TaxTMI 
TaxTMI 
TaxTMI 
2020 (10) TMI 834
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....rk 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 related party, viz., M/.s Dharampal Premchand was less than the price charged fr....
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.... 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 of claim of statutory deduction u/s 80IB/80IC of Rs. 55,03,526/- on account of short allocation of interest to eligible units in terms of provisions of section 80IA(8) read with 8....
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.... 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 law in disallowing claim of statutory deduction under section 80IB/80IC, to the extent of Rs. 95,09,442/-, applying provisions of section 80IA(10) of the Act on the ground that royalty paid to M/s Dharampal Satyapal & Sons Ltd. (DSS) was not carried out at arm's....
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....G 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, alter, amend, substitute, forgo any or all the grounds of appeal before or at the time of hearing. 17. That orders of lower authorities are not justified on facts and under the law. 3. The assessee company is engaged in the business of manufacture and trade in pan masala, Guthka, Zarda and perfumery compounds and herbs, mouth fresheners, salt and spices, snac....
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....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 determining the total taxable income of the assessee of Rs. 1,200,423,319. The learned assessing officer made following additions to the income of the assessee which are disputed before us. a. Addition of Rs. 4,449,536 on account of over valuation of stock of work in progress in the form of semi finished goods and unpack finished goods b. adjustment and account of the arm's-len....
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....red 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) which is a recognized stock exchange as per CBDT Notification No. 46/2009 dated 22/05/2009. Also, the issue is directly covered by the decision of Hon'ble Madras High Court in the case of CIT v. Sri Vasavi Gold & Bullion (P.) Ltd. [2018] 92 taxmann.com 290 (Madras) which has followed and applied by Hon'ble ITAT, Ahmedabad bench in the case of Chirayu Exim Pvt. Ltd. v. ITO (ITA NO. 2819/Ahd/16) (17/09/18). 7 Disallowance of deduction u/s 80IB/IC by applying provisions of sec.80IA(8) in respect of transfer of goods (Katha ....
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....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 13 Disallowance of deduction u/s 80IB/IC in respect of royalty paid to sister concern M/s. Dharampal Premchand Ltd. on the basis of provisions of section 80IA(10) 95,09,442/- AO : Page 22 Para 13.12 DRP: Page 40 Para 16.3 Page 101-102 Para 87-88 Adjustment Deleted. 14 Ad-hoc Disallowance on purchase of Sandalwood oil 50,59,20,379/- AO : Page 23-80 Para 13.13 DRP: Page 48 Para 17.3 Page 72-91 Para 68-72 Hon'ble ITAT deleted the disallowance in AY 2010-11 on the ground that documents seized during the search relates to AY 2011-12 only and CIT(A) or AO has not given any ground or basis for extrapolating contents o....
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....ation 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 assessee company has not classified its inventory as per requirement of schedule VI of Companies The Act, 1956. He observed that assessee company has not included in valuation of work in progress, indirect cost like manufacturing expenses, power and fuel, direct labor etc. and fixed and variable overheads like depreciation in plant and machinery, factory building, factory management, administration costs and other indirect costs incurred for conversion of stock in trade. Therefore, learned assessing officer noted that valuation of work in progress in form of semi finished goods and unpacked finished goods resulting in under valuation of inventory is of INR 31639765/- resulting in under....
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....s 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. (2008)297 ITR 77 (Del) in which it was held as under: "We are of opinion that in present case, there is no question of any double benefit being given to assessee. Paragraph 23.13 of guidance note itself makes it clear that whenever any adjustment is made in valuation of inventory, this will affect both opening as well as closing stock. It is also to be noted that if any adjustment is required to be made by a statute, (as for example Section 145A of The Act), effect to same should be given irrespective of any consequences on computation of income for tax purposes. Section 145A of The Act begins with as non-obstante clause, and therefore, to give effect to Section 145A of The Act, if there is a change in closin....
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....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 addition of Rs. 4,449,536 on account of adjustment of reduction in the value of opening work in progress for this year. 13. The 3 ground of appeal is against the disallowance of Rs. 333,157/- out of the interest expenditure. Before the learned assessing officer it was submitted that the loans have been given from the retained earnings and the assessee is incurring interest expenditure in respect of the borrowed funds. Therefore in view of available interest free funds in excess of advances and borrowed funds tied up for business purposes, there cannot be any disallowance of interest expenditure. However the learned assessing officer following the earlier years order considered the interest receivable from M/s Ganeshji Overseas Inc amounting to Rs. 319,....
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....ster 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 AO and CIT(A) are factually and legally incorrect and impugned disallowance is on arbitrary and mechanical basis. It is submitted that funds have been advanced to sister concerns on account of business and commercial expediency, there is no case of any disallowance of interest u/s 36(1)(iii) of The Act. It is relevant to note that appellant assessee is engaged in variety of business segments and loans so made to sister concerns are for purpose of advancing business interest of assessee. There is no finding recorded by ld AO or CIT (A) that funds have not been advanced for business purposes and disallowance is merely on conjectures and surmises. He relied up on decision of Hon'ble Delhi High Court in case of Pr. CIT v. Reebok India Company[2018] 259 Taxman 100 (Delhi)....
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.... 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-interest-bearing funds available with assessee far exceeded loans and advances given by assessee to its sister concern at lower interest rate or without charging interest. assessee has also submitted a chart which shows that despite identical facts in assessment year 2013 - 14 learned assessing officer has not made any addition to total income of assessee on account of interest disallowance. Therefore, situation has been accepted by learned AO in assessment year 13 - 14 onwards. Even otherwise assessee has submitted copies of bank statement in paper book. Perusal of bank statements shows that whenever advances have been given to sister concern there was balance in cash credit account and it is positive and not negative as held by CIT (A) , therefore, it cannot be said that nexus been proved that amount is advanced out of borrowed funds. Therefore, ....
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....f 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 capital and reserves and surplus available with assessee, interest disallowance u/s 36 (1) (iii) of The Act cannot be made. Hence, in view of above facts, we reverse finding of lower authorities in disallowing interest expenditure. Accordingly, ground number 5 of appeal of assessee is allowed." 14. The learned departmental representative could not controvert the fact that assessee has huge own funds on which no interest is payable by the assessee. Therefore respectfully following the decision of the coordinate bench, we direct the learned assessing officer to delete the disallowance of Rs. 333,157/- made u/s 36 (1) (iii) of the act. Accordingly ground number 3 is allowed. 15. Ground number 4 is addition of Rs. 246,100/- with respect to the job charges recovered at a lesser rate from sister concern M/s Dharampal Premchand Ltd then prevailing market rate. T....
