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2018 (6) TMI 512 - AT - Income TaxDeduction u/s 10B of the Act on export profit earned by its unit - assessee is registered and approved EOU - Held that:- The fundamental requirement in all the agreement is creation of dossier, which is compilation of the relevant technical education to enable manufacture of product. Dossier has all the attributes of product being an article or thing and it is creation specifies the requirement of a production. In fact, creation of dossier entails the actual production of the formulation initially in the laboratory and therefore upto a batch size. In similar circumstances Hon’ble Supreme Court in the case of Scientific Engineering House Pvt. Ltd vs. CIT (1985 (11) TMI 1 - SUPREME COURT) held that the compilation of technical knowhow is an article to be considered as capital asset eligible for deduction for depreciation. The assessee is entitled to deduction under section 10B as it has established that the relevant conditions of section 10B that there must be a production of article or thing and export of such article or thing and consideration thereof brought into India within the time permissible under the foreign exchange regulations are fulfilled and accordingly allowable. We allow this issue of assessee’s appeal. Not computing the deduction under section 10B undertaking wise and thereby not allowing the deduction in respect of Beta lactam Division (BLD) and Star Unit - Held that:- We direct the AO to recompute the deduction as claimed by assessee under section 10B in term of the decision of Hon’ble Supreme Court in the case of Yokogawa India Ltd. (2016 (12) TMI 881 - SUPREME COURT). The second proviso to section 10B(1) of the Act was only for assessment year 2003-04 and not for other years. The AO will verify the facts of the case and accordingly, will allow the claim of the assessee. This issue of assessee’s appeal is set aside to the file of the Assessing Officer. Disallowing deduction under section 10B for the unbilled Revenue recorded by Star Unit - Held that:- income has not accrued as agreed by both the sides. Hence, the assessee is not entitled for deduction under section 10B of the Act on unbilled Revenue recorded on the basis of internal accounting policy but we are also of the view that the income also cannot be assessed in the absence of its accrual. The AO is directed to delete the addition wherever income has not accrued but added by the AO, after verification of the factual position. The AO can also verify where consideration has been received within 6 months of raising of the invoice, the AO can allow the deduction as claimed in the year Claim of weighted deduction under section 35(2AB) to be allowed Disallowing a portion of rental expenditure on the ground that the rent paid to related parties is unreasonable in view of the provisions of section 40A(2)(b) - Held that:- As find from the facts of the case that the lower authorities failed to appreciat the facts that the significant portion of the property belonging to the related party are used for R&D and Corporate Office which houses the Corporate Office Finance, HR, R&D. SCM, Planning departments. This it is be rented out to any third party without any modification. This can as it is be rented out to any third party without any modification this had a central superior quality construction and utilization for corporate office structure of related party building compared to outside party building which is used for manufacturing plant. The rental agreements with outside party were entered into in May 2001 and the rents were fixed for initial 7 years. Whereas, the rental agreement with related party were entered into during August 2004 in case of one property and June 2006 in case of two other properties - the rent paid is not falling within the mischief of section 40A(2)(b) and seems reasonable. Disallowing the expenditure of premium of redemption of foreign currency convertible bonds (FCCB) - Held that:- When a Company issues FCCB, it incurs a liability to pay a larger amount than what is borrowed and such higher amount payable by the Company will be for the purpose of its business in order to generate funds for its business activities. The amounts so obtained are used by the Company for the purposes of its business. Hence the liability to pay the additional amount would therefore be revenue expenditure. The additional amount is nothing but an interest computed at 6.8% p.a. We are of the view that the assessee has rightly claimed the liability as expense and we allow the same. This issue of assessee’s appeal is allowed. Disallowing the expenses relatable to exempt income under section 14A - Held that:- As disallowance cannot exceed the exempt income. Respectfully, following the Hon’ble Delhi High Court in Cheminvest Ltd.[2015 (9) TMI 238 - DELHI HIGH COURT] we restrict the disallowance under section 14A at ₹ 600/- i.e. to the extent of dividend income. We direct the AO accordingly. Levy of interest under section 234B and 234D - Held that:- charging of interest under section 234B and 234D is consequential in nature and AO will charge interest as per the provisions of the Act at the time of giving appeal effect to the order of the Tribunal. As the issue is consequential, we direct the AO to charge interest as per law. TPA - appropriate interest rate applicable to the international transactions relating to advancement of interest free loan / extended credit facility to the overseas A.E - Held that:- We direct the AO to compute the disallowance by taking LIBOR rate plus 300 basis point. We direct the AO accordingly.
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