TMI Blog2011 (4) TMI 1354X X X X Extracts X X X X X X X X Extracts X X X X ..... (e) of Act where only Profits on transfer of DRFC licenses is required to be excluded. Alternatively the ld. CIT (Appeals) should have excluded the amount of DFRC licenses, which are transferred during the year and not the total amount of DFRC Licenses where the licenses worth ₹ 36,53,850/- are on hand which are still not transferred or utilized. The ld. CIT (Appeals) ought to have excluded only 90% of DFRC licenses i.e. 90% of ₹ 1,25,51,860/- and not 100% of DFRC income. 3. The facts of the case are that the DFRC income was not taken into account by the A O as export incentive because assessee s export turnover exceeded ₹ 10 Crores and the assessee was not able to satisfy the twin conditions which have been brought in stature by retrospective amendment. Apart from that the assessee had written back a sum of ₹ 1,61,067/- under the head Liabilities no longer required and the same was excluded from the profits of business of the assessee. The assessee challenged the order of the A O before the learned CIT (A) and the written submission of the assessee is incorporated in the impugned order which reads as under: 1(e) 90% of Export benefi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ₹ 161067/- was passed on credit side of Profit and Loss account because the amount of excise duty for which provision was created ₹ 161067/- was actually paid to the excise department in A. Y. 2004-05 by debiting the amount to RG 23 Part II. The said payment was made through RG 23 A Part II between April 2003 onwards and that is why the provisional entry was reversed. The said payments also qualify for allowing expenditure u/s 43B of the Act. In fact it is not an income but adjustment entry is passed in accounts. Your appellant therefore submits that amount of ₹ 161067/- should not be reduced from the profit and deduction u/s 80 HHC should be allowed accordingly. 4. The learned CIT (A) however, confirmed the addition on the above issue. His findings are reproduced as under: 3.3 So far as export benefits are concerned it has been stated that the same may be dealt with in the light of amended provisions. As assessee s export turnover exceeds ₹ 10 Crores, the twin conditions to be satisfied for claiming benefit on these incentives, cumulatively are as under: a) he had an option to choose either duty draw back or duty entitlement pass book s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t the assessee had an export turnover exceeding ₹ 10 Crores and did not fulfill the conditions set out in 3rd proviso to section 80 HHC (3) and, therefore, assessee was not entitled for deduction u/s 80 HHC on the amount received on transfer of DEPB. Learned Counsel for the assessee also given in writing that the plea of the assessee was that CIT (A) ought to have excluded only 90% of DFRC income and not 100%, however, while preparing the computation it was noticed that learned CIT (A) has excluded only 90% of DFRC income and not 100% as pleaded. Therefore, the same issue would not survive. This submission is made for both the assessment years under appeal 2003-04 and 2004-05 with statements also. He has, therefore, submitted that the main grounds of the assessee shall have to be decided against the assessee. The only alternate claim of the assessee may be considered on which he has submitted that in any case what can be excluded is any profit on the transfer of DFRC. In the case of the assessee DFRC license remained in stock in first year and since nothing was sold, question of excluding 90% of the profit on the transfer of DFRC license for computing profit does not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... alternate contention. Part of this ground of appeal of the assessee is allowed for statistical purposes. 6. Ground No.2 of the appeal of the assessee reads as under: 2. The ld. CIT (Appeal) ought to have deleted the interest charged and penalty proceedings initiated on enhanced income due to reduction in claim u/s. 80 HHC of the Act in view of amendment in section 80 HHC by Taxation Laws (Amendment) Act 2005 and Board Circular No.2/2006 dated 17.01.2006. 7. The assessee challenged charging of interest and it has been claimed that since the additions are mainly because Taxation Laws Amendment Act, 1005, in view of Board s circular no interest should be levied. 8. However, the learned CIT (A) did not accept contention of the assessee and held in this regard, it is to be pointed out that the Board Circular does not say that interest is not to be levied. It only provides interest chargeable may be waived if the demand has arisen due to implementation of provisions contained in Taxation Laws Amendment Act, 2005. Therefore, the assessee is only entitled to consequential relief in this regard because waiver is not subject matter of the appeal. 