TMI Blog2010 (7) TMI 643X X X X Extracts X X X X X X X X Extracts X X X X ..... ifying units and therefore held that no allocation of fresh borrowing was to be made to the 80IB qualifying units - Accordingly the addition is deleted Regarding deduction u/s 80HHC - High Court in the case of Godrej Agrovet Ltd vs ACIT & others (2007 -TMI - 13282 - BOMBAY High Court) - Decided in the favour of the assessee Regarding addition u/s 92CA - Arms length price - TNMM requires comparison of net profit margins realised by an enterprise from an international transaction or an aggregate of international transactions and not comparisons of operating margins of enterprises - Tribunal in the case of UCB India P. Ltd. vs. ACIT 121 ITD 131 (Mum.) - Decided in the favour of the assessee by way of remand Regarding book profit u/s 115JB and added back the profit for doubtful debts of Rs. 1,49,80,000 - the provision for bad debts is not the liability; but it is diminution in the value of the assets as the recoverable debts partake the character of the asset - Decided against the assessee The sums clamed in P&L A./c by the assesee are ascertained liability, therefore, they are out of purview of clause (c) of sec. 115JB of the Act - Decided in the favour of the assessee by way ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d (supra). We, therefore, confirm the order of the ld CIT(A) on this issue and dismiss the relevant ground taken by the revenue. 4 Next issue relates to deletion of addition of Rs.5, 94,000/- made u/s 41(1) of the I T Act. 5 We have heard the parties. It is observed by the A.O. that as per the information furnished by the assessee, sundry creditors to the extent of Rs.5,93,982/- were outstanding for more than three years. The A.O. was of the opinion that to the extent of sundry creditors, which are outstanding for more than three years, the same are to be added u/s 41(1) of the Act. 5.1 The assessee contended that there was no unilateral writing off of the said liability nor the liability to pay was ceased and hence, no addition can be made u/s 41(1) of the Act. The A.O. rejected the plea of the assessee and made the addition by invoking provisions of sec. 41(1) of the Act. The assessee challenged the said addition before the ld CIT(A) and found favour as the ld CIT(A) by relying on the decision of his predecessor for AY 2001-02, deleted the addition. 6 We have heard the parties. The A.O. made the addition on the presumption that the said debts become time barred und ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... equired for manufacturing the above formulation were being purchased from outside companies such as Alembic, Sunpharma and Zydus. Therefore, on the basis of factual examination, no expenditure on R D is found relatable to 80IB qualifying unit. 8.3 The other limb of the issue is allocation of interest expenditure to 80IB qualifying units. I was submitted that this issue was covered in favour of the appellant company by the order of the ITAT in AY 2001-02. It was further pointed out that an identical issue in AY 2002-03 and had been decided in favour of the appellant company by me. I have gone through the facts. The ITAT in AY 2001-02 had examined the years in which the borrowing had been made and year of setting up of qualifying units and found that no borrowing had been made after the setting up of the qualifying units and therefore held that no allocation of fresh borrowing was to be made to the 80IB qualifying units. In AY 2002-03, during the appeal proceedings similar statement was called for and examined and found that no borrowing was relatable to 80IB qualifying units. In the current year on examination of similar comparative statement it is seen that interest cost has re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vs ACIT others (290 ITR 252(Bom). In our opinion, no interference is called for on this issue and accordingly, we confirm the order of the ld CIT(A). Ground no.4 is therefore dismissed. 10 Next issue is in respect of addition made u/s 92CA of the Act of Rs.23.94 lacs while determining the ALP. 10.1 The A.O. has made a reference to the Transfer Price Officer (TPO) for determining the ALP of some of the international transactions. The A.O. made adjustment of Rs. 23.94 lacs on the basis of the order passed by the TPO u/s 92A(3) of the Act while determining the ALP in respect of providing R D services to its associated enterprises M/s Wallis Group Ltd. The assessee adopted TNMM method which was accepted by the TPO. The TPO has called for the updated financial statements for the year ended March 2003 and on the basis of such updated financial statements, the assessee claimed that profit margin work out at 21%. 10.2 The assessee had earned 16.78% profit on the above research activity. The assessee filed comparables and on the perusal of the list of comparables, the TPO found that one loss making entity i.e. M/s Kitco Ltd was also included by the assessee . The assessee conte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rstanding or action is formal or in writing; or (D) whether or not such arrangement, understanding or action is intended to be enforceable by legal proceeding. Rule 10B sub clause (e) transaction at margin method : (e) transactional net margin method, by which, (i) the net profit margin realised by the enterprise from an international transaction entered into with an associated enterprise is computed in relation to costs incurred or sales effected or assets employed or to be employed by the enterprise or having regard to any other relevant base; (ii) the net profit margin realised by the enterprise or by an unrelated enterprise from a comparable uncontrolled transaction or a number of such transactions is computed having regard to the same base; (iii) the net profit margin referred to in sub-clause (ii) arising in comparable uncontrolled transactions is adjusted to take into account the differences, if any, between the international transaction and the comparable uncontrolled transactions, or between the enterprises entering into such transactions, which could materially affect the amount of net profit margin in the open market; (iv) the net profit margin realis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ase the department has not disputed the contention of the assessee that the said liability was an ascertain liability. But in the present case, the A.O. never accepted that this is an ascertained liability, hence, the reliance placed by the ld counsel in the case of Echjay Forgings P Ltd (supra) is not helpful. 14.1 The ld counsel further argued that newly inserted clause (i) to Explanation I to sec. 115JB by Finance Act, 2009 with retrospective effect from 1.4.2001 will not affect the provisions for bad and doubtful debts as the only provision made for diminution of the value of the investment is covered by the aforesaid clause (i). We are unable to accept the interpretation of the ld counsel in respect of the newly inserted cl.(i). 15. Admittedly, the provision for bad debts is not the liability; but it is diminution in the value of the assets as the recoverable debts partake the character of the asset. So far as the decision of the Tribunal in assessee s own case for AY 2001-02 is concerned, (3391/Mum/2005 dated 24.2.2006), clause (i) to Explanation-I was not on the statute book when the said decision was rendered. Hence, the assessee cannot be taken shelter of the dec ..... X X X X Extracts X X X X X X X X Extracts X X X X
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