TMI Blog2013 (11) TMI 1239X X X X Extracts X X X X X X X X Extracts X X X X ..... r of assessee. Transfer Pricing Adjustment (TPA) - determination of ALP - transactional net margin method - selection of comparable - held that:- fresh transfer pricing study can be conducted by the TPO and in view of the provisions of Rule 10B(4) of Income Tax Rules the data of the relevant year is to be considered for finding the comparables which in turn stand the test of FAR analysis. However, it is the requirement of law that the assessee should be confronted with the said data in order to rebut the new comparables selected by the TPO and also to pinpoint as to why such data should not be used against the assessee. - Decided partly in favor of assessee Business loss - 'export incentive' written off in the Profit & Loss Account. - assessee contended that the same was offered for tax in the earlier years - The case of the revenue is that recovery of the said amount had not crystallized during the year under consideration and the said write off was premature as the issue was still pending for consideration before the Ministry of Commerce. - Held that:- The assessee had written off the export incentives totalling Rs. 76,14,696/- in the financial year 2005-06 i.e. even befor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the appellant on its entire borrowings for the purposes of its business. 2. On the facts and circumstances of the case of the case and in law the Ld. CIT(A) has erred in allowing the relief to the enhancement of the returned income due to determination of the arm's length adjustment with regard to the Appellant's international transactions from Associated Enterprises. 3. The appellant craves to add or amend any ground any grounds of appeal before the appeal is heard or disposed off. 4. It is prayed that the order of the Ld. CIT(A) be cancelled and that of the Assessing Officer may be restored. 4. The issue in Ground No. 1 raised by the Revenue is against the disallowance of interest expenditure. 5. The brief facts relating to the issue are that the Assessing Officer during the course of assessment proceedings noted that the assessee had advanced Rs. 59,55,74,465/- to M/s Hindustan Max G.B. Ltd., a joint venture company of the assessee. The assessee was show caused as to why addition on account of interest due on the said advances should not be made in the hands of the assessee. The explanation of the assessee was that the said advances were made to M/s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oan of the earlier years was brought forward. It was stressed by the learned A.R. for the assessee that no addition is warranted during the year because of the same reasoning as before the Tribunal in assessment years 2003-04 and 2004-05. The learned A.R. for the assessee also clarified that the said company was going for winding up. 9. We have heard the rival contentions and perused the record. The issue arising in the appeal filed by the Revenue is in relation to the interest chargeable on the advances made by the assessee in the earlier years. During the year under consideration a sum of Rs. 59.55 crores was due from M/s Hindustan Max G.B. Ltd., which was joint venture company promoted by the assessee company. The assessee had advanced the said amount to M/s Hindustan Max G.B. Ltd. against supply of raw material, and was carrying interest @ 16.5% per annum. However, because of the financial constraints, M/s Hindustan Max G.B. Ltd. moved an application before the BIFR for winding up and thereafter no interest was earned on the said loan. The assessee while filing the return of income had not recognized the interest due on the said advances made by it in the earlier years. As pe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e before the Tribunal in assessee's own case relating to assessment years 2003-04 and 2004-05. Admittedly, the assessee had paid interest on the borrowings made from its parent company in the earlier years and no fresh borrowings had been made during the year under consideration. The interest expenditure had been allowed in the hands of the assessee from year to year. Further the advances to M/s Hindustan Max G.B. Ltd. were also made in the earlier years and the balance is brought forward from the preceding year on which in the earlier years the assessee was charging interest. However, the interest on the said loan had not been recognized during the year under consideration as M/s Hindustan Max G.B. Ltd. had gone before the BIFR because of financial constraint. In the above said circumstances, we find no merit in the order of the Assessing Officer and upholding the order of the CIT (Appeals) we dismiss Ground No. 1 raised by the Revenue. 