TaxTMI 
TaxTMI 
2023 (4) TMI 18
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....evenue expenditure as claimed by the assessee, even though the said claim is not allowable u/s 37(1) of the IT. Act, 1961? ii) Whether on the facts and in the circumstances of the case Ld. CIT (A) was right in allowing the deduction of Rs.17,50,244/- on account of prepayment Charges paid to IDBI as claimed by the assessee, even though the said claim is not allowable u/s 37(1) of the IT. Act, 1961? iii) Whether on the facts of the case and in law Ld. CIT (A) was right in accepting the additional evidence in contravention to Rule 46A for determination of Arms Length Price following the Transactional Net Margin Method (TNMM)? iv) Whether on the facts of the case and in law Ld. CIT (A) was right in deleting the addition made due to determination of ALP by the TPO and determination of Arms Length Price following the Transactional Net Margin Method (TNMM) ignoring the comparable companies suggested by the TPO in the remand report and accepting the companies suggested by the assessee, which are also found to be manufacturing different types of products? v) Whether on the facts of the case and in law Ld. CIT (A) was right in allowing the claim of non taxability of dividend of R....
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..... Ltd. Vs. CIT 225 ITR 802 (SC). 5. CIT Vs. A.R.J. Security Printers 264 ITR 266(Del.). 6. DCIT Vs. United Vanaspati Ltd. 88 ITD 313. 6.3 The AO however disallowed the expenses by observing as under: The submissions made by the assessee were examined n light of the decision of the court cases cited by the assessee and the facts of the case. The above said expenditure has been disallowed in the case of the assessee for the AYr . 2004-05 . For the reasons mentioned in the Assessment Order for the A.Yr 2004-05 the above said expenditure is disallowed for the A.Yr. under consideration . It may be mentioned that the Indian Income Tax Act does not provide for deferment of any expenditure except for certain expenses like the preliminary expenses which is specifically provided u/s 35 of the I.T.Act . Section 37(1) of the I.T.Act has specifically laid down certain conditions: 1. The expenditure should not be in the nature described u/s 30 to 36 of the I.T.Act. 2. It should not be in the nature of capital expenditure. 3. It should not be personal expenditure of the assessee. 4. It should have incurred in the previous year. 5. It should be in respect of business carri....
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.... para 7 (Miscellaneous Expenditure) of Schedule XXI of Annual Accounts filed with return of income. In this connection it is further submitted before your honour that expenses was of revenue in nature and not disputed by assessing officer. Major part of expenses was incurred by Assessee Company in the assessment year 2001- 02. Expenses was incurred for foreign traveling expenses and exhibition expenses etc. and keeping in view of its enduring benefit nature it was decided by assessee company to claim the said revenue expenses equally in five assessment yeaRs.The claim of expenses so made was also examined by Addl. Commissioner of Income Tax Range 9, then assessing officer in A.Y. 2001-02 i.e. in the year of incurrence of expenditure and accordingly expenses as claimed by assessee company was allowed. Copy of assessment order for assessment year 2001-02 along with reply filed is annexed herewith for your honour's ready reference. Assessment for subsequent assessment year i.e for A.Y.2003-04 had also been completed u/s 143(3) of the IT. Act. Copy of said order is also enclosed herewith. The Id Addl Commissioner of Income Tax. without appreciating the correct facts of the ca....
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....e Ld. CIT(A). It was further submitted that this issue is squarely covered by the decision of the ITAT Delhi Bench 'F' in ITA No. 232/Del/2009 in assessee's own case for the A.Y. 2004-05 copy of the said order was furnished which is placed on record. 11. We have considered the submissions of both the parties and perused the material available on the record. It is noticed that an identical issue having similar facts has already been decided in favour of the assessee vide order dt. 13/08/2009 in ITA No. 232/Del/2009 for the A.Y. 2004-05 in assessee's own case and the relevant findings have been given in para 16 to 19 of the said order which read as under: 16. On appeal the CIT (Appeals), after considering the detailed submissions of the assessee, the case law referred to in his order, as well as, on considering the assessment order passed by the Assessing Officer, directed the Assessing Officer to allow 1/5th of the deferred revenue expenditure as claimed by the assessee in the year Under consideration while observing as under: " During the assessment year 2001-02, the appellant had incurred major expenses on foreign traveling, exhibition and other expenses of revenue in nature....
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.....O. In view of the above, I agree with the contention of the appellant on this issue. Accordingly, the AO is directed to allow 1/5th of the Deferred Revenue Expenditure, as claimed by the appellant, in the instant year.'" 17. Before us, learned DR for the revenue except placing reliance on the order of Assessing Officer was not able to controvert the factual findings recorded in the order of CIT (Appeals). 18. On the other hand, learned AR for the assessee placing strong reliance on the reasoning given in the order of CIT (Appeals) submitted that the CIT (Appeals) rightly allowed the claim of the assessee. 19. On considering the submissions of both the parties and going through the orders of the authorities below, we find that the CIT (Appeals) by placing reliance on the relevant decision (supra) referred to in his order, on the basis of uncontroverted finding of facts recorded therein, has rightly allowed the claim of the assessee. Consequently, the ground no. 1 of the appeal of the revenue is rejected. So respectfully following the aforesaid referred to order of Coordinate Bench of the ITAT, Delhi, we do not see any merit in this ground of the Departmental appea....
