TaxTMI 
TaxTMI 
2024 (5) TMI 791
X X X X Extracts X X X X
X X X X Extracts X X X X
.... (199 days average credit period to AEs as compared to average credit period of 180 days in case of receivables from non AEs) (b) That in the facts and circumstances of the case and in law, the learned CIT(A) failed to appreciate that international transaction of export of finished goods was benchmarked using Transaction Net Margin Method (TNMM) with a profit level indicator of operating profit by operating cost, wherein appellant company's margin was 48.31% as compared to comparable entities having margin of 17.71%. (c) That in the facts and circumstances of the case and in law, the learned CIT(A) ought to have appreciated that realization of sale proceeds is not a separate transaction but it is incidental to transaction of sale of finished goods and when the sale transaction is held as at arm's length price, it is deemed to cover all the elements and consequences of sale transaction. (d) That in the facts and circumstances of the case and in law, the learned CIT(A) ought to have appreciated that working capital adjustment was factored by the appellant company while fixing the sale price and hence it takes into account the impact of outstanding t....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... on capital employed, return on assets employed or net profit as percentage of sale is equal or higher than the NP rate of comparable entities having similar profile. (d) That on facts and circumstances of the case and in law, the learned CT(A) has erred in not appreciating and understanding the FAR as well as business models of the appellant and partnership firm (Sikkim unit) and thereby further erred in observing that broadly the functions performed, the activities carried out, assets employed and risk deployed by the appellant company and firm in relation to manufacturing of various products are similar. (e) That in the facts and circumstances of case and in law, the learned CIT(A) has failed to appreciate that though the appellant company and IP firm are closely connected, the AO made arbitrary and ad-hoc disallowance without specifically proving that the (1) the transaction between IP firm and appellant were arranged (ii) the higher profit in Sikkim unit is because of such arrangement IP firm and appellant and (iii) without taking into consideration that the higher or lower profit of a business is result of cumulative effect of various factors. 4. a)....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... rendered by them. In response, the assessee submitted details vide reply dated 12.02.2016 as per annexure 14 and also informed that it was paid to parties operaling outside India and not having any PE in India. (c) That in the facts and circumstances of the case and in law, the leamed CIT(A) further erred in not appreciating that even AO has never disputed the fact that non-resident agents tave rendered services outside India and also received commission outside India. But, the AO made disallowances under section 40(a)(i) by noting that as per section 5(2)(b) the all income of non-resident that accrue or arise in India is taxable in India and in his view, income of non-resident agents accrued/arose in India under section 9(1)(i) of the Act as right to commission arose in India, for the simple reason that the orders were executed in India (d) That in the facts and circumstances of the case and in law, the learned CT(A) failed to appreciate that when no operations of the business of commission agent is carried on in India, the Explanation 1 to Section 9(1)(i) takes the entire commission income from outside the ambit of deeming fiction under section 9(1)(i) and, in ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....at as per Section 166 of Evidence Act, when any fact is especially within the knowledge of any person, the burden of proving the fact is upon him. 3 The Ld. CIT(A) had erred in law and on facts in allowing Weighted Deduction claim of the assessee u/s. 35(2AB) in excess of that allowed by the DSIR in Form 3CL. 3.1 The Ld. CIT(A) erred in law and on facts by not appreciating that many of the reprocess claimed by the assessee on account of R&D expenses were merely expenses on account of data collection/collation for regulatory approval, quality and efficiency check and therefore could not partake the character of R&D expenses 3.2 The Ld. CIT(A) has erred in passing the order mechanically, without going into the facts and without application of mind and therefore, such order is liable to be set aside. 4 The Ld. CIT(A) has erred in law in deleting the disallowance of Rs. 5,53,07,808/ u/s. 36(1)(iii) of the IT Act 4.1 The Ld. CIT(A) has failed to appreciate that as per its own admission, the assessee has huge term loan which are being withheld for capital expenditure hence the presumption is that the interest paid on said term loan has to be a....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ncome Tax Act, 1961 and income of Rs. 272,16,04,548/- under Section 115JB of the Act. The case was selected for scrutiny. Notice under Section 143(2) of the Act was issued on 09.08.2013 and was duly served upon the assessee. Thereafter, notice under Section 142(1) of the Act was issued on 02.03.2015 which was duly served on the assessee. In response, Sr. General Manager (Taxation) and the Authorised Representative of the assessee company attended the proceedings and submitted the details. As the assessee has entered into international transactions covered under Section 92CA of the Act, a reference was made to Transfer Pricing Officer (TPO). The TPO vide order dated 29.01.2016 made total upward adjustment of Rs. 1,08,78,100/- as well as Rs. 4,66,36,157/- on account of determining the Arm's Length Price (ALP) of the International Transaction of advancing loan/advance and receivables to the Associated Enterprises (AEs). The adjustment of Rs. 1,08,78,100/- was in respect of interest rate i.e. 3.71% to total sales to AE for 19 days excess credit period. The Assessing Officer, after taking into account the adjustments, made addition of upward adjustment of Rs. 4,66,36,157/-. The Assessin....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ins of the comparable companies of 17.71%, the export of FDFs transaction between the assessee and its AEs should have been considered to be at Arm's length from an Indian transfer pricing perspective. But, the Assessing Officer/TPO failed to do so. The assessee's export profit margin having transaction with AE. The Ld. AR submitted that the assessee is relying on the decision of Hon'ble High Court of Delhi in the case of PCIT vs. Kusum Health Care (P.) Limited, [2018] 99 taxmann.com 431 (Delhi). 7. The Ld. DR submitted that the assessee has not proved about the working capital margin and why there is a huge profit margin in respect of export margin working capital. The CIT(A) has categorically mentioned in paragraph no.2.7 that the Assessing Officer/TPO has made further upward adjustment in respect of excess credit period granted to the AEs and there was no arrangement to grant such excess credit period for the outstanding receivables in respect of export/sales. The Ld. DR further pointed out that to the AEs the assessee has company has granted credit period of 199 days while to the non-AEs the credit period was of 180 days. Thus, there was excess credit period of 19 days to th....
