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M/s Super Tannery Ltd. and others Versus Dy. C.I.T. -VI, Kanpur and others

2015 (7) TMI 769 - ITAT LUCKNOW

Exemption under section 80IB(10) - whether he "duty drawback" and other investments as received by the appellant form part of the income derived from the industrial undertaking qualifying for exemption under section 80IB(10)? - Held that:- In the appeal of the assessee for assessment year 2009-2010 [2015 (7) TMI 770 - ITAT LUCKNOW] the issue regarding allowability of deduction u/s 80IB out of Duty Drawback has been decided by us against the assessee by following the judgment of Liberty India [20 .....

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sing Officer should recompute the disallowance u/s 14A after excluding the investment in foreign subsidiaries because income from investment in foreign subsidiaries is taxable. In the present year also, there are some investments in foreign subsidiaries; for example, ₹ 1,62,645/- in Super Tannery U.K. (Ltd.). Hence, in the present year also, we decide this issue on similar line and restore the issue to the file of the Assessing Officer for recomputing the disallowance after excluding the i .....

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n integral part and parcel of the operating profits of a company and therefore, export entitlements are not an extraordinary item of income or an item of income which is unrelated to the ordinary activities of the assessee company. Apart from this, this is also very important that even if the export incentives entitlement is excluded from the operating income of the assessee company, such exclusion has to be made from the operating income of the comparables company also. Without excluding the ex .....

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assessee company is not justified and hence, we find no infirmity in the order of learned CIT(A) on this issue. We, therefore, decline to interfere in the order of learned CIT(A). - Decided against revenue.

Deleting the adjustment for "transfer pricing" under section 92CA(3) - Whether CIT(A)not have relegated the assessee/respondent to the stage of the Assessing Officer/Transfer Pricing Officer by observing tha the AO/TPO may reverify the above calculations and if found to be correct .....

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balance sheet of each of the comparables and they are part of the record and also in public domain, this direction of CIT(A) is uncalled for. We, therefore, hold that this unnecessary direction of CIT(A) is not proper particularly when there is no power available with the CIT(A) to remand the matter to Assessing Officer. We, therefore, modify the direction of CIT(A) by holding that since CIT(A) has already verified the calculations on the basis of material available on record and available in pu .....

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for assessment year 2008-09 which is directed against the order of learned CIT(A)-I, Kanpur dated 25/03/2013. Apart from this, there is one Revenue s appeal for assessment year 2007-08 which is directed against the order of learned CIT(A)-I, Kanpur dated 24/05/2013 and there is Cross Objection of the assessee for the same assessment year i.e. 2007-08. All these appeals were heard together and are being disposed of by this common order for the sake of convenience. 2. First we take up the appeal .....

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of cash assistance forming part of the income derived from industrial undertaking as per clause iii(c) of section 28 of the Act read with Circular No.564 dated 5.7.1990 and Circular No.571 dated 1.8.1990 issued by CBDT, and accordingly the same should have been considered as part of eligible profit, for computing deduction under section 80IB(10) of the Act. 3. It was agreed by both the sides that this issue is identical to the issue raised by the assessee in its appeal for assessment year 2009-2 .....

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uments of the assessee i.e. regarding the judgment of Hon'ble Delhi High Court in the case of CIT vs. Dharam Pal Prem Chand Ltd. [2009] 317 ITR 353 (Del) and another judgment of Hon'ble Apex Court in the case of Topman Exports vs. CIT [2012] 342 ITR 49 (SC) and therefore, in the present case also, this issue is decided against the assessee on similar line and accordingly ground No. 1 & 2 are rejected. 5. Ground No. 3 to 5 are inter-connected, which are as under: 3. Because the " .....

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computation of disallowance under section 14A read with Rule 8D is erroneous as no interest bearing funds were involved in the investment referred to in the assessment order. 6. It was agreed by both the sides that this issue is also identical to ground No. 3 & 4 raised by the assessee in its appeal for assessment year 2009-2010 for assessment year 804/Lkw/2013, which was heard on 17/06/2015. It was agreed that in the present year also, this issue can be decided on similar line. 7. We have .....

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sue on similar line and restore the issue to the file of the Assessing Officer for recomputing the disallowance after excluding the investment in foreign subsidiary. Accordingly, these grounds are also allowed for statistical purposes. 8. In the result, the appeal of the assessee stands allowed partly for statistical purposes. 9. Now we take up the Revenue s appeal i.e. I.T.A. No.629/Lkw/2013 for assessment year 2007-08. In this appeal, the Revenue has raised the following grounds: 1. That the L .....

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of the Revenue supported the assessment order whereas learned A. R. of the assessee supported the order of learned CIT(A). He also submitted that the copy of order dated 28/10/2011 passed by TPO u/s 92CA(3) of the Act for next year is available on pages 203 to 206 of the paper book and in that year, the TPO has considered the same comparables which are considered by learned CIT(A) in the present year as noted by him on page No. 4 of his order that there is only one difference in that year becau .....