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....k to the total income of the assessee. 14. Being aggrieved the assessee carried the matter to the Ld. CIT(A) and submitted as under: "In this connection it is further submitted before your honour that Id Addl. CTT ii has also not appreciated the correct facts of the case and disallowance of expenditure is made arbitrarily. This issue had also been examined by |j assessing officer in assessment year 2003-04 while completing the assessment u/s 143(3) of the IT. Act. During the course of assessment proceedings It was explained to the assessing officer that assessee company was enjoying two different term loans from IDB1 attracting the higher interest rate of 14%. During the assessment year 2003-04 the assessee company negotiated with Vijaya Bank 17, Barakhamba Road, New Delhi who agreed to take over the term loan of assessee company with IDB1 at an attractive and reduced rate of interest of LIBOR + 2% which at that stage of time was working at 4% approximately. On negotiation with 1DB1, the IDBI was agreed for takeover of term loan by Vijaya Bank for which Rs.52,50,728/- was charged for prepayment charges for 2 16 years being for the remaining period of payment of term loan. There....
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....dings are being given in para 22 to 25 of the said order which read as under. 22. On appeal, the CIT (Appeals), considering the submissions of the assessee and observation of the Assessing Officer in the assessment order, deleted the impugned disallowance of Rs.17,50,242/- made by the Assessing Officer while observing as under: "It is seen that appellant has made this payment of IDBI for repaying loan before stipulated date. This prepayment charges are for swapping the loan with Vijaya Bank. This swapping was done with a view to reduce the interest burden. The IDBI was charging 14% of interest rates for the corporate loan of Rs.1047.75 lacs. During the F.Y. 2002-03, the appellant negotiated with Vijaya Bank, Barakhamba Road and the bank agreed to swap the term loan of Rs.1047.75 lacs with an interest rate of LIBOR + 2% whereas the prevailing interest rate at that time was LIBOR + 4%. By doing so, the appellant was able to saves substantial amount on interest costs. However, fro swapping of this loan with Vijaya Bank, IDBI charged Rs.52,50,728/- for prepayment charges for 2½ years being the remaining period of payment of term loan. This amount was spread over for a perio....
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....nting to Rs.6,95,54,400/-. The assessee had used Comparable Uncontrolled Price (CUP) method to justify that the said International Transaction was at arm's length. The assessee furnished report in Form No. 3 CB under section 92E of the Act relating to International Transaction along with return of income. The AO in accordance with the provisions of Section 92 CA(3) of the Act made a reference to the Transfer Pricing Directorate for computation of arm's length price for the International Transaction entered into by the assessee company with its AE. The assessee produced CUP data before the TPO as under: Material Name Purchase from Associate Purchase from Uncontrolled parties Qty (Kg) Avg. Rate per Kg Qty. (Kg) Avg. Rate per Kg Cefotaxime 39450 5333.71 7475 5351.51 ATCA 13825 6614.20 6075 7674.98 GVNE 15547 13495.34 200 13869.62 MICA Acid 10150 3731.72 1775 2678.13 As a secondary evidence, the assessee also produced quotation from other raw material suppliers to show that the price paid by the assessee was lesser than price quoted by the unrelated parties. However the TPO rejected the price quotes....
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.... chemicals. The relevant part of the order of the TPO read as under: "In view of the above-mentioned position only an estimate, based on best judgment can be made keeping in view the information already available. Consequently, it is reasonably estimated that the average percentage by which the assessee has overpaid for imports of Cefotaxime Acid and Mica Acid should be benchmarked to calculate the ALP in respect of these imports. On a percentage basis it is seen that the variation in prices by 1.2% and 28.81% in the prices of Cefotaxime Acid and Mica Acid, respectively. The average works out to 15% and therefore the prices of the imports worth Rs.14.52 cRs.will be accordingly adjusted downwards. The adjustment on this account works out to Rs.2,1 7,90,532/ -. The T.P.O recommended the total adjustment of Rs.3,52,96,048/- (Rs.1,35,05,516/- for Cefataxime Acids and Mika Acids and Rs.2,17,90,532/-on other miscellaneous items). The A.O accordingly enhanced the income of the assessee by Rs.3,52,96,048/- on account of adjustment in arm's length price in respect of excess cost prices paid by the assessee company to its AE for Cefataxima Acids & Mika Acids amounting to Rs.1,35,05,51....
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....ompany to its AE for the purchases made during the whole year, made by the TPO is also not correct under the circumstances when price of the product was fluctuating and. varying on day to day/ month to month basis. Further without prejudice to our objection on average price of month of march paid by unrelated party to Chempharma Pvt Limited taken by TPO to work out the arm's length price of the whole year transaction of assessee company with its AE we would also like to submit that basis of addition by TPO is also not correct on account of following reasons:- (iii) Section 92C deals with computation of arm's length price in relation to an international transaction. Thus transaction can consists of number of purchases. The ID TPO has compared rates of 4 items, in which rates of 2 items were higher and rates of 2 items were lower and. he has considered only those two items where prices were higher and ignored the other two items where prices were lower for addition. When average price is taken by the TPO he must have considered the overall price paid by the assessee company for all the four items instead of taking the two items. In an international transaction, TPO has ....
