del). relevant head note in case of Pr. CIT v. State Bank of Patiala [2018] 259 Taxman 314 (SC) is as under: "Section 14A, read with section 263, of Income-tax The Act, 1961 - Expenditure incurred in relation to income not includible in total income (Computation of) - Assessment year 2010-11 - In course of assessment, Assessing Officer made addition on account of apportionment of expenses against exempted income under section 14A - Commissioner passed a revisional....
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....d to ld AO that it has made a disallowance of INR 437504/- and stated that it has not incurred any interest expenditure as borrowed funds were not utilized for investment in shares. However, it were utilized for purposes of business. Learned assessing officer without recording any satisfaction about correctness of claim of assessee of computing disallowance of INR 437504/- or examining contention of non utilization of borrowed funds for making investment in shares, applied provisions of rule 8D and made a disallowance of INR 50268833/- and reduced it from already disallowed sum of INR 437504/- by assessee. Therefore, net disallowance of Rs. 49831329/- was made. As is well known, section 14A of The Act relates to expenditure incurred in relation to income not includible in total income. Sub-section (1) of section 14A provides that for purposes of computing total income under Chapter IV, no deduction shall be allowed in respect of expenditure incurred by assessee in relation to income, which does not form part of total income under The Act. As per sub-section (2) of section 14A, Ld . Assessing Officer would determine amount of expenditure incurred in relation to such income ....
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....d departmental representative could not show that what is the satisfaction recorded by the learned assessing officer about the correctness or otherwise of the disallowance offered by the assessee on its own, therefore, respectfully following the decision of the coordinate bench in assessee's own case for immediately preceding year, we direct the learned assessing officer to delete the disallowance of Rs. 276,28,704/- u/s 14 A of the income tax act applying the provisions of rule 8D. Accordingly ground number 5 of the appeal is allowed. 21. Ground number 6 of the appeal is against the addition of Rs. 57,471,113/- on account of loss on sale of commodities during financial year 2011 - 12 holding that the same is speculative transaction and hence the loss is a speculative loss. The assessee submitted before the assessing officer enumerating the provisions of Section 43 (5) of the act and the extract of memorandum of the Finance Bill 2005 with respect to the rationalization of the tax treatment of the derivative transactions. Assessee submitted that according to the provisions of clause (d) of subsection 5 of Section 43 of the act read with the memorandum explaining the finance bill ....
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.... exchange. The relevant extract of the notification was also pressed upon. It is submitted that the commodity transactions under dispute have been undertaken on recognized exchange based on relevant contract notes enclosed at PB Pg 160-183 and as such the case of the appellant is squarely covered by sub clause (d) of section 43(5) of the Act. It may also be clarified that during the relevant assessment year, there was no requirement of any Commodity Transaction Tax (CTT). He vehemently relied on following case laws : i. CIT v. Sri Vasavi Gold & Bullion (P.) Ltd [2018] 92 taxmann.com 290 (Madras) [PB Pg 185-191] Section 73, read with section 43(5), of the Income-tax Act, 1961 - Losses - In speculations business (Derivative loss) - Whether where assessee suffered loss in trading derivatives carried through Multi Commodity Stock Exchange, derivative transactions being separate from trading in shares, provisions of Explanation to section 73 will not be applicable to such transactions - Held, yes - Whether thus, loss incurred by assessee in derivative transactions through recognised stock exchange will have to be set off against other business income as per provisions of Act - ....
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....y the Revenue is dismissed. Therefore he submitted that the loss suffered by the assessee in commodity transaction is non speculative in nature and as such the impugned disallowance is based on wrong interpretation of law and same is unsustainable under law. 25. The learned departmental representative vehemently supported the orders of the lower authorities. He referred to paragraph number 13.5 of the order of the learned assessing officer and submitted that the transactions in ccommodity exchange were made nons peculative only by The Finance Act 2013 with effect from 1/4/ 2014 and therefore for assessment year 2012 - 13 the transaction is speculative. He further referred to the order of the learned Dispute Resolution Panel and referred paragraph number 9.3 at page number 21. He submitted that that the transaction has not been subjected to commodities transaction tax, it has not been carried out electronically on a screen-based system on a recognised exchange through a member or intermediary registered Under the bylaws. The transaction is not supported by a time stamped contract note. Therefore it cannot be deemed not to be a speculative transaction as claimed by the assessee....
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....d that during the year, units located at Noida processing Kathha and another unit at Noida processing supari has transferred processed raw material/semi finished goods to the undertaking which is eligible for deduction amounting to Rs. 658,619,082/- and Rs. 792,144,556/- respectively. The learned assessing officer, as per last year, adopted the manufacturing cost of 11.27% and further profit margin of Rs. 10 percent on the goods so transferred, held that the transfer value of the goods worth Rs. 1,450,763,638/- comes to Rs. 1,775,691,170, therefore he reduced the profit of eligible unit by 32,49,27,532/-. The learned assessing officer categorically noted that this addition is made on the basis of the report of the special auditor in previous year and further the fact of the present assessment year are also same as the fact of the earlier year in which special audit was conducted. This issue has been considered by the coordinate bench in the immediately preceding year in which this addirion/ disallowance was first made as Under:- "40. Ground number 8 of appeal is with respect to finding of learned CIT - A in upholding disallowance of deduction u/s 80 IB/IC on ground that fa....
