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TMI Blog2013 (8) TMI 332X X X X Extracts X X X X X X X X Extracts X X X X ..... tion of transfer pricing provisions. We will begin by taking up these issues together. 3. So far as the transfer pricing issues are concerned, the related grievances raised by the parties are as follows: Assessment year 2002-03 Grievances raised by the assessee in ITA No 1668/Ahd/2006 (a) On appreciation of the facts and circumstances of the case and law, the learned Commissioner of Income Tax (Appeals) has erred in upholding the action of the learned Assistant Commissioner of Income Tax in making upward adjustment of Rs.2,14,49,675/- to the total income of the appellant company on account of notional interest on loan given to subsidiary. The action of the learned Commissioner of Income Tax (Appeals) is contrary to the facts and law and deserves to be deleted. (b) On appreciation of the facts and circumstances of the case and law, the learned Commissioner of Income Tax (Appeals) has erred in rejecting the principal contention of the appellant company that no upward adjustment can be made on account of notional interest ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s) is contrary to the facts and law and deserves to be deleted. (c) On appreciation of the facts and circumstances of the case and law, the learned Commissioner of Income Tax (Appeals) ought to have directed the learned Assessing Officer not to make any upward adjustment to the income of the appellant company on account of determining the Arm's length price of international transactions. The action of the learned Commissioner of Income Tax (Appeals) is contrary to the facts and law and deserves to be deleted. Grounds of appeal nos. 10(a)(b) and (c) Grievances raised by the AO in ITA No. 1762/AHD/2006 On the facts and circumstances of the case and in law, the learned CIT(A) has erred in holding that the additions [i.e. adjustments] to the arm's length price of international transaction relating to interest on loan and relating to interest for excess credit period allowed ought to have been made by taking the interest rate for the purposes of addition, as LIBOR rate, or the American rate of interest. (Ground of appeal No. 13) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ickly), climatic conditions, shipping time and repackaging needs, the assessee zeroed in on US market and the Chicago area to set up its manufacturing presence outside India. It was for this purpose that the assessee, through its wholly owned subsidiary, Micro Inks GmbH, Austria (Micro GmbH Austria), set up a company by the name of Micro Inks Corporation Inc. (Micro USA, in short),incorporated in Delaware, USA. Micro USA was headquartered in Schaumburg, Illinois and had its manufacturing and warehousing facilities in Illinois. Micro Inc USA was carrying out manufacturing activities with the base material, i.e. ingredients, supplied by the assessee. During the relevant previous year relevant to the assessment year 2002-03, the assessee company sold finished goods worth Rs 216,99,39,792, and packing material samples worth Rs 1,06,635 to Micro USA. In addition to reporting the above transactions on Form 3CEB, the assessee also made following disclosure: Some guarantees/ advances have been given by the assessee which has assisted the wholly owned subsidiary (associated enterprises) to borrow funds from banks/ financial institutions. As per TP study carried out ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... harging of interest on outstanding balances of loan before conversion into equity, in the light of economic circumstances as mentioned below. Your goodself's attention is further invited to para 1.37 of the aforesaid OECD Guidelines which state that in certain circumstances it may be both appropriate and legitimate for a tax administration to consider 'substance over form' to consider all surrounding circumstances. It is further explained that one such circumstance arises where economic substance of a transaction differs from its form. In such a case, the tax administration may disregard the form and re-characterize it in accordance with its substance. An example, as given in the said Guideline, is an investment in the associated enterprise in the form of interest bearing debt, when, at arm's length, having regard to economic circumstances of the borrowing company, the investment would not be expected to be structured this way. The OECD Guidelines state that in this case, it might be appropriate for a tax administration to re-characterize the investment in accordance with its economic substance with the result that loan may be regarded as a subscription of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t was also noted that the rights and obligations of the assessee were not that of the shareholders, so far as this transaction was concerned. Since the US subsidiary was able to borrow from the market, i.e. from the banks and from Micro Inks GmbH, it could not be said that an independent lendor would not have given money to the Micro USA. The TPO further held that the assessee's contention to the effect that if at all ALP of interest was to be computed it should be LIBOR or the American bank rate was rejected on the ground that the loans by Indian banks, which were on the basis of LIBOR, were granted on the basis of security given by the assessee company and are