TMI Blog2013 (9) TMI 165X X X X Extracts X X X X X X X X Extracts X X X X ..... ayment - Remission of deferred sales tax liability - Held that:- the issue in appeal is admittedly covered by Special Bench decision in the case of Suizer India Ltd (2010 (11) TMI 728 - ITAT, MUMBAI), wherein it was held that, difference between the payment of net present value against the future liability credited by the assessee under the capital reserve account in its books of account is a capital receipt and cannot be termed as remission/cessation of liability and consequently no benefit has arisen to the assessee in terms of section 41(1)(a) of the Income-tax Act, 1961 - Decided in favor of assessee. Deduction u/s 80HHC - DEPB benefits - Whether entire amount received on sale of the Duty Entitlement Pass Book (DEPB) represents profit on transfer of DEPB for the purpose of the computation of deduction u/s 80HHC – Held that:- DEPB has direct nexus with the cost of imports for manufacturing an export product, any amount realized by the assessees over and above the DEPB on transfer of the DEPB would represent profit on the transfer of DEPB and while the face value of the DEPB will fall under clause (iiib) of Section 28, difference between the sale value and the face value of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... set aside and that of the Assessing Officer restored. 4. The Appellant craves leave to amend or alter any ground or add a new ground which may be necessary. Grounds of Assessee s Appeal in ITA No. 8496/MUM/2010 for A.Y. 2004-05: 1. The learned Commissioner of Income Tax (Appeals) -15 [CIT(A)] erred in upholding the order of Assessing Officer adding Rs.53,90,656 u/s.41(1) in respect of differential of sales tax liability and its actual pre-payment. Your appellant submits that the said differential between the payment of net present value against the future sales tax deferral loan amount is not liable to tax and the same is wrongly added. Your appellant further submits that the said difference does not represents the expenditure which is allowed as deduction and therefore there is no remission or cessation of the expenditure claimed earlier. Your appellant therefore submits that the above addition is wrongly made and the same ought to be deleted. 2. The learned CIT(A) erred in confirming the disallowance u/s.14A amounting to Rs 3,48,641 worked out at 5% of the exempt income. Your appellant submits that the above disallowance is wrongly made and the same ought to be dele ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e and unreasonable and same ought to be reduced substantially. 3. The learned Assessing Officer erred in disallowing additional depreciation of Rs.13,10,411 u/s.32(1)(iia) of the Act on the ground that the plant and machinery acquired before 31.3.2005 and installed after 31.3.2005 is not entitled to depreciation by holding that the asset should be acquired and installed within the same year. Your appellant submits that the additional depreciation on machinery acquired before 31.3.2005 and installed after 31.3.2005 are entitled to additional depreciation and the same ought to be granted. 4. The learned Assessing Officer erred in disallowing professional fees of Rs. 2,88,50,546 paid to KSB AG for implementation of SAP programme by treating the same as capital expenditure as against the same claimed by the appellant as revenue expenditure. Your appellant submits that the above expenditure is revenue in nature and the same ought to be allowed as claimed. Without prejudice to the above, the appellant submits that the depreciation thereon is allowable and the same ought to be allowed. 5. The learned Assessing Officer erred in making addition of Rs.1,14,196 on account of so ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... transfer pricing issue and it will cover Ground No.2 of departmental appeal for A.Y 2004-05. Ground No.1 of assessee s appeal for assessment years 2006-07 and 2007-08. 5. The assessee has filed a consolidated paper book for all these appeals in which transfer pricing study report has been furnished only in respect of assessment year 2004-05. According to transfer pricing report, copy of which has been placed on pages 77 to 100 the assessee has several international transaction with its AEs which have been listed by the assessee in Transfer Pricing (TP) report at page 100 of the paper book. These transactions in the order of TPO are 14 in number. The TPO vide his order dated 5/12/2006 has accepted the price shown by the assessee except with regard to commission paid by the assessee to its AE in Singapore, namely M/s. KSB Singapore (Asia Pacific) PTE Ltd. It was claimed by the assesse in TP Report that transaction of the assessee with its AEs are unique to each AE and are not similar to transactions with unrelated parties whether as to export or import services. In absence of comparable unrelated transactions within KSB India s overall transactions, the impugned transactions with A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... entral