12. The issue in Ground No. 2 raised by the Revenue is in relation to Transfer Pricing Adjustment which shall be dealt with alongwith the issue raised by the assessee in its appeal on account of Transfer Pricing. ITA No.1395/Chd/2010 :: Assesse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 846/- was made on this account. 17. The CIT (Appeals) upheld the order of the Assessing Officer. 18. The assessee is in appeal against the same. The learned A.R. for the assessee pointed out that the nature of the expenditure was the tax on salary of foreign expatriate wherein the salary was paid up to December, 2003. However, certain information required for computing the final tax liability of the said foreign employee was available to the assessee in April, 2004 only. Hence, the final tax liability of Rs. 13,74,846/- was paid in April, 2004. The learned A.R. for the assessee pointed out that as per Note-7 annexed to the computation of income filed by the assessee for the year under consideration, the break down of prior period expenses was furnished in which it was reported that in April, 2004, the final tax liability was determined and paid in respect of the foreign expatriate and the same does accrue in the captioned assessment year. 19. The learned D.R. for the Revenue pointed out that the expenditure pertained to the preceding year, but booked during the year under consideration. The learned D.R. for the Revenue pointed out that the assessee was following mercantile sy ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed as a deduction in the year under consideration. Thus we direct the Assessing Officer to delete the addition of Rs. 13,74,846/-. The Ground No. 2.1 raised by the assessee is thus allowed. 21. The issue in ground No. 2.3 raised by the assessee and ground No. 2 raised by the Revenue are in relation to determination of arms' length price of the international transaction entered into by the assessee. 22. The brief facts of the case relating to the issue are that the DCIT, Circle-I, Chandigarh vide letter dated 10.9.2007 had referred certain international transactions under section 92CA(1) of the Act to the JCIT, Transfer Pricing, Chandigarh. The list of international transactions so referred with the associated enterprises are tabulated under para 2 of the order passed under section 92CA(3) of the Act. The assessee was engaged in the processing of the intermediaries and bulk drugs. The manufacturing unit of the assessee was located at Toansa village, Chandigarh. The basic raw material used by the assessee in its manufacturing activity was penicillin G (in short referred to as Pen G). The said raw material was mainly imported from DSN Anti-Investives B.V., The Netherland and ZGB C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2008, as to why fresh transfer pricing analysis should not be done. A list of comparables was confronted to the assessee by the TPO. The said companies were selected on the basis of usage of Pen-G and the data of financial year 2004-05 was considered. The assessee vide letter dated 13-10-2008 explained why the companies selected by the TPO should not be taken as comparables. The reply of the assessee is incorporated under para 6.4 at pages 12 and 13 of the transfer pricing order. After considering the submissions of the assessee the TPO applied provisions of Rule 10B(4) of the Income-tax Rules, which prescribe that for the purposes of benchmarking international transaction the data of comparables used would be the data for the year in which international transaction took place and more commonly known as contemporaneous date. Further reliance was placed on the decision of the Special Bench of Bangalore Tribunal in the case of Aztec Software Technology Services Ltd. v. Asstt. CIT 107 ITD 141 and the Delhi Bench of Income-tax Appellate Tribunal in the case of Mentor Graphics (Noida) (P.) Ltd. v. Dy. CIT [2007] 109 ITD 101 which stipulated that the comparability analysis is to be con ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rejection of the comparables on insignificant use of Pen-G and also considering the proportion of trading sale in the case of two comparables filters chosen by the TPO, determined the arms' length price on the basis of operating profits over sales ratio at (-)1.64%. The ground of appeal raised by the assessee was thus partly allowed by the CIT (Appeals). 25. Both the assessee and the Revenue are in appeal before us against the said directions of the CIT (Appeals) relating to assessment year 2005-06. 