TaxTMI 
TaxTMI 
TaxTMI 
2023 (9) TMI 741
X X X X Extracts X X X X
X X X X Extracts X X X X
....s Pte Ltd Ground Nos. 22 to 24 Ground Nos. 24 to 27 Disallowance of regional service fees paid to Cadbury Enterprises Pte Ltd. Singapore (Cadbury Schweppes Asia Pacific Pte Limited merged with Cadbury Enterprises Pte Ltd in 2010) Ground Nos. 25 to 28 Ground Nos. 28 to 30 Disallowance of global service fees paid to Cadbury Holdings Limited Ground Nos. 29 to 32 Ground Nos. 31 to 32 Disallowance under section 14A of the Act read with Rule 8D Ground No. 33 Ground No. 33 Treating foreign exchange loss on cancellation of contracts as speculative Ground No.34 Ground No.34 Allocation of expenditure at Baddi Unit-I & II Ground Nos.35 to 36 Ground Nos.35 to 36 Addition on account of Annual Information Report Ground No.37 Ground No.37 Non grant of MAT credit Ground No.38 Ground No.38 Levy of interest under section 234A of the Act Ground No.39 Ground No.39 Levy of interest under section 234C of the Act Ground No.40 Ground No.40 2. The assessee also raised an additional ground in both AY 2011-12 and AY 2012-13 contending the validity of final assessment order passed under section 143(3) r.w.s.144C relying on the decision of the Hon'ble Madras High Court in the ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ade to the Transfer Pricing Officer (TPO) to determine the arm's length price of the international transaction of the assessee with its AEs. The TPO, vide order dated 27/01/2015 proposed a total adjustment of Rs. 199, 53, 59, 553/-. The Assessing Officer passed the draft assessment order incorporating the TP adjustment and also made the following additions/disallowances:- (1) Depreciation claimed on marketing know how Rs. 5,39,988/- (2) Disallowance under section 14A Rs. 23,24,430/- (3) Disallowance of forex loss Rs. 4,17,51,000/- (4)Denial of deduction under section 80IC Unit I Rs. 6, 25, 43, 786/- Unit II Rs. 21,85,37,371/- (5) Addition on account of difference in AIR Rs. 2,45,454/- 4. The Assessing Officer passed a draft assessment order against which the assessee raised objections before the DRP. The DRP gave marginal relief to the assessee with respect of depreciation claimed on marketing know how and sustained the TP adjustment as well as the other additions / disallowance made by the Assessing Officer. The assessee is in appeal before the Tribunal against the final order of assessment passed pursuant to the directions of the DRP. TRANSFER PRICING ADJUSTMENTS Adj....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ncurred for developing the intangibles (%) 11.35% Mark-up on Expenditure incurred for developing the intangibles (in Rs) 18,39,30,678 Arm's length price of reimbursement for brand promotion and marketing intangible of the AE's in India 1,80,41,289,409 8. The assessee filed objection before the DRP. The DRP rejected the various objections raised by the assessee and confirmed the TP adjustment towards the AMP expenses. 9. The Ld.AR during the course of hearing submitted that the issue is covered by the decisions of the co-ordinate bench in assessee's own case for A.Y. 2005-06, 2006-07 and 2009-10. The Ld.DR relied on the orders of the lower authorities. 10. We heard the parties and perused the materials on record. We notice that the co-ordinate bench in assessee's own case for A.Y.2009-10 (ITA No.2214/Mum/2014) has considered the similar issue and held that - "23. Considered the rival submission and material placed on record. We notice from the records that the identical ground has already been decided by the Coordinate Bench of ITAT in ITA No. 1512/Mum/2013 for AY 2006-07 in assessee's own case on merits. For the sake of clarity, which is reproduced below:- 14. We have c....
