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2016 (6) TMI 100 - ITAT MUMBAI

2016 (6) TMI 100 - ITAT MUMBAI - TMI - MTA including the exclusion of interest income for the purpose of computing the ALP - Held that:- It was not the case of the TPO that surplus funds of the company were parked with the bank, that the advance received against the exports were immediately placed in FDR with the bank for the purpose of taking letter of credit in favour of the overseas sellers. A perusal of the balance sheet of the assessee reveales that the reserve and surplus of the assessee f .....

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d have taken place completely and directly outside India. In our opinion, the interest income was an inherent an integral part of the assessee is business activity and same was rightly considered as an operating income for the purpose of calculation of operating margin, by the FAA. So, we endorse the views of the FAA that the interest income emanated from MTA and that same could not be excluded from calculating the operating margin of such activities for the purpose of section 92 of the Act. Thu .....

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that the FAA had reworked the adjustment after considering the extra ordinary items that would affect the profit margin of the assessee for the year under consideration, that the factors like underutilisation of capacity and non-operating expenditure was given due importance by the FAA, that the assessee had he calculated revised margin of the 20 comparables selected by the TPO, that the arithmetic mean arrived at by the assessee was not considered by him, that FAA had held that TPO was incorre .....

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transactions. We find that while reworking the adjustment, the FAA had taken the margin at the rate of 2. 36%. We find that the assessee had not filed any application before the FAA pointing out the apparent mistake in adopting the revised margin i. e. adopting the rate of 2. 36% instead of rate of 1. 07%. Considering these facts, we are of the opinion that matter should be restored back to the file of the AO/TPO to verify the fact and decide the value of the adjustment by taking appropriate rev .....

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e that the facts of the earlier and subsequent years were different from the facts for the year under consideration. The rule of consistency stipulates that in absence of distinguishing facts and circumstances, the AO should not deviate from the stand taken/followed in the earlier years.

Allowability of expenditure on non-compete fee - Held that:- Expenditure incurred under the head non-compete fee is to be treated as capital expenditure, that same is eligible for depreciation.
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same was not produced, that it had made general arguments without any reference to specific material data or evidence. Thus we confirm the disallowance.

Disallowance of premium on payment of leasehold land - Held that:- A lump sum was paid at the time of obtaining a lease. We are of the opinion, that it is a capital expenditure by its nature itself. The lease was for a period of twenty years. So, we are not inclined to disturb the findings of the FAA and hold it to be a capital expend .....

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core evidences. In the case under consideration, the assessee has made only a provision. Historical data or analysis which could have tilted the scale in favour of the assessee, is not available. Therefore, we are of the opinion that the FAA had rightly upheld the order of the AO. The was not able to rebut the fact that the amount in question was only a provision. As far as the case relied upon by the assessee is concerned it is found that the assessee in that matter was a government owned comp .....

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n for employment, the natural corollary which follows is that such discount (i) is an expenditure (ii) such expenditure is on an ascertained (not contingent) liability and (iii) it cannot be treated as short capital receipt. In view of the foregoing discussion, we are of the considered opinion that discount on shares under the ESOP is an allowable deduction - I. T. A. /4336/Mum/2009, C. O/. No. 29/M/2010, I. T. A. /2697/Mum/2011, C. O. 174/Mum/2011, I. T. A. /607/Mum/2012, C. O/. No. 262/M/2012 .....

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ible oils, deoiled cake, crude oil, refined oil, hydrogenated oil and dealing in other agricultural commodities. The details of filing of returns, returned incomes, assessed incomes etc. can be summarised as under: A. Y. ROI filed on Returned Income(Rs. ) Assessment dt. Assessed Income(Rs. ) Dt. of orders of CIT(A) 2005-06 31. 10. 2005 40, 61, 95, 550/- 29. 12. 2008 5, 94, 20, 21, 732/- 11. 05. 2009 2006-07 29. 11. 2006(revised return on 11. 3. 2008) 8, 03, 99, 566/- (declrg taxable income at &# .....