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....esentative 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 concern then rates charged to outside party. Accordingly ground number 4 of the appeal is allowed. 17. The ground number 5 is with respect to the disallowance and u/s 14 A of The Income Tax Act amounting to Rs. 276,28,704/-. The learned authorised representative submitted that issue is identically covered in favour of the assessee by the order of the coordinate bench where the addition was deleted as no satisfaction was recorded by the learned assessing officer with respect to the disallowance offered by the assessee. He further stated that the assessment order for this year is also identical and there is no satisfaction recorded by the learned assessing officer. 18. The learned departmental representative vehemently supported the order of the learned that AO. 19. We have carefully considered the rival contentions and find that assessee has received dividend of Rs. 2,709,945/- durin....
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....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, hence, disallowance of INR 50268833/- was made applying provisions of section 14 A read with rule 8D of The Income Tax Rules. Ld CIT(A) has allowed substantial relief to assessee and has directed assessing officer to exclude growth oriented investments while applying Rule 8D(2)(iii). Also, regarding application of Rule 8D(2)(ii), ld CIT(A) held that investments which have been made through cash credit account, rate of interest in cash credit account should be adopted. However, assessee aggrieved with order of lower authorities has preferred this ground before us. 28. Learned authorised representative submitted that assessee has only earned exempt income to extent of Rs. 15,96,000/- which is corroborated from Schedule 16 of P&L a/c placed at Page 165 of PB Vol.1 and also taken note by Special Auditor. Further, assessee has made suo motu disallowance of Rs. 4,37,504/- in return of income which is also ackno....
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....om 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 14A read with Rule 8D, if any, has to be restricted to 0.5% of average investment as specified in Rule 8D2(iii). Further, disallowance as per rule 8D(2)(iii) has to be computed only in respect of investments yielding exempt income and accordingly assessing officer is not justified in applying formula prescribed in Rule 8D to entire value of investment. legal position to this effect is well settled and reference may be made to decision of Delhi High Court in case of ACB India Ltd vs. ACIT [2015] 374 ITR 108 (Delhi High Court) in which it was held as under : "S. 14A & Rule 8D(2)(iii): In computing "average value of investment", only investments yielding non-taxable income have to be considered and not all investments." 31. Above said decision has been followed and applied by Hon'ble Delhi Tribunal in case of DCIT v. DLF Commercial Developers Ltd. (ITA No. 1388/D/13) (01/03/2018) in which it was held as under : "9. Turning to clause (iii) of Rule 8D(2), it is noted that Assessing Officer ....
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....ssing Officer made addition on account of apportionment of expenses against exempted income under section 14A - Commissioner passed a revisional order directing Assessing Officer to enhance amount of addition under section 14A - Tribunal set aside revisional order as well as consequent assessment order passed by Assessing Officer enhancing addition made under section 14A - High Court upheld order of Tribunal holding that amount of disallowance under section 14A could be restricted to amount of exempt income only and not a higher figure - Whether on facts, SLP filed against decision of High Court was to be dismissed on merits- Held, yes." 34. Therefore he submitted that disallowance made by learned assessing officer as well as confirmed by learned CIT - A is not sustainable firstly on account of non-recording of satisfaction and secondly for reason that no interest disallowance even otherwise can be made. He further stated that while making expenditure disallowance only investments, which have yielded tax-free income, are required to be considered. 35. Learned departmental representative vehemently supported orders of lower authorities. He submitted that when assessee has earned....
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....2) of section 14A, Ld . Assessing Officer would determine amount of expenditure incurred in relation to such income which does not form part of total income in accordance with method as may be prescribed, if having regard to accounts of assessee, he is not satisfied with correctness of claim of assessee in respect of such expenditure. Method for such purpose has been prescribed under rule 8D of Rules. Sub-rule (1) of rule 8D substantially reiterates what subsection (2) of section 14A provides. Essentially, under sub-rule (1), Assessing Officer would be authorized to determine expenditure to be disallowed in relation to earning tax- free income, in terms of sub-rule (2) where having regard to accounts of assessee of previous year, if he is not satisfied with correctness of claim of expenditure made by assessee or claim made by assessee is that no expenditure has been incurred in relation to income which does not form part of total income. Further Hon Supreme court in 402 ITR 640 has held that:- "41. Having regard to language of section 14A(2) of The Act, read with rule 8D of Rules, we also make it clear that before applying theory of apportionment, Assessing Officer needs to recor....
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....subsection 5 of Section 43 of the act read with the memorandum explaining the finance bill 2005, the transactions regarding to the future and options and commodity trading and not considered to be speculative as the same was carried out on a recognised stock exchange leaving a proper audit trail of time and stamp and there is no scope of generating the fictitious losses and gains. The assessee also submitted the copies of the contract note on sample basis for future adoption and commodity. Therefore it was submitted that the loss on the commodity/sales should not be treated as speculative loss and are correctly offered under the head business income only. 22. The learned assessing officer rejected the explanation of the assessee stating that the transaction on commodities were made nonspeculative by The Finance Act 2013 with effect from 1/4/2014 and therefore for this year the transactions are speculative in nature. Accordingly the loss incurred by the assessee of Rs. 57,471,113/- was considered as speculative and was not allowed to be set-off against the income from business and profession. 23. On raising the objection before the learned dispute resolution panel, vide para numb....
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....ve to be set off against other business income as per provisions of Act - Held, yes - Whether furthermore, since transaction carried out by assessee was a non-speculative transaction, section 43(5) will not be applicable - Held, yes ii. Chirayu Exim P. Ltd. v. ITO (ITA No. 2819/Ahd/16) (17/09/2018)(ITAT Ahmedabad) [PB Pg 192-201] 8....As regards the claim of losses arising in the commodity exchange platform the stand of the Revenue that the assessee's transaction is not an eligible transaction as contemplated in Section 43(5)(d) of the Act was firmly rejected by the Hon'ble Madras High Court in the case of CIT vs. M/s. Sri Vasavi Gold & Bullion Pvt. Ltd. in T.C.A. No. 853 of 2017 in identical facts and circumstances. 9. Respectfully following the judicial fiat available in this regard, we find merit in the case of the assessee with reference to the derivative loss arising in the equity segment and commodity segment. As regards, loss of Rs. 19,678/-, it is claimed on behalf of the assessee, the correct loss stands at Rs. 23,86,040/- as against Rs. 23,66,362/- assumed by the AO in the commodity segment. Considering the smallness of amount and having regard to the docu....
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....n as claimed by the assessee. 26. We have carefully considered the rival contentions and perused the orders of the lower authorities. In this regard the assessee has submitted that it has entered into transaction with 4 brokers. (1) Kalyani commodity, (2) Pushpa Commodity, (3) Bhagyashree commodities and (4) sun commodity. The assessee has given the details of the transaction entered into by the assessee. Contract notes issued by all brokers were submitted before us. All of them are registered with a stock exchange. They have also shown the forward market commission membership numbers, on their bills/contract notes their permanent account number is also submitted. The contract note shows order number, trade number, trade time, quantity, rate , value, and total of the brokerage charges. It also shows in which commodity assessee has transacted. Therefore, before us assessee has submitted a detail of the commodity transaction with time and date stamp transactions. The learned dispute resolution panel has held that such details are not available. These details are now available with us but we are not aware whether the complete details were available with the assessing officer or not. ....
