TaxTMI 
TaxTMI 
2023 (7) TMI 603
X X X X Extracts X X X X
X X X X Extracts X X X X
....e of the Appellant by the amount of inventory written off amounting to Rs. 74,62,933/- by debiting the securities premium account, even though the said write- off was neither debited to the profit and loss account nor claimed as deduction while computing the total income of the Appellant. 1.2 The Appellant humbly prays that the said addition made by the AO be deleted. GROUND II: DISALLOWANCE OF ADMINISTRATION EXPENSE S OF Rs. 1,06,74,505/- PAID TO M/S BALLARPUR INDUSTRIES LTD. 2.1 On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in disallowing the administration expenses of Rs. 1,06,74,505/- paid by the Appellant to M/s. Ballarpur Industries Limited which was incurred in relation to corporate support service s provided by the m to the Appellant. 2.2 The Appellant prays that it be held that the said expenses were incurred wholly and exclusively for the purposes of business and hence is allowable in the hands of the Appellant u/s 37(1). GROUND III: TRANSFER PRICING ADJUSTMENT OF RS. 3,21,37,116/- U/S. 92CA(3) OF THE ACT IN RESPECT OF EXPORT OF GOODS TO ASSOCIATED ENTERPRISE . 3.1 On the facts and in the circumstances of the case and in la....
X X X X Extracts X X X X
X X X X Extracts X X X X
....he total profit element embedded in the entire value chain encircling the said transaction and accordingly, the said adjustment ought to be deleted. GROUND IV: TRANSFER PRICING ADJUSTMENT OF Rs. 7,90,535/- U/S 92CA(3) OF THE ACT IN RESPECT OF PURCHASE OF PACKING MATERIALS FROM ASSOCIATED ENTERPRISE. 4.1 On the facts and in the circumstances of the case and in law, the CIT(A) erred in upholding the transfer pricing addition of Rs. 7,90,535/- made by the AO/TPO in respect of transaction of purchase of packing materials from an associated enterprise. 4.2 The Appellant humbly prays that since the purchase price at which the Appellant has entered into the international transaction of purchase of packing material is less than the ALP determined by the TPO, the Appellant has in fact offered higher income in respect of said transaction and accordingly, the said difference in the ALP and the purchase price cannot be added to the total income of the Appellant u/s 92 of the Act. 4.3 Without prejudice to the above, the Appellant prays that the difference between the arm's length price and the transaction price has been wrongly computed by the TPO as Rs. 790,535 instead of....
X X X X Extracts X X X X
X X X X Extracts X X X X
....the decision of the Hon'ble Supreme Court in the case of Vijaya Bank vs CIT (190 taxman 257) (2010), where the provision is rightly made by debiting the amount of bad debt to the profit and loss account so as to reduce the profits of the year and simultaneously, the amount of loans and advances or debtors is reduced and consequently, the provision account stands obliterated, then there was actual write off and therefore, the same is allowable under the provisions of the Act. 7.3 The Appellant humbly prays that it be held that the provision for bad and doubtful advances is allowable as deduction/business loss under the provisions of the Act. GROUND VIII: DISALLOWANCE OF EMPLOYEES' CONTRIBUTION TO PROVIDENT FUND OF RS. 33,80,326/-. 8.1 On the facts and in the circumstances of the case and in law, the CIT(A) erred in not adjudicating the issue of disallowance of employees' contributions of Rs. 33,80,326/- to Provident Fund. 8.2 The Appellant humbly prays that it be held that the employees' contributions to Provident Fund is allowable as deduction/business loss under the provisions of the Act since the same was deposited within the due date of filing of retu....