26. The learned A.R. for the assessee pointed out that for doing the analysis of transfer price profit with associated enterprises, the transactional net margin method was used with operating profit over sales ratio as profit level indicator. It was fairly admitted by the learned A.R. for the assessee that the TPO had also applied the said method while determining the arms' length price in respect of international transaction. He further contended that the six comparables selected by the assessee were rejected by the TPO, who in turn selected five comparables and after the objection of the assessee, the TPO restricted it to three companies. Our attention was drawn to the written su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Revenue that the data base was used to select the comparables and these are just tools to apply to many companies. However, filters are then to be applied to choose best comparable in order to compute arms' length price for international transaction. The learned D.R. for the Revenue pointed out that the assessee was a manufacturing company. So the first filter was to ignore the trading companies. One filter which was used both by the assessee and the TPO was the use of Pen-G, which was an accepted filter. Our attention was drawn to the report of the TPO at page 95 which talks about the nature of the assessee's business, under which it had been commented that the Pen-G was the critical raw material. The learned D.R. for the Revenue fairly admitted that Pen-G utilization was the filter used by both the assessee and the TPO. However, no threshold limit of utilization of Pen-G was defined. It was further pointed out by the learned D.R. for the Revenue that the Torrent and Standard both should be excluded as comparable and one comparable can be used to determine the arms' length price where selection process is such. Reliance was placed in Haworth (India) (P.) Ltd. v. Dy. CIT 131 I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for the Revenue pointed out the assessee had not applied filter of RPT and this year the Assessing Officer applied filter of more than 10% i.e. companies with RPT of more than 10% on sales turnover were to be rejected. However, as per the learned D.R. for the Revenue, the said filter was incorrect and benchmarking of 25% RPT filter should be applied and consequently the results of Aurobindo Pharma Ltd. should be used. The learned D.R. for the Revenue fairly admitted that after Standard Pharmaceuticals Ltd. with low utilization of Pen-G is ignored last year the same should be ignored during this year also. It was further contended by the learned D.R. for the Revenue that Aurobindo Pharma Ltd. was one of the comparables selected by the assessee then the same should be applied. Our attention was also drawn to the written submissions on the working capital adjustment and it was pointed out that the calculation have to be checked in this regard. 30. The learned A.R. for the assessee in the rejoinder pointed out that in case filter had to be changed then the same facts relating to the filter should be applied and in view thereof Aurobindo Pharma Ltd. is to be excluded while determining ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e deduction under section 10A, 10AA, 10B or under Chapter-VI-A of the Act. The assessee filed the objection under section 144C of the Act before the Dispute Resolution Panel-I, New Delhi, which upheld the order of the TPO. The Assessing Officer in the order passed under section 144C(13) r.w.s. 143(3) of the Act made the aforesaid addition against which the assessee has filed direct appeal before the Tribunal. 32. Admittedly the issue raised in the assessment years 2005-06 and 2006-07 against determination of arms' length price of international transaction is identical, so we proceed to decide the said issue by this consolidated finding after referring to the facts of both the captioned assessment years. 33. We have heard the rival contentions and perused the record. The assessee is a wholly owned subsidiary of GB International BV, The Netherlands. During the year under consideration the assessee was engaged in manufacturing/processing of intermediates and bulk drugs. The assessee was using Pen-G as basic raw material in its manufacturing activities, which in turn was imported from DSM Anti-Investives BV, The Netherland and 2GB China. During the years under consideration the ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l year 2004-05 were rejected. Companies predominantly engaged in trading activity were rejected. Companies having negative net worth were rejected. 35. In assessment year 2006-07 the TPO also conducted fresh search applying the following filters: Only companies using Penicillin-G as raw material selected Companies having no data for the financial year 2005-06 rejected Companies engaged in trading activity rejected Companies having negative net worth rejected Companies with sales turnover exceeding Rs. 1 Crores selected Companies with related party transactions ('RPT) 10% of sales turnover rejected. 36. As a result of the search conducted, the TPO selected following comparable companies in assessment year 2005-06: (a) Aurobindo Pharma Limited. (b) Nectar Life Sciences Limited. (c) Standard Pharmaceuticals Limited. (d) Vysali Pharmaceuticals Limited. (e) Wyeth Limited. 