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....rom market without any value addition and even otherwise value addition is negligible, however, it was contested that there is no basis for any margin, much less margin of 10%. It was further contested by assessee that identical issue has been decided by The Commissioner of Income Tax Appeals in assessee's own case for assessment year 2004 - 05 partly deleting addition. Learned assessing officer rejected explanation of assessee. He held that 10% profit margin is normal profit margin also prescribed under Central Excise rules for valuation of goods of captive consumption. He further stated that special auditor has given detailed working of fair market value of transfer of goods from non-eligible unit to eligible undertaking. Thereafter learned assessing officer held that fair market value of said goods exceeds transfer value by a sum of INR 1 01734012/-. Above issue was contested by assessee before learned CIT - A. Learned CIT - A followed his own order for assessment year 2004 - 05 wherein i. in case of goods, which are not processed and sent to eligible units as such, he directed learned assessing officer to load profit margin of service charges rate of 2% on val....
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....to extent of 14.73% and as such adjustment is highly arbitrary and without any basis. vi. In addition, there is absolutely no justification for loading additional 10% mark up because of profit as goods are transferred without any substantial value addition. Further, assessing officer has not brought on record any comparable case to justify such huge profit as present case involves simple transfer of goods wherein non-eligible unit is merely acting as a procurement agent on behalf of eligible units in order to ensure economy of cost and regular supply to eligible units. vii. It may be clarified that these products have been purchased for captive consumption and same is not tradable commodity. There has been no sale to any outside party and as such presumption about any profit or market value is irrelevant and misconceived. Further, special auditor has referred central excise rules for purpose of estimation of profit @ 10%. In this regard we may submit that reference to excise rules is wholly irrelevant and out of context as same have no relevance or bearing under Income Tax The Act. rate of 10% profit as per Rule 8 of Central Excise Valuation Rules is specifically ....
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....ered rival contention and perused orders of lower authorities as well as audit report u/s 142 (2A) of income tax The Act of special auditor. Allegation on assessee is that it has made Inter transfer of goods however same has not been taken at market rate and therefore auditor has suggested applicability of rule 8 of Central Excise Valuation (Determination of Price of Excisable goods) Rules, 2000 which provides as under:- [8. Where whole or part of excisable goods are not sold by assessee but are used for consumption by him or on his behalf in production or manufacture of other articles, value of such goods that are consumed shall be one hundred and ten per cent of cost of production or manufacture of such goods. ] 47. Provisions of section 80 IA (8) provides that (8) Where any goods 39[or services] held for purposes of eligible business are transferred to any other business carried on by assessee, or where any goods 40[or services] held for purposes of any other business carried on by assessee are transferred to eligible business and, in either case, consideration, if any, for such transfer as recorded in accounts of eligible business does not correspond to market....
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....d CIT - A has upheld loading of average manufacturing expenses of 37.85% and further, charging of profit at rate of 10% as per rule 8 of Central Excise rules. With respect to goods such as cardamom, which is purchased, processed, and then transferred to eligible units, he has further upheld cost loading of 37.58% and further profit at rate of 10% as a market price of goods. However in above prices there is no finding that in open market such semi finished goods are sellable or not. Explanation which defines market price provides that market price means price such goods would fetch ordinarily in open market. Therefore, there has to be a clear-cut finding that such goods are marketable, they have a sale price, and such sale prices determination is in open market. Therefore, it is apparent that market price can be more than cost and less than cost of goods. Therefore, any approach of loading of cost on goods, which are transferred from one undertaking to another undertaking without determination of market price of such goods, is not the mandate of provisions of section 80 IA (8) of The Act. Therefore any such attempt to substitute 'cost plus profit" as market value of goods w....
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....umber 8 of appeal of assessee is allowed with above direction." 28. In that particular year the addition was partly upheld by the coordinate bench based on the order of the learned CIT - A with respect to the profit margin of the goods which are not processed and sent to eligible unit directly. The learned departmental representative could not show us any reason to either increase the above rate neither the learned authorised representative demonstrated that the addition confirmed by coordinate bench in this year is unjustified, therefore, respectfully following the order of the coordinate bench in assessee's own case for that year, we also direct the learned assessing officer to recompute the deduction following the order of the coordinate bench for that year. Accordingly ground number 7 of the appeal is partly allowed. 29. The ground number 8 of the appeal is with respect to the disallowance of deduction u/s 80 IB/80 IC by applying the provisions of Section 80 IA (8) in respect of transfer from silver foil division amounting to Rs. 2,653,575. Both the parties confirm that this issue is identical to the issue decided by the coordinate bench in assessee's own case for imme....
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....d by appellant to third-party customers at a price higher than cost at which same product was transferred to eligible unit whole addition has been made. It was further stated that both lower authorities made addition considering average rate of sale price to third party during relevant AR to arrive at market value of goods transferred by non-eligible unit to eligible unit. He further stated that transfer value adopted by appellant was full cost price of silver for which is procured from third party. It was further stated that only value addition that has been made by assessee is with respect to processing charges on silver foil. He therefore submitted that above addition made by learned assessing officer and confirmed by learned CIT - capital is devoid of any merit and therefore should be deleted. 116. Learned departmental representative vehemently supported orders of lower authorities and submitted that when assessee has sold identical material to 3rd party then same is market price of goods as on that date and therefore assessee has reduced profit of non eligible unit and enhanced/increased profit of eligible unit and therefore above disallowance as rightly been made by ....