X X X X Extracts X X X X
X X X X Extracts X X X X
....d to arise in that business then, the AO was empowered to tax profits which were derived or which may reasonably be deemed to be derived from the business in the hands of a person resident in the taxable territory. Thus, it can safely be concluded that TP provisions were part of tax administration even during the 1922 Act days though at infancy stage. The present provisions were been incorporated vide Finance Act, 2001. Same were further amended vide Finance Act, 2002 and are being amended from time to time to meet the new challenges thrown up by the dynamism of the current commercial and business realities. Having regard to the object for which provisions have been enacted, applicability of the said provisions has to be limited to situations where there is diversion of profits out of India or where there may be erosion of tax revenue in intra group transaction. So, intra-group transaction is the first pre-condition for invoking the TP provisions. Calculation of ALP is the next and logical step. But, if the first step itself is missing, the AO cannot go to the second stage. In other words, the AOs cannot climb the second storey of a building without reaching to the first storey if ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....of the growth achieved by it one has to agree with the argument of the assessee that it made rapid progress in the Indian market post liberalisation period and AMP played an important role in it. Here, we would also like to mention that there exists a fundamental and basic distinction between the provisions of section 37 and section 92 of the Act-as the first is expense oriented and the second is pricing oriented. The FAA tried to incorporate the ingredients of Section 37 while dealing with the TP adjustments, when he talked of the"higher expenditure "and" justification" of such expenditure. In our opinion, the approach of the FAA was not in accordance with the basic philosophy of TP provisions. In our opinion, it is the assessee who has to decide how much to spend for earning his income. The tax authorities are prevented from entering into the proverbial shoes of the assessee to decide the justification of the expenditure. The Act stipulates that in certain conditions only the so called higher expenditure can be questioned. The FAA had not proved that the expenditure incurred by the assessee for advertisement etc. was covered by those sections. If it was the case then the transact....
X X X X Extracts X X X X
X X X X Extracts X X X X
....f introducing the various provisions of chapter X, as stated earlier, was to prevent tax evasion in the transactions undertaken between an Indian entity and its overseas AE. In our opinion, a perceived/notional indirect benefit to the AE, due to incurring of certain expenditure by an assessee in India, is not covered by the TP provisions. It is a fact that the payment under the head AMP expenditure was made to third parties and that those parties were located in India. 3.4.3. We find that in the cases of Maruti Suzuki(supra), Whirlpool India(supra), Bausch & Lomb Eyecare(India)Pvt.Ltd(ITA 643 of 2014 of Hon'ble Delhi HC), the issue of AMP expenses had been deliberated upon extensively and each and every argument raised by the TPO/DRP have been analysed thread bare. We would like to reproduce relevant portion of the judgment of Bausch & Lomb Eyecare(India) Pvt.Ltd.(supra) and same reads as under: "53. A reading of the heading of Chapter X['Computation of income from international transactions having regard to arm's length price"]and Section 92 (1) which states that any income arising from an international transaction shall be computed having regard to the ALP and Section....
X X X X Extracts X X X X
X X X X Extracts X X X X
...., either or both of whom are non-resident (b) the transaction is in the nature of purchase, sale or lease of tangible or intangible property or provision of service or lending or borrowing money or any other transaction having a bearing on the profits, incomes or losses of such enterprises, and (c) shall include a mutual agreement or arrangement between two or more AEs for allocation or apportionment or contribution to the any cost or expenses incurred or to be incurred in connection with the - benefit, service or facility provided or to be provided to one or more of such enterprises. 57. Clauses (b) and (c) above cannot be read disjunctively. Even if resort is had to the residuary part of clause (b) to contend that the AMP spend of BLI is "any other transaction having a bearing" on its "profits, incomes or losses", for a 'transaction' there has to be two parties. Therefore for the purposes of the 'means' part of clause (b) and the 'includes' part. of clause (c), the Revenue has to show that there exists an 'agreement' or 'arrangement' or' 'understanding' between BLI -and B&L, USA whereby BLI is obliged to spend excessively on A....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... limb of the concept requires two or more persons joining together with the shared common objective and purpose of substantial acquisition of shares etc. of a- certain target company, There can be no "persons acting in concert" unless there is a shared common objective or purpose between two or more persons of substantial acquisition of shares etc. of the target company, For, de hors the element of the shared common Objective' or purpose the idea of "person acting in concert" is as meaningless as criminal conspiracy without any agreement to commit a criminal offence. The idea of "persons acting in concert" is not about a fortuitous relationship coming into existence by accident or chance. The relationship' can come into being only by design, by meeting of minds between two or more persons leading to the shared common objective or purpose of acquisition of substantial acquisition of shares etc. of the target company. It is another matter that the common objective or purpose may be in pursuance of an agreement' or an understanding, formal or informal; 'the acquisition of shares etc. may be direct or indirect or the persons acting in concert may cooperate in actual acq....