X X X X Extracts X X X X
X X X X Extracts X X X X
....n for diminution in value of assets and thereby, adding the same to the book profits u/s. 115JB of the Act. 12.2 The Ld. CIT(A) further erred in not holding that where the provision is rightly made by debiting the amount of bad debt to the profit and loss account so as to reduce the profits of the year and simultaneously, the amount of loans and advances or debtors is reduced and consequently, the provision account stands obliterated, then such provision should be regarded as an actual write off and accordingly, cannot be regarded as provision for diminution in value of assets. 12.3 The Appellant humbly prays that the foregoing addition of provision for bad and doubtful farmer advances (which were netted off against advances in the books of the Appellant) to the book profit u/s. 115JB be deleted. WITHOUT PREJUDICE TO THE GROUND XII, GROUND XIII: ADDITION OF PROVISION FOR BAD AND DOUBTFUL FARMER ADVANCES OF RS. 1,56,84,359/-TO THE BOOK PROFITS U/S. 115JB BE RESTRICTED TO RS. 61,86,982/- 13.1 On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in not restricting the addition of provision for bad and doubtful farmer advances of Rs. 1,56....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... and accordingly, cannot be regarded as provision for diminution in value of assets. 15.3 The Appellant humbly prays that the foregoing addition of provision for doubtful advances (which were netted off against loans and advances in the books of the Appellant) to the book profit u/s. 115JB be deleted." 3. The revenue has raised the following grounds of appeal in ITA No. 1307/Del/2017 for AY 2007-08: "1. Whether on the facts and circumstances of the case & in law, the Ld. CIT (A) has erred in deleting the addition of Rs. 28,97,157/- being 50% of total reduction of Rs. 57,94,313/- irrespective of the facts as mentioned by the AO that majority of the stock written off is in the nature of product loss & packing material loss. 2. Whether the Ld CIT (A) was justified in laying down stringent standards of comparability and attempting to identify exact re;ica of the taxpayer for comparability analysis, whereas the Indian Law and the international jurisprudence recognize the reality that there cannot be an exact comparable in a given situation without any differences without appreciation that such astringency will defeat the purpose of flexibility provided in comparability analysi....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ue (in Rs.) Book Value ALP as per 3CEB 1 Export of processed Gherkins CUP 16,93,48,285 16,93,48,285 2 Purchase of packing and processing CUP 74,70,311 80,72,661 12. The assessee company has relied upon comparable Uncontrolled Price Method (CUP) as per From 3CEB submitted with the return of income and while determining the arm's length price in respect of purchase of packing and processing material, on its own revised the price upward as mentioned in table above. However, in respect of export of processed Gherkins same value as is in books of account has been adopted as arm's length price. 13. The TPO held that the documentation does not contain any indication and material as to how the "CUP" has been applied by the assessee company. The TPO also held that after going through the Transfer Pricing report it could not be ascertained whether the assessee company is relying upon CUP or is intending to apply Transactional Net Margin Method (TNMM). 14. The assessee company submitted data pertaining to sale of goods to associated enterprises and comparable prices charged from unrelated parties. In these circumstances it was s....
X X X X Extracts X X X X
X X X X Extracts X X X X
....to the details of transactions with unrelated party. 20. In this manner, for each category of product, the difference in per unit price was determined. The result of the same two was summarized as under: Annexure I Sr. No. Product Difference 1 Gherkins in Vinegar (Bulk) 78,51,397 2 Gherkins in Vinegar (Jars) 1,97,78,014 3 Gherkins in acetic acid (Jars) 35,68,309 Total 3,11,97,720 Annexure II 1 Gherkins in Vinegar (Cans) 3,79,772 2 Gherkins in Brine (Bulk) 5,59,624 3 Non Gherkins product - Total 9,39,396 21. The total difference in sale price and arm's length price of gherkin products was therefore Rs. 3,21,37,116/- being the total of Rs. 3,11,97,720/- and Rs. 9,39,396/-. 22. The TPO held that the assessee company did not furnish any reply and no objection of any kind was filed against the aforesaid calculation. Keeping in view the facts, the TPO determined the ALP of the international transactions of export of gherkin products by the assessee to its AE at Rs. 20,14,85,401/- as against Rs. 16,93,48,285/- declared by the assessee. Hence, a sum of Rs. 3,21,37,116/- was added to the income of the assessee on account of internation....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ions of the AEs are not at arm's length, and that the price in the uncontrolled transaction may need to be substituted for the price in the controlled transaction." Para 2.19 "Under the CUP method, the arm's length price for commodity transactions may be determined by reference to comparable uncontrolled transactions and by reference to comparable uncontrolled arrangements represented by the quoted price". 30. The steps involved in the application of this method are: i. Identify the price charged or paid in comparable uncontrolled transactions; ii. The above price should be adjusted for transaction level differences on the basis of functions performed, assets used and risks taken (FAR) analysis and enterprise level differences if any; iii. The adjusted price is the arm's length price; 31. Reasonable and accurate adjustment can be made for differences in: a. Type and quality of products b. Delivery terms c. Volume of sales and related discounts d. Product characteristics e. Contractual terms f. Risk incurred g. Geographical factors 32. In the instant case, the TPO undertook an invoice by invoice com....