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....e order of the learned assessing officer wherein he has allocated Rs. 5,503,526 on account of interest two the eligible unit and thereby reducing the deduction claimed by the assessee by the above sum applying the provisions of Section 80 IA (8) read with Section 80 IB (13) and 80 IC (7) of the act. The learned AO has noted that assessee company had interest expenditure of Rs. 521,851,866/-. Assessee has out of that allocated interest expenditure of Rs. 48,28,98,472 to all the manufacturing units. The assessee has allocated other corporate t expenses to the different units therefore the assessee was asked to submit the basis of allocation of interest expenditure to different manufacturing units. The assessee submitted a details of such expenditure. Assessee also stated that the basis of allocation of the said expenses were made consistently during the earlier years by the assessee company and said allocation was also accepted by the CIT - A and coordinate bench for assessment year 2004 - 05. Therefore the assessee requested that same may not be disturbed. 32. The learned assessing officer rejected the contentions of the assessee and found that assessee should have allocate....
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....total cost a sum of Rs. 23,151,836 relates to the food and beverages divisions and is not at all related to any of the manufacturing units which are eligible for deduction. It is therefore stated that above expenditure does not relate to any of the manufacturing units which eligible for deduction. The view of the assessee is found to be proper that only the interest expenditure which is related to a particular unit should be allocated to that unit and if the balance expenditure is not at all allocated to or specifically related to any other activity, then such expenditure cannot be the reduced from the eligible profit of the industrial undertaking. The object is to derive at the correct profit derived from the industrial undertaking. The object is not to reduce the eligible profit of an industrial undertaking by all the expenditure which are not allocated to eligible unit even if they relate to a certain specific activity of the assessee which is not eligible for deduction Under those sections. Similarly a sum of Rs. 6,844,777 was found to be excise duty interest on late payment of tax. On the eligible unit there is no liability of payment of Excise and therefore such interest expe....
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....en considered by the coordinate bench in assessee's own case for earlier year wherein it has been held as Under:- "58. Ground number 11 of appeal of assessee is against order of learned CIT - A with a direction to apply a profit margin of 10% against 26.14% applied by learned assessing officer over and above allocating value of common cost incurred at corporate office, depot, branches et cetera and allocated to such units and an appropriate ratio. Therefore, direction of learned CIT - A is to allocate appropriate cost of corporate office etc. then add that to a profit margin of 10% for purpose of working out deduction of eligible unit u/s 80 IB/IC/IA of The Act. Ld AO has made adjustment on basis of observation of Special Auditor as per which, common cost incurred in respect of eligible units must be allocated after loading mark up @ 26.14% being rate of operating profit after applying provisions of section 80IA(8) read with sub-section 13 of section 80IB and sub section 7 of section 80IC and making an upward adjustment on account of profit element on these common cost. Ld CIT (A) allowed part relief by reducing mark-up from 26.14% to 10%. 59. Learned authorised r....
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....mbursement of expenses for purchase of raw material and finished goods which goes for eligible undertaking some services have been provided by head office and branch office. He further held that learned CIT A has upheld that any independent persons would have charged trading profit margin on such transfer of goods. Accordingly, he applied estimated profit of 10% of such cost as profit of an office/branches/depot for such services. He therefore submitted that findings given by learned CIT - A are incontrovertible. 62. We have carefully considered rival contentions and perused orders of lower authorities as well as report of special auditor. Fact shows that AO has stated that though assessee has allocated all applicable cost to respective units however AO said that it should further be loaded by markup of 26.14% being operating profit after applying provisions of section 80 IA (8) read with subsection 13 of section 80 IB and section 7 of section 80 IC for making an upward adjustment on account of profit element on these common cost. Learned CIT - A has reduced markup from 26.14% to 10%. Undisputedly assessee has allocated all cost to respective units for purpose of determini....
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.... allocation key of 'sales'. Ld. AR of appellant relying on decision of coordinate bench of Cadila Healthcare Ltd. (supra) has submitted that there cannot be any specific demarcation between manufacturing and selling activities of assessee and profit accrues only at time of sales of goods only. Therefore, contention of revenue that selling and distribution function of assessee is a separate profit center is required to be rejected at threshold. We have carefully considered argument of ld. AR and of revenue on this point as well as ld. AO and Ld. DRP. We are of view that this argument is almost similar to argument raised by revenue in case of Cadila Healthcare Ltd. (supra) Coordinate bench has dealt with these arguments from all angles of controversy and has held as under :- '9.4 Ld. Counsel has asserted that undisputedly, it was an "inter-division transfer", hence it was expected to record same at arm's length price. He has pleaded that assessee is blowing hot and cold in same breath. When it comes to transfer of services and goods, it opposes arm's length price adjustment and says that expenses which have been incurred in past need not be taken into consideratio....
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....brand value, name of product and goodwill of Company. In any case, according to Ld. DR, a reasonable expenditure should have been provided, so that such an abnormal profit @ 58.66% could be checked. 9.6 In support of above submissions, Mr. Srivastava has placed on strong reliance on decision of Hon'ble Supreme Court in case of CIT v. Ahmedbhai Umarbhai & Co. [1950] 18 ITR 472 for legal proposition that, quote " profits received relate firstly to his business as a manufacturer, secondly to his trading operations, and thirdly to his business of import and export. Profit or loss has to be apportioned between these businesses in a business like manner and according to well established principles or accountancy." Unquote. He has also placed reliance on Liberty India (supra) . 10. We have heard both side at length. controversy as raised by Addl. CIT Mr. Mahesh Kumar, officiating as AO, has serious repercussions on subject of computation of "eligible profit" while claiming a deduction under Statute. adjustments as suggested by AO while working out manufacturing profit of an eligible Unit has a far reaching consequences on all such tax-payers; therefore we have to dea....
