AI Drafter - (New and Powerful) 
Generate professional replies, appeals, opinions to Show Cause Notices, assessment orders, audit objections, and other legal communications using TaxTMI's AI Drafter. 
TaxTMI 
TaxTMI 
2023 (9) TMI 741
X X X X Extracts X X X X
X X X X Extracts X X X X
....o 21 - Disallowance of payment of royalty on technology paid to Cadbury Enterprises 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 contendin....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e statutory notices were duly served on the assessee. Since the assessee had international transactions with its Associated Enterprises, a reference was made 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 Assessi....
X X X X Extracts X X X X
X X X X Extracts X X X X
....stal Hues Ltd 11.27% 7 Quadrant Communication Ltd 15.84% 8 Indus Technical and Financial Consultants Ltd 12.05% Average 11.35% 7. Accordingly, the TPO arrived at the TP adjustment as per below working:- Particulars Amount Expenditure incurred for developing the intangibles Rs.1,61,01,97,731 Mark-up on Expenditure incurred 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....
X X X X Extracts X X X X
X X X X Extracts X X X X
....s. The provisions of the said section broadly provided that where a non-resident carried out business with the person resident in the taxable territory and it appeared to the AO that on account of a close connection between such persons the business was so arranged that the business conducted by the resident with the non-resident either yielded no profit or, less than ordinary profit, which may be expected 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....
X X X X Extracts X X X X
X X X X Extracts X X X X
....erritories serviced and turnover/profits achieved have necessarily to be considered for determining the AMP expenses. The entire expenditure was focused on the Indian consumer and it is evident from the local flavour/ language/concepts. It is also an undeniable fact that new players were entering India after liberalisation-era started. If the expenditure incurred by the assessee is considered in the back ground 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 earni....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e amount from the AE as the expenditure by it indirectly helped in augmenting the brand value owned by its overseas AE. In the case under consideration, the assessee was incurring expenditure for its products whereas the AE was looking after the ground at global level. If the AMP expenditure incurred by them benefited indirectly in the local/ international market it would not mean that it was an IT. The basic purpose of 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....
X X X X Extracts X X X X
X X X X Extracts X X X X
....emed to be a transaction entered into between two associated enterprises, if there exists a prior agreement in relation to' the relevant transaction between such other person and the associated enterprise, or the terms of the relevant transaction are determined in substance between such other person and the associated enterprise." 56. Thus, under Section 92B(1) an 'international transaction' means- (a) a transaction between two or more AEs, 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 t....
X X X X Extracts X X X X
X X X X Extracts X X X X
....10(6)MANU/SC/0454/2010, which arose in the context of acquisition of shares of Zenotech Laboratory Ltd. by the Ranbaxy Group. The question that was examined was whether at the relevant time the Appellant, i.e., 'Daiichi Sankyo Company and Ranbaxy were "acting in concert" within the meaning of Regulation 20(4) (b) of the Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeovers) Regulations, 1997. In. para 44, it was observed as under: "The other 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 re....
X X X X Extracts X X X X
X X X X Extracts X X X X
....icit arrangement, the fact that the benefit of such AMP expenses would also encure to the AE is itself self sufficient to infer the existence of an international transaction has been negatived by the Court in Maruti Suzuki India Ltd. (supra) as under: 68. The above submissions proceed purely on surmises and conjectures and if accepted as such will lead to sending the tax authorities themselves on a wild-goose chase of what can at best be described as a 'mirage'. First of all, there has to be a clear 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 ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e portion of such AMP spend that the Indian entity should be compensated for? 63. Further, in Maruti Suzuki India Ltd. '(supra) the Court further explained the absence of a 'machinery provision qua AMP expenses by the following analogy: " 75. As an analogy; and for-no other purpose; in the context of a domestic transaction involving two or more related parties, reference may' be made to Section 40 A (2) (a) under which certain types of expenditure incurred by way of payment to related parties is not deductible where the 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 In....
X X X X Extracts X X X X
X X X X Extracts X X X X
....the TPO had wrongly invoked the provisions of Chapter X of the Act for the said transaction. 3.4.4. With regard to the submissions of the AR that the issue of AMP should be restored back to the file of the AO, we want to mention that law as a concept is supposed to evolve with passage of time-it cannot be static always. Non availability of a particular decision of the higher forum cannot justify the restoration of issue/cases to the file of AO in each and every case. Unnecessary litigation has to be avoided and issues have to be settled for once and all.We are 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 stag....
