TMI Blog2016 (10) TMI 1037X X X X Extracts X X X X X X X X Extracts X X X X ..... corded in its books of account, the Assessing Officer has computed depreciation on the WDV as recorded in the books of the seller-company. In A.Y 1999-2000, while considering an identical nature of dispute arising out of claim of depreciation, the Tribunal had remitted the matter back to the file of CIT(A). In assessee‟s own case for A.Y 2001-02 also, the issue was remitted back to the Assessing Officer for deciding afresh. Consistent with the view taken by the Tribunal for A.Ys 1999-2000 and 2001-02, we restore the matter back to the file of Assessing Officer for deciding afresh keeping in view the directions of Tribunal in the preceding assessment years referred to above. Investment in shares in subsidiary companies not for the business purpose hence not allowable under section 36(1)(iii) - Held that:- A chart has been furnished before us indicating the income earned from the aforesaid transactions with the subsidiary which far outweigh the interest cost on the investments made in shares of the subsidiary. Further, assessee's contention that it has sufficient interest free funds available to make the investment has not been controverted by the Assessing Officer. More ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sallowance, in our view, the Assessing Officer has not considered the same by applying his mind to the fact and material on record. It appears from the computation of income, the Assessing Officer has again made addition of ₹ 1.76 crore and ₹ 71,25,000. Further, the Assessing Officer has not properly implemented the direction of the DRP that in case the inventory has irrevocably written off in the books only amount which could be brought to tax is the amount received from sale of such inventory. Since the Assessing Officer has not properly examined the issue in strict compliance to the directions of the DRP, we are inclined to restore the issue to the file of the Assessing Officer for adjudication afresh after due opportunity of being heard to the assessee. Including CENVAT credit to the opening and closing stock - Held that:- On a reading of section 145A of the Act, it is to be noted that as per the said provision, while valuing the opening stock and closing stock further adjustment has to be made to include amount of any tax, duty, cess or fee actually paid / incurred by the assessee to bring the goods to the place of its location and condition as on the date of va ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... argin on the basis of sales made to GG USA Inc. only. Ground allowed for statistical purposes. Addition made on account of interest on interest free loan to Piramal Glass, U.K. and compensation for providing corporate guarantee to Gujarat Glass International - Held that:- On a perusal of the observations of the DRP, in respect of ground no.17, we find that DRP has not adjudicated on the issue of charging of interest on interest free loan to Piramal Glass, U.K. and compensation for providing corporate guarantee to Gujarat Glass International Inc., USA. We have also found that the assessee had filed an application under section 154 before the DRP which is still pending. In view of the aforesaid fact, we restore the issue back to the file of the DRP for adjudication after providing due opportunity of being heard to the assessee - ITA no. 8360/Mum./2010 - - - Dated:- 16-12-2016 - SHRI RAJENDRA, ACCOUNTANT MEMBER, AND SAKTIJIT DEY, JUDICIAL MEMBER For the Assessee : Shri Yogesh Thar. For the Revenue : Shri N.K. Chand ORDER PER SAKTIJIT DEY, J.M. This is an appeal filed by the assessee against assessment order dated 24.9.2010 passed for A.Y 2006-07 in pur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nce of depreciation, assessee preferred an appeal before the CIT(A). Ld. CIT(A) after considering the submissions of the assessee in the light of the facts and materials on record disallowed depreciation, both on the payment towards non-compete fee capitalized over various assets in the A.Y 1999-2000, as well as depreciation claimed by adoption of actual cost of assets vested with the assessee in pursuance of scheme of arrangement. While doing so, the ld. CIT(A) relied upon the decisions of the Tribunal in assessee s own case for A.Y 1999-2000 as far as depreciation on non-compete fee is concerned. Being aggrieved, assessee is before us. 3. As far as the claim of depreciation on payment of non-compete fee to PEL, which was capitalized over various assets in A.Y 1999-2000 is concerned, the ld. AR submitted, the payment made towards non-compete fee at the time of acquiring the business of PEL was capitalized over various assets, therefore, assessee was entitled to claim depreciation. He submitted, even otherwise also, assessee is eligible to claim depreciation on non-compete fee as it is an intangible asset as defined u/s 32(1)(ii) of the Act. The ld. AR submitted, though the Tr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dia) Ltd. (supra). 