37. The TPO selected following two additional companies as comparables in assessment year 2006-07: Nectar Life Sciences Ltd; Standard Pharmaceuticals Ltd. 38. While selecting the above ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion rejected Nector Life Sciences Ltd. due to related party transaction being greater than 10% of sales. 44. The CIT (Appeals) against the order passed by the Assessing Officer adopting the report of the TPO in assessment year 2005-06 rejected the company Standard Pharmaceuticals Ltd. which was using Pen-G as only 4.23% of the total raw material. The second comparable Aurobindo Pharma Ltd. was also rejected as the assessee had significant related party transaction with the said concern. The CIT (Appeals) applied one comparables to compute arms' length price. The assessee is aggrieved by application of only one comparable to determine arms' length price in relation to international transaction entered upon by the assessee. 45. The second contention of the assessee before the CIT (Appeals) was that Standard Pharmaceuticals Ltd. had significant trading sales and the same should be rejected in view of the filters selected by the TPO. Since the CIT (Appeals) had rejected both the companies due to low percentage of Pen-G and related party transaction, the same was not considered for the purpose of benchmarking. Further it was also held by the CIT (Appeals) that the approach of the as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ilable then in such circumstances the data most appropriate of the preceding year should be used. We find that similar issue of user of current year data in view of the provisions of Rule 10B(4) of the Income-tax Rules arose before the Delhi Bench of the Tribunal in Actis Advisers (P.) Ltd. v. Dy. CIT [IT Appeal Nos. 5277 (Delhi) of 2011 958 (Delhi) of 2012, dated 12-10-2012] and it was held as under: "+ a bare perusal of this rule [10B(4)] would reveal that expression "shall" has been employed in this rule which make it abundantly clear that current year data of an uncontrolled transaction is to be used for the purpose of comparability, while examining the international transactions with associate enterprises. The proviso appended to the section carves out an exception that the data relating to the period of being more than two year prior to such financial year may also be considered, if such data reveals facts which could have an influence on the determination of transfer price in relation to transaction of comparison. Thus the main section used the expression "shall" which make it mandatory to first use the current year data. If certain other circumstances reveals an in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rom year to year, similar filters should be used for benchmarking international transactions. 49. In the facts of the present case we find that the TPO in assessment year 2005-06 had applied the following filters for rejecting non-comparables: Only companies using Penicillin-G as raw material were selected. Companies having no data for the financial year 2004-05 were rejected. Companies predominantly engaged in trading activity were rejected. Companies having negative net worth were rejected. 50. The basic filter applied by the TPO was only the companies using Pen-G as raw material were to be selected. The second filter applied by the TPO that the companies having no data for the financial year 2004-05 were to be rejected. In addition, the companies predominantly engaged in the trading activities were to be rejected and also the companies having negative networth were to be rejected. 51. The TPO in the fresh study conducted in assessment year 2006-07 had applied filters of only companies using Pen-G as raw material as one of the filters. Further the companies having no data for the financial year 2005-06 were rejected as in the earlier year ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rcumstances, we are of the view that the results of Torrent Gujarat Biotech Limited and Standard Pharmaceuticals Limited both using Pen-G as raw material should be selected as comparables in order to benchmark the international transaction undertaken by the assessee. The learned A.R. for the assessee brought to our knowledge that DRP in the succeeding year i.e. 2006-07 have adopted Standard Pharmaceuticals Limited as one of the filters for benchmarking the international transaction of the assessee. In view of our observation in the paras hereinabove and also because of the facts that the Standard Pharmaceuticals Limited was utilizing Pen-G as raw material and the data of said company has been used as a comparable in the succeeding year and the said company along with Torrent Gujarat Biotech Limited, which in turn was using Pen-G as raw material i.e. to the extent of 7.06% to the sales, the data of the said companies is to be used as comparable. The learned A.R. for the assessee in view thereof, pointed out that the following final