X X X X Extracts X X X X
X X X X Extracts X X X X
....Further, the assessee has entered into a deed of amendment dated 24/12/2007 whereby the original deed entered by the assessee for payment of royalty at 2.7% was sought to be amended to incorporate the technical know how technology also. The TPO noticed that Cadbury Adams LLC, USA was only a special licensor of the trademark of Halls and what it owned was only the trademark and not the technical know how and technology in the licensed product. Accordingly, the TPO was of the view that the rate agreed between the parties is excess and that the royalty for trademark at a rate of more than 1% 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....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ident that the learned Commissioner (Appeals) has upheld the disallowance of royalty payment of trademark simply relying upon the order passed by him in assessee's own case for assessment year 2005-06. As could be seen from the material available on record, the assessee has entered into agreement with its current company in the year 1993, for availing technical knowhow for which it was required to pay royalty @ 2%. Subsequently, the assessee has entered into fresh agreements with the parent company for transfer of technical knowhow as well as use of trade mark for which assessee is required to pay royalty @ 1.25% and 1% 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 1.2....
X X X X Extracts X X X X
X X X X Extracts X X X X
....as available from independent source to benchmark the transactions. 39. On going through the records and the orders of the revenue authorities, we find that in so far as the payment of royalty on technical knowhow concerned, the assessee has been paying to its parent AE right from 1993, as, other group companies are paying across the globe. It has been accepted by the TPO that the payment does not effect the profitability of the assessee, if we are to examine the issue from that angle as well. In any case the payment of royalty on technical knowhow is at par with the similar payments from the group companies in other countries & region. 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 ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ided for use of trademark and it does not provide for use of technical knowhow. It is the say of the Transfer Pricing Officer that since as per the Government guidelines, payment of royalty on trade mark under the automatic route is fixed at the maximum rate of 1%. Royalty paid for trademark at 2.7% is not at arm's length. Accordingly, he has allowed payment of royalty for trademark at 1%. While doing so, the Transfer Pricing Officer has also observed that the agreement executed in December 2007, amending the terms of the original agreement having come in to existence after expiry of relevant financial year would not be applicable for a transaction undertaken in the relevant financial year. The learned 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 ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... years have allowed payment of royalty both for trademark and technical knowhow, there is no reason why it should not be allowed in the impugned assessment year, since, it cannot be said that the assessee was manufacturing "Halls" brand products without obtaining the required technical knowhow. Accordingly, we hold that payment of royalty to CAUSA is at arm's length. The ground is allowed. Respectfully following the same, we delete the impugned addition of Rs. 87.61 Lacs. Ground No.4 stand allowed. With regard to disallowance of payment of royalty on on technology paid to Cadbury Enterprises Pvt. Ltd. 3.5.1 It was noted that the assessee entered into Technical collaboration Agreement dated 28/06/2007 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 a....
X X X X Extracts X X X X
X X X X Extracts X X X X
....d cost plus 5% for providing the services. The TPO was of the view that the nature of services of rendered by AE are not in the nature of on-call services and that the assessee could neither furnish any evidence to show the actual rendering of services nor could show the actual cost incurred by the AE. The TPO applied CUP method and worked out the man-hour rate of the employee on the estimated salary cost of Rs. 11,00,000 per month. This estimate of the salary cost by the TPO was based on the increments that may have occurred in foreign exchange rate, the inflation rate between FY 2009-10 and FY 2010-11. The TPO took the average working days per month at 22 and 8 hour per day. The TPO accordingly determined ALP to be at Rs. 6,250 per man-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,....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ternational element involved in sale of imaging segment by assessee of its business to 'C' Ltd., authorities below were not justified in invoking transfer pricing provisions in respect of assessee's transaction - Held, yes - Whether, therefore, impugned adjustment made by revenue authorities was to be set aside - Held, yes [paras 49 and 63] [In favour of assessee] Section 92C of the Income-tax Act, 1961 - Transfer pricing - Computation of arm's length price [Others] - Assessment year 2008-09 - Whether while determining ALP of international transactions entered into by assessee, TPO cannot adopt any other method except methods prescribed in section 92C(1) - Held, yes [Para 66] II. Section 92C of the Income-tax Act, 1961 - Transfer pricing - Computation of arm'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 sustaine....