such not comparable, and that the US interest rate would not be applicable as margins are charged by the US banks over and above the same. The TPO further concluded that since the weighted average cost of funds in the hands of the assessee is 11% p.a., as per its financial statements, the same rate of 11% p.a. should be adopted for computing arms length price of this advance as well. The TPO concluded by observing as follows: Internationally, where money is advanced on arms length terms are lent, t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ant amount to the total income on account of undercharging of prices". None of the parties is satisfied with the conclusions so arrived at by the learned CIT(A). The assessee is aggrieved of the ALP adjustments having been made to the value at which advances and sale transactions were entered into, the Assessing Officer is aggrieved that the adjustments should have been made by adopting 11% as the rate of interest instead of LIBOR or American inter bank rate being adopted. Broadly, the same was the position with respect to the subsequent two years, i.e. 2003-04 and 2004-05, even though there was a variation in the figures of transactions and the average cost of funds. In principle, however, the material facts and circumstances remained the same, and so was the stand of the Assessing Officer and the CIT(A). None of the parties is satisfied by the stand taken by the CIT(A) and both of them, i.e. the assessee as also the Assessing Officer, are in appeal before us. 9. We have heard the rival contentions at considerable length, we have meticulously gone through the material on record and we have conscientiously considered factual matrix of the case in the light of the applicable legal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rms length price adjustments are required to be made in value of an intra associate enterprise transaction. 11. In our considered view, and as was noted in the case of VVF Ltd v. DCIT (2010 TII 4 ITAT MUM TP), " on a conceptual note, the purpose of making arms length adjustments, in prices at which transactions have been entered into with associated enterprises, is to nullify the impact of interrelationship between the associated enterprises". The true test, must, therefore lie in answer to the question whether, but for interrelationship between the associated enterprises, would the assessee and its associated enterprise have entered into this transaction at this value, and when the answer is no, an appropriate adjustment to such value of the transaction is clearly warranted and justified. However, we must deal with an even more fundamental question, before we can address ourselves to this question, and that question is as to what is the type of interrelationship the impact of which is sought to be nullified by the arm's length price adjustment. Section 92 A of the Income Tax Act 1961, defines associated enterprises as "in relation to another enterprise, means an enterprise-(a) wh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o account prices at which similar transactions have been entered into by the assessee with unrelated parties (Internal CUP) or at which other unrelated parties have entered into similar transactions inter se (External CUP). None of these inputs have anything to do with the costs; they only refer to prevailing prices in similar unrelated transactions instead of adopting the prices at which the transactions have been actually entered in such cases, the hypothetical arms length prices, at which these associated enterprises, but for their relationship, would have entered into the same transaction, are taken into account. Whether the funds are advanced out of interest bearing funds or out of funds on which 14% interest is being paid, or whether such interest free advances are commercially expedient for the assessee or not, is wholly irrelevant in this context. The transaction in the present case is of lending money, in foreign currencies, to its foreign subsidiaries ............. " 13. In VVF's case, the commercial expediency in advancing interest free loans was on account of ownership and control of subsidiary being in the hands of the assessee, which was recognized, in SA Builders ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s not open to the assessee to subscribe to the equity capital without the permission of the Reserve Bank of India. There was thus, unlike the case of Perot Systems (supra) discussed above, indeed a technical problem in subscribing to the capital directly. It is also important to note that immediately upon obtaining the permission of the Reserve Bank of India, which assessee did obtain at later stages, the advances were converted into shares. Except for an amount of US $ 10,000, entire advances received by the step down subsidiary were converted into shares. It is also not in dispute that when RBI permission to convert loan into equity was sought it was sought effective from the date on which remittance was made. The second very important aspect of this interest free loan is this. In the present case, the entity receiving the interest free advances is not only a wholly owned subsidiary of the assessee company but is also playing a very significant role in its sale and distribution chain inasmuch as the assessee is sole vendor to the said concern so far as sales of raw material and semi finished goods is concerned, and it has a significant volume of transaction at almost 50% of entir ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nbsp; The company purchased approximately US $ 34.13 million and US$ 40.12 million of materials from HIRL for the year ended March 31, 2004 and 2003 respectively. The company pays HIRL for these materials 165 days from the bill of lading date. These purchases account for the majority of the company's inventory expenditure for the year ended March 31, 2004 and 2003 respectively. . 