TaxTMI 
TaxTMI 
2024 (5) TMI 1318
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....g to AYs 2007-08 to 2009-10. 2. Giving the brief background of these present appeals, it was pointed out that the appeals pertaining to AY 2005-06 to 2008-09 have come up before us in the second round against the assessment made on the assessee by the AO adjudicated upon by the Ld. CIT(A), in alignment with the directions made by the ITAT in first round when the matter travelled to it. The appeal for AY 2009-10, it was pointed out, arose in pursuance to the appeal effect order passed by the Assessing Officer in pursuance to the order passed by the ITAT in the first round, while that for AY 2011-12 has arisen on account of the appeal effect order passed by the Assessing Officer in pursuance to the order passed by the ld. CIT(A) in the first round. Therefore, while the appeals for AYs 2005-06 to 2008-09 have come up in appeal before us in the second round of litigation after the ITAT passed the order in the first round giving directions on specific issues, the appeals for AYs 2009-10 and 2011-12 have been filed in pursuance to the appeal effect orders passed by the Assessing Officer giving effect to the order of the ITAT and ld. CIT(A) respectively for the said two years. 3. It was....
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....(A) had held so noting that in AY 2007-08 identical Foreign Exchange Fluctuation Gain arising from the same set of investments as in the impugned year had been held by the ITAT to be capital in nature which had been confirmed by the Hon'ble jurisdictional High Court also. Our attention accordingly was drawn to the facts and findings of the ld. CIT(A) in AY 2006-07 which, it was pointed out, was identical to that in AY 2005-06 also, as contained in paragraph Nos. 7 & 7.2 of the order as under:- "7. Ground No.3 pertains to consideration of foreign exchange fluctuation gain of Rs. 24,01,43,981/-. Details are as under: 1. Forward contract in respect of loan/ Investment in Caraco Pharmaceutical Laboratories Ltd. : (21,41,824) 2. Reinstatement of FCCB : 27,66,11,029 3. Reinstatement of FCCB proceeds : 28.66,118 4. Reinstatement of loan to other subsidiaries out of FCCB Proceeds : (3,71,91,342) 24,01,43,981 7.1. At the outset, the Ld. AR brought my attention towards order of the jurisdictional tribunal wherein full relief was allowed by the Hon'ble Tribunal in its own case for AY 2007-08. Revenue carried the matter before the Hon&....
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....sed action of the A.O. In support of its contention, the assessee relied upon the various decisions namely Homi Mehta Sons Pvt. Ltd. 22 ITR 528 (Bom.), Sutlej Cotton Mills Ltd. 116 ITR 1 (SC), Tata Iron & Steel Co. Ltd. 231 ITR 285 (SC), Padamjee Pulp & Paper Mills Ltd. 210 ITR 801 (Bom.) 55. The contentions of the assessee were dismissed by the A.O. who was of the firm belief that the receipt in the case on hand is nothing but a revenue receipt. The A.O. accordingly taxed the same as revenue receipt. 56. Assessee carried the matter before the ld. CIT(A) and reiterated what has been stated during the course of the assessment proceedings. 57. After considering the facts and the submissions, the ld. CIT(A) was of the considered opinion that the assessee has entered into forward contracts to safeguard the value of investments made by the assessee in its subsidiary against the adverse forex fluctuation and to that extent the ld. CIT(A) restricted the addition to Rs. 14,33,80,289/-. 58. Insofar as the loans received by way of ECG/FCCB, the ld. CIT(A) was of the opinion that these borrowings were for the purpose of capital expansion of the business since the proceeds can be used ....
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....d. 5 SOT 217 (Mum.). 62. Considering the facts in totality in the light of the nature of contract entered into by the assessee, we do not find any merit in the findings of the First Appellate Authority. We set aside the same and direct for the deletion of the addition of Rs. 14,33,80,289/-." 8. Our attention was also drawn to the order of the Hon'ble Gujarat High Court confirming the order of the ITAT, which was placed before us in the paper-book filed. 9. The ld. DR fairly agreed that the issue stood covered in favour of the assessee by the order of the Hon'ble jurisdictional High Court in the case of the assessee for AY 2007-08. He fairly agreed that there was no distinction in the facts of the case pertaining to AY 2007-08 and the present two years i.e. AYs 2005-06 and 2006-07, and he was unable to point out any distinction on law also before us. In view of the above, we see no reason to interfere in the order of the ld. CIT(A) treating the Foreign Exchange Fluctuation Gain of Rs. 15,98,49,917/- and Rs. 24,01,43,981/- in AYs 2005-06 and 2006-07 respectively as being capital in nature. Ground of appeal raised by the Revenue in this regard for both the years merit no consider....