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arm s length price(ALP)of the transaction. During the transfer pricing(TP)proceedings the TPO found that the assessee had acquired the edible oil and fats business of Hindustan lever Ltd. (HLL)during the year under consideration, that the company was formed by the merger of Bunge Agribusiness India Private Ltd. into Geepee Ceval Proteins & Investment Private Ltd. as per the scheme of amalgamation sanctioned by the honorable high courts, that later on Geepee Ceval was renamed as Bunge Agribu .....

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o the import price of the goods, value-added expenses of ₹ 20. 29 crores had been shown that included consultancies, L/C charges, forward premium and foreign exchange premium, that profit margin on value-added expenses was calculated at 489. 28%, as compared to mean margin of 6. 44% of the comparables, that the profit margin was calculated by considering only those expenses as operating cost. The TPO issued a show cause notice asking the assessee as to why FDR interest was included in the .....

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ness income as well as part of operating income. He observed that there was no business compulsion to create the FDRs, that investment in FDRs were made to enjoy interest income, that there was no clear agreement with the suppliers regarding credit period of 180 days, that there was no direct nexus with the business activity and the interest income, that the interest income should be excluded while working out the operating profit. He referred to seven case laws and the provisions of section 80 .....

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merchanting trade, that the assessee had drawn the accounts for MTA by including direct expenditure i. e. purchase cost and value of sales, that for the TP purposes the assessee had amended the audited accounts by excluding the cost of purchase for calculating operating cost of MTA, that the operating cost included both direct and indirect expenditure, that the assessee had excluded direct expendi - ture while computing the operating cost, that it was not entitled to amend the basic structure of .....

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13. 54 crores as against the profit of ₹ 99. 31 crores shown by the assessee for working out the ALP. In light of the change in the PLI a show cause notices were issued to the assessee by the TPO. The assessee submitted that the operating margin of 1. 31% was arrived at after considering the import and export price of goods and the interest income, that the TPO was duty bound to be consistent with his own analysis, that he should have considered the functionally comparable companies that w .....

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that TP regulations recognised the difference between the goods and services. It was stated that the TPO did not consider the trading comparable margin of 0. 94% on cost. However, the TPO started with operating margin of 6. 44% of support service comparables and accordingly determ -ined the ALP of export to AEs at ₹ 80, 32, 96, 30, 156/-. In terms of % adjustment to ALP of export worked out to 6. 24%. The TPO observed that it was more than 5% range, allowable under the proviso to section 9 .....

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involving third-party banks in combination with a 10cent/metric ton spread on the export/import pricing would allow it to earn a sufficient profit, that it transacted with its AE s on and instantaneous basis, that the purchase and sale of various agricultural commodities were undertaken at the same time without carrying out any marketing activities, that it did not play any role in deciding the price of the purchase/sale, that no legal consequences had to be suffered by the assessee as a result .....

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r evaluating the potential to earn interest on the cash flows linked to such transactions, that it had a role limited to preparation of necessary trade documents in the overall trade flow, that it would enter into such purchase and sale transactions without taking physical delivery, that the title to the goods remained with the assessee only for an instant and was simultaneously transferred to the AEs, that it had no control over underlying transactions, that the first leg of the transaction inc .....

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maturity date of L/C and FD would not coincide, that there would be a time lag of a few days between the maturity of L/C and FD, that the L/C would mature a few days before the FD, that the sale proceeds received were utilised to retire the L/C, that in the second leg of the transaction would include entering into a spot by and sell transaction with a view to complete the overall sequence thereof, that L/C was not required to be provided to the AE since it would be a spot transaction, that on m .....

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at arm s length, that the assessee was incapable of controlling the transaction with regard to pricing, terms, delivery, quality of the products, that there was no contractual/financial/legal obligation on part of the assessee, that in case of default by overseas entities the assessee had not to face any risk or liability, that it participated in the International trading of documents of an underlying trade only when there was an opportunity to earn interest income over and above $ . 10/ MT, th .....