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....ner and not in the literal meaning. The Id. TPO has rejected the quotations taken by the assessee company from various independent outside country suppliers before entering into the transaction with its AE only on the literal interpretation of language used in the rule 1 of 10B(l)(a). The transfer pricing officer was under obligation to accept the quotations price under the circumstances when no price paid was available for the month in which transaction with AE is taken place, from uncontrolled parties and notices under section 133(6) sent by the TPO to various uncontrolled parties have drawn a blank. (v) The observation of TPO in para 4.6.that "the assessee has used the average of the purchases price paid by in respect of impunged raw material over the full financial year with the price paid to Chempharma is also not correct under the circumstances when quotations from independent parties were for the months in which price is paid to the AE and price quoted by these independent parties were higher than the price paid to the AE and not disputed by TPO and assessing officer. (vi) This is also important to mention here that Assessee Company has paid lesser price in the month o....
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....he quotation obtained by the assessee company for other items in support of benchmarking under CUP although same is rejected, while working the arm's length price But for the items of Rs.14,52,70,213 he has rejected the quotations for bench marking for the reason best known to him. (xi) To make the adjustments downwards for the transaction of Rs.14.52 Crores assessing officer has adopted the average percentage of the items for which allegedly higher price is paid by the assessee company as worked out by the TPO ignoring the overall price paid by the company to its AE. TPO must have used in best judgment assessment, weighted average method, which is more scientific and realistic TPO has worked out disallowance is Rs.135.06 Lacs on purchases of Rs.2482.86 Lacs, which comes to 5.44% by using weighted average method. If we consider addition @ 5.44% of balance purchase items of Rs.1452.70 Lacs (which comes to Rs.79.03 Lacs) also, even then total addition comes to Rs.214.09 Lacs on total purchase of Rs.6954.71 Lacs, which works out to 3.08%, which is within 5% limit of CBDT Circular No. 12/2001. (xii) Further if we apply the same percentage of 2.45% as worked out in clause iv a....
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....rties therefore purchases were made from the AE. Every prudent business man will approach to the party which has quoted lower price and will pay the lesser price of a product of its needs. Therefore the. observation of the assessing officer that merely obtaining the quotations without any purchase has no relevancy and is not acceptable to determine the arm's length pace is not correct. As per AO's observation if appellant company might have purchased a negligible quantity even a Kg from these prospective sellers, then he might have accepted the arm's length price determined by the appellant company. Your honour will also appreciate that in the government department the purchases are made from the parities who has quoted the less price and this process of making the purchases has wide recognition all over the world and has also been accepted by GAG. Apart from our above, submission, alternatively it is also submitted before your that if any addition account of adjustment made by TPO in the arms length price is to be made it should be made above the difference of 5 % being the arm's length price is being determined on the basis of estimation only. Reliance in this ....
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.... Para 1 "The documents prescribed under rule 10D of the Income Tax Rules was submitted and placed on the record." Para 2.1 "The assessee has used the CUP Method to justify the arms length nature of the transaction with it's A. E. In support, of the same, documents were filed by the assessee as prescribed under Rule 10D. The above said observation of TPO in the transfer pricing order is contrary to the recommendation made. It is further stated that in this case proceedings before TPO was finally completed number of times without any further query and then again office of TPO used to call the appellant company for further discussion but it has never been pointed out that transaction of Rs.14,52,70,213/- has not been bench marked for the determination of arm's length price. Simply because he has rejected the quotations for the transaction worth Rs.14.52,70,213/- therefore it appears that he has recommended to initiate the penalty under above referred provisions of law. Audit report has also been filed and is matter of record. In the audit report it has been certified by the auditor that appellant company has maintained the records as prescribed under the Income....
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.... by TPO. In this connection this is further stated before your honour that appellant company now has also benched marked the international transaction on the basis of other methods as prescribed under rule 10B of The Income Tax Rules, 1961 which is much more appropriate method than the method adopted by the Id TPO. Since there was no occasion for the appellant to discuss the same with the TPO as no proper opportunity was given, your honour is therefore requested to admit the evidences furnished herewith in respect of determination of arm's length price in view of other methods available as per rule 10B as an additional documents, under ride 46A of the Income Tax Rules, 1961. Profit split method: This method, is used by the appellant company now, because the independent enquiry conducted by Id. TPO to verify the independent rates of product in which international transaction was carried out by appellant company, has resulted, in blank as various pharma company from whom enquiry is conducted by Id TPO has denied, having dealt with the items in. which international transaction took place between appellant company and its AE. In this method we enclosing herewith following doc....
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....omparative statement your honour will also appreciate that PBT of appellant company is better than both these reputed Companies, which also shows that ALP has been arrived and calculated correctly by the appellant company in a very reasonable manner. We are enclosing the following Annual Reports for financial year 2004-05: 1) Annual Report of Nectar Lifesciences Ltd. 2) Annual Report of Orchid Chemicals & Pharmaceuticals Ltd. 3) Annual Report of Aurobindo Pharma Ltd. 4) Annual Report of Chem Pharma Pvt Ltd. In view of above discussions and submissions made, your honour is requested to direct the TPO to accept the arm length price as determined by the appellant company and cancel the arm's length price on estimation basis determine by TPO and cancel the order under section 92CA(3) of TPO." 22.3 The Ld. CIT(A) forwarded the submissions of the assessee to the TPO on the ground that it amounted to additional evidence, the TPO in her remand report dt. 27/02/2012 made the following comments on the additional evidence: Kindly refer to your letter no. CVT(A)-XX/2011-12/583 dated 17.01.12 and 3 LOT 12 on the above subject. Subsequent to receipt of letter, the case rec....
