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2016 (5) TMI 265

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..... that the Tribunal vide its order dismissed the appeal, filed by the AO. Considering the above, issue restored back to the file of the AO for fresh adjudication. He is directed to decide the issue as per the directions given in the order for the AY. 2003-04 Exclusion of 90% of the certain business receipts from the profit of the business for the purpose of computing deduction u/s. 80 HHC - Held that:- Exclusion of insurance claim is confirmed as relying on case of Pfizer Limited [2010 (6) TMI 433 - Bombay High Court ] as held the insurance claim on account of the stock-in-trade did not constitute an independent income or a receipt of a nature similar to brokerage, commission, interest, rent or charges. Hence, such a receipt would not be subject to a deduction of ninety per cent. It is found that issue of sales tax refund and sales tax set off has been decided in favour of the assessee by the Hon’ble Apex Court in the case of Alfa Lavel (India) Ltd. (2007 (11) TMI 281 - SUPREME Court ). We find that the issue of registration charges written back was decided in favour of the assessee by the Tribunal while deciding the case of Extrusion Process Private Ltd. (2006 (6) TMI 261 .....

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..... ed, that the average sale price to non-AEs of USD 14. 64 per Kg. resulted in adjusted APL of USD13. 99 per Kg. In our, opinion there is no legal or factual infirmity in the order of the FAA. Therefore, confirming the same we decide ground against the AO. Deduction u/s. 80 HHC - Held that:- 90% of the receipts of the assessee under the three heads i. e. consultancy services,sundry creditors balances written back and sundry income should not be excluded from the profit of the business for the purpose of computing deduction u/s. 80 HHC of the Act. Reduction of profits eligible for deduction u/s. 80HHC for the purpose of calculating book profits u/s. 115JB - Held that:- Identical issue has been decided in favour of the assessee by the Tribunal , while adjudicating the appeal for the AY. 2003-04 to hold that deduction claimed u/s. 80HHC had to be worked out on the basis of adjusted book profit u/s. 115JA and not on the basis of profits computed under regular provisions of law applicable to computation of profits and gains of business. Deemed dividend addition u/s 2(22)(e) - Held that:- Commercial transactions between two companies could not be brought within the purview of t .....

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..... AO. - Decided in favour of assessee Non-adjudication of the ground relating to computation/re-computation of capital loss on liquidation of investment held by the assessee in G-USA- Held that:- FAA should have decided the issue raised by the assessee. The TP adjustments do not deal with computation/ re-computation of capital loss. Such computation will have its own consequences. The assessee had specifically mentioned that loss would have to be computed at ₹ 23. 06 crore as against ₹ 18. 2 to crores. As the FAA has not adjudicated the issue, so, in the interest of Justice, we are restoring back the issue to the file of the FAA for fresh adjudication. He is directed to afford a reasonable opportunity of hearing to the assessee. First ground of appeal is decided in favour of the assessee, in part. Disallowance of additional deduction u/s. 35(2AB)(1) in respect of the expenditure of ₹ 15. 57 crores incurred on in-house research and development activity carried out its Dombivili R&D facility - Held that:- As the AO/FAA did not have benefit of the certificate issued by the Board at the time of assessment/deciding the appeal. So, following the above order of the .....

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..... in favour of the assessee by his predecessor in the immediately preceding year, that the appeals filed by the Department against the order of his predecessor for the AY. s. 2000-01 and 2001- 02 had been dismissed by the Tribunal , that there was no change in facts during the year as compared to the facts in the earlier years. Therefore, he directed the AO to delete the disallowance of interest relatable to CWIP. 2. 2. During the course of hearing before us, Authorised Representative(AR)and Departmental Representative(DR)agreed that the issue stands decided in favour of the assessee by the orders of the Tribunal for the AY. s2000-01, 2001-02 and 2003-04. We would like to re-produce the relevant portion of the order of the Tribunal dealing with the issue dealt with in the appeal for the AY. 2003-04 (ITA/4405 4246/Mum/2007-dtd. 16. 01. 2015)and same reads as under: 9. 2. Before us, Representatives of both the sides agreed that the issue is covered by the order of the Tribunal for the earlier years. (ITA/2146-47/M/2007/-dated 12. 12. 2008, AY. 2000-01, 2001-02. ). We have heard the rival submission. We find that in the earlier years identical issue had arisen in the appeal file .....