X X X X Extracts X X X X
X X X X Extracts X X X X
....r statutory mandate for such an* exercise. The Court is unable to find one. To the question whether there is any 'machinery' provision for determining the existence of an international transaction involving AMP expenses, Mr. Srivastava only referred to Section 92F (ii) which defines ALP to mean a price "which is applied or proposed to be applied in a transaction between persons other than AEs in uncontrolled conditions", Since the reference is to 'price' and to 'uncontrolled conditions' it implicitly brings into play the BLT. In other words, it emphasises that where the price is something other than what would be paid or charged by one entity from another in uncontrolled situations then that would be the ALP. The Court does not see this as a machinery provision particularly -in-light of the fact that -the-BLT has been expressly negatived by the Court in Sony Ericsson. Therefore, the existence of an international transaction will have to be established de hors the BLT. 70. What is clear is that it. is the 'price' of an international transaction which is required to be adjusted: The very existence of an international transaction cannot be presumed by....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... AO is of the opinion that such expenditure is excessive or unreasonable having regard to the fair market value of the goods." In such event, so much of the expenditure as is so considered by him to be excessive or unreasonable shall not be allowed as a deduction." The AO in such an instance deploys the 'best judgment' assessment as a device to disallow what he considers to be an excessive expenditure. There is no corresponding 'machinery' provision in Chapter X which enables' an AO to determine what should be the fair 'compensation' an Indian entity would be entitled to if it is found' that there is an International transaction in that regard. In practical terms, absent a clear statutory guidance, this may encounter further difficulties. The strength of a brand, which could be product specific, may be "impacted by numerous other imponderables not limited to the nature of the industry, the geographical peculiarities, economic trends both international and domestic, the consumption patterns, market behaviour and so on. A simplistic approach using one of the modes similar to the ones contemplated by Section 92C may not only be legally impermissible but....
X X X X Extracts X X X X
X X X X Extracts X X X X
....of the opinion that after the judgments of Maruti Suzuki and Bausch & Lomb (supra)there is no scope of any other interpretation about the AMP expenditure. In the case under consideration, the AO/TPO has not brought anything on record 5470 & ors. cadbury 21 that there existed and agreement, formal or informal, between the assessee and the AE to share/reimburse the AMP expenses incurred by the assessee in India. In absence of such an agreement the first and primary precondition of treating the transaction-in-question an IT remains unfulfilled. Conducting FAR analysis or adopting an appropriate method is the second stage of TP adjustments. The first thing is to find out whether the disputed transaction in is IT or not. Without crossing the first threshold second cannot be approached, as stated earlier. In the case under consideration, we are of the opinion that AMP expenditure is not an IT and therefore we are not inclined to restore back the issue to the file of the AO. Considering the facts and circumstances of the case under consideration, we are of the opinion that the FAA was not justified in upholding the order of the TPO. Therefore, reversing his order, we decide second ground ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....cannot be allowed. The TPO also relied on its own order for A.Y. 2010-11 where he allowed only 1% towards royalty on trademark. Accordingly, the TPO made an adjustment of Rs. 1, 82, 76, 605/- towards TP adjustment. The DRP upheld the disallowance. The TPO also made similar adjustment towards royalty paid to Cadbury Enterprise Pte Ltd and Cadbury Schweppes Asia Pacific Pte Limited (now merged with Cadbury Enterprises Pte Ltd) 12. The Ld.AR submitted that the agreements for payment of royalty for use of trademark has been entered into in the years 2005, 2006 & 2007 with the above entities and the issue of TP adjustment towards payment of royalty is arising in assessee's case from A.Y. 2006-07. The Ld.AR brought to our attention that the co-ordinate bench of the Tribunal has been consistently holding the issue in favour of the assessee. The Ld.DR relied on the order of the lower authority. 13. We heard the parties and perused the material on record. The co-ordinate bench in assessee's own case for A.Y. 2009-10 (supra) has considered the issue of payment of royalty on technology to Cadbury Adams USA LLC, to Cadbury Enterprises Pte Ltd and Cadbury Schweppes Asia Pacific Pte Limited (n....