16. It is also important to bear in mind the fact that at the relevant point of time the assessee could not have invested in the shares of the step down subsidiary, without the permission of the Reserve Bank of India - as is uncontroverted stand of the assessee, and, therefore, the assessee could not also have, without the permission of the Reserve Bank of India, entered into loan agreements with a provision of conversion of such loans equity either. It is only elementary legal position that what could not have been done directly could not have done indirectly also. There is thus not much of a merit in the stand of the revenue authorities that in the absence of a specific mention about conversion of loan into equity, it cannot be presumed that the interest free loans could not have been ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... USA. In the light of this undisputed position, and in the light of the admitted position that, even as per revenue authorities, the transaction is at best for advance of money by holding to step down subsidiary, let us examine the correctness of the arm's length price adjustment in this case. In such a case, CUP method can be applied and the LIBOR or other bank rate linked rate is generally taken as a rate for comparable uncontrolled transaction. As has been held in a large number of cases, including in VVF (supra) and Perot Systems (supra), in the cases of arm's length prices of loans and advances, costs of funds have no relevance and it is only the rate applicable for comparable uncontrolled transaction that is to be taken into account. However, even while applying CUP method, one has to bear in mind the fact that in terms of Rule 10B (1) computation of ALP under the CUP method is a three step process which requires that (i) the price charged or paid for property transferred or services provided in a comparable uncontrolled transaction, or a number of such transactions, is identified; (ii) such price is adjusted to account for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ansaction between the assessee and Micro USA, as it is a transaction of investing in a step down subsidiary as quasi capital pending formal capital subscription with the approval of Reserve Bank of India; and (ii) second, that it is not a case of granting advance to a business concern without significant and decisive commercial considerations, as the monies are given for strengthening assessee's marketing apparatus in US and to keep alive its biggest exports customer. There is a difference in the nature of transaction and there is also a difference in the nature of the enterprises, including their inter se commercial relationship, entering into this transaction. The differences are so fundamental that these differences, to use the phraseology employed in Rule 10 B (1)(a)(ii), "could materially affect the price in the open market". On account of these peculiar factors, the application of LIBOR plus rate or, for that purpose, any bank rate will be inappropriate to this case. 19. The next logical question, therefore, is as to what would be the price at which such interest free advances could be given in comparable uncontrolled transactions. In other words, in case the assessee and th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t period allowed to Micro USA. This adjustment must be deleted for the short reason that it was part of the arrangement that specified credit period was allowed and thus the cost of funds blocked in the credit period was inbuilt in the sale price. There is no dispute that similar products are not sold to any other concern, at same price or even any other price, and interest is levied on the similar credit period allowed to those independent parties but not to Micro USA. The question of excess credit period arises only when there is a standard credit period for the product sold at the same price and the credit period allowed to the associated enterprises is more than the credit period allowed to independent enterprises. That is not the case here. The credit period for finished goods cannot be compared with credit period for unfinished goods and raw materials, and in any case, when products are not the same, there cannot be any question of prices being the same. Unless the prices of the product and the product are the same, and yet extra credit period is allowed, there cannot be any occasion for making ALP adjustment on the basis of the excess credit period. None of the authorities b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... duces the electricity costs. The Assessing Officer rejected this explanation and observed that since this income is not generated from the export activity, there is no good reason to include the same in profits of the business. Aggrieved, assessee carried the matter in appeal before the CIT(A) but without any success. The assessee is not satisfied and is in further appeal before us. 27. Having heard the rival contentions and having perused the material on record, we see no reasons to disturb the findings of the authorities below. The income from windmill, whatever be the format of its credit or set off being given, is not related to the activity of exports. It was thus rightly excluded from profits of the business. We approve and affirm the conclusions arrived at by the CIT(A) and decline to interfere in the matter. 