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....isallowed in the first round to the extent of Rs. 1,70,28,337/- for the reason that the assessee had not received the export consideration within six months from the end of the financial year ,which was a condition necessary for claiming deduction u/s 10B of the Act. The ITAT had restored the matter to the Assessing Officer in the light of the provisions of Section 155(11A) of the Act. In the second round before the Assessing Officer and even before the ld. CIT(A), the contention of the assessee remained that the goods exported to the said tune of Rs. 1.70 crores had returned back in the next year i.e. in FY 2007-08 pertaining to AY 2008-09. The claim of the assessee was that the return of these goods had been accounted for in the books of the assessee for that year, reducing export sales to that year, resulting in lesser claim of deduction u/s 10B to the said extent. Thus, as a consequence, there was no double deduction claimed by the assessee on account of the sale of exported goods to the tune of Rs. 1.70 crores since the impact of its return had been accounted for in AY 2008-09 by the turnover being reduced to that extent in the said year. Both the Assessing Officer and the ld.....
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....e for direction to allow deduction u/s 10B in the year of return of the impugned goods when it is duly accounted for in the books of the assessee, we find, has been adequately addressed by the ld. CIT(A) giving necessary directions in this regard to allow the assessee's claim after due verification of the facts of the return of sale of goods. In view of the same, ground of appeal No.2 of the assessee is dismissed. 18. Ground of appeal No.3 reads as under:- "3. Addition of provision for doubtful debts and advances while calculating book profit u/s. 115JB of the Act Rs. 50,68,982: 3.1 On the facts and in the circumstances of the case and in law, the Ld. CIT (A) grossly erred in confirming the addition of provision for doubtful debts and advances while calculating book profit u/s 115JB of the Act. 3.2 On the facts and in the circumstances of the case and in law, the Ld. CIT(A) grossly erred in observing that the Hon'ble High Court of Gujarat in the case of Vodafone Essar Gujarat Limited is yet to adjudicate upon the issue under consideration without appreciating that the larger bench of Hon'ble High Court of Gujarat has already decided the matter in 397 ITR 55, holding....
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....High Court in the full bench decision had held that the provision of bad and doubtful debts, per se, would not be added back to the book profits of the assessee in terms of clause (i) of the Explanation to Section 115JB of the Act. That if an assessee debits the provision to the profit and loss account and credits the asset account like sundry debtor's account, it would constitute a write off of an actual debt. However, if an assessee debits `provision for doubtful debt' to the profit and loss account and makes a corresponding credit to the `current liabilities and provisions' on the liabilities side of the balance-sheet, then it would constitute a provision for doubtful debt liable for adjustment to the Book Profits in terms of Clause(i) to the Explanation to the section. Our attention was drawn to paragraph no. 23 of the order as under:- "23. By way of culmination of above judicial pronouncements and statutory provisions, the situation that arises is that prior to the introduction of clause(i) to the explanation to section 115JB, as held by the Supreme Court in case of HCL Comnet Systems & Services Ltd. (supra), the then existing clause (c) did not cover a case where th....
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....assessee u/s 115JB of the Act. 22. The ld. DR fairly agreed with the ld. Counsel for the assessee that the issue was covered in favour of the assessee by the decision of the full bench of the Hon'ble jurisdictional High Court in the case of Vodafone Essar Gujarat Limited (supra). In view of the same, we have no hesitation in holding that the provision for bad and doubtful debts amounting to Rs. 50,68,982/- are not to be added to be book profit of the assessee for the purposes of Section 115JB of the Act. Ground of appeal No.3 of the assessee is accordingly allowed. 23. In effect, the appeal of the assessee i.e. ITA No. 109/Ahd/2020 for AY 2006-07 is partly allowed. ITA No. 110/Ahd/2020 : AY 2007-08 Assesses Appeal 24. Ground of appeal No.1 is general in nature and, therefore, does not require any adjudication. 25. Ground of appeal No. 2 reads as under:- "2 Reduction of unrealized export proceeds from export turnover for the purpose of deduction under section 10B - Rs. 6,35,631/- 2.1 On the facts and in the circumstances of the case and in law, the Ld. CIT(A) grossly erred in confirming the reduction of the export turnover for computing deduction under section 10B by Rs. ....