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..... : 2. 2. Before us, Authorised Representative(AR)stated that the Tribunal vide order dated 30. 11. 2009 (ITA2242/Mum/2006/-AY. 2002-03)had restored back the matter to the file of the AO, that the AO did not give effect to the order of the Tribunal in the manner it was argued, that the assessee had approached the FAA, that he allowed the relief sought for, that the AO had challenged the order of the FAA before the Tribunal, that the Tribunal had dismissed the appeal of the AO on 22. 05. 2013, that matter could be restored to the file of the AO for the year under appeal also. He relied upon the decision of jurisdictional High Court delivered in the case of Mahalakshmi Glass Works(P)Ltd. (381ITR116). He referred to page no. 1 to 4 of the paper book. Departmental Representative(DR)stated that he had no objection if the matter was sent back to the AO. 2. 3. We have heard the rival submissions and perused the material before us. We find that at page no. 4 of the paper book, the assessee has given the impact of the adjustment of Modvat Credit to the Profit Loss Account for the year under consideration. In our opinion, in the interest of justice matter should be restored back t .....

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..... (P. )Ltd. (118TTJ865). With regard to Sales tax refund and sales tax set off she relied upon the case of Alfa Lavel (India)Ltd. (295ITR451). For registration charges written back the AR relied upon the cases of Bisazza India Ltd. (ITA No. 1027 of 2010)and Extrusion Process Private Ltd. (106ITD336). 5. 2. We have heard the rival submissions and perused the material before us. We find that the Hon ble Bombay High Court has discussed the issue of exclusion of insurance claim in the matter of Pfizer Limited(supra)as under: A contract of insurance was a contract of indemnity. The insurance claim in essence indemnifies the assessee for the loss of the stock-in-trade. The indemnification that was made to the assessee must stand on the same footing as the income that would have been realized by the assessee on the sale of the stock-in-trade. In these circumstances, the insurance claim on account of the stock-in-trade did not constitute an independent income or a receipt of a nature similar to brokerage, commission, interest, rent or charges. Hence, such a receipt would not be subject to a deduction of ninety per cent. under clause (1) of Explanation (baa). In determining the profit .....

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..... s, etc. and the same being derived directly from the business activities of the taxpayer company, they could not be excluded from the profits of the business for the purpose of computing deduction under s. 80HHC. Reliance in support of this contention was placed on behalf of the taxpayer company on the decision of Hon'ble Bombay High Court in the case of CIT vs. Bangalore Clothing Co. (2003) 180 CTR (Bom) 127. In the said decision, it was held by the Hon'ble Bombay High Court in this context that if any receipt forms part of the operational income of the taxpayer having regard to its dominant business, the same would be entitled to be included in the profits of the business for the purpose of computing deduction under s. 80HHC. According to the learned CIT(A), all the receipts i. e. sale of scrap, amounts written back and sale proceeds of spare parts included in the miscellaneous income of the taxpayer company were directly related to its dominant business. He, therefore, held that the same forming part of its operational income was liable to be included in the profits of the business for the purpose of computing deduction under s. 80HHC. 8. After considering the ri .....

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..... deduction under Chapter VIA in view of provisions of Section 32(2) r. w. s. 72(2)of the Act, wherein the same was to be considered first before allowing any deduction u/s. 80HHC. He referred to the judgment of the Hon ble Supreme Court in the case of Ipca Laboratories Limited(266 ITR 521)and held that while computing deduction u/s. 80HHC brought forward loss is to be reduced before claiming deduction, that the assessee's income became NIL after considering the unabsorbed brought forward depreciation it would not be entitled to any deduction u/s. 80HHC. In short, the claim of deduction u/s 80HHC was disallowed. He further held that the exporters having export turnover exceeding ₹ 10 Crores during the previous year had an option to choose either duty draw back or duty free replenishme certificate being duty Remission Scheme, that the assessee's export turnover exceeded ₹ 10 crores, that it did not fulfill the above mentioned conditions, that DEPB benefit could not be considered for working out deduction u/s. 80HHC. As such in view of NIL profit as discussed above the assessee company is not entitled for deduction u/s. 80HHC. 4. 1. In the appellate proceedin .....