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....round that fair market value of goods transferred from Noida Division to eligible unit is higher in terms of provisions of section 80 IA (8) read with 80 IB (13) and 80 IC (7) of The Act for reason that in respect of unprocessed goods profit Mark up to extent of 2% instead of 10% as computed by assessing officer was restricted. With respect to processed catechu, he confirmed valuation by assessing officer and uphold markup of manufacturing expenses and profit rate at rate of 37.85% and 10% respectively. Assessee is further aggrieved in respect of processed cardamom where learned CIT - A confirmed valuation done by assessing officer and uphold markup of manufacturing expenses and profit rate @ of 37.85% and 10% respectively. 41. Learned assessing officer-examined fact, that assessee has transferred goods from units located at Noida to eligible undertaking at below fair market price. Special auditor reported that from units located at Noida assessee has transferred work in progress in form of processed raw material/semi finished goods worth INR 394051682/- to undertaking eligible for deduction u/s 80 IC below its cost, though assessee company ought to have transferred same at fair ....
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....ods transferred which is directly sent without processing. ii. With respect to goods those are processed, he confirmed loading of average manufacturing expenses of 37.85% as processing value addition has taken place and further confirmed charging of profit at rate of 10%. iii. With respect to cardamom, he confirmed action of assessing officer of loading of manufacturing expenses at rate of 37.58 percent and profit at rate of 10% as per Excise rules subject to deduction of cost of Chilka transferred to other units from addition. 42. Therefore, assessee is aggrieved with order of learned CIT - A has preferred this appeal. 43. Ld Authorised representative submitted as under :- i. That issue relates to transfer of following three products from Noida division to eligible unit in Guwahati : a. Supari b. Katha c. Elaichi ii. Assessing officer has recomputed value of goods transferred on basis of observation of Special Auditor after loading 14.73% mark up on account of manufacturing cost and further 10% mark up on account of profit to value of goods so transferred by applying provisions of section 80IA(8) read with section 80IB(13)/80IC(7) of The Act. iii. Ld CIT (A) ha....
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....stimating fair market value of consumable items in terms of section 80IA(8) read with section 80IB(13)/80IC(7) of The Act. VIII. It is pertinent to note that provisions of section 80IA(8) read with section 80IB(13)/80IC(7) of The Act authorizes an assessing officer to make adjustments in claim of deduction by substituting fair market value of goods transferred from non-eligible unit to eligible unit. section specifically talks about market value that in itself means that product must be marketable having distinct identity. However, goods in present case are raw material being part of production process having no separate identity. product purchased from third parties is transferred after minimal processing and as such, there is not much difference between purchase price and transfer price of goods and as such assessing officer is not justified in enhancing value without making reference to any comparable cases. IX. Further, assessing officer has not brought anything on record to establish market value of goods for purpose of provision of section 80IA(8) and as such adjustment made to value of goods transferred from non-eligible unit to eligible unit is arbitrary and not support....
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....puted as if transfer, in either case, had been made at market value of such goods 42[or services] as on that date : Provided that where, in opinion of Assessing Officer, computation of profits and gains of eligible business in manner hereinbefore specified presents exceptional difficulties, Assessing Officer may compute such profits and gains on such reasonable basis as he may deem fit. Explanation - 43[For purposes of this sub-section, "market value", in relation to any goods or services, means- (i) price that such goods or services would ordinarily fetch in open market; or (ii) arm's length price as defined in clause (ii) of section 92F, where transfer of such goods or services is a specified domestic transaction referred to in section 92BA.] 48. Above section provides that if eligible business receives any services/ goods from other units or business of assessee then if transaction value as recorded in books of account is not corresponding to market value of such goods or services on date of transfer then deduction u/s 80 IA shall be adjusted as a such transfer has been made at market value of such goods as on that date. Market value has further been defined to sho....
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....ost of goods sold and therefore it presumes a market where only profit exists. Such can never be situation. In view of this, we reject finding of lower authorities and learned assessing officer that value that has been recorded in transfer of goods from one unit to another should further be loaded by cost of 37.58%. Further 10% profit has been presumed under Central Excise provision for purpose of transfer of goods as captive consumption for another unit. Therefore if goods having a cost of Rs. 100/- is transferred to another unit, then transaction value of such goods shall be considered at INR 110/-. Therefore transferring unit will pay excise duty on INR 1 10 and unit to which such goods have been transferred will claim duty credit paid on transfer value of INR 110. Therefore, above rule can only be applied with respect to duty set off of excisable units. Central Excise rules has stated that INR 110/- would be deemed transaction value of such goods. Rule 8 of Central Excise valuation rule is a deeming provision. It does not say what could be market price of such goods but for purpose of levy of Central Excise it deems that INR 110/- shall be transaction value. Therefore, in abs....
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....of INR 13634222/- by applying provisions of section 80 IA (8) on ground that fair market value of goods transferred from silver foil division to eligible undertaking was held than that declared by appellant. Brief facts of issue are that special auditor is reported that during year under consideration silver for unit has transferred goods of INR 9 7796985 to various units including INR 4 5266554/- to manufacturing units eligible for deduction u/s 80 IB/80 IC of income tax Act. Learned auditor has considered for arriving at transfer value of silver foil is on FIFO method considering value of raw silver. He compared market value of silver on date of order booking by customer. Therefore, he found that there is a difference in outside customer's sale rate and inter-unit transfer rates because of frequent variation in price of raw silver during year. Therefore, auditor stated that silver for unit has transferred products to eligible units below fair market value. Based on this , he worked out fair market value of products transferred to eligible units taking average market price and stated that there is an understatement of profit of unit by INR 13634222/- and over statement of profit....
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....ng cost, freight expenses et cetera on FIFO basis. Whereas learned assessing officer has taken average sale cost rate to 3rd party to file market value of such civil file to eligible undertaking claiming deduction u/s 80 IB/80 IC of The Act. It is apparent that silver foil item is sold to outsiders; actual price realized by assessee on sale of these items to third party is market value of product as on that date. However, assessee has purchased raw silver from third parties and as on date raw material purchased by assessee for eligible unit was fair market value of goods purchased. Assessee has also loaded actual cost on these goods with respect to freight and other expenditure. However, assessee has done processing on goods purchased from third parties therefore; assessee has provided in fact services of processing of goods. Even otherwise as stated by learned authorised representative that silver is a commodity price of which fluctuates every hour therefore approach of learned lower authorities in adopting average purchase price during year cannot substitute market value of silver purchased by assessee for its eligible unit. Therefore, at most processing cost of silver is servi....