X X X X Extracts X X X X
X X X X Extracts X X X X
....lement Commission. In the decision, the Hon'ble Supreme Court held, 'Nextly, the Commission has elaborately discussed the object of introduction of Chapter XIX-A in the Act, the history behind the introduction and schematic rationalisation of the provisions of Chapter XIX-A brought about through Finance Act, 1987 to hold that in exercising its power under Chapter XIX-A it has almost an unbridled power to arrive at a settlement. This exercise of purposive interpretation by looking into the object and scheme of the Act and legislative intendment would arise, in our opinion, if the language of the Statute is either ambiguous or conflicting or gives a meaning leading to absurdity. We do not find any such problem in the provisions of the Act to which we have already referred to Sections 234A, 234B and 234C in clear terms 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....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... and respectfully following the decision of the Special Bench in the case of LG Electronics India (P.) Ltd. (supra), we hold that even on this legal issue, the assessee succeeds. Therefore, respectfully following the above decisions of the co-ordinate bench, we delete the TP adjustment. Disallowance of Global Service Fee paid to Cadbury Holdings Ltd - Ground Nos. 29 to 31 18. The assessee has entered into service agreement dated 30/12/2008 (with effect from 01/01/2008) for availing services from its AE Cadbury Holding Ltd (CHL) where the services rendered are in the nature of business and commercial strategy and support, executive development, programme development and delivery, internal management, etc. The assessee submitted before the TPO the documents with respect to the said services which are maintained for CHL at global level. The assessee also submitted 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 ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... to be applied for ground no. 11 to 13 as well. The Tribunal has erroneously relied on the order for A.Y. 2008-09, this being a mistake apparent from record may be rectified and the findings given in Para 14 to 16 may be adopted for Ground No. 11 to 13 also. 4. In view of the submissions of the learned Counsel for the assessee and since the mistake being apparent on the face of record, we proceed to rectify the mistakes. 5. The concluding part, vide Para-19 and 20 of grounds No.11 to 13, of the impugned order dated 17th February 2021, passed in assessee's appeal being ITA no.2214/Mum./2014, for the assessment year 2009-10, are hereby substituted and be read as under:- "19. Having considered the rival submissions and having perused the material on record, we find that the related facts and circumstances of the issue raised by the assessee in the grounds no.11 to 13 of the present appeal is materially identical 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 (....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... Interest not directly relating to any particular income or receipt 19,80,217/- 3 Amount equal to half percentage of Average value of investments income of which does not form part of total income [As per rule 8D(2)(iii)] 42,29,988/- Aggregate of 1+2+3 65,54,420/- As mentioned earlier, the assessee has suo-moto disallowed Rs. 42, 29, 990/- in the computation of income. In view of the above, additional sum of Rs. 23, 24, 430/- (65, 54, 420 - 42, 29, 990) was added u/s 14A r.w Rule 8D of I.T. Rules, 1962." 21. The ld AR submitted that the assessee has made the investments out of its own funds which is substantiated by the financial statements for the year ended 31.03.2011 and accordingly the assessee has not incurred any borrowing cost warranting disallowance under section 14A. The Ld.AR submitted that the issue of disallowance under section 14A is considered by the co-ordinate bench in assessee's own case or A.Y. 2009-10 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 dis....
X X X X Extracts X X X X
X X X X Extracts X X X X
....isallowance u/r 8D(2)(i) for Rs. 9.20 Lacs is the same disallowance which has been offered by the assessee against Treasury department expenses. The disallowance, upon confirmation by learned DRP, is under appeal before us. 5.2 The arguments of Ld. Sr. Counsel are two-fold viz. (i) Ld. AO has not recorded requisite satisfaction before proceeding to compute disallowance as per Rule 8D; (ii) The assessee had surplus funds to make the investments and therefore, the presumption that the investments were out of surplus funds stood in assessee's favor by the judgments of Hon'ble Bombay High Court rendered in in HDFC Bank Ltd. V/s CIT (2016 95 CCH 61) & CIT V/s HDFC Bank Ltd. (2014 366 ITR 505). 5.3 We have considered the same. Upon perusal of financial statements, we find that own funds in the shape of share capital & free reserves at yearend stood at Rs. 46266.97 Lacs as against investment of Rs. 31228.98 Lacs. Nothing has been brought on record by Ld. AO to establish the nexus of investments with borrowed funds. In fact, opening 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 mor....