companies should be selected for the purpose of making a benchmarking analysis: S. No. Company Name Margin of the 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Name of the company Particulars Margin KDL Biotech Ltd -6.08% Standard Pharmaceuticals Ltd 5.75% Arm's Length margin (Arithmetic Mean) (A) -0.17% Appellant's margin (B) -2.39% 56. The learned D.R. for the Revenue had also filed written submissions. The first objection raised by the assessee was against the plea of the assessee in rejecting the comparable having RPT transaction exceeding 15% of sales relying on the ratio laid down in Sony India (P.) Ltd. (supra). The learned D.R. for the Revenue pointed out that the assessee in its transfer pricing study had not used filter of RPT. However, the Revenue was applying RPT filter of 25% consistently in the later years and the same should be applied for benchmarking the related party transaction. The contention of the learned D.R. for the Revenue was as under: "The rationale of 25% threshold limit is based on section 92 A(2) (a). The Act does not provide directly as to what % of related party transactions can have material effect on the overall margins. However guidance can be taken from definiti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... transaction in excess of 25% of operating revenue will only be excluded. The learned counsel for the assessee submitted that the following parties have transactions to sell more than 15% with related parties: S. No. Name of the companies RPT percentage to sales-F.Y.2006-07 1. Asit Mehta Financial 2006-07 1. Asit C. Mehta Financial Services Ltd. 2. Informed Technologies India 15.83% 3. Apex Knowledge Solutions Ltd. 100% 4. HCL Comnet System Services Ltd. 21.52% (Based on RPT% computed by the Learned TPO using data sourced by him u/s 133(6) of the Act) - Refer pg 124 of the Merit Appeal PB 28. The learned counsel for the assessee submitted that in the case of Sony India Pvt. Ltd. = (2008-TII-08-ITAT-DEL-TP) rendered in ITA No. 1189/Del/05 Ors., ITAT has held that an entity can be taken as uncontrolled, if its related party transaction do not exist 10 to 15% of the total revenue. Thus, according to the learned counsel for the assessee, the comparables who have transactions more than 15% with its related party then they deserve to be excluded from the list o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... been explained, if a person is having not less than 20% of voting power in a company then such person would be considered as substantial interest in the company. This section relates to examination of the cases where some undue benefit is being extended by a company. These two provisions give an indicator that whenever any issue regarding an interest created in any company is being examined which has influence over the results of the company then these aspects can be taken as guidance. On the basis of the scheme, one can safely say that an entity can be taken as uncontrolled, if its related party transaction do not exceed 25% of the total revenue. Thus, we do not find any fault in the conclusion of the learned TPO for applying this filter to the extent of 25% transaction with related party of the total revenue. The contentions raised by the learned counsel for the assessee in this regard are rejected." 60. Similar view has been laid down by other Benches of the Tribunal. The learned A.R. for the assessee placed strong reliance on the issue laid down in Sony India (P.) Ltd. and CRM Services India (P.) Ltd. (supra) but we find no merit in the stand of the assessee. Applying the rat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on-fulfilment any of the filters selected for rejecting the non-comparable, then the data of the said year cannot be so applied as a filter to disregard the non-comparables in the succeeding year. However, we have already held in the paras hereinabove that Standard Pharmaceuticals Ltd. is to be used as a comparable for determining arms' length margin to be applied to the margin declared by the assessee in order to compute whether the international transaction entered upon by the assessee are at arms' length. In view thereof, we allow this contention of the assessee to apply the data of Standard Pharmaceuticals Ltd. in both the assessment years 2005-06 and 2006-07. In the abovesaid circumstances, the following companies are held to be comparables in assessment year 2005-06: S. No. Company Name 1 Torrent Gujarat Biotech Limited 2 Nectar Life Sciences Limited 3 Standard Pharmaceuticals Limited 4 Aurobindo Pharma Limited 62. In the assessment year 2006-07 the comparables would be as under: S. No. Company Name 1 KDL Biotech Ltd. 2 Standard Pharmaceuti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 's Appeal :: Asst. Year 2006-07 66. The assessee has raised following grounds of appeal: "1. That on the facts and in the circumstances of the case