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2013 (9) TMI 306 - AT - Income TaxAddition u/s 145- Unutilised modvat credit in closing stock - Held that:- valuation of purchases and sale of goods and inventory is required to be made in accordance with method of accounting regularly employed by assessee and further adjustment is required to be made to include amount of any tax, duty cess or fees actually paid or incurred by assessee to bring goods to place of its location and condition as on date of valuation . It is therefore clear that adjustment on account of tax, duty etc. is required to be made not only to closing stock but also in purchases, sales and opening stock. In present case, AO had made adjustment only in closing stock. CIT (A) has directed him to make adjustment in opening stock also in addition to closing stock. He has however omitted to consider aspect that adjustment is also required to be made to purchases and grievance of assessee is only on this account. We therefore modify order of CIT (A) by holding that adjustment on account of tax duty will also be made in purchases - Decided in favour of assessee. Disallowance of bad debt - Held that:- It is settled legal position as held by Hon’ble Supreme Court in case of TRF Ltd.(2010 (2) TMI 211 - SUPREME COURT) that after amendment of provisions from assessment year 1998-99, burden is no longer on assessee to establish that debt has actually become irrecoverable. only conditions which are required to be fulfilled for allowance of bad debt is that debt should have been taken into account in computation on inomce of earlier year and should have been written off in books of accounts. There is no dispute that bad debt had actually been written off in books of accounts. CIT (A) has held that assessee had not produced any detail and evidence to show that such debts had been taken into account in computating income of ealier year. Issue is restored to file of AO for fresh decision after allowing opportunity of hearing to assessee to show that debt had been taken into account in computation of income of earlier year - Decided in favour of assessee. Disallowance of discount and commission expenses - Held that:- assessee could not submit complete details along with names and addresses of parties with supporting evidence which was specifically requisitioned by AO. Such details were also not been filed before CIT(A), and, therefore, he upheld disallowance. Merely because no disallowance had been made in earlier years or in subsequent year cannot be basis for making claim for relief in this year, because it is not possible for AO to make detailed examination of each and every issue relating to assessment every year. This year he has taken up matter for detailed examination and found that expenses were not supported by details and evidences. It is however settled legal position that even in cases where details and evidences are not available, AO is required to compute disallowance on an objective basis on basis of material available on record. In this case from comparative details of expenses filed we find that expenses on account of discount and commission have been claimed at .55% total sales of ₹ 344 crore compared to .43% on turnover of ₹ 345 crore in immediate preceding year. Therefore, if we compute expenditure this year at same percentage as in immediate preceding year, expenditure comes to ₹ 1.47 crore against claim of ₹ 1.89 crore. Thus on basis of claim in preceding year, there is an excess claim of about 42 lakhs. AO has made estimated disallowance of only ₹ 5,00,000/- - Decided against assessee. Computation of deduction u/s 80HHC - 90% exclusion of net interest/rent or gross interest/rent – Held that:- Ninety per cent of not gross interest/rent but only net interest/rent, which has been included in profits of business of assessee as computed under heads ‘PGBP’ is to be deducted under clause (1) of Explanation (baa) to Section 80HHC for determining profits of business. Matter remanded back to A.O. to work out deductions – Following decision of M/s ACG Associated Capsules Pvt. Ltd. (Formerly M/s Associated Capsules Pvt. Ltd.) & Others Versus Commissioner of Income Tax, Central-IV, Mumbai & Others [2012 (2) TMI 101 - SUPREME COURT OF INDIA] - Decided in favor of assessee. Transfer pricing adjustment - Import of Bisoprolol Fumarate - Admission of additional evidence - Held that:- certificate dated from factory manager of assessee had been produced which had been rejected by authorities below as being not contemporary. Quality of product is important as it affects comparability of transactions and it influence pricing of product. There was however no independent evidence produced before lower authorities to show superior quality of assessee’s product. assessee vide letter has filed an additional evidence before Tribunal in form of quality certificate from Bee PharmLabs (Pvt.) Ltd. an independent accredited third party and also comparative selling rate of same product produced by Torrent Pharmand Unichem Laboratories Ltd has been filed and it has been requested that additional evidence may be submitted. It was argued that assessee was made aware of these additional evidence only after passing of order by CIT (A) and accordinlgy it has been requested for admission of same. In our view an independent evidence regarding quality of products and comparative prices will be useful in deciding issue - Decided in favour of assessee. Import of pigments - Held that:- assessee had placed sufficient material on record in support of its plethat low margin in case of pigment was not because of high import price but because of low selling price in domestic market which was highly competitive. comparison made by AO of pigment segment with non AE trading which had no pigment, in our view is not justified on facts of case. best comparison would have been with an independent party importing pigments from same foreign market and trading in local market but no such comparative case has been placed on record by TPO. though it was TPO who separated pigment segment for purpose of transfer pricing study - Addition of TPO deleted - Decided in favour of assessee. Payment of technical know how fees - Held that:- law is quite clear on subject that TP adjustment is required to be made by applying one of prescribed methods. TPO has not applied any prescribed method and has only disallowed part of expenses as done in normal assessment, which is not permitted under tranfer pricing regulation as per which adjustment on account of any internationl transaction is required to be made as per method prescribed. TPO thus had applied CUP method and made adjustment on account of nine services on average basis - agreement listed certain services on which assessee requires guidance/assistance from time to time. assessee was thus entitled to any of services as and when required. Therefore, applying CUP method to service not availed by assessee during year is not justified. It would have been appropriate if AO had applied CUP method to payment made during year by assessee for three services and compared with similar payment for such services by an independent party. No efforts have been made by TPO/AO to determine market value of services received by assessee during year relating to SAP implementation and quality control to show that assessee had paid more compared to any independent party for same services. assessee had submitted that in case assessee had paid to AE at man hour rate for technical services provided during year in relation to SAP implementation, fees payable would have been significantly higer - Following decision of McCann Erickson IndiPvt. Ltd., Versus Addl. Commissioner of Income Tax Range 6 [2012 (7) TMI 728 - ITAT, DELHI] - Decided in favour of assessee.
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