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..... actually wrong in stating that assessee did not provide the necessary and comparable evidence with regard to purchase from a sister concern. The assessee filed a copy of a certificate issued by TC before the FAA, wherein it was certified that the first was the common name whereas the second was specific name of the product. As per the assessee, that the said evidence was made available to the AO. After considering the submission of the assessee and the assessment order, the FAA held that the disallowance had been made by the AO on the premises that the assessee did not produce the necessary and comparable evidence, that from the copy of certificate issued by TC it was clear that the necessary and comparable evidence was furnished to the AO. 7. 2. The DR left the issue to the discretion of the bench. The AR supported the order of the FAA. We have heard the rival submissions. We find that the assessee had produced a reliable evidence in form of a certificate issued by TC, that the AO did not discuss anything about it and made the disallowance. In our opinion, the order of the FAA does not suffer from any legal or factual infirmity. He had decided the issue after considering the .....

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..... nt in the price for certain differences such as custom duty registration, cost selling and distribution expenses, that the assessee had incurred expenses like commission freight and warehousing, while making sales to non-USA market, that USA and non-USA market were completely different, that while determining the ALP, for the year 2002-03, the TPO had allowed the adjustment for the same expenses incurred by the assessee in respect of sales of Diacamba, that the adjustment of selling and distribution expenses of USD 0. 65 per Kg. to the average sale. 8. 2. After considering the submission of the assessee and the order of the TPO, the FAA held that the assessee was basically an Indian company, that it had set up an AE in USA, that from the local registration prospective it was essential for the assessee to have a USA entity, that accordingly G-USA was set up to carry out registration marketing and distribution functions, that the AE was based in USA where the marginal rates were higher than that of India, the AE at USA had suffered a loss, there would not be any saving or avoidance of tax by the assessee by shifting profits to USA, that from the risk metrics point of view it was a .....

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..... e AO(GOA-3)we have decided the issue against the AO, in part and matter has been restored back to the file of the AO. Following the same first two grounds stand allowed in favour of the assessee, in part. AO has to verify the facts as directed in the earlier part of our order. 10. Ground No. 3 is with regard to confirming reduction of 90% of business receipts while computing business profit for the purpose of deduction u/s. 80HHC which includes consultancy expenses, sundry credit balance written back, penalty recovered, analysis charges, interest Brokerage on FD, Sundry income and other miscellaneous income. The FAA had upheld the exclusion of various items while computing the deduction u/s. 80HHC of the Act. 10. 1. During the course of hearing before us, the AR of the assessee stated that out of seven receipts the assessee wants to pursue three receipts only i. e. consultancy services(Rs. 12. 91 lakhs)sundry creditors balances written back (Rs. 1. 01lakhs) and sundry income (Rs. 39. 88 lakhs). With regard to consultancy services, it was argued that issue has been decided by the Hon ble Bombay High Court in the case of Pfizer Ltd(330 ITR 62), that in the cases of TV Sundara .....

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..... rance claim in essence indemnifies the assessee for the loss of the stock-in-trade. The indemnification that was made to the assessee must stand on the same footing as the income that would have been realized by the assessee on the sale of the stock-in-trade. In these circumstances, the insurance claim on account of the stock-in-trade did not constitute an independent income or a receipt of a nature similar to brokerage, commission, interest, rent or charges. Hence, such a receipt would not be subject to a deduction of ninety per cent. under clause (1) of Explanation (baa). In determining the profits of the business for the purposes of Explanation (baa), the incomes which were susceptible to a reduction of ninety per cent. were those incomes referred to in clauses (iiia), (iiib) and (iiic) of section 28 and receipts by way of brokerage, commission, interest, rent, charges or receipts of a similar nature included in such profits. Therefore, before a receipt was liable to be excluded to the extent of ninety per cent. , it must be a receipt of a nature similar to brokerage, commission, interest, rent or charges. Therefore the claim on account of insurance for the stock-in-trade did no .....