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....in short. In accounting "profit" is difference between purchase price and cost of bringing product to market. A "gross profit" is equal to sales revenue minus cost of goods sold or expenses that can be traced directly to production of goods. Rather, "operating profit" is also defined as equal to sales revenue minus cost of goods plus all expenses, except interest and taxes. Most of manufacturing companies have 'Total Cost' based pricing method. Total Cost has, broadly speaking, two components; i.e. raw-material plus value addition (it includes all overheads). Therefore, profit margin is price minus total cost. In manufacturing Unit, thus cost of conversion is production overheads, such as, direct labour cost and inextricably linked expenditure of production. In general, every manufacturing concern has fixed manufacturing capacity. So objective of such concern ought to be to maximize profit. Now problem, as posed, is that let us assume that said manufacturing unit is producing two products; viz. "A" & "B". For production of "A" product, let us say, there is less working hours, but fetching more value for less money. However, in production of product "B" due to complex proces....
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....ect in working of "profit" of Baddi Unit. In such a situation, we can say that legal proposition as laid down by Delhi Bench can also be applied in present appeal as well. 10.4 AO has also concluded that only incremental profit, representing difference between profits earned earlier when products were procured on P2P basis and profits earned by Baddi Unit, should be treated as a manufacturing profit. AO has then said that earlier assessee was procuring products on P2P basis and showing average profit at 80%, however, on basis of average selling rate of produces manufactured by Baddi Unit average profit was gone up to 86%. AO has therefore restricted deduction only at 6%. He has placed reliance on Rolls Royce Plc (supra). In that case, assessee was a UK based company carrying on marketing and sales activities in India through a subsidiary. subsidiary was also rendering support services to assessee, a UK based company. assessee was carrying out manufacturing operations. It was held that 35% of its profits could be attributed to marketing activities carried out in India and, therefore, chargeable to tax in India. Facts of that case were altogether different and there was a fi....
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....ses that what beneficial purpose could be served for reduction of gross profit to a lower percentage of net profit, specially when allegation of A.O. was that there was an attempt to declare higher profit of Baddi unit to get more advantage of deduction. On perusal of P&L account, it is an admitted factual position that assessee has in fact debited certain expenses which have included head office expenses, such as, marketing expenses and corporate expenses. Meaning thereby net profit of Baddi Unit was not merely production cost minus sale price, but difference of sale price minus all general expenses which were attributable to sales. Therefore, it is not reasonable to say that unreasonably profit was escalated. difference between two percentages of profit, i.e. about 28% ( G.P. - N.P.) thus represented expenditure which could be said to be in respect of marketing network and brand of product related expenses. AO has not complained about allocation of expenditure as made by assessee while computing profit of Baddi Unit. Once assessee has itself taken into account related expenses to arrive at net profit, then it was not reasonable on part of Revenue Department to f....
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....If we examine separate profit & loss account of Baddi Unit, then it is apparent that only source of income was sales of qualified products. In said P&L A/c there was no component of any other sources of income except sale price and otherwise also assessee has confined claim only in respect of eligible profit which was derived from sales of pharmaceutical products. This section do not suggest that eligible profit should be computed first by transferring product at an imaginary sale price to head office and then head office should sale product in open market. There is no such concept of segregation of profit. Rather, we have seen that profit of an undertaking is always computed as a whole by taking into account sale price of product in market. 10.7 Ld. AO has suggested that assessee should have passed entries in its books of account by recording internal transfer of product from Baddhi Unit to head office marketing unit and that too at arm's length price. From side of appellant an argument was raised that what should be arm's length price in a situation when a product is ultimately to be sold in open market. Whether AO is suggesting that an imaginary line be drawn to....
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....onsideration for such transfer as recorded in accounts of eligible business do not correspond to market value of such goods, then for purposes of deduction profits and gains of such eligible business shall be computed as if transfer has been made at market value of such goods as on that date. Though section has its own importance but area under which this section operates is that where one eligible business is transferred to any other business. We again want to emphasis that word used in this section is "business" and not word "profit". We can hence draw 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 "eligible profit". matter we are dealing is not case where business as a whole is transferred. This is a case where manufacturing products were sold through C&F in market. Even this is not case that first sales were made by Baddi Unit in favour of head office or marketing unit and thereupon sales were executed by head office to open market. Once it was not so, then fixation of market value of such good is out of ambits of this section. If there is no int....
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....se watch on performance of diversified business lines. areas of demarcation are business segment, geographical segment, etc. But as far as Revenue of an enterprise is concerned while segmentation is required, then Revenue from sales to external customers are reported in segmented statement of profit and loss. In an accounting system, an intra-company sale between divisions or units is not regarded as Revenue for purpose of such financial reporting. As per Accounting Standards an Enterprise Revenue ignores in house-sales that represent Revenue to one segment and Expense to another. In this connection, AO has discussed Hon'ble Supreme Court decision pronounced in case of Liberty India (supra). AO wanted to justify his attempt of segmentation on basis of theory that only profits derived due to manufacturing activity can be said to be derived from eligible undertaking. It was contested by AR before us that "segment reporting" is about segregation of business and not about segregation of any specific activity. In case of Liberty India (supra) it was observed that IT The Act broadly provides two types of tax incentives, namely, investment linked incentives and profit linked incentive....