8.1 The learned Counsel f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al Transactions the assessee has paid the Royalty of an amount of ₹ 1,02,49,154/- which is not as per Arm s length Price. The TPO after having discussed various aspect of the transaction and detailed reasoning have made adjustment as per Para 6 on page 14 of this order which is as under: The arm s length price of the royalty paid/payable is computed at ₹ 34,68,448/- as against transaction value of ₹ 1,02,49,154/- Considering the provisions of Section 92 C (4) of the I. T. Act, 1961, no deduction under section 10A or section 10B or under Chapter VIA is required to be allowed to the assessee in respect of the income of ₹ 67,80,706/- enhanced. The Arm s Length Price of the remaining international transactions be taken at transaction value recorded in the books of account. This order is in response to specific reference u/s. 92CA(1) received and will apply to the case of the assessee for A. Y. 2003-04. However, it is further observed that the assessee has suo moto disallowed Royalty payment of ₹ 43,33,420/- in view of sec. 40 (a) (i) of the Act for non deducting Tax at source. Hence a further amount of ₹ 24,47,286/- is hereby disall ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd achieved higher sales in the domestic market, which are ₹ 61214930/- respectively for the financial year 2002-03 and 2003-04. The same is expected to grow further. (vii) Glass Mosaics , being material and sanitary product, it is an established fact that there are various options of the various products available in the market. In such an environment the trademark of BISAZZA helps us in promoting BISAZZA MOSAICS in the market. Your appellant respectfully further submit that the Ld. TPO has restricted the payment of royalty mainly relying on the press Note No.9 (2000 series). The above referred press note read as under: Payment of royalty upto 2% for exports and 1% for domestic sales is allowed under automatic route on use of trademarks and brand name of the foreign collaborator without technology transfer. On going through the above press note along with terms of agreement as referred on page 4 Para 3.1 of the order by TPO along with terms of agreement as referred on page 4 Para 3.1 of the order by the TPO your Honour will observe that the restriction of royalty payment at 2% on export sale and 15 on domestic sale is meant for use of trade mark. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on 92 C(1) of the Act and without making any reference to any comparable transaction. 17. We also find that though the assessee has made the provision for such expenses but had suo motu disallowed royalty payment in view of section 40A(f) of the Act for the reason that since the tax was not deducted at source the expenses were not claimed. However, since the transaction relates to an international transaction with an associated enterprise and since the TPO has made adjustment with reference to such transaction by not accepting the payment at an arm s length, the grievance of the assessee is addressed. In the circumstances when in the year of payment if the assessee claims the royalty payment as expenses, a further analysis is in relation to arm s length price will not be required to be made qua a liability incurred during this year 15. The learned Counsel for the assessee by referring to the chart submitted that TDS was paid on royalty expenditure on the entire amount of ₹ 1,26,10,026/- (assessment year 2002-03) but the valuation as per TPO was ₹ 32,28,921/-, therefore, the A O made the addition of ₹ 93,81,105/- on which tax is paid which is raised in ad ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... year 2002-03 and the assessee on deposit of the TDS would be entitled for deduction in the assessment year under appeal. Therefore, the additional ground is admitted. Further, the claim of the assessee and the calculation is entirely based with regard to valuation done by TPO on the basis of preceding assessment year which no longer survive, therefore, in the interest of justice the matter may be remanded to the file of the A O for reconsideration. We accordingly, set aside the orders of the authorities below and restore ground No.3 and the additional ground to the file of A O for reconsideration in the light of the decision of the Tribunal in the case of the same assessee for preceding assessment year 2002-03 dated 03-03-2009 and the A O is directed to allow the claim of the assessee by verifying the payment of TDS etc. as per law. The A O shall pass reasoned order after giving reasonable sufficient opportunity of being heard to the assessee and the assessee is directed to furnish evidence of payment of TDS in this regard. In the result, ground No.3 and additional ground are allowed for statistical purposes. 17. In the result, appeal of the assessee is partly allowed as indica ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