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....terest disallowed u/s 36 (1) (iii) of the act. Therefore he found that the net interest expenditure should have been allocated by the assessee to the various units is Rs. 493,890,004/-. The assessee has only allocated a sum of Rs. 482,898,472 and therefore there is a short allocation of interest cost to various units of Rs. 109,91,532/-. Therefore he allocated the above sum with respect to all the manufacturing units of the assessee and found that a sum of Rs. 5,503,526 should have been allocated to the eligible units. Therefore he reduced the profit eligible for deduction u/s 80 IB/80 IC by the above sum. The learned dispute resolution panel confirmed the action of the learned assessing officer. 33. The learned authorised representative submitted a detailed chart of interest allocation before us showing the various amount of interest expenditure, to which operation of the business of those relate to, there reason for not pertaining to the eligible units. Therefore it was submitted that this issue is covered in favour of the assessee by the earlier order of the coordinate bench for assessment year 2004 - 05 wherein the identical allocation is accepted. 34. The learned departmenta....
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....d from the profits of the eligible unit. The sum of interest cost on bill payable, interest on cash credit interest, on current account interest, on service tax and interest on late payment of tax are not at all related to the eligible unit. Learned departmental representative as well as the learned assessing officer has also not shown that these are the interest expnses which are indirectly connected to the profits of the eligible unit. The learned assessing officer has merely applied mathematical formula without looking at the nature of interest expenditure which have not been allocated to the eligible unit. He has merely stated that total interest expenditure should have been allocated to the various manufacturing units whether they relate to the eligible unit or not. Such is not the mandate of the law to determine the profit eligible which is derived from manufacturing activity for deduction u/s 80 IB/80 IC of the act. The claim of the assessee is that this allocation of interest which assessee is using for last several years which has been accepted by the coordinate bench also in assessment year 2004 - 05. This argument of the assessee has not been controverted by the learne....
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....to eligible unit. However, in present case, services have been rendered by third party at market price and head office is merely allocating proportionate cost to eligible units and as such there is no occasion to compute fair market value of these costs since they are not in nature of goods or services rendered by Head office. Further, allocation of depreciation as done by Special Auditor has already been deleted by CIT(A) (Page 181) on ground that depreciation is unit and asset specific and same cannot be allocated on arbitrary basis. Since mark-up @10% has also been applied to allocated portion of depreciation, observation of CIT(A) while applying 10% mark-up is irrational and contrary to his own findings. It may be appreciated that it is a case of simple allocation of costs incurred on behalf of units and as such loading of mark-up on such allocation is in total disregard to provisions of section 80IA(8) r.w.s. 80IB(13) & 80IC(7) of Income Tax The Act, 1961. Even otherwise, it may also be appreciated that allocation of common cost is in nature of reimbursement of expenses and as such, there is no valid ground or basis for attributing any profit on such reimbursements. 60. Le....
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....es. It is also claim of assessee that no further services have been rendered by these offices to eligible unit of assessee except allocating cost. Here, undisputedly allocation key has been correctly applied and not questioned by revenue. Therefore, only argument of revenue is that various cost allocated by head office/branches and depot shall also be further increased by a markup of profit of 10% over such cost. Identical issue has been decided by coordinate bench in [68 taxmann.com 322] wherein contention of revenue was that selling and distribution activity is itself a separate profit centre , therefore whatever services have been provided by selling and distribution arm of assessee to eligible undertaking, should have been charged adding profit and reduced from profit of industrial undertaking after valuing services of selling and distribution arm of company by loading profit element. Coordinate bench has decided that no such profit markup is required to be added when only costs have been allocated and no identification of any specific services provided by such units to eligible unit is found. For holding so coordinate bench also relied upon decision of another coordinate ben....
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.... on profit & loss account of eligible Unit, i.e. Baddi Unit, (refer Page No.87 of paper-book). Ld. DR has said that sales to tune of Rs. 1,19,13,22,749/- were recorded for accounting period ended on 31.3.2006. He has pleaded that if said Unit was to sale its products on stand alone basis, then said Unit which was only two years old could not fetch such high sale price. said Unit has shown high profit at Rs. 1,16,82,91,400/-. goods manufactured by said Unit were transferred to marketing division of assessee-company and sale price was noted by Baddi Unit as per final sale price of product. But fact is that marketing divisions and C&F are involved, therefore sales are realized by main marketing division. He has thus pleaded that profit derived from "marketing function" cannot be dragged to manufacturing unit for purpose of claiming deduction u/s.80IC. Special Provision is confined to certain Undertakings, as defined in Statute, and such eligible undertakings are entitled for deduction of profit of such undertakings only. He has again drawn our attention that only source of income should be eligible source of income and not other sources of income, such as, profits of marketing divisio....
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....;. As per section 2(13) 'business' includes trade, commerce or manufacture. In auxiliary, as per section 2(24) 'income' includes (i) profits and gains. An 'income' has to have a component of 'profits & gains' but all type of 'profits & gains' may not be an 'income' for tax purpose under The Act. section in controversy i.e. Sec. 80 IC of The Act is embedded with both these terminology, reproduced verbatim :- "80IC (1) Where gross total income of an assessee includes any profits and gains derived by an undertaking or an enterprise from any business referred to in sub-section (2), there shall, in accordance with and subject to provisions of this section, be allowed, in computing total income of assessee, a deduction from such profits and gains, as specified in subsection( 3)". 10.2 'business' is prescribed in sub-section (2) in following manner : (2) This section applies to any undertaking or enterprise (a) which has begun or begins to manufacture or produce any Article or thing ......... Therefore, 'manufacturing' is first criteria for eligibility of 'business' to qualify for deduction. Hence 'pro....
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....n manufacturing of certain article or thing. business of said enterprise/concern should be manufacturing of article or thing and profit therefrom is eligible for deduction u/s.80IC if that profit is part and parcel of gross total income. As noted hereinabove, profit is difference between purchase price and cost of production along with cost of bringing product to market. This basic principle of accountancy, as appeared, have been adopted by Baddi Unit because as per Profit & Loss account, cost of material, personal cost and general expenses, corporate expenses were reduced from sale price to arrive at "profit before tax" i.e. Rs. 116,82,91,400/-. 10.3 It is not in dispute that for Baddi Unit assessee has maintained separate books of accounts and therefore drawn a separate profit and loss account. In such a situation, whether AO is empowered to disturb computation of profit, is always a subject matter of controversy. From side of assessee, reliance was placed on Addl. CIT v. Delhi Press Patra Prakashan [2006] 10 SOT 74 (Delhi) (URO). In this case, assessee was claiming deduction u/s.80IA in respect of a Unit No.4. said Unit was showing profit @ 62%. As against that, AO has noticed....