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....espondent who is a resident in British India all his income, no matter where it arose, within British India or without British India, would be chargeable to excess profits tax just in same way as it chargeable to income-tax under Indian IT The Act. whole of his income arising in Raichur has legitimately been taxed under that The Act. In that decision also, word "business" was defined, i.e. business includes any trade, commerce or manufacture. It has also been said that all businesses, to which said law applied, carried on by same person shall be treated as one business for purpose of said The Act. question was about manufacturing activity and it was contended that if a man is a manufacturer as well as a seller of goods, then in his case term "part of a business" means carrying on all two activities together and therefore constitute part of business. One of Hon'ble Judges has said that activities which assessee carried on at Raichur was certainly a business of assessee. On one hand, it was argued that accrual of profit must necessarily be at place where sale proceeds are received or realized. But on other hand, it was argued that profits received relate (i) firstly to his busine....
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....ara-40 of order and for ready reference typed below:- "Provided further that this The Act shall not apply to any business whole of profits of which accrue or arise in an Indian State, and where profits of a part of a business accrue or arise in an Indian State, such part shall, for purposes of this provision, be deemed to be a separate business whole of profits of which accrue or arise in an Indian State, and other part of business shall, for all purposes of this The Act, be deemed to be a separate business." point for consideration was that whether on those facts third proviso to section 5 could be invoked. manufacturing activity of making ground-nut oil was carried out at Raichur (Hyderabad) which was treated as a separate business within meaning of said proviso and thereupon it was claimed as exempt being carried out within territorial jurisdiction of Indian State. So Court has observed that to succeed in their claim, it is incumbent upon assessee to show that there was in fact a part of a business and that profit had actually accrued or arose in that part of an Indian State. Court has clearly stated in para-41 that both elements should found exist and then only busines....
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....osed. Profits of a business are undoubtedly not "received" till commodity are sold and they are ascertained only when sale take place. This aspect has not been doubted or challenged even in said order. But in said order question was that if a part of a business consisted of manufacturing activity and that activity can be segregated so as to compute yield profit, then whether such profit accrue only at place where manufacture are sold. To answer this question, Hon'ble Court has commented in para- 49 that there was no express direction as to apportionment in third proviso to section-5 of EPT The Act. opinion expressed was very specific that a profit can accrue in respect to that part of a business only when apportionment is possible. Hon'ble Court has said that only on said assumption that apportionment was possible said proviso was based upon that presumption only. If no apportionment can be made in respect of process of a particular business, then that will not be considered to be a part of business at all and held that proviso will not apply. It was concluded that principle of apportionment was implied therein. After this detailed discussion, we thus arrive at conclusion t....
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....bution as well as research and development services provided by undertaking as a whole to eligible industrial undertaking at cost or market rate for working out eligible profit for deduction, has been decided. Ld. DR could not point out any other contrary judgment to decision cited by Ld. AR. Therefore, we respectfully following above decision of coordinate bench hold that provisions of section 80IA(8) of The Act does not apply to assessee on transfer of services of marketing division of company to eligible industrial undertaking whose profits are claimed as deductible." 63. Therefore in absence of any finding that head office, branches or depot are providing any services and are considered as a profit centre by assessee or any finding by learned assessing officer, no further profit can be attributed on actual cost allocated by these units to eligible units. Further actual cost charged by 3rd parties are merely allocated to eligible and non eligible units of assessee without making any further noticeable addition to such costs, profit ratio of 10% over and above cost cannot be imputed for working out eligible profit of unit. Further learned CIT - A in assessee's own case f....
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....ed by business of assessee for providing services to eligible undertaking which is not been allocated to eligible undertaking and by reducing deduction u/s 80 IB and I 80 IC of The Act to that extent. 82. We have heard both parties. Learned CIT DR vehemently supported order of learned assessing officer and submitted that depreciation is required to be allocated to total expenditure incurred by eligible unit for purpose of working out right amount of eligible deduction. Learned authorised representative vehemently supported order of learned CIT - A. 83. We have carefully considered rival contention and perused order of lower authorities. Learned assessing officer has made adjustment of claim of deduction u/s 80IB/IC on basis of observation of Special Auditor as per which depreciation of Head office must be allocated to eligible undertaking. Learned CIT(A) has deleted adjustment on reasoning that statutory claim of depreciation u/s 32 is on basis of asset put to use at specific location/unit and same cannot be allocated on pro rata basis. relevant finding of CIT(A) is as under : "I have considered assessment order, written submissions and oral argu....
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....ous AYs are allowed." 84. On perusal of order of learned CIT (A), we find that issue has been decided after considering facts and submissions of appellant. He has rightly held that depreciation on assets of one particular unit/division cannot be allocated to some other unit/division and as such, finding recorded by CIT (A) is well reasoned and based on sound legal principles. Further issue is also supported by decision of coordinate bench in case of ACIT v. Secure Meters Ltd. (ITA No. 542/Ju/2007 & 349/JU/2009) (28.08.2012) wherein Hon'ble Tribunal upheld order of ld CIT (A) deleting adjustment of deduction u/s 80IB/IC on account of allocation of depreciation of assets in Head Office. relevant finding is as under : "2.8 above findings of ld. CIT (A) in our considered view are in consonance with decision of Hon'ble Apex Court in case of Rajasthan State Warehousing Corporation vs. CIT (supra). findings of Hon'ble Apex Court has also been tabulated in order of ld. CIT(A) at pages 20 and 21 of his order. ld. CIT(A) has given categorical findings that various assets at HO are used for day to day working at HO. These assets are not used for activities o....