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..... no. 4 filed by the assessee, we have narrated the facts related with the question under consideration. 12. 1. Before us, Representative of both the sides conceded that issue was decided by the Tribunal in favour of the assessee. We find that originally the question was decided agaisnt the assessee. But, later on an appliaction was filed by the assessee u/s. 254 (2) of the Act before the Tribunal, who recalled its order. By its order dated 25. 01. 2012, the Tribuanl relying upon the decision of the Hon ble Apex Court in the case of Bhari Information Technology symstems Ptv. Ltd. (17 taxmann. com. 62), decided the issue in favour of the assessee. 12. 2. Resectfully following the above, we also hold that deduction claimed u/s. 80HHC had to be worked out on the basis of adjusted book profit u/s. 115JA and not on the basis of profits computed under regular provisions of law applicable to computation of profits and gains of business. Respectfully, following the above order, 4th ground of appeal is decided in favour of the assessee. 12. Ground number 5, raised by the assessee, was not pressed by the AR during the course of hearing before us. Hence, the same stands dis .....

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..... dividend within the meaning of the provision if the following conditions are fulfilled : (i) the company making the payment is one in which the public are not substantially interested ; (ii) money should be paid by the company to a shareholder holding not less than ten per cent. of the voting power of the company. It would make no difference if the payment was out of the assets of the company or otherwise ; (iii) the money should be paid either by way of an advance or loan or it may be any payment which the company may make on behalf of or for the individual benefit of any shareholder or also to any M/s. Gharda Chemicals Ltd. concern in which such shareholder is a member or a partner and in which he is substantially interested ; and (iv) the limiting factor being that these payments must be to the extent of accumulated profits, possessed by such a company. The immediate precursor to section 2(22)(e) is found in section 2(6A) of the Indian Income-tax Act, 1922. The purpose of insertion of sub-clause (e) to section 2(6A) in the 1922 Act was to bring within the tax net monies paid by closely held companies to their principal shareholders in the guise of loans and .....

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..... d ; (ii) both the terms, that is, advance or loan are related to the accumulated profits of the company ; and (iii) the purpose behind the insertion of the term advance was to bring within the tax net payments made in the guise of loan to shareholders by companies in which they have a substantial interest so as to avoid payment of tax by the shareholders. The word M/s. Gharda Chemicals Ltd. advance which appears in the company of the word loan could only mean such advance which carries with it an obligation of repayment. Trade advances which are in the nature of money transacted to give effect to a commercial transaction would not fall within the ambit of the provision of section 2(22)(e) of the Act. The assessee was in the business of manufacturing customized kitchen equipment. The assessee was also the managing director and held nearly 65 per cent. of the paid-up share capital of C. A substantial part of the business of the assessee, which was nearly 90 per cent. was obtained through C. For this purpose, C would pass on the advance received from its customers to the assessee to execute the job work entrusted to the assessee. The Assessing Officer was of the opinio .....

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..... had entered into an agreement with it on 18. 12. 2012 pursuant to which GAus allowed the it to use the said product registration held by the AE, that in lieu thereof it was agreed that assessee would pay usage charges products registration to its AE, that the usage charges was calculated in order to cover the general and administrative costs incurred by the AE for its operation, that for selling chloropyriphos(CPF)the AE procured registration data from Makhteshim Agan (Australia)Pty Ltd (MAA), that MAA was an unrelated third party, that as per the agreement for procuring registration data the AE had to pay US$ 0. 25 per Kg unit sold and debit note would be raised on it by MAA, that the AE had charged the assessee 0. 35 USD for the sale of CPF product, that it included the 0. 25 USD charged to the third party and further 0. 10 USD in order to cover its general and administrative cost, that for all other products the AE held product registration and did not procure registration data from any other third-party, that the AE was not rendering any service to the assessee except as a holder of product registration, that the AE was not entitled to any markup on the cost that had been incur .....