X X X X Extracts X X X X
X X X X Extracts X X X X
....AO disallowed the loss on exchange fluctuation holding it to be notional. The AO held that actual loss would arise only at the time of remittances and not before. The AO also held that the assessee may make entries in the books of accounts as per the Companies Act but income has to be computed as per the provisions of Income Tax Act. The ld. CIT(A) concurred with the order of the Assessing Officer on the grounds that the basic fact relating to the cancellation of forward contract pertaining to which the losses claimed have not been submitted. Keeping in view, the judgments of Hon'ble Apex Court in the case of ONGC Vs. CIT 322 ITR 180 and CIT Vs. Woodward Governor 312 ITR 254, we hold that the Loss on Foreign Exchange Fluctuation is an allowable expenditure. Set off of C/F Business Loss: 45. The ld. CIT(A) has dismissed the grounds taken up holding that the appeal memo for the year doesn't elaborate or shed any light on said matter. However, we find that the assessee has taken up this issue at ground no. 6 in the grounds filed before the ld. CIT(A). However, in the interest of justice, we direct the AO to consider afresh, the issue of set off as per the provisions of the I.....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ventory of Rs. 28,97,157/-: 50. The facts of the case and adjudication of the ld. CIT(A), Ms. Y. Kakkar is as under: "5.2 The list of goods written off are part of same and in a fast moving standard/norms confirming packaged food products (perishable) and having limited shelf life having a stock of damaged goods or bundle of labels/wrappers/cartons etc., no longer needed is not uncommon and is a practical reality as its not necessary to have a bulk repeat orders of supply of gherkins from the same house to whom the first bulk lot has been dispatched (and for whom bulk wrappers/cartons etc. were procured to obtain quantity advantage etc.). The assessee has already written off the said goods in accordance with law and as such the matter needs to be decided in favour of appellant. The AO also strangely disallowed 50% of the total sums written off by the appellant of Rs. 57,94,313/- which comes to Rs. 28,97,157/- which is ridiculous to say the least. If for say example of the total quantity of say gherkins (with expired shelf life/defective taste etc.) of Rs. 1000/- is discarded and written off by appellant, then with what logic can one allow disallowance of Rs. 500/- and disallow ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....siding in. Hence, argument of the assessee is not acceptable......" 59. The TPO made an adjustment of Rs. 2,07,11,520/- after calling for information from varied banks. 60. It was submitted that a lower guarantee fees is in order as the guarantee was advanced to a party under the same management and control of the appellant (being its AE) and the re-exist decision ranging from holding that corporate guarantee fee should not be charged. The ld. CIT(A) relying in case of Kohinoor Foods Ltd [2014] 54 taxmann.com 454 held that corporate guarantee fee of 1% to be reasonable. 61. Heard the arguments of both the parties and perused the material available on record. 62. The issue of considering the corporate guarantees as an International Transaction amenable to adjustment has been settled by the order of the Hon'ble High Court of Madras in the case of PCIT Vs. M/s Redington (India) Limited on 10 December, 2020. The Hon'ble High Court of Delhi after detailed analysis in the case of Cotton Naturals (supra) held that intercompany loans and guarantees are becoming common International Transactions between related parties due to management of cross-border funding within ....