TaxTMI 
TaxTMI 
2023 (7) TMI 603
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....of the Assessing Officer (A O) in enhancing the total income 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 GOOD....
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.... 3.11 Without prejudice to the above, the Appellant further prays that it be held that the total adjustment on any international transaction cannot exceed the 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 Withou....
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....acts and in the circumstances of the case and in law, the CIT(A) erred in not adjudicating the issue of deduction of provision for bad and doubtful other advances of Rs. 12,12,000/-. 7.2 The Ld. CIT(A) further erred in not holding that in view of 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. 3....
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.... XII: ADDITION OF PROVISION FOR BAD AND DOUBTFUL FARMER ADVANCES OF RS. 1,56,84,359/- TO THE BOOK PROFITS U/S. 115JB. 12.1 On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in upholding the order of the AO of treating the provision for bad and doubtful farmer advances of Rs. 1,56,84,359 as provision 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 PREJ....
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....115JB of the Act. 15.2 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. 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 C....
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....he business of 'processing and export of pickled Gherkins (Baby cucumber). 68.8% of the shares of the assessee company are held by M/s Bilt Trading & Infrastructure Pvt. Ltd. In turn, the assessee is a 100% holding company of Tiffy International BV(Tiffy), with whom if had undertaken international transactions. 11. During the year, the assessee has undertaken the following international transaction: S. No. Description of material Method Value (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 d....
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....es of each category vary according to different grades. In view of the fact that more than one prices of the same product were available therefore, for the proposes of benchmarking international transaction the prices were taken on the basis of weighted average for every grade in each category of product. 19. This exercise of arriving at weighted average of the prices of products sold to unrelated party was carried out in the presence of Authorized representative of the assessee company from the sheets submitted in transfer pricing proceedings pertaining 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 differ....
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....7,90,535/- was determined to be added to the income of the assessee on this account. 28. Heard the arguments of both the parties and perused the material available on record. 29. OECD in its Transfer Pricing Guidelines (2017) observes as under: Para 2.14 "The CUP method compares the price charged for property or services transferred in a controlled transaction to the price charged for property or services transferred in a comparable uncontrolled transaction in comparable circumstances. If there is any difference between the two prices, this may indicate that the condition of the commercial and financial relations 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 compa....
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....nus paid: 38. The ld. CIT(A) has not adjudicated on this issue as per the grounds. In the interest of speedy justice, the matter is referred to the AO to verify and allow the same if paid during the year. Provision for bad debts - farmers/trade: 39. Directed to be allowed on actual write off basis. Administrative Expenses - Ballarpur Industries: 40. As adjudicated above in this order. ITA No. 1405/Del/2017: A.Y. 2005-06 (Assessee) Administrative Expenses - Ballarpur Industries: 41. As adjudicated above in this order. TP Adjustment: 42. Not pressed owing to smallness of amount. Provision for bad debts - farmers/trade: 43. Directed to be allowed on actual write off basis. Loss on Foreign Exchange Fluctuation: 44. The 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 ba....
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.... either party. The Hon'ble Court concluded that the currency in which the loan is to be repaid normally determines the rate of return on the money lent. The Hon'ble Court also held that in case of capital investment borrowing rate will apply whereas in case of credit allowed to a customer on sale of goods, the lending rate would apply. This would require examination of loan agreement. The AO shall charge suitable interest after examination of the loan agreement as per the guidelines given above. Profits u/s 115JB: 49. All the debts which have been rightly obliterated even though the terminology used was "provision" was directed to be excluded from the purview of computation of Section 115JB. ITA No. 1307/Del/2017 : A.Y. 2007-08 (Revenue) Deletion of Inventory 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....
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....t as a holding company for the subsidiaries of GG India in Europe. During the financial year ended March 31, 2010, GG India has provided a Corporate guarantee to the tune of Rs. 45,42,00,000/- to an unrelated bank for rendering financial assistance INV. The assessee submits that entire amount of guarantee was in force during the FY 2009-10......4.4 On the issue of interest saving approach method, the assessee submitted that despite the Corporate Guarantee taken from the taxpayer, AE has paid interest to the banks comparable to the prevailing rates in the market. However, the assessee has not furnished any evidence in support of this claim. Another question arise here that if taxpayer has given Corporate Guarantee to an unrelated party, it would have charged similar to that of prevailing in the market where taxpayer is residing 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 deci....
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....gn subsidiary is taken into account and the rate of interest specific to a credit rating of Indian bonds is also considered for determination of the arm's length price of such guarantees. 64. The Hon'ble Court opined that the Indian transfer pricing administration is facing a challenge due to non-availability of specialized databases and of comparable transfer prices for cases of complex intercompany loans as well as mergers and acquisitions that involve complex inter- company loan instruments as well as an implicit element of guarantee from the parent company in securing debt. 65. The Hon'ble Court held that there would be a difference between the lending rate and borrowing rate in each country. The Hon'ble Court held in case of a capital investment, the borrowing rate will apply, whereas in case of credit allowed to a customer on sale of goods, the lending rate would apply. With regard to Corporate Guarantees, the Co-ordinate Bench of ITAT in the case of Kohinoor Foods Ltd. Vs. ACIT in ITA No. 3689/Del/2012 vide order dated 21.06.2014 held that commission at the rate of 1% is fair and reasonable. In Havells India Ltd. 140 Taxmann.com 575, the corporate guarantees dete....