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....nd then it was held that such part of income as it was reasonably attributable to operations carried out in India is taxable. expression "business connection" was also considered and then it was found that it will include a person acting on behalf of a non-resident and carried on certain activities is having business connection. A business connection has to be real and intimate and through which income must accrue or arise whether directly or indirectly to non-resident. On those facts, since it was found that R&D activities were carried out by assessee, therefore, 15% of profit was allocated to R&D activities and balance of profit was attributable to marketing activities in India. said decision was entirely based upon connectivity of marketing operations with profits. CBDT Circular No.23 of 1969 dated 23/07/1969 was also taken into account wherein it was opined that where a non-resident's sales to Indian customers are secured through services of an agent in India then that profit is attributable to agent's services. Meaning thereby because of close connection of agent's marketing activity proportionate profit was attributed to said activity. Contrary to this, there was ....
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....ew of A.O. up-to 80% of profit was result of efficient marketing net work plus due to brand name of company. Only 6% was manufacturing profit, per A.O. It is true that section 80IC does recognized provisions of section 80IA. Refer, Sub-section (7) of section 80IC which prescribes as follows:- "Section 80IC(7) : provisions contained in sub-section (5) and sub-sections (7) to (12) of section 80IA shall, so far as may be, apply to eligible undertaking or enterprise under this section." Due to this reason, our attention was drawn on provisions of section 80IA(5) of IT The Act; reads as under:- "Section 80IA(5) : Notwithstanding anything contained in any other provision of this The Act, profits and gains of an eligible business to which provisions of sub-section (1) apply shall, for purposes of determining quantum of deduction under that sub-section for assessment year immediately succeeding initial assessment year or any subsequent assessment year, be computed as if such eligible business were only source of income of assessee during previous year relevant to initial assessment year and to every subsequent assessment year up to and including assessment year for which determination ....
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..... Rather, intense contention of Ld.AR is that facts of case have explicitly demonstrated that goods manufactured at Baddi Unit were transported to various C&F agents across country for sale purpose. Therefore, eligible business is manufacturing of pharmaceutical products and only source of income was profit earned on sale of products. 10.8 An interesting argument was raised by ld. Special Counsel that provisions of section 80IA(8) prescribes segregation of profit in case of transfer of goods from one Unit to another Unit. But section 80IA(8) reads as follows:- 'Section 80IA(8) : Where any goods or services held for purposes of eligible business are transferred to any other business carried on by assessee, or where any goods [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 value of such goods [or services] as on date of transfer, then, for purposes of deduction under this section, profits and gains of such eligible business shall be computed as if transfer, in either case, had....
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.... complex situation shall emerge. Specially when Statute do not subscribe such deemed intercorporate transfer but subscribe actual earning of profit, then impugned suggestion of AO do not have legal sanctity in eyes of law. 10.9 A very pertinent question has been raised by ld.AR Mr. Patel that what should be line of demarcation to determine sale price of a product if not market price. As far as present system of fixation of sale price of product is concerned, a consistent method was adopted keeping in mind several factors, depending upon market situation, we have been informed. But if assessee is compelled to deviate from consistent method of pricing, then any other suggestion shall not be workable because no imaginary line of profit can be drawn, precisely pleaded before us. So uncertainty is that on production cost what should be reasonable mark-up which shall cover up margin of profit of a manufacturing unit. And why at all this complex working of computation be adopted by this assessee when a very simple method is adopted that on one side of P&L A/c production cost plus overheads were debited and on other side of P&L A/c sale price was credited to computed profit. There are ....
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....C is a profit linked incentive. Only Operational Profit has to be claimed for 80IC deduction. According to him, each of eligible business constitutes a stand alone item in matter of computation of profit. For computation of profit of an eligible business word used is "derived" in section 80IC which is a narrower connotation, as compared to word "attributable". In other words, by using expression "profits derived by an undertaking", Parliament intended to cover such sources not beyond first degree, i.e. first degree of manufacturing activity. law pronounced by Hon'ble Supreme Court is final and should not be disputed. However, a judgement is to be correctly interpreted. 10.11 Finally, on question of segmentation of profit a vehement reliance was placed on an old precedent namely Ahmedbhai Umarbhai & Co. (supra). Facts of that case was that assessee had owned three Mills at Bombay and one at Raichur (Hyderabad). assessee was manufacturing oil from groundnuts. produced at Raichur, Hyderabad is partly sold at Raichur and partly in Bombay. question was in respect of liability under Excess Profit Tax The Act (EPT The Act) for oil manufactured at Raichur but sold in Bombay. controve....
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....profits arose by reason of sale. Profit would only be ascribed to business of manufacture and would arise at Mill Premises. Merely because a Mill owner has started another business organization in nature of sale depot, that cannot wholly deprive business of manufacture of its profits, though there may have to be apportionment in such a case between business of manufacture and business of shop keeping. question which was answered was that whether in respect of manufacturing business of assessee in Raichur, profits accrue or arise and if so, at what place. One of Hon'ble Judges has opined that manufacturing profit arise at place of manufacture and that sale profits arise at place of sale and that apportionment has to be made between two, though place of receipts and realization of profits is place where sales are made. Simultaneously it was also opined that manufacturing profit could not be said to have accrued at that place because there was nothing done from which profits could accrue. There was an interesting contradiction because of divergent views and it was also expressed that it was a fallacy to regard profits as arising solely at place of sale. It was said that revenue of....
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....two businesses and assess accordingly. result of discussion was that profits of two businesses were directed to be apportioned. Simultaneously, Hon'ble Court has also made an observation, quote "It is true that these are cases where several businesses were amalgamated and carried on together, or more of which were not liable to tax or excess profits duty; but principle of apportionment upon which these cases were decided could, in my opinion, be applied with equal propriety to cases where one part of business is distinct and separate from other parts and is capable of earning profits separately." unquote. Hon'ble Judge was therefore very much concern about fact that business should be capable of earning profits separately. Rather, in subsequent paras it was further made clear that manufacturing profit could be sub-divided only if there was no insuperable/challenging difficulty in making such apportionment. A possibility was therefore discussed that there could be apportionment of net profit that accrue to business of assessee and one portion of it could be allotted to that part of business which relates to manufacture of said commodity which was ultimately sold in market.....
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....at present, when method of accounting as applicable under Statute, do not suggest such segregation or bifurcation, then it is not fair to draw an imaginary line to compute a separate profit of Baddi Unit. Baddi Unit has in fact computed its profit as per a separately maintained books of account of eligible manufacturing activity. To implement method of computation at stand alone basis, as conveyed by AO, manufacturing unit has prepared a profit & loss account of its manufacturing-cum-sale business activity. If Statute wanted to draw such line of segregation between manufacturing activity and sale activity, then Statute should have made a specific provision of such demarcation. But at present legal status is that Statute has only chosen to give benefit to "any business of drug manufacturing activity" which is incurring expenditure on research activity is eligible for this prescribed weighted deduction. segregation as suggested by AO has first to be brought into Statute and then to be implemented. Without such law, in our considered opinion, it was not fair as also not justifiable on part of AO to disturb method of accounting of assessee regularly followed in normal course of busines....