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....e of the provision for leave encashment of Rs. 1,83,33,509/- on account of the same having not been paid during the year under consideration, u/s 43B of the Act. 29. In the first round, the ITAT had restored the issue to the Assessing Officer to decide the same in the light of the decision of the Hon'ble Apex Court in the case of Exide Industries Ltd, where the matter was pending for adjudication. Before both the Assessing Officer and the ld. CIT(A), the decision of the Hon'ble Apex Court in the case of Exide Industries Ltd. (supra) still remained pending. The ld. CIT(A), therefore, to be safe and keeping the interest of the Revenue, confirmed the order of his predecessor upholding the disallowance of provision for leave encashment remaining unpaid amounting to Rs. 1.83 crores. 30. Before us, the ld. Counsel for the assessee fairly agreed that the Hon'ble Apex Court in the case of Union of India Vs. Exide Industries Ltd., [2020] 425 ITR 1 (SC), has decided the issue against the assessee ruling that the leave encashment will be allowed as deduction only on payment of the same in terms of provision of Section 43B of the Act. In view of the above admission of the ld. Counsel for th....
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....e Assessing Officer to compute the disallowance, so far as the administrative expenses were concerned, as per Rule 8D of the Income-Tax Rules, 1962 read with Section 14A of the Act. The Assessing Officer computed the disallowance to be Rs. 1,48,94,208/-, though as per the assessee's working submitted to the Assessing Officer the same worked out to Rs. 4,29,691/-. The difference in the two working was on account of the fact that the assessee had considered only the portion of the investments made in fixed capital of the partnership firm and excluded the portion reflected as current capital while computing the disallowance @ 0.5% of the average of investments made by the assessee in the said firm during the year. The Assessing Officer, on the other hand, had considered both the fixed capital and current capital investment for the said purpose. The ld. CIT(A) also had dismissed all contentions made by the assessee for considering only the fixed capital investment made for the purpose of computing the disallowance as per Rule 8D of the IT Rules, 1962. His findings in this regard are at paragraph Nos. 7.1 to 7.2 of his order as under: "7.1. My predecessor has certified documents made ....
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....intention of the assessee hardly makes any difference. Given the facts of the case, I do not find any infirmity in the AO's action. Ground No.3 is accordingly, dismissed." 33. Before us, the ld. Counsel for the assessee emphasized that it is only the investments made in fixed capital of the partnership firm of the assessee by the assessee which is to be considered for computing the disallowance as per Rule 8D of the IT Rules, 1962 read with section 14A of the Act. For the said purpose, his argument was that the capital of a partnership firm by way of fixed capital and current account capital were of different nature, and it is only the fixed capital which qualified as investment; the amount kept in current capital account related to whatever was due to the partners by way of interest, remuneration or otherwise which the partners had not taken from the firm. He referred to Section 48 and 13 of the Partnership Act to point out that even the Partnership Act recognizes the two sets of capital to be different. The ld. DR, however, relied on the order of the ld. CIT(A). 34. We have heard both the parties. The solitary issue for adjudication before us is whether for the purpose of compu....
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.... by the partners, be observed: -- (a) Losses, including deficiencies of capital, shall be paid first out of profits, next out of capital, and, lastly, if necessary, by the partners individually in the proportions in which they were entitled to share profits. (b) The assets of the firm, including any sums contributed by the partners to make up deficiencies of capital, shall be applied in the following manner and order:-- (i) in paying the debts of the firm to third parties; (ii) in paying to each partner rateably what is due to him from the firm for advances as distinguished from capital; (iii) in paying to each partner rateably what is due to him on account of capital; and (iv) the residue, if any, shall be divided among the partners in the proportions in which they were entitled to share profits." 35. As is evident, Section 48, clause (b), sub-clause (iii) states that on settlement of accounts between partners, the assets of the firm are to be applied in paying the debts of the firm to the third parties; thereafter paying partners what is due to them for advances other than capital and then paying the partners rateably what is due to them on account of capital. There ....
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....g been provided by the assessee to its Associated Enterprise Sun Pharmaceuticals Industries Inc. and Sun Pharmaceuticals Bangladesh Ltd. 38. In the first round, the issue was restored back by the ITAT to the Assessing Officer to be decided in the light of decision of the Hon'ble jurisdictional High Court which was seized with an identical issue in the case of Micro Inks Ltd. in Tax Appeal No. 507 of 2016. During the pendency of the matter before the Assessing Officer and the ld. CIT(A), the decision of the Hon'ble jurisdictional High Court in the case of Micro Inks Ltd (supra) was noted to be still pending. The ld. CIT(A), therefore, confirmed the adjustment made by the TPO to the international transaction of corporate guarantee amounting to Rs. 39,48,000/- keeping the interest of Revenue in mind. 39. Before us, the ld. Counsel for the assessee stated that the issue has been decided against the assessee by the Hon'ble Madras High Court in the case of Principal Commissioner of Income-tax-5, Chennai Vs. Redington (India) Ltd., [2021] 430 ITR 298 (Madras), categorically holding the provision of guarantees to be in the nature of international transactions and adjustment being necessi....