Government. The commission is being paid @12.50% since 1987 and the same has always been accepted. Due to efforts of AE there is a phenomenal increase in the turnover which has risen from Rs. 5.59 lacs in 1986 to Rs. 31.78 crores in 2004. In the alternative it was submitted that due weightage should be given to the extra efforts which are put in by KSB Singapore and the same should be bench marked with reference to the payments received by them from other group concerns as increased by additional efforts. Additional submissions were also made which have been reproduced in the order of TPO. The TPO after considering all these submissions has come to a conclusion that assessee has not been able to establish as to how the products of the assessee were more complex than the other goods sold by the AE of the assessee on which it has has received commission @10%. The TPO observed that there is no doubt that sales of the assessee relating to KBS Singapore have gone up but the same is the fact with the other sales made by the assessee which have similarly gone up. The AE of the assessee has also vested interest in increasing the sale to increase its income. Therefore, there is no ex ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t is further mentioned by Ld. CIT(A) that the assessee has bench marked its commission payment under TNMM by selecting safe comparables and from that it is observed that ratio of return of the assets employed by the assessee is @14.09%, which is better than result of each of the comparable companies and even after making payment on know-how fees and sale commission and treating it as item expense, the result of the assessee are better than all the companies, the average of which hovers around 10% as against assessee s average of 14.08%. The TPO did not doubt in respect of ALP of 14 international transactions but has only picked up commission payment on the ground that CUP is available. Ld. CIT(A) further observed that no valid CUP exists as controlled transaction has been used as reference point and it is not established that the extent of services provided to other group concern by the AE at Singapore is the same as that provided to the assessee. The CIT(A) has further observed that there is constant increase in export to Singapore which re-enforce assessee s case. In this manner Ld. CIT(A) has deleted the TP adjustment of Rs.63,60,732/-. 8. For assessment year 2006-07 on simila ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e transactions have been listed in the order of TPO and for the sake of convenience are reproduced below: S. No. Nature of transaction Amount (Rs.) 1. Purchases a) Purchase of finished goods for trading b) Purchase of components 2,81,48,911/- 2. Export Sales to AE 20,10,53,203/- 3. Income from services received 1,19,52,815/- 4. Commission income (Received) 1,91,38,200/- 5. Order cancellation charges (received) 1,02,125/- 6. Total charges received 84,600/- 7. Reimbursement of expenses (actual) 26,66,790/- 8. Commission paid 3,18,03,660/- 9. Royalty paid 2,00,74,971/- 10. Technical know-how acquired 7,59,248/- 11. Payments for technical and other services 12,18,578/- 12. Testing charges paid 11,26,574/- 13. Expenses repaid 4,614/- 14. Warranty charges paid 55,10,500/- Total 32,36,44,644/- Each of the above me ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... respect of the property transferred or services provided in the international transaction; Clause (e) describe TNMM method which is as under: (e) transactional net margin method, by which,- (i) the net profit margin realized 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 realized 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 realized by the enterprise and referred to in sub-clause (i) is established to be the sam ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2. In Ground No.1, the assessee has raised the following grievance: On the facts and circumstances of the case, the Id CIT(A) erred in sustaining the addition made u/s.41(1) of Rs.3,06,20,848 being the difference in the sales tax loan liability and the actual payment, representing the net present value of existing liability in respect of the same made during F.Y. 2002-03 under the sales tax 1993 package scheme of incentive. 4. Learned representatives fairly agree that the issue is now covered in favour of the assessee by Special Bench of this decision of this Tribunal in the case of Sulzer India Ltd Vs JCIT (42 SOT 457), even as Learned Departmental Representative dutifully relied upon the orders of the authorities below,. 5. In view of the fact that the issue in appeal is admittedly covered by Special Bench decision in the case of Suizer India Ltd (supra), we cannot take any other view of the matter than the view so taken by the Special Bench. Therefore, respectfully following the decision of Special Bench in the case of Suizer India Ltd(supra) , we uphold the grievance of the assessee and the assessee succeeds on this issue. 6. Ground No.6 is thus allowed. 