TMI Blog2013 (12) TMI 360X X X X Extracts X X X X X X X X Extracts X X X X ..... vidend income of ₹ 3,58,40,888 and interest on tax-free bonds of ₹ 1,17,45,137 - Held that:- Following assessee’s own case for the A.Y. 2001-02 and Godrej and Boyce Mfg. Co. Ltd. v. Deputy CIT [2010 (8) TMI 77 - BOMBAY HIGH COURT] - The Assessing Officer is duty bound to determine the expenditure which has been incurred in relation to income which does not form part of the total income under the Act. The Assessing Officer must adopt a reasonable basis or method consistent with all the relevant facts and circumstances – Decided in favour of assessee. Addition on account of transfer pricing adjustment – Held that:- The rate of 4 per cent. taken by the Transfer Pricing Officer as arm's length rate of royalty has also been justified/supported by him by pointing out that the royalty of 5 per cent. paid to associated enterprise was also for use of a particular trade mark of that company to which he attributed the royalty payment to the extent of one per cent. on the basis of Government policy of automatic route - the use of trade mark was undoubtedly allowed by Oshima Japan to the assessee along with supply of technology for a royalty payment of 5 per cent. of domestic sa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eration was filed by it on October 31, 2002 declaring total income of Rs. 29,83,85,660. During the course of assessment proceedings, the Assessing Officer noticed that the assessee-company has discontinued its operation of pigment manufacturing at Kavesar factory and there was no activity of manufacturing carried out in the said factory. He, therefore, disallowed the expenses aggregating to Rs. 16,65,272 incurred by the assessee in relation to Kavesar factory. Before the learned Commissioner of Income-tax (Appeals), it was submitted on behalf of the assessee that the factory at Kavesar was one of the several units of the assessee company and the business activities carried on at all these units was controlled from the head office at Lower Parel. It was contended that there being unity of control and management of finance as well as inter-lacing of funds and inter connection of all the business activities, mere discontinuation of one of the units did not amount to discontinuation of the business. Reliance in support of this contention was placed by the assessee on the decision of the hon'ble Supreme Court in the case Veecumsees v. CIT [1996] 220 ITR 185 (SC). Keeping in view the sai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d confirmed by the learned Commissioner of Income-tax (Appeals) on account of the assessee's claim for deduction under section 35D. The assessee had claimed a deduction of Rs. 14,70,263 under section 35D being one-tenth of the expenses incurred in relation to the issue of right shares. Since the issue of right shares was not for public subscription, a similar deduction claimed by the assessee under section 35D was disallowed in the assessments completed in the case of the assessee for the earlier years and following the same, the deduction claimed by the assessee under section 35D was disallowed by the Assessing Officer even in the year under consideration. The learned Commissioner of Income-tax (Appeals) confirmed the said disallowance following the decision of his predecessor in the assessee's own case for the earlier years. We have heard the arguments of both sides on this issue and also perused the relevant material on record. It is observed that the issue relating to the assessee's claim for deduction under section 35D came up for consideration before the Tribunal in the assessment year 1999-2000 and the same was decided by the Tribunal in favour of the assessee by its o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Ltd. v. Deputy CIT [2010] 328 ITR 81 (Bom). Ground No. 3 is accordingly treated as allowed for statistical purposes. The next issue involved in ground No. 4 relates to the addition of Rs.1,16,44,298 made by the Assessing Officer on account of transfer pricing adjustment which has been partly sustained by the learned Commissioner of Income-tax (Appeals). During the year under consideration, the assessee-company had entered into two international transactions with its associate enterprise, namely, Kansai Paint Co. Ltd., Japan. One of the said two transactions involved a payment of royalty for use of technical know-how by the assessee-company to Kansai Paint Co. Ltd., Japan amounting to Rs. 5,82,21,494. The said royalty was claimed to be paid for supply of technical know-how as per agreement and the rate of royalty was stated to be 5 per cent. of the domestic sales and 8 per cent. of the export. Before the Transfer Pricing Officer, it was submitted by the assessee that apart from the related party, it had entered into agreements with other non-related foreign parties for supply of technical know-how and since the data relating to the said nonrelated foreign parties was available, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent policy for use of trade marks and brand name without technology transfer, he held that out of royalty payable by the assessee to Oshima, Japan at the rate of 5 per cent., royalty at the rate of one per cent. was for use of trade marks and the balance payment of royalty at 4 per cent. was for supply of technical know-how. Accordingly, the arm's length rate of royalty paid/payable by the assessee to its associated enterprise M/s. Kansai Japan was taken by the Transfer Pricing Officer at 4 per cent. and since the arm's length price of the royalty at the rate of 4 per cent. worked out to Rs. 4,65,77,195 as against Rs. 5,82,21,494 shown by the assessee, the required transfer pricing adjustment was worked out by him at Rs.1,16,44,298 in the order dated February 28, 2005 passed under section 92CA(3). As per the said order, addition was made by the Assessing Officer to the total income of the assessee on account of transfer pricing adjustment in the assessment completed under section 143(3) vide an order dated March 7, 2005. The matter was carried before the learned Commissioner of Income-tax (Appeals) and it was submitted on behalf of the assessee before him that the technology avai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... omparability analysis and there is no justifiable reason for learned counsel for the assessee to take a different stand now that the said case is not exactly comparable or similar to that of the assessee. He submitted that 4 per cent. rate of royalty was determined as the arm's length rate by the Transfer Pricing Officer by adopting the same method, i.e., CUP as adopted by the assessee and by following the procedure laid down in section 92CA as well as the relevant rules. He contended that the learned Commissioner of Income-tax (Appeals) has already allowed substantial relief to the assessee by taking the rate of 4.5 per cent. as the arm's length rate of the royalty and there is no case of any more relief deserved by the assessee on this issue. We have considered the rival submissions and also perused the relevant material on record. It is observed that comparable uncontrolled price method was followed by the assessee to determine the arm's length price of the royalty paid to its associated enterprise, namely, Kansai Japan on the ground that there being similar payment of royalty made to two unrelated parties, the internal comparable uncontrolled prices are available. These two p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sing Officer/Transfer Pricing Officer as arm's length rate of royalty paid/payable by the assessee to its associate enterprise M/s. Kansai Japan and since the learned Commissioner of Income-tax (Appeals) has already allowed a further relief to the assessee by revising the said rate upwardly at 4.5 per cent. holding the same to be fair and reasonable without giving any basis as required by the provisions of section 92CA as well as the relevant rules, we find merit in the contention of the learned Departmental representative that no further relief is warranted on this issue as claimed by the assessee in ground No. 4 of this appeal. We, therefore, find no merit in the said ground and dismiss the same. The next issue involved in ground No. 5 relates to the computation of deduction under section 80HHC and the assessee has challenged the action of the authorities below in this regard in including sale of raw materials amounting to Rs. 1,05,39,715 in the total turnover and exclusion of 90 per cent. of insurance claims, sales-tax refund, interest and lease rental receipts from the profits of the business while calculating the deduction under section 80HHC. At the time of hearing before ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l as interest-free funds, disallowance out of interest as made by the Assessing Officer was not justified. According to the learned Commissioner of Income-tax (Appeals), this submission of the assessee, however could not be established/verified as the assessee was maintaining common pool of funds. He, therefore, confirmed the disallowance made by the Assessing Officer out of interest. We have heard the arguments of both sides on this issue and also perused the relevant material on record. It is observed that a similar issue was involved in the assessee's own case for the immediately preceding year, i.e., assessment year 2001-02 and the Tribunal vide its order dated March 28, 2012 deleted the disallowance made on account of interest holding that the assessee had sufficient interest-free funds at the relevant time to make investment in the shares of its subsidiary company. The Tribunal in this regard relied on the decision of the hon'ble Bombay High Court in the case of CIT v. Reliance Utilities and Power Ltd. [2009] 313 ITR 340 (Bom) wherein it was held that in the case involving common funds, there is a presumption that the investments are made from non interest bearing funds. Resp ..... X X X X Extracts X X X X X X X X Extracts X X X X
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