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....higher I when the purchase is for small quantities and lower when purchased in bulk. Besides, only two invoices are in respect of purchases made by Indian parties. But these imports are from China and not from Sri Lanka, hence, they are not j exactly comparable. Prices vary a lot between medicines being manufactured by various process patents. Drug Amoxycillin-Clavulanic Acid is being sold, by Glaxo under the brand name Augmentin 625 for Rs.40 while Mankind Pharrna sells the same drug as MOXIKIND-CV 625 for Rs.15. It is not clear from the invoices given whether the prices are for bulk drug manufactured by the same process as the prices of different manufacturers have been given. Because of the reasons given above, the fall in price of MICA acid cannot be said to be properly substantiated by the assessee. CUP data given by the assessee is private data and not from price publications. Besides, it is not for similar geographies and for similar quantities. Besides, the assessee has not demonstrated that the same is in respect of products manufactured be same process patent. Hence, the data is not comparable CUP data. 3. The assessee has quoted from page 204 of the Deloitte's boo....
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....mpany M/s Quark Systems Pvt. Ltd. had chosen Datamatics Technologies Ltd. as one of its comparable company in its transfer pricing study for the A.Y. 2004-05. The TPO had also accepted the same as comparable and the Ld. CIT(A) upheld the order of the TPO with regard to the selection / rejection of comparables. However the assessee pleaded before the ITAT and stated that for various reasons Datamatics Technologies Ltd. was not comparable company and should have been rejected. The relevant portion of the said order of Special Bench read as under: 36. The aforesaid decisions and guidelines may not be exactly on identical facts before us but they emphatically show that taxpayer is not estopped from pointing out a mistake .in the assessment though such mistake is the result of evidence adduced by the taxpayer. 37. When substantial justice and technical considerations are pitted against each other, the cause of substantial justice deserves to he preferred. For the other side cannot claim to have a vested right in injustice being done due to some mistakes on its part. 38 Accordingly on facts and circumstances of the case, we hold that taxpayer is not estopped from pointing out tha....
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....uch cannot be accepted as a completed transaction and since the Rule mandates to take "price charged or paid" from completed transaction. He therefore agreed with the decision of the TPO in not accepting the quotations as CUP data. 22.7 The Ld. CIT(A) further observed that the TPO was constrained to take the available CUP data which was the invoices of third parties of the completed transactions for bench marking the International Transactions. However, it was important to note that CUP data were not available for all the four varieties of chemicals in question, imported from the assessee's AE and that the assessee imported Cefrotaxime Acid, ATCA, GVNE and MICA Acid among others which were intermediate products for producing drugs in India. However, the TPO used the price paid for only two chemicals in the month of March, 2005 by a third party as CUP and compared the same for entire transaction of 12 months in four different chemicals, arrived at the price differences in Cefotaxime Acid & MICA Acid paid by the assessee and reduced the price paid by the assessee to its AE. As a consequence a sum of Rs.1.35 crores was added to the income of the assessee on account of transaction of ....
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....005 and compared to the whole year International Transaction of the assessee. Therefore this method i.e; CUP method suffered from multiple infirmities. Accordingly the Ld. CIT(A) held that with the available data, CUP could not have been used as a most appropriate method in this case. 22.10 The Ld. CIT(A) mentioned that the assessee had submitted that in none of the subsequent years the TPO had made addition and accepted the CUP as most appropriate method. The Ld. CIT(A) was of the view that if the CUP data was not sufficient to cover all the transactions, it was but natural that it had to be rejected for the year under consideration. The Ld. CIT(A) observed that as an alternative the assessee had submitted that PSM should be used as supplementary method. The said submission was sent to the TPO for the remand report. In response the TPO in his remand report dt. 27/12/2012 stated as under: "5. The assessee was also asked vide letter dated 10.02.12 to establish how profit split method (PSM) is a suitable method in this case as normally PSM is the most appropriate method in cases involving complex transactions wherein both parties have complex functions and contribute with intangib....
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....lowing functions can be attributed to Indian and Sri Lankan unit:- Functions Indian Unit Sri Lankan Unit R & D Function Yes, as it is the main co. which has set up the subsidiary in Sri Lanka with its expertise and is also manufacturing value added product. No, as the unit has been set up only to manufacture chemicals and with the help of Indian unit. Manufacturing function Yes. But the value addition is more in Indian unit. Yes. But the value addition is less in Sri Lankan unit. Marketing function Yes, as the products manufactured by the Indian unit need to be sold to outside parties No, as shown above, all the chemicals manufactured by this unit are purchased directly or indirectly by the India unit.** ** It is seen that the Indian unit has spent Rs.533.95 lakhs on selling & distribution. Sri Lankan unit has spent Rs.270.21 lakhs on selling & distribution out of which 90% has been spent on Export charges. This also contradicts the assessee's claim that Sri Lankan unit has not paid any taxes. 7. As far as the assets used are concerned, Indian unit has gross block of assets of Rs.101.17 crores as compared to gross block of 8.6 crores of Sri Lankan unit. ....