X X X X Extracts X X X X
X X X X Extracts X X X X
....of the net sales respectively. As could be seen from the materials placed on record, the payment of royalty for technical knowhow @ 1.25% has been approved by the Ministry of Commerce and Industry, Government of India, vide letter dated 14th September 2000 (copy is placed at Page-85 of the paper book). Similarly, payment of royalty for trademark @ 1% has been approved by the Reserve Bank of India, vide letter dated 25th June 2001, copy at Page-119 of the paper book. Thus, as could be seen, payment of royalty for trademark at 1% over and above the royalty paid at 1.25% for technical knowhow has been approved by the Reserve Bank of India. Though, the Transfer Pricing Officer has relied upon Press Note dated 3rd January 2002, to observe that in case of technology transfer payment of royalty subsumes the payment for royalty for use of trademark, however, in a subsequent Press Note issued by the Ministry of Commerce and Industry, Government of India, vide no.5(5)/2003-FC, dated 24th June 2003, has permitted royalty payment up to 8% on export sales and 5% on domestic sales. It is also relevant to note, the fact that the royalty paid by the assessee @ 2.25% both for technical knowhow and ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ion. Besides this, the payment is made as per the approval given by the RBI and SIA, Government of India. Hence there cannot be any scope of doubt that the royalty payment on technical knowhow is not at arm's length. 40. Coming to the issue of royalty payment on trademark usage, we find that the assessee, in fact is paying a lesser amount, if the payments are compared with the payments towards trademark usage, by the other group companies using the Brand Cadbury in other parts of the world. On the other hand, if we examine the argument taken by the TPO with regard to OECD guidelines. On this point the assessee's payment is coming to a lesser figure, as discussed in detail by the CIT(A). 41. We are not going into the arguments advanced by the DR/TPO on geographical differences, and payments made to Harshey, as these arguments gets merged in the interpretation and details available in the table supplied by the assessee and taken note of by the TPO and the CIT(A). 42. We are also not referring to the case of Maruti Suzuki Ltd. as we find that in so far as the instant case is concerned, there is really no relevance. 43. On the basis of the above observations, we are of the opin....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ned Commissioner (Appeals) has also endorsed the aforesaid view of the Transfer Pricing Officer. No doubt, on a perusal of the agreement dated 1st June 2006 between the assessee and CAUSA it appears that the said agreement has been termed as trademark license agreement. However, reading the agreement as a whole and more particularly, Clause-7(b) of the said agreement, it becomes clear the licensee (the assessee) shall manufacture licensed product using any technology of the licensor provided to the licensee in accordance with all specifications and instructions provided by the licensor from time to time. It is not the case of the Revenue that in the relevant previous year assessee has neither manufactured nor sold "Halls" brand products in India. Thus, it is necessary to ponder whether in absence of necessary technical knowhow/knowledge it would have been possible for the assessee to manufacture the aforesaid products? In our view, the answer would be-No. Further, the assessee and CAUSA have entered into one more agreement on 24th December 2007, amending the terms of the original agreement. As per the aforesaid agreement, certain terms of the original agreement was amended to inclu....