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....decision of the coordinate bench in assessee's own case for earlier years. He also could not point out any change in the facts and circumstances of the case of that the loading of the mark up on allocated cost of the goods or services is justified or any other reasons. He could not also show that this is not a mere allocation of the third-party cost to the eligible and non-eligible units and there is no value addition is involved therein. Therefore respectfully following the decision of the coordinate bench, the ground number 10 of the appeal of the assessee is allowed and the learned assessing officer is directed to delete the disallowance of deduction u/s 80 IB/80 IC on account of purported adjustment in cost of services allocated to eligible industrial undertaking. 37. Ground number 11 of the appeal is with respect to the disallowance of deduction u/s 80 IB/80 IC on allocation of depreciation on fixed assets installed at head office and manufacturing units to eligible units. The learned assessing officer has reduced the deduction claimed by the assessee on this account by Rs. 199,44,908/-. Both the parties confirmed that there is no change in the facts and circumstances of the ....
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....ave impact on taxable income. I have examined arguments of Ld. AR that depreciation of a particular unit cannot be bifurcated in prorata basis, as depreciation is eligible even if asset is not used exclusively for business. As far as, other expense amounting to Rs. 20,11,566 debited for specific division "Noida Gutka Division" there is no question of allocating such expense to eligible units unless it is proved that same is not pertaining to "Noida Gutka Division". Therefore, I direct AO to delete these additions. I would like to clarify here that I do not agree with argument of Ld AR that proportionate disallowance of deprecation or expense from other unit to eligible unit claiming deduction u/s 80IB/80IC will not effect quantum of deduction, as shifting of expense from other unit to eligible unit will reduce profit of eligible unit, hence quantum of deduction and therefore total income will reduce, though total income will remain same. Accordingly, there will be impact on total income. However on merits of addition, I have given relief. As a result this ground of appeal is allowed. Depreciation under Income Tax The Act u/s 32 is eligible even asset is used for single day during....
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.... Court is still applicable when same has been reversed by Hon'ble Apex Court, which has been considered by ld. CIT(A). Therefore, in view of facts and circumstances of case and in view of findings given by ld. CIT(A) which are reproduced somewhere above in this order, we hold that ld. CIT(A) was justified in allowing claim of assessee." 85. Further, during course of hearing it was submitted that even otherwise, assessing officer has not made any adjustment on account of allocation of depreciation from AY 2013-14 onwards, which is also supported by order of learned transfer pricing officer for AY 2013-14 and 2014-15. In view of above facts we do not find any infirmity in order of learned CIT - A in directing learned assessing officer to not to consider depreciation on various assets for purpose of reduction of claim under section 80 IB and 80 IC of income tax The Act. Accordingly, ground number 3 of appeal of learned assessing officer is dismissed." Therefore respectfully following the decision of the coordinate bench in assessee's own case for earlier years, we direct the learned assessing officer to delete the disallowance of Rs. 1,99,44,908/- on account of allocation of ....
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....hat profits of eligible undertaking should be reduced by INR 39571939/-. On appeal before learned CIT - A he held that definitely brand has been developed overall long period and is property of corporate or head office of company. Therefore, he confirmed above addition. 65. Learned authorised representative submitted that brand is owned by assessee company as such and every unit or division of company is owner of said brand. He therefore stated that it is impossible to comprehend as to how a company can pay royalty to itself. He further stated that learned assessing officer and Commissioner Appeals has picked up a wrong comparable to make addition in hands of assessee. It was stated that case of royalty in case of 'Tulsi mix' brand is out of context and not relevant to facts of case as in that case assessee himself is being royalty to an independent third party in view of exploitation of its brand name. On contrary it was submitted that present brand originally owned and used by various units of company and as such there is no case of any know how royalty to be reduced from eligible profit. He further stated that in similar circumstances and facts of case AO has not made any ....
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....le profit on this account, therefore, it is apparent that ld AO himself do not think that such adjustment is required to be made. Therefore, brand market value is also not determined by learned assessing officer. In view of this ground number 12 of appeal of assessee is allowed.' 39. In the present case it is apparent that brand is owned by the assessee company and no royalties paid by the assessee to any outsider or third party. The learned assessing officer has made the addition/reduce the deduction of the assessee u/s 80 I B/80 IC by comparing the brand Rajanigandha with the brand Tulsi Mix . The learned departmental representative could not show us any deviation in the facts or any brand royalty paid by the assessee with respect to the products manufactured in eligible unit. In view of this, respectfully following the decision of the coordinate bench, we direct the learned assessing officer to delete the disallowance of deduction claimed by the assessee by Rs. 5,29,68,064/-. Accordingly ground number 12 is allowed. 40. Ground number 13 of the appeal is also with respect to the disallowance of deduction u/s 80 IB/80 IC in respect of royalty paid to such a concern Dharampal Pre....
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....n by ld CIT (A) for deleting addition are found to be correct. No infirmity was also pointed out by learned departmental representative. It may be appreciated that rate approved by Regional Director is maximum rate and there could we no ground or basis for treating same for any adjustment in terms of provisions of section 80IA(10) r.w.s 80IB(13) and 80IC(7) of The Act. It is relevant to note that same rate of royalty @1% is being paid by both eligible as well as non-eligible units and as such, impugned adjustment is on arbitrary and mechanical basis. In view of this , order of ld CIT(A) deleting adjustment of deduction u/s 80IB/IC on account of notional royalty in respect of "Tulsi" Brand in excess of 1% being payable by eligible units to M/s. Dharampal Satyapal & Sons P. Ltd. Deserves to be upheld as same rate was applied and accepted even by AO in respect of non-eligible units. Accordingly, ground number 5 of appeal of learned assessing officer is dismissed." 41. Therefore respectfully following the decision of the coordinate bench in assessee's own case for earlier year, we direct the learned assessing officer to delete the disallowance of deduction u/s 80 IB/80 IC amounting to....
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....urchases from APPL and part disallowance from purchases from SVIL. Relevant working of disallowance is at Page 84-85 of assessment order. AO has made such disallowance without appreciating use of actual quantity with reference to manufacturing carried out by assessee. CIT(A) has also disputed price of purchases from SVIL and APPL and has observed that purchases are inflated and adjustment was made in respect of overall purchase price based on quantity purchased from these two parties by referring to lowest price of other suppliers. However, quantum of purchase and use of it in manufacturing process was not disputed after making necessary verification of raw material used and quantity manufactures. It was corroborated from excise records. CIT (A), after considering overall facts of case, held that there is no dispute regarding correctness of quantity of Sandalwood oil purchases and recorded in books of assessee and only dispute is regarding value of purchases. Accordingly, CIT(A) applied minimum purchase rate from third party to quantity of Sandalwood oil purchased from SVIL and APPL. Relevant working is at Page 297-298 of CIT(A)'s order. Disallowance was restricted to Rs. 54, 94,24....
