TMI Blog2013 (8) TMI 332X X X X Extracts X X X X X X X X Extracts X X X X ..... and the assessee and the Micro USA had significant commercial relationship on that count, the assessee was a de facto and de jure promoter of the Micro USA – Held that:- Relying upon the decision in the case of VVF Ltd. Versus DCIT [ 2010 (1) TMI 781 - ITAT, Mumbai ] costs of funds have no relevance and it is only the rate applicable for comparable uncontrolled transaction that is to be taken into account – Decided in favor of Assessee. - IT Appeal Nos.1442, 1668, 1669 & 1762 (Ahd) of 2006, 2447, 2583 & 3453 (Ahd) of 2007, 3143 (Ahd) of 2008 and 940 (Ahd) of 2010 - - - Dated:- 6-8-2013 - Pramod Kumar And Kul Bharat , JJ. For the Appellant : Mehul K. Patel. For the Respondent : D.P. Gupta and T. Shankar. ORDER:- PER : Pramod Kumar These nine appeals pertain to the same assessee, involve some common issues, arising out of similar set of facts, and were heard together. The three assessment years involved are 2002-03, 2003-04 and 2004-05. There are six cross appeals for all these assessment years- three each by the assessee and the Assessing Officer, so far as income assessment is concerned, and there are three appeals by the Assessing Officer against the relief ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... riod 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. (Additional Ground of appeal no. 1) Assessment year 2003-04 Grievances raised by the assessee in ITA No. 1669/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.1,36,83,305/- 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 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 la ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ook at the related material facts, as also the developments leading to this litigation before us, as culled out from the material on record. The assessee before us is engaged, inter alia, in the business of manufacturing and sale of printing inks and other intermediate and allied products. The assessee claims to be, so far as its field of business is concerned, that it was ranked first in India and it was ranked sixteenth in the world, and that the assessee, thus, is a major global player in the field of printing inks and allied activities. Having achieved a leading position in the Indian market and established a presence abroad as an exporter, the assessee explored the possibilities of physical operations in its foreign markets and to strengthen its position globally. After evaluating various possible locations, and factors such product limitation (short shelf life as inks tend to dry up quickly), 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 Aust ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... details regarding the old loan and its conversion to the equity, as also regarding chargeability of interest till the conversion of loan, the assessee submitted as follows: Under the peculiar facts of the case, the loan(s) given to MIC are akin to the shareholder's funds. MIL is a new entrant in the US market and is facing a stiff competition where there are already established players in the ink products. MIC has huge accumulated losses in view of the fact that it faces tremendous competition on price front whereas its SGA expenses are on higher side. It was necessary for MIL to increase its capital support in order to provide capital base of MIC, especially considering losses incurred by MIC at material time. As such, it is necessary to consider the conversion of loan into equity and non charging 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 fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nature of an interest bearing advance and even interest was actually paid on it. It was thus, according to the TPO, wrong to claim that the amount advanced was of capital nature. Not only the amount was actually of the nature of interest bearing loan, it was intended as such. The relationship was of the borrower and lender, and, therefore, even if there was business expediency in the transaction, such a business expediency would not take the transaction outside the ambit of transfer pricing provisions. The TPO also stated that "the purpose of loan to offshore subsidiary was to enable it to establish the business, but the provisions of Section 92 would be required to be applied to attribute interest on loan to Micro Inks USA, even though there was business purpose to the transaction" . It 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 eff ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ved by the adjustments so made, assessee carried the matter in appeal before the CIT(A) but without complete success. While learned CIT(A) confirmed the addition in respect of interest free advances made by the assessee to its US based subsidiary, i.e. Micro USA, and excess credit period allowed to the same in principle, the CIT(A) restricted the rate, at which the interest was to be computed, to the rate at which international loans are available. He thus concluded that, "while confirming the addition in respect of international transactions made by the TPO on merits basis, I hereby direct the Assessing Officer to rework the addition by applying the international bank rate, i.e. the LIBOR or American rate of interest as applicable to the transaction and add the resultant 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 ins ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd of the assessee, that