X X X X Extracts X X X X
X X X X Extracts X X X X
....7 with CEPT to avail the benefits of Technical Know-how, trade secrets etc. for mixed fruit flavored and strawberry flavored sugar noncoated center filled bubble gums / chewing gums. Another agreement was entered into with the same entity for Trademarks and copyright licenses in respect of products Bubbaloo, Bubba the Cat & Adams. As per agreement, the assessee paid Technical royalty @4% and Trademark Royalty @1%. Applying the same reasoning, it was held that CEPT was authorized to sub-license the rights of the Trademark only and there was no reference to presume that the same included the right to sub-license the Technology and know-how related to the products, an adjustment of Rs. 142.51 Lacs was proposed by Ld. TPO. The Ld. DRP, finding the adjustment quite similar to as made for royalty payment to CAUSA, endorsed Ld. TPO"s action. 3.5.2 Since facts as well as reasoning of lower authorities are quite similar as in the case of royalty payment made by assessee to CAUSA, applying the same analogy, we delete the impugned addition. One more reason to delete the adjustment is that the assessee has entered into two separate agreement for payment of Trademark Royalty & Technical royal....
X X X X Extracts X X X X
X X X X Extracts X X X X
....n-hour. The TPO considered the man hours applied in AY 2010-11 for determination of ALP and since there was a reduction in the cost paid by 57.15% the TPO applied the reduction percentage on the man hours to arrive at 2,035 hours (45.35% of 3700 hours of last year). Thus the ALP was computed for an amount of Rs. 1,27,18,750/-. Based on the same the TPO made an adjustment towards the differential amount of Rs. 1,61,87,035/- (Rs. 2,89,05,785 (-) Rs. 1,27,18,750). The DRP confirmed the said TP adjustment. 16. The Ld.AR submitted that the issue is covered by the decision of the co-ordinate bench in assessee's own case for A.Y. 2009-10 where it haws been held that - "14. Considered the rival submission and material placed on record. We notice from the records that the identical ground has already been decided by the Coordinate Bench of ITAT in ITA No. 7539/Mum/2012 for AY 2008-09 in assessee's own case on merits in which ITAT has restored the matter back to the file of AO with direction to enable the revenue to take a consistent stand in the matter and also to follow the ITAT order for Assessment Year 2006-07. We draw strength from the following decisions in which matter cannot be re....
X X X X Extracts X X X X
X X X X Extracts X X X X
....39;s length price [Safe harbour rules] - Assessment year 2008-09 - Assessee had incurred certain expenses on behalf of its AE - As said expenses were to be reimbursed to assesee receipts on account of reimbursement was recovered on cost plus 10 per cent mark up TPO proposed mark up at the rate 12.5 per cent and made an adjustment accordingly- Whether since adjustment sought by TPO and sustained by DRP was falling within margin of +/- 5 per cent as provided by proviso to section 92C(2), same was not sustainable - Held, yes [Para .84] [In favour of assessee] 16. Therefore, respectfully following the above decision of Coordinate Bench which are similar to the facts of present case, we are inclined to accept the submission of Ld. AR. Accordingly, these grounds raised by the assessee are allowed." (emphasis supplied) 17. One of the grounds on which the TP adjustment is contested by the assessee is that the TPO has computed the ALP based on an adhoc estimation of salary and the number of man hours. The Ld AR submitted that the TPO has not followed the CUP method but has arrived at the ALP on some estimation. It was further submitted that the determination of ALP cannot be done except ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....rms impose a mandate to collect interest at the rates stipulated therein. The expression "shall" used in the said Section cannot by any stretch of imagination be construed as "may". There are sufficient indications in the scheme of the Act to show that the expression "shall" used in Sections 234A, 234B and 234C is used by the Legislature deliberately and it has not left any scope for interpreting the said expression as "may".' 66. By the use of the word "shall", for computing the ALP in one of the following methods, the Legislature has cast an embargo that no seventh method could be adopted by the TPO for computing the ALP. Even the Special Bench of the ITAT in the case of LG Electronics India (P.) Ltd., (supra), in paras 22.10 and 22.11, pages 128 and 129, observes, "As regards the contention that methods are tools for determining the ALP, we find that there is dispute that there is no dispute the main purpose of Chapter X is to determine the ALP of an international transaction, but such determination can be done only by way of the methods specified by the statute. When the Legislature has specifically enshrined a provision under section 92C requiring the computation of AL....