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....arising out of the transactions with Sri Lankan Unit. Further in para 6 to 9 Id TPO considering the various aspects has apportionate the consolidated net profit worked out by him in the proportion of 70% to Indian Unit and 30% of Sri Lankan Unit. Further TPO has stated that export charges paid by the appellant company contradicts the assess's claim, that Sri Lankan Unit has not paid any taxes. In this connection it is submitted before your honour that at the one hand TPO has admitted that PSM is not. applicable in the case of appellant and on the other hand without determining the profit correctly, he has worked out the profit on presumption basis which is also not permissible under the law. The appellant company in the comparison made of net profit has also made the comparison to prove that profit earned by the appellant company is much higher than the profit earned by its AE. The allegation of Id TPO that Sri Lankan Unit has paid the taxes against the claim of appellant that no tax is paid, in this connection it is clarified before your honour that Export charges of Sri Lankan includes the following nature of expenses which cannot he said to be taxes paid by Sri Lankan Unit: ....
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....eport did not agree with this and that the ratio of distribution of profits between the assessee and the Sri Lankan entity was also highly questionable. Therefore the Ld. CIT(A) held that the PSM was also not an appropriate method in this case. Accordingly the contention of the assessee to use PSM was rejected. 22.14 The Ld. CIT(A) mentioned that the assessee had also submitted a TNMM analysis in its submission dt. 21/12/2011 and compared this case with that of M/s Aurobindo Pharma Ltd. and Orchid Chemicals Pharmaceuticals Ltd. which were the peer companies of the assessee, both were listed in the stock exchange and competitors in the bulk drug industry. The Ld. CIT(A) mentioned that the TPO in the remand report dt. 27/02/2012 raised the following objections: 10. The assessee has also compared net profit margin of the Indian unit with s Orchid Chemicals and M/s Aurobindo Pharrna. However, it has not specified any reasons for choosing only these companies as the comparable companies. The process of selection is not transparent. There are several companies in this segment which come to my mind which may be correct comparables e.g. Arch Pharmalabs, Dwi's Lab, Sequent Scientific....
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....vi's Lab, Sequent Scientific in Group B. If we compare, GROUP A, these companies are manufacturing Antibiotics Cephalosporin range of products All these Cephalosporins produced by these companies come under niche product categories and require dedicated facility for manufacturing as the processes are complex. These companies procure / produce and require more or less similar type of raw materials for their manufacturing like 7ACA, GCLE, Mica acid and others for the manufacturing of Cefixime, Cefuroxime Axetil and Ceftriaxone Sodium Sterile and. other products. One the other hand, Companies under GROUP B don't fall in the same segment as that of GROUP A. Group B companies have multi-purpose manufacturing plants and can manufacture different type of products of different therapeutic categories with the same facilities on campaign basis. For example - For Atorvastatin, a Cardiovascular Agent, the raw material required are Tri-ethyl-borane, Sodium borohydride and 2.3-DI-AMINO-NAPPIT1IALENK. Also for another category - antidiabetic segment- Metformin, the API - Metformin HCl is oduced using dirnethylamine and 2-cyanoguanidine. This is further stated before your honou....
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.... and excise duty in Sri Lanka was also contentious, therefore, the PSM could not be used as a most appropriate method. Accordingly the TNMM was considered to be most appropriate method. 22.18 The Ld. CIT(A) observed that the company chosen by the assessee as comparables were in Indian market and those two companies namely, M/s Aurobindo Pharma Ltd. and M/s Orchid Chemicals Pharmaceuticals Ltd. were in bulk drug category. The Ld. CIT(A) further observed that the assessee manufactured Cefixime API (Active Pharmaceutical Ingredient) which was also manufactured by those two comparables companies who were the competitors to the assessee in the open market. Therefore the aforesaid two companies should be taken as comparables. The Ld. CIT(A) reproduced the comparable chart of financials furnished by the assessee (which was also sent to the TPO for his remand report) at page no. 39 and 40 of the impugned order as under: (Rs in Lacs) Particulars Nectar Lifesciences Aurobindo Pharma Ltd. Orchid Chemical Ltd. Sales 22068.85 115917.00 64978.55 Other income 1072.31 1656.00 3950.89 Increase in FG Stocks 174.93 1324.00 23316.09 118897.00 68929.4....
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....idered only two companies namely M/s Aurobindo Pharma Ltd. and M/s Orchid Chemicals Pharmaceuticals Ltd. as comparables. It was stated that the Ld. CIT(A) was not justified in rejecting other five comparables considered by the TPO and that the addition made by the AO on the basis of the recommendations of the TPO, was wrongly deleted by the Ld. CIT(A), the same may be restored. 25. In his rival submissions the Ld. Counsel for the Assessee, reiterated the submissions made before the authorities below and further submitted that the assessee company owned 100% of the shares of its Sri Lankan subsidiary i.e; M/s Chempharma Pvt. Ltd.(AE)from which the assessee was importing various drug intermediates used in the production of the oral and sterile range of antibiotics manufactured by the assessee company. During the year relevant to the A.Y. under consideration the assessee company entered into International Transaction for purchase of raw material with the AE and was required to bench mark for determining the ALP as per the transfer pricing provisions of the Act. The asessee chosen CUP method as a most appropriate method and claimed the International Transaction entered into by it with....