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..... AE was hundred percent subsidiary company of the assessee, that it had taken over the 100% subsidiary company and all the assets and liabilities were taken over, that as per the provisions of section 47(iv)/ (v) transactions from the holding company to subsidiary company or vice versa were not regarded transfer, that provisions of section 45 of the Act were not applicable, that the computation of capital gains could not be carried out in respect of transactions with the AE, that adjustment of ₹ 23. 06 crores would result in reworking of capital loss, that the value of registration had to be reduced to ₹ 44. 92 crores, that there was a loss of capital to the assessee. He further held that the adjustment was not called for computation of income under the head capital gains in view of the provision of section 47 of the Act, that assessee was not entitled to carry forward of long-term capital loss and the claim made by it in that regard had to be rejected. He held that depreciation was to be allowed in respect of registration right taking the value before the revaluation of ₹ 44. 92 crores. He worked out the depreciation @ 25%(Rs11. 23 crores) is against the assessee .....

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..... rship of the registration rights of the products as required by the law of that country, that the AO/TPO had made an adjustment of ₹ 23. 06 crores by rejecting the valuation of registration rights by an independent expert value, that the TPO had not read the valuation report in proper perspective, that the assessee had requested the valuer to further clarify the valuation report, that the valuer had reported that accurate determination of actually study costs paid by the that order was key in preparing the basis for valuing the total negotiated settlement paid by the fellow on registration, that the assessee had incurred cost of USD1, 28, 16, 995 and further sum of USD30, 62, 311 was also spent, that AE had incurred expenditure of USD 1, 58, 79, 306 and not USD 97, 33, 679 as adopted by the TPO, that the business of the assessee was growing from year to year. During the appellate proceedings, the assessee made an application for admission of additional evidences under rule 46Aof the income tax rules, 1962. After admitting the additional evidences, the FAA forwarded a copy of the documents to the TPO for his comments. The TPO filed his comments in that regard. After conside .....

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..... accepted. 18. 2. Before us, the DR relied upon the order of the TPO. The AR made the same submissions that were made before the FAA and supported his order. We have heard the rival submissions and perused the material before us. We find that the wholly owned subsidy of the assessee held registration rights in two products, that it had paid registration charges for selling those products in the US markets, that it had also paid other fees as required by the US laws, that it had incurred total expenditure of USD 1, 58, 79, 306 under the head registration charges, that the AE got the assets revalued as on 01. 01. 2204, that registration rights were revalued from ₹ 44. 29 crores to ₹ 67. 99 crores by the independent valuer, that on 30. 09. 2004 the AE was dissolved, that the assessee took over the assets and liabilities of the AE at the revalued price, that the payment for registration rights and other fees were paid much before the revaluation, that it adopted lesser value of the rights as compared to the value determined by the valuer, that further clarification were called from the valuer, that in the remand report the TPO agreed that payment was made by the AE for .....

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..... long-term capital loss. The DR left the issue to the discretion of the bench. 20. 2. After hearing the rival submissions, we are of the opinion that the FAA should have decided the issue raised by the assessee. The TP adjustments do not deal with computation/ re-computation of capital loss. Such computation will have its own consequences. The assessee had specifically mentioned that loss would have to be computed at ₹ 23. 06 crore as against ₹ 18. 2 to crores. As the FAA has not adjudicated the issue, so, in the interest of Justice, we are restoring back the issue to the file of the FAA for fresh adjudication. He is directed to afford a reasonable opportunity of hearing to the assessee. First ground of appeal is decided in favour of the assessee, in part. 21. Second ground of appeal is about not allowing additional deduction of 50% (i. e 150% -100%) u/s. 35(2AB)(1) of the Act in respect of the expenditure of ₹ 15. 57 crores incurred on in-house research and development activity carried out its Dombivili R D facility. 21. 1. During the course of hearing before us, the AR stated that the CBDT had issued the certificate on 30. 3. 2009, that assessee was enti .....

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