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role in MTA was restricted to that of a facilitator and the functions performed by it were more in the nature of support service, that the purchase and sales had to be admitted at arm s length and should not be disregarded in arriving at the operating margin. 4. During the appellate proceedings, the FAA called for a remand report from the TPO. In his remand report, dated 5/5/ 2009, the TPO reiterated his arguments on various issues regarding MTA including the exclusion of interest income for the .....

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odities, that the assessee had made claim of clubbing of both trading loss of international transaction of MTA and interest income with a view to jacking up of net operating margin from import and export of agricultural commodities, that the interest derived from borrowed funds were invested in short-term deposits with the banks, that such income had to be brought to tax under the head income from other sources, that same could not be adjusted against the interest payable by it on term loans sec .....

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pted by it as well as the comparables disclosed in the TP report, that the TPO had neither treated the business model of the assessee differently nor had made any departure in the TP method and comparables disclosed in the TP report, that he had only objected to the computation of net operating margin from trading business division as disclosed in the TP report which was arrived at by amending the audited profit and loss account, that the purchases and sales of agricultural commodities were inte .....

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the remand report, the assessee made elaborate submissions before the FAA on 8/05/2009. 4. 1. After considering the submissions of the assessee and the remand report, the FAA held that no loss had been incurred in the MTA, that from the remand report it was clear that the sales invoices showed earning of $ . 10/metric ton, that overall the assessee had earned profit, that almost all the transactions were with the AEs, that it could not be inferred that assessee had incurred loss in trading oper .....

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served two purposes, that it was placed in FDR, that the FDRs acted as a security and Lien against the L/C to be issued to the supplier, that the L/C on maturity was adjusted against the sale proceeds of the first leg though the advance still remained in form of FDRs, that the assessee had merely changed economic analysis of the MTA, that the inherent business model of the assessee did not change-it remained that of a Trader, that even post-merger the MTA continued to remain the same, that the .....

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incumbent upon the TPO to consider both import and export transaction for computing the operating margin of the assessee. The FAA further held that focus of the assessee, while carrying out the MTA, was to take advantage of the opportunities to earn interest on funds in the intervening period i. e. the time lag between receipt of advance and encashment of L/C at a fixed rate of $. 10/ metric ton, that from the total income earned by the assessee major chunk was coming from the interest earned o .....

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en with the bank for opening L/Cs, that the Live link of earning of interest income from FDRs was well established with carrying on of MTA, that u/s. 92 of the Act the focus was on determination of the income from an international transaction and evaluation of the fact whether it was at arm s length, that the emphasis was on determining the true income attributable to an international transaction, that the determination was based on the functions, assets and risk analysis of the transaction, tha .....

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assessee as a Trader and that the relevant factors for arriving at the arm s length price with regard to an international transaction with its AE s was the business model, the appropriate comparables and the computation of the correct operating income of the assessee for benchmarking the MTA. 5. Before us, the Departmental Representative (DR) contended , that the assessee had not produced any evidence to show that there was an agreement with the suppliers regarding credit period of 180/360 days, .....

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eived by it was an integral part of MTA and that same was factored in the economics of such trade, that nominal trading margin of $. 10/metric ton-when complemented with the embedded interest earning-made the activity economy can visible and profitable, that the assessee had participate in MTA out of its own interest, that there was an opportunity to earn interest income over and above $. 10/metric ton, that interest income was considered and accepted as a part of operating income in the TP orde .....

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the said activity, that the AO/TPO could not go beyond the show cause notice, that the TPO excluded interest income from operating profit and also from PLI without giving any opportunity to the assessee and made transfer pricing adjustments, that the assessee had raised the issue before the AO wherein the company claimed that the order of the TPO was violative of principle of natural justice, that the TPO had benchmark the international transaction of MTA by selecting support service comparables .....