14. In ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... respect of profit from export which are eligible for deduction u/s. 80 HHC. Therefore, he was of the opinion that the deduction u/s. 801B relatable to exports i.e 5.53% of Rs. 1,80,74,609 at Rs.9,92,600 be excluded instead of whole deduction of Rs. 1,75,11,808 allowed u/s. 801B and directed the AO to rework out the deduction u/s. 80 HHC accordingly. Aggrieved, the assessee is in appeal before us. 15. At the time of hearing, learned counsel for the assessee contends that the issue is covered in favour of the assessee by the decision of the Tribunal in assessee s own case in ITA No.5541/M/05 for the assessment year 2001-02 and also for the assessment year 2003-04. It was also submitted that later on the issue was decided against the assessee by the Tribunal in the case of ACET vs. Hindustan Mint., 315 ITR (AT) 401(SB). He also contends that now the Hon ble Jurisdictional High Court in the case of Associated Capsules Pvt Ltd. v DCIT in Income Tax Appeal No.3036 of 2010 order dated 10th January, 2011 has reversed the decision of the ITAT in the case of Hindustan Mint (supra). In view of this, he contends that the issue is now squarely covered in favour of the assesse by the decision o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 37(1) of the Act. Accordingly, after hearing both the parties we decide this ground in favour of the assessee and this ground of the revenue is dismissed. Assessee s appeal for A.Y 2006-07.: 22. Ground No.2 relates to disallowance made under section 14A of the Act. Initially disallowance was calculated by AO with reference to Rule-8D at a sum of Rs.6,20,743/-. It was submitted before Ld. DRP that Rule 8D is not retrospective as per decision of Hon ble Bombay High Court in the case of Godrej Boyce Mfg. Company Ltd vs. DCIT, 328 ITR 81(Bom). Thus it was submitted that the disallowance is on higher side. Ld. DRP has held that rational method to make disallowance will be (i) any direct expense relating to earning of exempt income; (ii) pro-rata disallowance of interest in the ratio of exempted investment and total investment. Therefore, Ld. DRP has held that it will be appropriate to disallow 0.5% of the value of the exempt asset as representing the indirect expenses. In pursuance to such directions of Ld.DRP the AO has worked out disallowance at Rs.4,99,563/-. The assessee is aggrieved, hence, has filed aforementioned ground. 23. The assessee in the present year has earne ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ngaged in the business of manufacture or production of any article or things [or in the business of generation or generation and distribution of power], a further sum equal to twenty per cent of the actual cost of such machinery or plant shall be allowed as deduction under clause (ii); 26. On the other hand, Ld. DR relied upon the order passed by A.O and Ld. DRP. 27. We have heard both the parties and their contentions have carefully been considered. In our opinion the words after the 31st day of March, 2005 have to be read with the words acquired and installed . Therefore, finding no force in the submissions of Ld. A.R as the assets admittedly have been acquired before 31/3/2005, we dismiss this ground. 28. Apropos ground No.4, the assessee is a joint venture company in which KSB AG Group of Germany is the joint venture partner. M/s. KSB Germany Group has various subsidiaries and associates in different countries and the assessee is one of the associates of the said group. According to the facts submitted by the assessee before Ld. DRP, KSB Germany Group had decided to implement SAP programme for all its subsidiaries and associates in order to synchronize and integrate ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he year under consideration, therefore, depreciation is also not allowable. As against such case of AO, it is the case of Ld. AR that these expenditure are of revenue in nature and are allowable. For this proposition Ld. AR has relied upon the decision of Hon ble Bombay High Court in the case of CIT vs. Raychem RPG Ltd. 346 ITR 138 (Bom), wherein it has been held that Tribunal was right in allowing the claim of the assessee in respect of purchase of software which did not form part of assessee s profit making apparatus. 30. On the other hand, Ld. DR relied upon the order passed by Ld. DRP and A.O. 31. We have heard both the parties and their contentions have carefully been considered. In the submissions made before Ld. DRP it has been made clear by the assessee that assessee did not purchase SAP programme. It s existing structure of software was made compatible by the KSB Germany for which an agreement was entered into between the assessee and KSB Germany, copy of which was also filed before Ld. DRP. The nature of expenditure were also given which include Travellling cost of KSB AG Consultants and External consultants for migration and Technical architecture, Interface to subsy ..... 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