the assessee before us is the sole vendor of raw materials and the semi finished goods to this step down subsidiary, and the volume of these transactions is so significant that in the relevant previous years it was as high as over 90% of total exports and over 50% of its total sales. These facts are very significant because these facts not only show the factual ownership of Micro USA, these facts also show the economic dependence of Micro USA on the assessee and vice-versa. The existence of Micro USA has virtually ensured the assessee of the market of its raw materials and semi finished goods in the USA, and thus effectively have a say in ink market in that part of the world. Let us, on this factual matrix, come to the principles based on which arms 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 betwee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o far as transfer pricing provisions are concerned. 12. A coordinate bench of this Tribunal, in the case of VVF Ltd (supra), while dealing with the arm's length price adjustment to the interest free loans to the subsidiary and dealing with the contention that advances to subsidiary, for the purpose of their business, are commercially expedient in the light of Hon'ble Supreme Court's judgment in the case of SA Builders v. CIT (288 ITR 1), has inter alia observed as follows: " .................. Unless the method on the basis of which such hypothetical prices are computed is such that costs are to be taken into account, these hypothetical prices have nothing to do with the actual costs. CUP method seeks to ascertain arms length price by taking into 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e been contributed as capital originally, if it was meant to be a capital contribution". The argument of loan being in the nature of quasi capital was thus rejected on facts, though the core legal issue, i.e. whether ALP adjustments will also be warranted in case of interest free loans given as quasi capital, was left open. 15. In the case before us now, there are two important factors pertaining to this interest free loan, and both of these aspect deserve to be examined in some detail. The first important aspect of this interest free advance is that the loan is said to be in the nature of quasi capital, and it was so given because out of EEFC (Exchange Earners Foreign Currency) account, while the assessee could have given loan upto US $ 50 million, it was 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f lading date. These purchases account for the majority of the company's inventory expenditure for the year ended March 31, 2003....... Assessment year 2004-05 The company had an outstanding interest free loan payable to HIRL amounting to US$ 3,170,000 at March 31, 2003.The company also received an additional interest free loan of US $ 1,000,000 in September 2003. Pursuant to the unanimous written consent of the Board of Directors' resolution dated February 27,2004, US $ 4,160,000 of the above loan was converted into Series A Preferred Stock and the remaining US $ 10,000 was repaid to the parent in March 2004. 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 permi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s of the parent 17. As is evident from the above discussions, the relationship between the assessee and its step down subsidiary Micro USA was simply that of a lender and a borrower. Not only the Micro USA was a significant part of the marketing apparatus of the assessee, and the assessee and the Micro USA had significant commercial relationship on that count, the assessee was a de facto and de jure promoter of the Micro 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 appl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... USA so as to ensure its continued market access in USA and for other commercial reasons. This is quite unlike a typical transaction on LIBOR plus rate in which only motivation for giving advance is earning interest. Clearly, thus, LIBOR plus rate cannot be adopted in this situation for two fundamental reasons - (i) first, that it is not a simplictor financing transaction 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 m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o be reduced to zero to take care of the differences in terms of Rule 10B(1)(a)(ii) of the Income Tax Rules. The impugned ALP adjustment, to this extent and in the terms indicated above, is unsustainable in law and we delete the same. 20. The only other ALP adjustment in appeal before us is with respect to, what the authorities below have treated as, excess credit 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 fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , in the profits of the business for the purpose of granting deduction under section 80 HHC. The assessee, however, submitted that since the assessee gets a set off of the power generated in the wind farm, the assessee has to effectively pay less charges for electricity. It was thus submitted that it is only an accounting adjustment and in effect it reduces 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. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aw 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 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 th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has raised the following grievance: 2. On the facts and circumstances of the case and in law, the learned CIT(A) has erred in deleting the addition of Rs.32,998/-on account of preliminary expenses. 