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....respect to deduction of claim of deduction u/s 80 IB/80 IC to extent of INR 39571939/- in respect of royalty on use of brand name ' Rajinigandha' by eligible units in terms of provisions of section 80 IA (8) read with section 80 IB (13) and 80 IC (7) of The Act. Learned assessing officer has noted that eligible undertaking is are manufacturing and selling their products under brand name Ranjnigandha is owned by corporate office of Assessee Company. Above brand as noted by him is a well-established brand, which has been used by eligible undertaking, is without making any provision for payment of royalty etc. in its books of accounts. These facts were also pointed out by special auditor and therefore as suggested by special auditor fair market value of transfer of Rajinigandha brand by corporate office to eligible units should also be considered at rate of 1% of sale value of finished products manufactured and sold in name of said brand. Therefore profit of these brands are allocated to eligible undertaking would have reduced eligible profit for deduction by INR 3 9571939/-. Assessee submitted before learned assessing officer that no expenses are incurred by eligible units in this re....
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....ot covered under provisions of section 80 IA (8) of The Act as above provision only apply in case of goods and services. Therefore he submitted that AO is not justified in reducing claim of deduction by adjusting notional royalty in respect of brand ' RajaniGandha ' payable by eligible units to head office. 66. Learned departmental representative vehemently supported order of learned assessing officer and learned CIT - A. He submitted that royalty is payable for use of brand owned by another unit of assessee for being used by eligible unit for manufacturing. He therefore submitted that user of above brand by eligible unit is a service and therefore provisions of section 80 IA (8) of The Act are applicable. 67. We have carefully considered rival contention and perused orders of lower authorities. Undisputedly brand originally is owned by assessee company and no royalty is paid by assessee to an outsider i.e. 3rd party. Learned assessing officer has compared royalty payment made by assessee for another brand of ' Tulsi mix' to another party. Admittedly, in case of assessee for assessment year 13 - 14, learned transfer-pricing officer in order dated 30/10/2017 while ....
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....de to sister concern taken by AO was rate approved by regional Dir. Ld Assessing officer has made impugned adjustment of claim of deduction u/s 80IB/IC on ground that royalty @ 1% of net sales paid to M/s. Dharampal Satyapal & Sons P. Ltd. (Third party) is less than rate approved by Regional Director of Central Government which is 3% and as such profit of eligible units and consequential claim of deduction 80IB/IC is inflated due to less royalty payment. Accordingly, claim of deduction was reduced by increasing royalty payment by eligible units by 2% of net sales in terms of provisions of 80IA(10) r.w.s. 80IB(13) & 80IC(7) of Income Tax The Act, 1961. CIT(A) deleted adjustment on ground that rate fixed by Regional Director was maximum ceiling limit and same cannot be considered as fair value for adjustment in terms of provisions of section 80IA(10) r.w.s. 80IB(13) & 80IC(7) of Income Tax The Act, 1961. 88. We have heard both parties on issue and considered order of learned lower authorities. learned CIT - A has deleted above addition considering that M/s Dharampal Satyapal & Sons Ltd. owns trade mark in field of chewing tobacco such as Tulsi etc. As M/s Dharampal Satyapal&....
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....4/- which consisted of 17,410 kg of sandalwood oil compounds. In the preceding financial year 2010 - 11 the purchases was 16,702.80 kg and in financial year 2009 - 10 purchases was 12,760 kg. AO noted that in earlier years the supplier did not have capacity to produce the goods which were sold to the assessee. Therefore the learned AO held that this was a camouflaged device of bogus sale of product at a very high rate and the proceeds were returned back to the assessee company. Therefore for the reasons discussed by the assessing officer in orders of the assessment for assessment year 2005 - 06 to 2011 - 12 (which were also reproduced in the current assessment order), as the assessee has also purchased goods from that party during the year, he made the addition by reducing the deduction u/s 80 IC of the income tax act of Rs. 505,920,379/-. The fate of the above addition in earlier years in assessee's own case was decided by the coordinate bench as Under:- "68. Ground number 13 of appeal is against confirmation of disallowance of INR 901187656/- in respect of claim of purchase of sandalwood oil from M/s Surya Vinayak industries Ltd and Allied perfumers private limited. Brie....
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....r credible evidence to justify allegation of inflation of purchase price. It has been held by Hon'ble ITAT that entire story of inflated purchases is merely on basis of conjectures and there is no real evidence to establish any sort of case against appellant. It was submitted that whole basis of disallowance is based on Page No. 52 of Annexure A/1 seized during course of search on 21.01.2011 and same is year specific and it is not known as to how such document is relevant for AY 2010-11 i.e. year under consideration. In light of finding of Tribunal, alleged annexure A-1/ Page 52 is not relevant to AY 2010-11 and same could not be considered as basis for any addition in AY 2010-11. Further, AO and CIT(A) has not disputed fact that entire purchases of Sandalwood Oil is fully supported from invoices issued by parties and use of same for manufacturing of final product. Further, assessing officer was not justified in relying upon seized document Page 52 of Annexure A/1 as same is incoherent, dumb and wholly irrelevant to case of assessee. Further, seized document relates to AY 2011-12 and as such, it has no relevance or bearing to assessment year under conside....
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....ocumentary evidences placed on record in form of bills, vouchers, documents showing actual receipt of material, documents in support of actual movement of goods and actual consumption in manufacture of final products, viz., Pan Masala, Tobacco and Gutka products. Even otherwise, CIT (A) has erred in applying third party minimum rate while computing value of purchase in case of SVIL and APPL. It is relevant to mention that no investigation has been carried out to demonstrate comparability of cases. There are several factors which affect price of a commodity and without making any objective comparison with regard to quality, brand, nature and type of product, there could be no ground or basis for applying data of a third party transaction. While applying minimum rate of other party, CIT (A) has ignored fact that other parties have also supplied Sandalwood Oil at different rates as per details given at page 70 of Supplementary paper book 2. Further, CIT (A) has also ignored fact that various items manufactured are of different qualities and use of different category of raw material based on business and commercial expediency and also corroborated from manufacturing of differe....