in law, the Hon'ble DRP erred in confirming the draft assessment order of the Ld. AO on the following issues and directing the Ld. AO to assess income at Rs. Nil as against the returned loss of Rs. 143,509,455: - Disallowance of Rs. 9,458,449 being the DEPB claims rejected and written off during the year. - Disallowance of Rs. 82,530,000 being the interest paid financial expenses incurred during the year. - Disallowance of Rs. 9,615,144 being the commission expenses incurred during the year. - Disallowance of Rs. 1,240,501/- under section 14A of the Act by erroneously holding that the Rule 8D is applicable to the facts of the case. - Addition on account of Transfer Pricing (TPL) Adjustment of Rs. 60,743,348. That the Ld. AO erred on facts in law, in making a disallowance of Rs. 9,458,449/- on account of DEPB claims rejected or short received and written off during the year in the profit loss account. 2.1 That the Ld. AO erred on facts in la ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mmission expenses charged to the profit loss account for the year under consideration. 4.1.1 That the Ld. AO erred on facts in law, in making a disallowance of Rs. 5,337,931(out of Rs. 9,615,144) on the alleged ground that the export sales were invoiced to those parties to whom the commission was paid, and hence there is no liability to pay commission to those parties without appreciating that the commission paid to the those parties were out of purely commercial considerations and on account of business expediency. 4.2 That the Ld. AO erred on facts in law, in making a disallowance of Rs. 4,277,213 (out of Rs. 9,615,144) by arbitrarily fixing an average rate of commission in excess of 3% paid to agents as excessive and unreasonable without appreciating that none of the parties is a related party and commission paid in excess of 3% was on account of business expediency. 5. That the Ld. AO erred on facts in law, in making a disallowance of expenditure of Rs. 1,240,501/- on the alleged ground that said expenditure is incurred for earning tax exempt income ("Dividend") from investments by invoking the provisions of section 14A of the Act rea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... under the head 'export incentive' written off in the Profit Loss Account. The explanation of the assessee before the Assessing Officer was that the export incentive written off during the year under consideration were offered for taxation as income in the earlier years. However, sum of Rs. 76,14,696/- relates to IPCA, DEPB which was rejected by DGFT stating that these were not applied in time. Further sum of Rs. 18,43,753/- of DEPB was written off during the year as it was received short. Before the Assessing Officer the assessee furnished letter dated 22.2.2006 addressed to DGFT which was an appeal to consider DEPB claim for the bulk drugs supplied to SEZ units at Kandla. Another letter dated 9.5.2006 to Department of Commerce regarding the meeting of the Grievance Redressal Committee, under the chairmanship of Special Secretary, Department of Commerce was also filed. The plea of the assessee before the Assessing Officer was that the claim regarding DEPB was still under consideration by the Ministry of Commerce and Industry. The Assessing Officer was of the view that as the matter had not reached finality, DEPB claim could not be written off in the books of account during the y ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... misplaced as complete details were furnished before the Assessing Officer. The learned A.R. for the assessee submitted that complete documents were not filed before the Assessing Officer but only sample documents were filed before the Assessing Officer, against which no query was raised. The learned A.R. for the assessee furnished complete evidence before us in respect of the claim of deduction on export incentives written off during the year under consideration at pages 695 to 711 by way of additional evidence alongwith an application for admission of additional evidence placed at pages 692 to 694 of the Paper Book. The learned A.R. for the assessee stressed that in respect of first write off there is no loss to the Revenue as the amount was offered in assessment year 2008-09. 