X X X X Extracts X X X X
X X X X Extracts X X X X
....lowance offered by the assessee i.e. of Rs. 3, 44, 215/- keeping in mind the fact that for AY 2009-10 the suo motu disallowance based on salary of employees in treasury department has been accepted by the Assessing Officer. Needless to say that the assessee be given an opportunity of being heard. It is ordered accordingly. Treatment of forex loss on cancellation of contracts as speculative- Ground No.34 24. During the year under consideration, the assessee has claimed a deduction of Rs. 1, 237.90 lakhs in respect of net foreign exchange losses (profit on foreign exchange fluctuation Rs. 74.87 lakhs and loss on account of foreign exchange fluctuation of Rs. 1, 312.77 lakhs). The assessee submitted before the Assessing Officer that the assessee entered into forward contracts based on estimated raw material requirements as per the production schedule and if the production schedule is delayed, the assessee rolls over / cancels the forward contracts. Towards the rolled over / cancelled forward contracts, the banks levies contract cancellation charges, i.e. the difference between the forward contract rate and the spot rate as on the date of cancellation of the contract. In cases wh....
X X X X Extracts X X X X
X X X X Extracts X X X X
....record. We notice from the records that the identical ground has already been decided by the Coordinate Bench of ITAT in the case of London Star Diamond Co. (I) Pvt. Ltd. vrs. DCIT (2013) 38 taxmann.com 338 (Mum-Trib) on merits. For the sake of clarity, which is reproduced below:- 35. The subdivisions of the loss of Rs. 4, 69, 42, 680/-: we have already tabulated above the three subdivisions of the impugned losses based on the timing of the cancellation of the FCs. Broadly the loss is divided into two types and the adjudication of the each subdivision of loss is given as under: (a) Loss on Cancellation of Matured FCs amounting to Rs 4, 14, 88, 805/- relates to the FCs cancelled or terminated on or after the due date. In other words, the FCs booked as integral part of the export invoices lived its booking period in full and they were either terminated by the Bank on or after due date of maturity date of the contract as the actual realization were not received in time. These are not premature cancellations by the assessee and therefore, in our considered view, the said loss of Rs 4, 14, 88, 805/-, being related to the FCs which are integral or incidental to the exports of th....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ddy Unit II comes to 15.82% whereas the profit ratio of non 80IC units is only 6.29%. The Assessing Officer did not accept the basis of allocation as done by the assessee and proceeded to re-compute the profitability based on revised allocation of expenses and accordingly, the Assessing Officer arrived at a difference of Rs. 6, 25, 43, 786/- with respect to Buddy Unit I and a disallowance of Rs. 21,85,37,371/- with respect to Buddy Unit II. The DRP confirmed the addition mad by the Assessing Officer. 30. The Ld.AR drew our attention to the order of the co-ordinate bench in assessee's own case for A.Y.2009-10 and the M.A. order passed by the co-ordinate bench wherein the Hon'ble Tribunal has upheld the method of allocation of expenses. The Hon'ble Tribunal remitted the issue back to the Assessing Officer for the limited purpose of verification of other overheads and the allocation. The Ld.AR further submitted that the Assessing Officer in the order giving effect had allowed the deduction claimed by the assessee under section 80IC as per the return of income. The Ld.AR, therefore, argued that the Assessing Officer in the earlier assessment year has accepted the basis of allocation....
X X X X Extracts X X X X
X X X X Extracts X X X X
....In this regard, the Ld.AR place reliance on Reliance Apex Networks Ltd (ITA No.3531/Mum/2013) and also on Zee Media Corporation Ltd (ITA No.2166/Mum/2016). 34. The Ld.DR submitted that the onus is on the assessee to reconcile the income as per AIR and the books of account which the assessee failed to do so in the given case. 35. We heard the rival submissions and perused the materials on record. Considering the above quoted decisions of the coordinate bench and keeping in view the amount involved, vis-à-vis the total turnover, we see no reason to sustain the addition, we delete the addition made in this regard. Non grant of MAT 36. The Ld.AR submitted that the MAT credit is carried forward from A.Y. 2010-11 and the credit was modified due to additions made in the assessment order for A.Y. 2010-11. The Ld.AR further submitted that the Tribunal vide order dated 14th Novermber, 2022 has quashed the assessment for A.Y. 2010-11 as being barred by limitation. It is therefore, prayed that the assessee allowed the MAT credit as per the original return of income filed as has been carried forward from A.Y. 2010-11. After hearing the parties, we are of the view that this is....