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uld be excluded from comparables also and if the same is not excluded from the income of the comparables, then the same should not be excluded from the income of the assessee also. He also submitted copy of the Tribunal decision in the case of JCIT vs. Super House Tannery in I.T.A. No.127/Lkw/2012 dated 11/06/2014 in support of this contention that the resale price method adopted by the Assessing Officer and TPO is not applicable in the case of exporter because it is applicable in the case of im .....

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after excluding the Duty Drawback amount from operating income of the assessee also, the difference is within the range of (+) (-) 5%, no adjustment is called for. In our considered opinion, such a finding of TPO in next year is not relevant to hold that in each and every case, the Duty Drawback amount should be reduced from the operating income of the assessee. In our considered opinion, such deduction of Duty Drawback income from the operating income of the assessee will be called for if the .....

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case, the calculation of the PLI of the comparables companies is based on the audited financial results for financial year 2006-07 and a clear finding is given by learned CIT(A) in Para 4.2.3 of his order that he has verified these calculations and the balance sheet of each of these companies and they are part of the records and also in public domain. The relevant paras of the order of CIT(A) are Para No. 4.2 to 4.2.3, which are reproduced below for the sake of ready reference:- 4.2 Discussion .....

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the Sec 92 to 92CA of the Income Tax Act, 1961 read with Rules 10B to 10E, "Resale price method" only applies where the international transactions pertain to import of articles. The case of the appellant is that of an exporter and not that of an importer. Thus, "Resale Price method" is not applicable to the instant case. This is also clear from the fact that the TPO himself in the immediately next assessment year has rejected the resale price method and adopted TNMM method. .....

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the comparable companies based on the audited financial results of the financial year 2006-07 is given below: Particular) Sarup Deltamal Graziella KH Shoes World Liberty Shoes Mayur Lakhani Super House Profit before taxes 21444000 30206744 4894060 -256968 4711446 195116294 39233958 4154162 1106100 Interest 6296000 3848152 3851370 16360619 705473 86188667 3479817 6378348 4971000 Operating profit 27740000 34054696 8745430 16103651 5416919 283305151 42713775 10532510 1603200 Total Expenditure 30521 .....

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proach of the TPO in excluding the export entitlements from calculation of the Operating Profit is incorrect since export entitlements are an integral part and parcel of the operating profits of a company. Export entitlements are not an extra- ordinary item of income or an item of income which is unrelated to the ordinary activities of a company. Further, in the cash-flow statements prepared as per AS-3 of the ICAI and certified by the Statutory Auditory and accepted in the AGM of the company, t .....

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4.2.3 On perusal of the resultant PLIs (keeping in mind the discussion above), it is observed that the Average PLI (OP/TC) of the comparable companies is 7% as compared to 3.67 of the appellant company which comes within 5% tolerance as stipulated in the Income Tax Act, 1961.1 have verified these calculations from the Balance sheet of each of these companies and they are part of the records and also in Public domain. Since difference between the PLI is within the range of 5% tolerance, no T.P. .....

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ng profit of the assessee company, this finding is given by learned CIT(A) that export entitlements are an integral part and parcel of the operating profits of a company and therefore, export entitlements are not an extraordinary item of income or an item of income which is unrelated to the ordinary activities of the assessee company. Apart from this, this is also very important that even if the export incentives entitlement is excluded from the operating income of the assessee company, such exc .....

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incentives entitlements, such exclusion of export incentives entitlement from the operating profit of the assessee company is not justified and hence, we find no infirmity in the order of learned CIT(A) on this issue. We, therefore, decline to interfere in the order of learned CIT(A). 12. In the result, the appeal of the Revenue stands dismissed. 13. Now we take up the Cross Objection filed by the assessee. 14. Ground no. 1 and 4 of the Cross Objection were not pressed by Learned A.R. of the ass .....

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reverify the above calculations and if found to be correct, give relief to the assessee as directed above." 16. Learned A.R. of the assessee submitted that when CIT(A) has given a finding that he has verified the calculations from the balance sheet of each of the comparables and they are part of the record and also in public domain and therefore, no adjustment is called for but this direction of CIT(A) is not proper that the AO/TPO may reverify these calculations and if found correct, give .....

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sheet of each of the comparables and they are part of the record and also in public domain. Thereafter, it is stated by CIT(A) that the AO/TPO may reverify these calculations and if found correct, give relief to the assessee as directed above. We find force in the contentions of Learned A.R. of the assessee that this direction of CIT(A) is amounting to restoring the matter back to the file of the Assessing Officer which is not permissible and even if he considered that some recalculations of cal .....

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er. We, therefore, modify the direction of CIT(A) by holding that since CIT(A) has already verified the calculations on the basis of material available on record and available in public domain, the Assessing Officer should give relief to the assessee as decided by CIT(A) of ₹ 1,00,47,451/- and there is no necessity of recalculation of the calculations. Accordingly, this ground of the Cross Objection is allowed. 19. Ground No. 3 of the Cross Objection is as under: 3. BEACSUE the CIT(A) has .....

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