71. The learned D.R. for the Revenue pointed out that the amount had not been crystallized during the year and write off of DEPB credit was premature. Reliance was placed on the order of the Assessing Officer in this regard. In respect of write off of short claim for DEPB the learned D.R. for the Revenue had no objection to the admission of additional evidence. It was stressed by the learned D.R. for the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... which it is pointed out that the export incentives were offered to tax and no deduction was claimed under section 80HHC of the Act. The assessee has further placed on record the details of export incentives written off during the financial year 2005-06 at pages 45 to 62 of the Paper Book. The said export incentives were written off by the assessee on the basis of the rejection letters received by the company from the Kandla Special Economic Zone as under : ○ January 7, 2005 in relation to the application of Rs. 22,84,475.26 dated November 10, 2004 (application number HO:DEPB IPCA 1) (refer page 57 of the paper book) ○ January 4, 2005 in relation to the application of Rs. 45,68,777.67 dated December 27, 2004 (application number HO:DEPB IPCA 2) (refer page lS of the paper book) ○ January 17, 2005 in relation to the application of Rs. 7,79,604.01 dated January 4, 2005 (application number HO:DEPB IPCA 3) (refer page 59 of the paper book) 73. The assessee vide letter dated 22.02.2006 made an appeal to the Ministry of Commerce requesting for intervention and to consider the claim of the company. In the absence of any communication from Ministry o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ligible for DEPB benefits (copy of rejection letters and circular attached as Annexure - B?) You would appreciate that the mentioned circular was subsequently superseded by CBEC another circular no: 21/2005 dt. 6th April 20p5^which overruled the above condition and clarified that the benefit of DEPB scheme would be admissible in respect of supply of goods from units in DTA to units in SEZ during 1.4.2003 to 11.5.2004 under DEPB scheme to SEZ (Annexure-C)." 75. The assessee has placed the rejection letters of the Development Commissioner, Kandla SEZ at pages 57 to 59 of the paper book and the copy of the appeal moved before the Ministry of Commerce at pages 60 and 61 of the paper book. The assessee received a communication from the Ministry of Commerce and Industries, Government of India dated 09.05.2006, under which it was informed that the next meeting of the Grievance Redressal Committee would be held on 15.05.2006. A copy of the said letter is placed at page 62 of the paper book. Admittedly, the claim of the assessee has been allowed by the Government of India vide letters dated 08.08.2007 which are placed at pages 73 to 83 under which the said DEPB benefit has been all ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the Paper Book and the Assessing Officer did not raise any query in this regard. However, the complete documents relating to the write off of Rs. 18,43,753/- are being placed by way of application for additional evidence at pages 695 to 711 of the paper book and the same merits to be accepted. 77. The ld. DR for the revenue had no objection to the admission of the additional evidence but it was suggested by the ld. DR for the revenue that the said documents may be forwarded to the Assessing Officer as the same were not considered by the Assessing Officer. In respect of the claim for deduction of Rs. 18,43,753/-, the ld. AR for the assessee pointed out that the export incentives were accounted for on accrual basis in the earlier year but the same was short received out of the total claim during the year under consideration and hence, were written off and claimed as a deduction. The ld. AR for the assessee placed reliance on the details filed at page 46 of the paper book which incorporated the shortfall in the DEPB received during the year under consideration. The ld. DR for the revenue placed reliance on the order of the Assessing Officer. 78. We have heard the rival contentio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... id communication has been received by the assessee. Admittedly, the assessee had received the said communication on 14.03.2006 i.e. falling within the financial year 2005-06 and hence, the said claim of the assessee is allowable for the captioned assessment year. However, the additional evidence filed by the assessee in respect of the copies of application made in respect of the DEPB claim and also the copies of the DEPB licence received by the assessee under which the claim of DEPB was restricted by Kandla SEZ, were not available before the Assessing Officer. Hence, the issue is restored back to the file of the Assessing Officer for the limited purpose of verifying the quantum of the DEPB licence received by the assessee under which its claim was rejected. The plea of the assessee is that as against the claim of DEPB of Rs. 35,92,066/- and Rs. 85,762/-, it had only received sum of Rs. 28,58,140/- and Rs. 52,451/- as DEPB licence. In case the claim of the assessee is found to be correct after verification of the requisite documents, which are placed at pages 695 to 711 of the Paper Book as additional evidence, the deduction of Rs. 18,43,753/- is to be allowed in the hands of the as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 6,95,475/- and also Malachite Chemicals amounting to Rs. 545,257/-. Thus, disallowance of Rs. 53,37,931/- was made out of the commission paid by the assessee to the respective parties to whom sales were made. Further, in respect of commission paid to M/s Ace Corporation @ 6.6% as against normal rate of commission at 3% was held by the assessee to be excessive. Similar excessive commission paid to other parties, all totalling Rs. 42,77,212/- was disallowed by the Assessing Officer. The assessee is in appeal against said disallowance. 