28. Ground No. 3 is dismissed. 29. In ground nos. 4, 5 and 6, the assessee has raised the following grievances: 4. On appreciation of the facts and circumstances of the case and law, the learned Commissioner of Income Tax (Appeals) has erred in confirming the action of the learned Assistant Commissioner of Income Tax, excluding miscellaneous incom ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on account of notional interest charged on excess credit period allowed to its customers. The action of the learned Commissioner of Income Tax (Appeals) is contrary to the facts and law and deserves to be deleted. (c) On appreciation of the facts and circumstances of the case and law, the learned Commissioner of Income Tax (Appeals) ought to have directed the learned Assessing Officer not to make any upward adjustment to the income of the appellant company on account of determining the Arm's length price of international transactions. The action of the learned Commissioner of Income Tax (Appeals) is contrary to the facts and law and deserves to be deleted. 32. In terms of the discussions earlier in this order, and for the detailed reasons set out therein, this ground is allowed. 33. In ground no. 8, the assessee has raised the following grievance: On appreciation of the facts and circumstances of the case and law, the learned Commissioner of Income Tax (Appeals) has erred in upholding the action of the learned Assistant Commissioner of Income Tax that loss from 100% Export Oriented Unit (eligible for deduction u/s. 10B of the I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 3. On the facts and circumstances of the case and in law, the learned CIT(A) has erred in deleting the addition of Rs.13,84,284/- on account of oil and petrol expenses without considering the fact that the assessee failed to file the log book to establish that the vehicles were used for business purposes and it failed to substantiate its claim that the expenditure was incurred wholly, necessarily and exclusively for the business of the assessee, since part of the disallowance was made by it voluntarily. 4. On the facts and circumstances of the case and in law, the learned CIT(A) has erred in deleting the disallowance of Rs.58,000/- made out of the telephone expenses without considering the fact of possibility of use of telephones by the directors and employees of the company for non-business purposes and ignoring the fact that the assessee itself has disallowed Rs.42,000/- on this count. 5. On the facts and circumstances of the case and in law, the learned CIT(A) has erred in holding that the payments of PF and ESIC amounting to Rs.1,26,67,014/- made before filing the return are eligible for deduction wit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... p; On the facts and circumstances of the case and in law, the learned CIT(A) has erred in directing not to exclude the following amounts from the manufacturing profits eligible for deduction u/s. 80IB, though the same have no direct or immediate nexus with the manufacturing activity of the assessee as per ratio laid down by the Hon'ble Apex Court in the cases CIT v. Sterling Foods [1999] 237 ITR 579 and Pandian Chemicals v. CXIT [2003] 262 ITR 278 (SC) (a) interest income to Rs.3,69,365/- (b) Sale of scrap - Rs.75,22,493/- (c) Sale W/Off - Rs.694/- (d) Exchange Rate Difference of Rs.1,10,54,713/-. 52. As far as these grievances are concerned, learned counsel for the assessee conceded the point with regard to sales write off, at item (c) above. Learned representatives also agreed that so far as interest income is concerned, consistent with the stand taken by the coordinate benches in assessee's own case for the earlier assessment years, the netting is required to be done, a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ine to interfere in the matter. 60. Ground No. 10 is also dismissed. 61. Ground No. 11 and 12 were dismissed as not pressed. 62. The Assessing Officer has also taken an additional ground of appeal which is as follows: On the facts and in the circumstances of the case and in law, the learned CIT(A) has erred in holding that the additions (i.e. the adjustments) to the arm's length price of international transaction relating to interest on loan and relating to interest for excess credit period allowed ought to have been made by taking the interest rate for the purpose of additions, as LIBOR rate, or the American rate of interest. 63. While the ground of appeal is admitted as it is a purely legal issue on the undisputed facts, in view of the discussions earlier in this order, and for the details reasons so set out, this grievance of the Assessing Officer is dismissed. 64. The additional ground of appeal is also dismissed. 65. In the result, ITA No. 1442/Ahd/ 2006, being Assessing Officer's appeal against the quantum assessment for the assessment year 2002-03 is partly allowed, in the terms indicated above. 