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 CI ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... w, 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, and that the issue regarding sale of scrap is concerned, the same in covered in favour of the assessee by decisions of the coordinate benches in assessee's own cases. As regards the last point, i.e. exchange rate difference ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 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. Assessing Officer's appeal against the CIT(A)'s order deleting penalty imposed on the assessee under section 271(1)(c) of the Income Tax Act, 1961, for the assessment year 2002-03. 67. Grievances raised by the Assessing Officer are as follows: (1) On the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... x 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/- pertaining to Daman operations, Rs.2,64,126/- pertaining to Silvassa operations and Rs.68,084/- 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. 75. Learned counsel for the assessee very fairly submits that these issues are covered against the assessee, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 to the tune of Rs.9,323/- as income from business for the purpose of computing deduction u/s. 80IB. The action of the learned Commissioner of Income Tax (Appeals) is contrary to the facts and law and deserves to be deleted. 81. Learned counsel for the assessee does not press the above grievances. Accordingly, ground nos. 6, 7 and 9 are dismissed as not pressed. 82. In ground nos. 8, the assessee has rais ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 Tax that loss from 100% Export Oriented Unit (eligible for deduction u/s. 10B of the Income Tax Act) is not eligible for set off against normal business income. The action of the learned Commissioner of Income Tax (Appeals) is contrary to provisions of law and deserves to be deleted. 89. 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 2002-03. A copy of the said order was also place ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s 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 amounting to Rs.14,06,684/- without appreciating the fact that the assessee failed to explain that the expenditure was incurred wholly, exclusively and necessarily for the business purposes. 102. So far as this grievance of the Assessing Officer is concerned, it is sufficient to take note of only a few material facts. In the course of the assessment proceedings, the Assessing Officer disallowed a part of staff welfare expenses on the ground that it pertains to tea, coffee, lunch and dinner etc at the workplace and a part of this expenditure i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... m 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 oil and petrol expenses and telephone expenses were made by the Assessing Officer, on adhoc basis. In appeal, CIT(A) has deleted the same and aggrieved by the relief so granted Assessing Officer is in appeal before us. 112. Learned representatives fairly agree that these issues are 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. 113. We see no reasons to take any other view of the matter than the view so taken ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... orward 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 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. CIT [2003] 262 ITR 278 (SC) (a) interest income - Rs.13,81,813/- (b) Sales of scrap - Rs.1,12,47,951/- (c) Foreign Exchange Rate Fluctuation- Rs.16,94,39,293/-. 119. 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 asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... k 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 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. 126. 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. 127. Ground No. 11 and 12 are also dismissed. 128. In ground no. 13, the Assessing Officer has raised the following grievance: 13. 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. 129. This issue came up for adjudication in imme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s indicated above, the appeal filed by the Assessing Officer against deletion of penalty under section 271(1)(c) by the CIT(A) stands dismissed. 137. We now move on to the assessment year 2004-05. 138. We will first take up the ITA No. 2583/Ahd/ 07, i.e. assessee's appeal against CIT(A)'s order in the matter of quantum assessment proceedings for the assessment year 2004-05. 139. Ground nos. 1 and 2 are general in nature and donot call for any adjudication as such. 140. In ground no. 3 and 4 , the assessee has raised the following grievances: 3. 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.3,58,021/- out of business development expenses pertaining to Vapi-I operations, Rs.3,96,752/- pertaining to Vapi-II operations, Rs.4,37,534/-pertaining to Daman Operations, Rs.7,74,324/- pertaining to Silvassa operations, Rs.2,99,181/- pertaining to EOU operations and Rs.850/- pertaining to Silvassa-II operations. The action of the learned Commissioner of Income Tax (Appeals) is contrary to the facts and law ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 25259 Sales of DEPB and DFRC 1084301 0 Donation refund 164797 291648 320 Insurance claim 0 3468047 0 Penalty recovered from parties 2060 3646 4 Recovery against damages 152000 0 0 Total 13316696 27850476 25583 The action of the learned Commissioner of Income Tax (Appeals) is contrary to the facts and law and deserves to be deleted. 