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ubmitted that the said amounts are being offered to tax by CHL in India and, therefore, there has been no tax based erosion. The assessee further submitted that as per the benchmarking done, the comparable companies earn an average margin of 9.22% on operating cost whereas CHL has charged cost plus 5% for the services provided and accordingly, it was submitted that the transaction is within arm's length price. The TPO rejected the submissions of the assessee and applied CUP method where he has applied the amount / rate of Rs. 6, 250 to be the arm's length compensation for the services rendered. The TPO made the TP adjustment based on the man-hours of services rendered by the AE at 3913 hours to arrive at the ALP of Rs. 2, 44, 56, 250/- and made the TP adjustment for the difference of Rs. 14, 56, 22, 330/-. 19. The Ld.AR submitted that this issue is also covered by the decision of the co-ordinate bench in assessee's own case for A.Y. 2009-10. The Ld.AR further brought to our attention that the assessee raised a Miscellaneous Application with regard to the finding given by the Hon'ble Tribunal in the order 17.02.2021 and that the Hon'ble Tribunal passed the order in M.A. vide order ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....to the issue decided by us vide grounds no.8 to 11, in Para-14, 15 and 16, wherein we have allowed the issue while following the decision of the Co-ordinate Bench of the Tribunal rendered in Kodak India Pvt. Ltd. v/s ACIT, [2013] 37 taxmann.com 233 (Mum.). Since the issue raised in these grounds no. 11 to 13, are identical to the issue decided by us in grounds no. 8 to 11 vide Para-14, 15 and 16, as aforesaid, consistent with the view taken therein, we set aside the impugned order passed by the learned CIT(A) and allow these grounds. Thus, grounds no. 11 to 13, are allowed." We have already held in the earlier part of this order that the determination of ALP without applying any methods as prescribed under section 92C(1) by the TPO is not tenable. We notice that the TPO has computed the TP adjustment towards global services rendered by Cadbury Holdings Limited also in the same way by applying adhoc estimation of salary cost and man hours. Therefore our decision with respect regional service fee paid to Cadbury Enterprises Pte Ltd., is equally applicable to the current issue under consideration also. Therefore considering the decisions of the coordinate bench in assessee's own ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....and Hon'ble Tribunal remitted the issue back to the Assessing Officer. It is brought to our notice that the Assessing Officer, in the order giving effect deleted the disallowance made under section 14A. The Ld.AR therefore submitted that the Assessing Officer by deleting the entire disallowance in the order giving effect for A.Y. 2009-10 has accepted the suo moto disallowance made by the assessee which was arrived at based on the salary of employees in treasury department. Therefore, the Ld.AR prayed that the revised suo motu disallowance which is computed on the same basis should be sustained. 22. We heard the parties and perused the material on record. It is now a settled position that when the own funds are available, no disallowance is warranted under section 14A read with rule 8D. For the year under consideration, the reserves and surplus of the company as on 31/03/2011 is at Rs. 89, 988.09 lakhs and the investments made stands at Rs. 12, 881.07 lakhs, therefore, we see merit in the contention of the Ld.AR that no disallowance is warranted under section 14A. Further, the co-ordinate bench in assesse's own case for A.Y. 2009-10 had also held that - "31. Considered the ri....
X X X X Extracts X X X X
X X X X Extracts X X X X
....investments stood at Rs. 26663.91 Lacs and the assessee earned profit after tax for Rs. 15094.68 Lacs during the year under consideration which is more than incremental investments. Therefore, applying the ratio of cited decisions, we hold that no interest disallowance would be justified on the facts and circumstances. We order so. So far as the disallowance of direct / indirect expenses is concerned, we are of the view that since Rule 8D was applicable to this AY, the findings given in earlier orders of Tribunal would not apply to this year and the disallowance has to be worked out in terms of the Rule 8D. The Ld. AO, in draft assessment order, at para 6.4, has noted that the submissions made by assessee in defense of suo-moto disallowance could not be accepted as against the submissions of the Ld. Sr. Counsel that the requisite satisfaction was not recorded by Ld. AO before proceeding to apply Rule 8D. We are of the considered opinion that there was no particular method of recording satisfaction in the quantum assessment order and therefore, unable to accept this specific plea of Ld. Sr. Counsel. However, keeping in view the factual matrix as well as submissions made before us, w....