66. The next appeal is ITA No. 3453/Ahd/07, i.e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dismissed as not pressed. 74. In ground nos. 3 and 4, the assessee has raised the following grievances: On appreciation of the facts and circumstances of the case and law, the learned Commissioner of Income Tax (Appeals) has erred in confirming the action of the learned Assistant Commissioner of Income Tax in making addition of Rs.75,966/-out of ROC fees paid by the appellant company for increasing its authorized share capital pertaining to Vapi-I operations, Rs.1,72,618/- pertaining to Vapi-II operations, Rs.1,28,643/- pertaining to Daman operations, Rs.2,63,356/- pertaining to Silvassa operations and Rs.1,09,918/- pertaining to EOU operations. The action of the learned Commissioner of Income Tax (Appeals) is contrary to the facts and law and deserves to be deleted. On appreciation of the facts and circumstances of the case and law, the learned Commissioner of Income Tax (Appeals) has erred in confirming the action of the learned Assistant Commissioner of Income Tax in disallowing Rs.47,054/- out of business development expenses pertaining to Vapi-I operations, Rs.1,06,922/- pertaining to Vapi-II operations, Rs.79,683/- pertaini ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ndicated above. 80. In ground no. 6, 7 and 9, the assessee has raised the following grievances 6. On appreciation of the facts and circumstances of the case and law, the learned Commissioner of Income Tax (Appeals) has erred in confirming the action of the learned Assistant Commissioner of Income Tax in not considering other income to the tune of Rs.9,323/- as income from business for the purpose of computing deduction u/s.80HHC. The action of the learned Commissioner of Income Tax (Appeals) is contrary to the facts and law and deserves to be deleted. 7. On appreciation of the facts and circumstances of the case and law, the learned Commissioner of Income Tax (Appeals) has erred in confirming the action of the learned Assistant Commissioner of Income Tax of not granting deduction to the appellant company u/s. 80HHC of the income tax Act correctly as per provisions of law. 9. On appreciation of the facts and circumstances of the case and law, the learned Commissioner of Income Tax (Appeals) has erred in confirming the action of learned Assistant Commissioner of Income Tax in not considering other income t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... customers. The action of the learned Commissioner of Income Tax (Appeals) is contrary to the facts and law and deserves to be deleted. 10(c) On appreciation of the facts and circumstances of the case and law, the learned Commissioner of Income Tax (Appeals) ought to have directed the learned Assessing Officer not to make any upward adjustment to the income of the appellant company on account of determining the Arm's length price of international transactions. The action of the learned Commissioner of Income Tax (Appeals) is contrary to the facts and law and deserves to be deleted. 86. Vide our observations earlier in this order and for the detailed reasons set out therein, these grievances are upheld and the Assessing Officer is required to give relief, in the terms set out, earlier in this order. 87. Ground No. 10 is thus allowed in the terms indicated above. 88. In ground no. 11, the assessee has raised the following grievance: On appreciation of the facts and circumstances of the case and law, the learned Commissioner of Income Tax (Appeals) has erred in upholding the action of the learned Assistant Commissioner of Income Ta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... capital in nature. 98. The short reason for which this disallowance was made was because in the accounts this expenditure was described to have been incurred for "Layout drawing of factory building" in the accounts, and, as such, the amount was capital expenditure in nature. In appeal, learned CIT(A) deleted the disallowance and observed that the reasons for holding that it was capital expenditure were not sustainable in law. The Assessing Officer is aggrieved and is in appeal before us. 99. Having heard the rival contentions and having perused the material on record, we see no reasons to disturb the relief granted by the CIT(A). The mere fact that the payment is made for drawing layout in respect of a capital asset, by itself, cannot be reason enough to hold that it is capital expenditure in nature. The CIT(A) was thus quite justified in granting the impugned relief, and we confirm the same. 100. Ground No. 2 is thus dismissed. 101. In ground no. 3, the Assessing Officer has raised the following grievance: On the facts and circumstances of the case and in law, the learned CIT(A) has erred in deleting the addition on account of staff welfare expenses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the same, we uphold the order of the CIT(A) and decline to interfere in the matter. 109. Ground No. 4 is thus dismissed. 110. In ground no. 5 and 6, the Assessing Officer has raised the following grievance: 5. On the facts and circumstances of the case and in law, the learned CIT(A) has erred in deleting the addition of Rs.15,57,308/- on account of oil and petrol expenses without considering the fact that the assessee failed to file the log book to establish that the vehicles were used for business purposes and it failed to substantiate its claim that the expenditure was incurred wholly, necessarily an exclusively for the business of the assessee, since part of the disallowance was made by it voluntarily. 