TaxTMI 
TaxTMI 
2007 (5) TMI 256
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....scheme, which are liable to income-tax. During the previous year relevant to the assessment year, some employees availed of the benefit under this scheme and retired from service to whom payments aggregating to Rs. 9,56,40,868 were made as per the approved scheme which was allowed as deduction. However the assessee also made provision for the discounted value of the other benefits over and above the approved scheme promised to the employees to be paid in the subsequent three years. No payment of this additional benefit was made during this year. As per the agreement such payments were made in the following years as per the formulated scheme. Discounted value of such amounts payable to the retired employees was computed at Rs. 2,13,52,911 and provision was made in the accounts by debiting the same in the P&L a/c. The AO was of the view that it was only a contingent liability and therefore cannot be allowed. In taking the above view the AO went by the ratio of decision of the Karnataka High Court in the case of CIT vs. Motor Industries Co. Ltd. (1998) 144 CTR (Kar) 101 : (1998) 229 ITR 137 (Kar). Following this finding the AO allowed a deduction of Rs. 2,01,32,986 for the asst. yr. 1....
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....e High Court in CIT vs. Bharat Earth Movers Ltd. (1995) 123 CTR (Kar) 276 : (1995) 211 ITR 515 (Kar) are no longer good laws. The learned Departmental Representative on the other hand strongly supported the disallowance in the light of the apex Court decision in the case of Metal Box Company of India Ltd. vs. Their Workmen (1969) 73 ITR 53 (SC). 4. We have carefully considered the rival submissions and gone through the records. We have also gone through the scheme of Early Retirement Incentive Scheme, 1995 which is applicable for the asst. yr. 1996-97 under which these liabilities are claimed. The Scheme is almost identical in the later assessment year also. In the light of the authority to pronouncement of the Supreme Court in the case of Bharat Earth Movers the contention of the assessee deserves to be accepted. In principle, therefore in the light of the above decision we accept the claims of the assessee. But at pp. 7 and 8 of the paper book the assessee has filed a statement of computation of the present value as on 31st March, 1996 of the future liabilities. As we may see the actuary has arrived at the present valuation by taking the rate of interest at 12 per cent per annum....
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....ertains to provisions for liability towards long service entitlement and leave salary encashment. We find that this issue also stands decided by the Tribunal in favour of the assessee for asst. yrs. 1994-95 and 1995-96. Respectfully following the earlier decisions of the Tribunal we dismiss this ground too in both the assessment years. 8. Ground No. 3 in both the appeals pertaining to adoption of ALV in computing property income in respect of 5th floor of Hoechst House. We find that this issue also stands covered by the decision of the Tribunal in favour of the assessee for asst. yrs. 1994-95 and 1995-96. Respectfully following the earlier decisions of the Tribunal we dismiss this ground also in both the assessment years. 9. Ground No. 4 in both the appeals pertains to exclusion of sales-tax from total turnover for the purpose of deduction under s. 80HHC. We find that the issue stands settled in favour of the assessee by the judgment of the Hon'ble jurisdictional High Court in the case of CIT vs. Sudarshan Chemicals Industries Ltd. In view of this, the ground taken by the Revenue in both the appeals are rejected. 10. Ground No. 5 and ground Nos. 6 and 7 pertain to deletion of ad....
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.... Remarks company cost of imports in Rs. ------------------------------------------------------------- Assessee company 57,635 Imported from Hoechst AG, Germany IPCA Laboratories 30,784 Imported 75 kg. from Hanmipharma Ltd. Co. Ltd., South Korea sold under the brand name "Talcef' Lyka Labs Ltd. 32,013 Imported from Hanipharma Co. Ltd. Aristopharma 27,270 Imported from Woo Pyung Co. Ltd., &nbs....
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.... 34 ITR 368 (SC) the AO rejected the above explanations of the assessee. He insisted that the provisions of s. 92 were applicable to the case of the assessee for the following reasons: (i) The pricing strategy of "Cefotaxime Sodium" between the assessee and its parent company was a controlled transaction dictated by the objective of Hoechst AG, Germany to maximise its turnover and margin even if it resulted in heavy losses in the hands of the assessee company. In view of such losses year after year in respect of its product, no prudent business person would have continued this line of manufacture, knowing fully well that Omnatax comes under the price controlled category and there was no leverage for upward adjustment of the selling price of the finished product. (ii) Procurement is a vital strategic area and its optimal handling can cause the difference between a company's failure and success. The assessee was made to suffer because, (a) personal relationships had brought to bear and influence business relationship; (b) Incremental buying was done without challenging previous decisions; and (c) it acted as a surrogate cog in the overall game plant of Hoechst AG, Germany since the....
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....ee, though after filing the first appeal before the CIT(A), addressed a letter to the AO to supply the following information on the basis of which the income was estimated under s. 92 since he has estimated the income by comparing the landed cost of raw materials paid by the assessee to the German company and the other three manufacturers to the Korean companies, so as to make its submissions before the learned CIT(A): (i) Quantities of raw materials imported by each company from the Korean suppliers. (ii) Components of the cost of raw materials in each case including customs duty paid, if any. (iii) Quantities consumed during the year in each case and the number of units of the finished products sold by them. (iv) Net realisation per unit in each case. (v) The length of the period for which such imports were made by the three manufacturers from the same Korean suppliers and the quantities supplied during the period. 16. The AO replied to the assessee with a copy marked to the CIT(A) that in the course of assessment proceedings, the assessee that imports of Cefotaxime Sodium during 1995-96 were mainly from Korea and the approximate CIF price per kg. ranged between $ 450 to $ ....