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.... the Ld. CIT(A) followed the judgment of the Special Bench of ITAT Chandigarh in the case of Quark Systems Pvt. Ltd. reported at 132 TTJ 1 wherein on similar facts the ITAT allowed the assessee to take fresh argument of dropping of comparable company for the purpose of Transfer Pricing Benchmarking which was earlier taken by the assessee as well as the TPO and the additional evidences were accepted. The said judgment of the Sepcial Bench of ITAT had subsequently been approved by the Hon'ble Punjab &Haryana High Court vide its decision dt. 16/05/2011 in ITA No. 594 of 2010. 25.2 It was submitted that the power of the Ld. CIT(A) are co-terminus with the powers of the AO and he functions as a Quasi-judicial authority. It was further submitted that the Ld. CIT(A) adopted all fair procedures in granting the TPO sufficient and ample opportunity to examine the evidences filed by the assessee and to submit comments on the same which had been duly done. Therefore the Ld. CIT(A) rightly admitted the additional evidence and there was no contravention of Rule 46A. Reliance was placed on the following case laws: * Land Acquisition Collector, Improvement Trust Vs. Addl. CIT[(2017) 396 ITR 410....
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....rs to the assessee company and require dedicated facility for manufacturing as the processes are complex. - These companies require similar types of raw materials. - Suppliers for raw materials required by these companies are very few in number. - Comparative Financial figures chart of the above three companies reproduced on Page 39 clarifies that the companies are in the similar range of turnover and are similar in terms of size and operation. - Their respective shares of manufacturing activity in total turnover is large as that of the assessee. 25.5 It was accordingly submitted that the two comparables selected by the assessee were functionally similar to that of the assessee, whereas on the other hand the comparable suggested by the TPO were very much different in terms of their product line and they had multipurpose manufacturing plants and manufacture different types of products. The reliance was placed on the following case laws: * Honeywell Turbo Technologies (India) (P.) ltd. Vs. DCIT, Circle 1(2), Pune (2017) 78 Taxmann.com 342 * ASB International (P.) Ltd. V. ACIT- Circle-1, Mumbai, [2017] 78 taxmann.com 137 (Mumbai-Trib) * Sony India Private Ltd. (1....
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....ions of the Act. The assessee chose CUP as a most appropriate method and concluded that the International Transaction entered by it with its AE was at arm's length. However the TPO did not agree with explanation of the assessee and made an adjustment of Rs.3,52,96,048/-. The TPO did not accept this explanation of the assessee that the purchases from the AE were at lower rate in comparison to the purchases from uncontrolled parties. When the matter was taken to the Ld. CIT(A), he pointed out defects in the bench marking of prices relating to the transaction done by the assessee company with its AE by using the CUP method. The Ld. CIT(A) also pointed out defects in the order of the TPO, due to number of reasons stated in the impugned order which have been discussed in the former part of this order, for the cost of repetition the same is not reproduced herein. The assessee in order to choose reasonable basis of comparing transactions, furnished additional evidences before the Ld. CIT(A) in the form of fluctuations in the price of the material purchsed i.e. MICA, to supplement its CUP Data and the calculation of ALP. The assessee proposed two additional method being Profit Split Method....
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.... as a CUP for the rest of the 11 months. Thirdly, the TPO pointed out that import of various materials from the AE amounting to Rs.14,52,70,213/- was not benchmarked at all by the assessee. The TPO made a best judgment assessment and calculated the ALP of ten different chemicals and the basis of calculation was that the variation in price of Cefatoxime and Mica Acid was 1.2% and 28.11% as compared to the ALP determined in these two chemicals, therefore, the average of these two items which worked out to 15% was taken as percentage to adjust downwards the import price of the chemicals imported from the AE and accordingly adjustment of Rs.2.17 crores was made. Therefore the method adopted by the TPO also suffered from the defect of the comparing uncomparable chemicals, using an average variation between the ALP and the actual price in two different chemicals, using the same as the variation in the ALP of the ten different chemicals. 26.2 In view of the above said discussion, we are of the view that the CUP method suffered from multiple infirmities and was not a most appropriate method for the transactions pertaining to the year under consideration. 26.3 As an alternative the assess....
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....ion of the comparable by the TPO and submitted that only two comparables namely M/s Aurobindo Pharma Ltd. and M/s Orchid Chemicals Pharmaceuticals Ltd. were in the same manufacturing activity in which the assessee was engaged and their turnover was also comparable with that of the assessee. The Ld.CIT(A) categorically stated that the assessee was manufacturing Cefixime API (Active Pharmaceutical Ingredient) which was also manufactured by those two comparable companies who were competent to the assessee in the open market, therefore, those should be taken as comparable. The Ld.CIT(A) forwarded the comparable chart of the financial submitted by the assessee in respect of the comparables, to the TPO who in his remand report could not controvert this contention of the assessee that the three companies i.e; assessee and the two comparable namely M/s Aurobindo Pharma Ltd. and M/s Orchid Chemicals Pharmaceuticals Ltd. were in the similar range of turnover, in terms of size of the operation they were similar, therefore the Ld. CIT(A) was fully justified in holding that those two companies were comparable to the assessee and as the mean margin of the above said two comparables was less than....