144. 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 dealing with identical issues for preceding assessment years. The assessee will have the liberty to take up such plea as he may deem fit and the AO shall decide the matter afresh after giving a fair and reasonable opportunity of hearing to the assessee, by way of a speaking order and in accordance with the law. We order so. 145. Ground Nos. 5 and 6 are thus allowed for statistical purposes in the terms indicated above. 146. In ground no. 7, the assessee has rai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 matter of quantum assessment proceedings for the assessment year 2004-05. 155. In ground no. 1, 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 on account of Inter Division Transfer without going into the facts and circumstances of the case. 156. As far as this grievance of the Assessing Officer is concerned, learned representatives fairly agree that this issue is required to be remitted to the file of the Assessing Officer for fresh adjudication as in the earlier years dealt with by a coordinate bench of this Tribunal, in assessee's own case and vide order dated 17th June 2009. The observations made in this order shall apply mutatis mutandis for this year as well, and the said order will be deemed to be attached to and forming part of this order. 157. Ground No. 1 is thus allowed for statistical pu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent 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 taken by the coordinate bench. Respectfully following the same, we uphold the order of the CIT(A) and decline to interfere in the matter. 166. Ground No. 3 is thus dismissed. 167. In ground no. 4 and 5, 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.16,91,138 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Rs.63,44,192/-; (d) Telephone refund - Rs.6,329/-; (e) Recovery charges from shareholders - Rs.3,167/- (f) Exchange rate difference - Rs.10,49,59,937/-. On the facts and circumstances of the case and in law, the learned CIT(A) has erred in holding that the income from interest of Rs.2,45,02,175/- is eligible for deduction u/s. 80HHC without considering the fact that it has no direct or immediate nexus with the export activity of the assessee On the facts and circumstances of the case and in law, the learned CIT(A) has erred in allowing the benefit of 'netting out' without considering the fact that there are contradictory decisions on the issue of the various Tribunals and Courts. On the facts and circumstances of the case and in law, the learned CIT(A) has erred in directing not to exclude exchange rate difference of Rs.10,49,59,937/- from the profits eligible for deduction u/s. 80HHC and 80IB, though the same have no direct or immediate nexus with the export/manufacturing activity of the assessee. On the facts and circumstances of the case and in law, the learned CIT(A) has granted relief on the issue of exchange rate diff ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mstances of the case and in law, the learned CIT(A) has erred in directing not to exclude the export benefit receivable of Rs.1,89,32,354/- received by the assessee, from the manufacturing profits eligible for deduction u/s. 80IB of the Act without considering the fact that it has no direct or immediate nexus with the manufacturing activity of the assessee. 179. So far as this ground of appeal is concerned, learned representatives agree that this issue can be restored to the file of the Assessing Officer so as the matter can be decided in the light of Topman Exports decision (supra) on the question of sale of export benefits, and in the light of examining nexus of insurance receipts with the business activity. 180. Ground no. 9 is thus allowed for statistical purposes. 181. In ground no. 10, the grievance raised is as follows: 10. On the facts and circumstances of the case and in law, the learned CIT(A) has erred in holding that the excise duty and sales will not be included in the total turnover while calculating the deduction 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. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... an 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. 190. This issue came up for adjudication in immediately preceding assessment year also. Following the stand so taken, and for the detailed reasons set out earlier in this order, this grievance of the Assessing Officer is dismissed as academic. 191. Ground No. 12 is also dismissed. 192. In the result, ITA No. 2447/Ahd/ 2007, being Assessing Officer's appeal against the quantum assessment for the assessment year 2004-05 is partly allowed, in the terms indicated above. 193. The next appeal is ITA No. 940/Ahd/10, i.e. Assessing Officer's appeal against the CIT(A)'s order deleting penalty imposed on the assessee under section 271(1)(c) of the Income Tax Act, 1961, for the assessment year 2004-05. 194. Grievances raised by the Assessing Officer in this appeal are as follows: 1. On the facts and circumstances of the case and in law, the learned CIT(A) has erred in deleting the levy of penalty of Rs.69,72,472/- u/s.271(1)(c) of the Act on addition made of Rs.1,94,35,463/- on account o ..... X X X X Extracts X X X X X X X X Extracts X X X X
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