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bles and not the support service comparables, that the company are also provided caL/Culation of margins from the comparable companies having trading activity. He relied upon the cases of Sony India(P) Ltd (315ITR150-AT), E-gain indications Private Ltd(118 ITD 243)Mentor Graphics (Noida)Private Ltd(109 ITD 101), Dharampal Premchand Ltd(317 ITR 353), Vellore Electric Corporation Ltd. (227 ITR 557), Lokay Holdings (308 ITR 356). 6. We find that with a view to benchmark the international transactio .....

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applicable PLI, that while computing the operating cost it excluded the sale and purchase price, that the assessee calculated its operating profit margin from its MTA@489. 28%, that the TPO had carried out detailed analysis for determining the ALP, that considering the support service nature of the functions performed by the assessee, he compared its margin with the margins of comparable companies engaged in support service activities, that he had proposed the adjustments of ₹ 501. 51crore .....

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hange of PLI by the TPO vis-a-vis the assessee meant that the TPO had considered the total MTA(including imports and exports), whereas the assessee had benchmarked the activity by considering the financial results from gross margin($ 0. 10/metric ton)onwards. We find that vide show cause notices dated 14/10/2004 and 16/10/2004 the TPO had computed the operating margin after considering the interest as operating income. Both the notices prove that the TPO was convinced about the claim made by the .....

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tention is invited to Annexure 6 of your T. P. Study for the A. Y. 2005-06, giving the calculation of the Operating Profit Margin of Merchanting Trade Activity. In this calculation the Operating Cost has been taken without considering the import price of goods. The Operating Cost includes both Direct and Indirect Expenditure while you have excluded Direct expenditure i. e, purchase of goods, while computing the Total Cost although the import price of goods has been included in the expenditure sh .....

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an for the Comparables filed by you comes to 6. 44%. Why should this not be benchmarked against the Comparables and adjustment made. From the adjustment calculation, made by the TPO about international transactions, it is clear that the interest portion was not considered for determining ALP. We fail to understand as to how the TPO can make an adjustment without informing the assessee about exclusion of an item-especially when the same was not excluded in the show cause notice. No assessee can b .....

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to why he opted for not including the interest portion while passing the final adjustment order. It appears that once he found the transaction falls within the safe limit(margin of +/- 5%), he decided to exclude the interest portion so that adjustment could be made. If that was the reason, it cannot be endorsed. Definitely adjustments can be made while invoking the provisions of chapter X of the Act, but, not in this manner. Such a trend will result in making adjustments at any cost. TP provisio .....

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e final adjustment order. Therefore, only on this count the order of the TPO has to be reversed. 6. 1. But, we would like to discuss the merits of the case also. We find that interest income was considered as part of operating income in the earlier years by the TPO and that so long there was no change in the facts and circumstances interest income should have been continued to be considered as part of the operating income. In its reply to the show cause notice, dated 16/10/2010, the assessee had .....

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with support service comparables, that the benchmarking process adapted by the assessee was consistent with the process followed and accepted by the TPO in the earlier years, that MTA existed during the pre-merger period and the assessee had carried out the similar activities in the year under consideration, that the nexus of interest on MTA was explained to the TPO in the submissions made on 10/9/2008 and 13/8/2008. It is observed that the TPO had not considered the above replies filed by the .....

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range of +/-5%, the TPO excluded the interest income while making final adjustment. Thus, the operating margin of the assessee from MTA (including interest income) is 1. 31% on cost, as appearing in the show cause notice of the TPO(dated 16/10/2008), as compared to the trading comparable mean margin of 0. 94% on cost (as submitted to the TPO by the assessee in its submission dated 20/10/2008). As it is higher, so it could safely be concluded that assessee s inter - national transactions of MTA w .....

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international transactions, while invoking the provisions of chapter X of the Act, that there was link of interest income with the functional analysis, that the assets were deployed in the business of the assessee, that same were not dependent on the chargeability under the different sets of income. 6. 3. It was not the case of the TPO that surplus funds of the company were parked with the bank, that the advance received against the exports were immediately placed in FDR with the bank for the p .....