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.... further held that Sandalwood oil is an excisable product and entered in excise registrar of perfumery compound division of assessee. He further noted that on date of such there was no discrepancy in stock of sandalwood oil found which is apparent from assessment order where assessing officer himself as mentioned that during course of search proceedings conducted sandalwood oil was found in production for being hundred KG and in managing director room wearing 208.74 KG. He further considered consumption of sandalwood oil after reducing purchases from two companies and also after incorporating quantity purchased from these two companies and compared them. He noted that if quantity purchased from these two entities are disallowed and not taken into consideration than revised yield ranges from 102.57% to 112.62 percentage of entire consumption of raw material, which gives an absurd result of finished goods production, which is exceedingly consumption. He further noted that quantity of finished product 4 KG on consumption of sandalwood oil ranges from 6.5 - 8.54 for various assessment years appears to be reasonable in variation whereas if entire quantity purchased from these 2 entities....
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....efore cognizance of the same can be taken only for the year Ay 201-12. There is no evidence found during the course of search that these are the transactions related to this year. The order of the coordinate bench in assessee's own case is clear on this issue with respect to which year the cognizance of these seized material would be taken. " 28. The main seized paper on which heavy reliance is placed up on by revenue is Page No. 52 of annexure A-1 which is a statement dated 30.11.2010 where in the details of three bills dated 19.11.2010 and 26.11.2010 are given. The details of the bill show quantity, rate, and the amount. The total quantity purchased by the assessee is 650 kgs and corresponding amount is Rs. 4.64 crores. There is account statement below which gives the details of payment made up to 31.10.2010 of Rs. 6.70 crores as excess and there is two entry of rate difference and further there is an adjustment on account of excise duty and thereafter Rs. 2.04 crores is determined as amount to pay from which an amount paid by party of Rs. 10.50 crores is deducted which resulted into excess paid of Rs. 12.54 crores. Below that, there is a statement in which details of ca....
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....unt or documents", the assessments for assessment years cannot be disturbed. Further, the concluded assessments should not be disturbed merely for making routine additions, which could have been otherwise done in the regular assessment and of course, the pending assessments fall under exceptions. As stated by the learned counsel point No. 9 of his note reproduced above, "nothing is seized pertaining to asst. yRs. 2000-01 to 2003-04 obviously there is no question of recording satisfaction note". On this reasoning itself, we find that the assessee has to succeed. Therefore, we do not examine the other arguments of the counsel. Otherwise, the counsel argued that the reopening of the assessment for the asst. yRs. 2000- 01 to 2001-02 is impermissible in view of the judgment of Ahmedabad Bench in the case of Vijay M. Vimawal (supra). Further, he also argued that the assessment of asst. yr. 2003-04 was actually completed under s. 143(3) on 30th March, 2006 i.e. prior to receipt of the impugned documents by the AO on 18th April, 2007, this assessment was not pending. Attending to these arguments of the counsel is superfluous and merely an academic exercise as we have upheld the ap....
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....sue pertaining to validity of notice under Section 153C of the Act was raised for the first time before the Tribunal and the Tribunal permitted the assessee to raise this additional ground and while dealing with the same on merits, accepted the contention of the assessee. 17. First objection of the learned Solicitor General was that it was improper on the part of the ITAT to allow this ground to be raised, when the assessee had not objected to the jurisdiction under Section 153C of the Act before the AO. Therefore, in the first instance, it needs to be determined as to whether ITAT was right in permitting the assessee to raise this ground for the first time before it, as an additional ground. 18. The ITAT permitted this additional ground by giving a reason that it was a jurisdictional issue taken up on the basis of facts already on the record and, therefore, could be raised. In this behalf, it was noted by the ITAT that as per the provisions of Section 153C of the Act, incriminating material which was seized had to pertain to the Assessment Years in question and it is an undisputed fact that the documents which were seized did not establish any co-relatio....
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..... 21. Likewise, the Delhi High Court also decided the case on altogether different facts which will have no bearing once the matter is examined in the aforesaid hue on the facts of this case. The Bombay High Court has rightly distinguished the said judgment as not applicable giving the following reasons: "8. Reliance on the judgment of the Division Bench of the High Court of Delhi reported in case of SSP Aviation Ltd. v. Deputy Commissioner of Income Tax [2012] 346 ITR 177 is misplaced. There, search was carried out in the case of "P" group of companies. It was found that the assessee before the Hon'ble Delhi High Court had acquired certain development rights from "P" group of companies. Based thereon, the satisfaction was recorded by the Assessing Officer and he issued notice in terms of Section 153C. Thereupon the proceedings were initiated under section 153A and the assessee was directed to file returns for the six assessment years commencing from 2003- 04 onwards. The assessees filed returns for those years but disclosed Nil taxable income. These returns were accepted by the Assessing Officer, however, in respect of the assessment year 2007-08 the....