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....manner. He further observed that as per the provisions of section 239(2) of the Act such claim should only be filed one year from the last day of said assessment year and the limitation in the assessee's case expired on 31/03/2007. The reliance was placed on the judgment of the Hon'ble Supreme Court in the case of Goetze (India) Ltd. Vs. CIT(2006) 284 ITR 0323 (SC) wherein it was held that the assessee could revise its claim before the AO only by filing the revised return under section139(5) of the Act. The AO observed that since in this case no revised return was filed and also there was no time available for filing the revised return, the claim of the assessee was not acceptable and hence rejected. 29. Being aggrieved the assessee carried the matter to the Ld. CIT(A) and reiterated the submissions made before the AO. 29.1. The Ld. CIT(A) after considering the submissions of the assessee directed the AO to allow the claime of Rs.10,24,05,617/- made by the assessee by observing in para 6.3 and 6.4 of the impugned order as under: 6.3 This matter was litigated in the subsequent assessment year i.e. 2006-07. On the same grounds, the AO has taxed the dividend income in the hands of....
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....March, 2008. However, the issue involved in the case of M/ s Kulandagan Chettiar was the taxability of business income received from Malaysia and not dividend income and therefore facts of this case are not applicable in the case of appellant. Further, in clause 10(2) of the DTAAs with Sri Lanka and Malaysia for taxability of dividend income in the other contracting state, the word is used 'may' which can also not be read as 'shall' in view of various Court judgments and in above referred Supreme Court decision wherein it has been held that tax on dividend income can be charged in the contracting state where the same accrued. Undisputedly in case of the appellant company dividend from its Associate Enterprise namely M/s Chempharma Pvt Limited accrued in Sri Lanka as it was declared in Sri Lanka. In view of the above said finding and considering the submission made by the appellant and observations of the assessing officer in the assessment order and remand report furnished for A.Y. 2005-06, I hold that the provisions of DTAA of India with Sri Lanka and Malaysia, arc similar so far as the taxability of dividend in concerned. As held by Hon'ble (SC) in case ....
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.... has erred both in law and on facts of the case by allowing the deduction of Rs.28,27,799/- on account of deferred revenue expenditure as claimed by the assessee. 2. The Ld. CIT(A) has erred both in law and on facts of the case by allowing the deduction on account of deferred revenue expenditure when the expenses incurred by the assessee on account of advertisement, publicity and foreign visit do not come within the purview of Sec. 35D of the I.T. Act. 3. The Ld. CIT(A) has erred both in law and on facts of the case by allowing the deduction of on account of deferred revenue expenditure even when they were not allowable u/s 37(1) of the I.T. Act, 1961. 4. The Ld. CIT(A) has erred both in law and on facts of the case by allowing the claim of non-taxability of the dividend of Rs.20,72,78,330/- received from Shri Lankan subsidiary company. 5. The Appellant craves leave to add or amend the grounds of appeal on or before the appeal is heard and disposed off. 6. It is prayed that the order of the Commissioner of Income-tax (Appeals) be set aside and that of the A.O. be restored. 36. Ground Nos. 5 & 6 are general in nature, so do not require any comment on our part. 37. ....
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....ny has during the course of the assessment proceedings for A.Y 2006-07 vide their submission dtd. 10.09.2009 has claimed as exempt the dividend income received from the Sri Lankan Company. The assesee further submitted to the AO as under: "In this connection apart from provision of Article 10 of DTAA between India and Sri Lanka Government, your kind attention is also drawn towards CBDT circular No. 333 dated 2.04.1982 wherein it has been clarified that in case of conflict in the provisions of agreement for double tax avoidance and Income Tax Act, the provisions contained in agreement for double tax avoidance will prevail. So far as reason of not filing the revised return and claiming the refund in view of provision of section 239 for rejection of claim given by your honour in A. Y. 2005-06 is concerned, in this connection it is submitted that issue of taxability of dividend accrued in a company with whom DTTAA is executed was under dispute and was under consideration of Hon'ble Supreme Court of India which was finally settled by the apex court vide order dated 20.03.2008 which was published and came to the notice after 31.03.2008 i.e after the time prescribed under the A....
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....ther the Hon'ble Supreme court of India in its judgment in the case of Goetze (India) Ltd. v. Commissioner of Income-tax (2006) 284 ITR 0323(SC) has held that the assessee can revise its claim before the assessing officer only by filing a revised return u/s139(5) of the Act. Since this claim has not been filed by the assessee by way of a revised return filed u/s 139(5) of the Act and also there is no time available for filing revised return the claim of the assessee is not acceptable and hence rejected. (c) The assessee company has relied on the judgement of the apex court in the/6ase of CIT Vs Torqouise Investments and Finance Ltd. (2008) 300ITR 001. However, in the case of the above said case the assessee had claimed refund amounting to Rs.29,16,660/- on the basis of the credit of deemed TDS on dividend received from a Malyasaian Company ALONG WITH THE RETURN. The relevant facts of the case are reproduced below for better appreciation : "The assessee-respondent, hereinafter referred to as "the assessee", filed its return of income for the assessment year 1992-1993 declaring an income of Rs.4,30,06,580 by showing its business as investment and finance, which was processe....
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.... company during the course of assessment proceedings vide its letter dated 10-09-2009 made a request to the Id Addl. CIT not to charge any tax on the dividend of Rs.20,72,78,330/- received from Sri Lankan Company under any provision of I. T. Act. ' - ' In this connection it is submitted by the AR of the appellant that the Id Assessing officer has not appreciated the corrects facts of the case and has also ignored the board circular issued directly relating to the facts of the assessee's case and even the decision of the Hon'ble Supreme Court in case of Deputy Commissioner of Income Tax v. Torqouise Investment & Finance Limited[2008] 168 Taxman 107(SC) on the basis of which dividend income was claimed as exempt i.e. not liable to tax in India under any provision of I. T. Act. The Id Addl Commissioner of Income Tax has discussed the claim made by appellant company in para 3.1 to 3.4 at page no 2 to 4 of the assessment order and rejected the claim of appellant by making the following observation in para 3.5 and 3.6 of the assessment order as under:- "The above arguments of the assessee were examined carefully and the same are not acceptable on account of the follo....