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trade documents only. The participation by the assessee at a particular juncture resulted in earning of interest income which would not have been earned if the trade would have taken place completely and directly outside India. In our opinion, the interest income was an inherent an integral part of the assessee is business activity and same was rightly considered as an operating income for the purpose of calculation of operating margin, by the FAA. So, we endorse the views of the FAA that the i .....

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he treatment to be given to the segmental accounts. During the TP proceedings, the TPO found that the assessee had entered into International Transaction relating to import of soyabean oil, palm oil and Palmoline oil as well as export of soya bean meal and rapeseed meal, that it had used CUP method with regard to the international transactions. However, the TPO was of the opinion that CUP was not the MAM. So, he applied TNMM. He drew segmented account and examined the performance of segment othe .....

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commodity. The TPO observed under the TP Regulation ALP of a transaction could vary year to year depending upon economic conditions and comparability of the provisions, that CUP rates, applied by the assessee, were not exactly identifiable, that the same commodity was transacted at different rates in MTA, that assessee was not able to provide the resale margin of the crude oil sold in the local market, that soyabean meal was sold at a different rate as compared to the export to the AEs. 8. Durin .....

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non operating expenses)of the assessee, the operating loss was reduced to ₹ 29. 54crore. Accordingly, the mean operating margin of the comparables, i. e. 2. 36% was applied to the operating income of ₹ 809. 54crore resulting in armslength profit of ₹ 19. 10 crore. He adjusted the loss, entered by the assessee, of ₹ 29. 54 crores and made an adjustment of ₹ 48. 65 crore to the import price. As a result there was an overall reduction in the import price of the assess .....

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by the assessee, that while applying the TNMM he had not accepted all the adjustment proposed by the assessee, that the unutilised capacity in respect of power, fuel etc, was considered at nil as against 20% claimed by the assessee, that it resulted in a higher operating loss by ₹ 3. 81crore, that factory, salary and wages on account of under utilisation capacity was also taken at nil by the TPO as against 70% claimed by the assessee, that it resulted in a higher operating loss by about &# .....

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asons were given by the assessee for taking segmental results of six companies whereas whole company results for remaining 20 companies, that for rejecting the CUP method TPO had given valid reasons, that TNMM was more appropriate method with regard to adjustment to be made. The FAA held that the TPO in the remand report had summarily concluded that non operating expenses, resulting from abnormal items, were correctly accounted for, that the contention of the TPO was not factually correct, that .....

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e extent of 5/7th of the expenses and observed that the loss would be reduced by ₹ 2. 72crore. The FAA allowed ₹ 5. 46crore under the heads salary and wages(5/7th of the expenses) further reducing the loss by ₹ 3. 90crore. Deferred Revenue expenditure of ₹ 1. 05 crore was also allowed, increasing the loss by the same amount. The FAA re-worked the segment account to determine the ALP and arrived at the conclusion that there was a difference of ₹ 43. 07crore to the op .....

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s, that same resulted in adjust - ment of 6. 24% of the value, that the TPO had denied the benefit of proviso to section 92C(2), that when comparable trading companies operating margin on cost of 0. 94%was applied it was clear that assessee s OPM was higher than comparable margin, that the export to AEs was at arm s length, that the ALP for export was lower than the export recorded in the books of account, that the TPO had made adjustment vis-a-viz only the import of goods from the AEs, that man .....

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eduction in the TP adjustment, that it went against the very principle of profit based method, that the adjustment had no consonance to the reality of the situation, that the TPO had approached an incorrect method, that the application of CUP analysis showed that fluctuation in prices of agricultural commodities was at maximum 5%, that adjust - ment of high discount of 54% or lower could not be said to be in justifiable, that transfer pricing was not an exact science, that it was an art wherein .....