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....andalwood Oil from SVIL and APPL, which are independent third parties, and assessee is not answerable to internal affairs of these concerns. Further, statement of third parties have not been recorded so as to establish authenticity and genuineness of alleged seized annexure A-1 page 52 and as such computerized sheet of alleged annexure is of no evidentiary value in absence of any corroboration/cross examination. It is pertinent to note that manufacturing, sales are fully reconciled and corroborated with VAT return and excise records, and as such there could be no dispute with regard to correctness of quantitative trading results. Further, there is no adverse evidence on record regarding disputing quantum of purchases of sandalwood oil and reconciliation of purchases with production. It is self evident that whole addition is merely based on inferences and bald allegations, which are not supported from any documentary evidences. In any case, once correctness of purchases recorded in books is accepted, dispute regarding valuation of it is wholly irrelevant as revenue authorities cannot sit in armchair of assessee and decided reasonableness of an expenditure. It is not case of revenue ....
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....nsively read para number 70 - 102 of assessment order. It was stated that on perusal of annexure A - 1 seized during course of search and seizure action and also various other an action it is apparent that assessee has made bogus purchases from Messer Surya Vinayak industries Ltd amounting to INR 7 22361646/- and from Messer Allied perfumers private limited of INR 1 78826010 totaling to INR 901187656 in all. He further submitted that such bogus purchases have been added by learned assessing officer giving conclusive reasons. He further went on there from and continued until para number 147 of assessment order and then stated that assessee has made bogus purchases from above two companies and therefore addition has been made in hands. 71. We have carefully considered rival contentions and perused orders of lower authorities. learned CIT - A has decided whole issue and held that based on all evidences gathered during search and post search proceedings in case of appellant and Florian a group of cases, he is satisfied that there are enough evidences in form of seized documents and statement recorded during search and post search proceedings which clearly establishes that so Vinayak ....
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....disputed parties. Therefore, he noted that purpose of mentioning quantity of goods as Central would oil ( C ) and sandalwood oil (SU) is just to inflate cost of sandalwood oil purchased and used for manufacturing purposes in perfumery division. He further reached at a conclusion that appellant has though purchase sandalwood oil from grey market but billing of it has been made by these two entities at higher cost. Accordingly, he held that entire quantity purchased from these two entities could not be ignored, as it will go against maintenance of quantitative records as per Central Excise rules and inconsistent results in terms of yield of finished goods. Therefore, he held that purpose of issuing bogus bill by these two entities is just to inflate purchase in amount and to increase amount of purchases in terms of rupees for sandalwood oil. Accordingly, he upheld that in fact assessee has purchased sandalwood oil from grey market, quantity of such purchases were entered into Central Excise register however for purpose of accounting and recording it in books of accounts assessee used these two entities and obtained bogus bills from them at higher rate. However, the order of the l....
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....in lieu of sales of material to the assessee company. The ld Assessing Officer himself has stated that the paper is dated 30.11.2010 that means the transaction in this paper are showing the transaction for the month of November 2010. The excess amount paid up to 31.10.2010 is mentioned. The balance is also shown up to 30.11.2010, therefore, it is apparent that this paper does not pertain to Assessment Year 2005-06 to 2009-10 but for Assessment Year 2011-12. None of the transaction showed in this paper pertain to the impugned Assessment Years mentioned before us. The Hon'ble Supreme Court in case of Sinhagd Technical Educational Society (Supra) has held that the incriminating material seized must pertain to assessment years in question. In that particular case the ITAT in [2011] 16 taxmann.com 101 (Pune)/[2012] 50 SOT 89 (Pune)(URO)/[2011] 140 TTJ 233 (Pune) has held in para no 9 that In the process, the AO totally missed the requirements of the law i.e. only the assessment year with the pending assessments and the assessment year with the assessment year specific incriminating documents/transactions or seized asset should only be reopened under the provisions of the first provi....
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....tribunal's order raises any substantial question of law. On further appeal before Honourable Supreme court in [2017] 84 taxmann.com 290 (SC)/ [2017] 250 Taxman 225 (SC)/ [2017] 397 ITR 344 (SC)/ [2017] 297 CTR 441 (SC) held as under:- "15. At the outset, it needs to be highlighted that the assessment order passed by the AO on August 7, 2008 covered eight Assessment Years i.e. Assessment Year 1999-2000 to Assessment Year 2006-07. As noted above, insofar as Assessment Year 1999-2000 is concerned, same was covered under Section 147 of the Act, which means in respect of that year, there were re-assessment proceedings. Insofar as Assessment Year 2006-07 is concerned, it was fresh assessment under Section 143(3) of the Act. Thus, insofar as assessment under Section 153C read with Section 143(3) of the Act is concerned, it was in respect of Assessment Years 2000-01 to 2005-06. Out of that, present appeals relate to four Assessment Years, namely, 2000-01 to 2003-04 covered by notice under Section 153C of the Act. There is a specific purpose in taking note of this aspect which would be stated by us in the concluding paragraphs of the judgment. 16. In these appeals, qua the aforesa....
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....ars 2000- 01 and 2001-02 was even time barred. 19. We, thus, find that the ITAT rightly permitted this additional ground to be raised and correctly dealt with the same ground on merits as well. Order of the High Court affirming this view of the Tribunal is, therefore, without any blemish. Before us, it was argued by the respondent that notice in respect of the Assessment Years 2000-01 and 2001-02 was time barred. However, in view of our aforementioned findings, it is not necessary to enter into this controversy. 20. Insofar as the judgment of the Gujarat High Court relied upon by the learned Solicitor General is concerned, we find that the High Court in that case has categorically held that it is an essential condition precedent that any money, bullion or jewellery or other valuable articles or thing or books of accounts or documents seized or requisitioned should belong to a person other than the person referred to in Section 153A of the Act. This proposition of law laid down by the High Court is correct, which is stated by the Bombay High Court in the impugned judgment as well. The judgment of the Gujarat High Court in the said case went in favour of the Revenue when it was....