83. The DRP vide order dated 20.09.2010 had upheld the disallowance proposed by the Assessing Officer. 84. The ld. AR for the assessee pointed out that the allegations of the Assessing Officer that no details were filed, are incorrect as the perusal of the assessment order would reflect that assessee was appearing from day-to-day and was furnishing the details requisitioned during the assessment proceedings. The ld. AR for the assessee referred to the various replies filed before the Assessing Officer which are apparent from the perusal of the para 5 to 5.6 of the assessment order. The grievance of the ld. AR for the assessee was that the reply of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d total expenditure of Rs.2.60 crore under the head 'commission'. The said commission included both commission paid on account of exports and also the commission paid on domestic sales. The case of the revenue is that the assessee had made sales to certain parties, to whom commission was also paid and the same being not relatable to the business of the assessee, was not to be allowed as an expenditure. However, the case of the assessee before us is that the said commission has been paid against the purchase orders booked by the said concern, who were engaged in trading and were also commission agents. The two transactions were claimed to be different and without any connection to each other. The assessee has placed on record the details of commission paid at pages 291 292 of the Paper Book. The abovesaid details reflect commission on export sales paid of Rs. 105,63,783/- and domestic commission of Rs. 155,27,136/-. The assessee had further furnished the details of the parties alongwith the rates of commission, sales made to the said parties and the total commission paid to the said parties, which are placed at pages 293 and 294 of the Paper Book. As against the export commission, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... id details reflect the commission @ 4.48% being paid to M/s Ace Corporation. The total amount paid to the said party is Rs. 1351,250/-. The Assessing Officer, on the other hand, vide para 5.12 has noted that the commission to the said party has been made @ 6.6% vide para 5.12 at page 32 of the assessment order. The assessee, on the other hand, has furnished the details of commission at pages 291 and 292 of the Paper Book in which the commission to M/s Ace Corporation has been shown at Rs. 13,51,250/-. We are in conformity with the submission of the assessee that the rate of commission paid for the transaction cannot be interfered by the Assessing Officer as it is the understanding between the parties at the relevant time which determines the rate of commission to be paid on a particular transaction. In view thereof, we reverse the order of Assessing Officer in restricting the rate of commission to 3%. In any case, the said restriction was made by the Assessing Officer observing that the rate of commission paid by the assessee was 6.6% whereas the assessee claims that it had paid commission @ 4.48%. The other two parties to whom commission had been paid by the assessee and the same ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent was not made during the year under consideration, as is apparent from the fact that the issue of disallowance of interest under section 36(1)(iii) of the Act in relation to the said advance, arose before the Tribunal in assessment year 2003-04 and thereafter. In the totality of the abovesaid facts and circumstances, we are of the view that no disallowance is warranted under section 14A read with Rule 8D of IT Rules as the said investment had been made by the assessee in a joint venture for business expediency. Accordingly, we direct the Assessing Officer to delete the addition of Rs. 12,40,501/-. Ground No. 5 raised by the assessee is thus, allowed. 90. Ground No.6 raised by the assessee has been adjudicated alongwith ground No. 2 raised by the revenue and ground No. 2.3 raised by the assessee in the appeal relating to assessment year 2005-06. In line with our directions, the Assessing Officer/TPO is directed to recompute the mean ratio of the comparable in order to determine the arm's length price of the international transaction entered upon by the assessee. Thus, ground No. 6 raised by the assessee is allowed for statistical purposes. 91. In the result, both the appeals ..... X X X X Extracts X X X X X X X X Extracts X X X X
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