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reworked the ALP of international transaction of import of goods in manufacturing activity as under: Rupees Adjusted operating expenses of the assessee shown in (E) above. 7, 90, 44, 26, 285 105% of the above (applying ± 5% as per Proviso to Section 92C(2)-Arms length operating cost-(F) 8, 29. 96, 47, 599 Total Operating expenses of the assessee as per (B) above 8, 33, 51, 92, 616 Difference to be adjusted towards international transctions of import of goods from AEs assessee (F-B)assess .....

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that the assessee had acquired DALDA brand from HLL, that the said acquisition would take some years to fructify, that the assessee had to be extra ordinary costs in that regard, that it had to incur significant start-up costs to establish the newly acquired brands in the initial years of acquisition, it was not able to fully utilise its manufacturing capacity, that there was extraordinary unutilised capacity, that it had calculated revised margin of 20 comparables selected by the TPO and had a .....

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rnational transactions, that the FAA had calculated the amount of adjustment to ₹ 3. 55 crores, that if the correct margin of 1. 07% of the comparables was adapted then the assessee s international transaction of import of oil would be within the permissible limit of+/-5%. 10. We find that the TPO had made an adjustment of ₹ 48. 65 crores to the entire segment of manufacturing activities instead of making the adjustment to only international transactions, that it had an effect of red .....

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FAA had held that TPO was incorrect in not considering the revised caL/Culation of margins, that the FAA had objected to the treatment given to the six comparable where the TPO had not taken the segments based on their economy profile, that the FAA had mentioned that revised margin (1. 07%) had to be adapted for determining adjustments and the resultant ALP. In our opinion, the TPO was not justified in making adjustment to the entire segment of manufacturing activity and not restricting the sam .....

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hapter X of the Act, the determination of the consideration is to be done only with regard to income arising from international transactions on determination of ALP. The adjustment which is mandated is only in respect of international transaction and not transactions entered into by assessee with independent unrelated third parties. This is particularly so as there is no issue of avoidance of tax requiring adjustment in the valuation in respect of transactions entered into with independent third .....

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f rate of 1. 07%. Considering these facts, we are of the opinion that matter should be restored back to the file of the AO/TPO to verify the fact and decide the value of the adjustment by taking appropriate revised margin rate. Grounds No 2 and 3 are decided accordingly. 11. Ground No. 4 is about treating the interest income as business income amounting to ₹ 114. 87crore. During the assessment proceedings, the AO found that the assessee had shown interest income of ₹ 1, 14, 87, 57, 0 .....

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ection with the business activity, that same was rightly taxed under the head income from other sources, that the assessee had parked its extra money to earn interest. The AR contended that the company would receive advance against the delivery to be made within 180/360 days, that it would approach a local bank to open L/C for payment at 180 days from the date of the L/C for the import leg of transaction, that the L/C issuing bank would mandate the company to place funds in the FDRs to act as se .....

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TR 2), Lok Holdings (308 ITR 356). 14. We have heard the rival submissions and perused the metal before us. We find that while adjudicating the first ground, we have extensively dealt with the issue and have noted the facts. We have held that the placing of money in the banks in the forms of FDRs was directly linked with the carrying out of business of the assessee. We further find that interest income and by the assessee has been accepted to be taxable under the head income from dismiss a profe .....

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does not suffer from any legal infirmity. Confirming the same, we decide fourth ground of appeal against the AO. 15. Fifth Ground deals with non-compete fee of ₹ 2, 46, 34, 254/-. During the assessment proceedings, the AO found that the assessee had claimed revenue expenditure of ₹ 2. 45 crores, that it had claimed that it had acquired edible oil and fats business of Hindustan Lever Ltd. (HLL)with effect from September 2003, that the business purchases consisted of tangible assets, .....

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ith regard to business taken over from HLL, that it was further claimed that the assessee was entitled for depreciation of good will, that it was writing off the non-compete payment proportionately over a period of 5 years in the books of accounts, that the non-compete payment was treated as revenue expenditure in the return of income by the assessee, that a pro-rata claim had been made over a period of 5 years, that the assessee had capitalised the amount paid to PFL in the books of accounts, t .....

