TMI Blog2017 (4) TMI 231X X X X Extracts X X X X X X X X Extracts X X X X ..... n Panel that a sum of ₹ 10 lakhs received as advance was returned back and hence the Dispute Resolution Panel has directed the Assessing Officer to delete the same. Hence, in case the advances have not been adjusted against the subsequent sales, we are of the view that the assessee should be provided with an opportunity to explain the reasons, which shall be examined by the Assessing Officer in accordance with the law. Transfer pricing adjustment made on payment of royalty - Held that:- The payment of royalty by the assessee to its associated enterprises, Dow, Netherlands at five per cent. on domestic sales and eight per cent. on export sales is liable to be considered as at an arm's length rate in view of Circular No. 5 dated July 21, 2003 (supra). Therefore, the addition made by the Assessing Officer on this count is unsustainable. Disallowance of leave encashment under section 43B - Held that:- Supreme Court, in the case of Exide Industries Ltd., (2008 (9) TMI 921 - SUPREME COURT ) has stayed the decision rendered by the honourable Calcutta High Court [2007 (6) TMI 175 - CALCUTTA High Court ] and further held that the disallowance should be made in terms of section ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ficer to substantiate the claim. Claim of set off of brought forward unabsorbed depreciation - Held that:- Since this issue requires verification at the end of the Assessing Officer, we restore the same to his file with the direction to compute and allow the correct amount of brought forward unabsorbed depreciation. Disallowance of loss arising on revaluation of debtors and creditors balances on the basis of foreign exchange fluctuations - Held that:- The impugned loss cannot be treated as notional/speculation loss and the same is allowable as per the decision rendered by the honourable Supreme Court in the case of CIT v. Woodward Governor India P. Ltd. [2009 (4) TMI 4 - SUPREME COURT ] Disallowance of bad debts claim - Held that:- Departmental representative did not dispute the fact that the amount of ₹ 9.62 crores represents sales made by the assessee in the earlier years, meaning thereby, the condition prescribed under section 36(2) stands satisfied. There is also no dispute that the assessee has actually written off the debts as bad in its books of account. Hence, we are of the view that the learned Commissioner of Income-tax (Appeals) was justified in allowing t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ase of Dow Chemical International Private Limited v. Addl. CIT (a group company) in I. T. A. No. 7460/Mum/2010 relating to the assessment year 2006-07 dated March 10, 2015 and the said issue was set aside to the file of the Assessing Officer for determination of the nature of lease by examination of the lease agreement. 5. On the contrary, the learned Departmental representative submitted that computers are normally returned back to the supplier after completion of lease period for refurbishing/upgrading them in order to suit the requirement of the assessee in order to reduce the investment cost in computers. Accordingly he submitted that the lease can only be financial lease as opined by the Assessing Officer. 6. We have heard the rival contentions and perused the record. As submitted by the learned authorised representative, the co-ordinate Bench of the Tribunal has considered the issue and restored the same to the file of the Assessing Officer with the direction to examine the lease agreement in order to ascertain as to whether lease agreement entered by the assessee is in the nature of financial lease or operating lease. In the instant case also the lease agreement was no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ss of the advances by filing the confirmation letters including the permanent account numbers of persons from whom advances were received. Further the Assessing Officer has already granted relief in respect of advances, which have been adjusted against the subsequent sales. 10. We have heard the parties on this issue. It is the contention of the assessee that the advances have been received from its regular customers through banking channels and the same has been adjusted against the subsequent sales made to those customers in most of the cases. The assessee has also submitted that due to high volume of customers, it could not obtain confirmation letters from all the parties. Further the learned authorised representative submitted that the assessee cannot also enforce the customers to furnish their permanent account numbers. We notice that the learned Dispute Resolution Panel has directed the Assessing Officer to delete the addition, if the advances have been adjusted against the subsequent sales made to the parties. We are of the view that the direction given by the learned Dispute Resolution Panel is reasonable one. At the same time, there is merit in the contention of the ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essment year 2004-05 and the Tribunal, vide its order dated August 10, 2016, has deleted the transfer pricing adjustment. Accordingly, the learned authorised representative pleaded that the order of the Income-tax Appellate Tribunal passed for the assessment year 2004-05 may be followed in these three years also. 12. The learned Departmental representative did not dispute the factual aspect submitted by the learned authorised representative. 