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....ths from the end of the financial year, but in fact the sales was returned in the subsequent years. Ground of appeal No.2 is accordingly dismissed. 44. Ground of appeal No.3 reads as under:- "3. Provision for Leave Encashment under Section 43B - Rs. 39,98,673/- 3.1 On the facts and in the circumstances of the case and in law, the Ld. CIT(A) grossly erred in not allowing provision for leave encashment amounting to Rs. 39,98,673/-. 3.2 The Assessing Officer as well as Ld. CIT(A) by confirming the disallowance of provision for leave encashment, have grossly erred in disregarding the directions given by the Hon'ble Income tax Appellate Tribunal ('Tribunal') that the issue is to be decided afresh in light of decision of Hon'ble Supreme Court in the case of Exide Industries Limited." 45. It was common ground that the issue raised in the aforesaid ground was identical to that raised by the assessee in its appeal for AY 2007-08 in ITA No. 110/Ahd/2020 in Ground No. 3, which was been dealt with by us above in our order. Our decision rendered therein at paragraph Nos.28-30 of order above will squarely apply to this ground, following which we confirm the disallowance ....
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....Rules, 1962 in relation to investment in the partnership firm amounting to Rs. 2,97,68,071/-. Ground of appeal No.4 of assessee's appeal is accordingly dismissed. 48. Ground of appeal No.5 reads as under:- "5. Addition on account of Corporate Guarantee provided to Associated Enterprise ('AE') - Rs. 23,88,000/- 5.1 On the facts and in the circumstances of the case and in law, the Ld. CIT(A) grossly erred in not deleting transfer pricing adjustment on corporate guarantee provided by Appellant to its AE's amounting to Rs23,88,000/-. 5.2 The Assessing Officer as well as Ld. CIT(A), by confirming the addition on account of corporate guarantee provided to AE, have grossly erred in disregarding the directions given by the Hon'ble Tribunal that the issue is to be decided afresh in light of decision of Hon'ble Gujarat High Court in the case of Micro Inks Limited." 49. It was common ground and the issue raised in the said ground was identical to that raised by the assessee in its appeal for AY 2007-08 in ITA No. 110/Ahd/2020 in Ground No.5, which was been dealt with by us above in our order. Our decision rendered therein at paragraph Nos.39 of order above will sq....
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....o. 4, which was been dealt with by us above in our order. Our decision rendered therein at paragraph Nos.34-35 of order above will squarely apply to this ground, following which we confirm the disallowance made by the Assessing Officer, and confirmed by the ld. CIT(A), u/s 14A read with rule 8D of the IT Rules, 1962 in relation to investment in the partnership firm amounting to Rs. 4,22,77,759/-. Ground of appeal No.2 of assessee's appeal is accordingly dismissed. 54. Ground of appeal No.3 reads as under:- "3. Addition on account of Corporate Guarantee provided to Associated Enterprise ('AE') - Rs. 21,90,400/- 3.1 On the facts and in the circumstances of the case and in law, the Ld. CIT(A) grossly erred in not deleting transfer pricing adjustment on corporate guarantee provided by Appellant to its AE's amounting to Rs. 21,90,400/-. 3.2 The Assessing Officer as well as Ld. CIT(A), by confirming the addition on account of corporate guarantee provided to AE, have grossly erred in disregarding the directions given by the Hon'ble Tribunal that the issue is to be decided afresh in light of decision of Hon'ble Gujarat High Court in the case of Micro Inks Limite....
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....ner of Income Tax(A) was justified in allowing the claim of the assessee u/s 35(2AB) of the Act without appreciating that the expenditure claimed is in excess to what is approved expenditure eligible as per the prescribed authority? 2. Whether on the facts and in the circumstance of the case and in law, the Commissioner of Income Tax(A) was justified in allowing the claim of the assessee u/s 35(2AB) of the Act without appreciating that exemption provision is subject to strict interpretation and when there is ambiguity the benefit of such ambiguity cannot be claimed by the subject/assessee and it must be interpreted in favour of the revenue (Supreme Court in Civil Appeal No. 3327 of 2007, in the case of Commissioner of Customs (Import), Mumbai Vs. Dilip Kumar & Company & Others)." 60. During the course of hearing before us, the ld. Counsel for the assessee contended that it is now settled by various decisions of the Hon'ble jurisdictional High Court, followed by the ITAT, Ahmedabad Bench in several cases, that for the impugned year i.e. AY 2011-12, the DSIR was not required to certify the quantum of expenses incurred by the assessee in inhouse development and research expenses an....