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....ch Cefotaxime Sodium was sold world-wide. The auditors of Roussel Ulcaf (now known as Hoechst Marion Roussel S.A., France) also confirmed this fact in their report dt. 27th Sept., 1999. Similarly, the statutory auditors of HMR Deutschlana, Germany also confirmed that the price at which Cefotaxime Sodium was sold to the assessee was the lowest charge to customers world-wide. 18. In his remand report, the successor AO defended the addition on the following grounds: (i) While Omnatax is a brand name which enjoys some legal protection, there is no evidence whatsoever that the raw material Cefotaxime Sodium is a patented product. The assessee was not justified in putting such value on the brand name tolerating such huge losses year after year. (ii) The 'arrangement' between the assessee and its non-resident principal cannot always be established by direct evidence. It is sufficient if such an arrangement can be inferred from the surrounding circumstances. The fact that a huge loss is being incurred year after year in one product is sufficient evidence when combined along with the price paid by other competitors and the fact that the foreign supplier is closely related to the assessee....
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....it was contended that they were just repairing the ships of the non-resident party and hence no business was carried on with the non-resident. The Court however, held that repairing ships tantamounted to a business and also pointed that since the ships were repaired at cost i.e. under a special arrangement which the non-resident could not have been in a position to make with any other unrelated ship repairer, the addition could be made in the case of the resident assessee. It was contended that the facts in Mazgaon Dock's case are entirely different from the facts in assessee's case inasmuch as the non-resident did not supply the same material to any other party at a price lower than the price charged to the assessee, the loss incurred by the assessee in the business of Cefotaxime Sodium cannot be said to be on account of any arrangement which the assessee apparently had with the related non-resident supplier and hence this decision cannot be applied in the assessee's case. 21. With regard to incurrence of loss the assessee contended before the CIT(A) that at the same import price prior to the year 1995 i.e. before fixation of price under the DPCO, 1995 the assessee had made profi....
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....ies arising on account of the Department gathering more information leading to extra efforts being asked to put in by the Department. With regard to the observation of the AO that the letter was not challenged before the Court during the merger proceedings, the assessee clarified that an affidavit was filed in the Court and the Court approved the legal merger in spite of such letter before it. Even in the case of assessment of Roussel India Ltd. the AO has not stated to have made any addition on the basis of that letter. On asking from the CIT(A) the assessee furnished the details of purchase price of Cefotaxime Sodium at different points of times during the earlier years from which was apparent that the prices had been reduced progressively from year after year. It was argued that it was common that when a new product is developed the prices in the initial years would be high owing to the huge investments made in its research and development and sell the product at a lesser price in the later years. 23. It was further submitted before the learned CIT(A) that the loss in Omnatax business was not Rs. 10,30,46,341 but Rs. 4,84,72,079. The allocated expenses which were included in ar....
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.... contents of the letter could not be pressed into service to prove any "arrangement" between the assessee and the non-resident company within the meaning of s. 92. With regard to the contention of the assessee that the loss on account of sale of Omnatax was only Rs. 4,84,72,079 as against Rs. 10,30,46,332 as reported by successor at Rs. 10,30,46,332 (whereas the AO made the disallowance at Rs. 7,42,46,618) the learned CIT(A) observed that even if the alleged "arrangement" were held to be existed between the assessee and the non-resident companies, the deprived profit should be restricted to the extent of the over invoiced price only and the overhead expenses taken into account for the purpose of cost audit should not be considered for purpose of s. 92. 25. In view of the above the CIT(A) held that the transactions between the resident company and the non-resident parent company, were not the kind of transactions in respect of which s. 92 could be invoked. He supported the above finding with the observations appended at paras 40 to 46. Aggrieved the Revenue is in appeal before us. 26. We have carefully considered the rival contentions. The learned counsel for the assessee reiterat....
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.... and other relevant factors the price was fixed at a level that was lower than the price at which the companies had sold Cefotaxime Sodium anywhere in the world. This fact has been certified by the report of the auditors of Hoechst Marion Roussel Deloitte Touche & Tohmastsu dt. 27th Sept., 1999, placed at pp. 73 to 75 of the compilation and by the board of Hoechst Marion Roussel's certificate dt. 8th Sept., 1999 as also by the certificate of M/s Pricewaterhouse Cooper, the auditors of Aventis Pharma Deutscheland GmbH dt. 29th Sept., 2001. The AO has made a comparison of the prices with the purchase of 75 kgs. by IPCA Laboratories at Rs. 30,784 and Lyka Labs Ltd. which purchased undisclosed quantity at Rs. 32,013 and similar undisclosed small quantity by Aristopharma at Rs. 27,270. The details discussed by the AO are insufficient and are clearly not comparable to the purchases made by the assessee company. The CIT(A) has elaborately discussed this aspect of the matter in his order on pp. 9 to 33 at paras 11 to 45 which deals with each and every contention of the AO as well as the CIT(A). The learned CIT(A) also afforded an opportunity to the AO for his comments on the material place....