6. On the facts and circumstances of the case and in law, the learned CIT(A) has erred in deleting the disallowance of Rs.58,000/- made out of the telephone expenses without considering the fact of possibility of use of telephones by the directors and employees of the company for non-business purposes and ignoring the fact that the assessee itself has disallowed Rs.42,000/- on this count. 111. The impugned disallowance out of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ; On the facts and circumstances of the case and in law, the learned CIT(A) has granted relief on the issue of exchange rate difference without appreciating the fact that the gain on exchange difference is nothing but speculation profit and not related to the business of the assessee. The ld. CIT(A) failed to appreciate that the assessee enters into a forward contract as in this case, the assessee stands to benefit by the fluctuations in foreign exchange irrespective of the fact whether the trade agreement exists or not. On the facts and circumstances of the case and in law, the learned CIT(A) has erred in allowing deduction u/s. 80HHC on foreign exchange gains which include gains from forward contract in foreign exchange. The profit on forward contract is not related to export business and profit is earned only by fluctuation in foreign currency on a given date on a forward contract and are therefore independent/speculation receipts not forming part of export turnover. 9. On the facts and circumstances of the case and in law, the learned CIT(A) has erred in directing not to exclude the follow ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t's judgment in the case of Topman Exports v. CIT (342 ITR 49). 123. Ground No. 10 is thus allowed for statistical purposes in the terms indicated above. 124. In ground no. 11 and 12, the Assessing Officer has raised the following grievances: 11. On the facts and circumstances of the case and in law, the learned CIT(A) has erred in holding that excise duty and sales will not be included in the total turnover while calculating the deducting u/s. 80HHC of the Act without considering the fact that the issue in question is yet to be decided by the Highest Court of the Land. 12. On the facts and circumstances of the case and in law, the learned CIT(A) has erred in deleting the addition made to the book profit u/s. 115JB in respect of loss of Rs.14,08,476/- incurred on Wind Farm Project without appreciating the fact that the profit includes loss and in fact loss are negative profit and hence such loss is to be added while working the book profit u/s. 115JB of the Act. 125. Learned representatives agree that these issues are also covered, in favour of the assessee, by order of a coordinate bench, in assessee's own case for the assessm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s reduced its taxable income for the year and thereby concealed the income. 3. It is, therefore, prayed that the order of the learned CIT(A) be set aside and that the order of the AO be restored. 134. In view of the fact that, as earlier in the order, the quantum addition itself is deleted, the very foundation for the impugned penalty ceases to hold good in law. The penalty must stand deleted for this short reason alone. Accordingly, we confirm the conclusions arrived at by the CIT(A) and decline to interfere in the matter. Even as we do so, since the related quantum addition itself is deleted, we see no need to address ourselves to the reasoning adopted in the orders of the authorities below. With these observations, grievances of the Assessing Officer stand rejected. 135. In the result, ITA No. 3143/Ahd/08 is dismissed. 136. To sum up, so far as assessment year 2003-04 is also concerned, while cross appeals filed by the assessee and the Assessing Officer in the quantum assessment are partly allowed in the terms indicated above, the appeal filed by the Assessing Officer against deletion of penalty under section 271(1)(c) by th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... p; Silvassa Daman Others Income from wind mill 0 0 291700 Commission received 23002834 12997839 18209154 Sales of DEPB and DFRC 1084301 4046665 Donation refund 291648 164797 230870 Insurance claim 3468047 0 117869 Penalty recovered from parties 3646 2060 2886 Recovery against damages 0 152000 5750 Total 27850476 13316696 22904894 The action of the learned Commissioner of Income Tax (Appeals) is contrary to the facts and law and deserves to be deleted. 6. On appreciation of the facts and circumstances of the case and law, the learned Commissioner of Income Tax (Appeals) has erred in confirming the action of the learned Assistant Commissioner of Income Tax of excluding following items of income while granting deduction u/s. 80IB:- Daman Silvassa Silvassa-II Commission received 12997839 23002834 25259 Sales of DEPB and DFRC 1084301 0 Donation refund 164797 291648 320 Insurance claim 0 3468047 0 Penalty recovered from parties 2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for statistical purposes in the terms indicated above. 