X X X X Extracts X X X X
X X X X Extracts X X X X
....rges, i.e. the difference between the forward contract rate and the spot rate as on the date of cancellation of the contract. In cases where the spot rate is lower than the forward contract rate on the date of cancellation, there arises a foreign exchange fluctuation loss on cancellation of forward contracts and vice versa. The assessee submitted that out of the total loss claimed as above, a net loss of Rs. 417.51 lakhs is arising out of cancellation of forward contracts during the financial year relevant to assessment year 2011-12 and the same is recognised in the P&L Account. The assessee also submitted that the loss on cancellation of forward contract is arising out of the normal course of business activity and not out of intention to earn more profits and accordingly the same should be allowed as business expenditure. The Assessing Officer did not accept the submissions of the assessee and proceeded to treat the loss as a speculative loss. The Assessing Officer held that foreign exchange derivative transactions are speculative transaction unless it is proved by the assessee that it was covered by any Provisos (a) to (d) to section 43(5). The Assessing Officer further held that....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ss of Rs 4, 14, 88, 805/-, being related to the FCs which are integral or incidental to the exports of the diamonds, should be allowed as business loss in view of the binding High Court or Tribunal decisions/judgments in the case of D Kishore kumar and Co (supra), Badridas Gauridu Pvt Ltd (supra), Sooraj Muill Magarmull, (supra) etc. Thus, loss arising from cancellation of the matured contracts is allowed in favour of the assessee. Thus, this part of the ground of the assessee is allowed. Therefore, respectfully following the above decision of Coordinate Bench that the identical issue is settled in favour of the assessee, we are inclined to accept the submission of Ld. AR. Accordingly, this ground raised by the assessee is allowed. 27. Respectfully following the above decision, we hold that the loss arising from cancellation of forward contracts is arising in the normal course of business and accordingly, should be allowed as a deduction. The disallowance made in this regard is deleted. Allocation of expenditure at Baddi Unit-I & II - Ground No.35 to 36 28. During the year under consideration, the assessee has claimed a deduction of Rs. 129,99,29,723/- under section 80IC of th....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... Officer in the earlier assessment year has accepted the basis of allocation done by the assessee for the purpose of allocating indirect expenses and that the assessee for the year under consideration also has followed the similar method of allocation. Accordingly, it was submitted that the claim of deduction under section 80IC as per the return of income should be allowed for the year under consideration also. 31. We heard the rival submissions and perused the materials on record. From the perusal of statement showing the basis of allocation of expenses to Baddi Unit I and II (page 430 and 431 of paper book) we notice that the Assessing Officer has accepted the allocation of Material cost, employee cost and depreciation. The disallowance is arising out of the allocation of finance cost and the Operating & Establishment expenses (O&E) which the assessee allocated based on the revenue ratio as compared to the total revenue of the assessee. We notice that the coordinate bench in assessee's own case for AY 2009-10 accepted the claim towards finance cost and remitted the issue back to the Assessing Officer only with respect to the verification of allocation of O&E expenses. We fur....
X X X X Extracts X X X X
X X X X Extracts X X X X
..... After hearing the parties, we are of the view that this issue needs to be factually examined for the purpose of allowing the credit towards carried for MAT credit from AY 2010-11. Therefore, we remit the issue back to the Assessing Officer to examine the status of the assessment order passed for .Y. 2010-11 and accordingly give credit for the carried forward MAT for the year under consideration. Levy of interest under section 234A 37. The Ld.AR submitted that the assessee has filed the return of income on 30th Novermber, 2011 which fact has been admitted by the Assessing Officer in the assessment order. The ld AR further submitted that accordingly the assessee has filed the return of income before the due date for filing the return of income for A.Y. 2011-12. Considering this fact that there is no delay in filing the return of income, the Ld.AR submitted that no interest can be charged under section 234A. 38. We notice that the Assessing Officer has recorded in the assessment order that the assessee has filed the return of income on 30/11/2011 (refer page 1 para 1 of the assessment order). Therefore, as per the provisions of section 234A, no interest is leviable in assessee's ....