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dered as miscellaneous expenditure whereas the payment made to PFL has been considered as fixed asset. After considering the submission of the assessee the AO held that the assessee would derive benefit from payments made to HLL and PFL for a very long period, that expenses incurred by it could not be allowed as revenue expenditure. Finally, he made disallowance of ₹ 2. 45 crores. 16. Aggrieved by the order of the AO, the assessee preferred an appeal before the FAA. After considering the a .....

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uld not be considered a long period, that the assessee required entering into non-compete agreement was only in the form of forbearance undertaken by the seller for a limited period, that no enduring benefit had occurred to the assessee, that the expenses incurred by it could not be considered as capital expenditure. Following the order of the earlier year, the FAA allowed the appeal. 17. During the course of hearing before us, the AR fairly conceded that the issue is covered against the assesse .....

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enses has crystallized during the year. In addition to the above, assessee has raised the following additional ground: "Without prejudice to ground 2, the learned Assessing Officer erred in not allowing depreciation in respect of non compete fees of ₹ 5, 29, 00, 000 paid to Hindustan Lever Limited. " XXXXX 31. We have considered the rival submissions carefully. We find that assessee has also raised second additional ground and while adjudicating the same it was found in the later .....

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r will constitute capital expenditure and is not allowable u/s. 37[1]. Therefore, respectfully following this decision while confirming the order of the Ld. CIT(A), we direct the AO not to allow as business expenditure the amount of non compete fee which may be determined by him. 32. Addl. Ground No. 2: The Ld. Counsel of the assessee submitted that even if the non compete was held to be of capital nature, even then same has to be construed as intangible asset and accordingly depreciation has to .....

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t was held that non compete fee would constitute capital asset and depreciation was ultimately held to be allowable. However, we find that the AO vide para-8 of his order has observed that non compete fee was not mentioned in the agreement as a separate payment. Therefore, he should find out the amount of non compete fee determined by the assessee and accordingly allow depreciation in view of the decision the Chennai Tribunal in the case of ACIT vs. Real Image Tech (P) Ltd. [supra]. Respectfully .....

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ssessee, vide order sheet entry dated 11. 12. 2008 and 16. 12. 2008, to explain as to how the expenditure could be allowed as revenue expenditure. The assessee contended that during the FY 2004-05 it had paid ₹ 57. 27 lakhs to A. C. Neilson(ACN) for providing market share data on monthly basis, that the data provided by ACN included the market share achieved by Dalda brand in each of the months, that such expenses were incurred every year and the benefits arising out of such expenditure wo .....

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er of the AO, the assessee preferred an appeal before the FAA, who held that there was no enduring benefit derived from the expenditure. Following the order for the A. Y. 2005-06, he treated it revenue expenditure. 20. Before us, the DR stated that the expenditure incurred by the assessee was of capital nature, that it had resulted in enduring benefit to the assessee. The AR contended that the assessee was not deriving and in benefit from the market research, that such research would become obso .....

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an of life of the survey is very short. We find that in the case of Ananda Bazar Patrika (P) Ltd. , the Hon ble Calcutta High Court has held as under: ………the market survey would give information about the circulation of the newspaper at a given point of time. There was no evidence to show that the readership would remain constant over a large number of years. Hence, the expenditure incurred on market survey could not be said to have brought into existence anything of an endu .....

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sed by the assessee directly connected with the grounds number 2&3, raised by the AO in his appeal. Following the same, effective ground of appeal is decided accordingly. ITA/2697/MUM/2011-AY. 2006-07: 23. First ground of appeal is about application of CUP and rejection of TNMM for import of oil. Following our order for the earlier years(Grounds 2&3), we restore back the issue to the file of the AO. Ground No. 1 is decided accordingly. 24. Second Ground deals with interest income and by .....