150. In ground no. 8, the assessee has raised the following grievance: On appreciation of the facts and circumstances of the case and law, the learned Commissioner of Income Tax (Appeals) has erred in upholding the action of the learned Assistant Commissioner of Income Tax in making upward adjustment of Rs.1,94,35,463/- to the total income of the appellant company on account of determining the arm's length price of the international transactions. The action of the learned Commissioner of Income Tax (Appeals) is contrary to the facts and law and deserves to be deleted. 151. In view of the decision on this issue in the immediately preceding assessment years, and for the detailed reasons set out earlier in this order, we uphold the grievance of the assessee in the manner indicated earlier in this order. The observations so made will apply mutatis mutandis for this assessment year as well. 152. Ground no. 8 is thus allowed. 153. In the result, ITA No. 2583/Ahd/07 is partly allowed as indicated above. 154. We now take up ITA No. 2447/Ahd/07, i.e. Assessing Officer's appeal against CIT(A)'s order in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tified in granting the impugned relief and we approve the same. 161. Ground No. 2 is thus dismissed. 162. In ground no. 3, the Assessing Officer has raised the following grievance : On the facts and circumstances of the case and in law, the learned CIT(A) has erred in deleting the addition on account of foreign travelling expenses amounting to Rs.16,91,138 without appreciating the fact that the assessee failed to substantiate its claim that the expenditure was incurred wholly, exclusively and necessarily for the purposes purpose. 163. The impugned disallowance out of foreign travel expenses was made by the Assessing Officer, on adhoc basis, at one fifth of the expenses. In appeal, CIT(A) has deleted the same and aggrieved by the relief so granted Assessing Officer is in appeal before us. 164. Learned representatives fairly agree that this issue is covered, in favour of the assessee, by order dated 17th July 2009, in assessee's own case for the assessment year 1999-2000, even as learned Departmental Representative dutifully relied upon the orders of the authorities below. 165. We see no reasons to take any other view of the matter than the view so take ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ective Acts for the said payment is 15th and 21st of each month. 173. There is no dispute that the amounts are paid well before the due date of filing of return of income. In this view of the matter, and respectfully following the stand taken by the coordinate benches in following Hon'ble Supreme Court's judgments in the cases of Vinay Cement v. CIT (213 CTR 268) and CIT v. Alom Extrusions Ltd. (319 ITR 306), we approve the relief granted by the CIT(A) and decline to interfere in the matter. 174. Ground No. 6 is also dismissed. 175. In ground nos. 7 and 8, following grievances have been raised: 7. On the facts and circumstances of the case and in law, the learned CIT(A) has erred in directing not to exclude 90% the following amounts from the profits eligible for deduction u/s. 80HHC, though the same have no direct or immediate nexus with the export activity of the assessee : (a) Interest income - Rs.2,45,02,175/-; (b) Sales of Scrap - Rs.1,43,88,881/-; (c) Reversal of Provisions - Rs.63,44,192/ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the following amounts from the manufacturing profits eligible for deduction u/s. 80IB, though the same have no direct or immediate nexus with the manufacturing activity of the assessee as per ratio laid down by the Hon'ble Apex Court in the cases CIT v. Sterling Foods [1999] 237 ITR 579 and Pandian Chemicals v. CXIT [2003] 262 ITR 278 (SC) (a) interest income - Rs.2,45,02,175/- (b) Sales of scrap - Rs.1,43,88,881/- (c) Reversal of provisions -Rs.63,44,192/-; (d) Telephone refund - Rs.6,329/-; (e) Recovery of charges from shareholders-Rs.3,167/-; (f) Exchange Rate Difference - Rs.10,49,59,937/-. 176. So far as the above issues are concerned, as learned representatives agree, that the matter can be restored to the file of the Assessing Officer for fresh decision in the light of the observations made by us while dealing with identical issues for preceding assessment years. The assessee wil ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed to be attached to and forming part of this order as well. 183. We see no reasons to take any other view of the matter than the view so taken by the coordinate bench in assessee's own case. Respectfully following the same, we approve the conclusions arrived at by the CIT(A) and decline to interfere in the matter. 184. Ground No. 10 is also dismissed. 185. In ground no. 11, the Assessing Officer has raised the following grievance: On the facts and circumstances of the case and in law, the learned CIT(A) has erred in deleting the addition made to the book profit u/s. 115JB in respect of loss of Rs.17,08,344/-incurred on Wind Farm Project without appreciating the fact that profit includes loss and in fact loss are negative profit and hence such loss is to be added while working the book profit u/s. 115JB of the Act. 186. Learned representatives agree that this issue is also covered, in favour of the assessee, by order of a coordinate bench, in assessee's own case for the assessment year 1998-99. A copy of the said order was also placed before us, and is deemed to be attached to and forming part of this order as well. 187. We see no reasons to take any ..... X X X X Extracts X X X X X X X X Extracts X X X X
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