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....computation during the assessment proceedings out of the payment made as self assessment tax. (d) In the submissions made by assessee it has been claimed that the 'issue whether dividend accrued in the country with whom the Government of India having the DTAA is taxable in India or not under any provision of the Income Tax Act was pending with the Hon'ble Supreme Court for it's final decision. This claim is factually incorrect. The above said issue was well settled by the decision of the Apex Court in its judgment in the case of CIT Vs. P. V.A.I. Kulandgan Chettiar (2004) 267 ITR 654. Further, even the review petition filed against the decision of this court was also dismissed on 1, November, 2007. As such the issue was well settled by the apex court well before the assessee filed its revised return of income on 12' March, 2008. Assessee failed to avail the opportunity vested by law within the prescribed time. 3.6 In view of above, the claim of assessee vide its revised Computation of Income filed during the course of assessment proceedings vide their written submission dated 10-09-2009 is not accepted andfresh claims are rejected. " The assessing officer h....
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....me Tax v. Torqouise Investment & Finance Limited [2008] 168 Taxman 107(SC). Revised computation of income filed during the course of assessment proceeding vide our letter dated 10-09-2009 is enclosed herewith for your honour's ready reference. 42.2 The assessee also furnished the reply to the observations of the AO which is incorporated by the Ld. CIT(A) at page no. 9 to 17 of the impugned order for the cost of repetition the same are not reproduced herein. 42.3 The Ld. CIT(A) after considering the submissions of the assessee observed that the AO had not entertained the claim of the assessee during the assessment stage for considering the dividend income received from Sri Lanka as exempt mainly by relying on the judgment of the Hon'ble Supreme Court in the case of Goetze (India) Ltd. Vs. CIT(2006) 284 ITR 323, without looking into the merit of the assessee's claim. The Ld. CIT(A) observed that the assessee was not able to revised its income by showing the dividend income received from Sri Lanka as exempted because the matter regarding taxability of dividend income received from abroad was sub judice and was decided as late as on 20/03/2008 in the case of DCIT Vs. Turquoise I....
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.... Provided that such credit shall not exceed Indian tax (as computed before allowing any such credit ), which is appropriate to the income derived from sources within Sri Lanka or to capital in Sri Lanka, so however , that where such resident is a company by which sur tax is payable in India, the credit aforesaid shall be allowed in the first instance against income- tax payable by the company in India, and as to the balance if any against sur tax payable by it in India. (3) For the purpose of paragraph (2) of this article, the term Sri Lanka tax payable shall be deemed to include any tax which would have been payable as Sri Lanka tax for any year but for an exemption or reduction of tax granted for that year or any part thereof under : * Any of the following provisions, that is to say sections 11,16,17,18,19, 20, 21, 22 and 85 of the Sri Lanka Inland Revenue Act No. 28 of1979 so far as they were in force on, and have not been modified since, the date of the signature of this Convention, or have been modified only in minor respect s so as not to affect their general character ; * Any agreement entered into u/s 17 of the Greater Colombo Economic Commission Law No. 4 of 1978....
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....been available to the assessee and its Sri Lanka tax payable was to be allowed as a credit against Indian tax on the same item of income i.e; dividend, as per the provisions of the Article 24(2) of the DTAA between India and Sri Lanka. 42.7 As regards to the AO's stand that the assessee should have made this claim within a period of one year as laid down in section 239 which prescribes the limit for claiming refunds, whereas in the assessee's case the claim had been made about the dividend income being exempt and not in regard to the refund. He further observed that the AO sought to distinguish between the facts of the assessee's case and those in the case of DCIT Vs. Turquoise Investment & Finance Ltd.(supra) whereas the issue in both the case was relating to taxability of dividend income received from abroad. The Ld. CIT(A) was of the view that the facts of the case of DCIT Vs. Turquoise Investment & Finance Ltd. (supra) were applicable to the assessee's case for the following reasons: a) The assessee filed its return of Income claiming refund on the basis of credit of deemed TDS on the dividend of Rs 21,35,766/- received from a Malaysian company. b) The assessing officer r....
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....her submitted that the relief had been granted by the Ld. CIT(A) for the reasons that the dividend arising to the assessee company from its Sri Lankan Subsidiary Company was non taxable in view of the judgment of the Hon'ble Apex Court in the case of DCIT Vs. Turquoise Investment & Finance Ltd. reported at [2008] 300 ITR 1 , wherein it has been held that the tax on dividend can only be charged in the contracting state from where such dividend accrued and the facts of the above case were related to the India-Malaysia Treaty which was similar to India-Sri Lanka Treaty. It was further submitted that in case the resident had paid any tax in any other country in respect of its income sourced in that country, India has to give appropriate credit for the tax paid in the foreign country, subject to provisions of DTAA. It was further submitted that the provisions of agreement cannot fasten a tax liability where the liability was not imposed by the local act and where tax liability is imposed by the Act, the agreement may be resorted to either for reducing the tax liability or altogether avoiding the tax liability, in case of any conflict between the provisions of the agreement and the Act, ....