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2016 (1) TMI 752 - AT - Income TaxDisallowance as excess deduction claimed u/s 35(2AB) - Held that:- The brief facts are that deduction u/s 35(2AB) was claimed by the assessee in respect of research and development expenses incurred at New Mangalore and KRS Gardens research centre. Application was made with DSIR dated 28.03.2001. The recognition of the research unit was granted by the DSIR vide its letter dated 03.07.2002 for New Mangalore unit and letter dated 04.12.2002 for KRS Gardens research unit. In view of these facts, it clearly emerges out that assessee had made the applications well in time. Thereafter, granting of approval by the competent authority was not in the control of the assessee. In our considered view, under these circumstances, the approval would relate back to the date of the application. Similar view has been taken by Hon'ble Madras High Court in the case of CIT vs. Wheels India Ltd. (2010 (11) TMI 42 - Madras High Court). Thus, keeping in view the clear position of law and the facts of this case, stand of the Revenue on this issue is rejected. The other issue raised by the AO in disallowing the deduction was that no agreement has been entered as contemplated by section 35(2AB). In this regard also we have noted that the assessee has made requisite compliance as has been required by the prescribed competent authority and compliance of all the procedural requirements has been examined by the competent authority while granting approval. In our considered view, we should look substantive compliance of the provisions. Documentation in any particular format and its approval in a particular manner is not object of this action. - Decided in favour of assessee Disallowance of interest expenditure u/s 14A - Held that:- It is noted from the perusal of the schedule that there is no fresh investment towards investment of domestic companies. Only one entry is appearing in the name of addition of shares of BDH Industries Ltd.. It has been brought to our notice that during the year, the assessee has acquired shares of this company at book value on account of amalgamation of Bombay Drugs & Pharma Ltd. into itself. It is further brought to our notice that no cash outflow was required for acquiring these shares. Thus, in fact no amount has been invested for making any fresh investment during the year. Thus, the facts remain identical to the assessment year 2001-02, and therefore, the benefit of decision taken by the Tribunal in aforesaid year shall also be available in the impugned year. Therefore we allow Ground of assessee's appeal, deleting the disallowance made by the AO in toto. - Decided in favour of assessee Disallowance relating to payments made beyond the grace period for Provident Fund and ESI u/s 36(1)(va) read with section 2(24)(x) - Held that:- The undisputed facts are that the entire payment has been made before the due date of filing the return. Similar issue came before the Tribunal in assessee's own case for A.Y. 2001-02, wherein Hon'ble Tribunal has allowed relief to the assessee relying upon the judgment of in the case of Alom Extrusions Ltd. [2009 (11) TMI 27 - SUPREME COURT ] and Vinay Cement Ltd. [2007 (3) TMI 346 - Supreme Court of India ] - Decided in favour of assessee Computation of deduction u/s 80IB - CIT(A) in directing the AO to reduce 30% of the export profits of unit eligible for deduction u/s 80IB before claiming amount of deduction u/s 80HHC - Held that:- This issue is no more res integra in view of the judgment of the Hon'ble jurisdictional High Court in the case of Associated Capsules Pvt. Ltd. v. DCIT & Anr.(2011 (1) TMI 787 - BOMBAY HIGH COURT ) in which it has been held that restriction u/s 80-IA(9) is not applicable at the stage of computing deduction u/s 80HHC but only at the stage of allowing deduction u/s 80HHC.- Decided in favour of assessee Deduction of indirect costs by 10% of export incentives for the purpose of computing profits from trading exports u/s 80HHC rejected - Held that:- This ground is also covered in favour of the assessee by the judgment of the Hon'ble Supreme Court in the case of Hero Exports v. CIT [2007 (11) TMI 13 - Supreme Court of India ]. In this case it has been held that the principle of attribution is applicable to cases falling u/s 80HHC(3)(b) and therefore, part of indirect cost has to be apportioned to expenses incurred for earning export incentives. 10% of total income has been held as fair estimate in this case. - Decided in favour of assessee Foreign Exchange Fluctuation Gain - treated as "income from other sources" by CIT(A) as against the assessee's claim as "business income" - Held that:- We have gone through orders of the lower authorities and showing and find that a sum of ₹ 2,17,810/- marked as foreign exchange fluctuation has been put under the head miscellaneous income. Thus in all fairness, we send this issue back to the file of Ld. CIT(A) to re-adjudicate the same after giving adequate opportunity hearing to the assessee.- Decided in favour of assessee for statistical purposes. Scrap sales - treated as part of total turnover for the purpose of claiming deduction u/s 80HHC - Held that:- Hon'ble Supreme Court has decided this issue in favour of the assessee in CIT vs. Punjab Stainless Steel Industries (2014 (5) TMI 238 - SUPREME COURT) wherein it has been clearly held that sale proceeds generated from sale of scrap would not be included in total turnover. Thus, respectfully following the judgment of Hon'ble Supreme Court, we direct the AO to exclude the amount of sale proceeds of scrap sales, from amount of total turnover for the purpose of computing deduction u/s 80HHC. - Decided in favour of assessee Interest allowable u/s 57 - Held that:- Assessee would be satisfied if claim is allowed u/s 57(iii). We find force in the alternative submissions of the Ld. Counsel. Ld. CIT(A) has rightly allowed the claim u/s 57 of the Act, therefore, we uphold the order of Ld. CIT(A) on this ground - Decided in favour of assessee Netting off of interest receipts against interest payment and apply the explanation (baa) of section 80HHC only in respect of net amount of interest confirmed Exclusion of Excise Duty from the total turnover for the purpose computation of deduction u/s 80HHC - Held that:- This issue has also been settled by the Hon'ble Supreme Court in the case of CIT v. Laxmi Machine Works [2007 (4) TMI 202 - SUPREME Court ] holding that the excise duty is not includible in the 'total turnover' in the formula contained in section 80HHC.- Decided in favour of assessee Transfer pricing adjustment - price charged by the assessee company to its AE as reasonable and did not require any upward revision as per CIT(A) - Held that:- The issues with regard to transfer pricing adjustment have to be resolved following a mechanism and complying with the provisions as contained in chaper X, dealing with the transfer pricing issues as contained in sections 92-92F and connected rules as contained in Rules 10A,10B,10C,10D and 10E of Income Tax Rules 1962. These sections and rules prescribe various methods that may be employed to establish arm's length price, explaining applicability of each method, the documentation required to be maintained and form of the certificate to be issued by auditors in this regard. These regulations provide that any income arising from the international transactions shall be determined having regard to the arm's length price. This issue has now been decided in various courts that where international transactions are involved with AE, then arm's length price has to be determined in line with the aforesaid provisions. It is noted by us that Ld. CIT(A) has decided this issue without taking into account the effect of these provisions. Therefore, in our considered view, this issue needs to be sent back. - Decided in favour of revenue for statistical purposes.
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