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....ate prevailing on those days. Mere assertion that assessee has purchased material from this party in these years and therefore there has to be over invoicing of the purchases is a mere assertion without any material. Therefore, we do not have any hesitation to hold that In the present case the impugned seized paper does not belong to the Assessment Years involved in the impugned appeals. 31. Furthermore, with respect to the same paper it is also important to note that it is evident from that paper that Surya Vinayak Industries have over paid the assessee than what it should have allegedly paid for over invoicing. This evident facts also runs contrary to the other finding that Surya Vinayak industries is company of not having capacity to supply so much material in para no 145 of the order. If it is so then how it could have paid the assessee over and above what is required to be paid if the goods are over invoiced. The sum over paid by that company to the appellant is not small compared to the purchases. Even circular route stated by ld AO in various para of assessment order 143 onwards also proves contrary if read with the order passed u/s 154 of the act. Therefor....
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....here is mention of 'SANDALWOOD OIL' as 'raw material'. Their suppliers are mentioned in the next column with party name and yearly quantity purchased from them. In this column there is no classification of any sandalwood oil [C] or sandalwood oil [SU]. Just one item is mentioned and that is sandal wood oil. SVIL and Kamakhya Oil Co and other concerns are shown as their suppliers. This proves that only sandalwood oil is being supplied by SVIL. Page No.7 to 12 of Annexure A-16 of Perfumery Division is the statement of raw materials taken from the I.A.S. software which is used in the perfumery division. This statement shows the opening balance, total receipts, total consumption, closing balances, physical balance along with short/excess for the period 1.4.09 to 31.03.10. This statement is showing the date in respect of more than 150 raw materials being purchased by Perfumery Division. In this statement there is mention of only sandalwood oil and not any [C] or [SU]. In the same way page No.2 to 6 of this annexure are the statement of physical stock as on 23.03.2010 prepared by the staff of Perfumery Division. All the items of this physical stock statement dated 23.03.2010 tally with t....
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....ue thereof is Rs. 118.00 crores" 34. On reading of the above paragraph the main contention of the ld Assessing Officer is that there is no product by the name of sandalwood oil (C) or Sandalwood Oil (U) being supplied by Surya Vinayak Industries ltd to M/s. Dharampal Stayapal Ltd (assessee). The page NO. 226 of Annexure 11, which is also the statement of physical stock as on 23.03.2011, does not fall into the assessment years in the above appeal. Further page NO. 72 of Annexure A-14 also pertain financial year 01.04.2010 to 31.12.2010. The central Excise Return Filed in Form NO. ER-1 cannot be said to be incriminating material, as it does not show any escapement of income involved in those papers. Hon'ble Supreme Court Sinhgad Technical & Education society ( supra) in the para No. 18 has endorsed the reasoning given by the coordinate bench stating it to be logical and valid that incriminating material, which was seized, had to pertain to the Assessment Years in question and the documents seized must established any correlation document-wise with the Assessment Years involved. From the above reading of the documents, it is apparent that none of the seized documents belo....
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....to the issue decided by the coordinate bench in assessee's own case for earlier years as under:- "73. Now we come to ground number 14 of appeal of assessee which is against transfer pricing adjustment of INR 59551686/-. Identical addition has been made for AY 2012-13, the ld CIT (A) has considered the figures and facts for AY 2012-13, and therefore in this order for sake of simplicity, facts for that year are considered. For AY 2012-13 , In form number 3CEB filed by assessee and international transaction as reported International transaction of interest on loan with its associated enterprise DNS business AG to Rs. 22163283/-, same was referred by learned assessing officer to The Additional Commissioner Of Income Tax, Transfer Pricing Officer - I (1), New Delhi for determination of arm's-length price. International transaction is that assessee has advanced foreign currency loan to its subsidiary in Switzerland of INR 176420000/- where rate of interest charged is only 3%. Assessee benchmarked this transnational transaction adopting CUP as most appropriate method. Learned transfer pricing officer issued a show cause notice to assessee on 20/11/2013 wherein he noted that since....
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....jected contention of assessee that it is a shareholder activity rejecting that advancement of loan cannot be characterized as a shareholder activity and it is a financial transaction and required to be benchmarked. He further noted that his view is also supported by term loan advanced which was later on to be converted into a share capital. Further with respect to argument of learned authorised representative that issue is squarely covered by decision of honourable jurisdictional High Court in case of cotton natural India private limited, he considered loan agreement and stated that as specifically currency of loan is not mentioned in loan agreement and ceiling of loan is fixed in Indian rupees and that currency of loan is in Indian rupees only and therefore foreign currency fluctuation in Indian rupee loan will not effect and therefore primary LIBOR rate or interest rate prevailing in foreign country will not apply on this loan. Accordingly, he upheld action of learned transfer pricing officer holding that Indian interest rate on such loan for benchmarking interest transaction of loan advanced is required to be taken by taking state bank of India prime lending rate for purpose of ....
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....er stated that in impugned case assessee has advance loan to its wholly owned subsidiary in Switzerland in foreign currency and same is repayable in that foreign currency only and therefore issue squarely covered by decision of honourable jurisdictional High Court. He further referred to decision of coordinate bench in ITA number 06/07/2002/del/2015 dated 8/10/2018 wherein DCIT vs Seigwerk India private limited similar view was upheld. He further referred to decision of coordinate bench in ITA number 5816/del/2012 wherein it was held that in a case where loan was advanced in foreign currency interest rate on foreign currency loan being qualitatively different, even if one has to see interest, that assessee should have earned one has to see interest that assessee would have earned on foreign currency loans and not rupee dominated loans. He further referred to decision of honourable Bombay High Court in CIT vs. Tata auto comp systems Ltd [374 ITR 516 ] wherein it is held that where assessee advance loan to its foreign associated enterprise, rate of interest was to be determined on basis of rate prevailing in country where loan had been consumed. Therefore he is submitted that benchma....