X X X X Extracts X X X X
X X X X Extracts X X X X
....44/Ahd/2017 in assessee's own case for A.Y. 2009-10. As regards the expenses related to exhibit batches amounting to Rs. 599.90 Lakhs, the assessee has lost this issue before the Tribunal. As regards expenses incurred at R&D Centre amounting to Rs. 501.62 Lakhs, it is a recognised expense. The Ld. AR relied upon the decision of Hon'ble Gujarat High Court in the case of CIT vs. Claris Lifesciences Limited, [2008] 174 Taxman 113 (Gujarat). 10. The Ld. DR submitted that the organisations carrying outside in respect of R&D whether the approval was granted should have been looked into and verified. The CIT(A) has only commented/observed that he confirmed the addition to the extent of expenditure in the nature of exhibit batches at Rs. 599.90 Lakhs and in fact the R&D expenses should have been also been disallowed by the CIT(A) in respect of Rs. 501.62 Lakhs. 11. We have heard both the parties and perused all the relevant material available on record. From the perusal of A.Y. 2009-10 order passed by the Tribunal, it can be seen that the aspect of expenditure in nature of Exhibit Batches was not allowed and, therefore, this aspect is settled and hence the same is dismissed. 12. A....
X X X X Extracts X X X X
X X X X Extracts X X X X
....hands of the assessee company are not justifiable from the perusal of the records. Hence, ground nos.3(a) to 3(e) of the assessee's appeal are allowed. 16. As regards ground nos.4(a) to 4(c) of the assessee's appeal, the Ld. AR submitted that the CIT(A) erred in rejecting the claim of Rs. 5,73,96,033/- under Section 35(1)(iv) relating to expenditure incurred during the year on intangibles and accounted under capital work in progress on which no depreciation has been claimed later on. The Ld. AR submitted that this needs verification as in earlier year the same has been taken into consideration. 17. The Ld. DR relied upon the Assessment Order and the Order of the CIT(A). 18. We have heard both the parties and perused all the relevant material available on record. From the perusal of the records, it can be seen that the CIT(A) has followed AY 2011-12 and in ITA No.1336/Ahd/2017 the Tribunal has set aside this issue to the file of the Assessing Officer. The facts are identical in the present A.Y. and, therefore, the matter is remanded back to the file of the Assessing Officer for proper verification and adjudication of the issues in respect of expenditure incurred during the ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....n of the same. 26. The Ld. AR submitted that as regards the same, the matter may be remanded back as only the interest calculation is required and the issue is held against the assessee. 27. We have heard both the parties and perused all the relevant material available on record. It is pertinent to note that this issue is decided against the assessee but the interest quantification/calculation has to be done, therefore, for the limited purpose the issue is remanded back to the file of the Assessing Officer. Needless to say, the assessee be given opportunity of hearing by following the principles of natural justice. Thus, ground nos.1 & 1.1 of the Revenue's appeal are partly allowed for statistical purpose. 28. As regards ground nos.2 to 2.3 of the Revenue's appeal, the Ld. DR submitted that the CIT(A) erred in deleting the disallowance under Section 14A of the Act of Rs. 9,83,15,239/-. The Ld. DR relied upon the order of the Assessing Officer. 29. The Ld. AR submitted that the assessee has given quantification as to how much interest has been earned during the relevant A.Y. and in fact no exempt income earned during the year and the assessee has suo moto disallowed more....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... 37. As regards ground nos.5 to 5.3 of the Revenue's appeal, the Ld. DR submitted that the CIT(A) erred in deleting the disallowance under Section 40A(2)(b) of the Act amounting to Rs. 1,35,19,424/- as the CIT(A) has failed to appreciate that the assertion of the assessee as regards the effective tax rate of the assessee company and that of Lambda Therapeutic Research Limited was same during the year is patently false as during the year Lambda Therapeutic Research Limited had claimed 100% exemption under Section 80IB(8A) of the Act. . 38. The Ld. AR submitted that the CIT(A) as well as the Tribunal for A.Y. 2011- 12 has decided this issue in favour of the assessee. 39.. We have heard both the parties and perused all the relevant material available on record. From the perusal of the records, it can be seen that the findings given by the Tribunal in A.Y. 2011-12 is identical to the facts of the present A.Y. and no discrepancy has been pointed out except stating that the assessee has failed to prove the related party's transactions. Therefore, ground nos.5 to 5.3 of the Revenue's appeal are dismissed. 40. As regards ground nos.6 to 6.2 of the Revenue's appeal, the Ld. DR sub....