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....alidity of the seizure and action founded thereon. We do not find anything in this judgment which would enable us to hold that the tribunal's understanding of the said legal provision suffers from any error apparent on the face of the record. The Delhi High Court judgment, therefore, will not carry the case of the revenue any further." We, thus, do not find any merit in these appeals." Therefore as per principle enunciated by the Honourable supreme court, there has to be specific incriminating material for each assessment year assessed u/s 153A / 153C which is concluded and addition can be made based on that only. 30. Based on the page no 52 of annexure A/1 that is containing accounts as at 31/10/2010. Therefore, it relates to AY 2011-12 only. No documents were shown to us or referred to in the Assessment order shows that any incriminating material was found which even remotely shows that assessee has purchased sandalwood at over invoiced price from those parties. The rate list of material was found for the years in appeal and no attempt was made to show that the material purchased DCIT Vs. Dharampal Satyapal Ltd, ITA No. 3877, 3878, 3879, 3880, 3881/Del/2016 (Revenue) IT....
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....material with reasonable evidences. These facts could have been proved either by the availability of the material in the market or also by the production cost of the supplier. Revenue has not brought on record any such material. Most of the part of the order justifying the addition in absence of this merely remains allegations without evidences. Additions in such a manner cannot be sustained. 33. With respect to the other seized material which have been dealt with by the ld Assessing Officer are dealt with at para No. 107 of the Assessment order as under:- "107. Certain other seized documents also confirm the fact that there is no product by the name of Sandalwood oil (C) or Sandalwood oil (SU) being supplied by M/s Surya Vinayak Industries Ltd. to M/s Dharampal Satyapal Ltd. Page No. 61-71 of Annexure A-ll seized from Perfumery Division, Okhla In these pages, there is a chart depicting purchase of various raw materials (132 in total) by DSL [Perfumery Division] for the year 2006- 07, 2007-08 and 2008-09 and suppliers thereof. The first and very important aspect of this chart is that wherever necessary, each and every item has been classified and named separately and it contains ....
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....ision are now being referred to and discussed. In these pages DSL has calculated the average rate of its raw materials. In these pages also there is no mention of any raw material by the name of Sandalwood oil [C] or [SU]. What is there, is only sandalwood oil, whose average rate is mentioned at Rs. 62503/- per kg. In the same annexure in page no.83 to 86, DSL has made a chart of average rate or last rate whichever is higher as on 31.3.2010 for its raw materials. In this chart only the price of sandalwood oil is mentioned which Rs. 67,864/- per kg. and there is no [C] or [SU]. Further, page no.79 to 89 of Annexure A-15 contains the office of Form ER- 4 (Annual Return F.Y. 2008-09) which was submitted to the Excise Department. In annexure I (page No.84) information relating to major purchase of raw materials for 2008-09 is given. It contains only one item and that is SANDALWOOD OIL, quantity purchased is shown at 17,066 Kgs valuing Rs.l 18,69,74,659/-. And th-is includes all the purchases made from SVIL, APPL and Kamakhya Oil Co. and others. Annexure II [page 82 to 83] contains the detail of finished goods. Finished goods are 39 in number and value there of is declared at Rs. 142^92....
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....- 11. The findings of ld CIT (A) are also for Ay 2011-012 and for the reason without application of mind that whether such seized documents are relevant for other AYs other than AY 2011-12, he confirmed the additions for those years. The coordinate bench has given a categorical finding that those papers are pertaining to AY 2011-12 only. We have also taken cognizance of those papers in AY 2011-12 and upheld addition on those papers n appeal of assessee for that year. Therefore, in view of above facts, no addition is warranted in this AY on the basis of the seized papers Accordingly, ground number 13 of appeal of assessee is allowed.' 43. As both the parties confirmed that there is no change in the facts and circumstances of the case, respectfully following the decision of the coordinate bench in assessee's own case, we direct the learned assessing officer to delete the disallowance of deduction claimed u/s 80 IC of the income tax act by Rs. 505,920,379/-. Accordingly ground number 14 of the appeal is allowed. 44. Ground number 15 of the appeal is with respect to the transfer pricing adjustment in respect of benchmarking of interest received on foreign currency loan and the lear....
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....tion of lending of money where cost of borrowing is not relevant but return that it would have earned in India if money was not lent should be benchmark. Therefore, he adopted return associated with BB rated bonds and calculated 16.67% rate of return. He further adopted an alternative analysis and stated that as there is no credit rating available of associated enterprise, he adopted BB and D ratings for it. He further exercised powers under section 133 (6) and obtained average yield on long-term instruments from Crisil. Reply received for yield BBB grade corporate bond for 5-year period of 11.22%, which he considered for BB rated bonds yield 20% more than such bonds and accordingly held that 16.31% would be return rate. Therefore he calculated interest applying rate of interest at 16.31 percentage and computed interest that should have been charged by assessee of Rs. 110997973/- whereas assessee has booked interest of Rs. 22163283/- and stated that total interest chargeable would have been Rs. 88834690/-. Accordingly, he made an adjustment of Rs. 88834690/- u/s 92CA of The Act and passed an order on 23/12/2013. For AY 2010-11 the addition was made of RS INR 59551686/- . 74. Th....
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....try that functions on LIBOR plus rates, hence, borrowing entity would have received a loan on LIBOR plus rates in that jurisdiction. Therefore, there should be rate applicable for calculating arm's-length price as against interest rate based on Indian prime lending rate. He stated that this is based on logic that had borrowing entity approached banks in its own country of residence they would have paid interest on LIBOR plus rates. Further, he submitted that it is a settled legal position that in case of an associated enterprise transaction interest to be charged for benchmarking transaction of loans advanced by taxpayer to its foreign associated enterprise in foreign currency should be computed on basis of London interbank offered rate (LIBOR) and not as per domestic rates as such as prime lending rate offered by Indian banks as it has no relevance on such foreign currency loans. He further relied on decision of honourable Delhi High Court in case of CIT vs Cotton naturals private limited [ 55 taxmann.com 523] wherein it has been held that with respect to appropriate comparable rate of interest on foreign currency dominated loan interest rate should be market determine interest ra....
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....essee has lent money to its foreign associated enterprise in foreign currency. Honourable Delhi High Court in CIT vs. Cotton Naturals P Limited [ 2015 - TII - 09 - HC - Del - TP] dated 27/03/2015 has clearly held that there is no justification or cogent reason for applying prime lending rate for outbound loan transactions where Indian patent has advance loan to an associated enterprises abroad. In view of this finding of learned CIT - A is not correct that prime lending rate should be applied. Though, learned CIT - A is correct in holding that there is no stipulation about repayment currency in loan agreement, However in absence of any such clause in agreement it cannot be said that such loan is required to be repaid in Indian Rs. Only and therefore, PLR has been correctly applied where fact shows that loan has been granted in foreign currency. Honourable Gujarat High Court in 2018-TII-169-HC-AHM-TP in R/Tax Appeal No. 687 of 2018 of PRINCIPAL COMMISSONER OF INCOME TAX RAJKOT-1 Vs JYOTI CNC AUTOMATION PVT LTD has also held that since AE is situated in France, it is most appropriate to consider mark up on basis of average speed over LIBOR charged in France. Accordingly, orders of ....