13. We have heard the parties on this issue. We notice that the identical issue was considered by the co-ordinate Bench in the assessee's own case for the assessment year 2004-05 (supra) and the same has been decided in favour of the assessee. For the sake of convenience we extract below relevant observations made by the co-ordinate Bench for the assessment year 2004-05 : 7.1 In order to appreciate the aforesaid, the following discussion is relevant. The royalty paid by the assessee to its associated enterprise, i.e., Dow Netherlands has been approved by the Secretariat of Indus trial Approval (SIA), Ministry of Industry (Government of India) vide communication dated September 7, 1996 and also by the Reserve Bank of India dated M ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... learned representative for the assessee also pointed out that the comparable transaction adopted by the Transfer Pricing Officer, i.e., payment of royalty by Dow, UK to Dow, Netherlands was a wrong approach inasmuch as comparison could be made only with an uncontrolled transaction, whereas in the case of Dow, UK and Dow, Netherlands, both were associated enterprises and, therefore, payment of royalty by Dow, UK to Dow, Netherlands was a controlled transaction and accordingly, the same could not be considered as a valid comparable uncontrolled price data. In so far as the latter plea of adoption of controlled transaction was concerned, the Commissioner of Income-tax (Appeals) in the assessment year 2002-03 has accepted the plea of the assessee. However, with regard to the plea of the assessee based on the rate of royalty approved by the Central Government is concerned, the Commissioner of Income-tax (Appeals) rejected the same as according to him, such rates could not be considered as valid comparable uncontrolled price data. The Commissioner of Income-tax (Appeals) had however, allowed relief by benchmarking royalty payment under the transactional net margin method whereby, the ma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rve Bank of India, Exchange Control Department, Central Office, Mumbai, a copy of which has been placed on record. The learned representative for the assessee pointed out that before the honourable High Court, the Revenue stated the Press Note No. 9 (2000 series) dated September 8, 2000 was applicable to examine the reasonableness of the royalty paid while computing the arm's length price. 7.3 On the basis of the aforesaid it is canvassed that the royalties paid by the assessee are in terms of the approval granted by SIA as also in terms of Circular No. 5 dated July 21, 2003 (supra) of the Reserve Bank of India and, therefore the royalty paid at eight per cent. on exports and five per cent. on domestic sales are to be considered at the arm's length rate. 7.4 Although the learned Departmental representative did not dispute the factual matrix, but he has merely relied upon the order of the Transfer Pricing Officer in support of the case of the Revenue. 7.5 In our considered opinion, following the judgment of the honourable Bombay High Court in the case of SGS India P. Ltd. (supra), the payment of royalty by the assessee to its associated enterprises, Dow, Nethe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f section 43B(f) is in the statute book. Hence the provision for leave encashment is required to be disallowed in terms of section 43B(f) of the Act, if it has not been paid on or before the due date prescribed for furnished return of income under section 139(1) of the Act. However, since the decision of the honourable Supreme Court is pending, we set aside this issue to the file of the Assessing Officer with the direction to modify the addition, if required, in accordance with the decision that shall be rendered by the honourable Supreme Court. 18. The next issue urged by the assessee in the assessment year 2005-06 relates to disallowance made under section 43B of the Act in respect of outstanding bonus and excise duty liabilities. The assessee initially did not disallow the bonus and excise duty payable, which were outstanding as at the year end, as per the provisions of section 43B of the Act. When the Assessing Officer raised the queries in that respect, the assessee admitted that it is a mistake and filed revised computation of income. In the revised computation of income so filed, the assessee made additional claim in respect of expenditure which are allowable under sectio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e incurred in samples are separated and reduced from the total expenditure, the same cannot be claimed separately, otherwise, the expenditure would be allowed twice. We notice that the assessee has not answered specific queries raised by the Assessing Officer and further no document was produced to show that the expenditure was not claimed twice. Hence, the learned Commissioner of Income-tax (Appeals) also confirmed the addition. 21. Before us, the learned authorised representative submitted that it would be difficult under the accounting system to claim the expenditure twice. He submitted that the expenditure of ₹ 11.30 lakhs includes expenditure of ₹ 1.43 lakhs incurred towards sample clearing charges. Other samples have been distributed to various peoples and the assessee has also furnished the list. 22. On the other hand, the learned Departmental representative submitted that the learned Commissioner of Income-tax (Appeals) has confirmed the disallowance since the assessee did not answer specific queries raised by the Assessing Officer. He submitted that the assessee has not proved that the expenditure was not claimed twice and it has also failed to produ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ture. Accordingly, we restore these issues to the file of the Assessing Officer with the direction to compute interest under section 234C on the returned income. We also direct the Assessing Officer to compute interest chargeable under section 234D and payable under section 244A in accordance with law. 26. In the assessment year 2006-07, the assessee has also raised a ground with regard to initiation of penalty proceedings under section 271(1)(c) of the Act. We decline to adjudicate this ground as it is premature at this stage. 27. We shall now take up the appeal filed by the Revenue for the assessment year 2005-06. The first issue urged by the Revenue relates to the disallowance of loss arising on revaluation of debtors and creditors balances on the basis of foreign exchange fluctuations. The Assessing Officer disallowed the claim under the impression that the loss was incurred due to cancellation of forward contracts on foreign exchange entered with the banks and hence the same was speculation loss. The learned Commissioner of Income-tax (Appeals) examined the claim and noticed that the assessee has made both gains and loss on account of revaluation exercise and the loss of ..... X X X X Extracts X X X X X X X X Extracts X X X X
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