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We had dismissed the appeal filed by the AO while deciding the appeal for the last assessment year. Following the same ground number four is decided against the AO. Cross objection/174/MUM/2011-AY. 2006-07: 27. First two grounds of CO were not pressed by the AR, during the course of hearing before us. Hence, same stand dismissed as not pressed. 28. Third Ground pertains to disallowance of expenditure of ₹ 96, 005/-incurred on land and site development. Rejecting the claim made by the asses .....

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med deduction on any item that same was not produced, that it had made general arguments without any reference to specific material data or evidence. He confirmed the disallowance. 30. Before us, the AR submitted that the depreciation claim may be allowed for the expenditure. The DR supported the order of the FAA. We have considered the rival submissions and perused the material before us. In our opinion the order of the FAA does not suffer from any legal infirmity. So, confirming his order, we .....

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had paid an amount of ₹ 2. 81 crores as upfront premium for acquiring the land, that the amount in question was being claimed on proportionate basis over the lease period of 20 years, that annual lease payment of ₹ 19. 58 lakhs was a revenue expenditure. The AO directed the assessee to justify the claim. After considering the submission of the assessee it was held that land was capital asset, that expenditure incurred was on acquiring of land and expenses incurred by way of annual le .....

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pellate order, that held that the appellant had made lump sum payment called "Salami" at the time of obtaining a lease, that by its very nature such transactions were capital in nature as they provide enduring benefit to a businessman. Confirming the order of the AO, he upheld the disallowance 33. Before us, the AR contended that the expenditure was incurred for business purposes, that same was interlinked with acquisition of lease hold rights of lands, that the assessee had incurred a .....

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the case of Madras Industrial Investment Corporation Ltd. the issue was about discount-expenses incurred for issuing debentures. In our opinion, the matter is of no help to resolve the issue. In the case under consideration, a lump sum was paid at the time of obtaining a lease. We are of the opinion, that it is a capital expenditure by its nature itself. The lease was for a period of twenty years. So, we are not inclined to disturb the findings of the FAA and hold it to be a capital expenditure .....

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le details in that regard. But, no explanation or details were filed in that regard. So, he disallowed the claim made by the assessee. 36. Aggrieved by the order of the AO, the assessee preferred an appeal before the FAA. After considering the order of the AO and the submissions of the assessee, he held that under the Act, the deduction was generally and mainly allowed on actual basis, that the assessee had claimed that provision to obsolete stores had been made on scientific basis, that no mate .....

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rse of business at which they were to be stated in the balance sheet the provision had to be provided for. He relied upon the case of Indian Rare Earth Ltd. (375 ITR 276), delivered by the Hon ble Bombay High Court. The DR supported the order of the FAA. 37. We have heard the rival submissions and perused the material before us. We find that though the assessee had claimed that it had followed a scientific method with regard to the obsolete stores, but it has not furnished any documentary eviden .....

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ied upon by the assessee is concerned it is found that the assessee in that matter was a government owned company and had changed its method of valuation as per the directions of the C&AG. The facts of the present case are totally different. Confirming the order of the FAA, we decide ground no. 5 against the assessee. ITA/607/MUM/2012-AY. 2007-08: 38. All the three grounds, raised by the AO (application of CUP/rejection of TNMM for import of oil, non-compete fee, market research expenses of .....

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ccordingly. 40. Sixth Ground is about treatment to be given to the interest income. Following our order for the earlier year, where the issue was raised by the AO, we hold that interest income is to be assessed as business income instead of income from other sources. Ground 6 is decided in favour of the assessee. 41. Disallowance of provision of ₹ 64. 15 lakhs made towards obsolete stores is the subject matter of ground 7. Following our order for the earlier year, we decide ground no. 7 ag .....

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as per the provisions of section 37 of the act. In the appellate proceedings, the FAA upheld the order of the AO. 43. Before us, the AR contended that the provisions in the accounts were made in conformity with the mandatory accounting standards and as per SEBI regulations, that upon the ESOP grant provision was required to be made in the books of accounts, that the assessee would make the payment to the parent company towards the debit notes, that the ESOPs were granted to the eligible employe .....

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