5. We have considered the submissions of the parties and perused the material on record. As far as the factual aspect is concerned, there is no dispute that in the previous year relevant to A.Y 1999-2000 assessee had paid an amount of ₹ 18 crores to PEL towards non-compete fee. It is also a fact that the assessee had allocated the payment made towards non-compete fee to various fixed assets. The issue before us is whether the claim of depreciation on the amount of ₹ 18 crores paid towards non-compete fee is an allowable deduction. We have noted that the issue has two aspects; firstly, the assessee has claimed depreciation on the amount of ₹ 18 crores allocated to various fixed assets at the rate applicable to those assets. As far as this issue is concerned, in our view, assessee s claim cannot be accepted as the Tribunal in assessee s own case for A.Y 1999-2000 has rejected such claim. However, insofar as the alternative claim of the assessee that depreciation on payment of non-compete fee should be allowed by treating the same as an intangible asset is concerned, same requires consideration. There is no dispute that in assessee‟e own c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Mumbai Bench in the case of Shreya Lifescience Pvt. Ltd., we are inclined to follow the decision of Tribunal in assessee s own case for A.Y 2001-02 and allow assessee s claim of depreciation on non-compete fee. 7. In ground no.3, the dispute between the parties is restricted to adoption of actual cost. While the assessee has claimed depreciation on the value recorded in the books of the seller-company, the Department is of the view that the depreciation should be computed on the WDV as recorded in the books of the seller-company. 8. The ld. AR, at the outset, submitted that in assessee s own case for A.Y 1999-2000, the issue has been remitted back to the file of CIT(A) and in A.Y 2001-02, the matter has been remitted back to the Assessing Officer by the Tribunal. 9. The ld. DR has no objection for remitting the issue to the file of Assessing Officer with similar directions. 10. We have considered the submissions of the parties and perused the material on record. As noted earlier, the dispute between the assessee and the Department is in relation to adoption of actual cost for computing the depreciation. While the assessee has claimed depreciation on the value recorded ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stment in the shares of the subsidiary companies for acquiring controlling its interest and such investment is not for business purpose. The case of ssessee on the other hand is that the shares of these companies have been acquired with the objective of earning maximum business income and the assessee company has also received royalty ₹ 3.36 crores and dividend of ₹ 2.25 rores from Ceylon Glass Company Ltd. Similarly, in the case of GG USA Inc. which acts as marketing arm of the assessee and it laises with the foreign buyers and enters into contract with them for supply and in turn enters into back to back supply contract with the assessee as per the specification of the customers. Similar, grounds have been mentioned in the case of Piramal Glass UK and Gujarat Glass International Inc.USA. Looking to the submissions of the assessee that investment in the shares of the companies have been made by the assessee company with the primary objective to promote the business and therefore, it appears difficult to consider the interest on the borrowed capital as not being for the purpose of business of the assessee company. The A.O. is therefore, directed to examine the submiss ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... supra), has been doubted and the matter has been referred to a Larger Bench. 18. In rejoinder, learned Authorised Representative submitted, in assessee s own case for the assessment year 2001 02, the Tribunal has deleted the addition arising out of similar disallowance made by the Assessing Officer. In this context, he placed on record the order passed by the Tribunal, Mumbai Benches, in ITA no.9645/Mum./2004 an d ITA no.9498/Mum./2004 dated 2nd March 2016. 19. We have considered the submissions of the parties and perused the material available on record. While framing the draft assessment, the Assessing Officer has disallowed interest expenditure of ₹ 1.41 crore on the allegation that the investment in shares in subsidiary companies is not for the business purpose of the assessee, hence, not allowable under section 36(1)(iii). As could be seen from the observations of the DRP while dealing with the issue the DRP is prima facie convinced with the assessee s contention that investment made with the subsidiaries were for promoting the business of the assessee, hence, the interest on borrowed capital cannot be held to be not being for the purpose of business of the assesse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ning the arm's length price in his order under section 92CA(3). Therefore, any further disallowance will amount to double addition. He further directed the Assessing Officer to examine whether the subsidiary to whom the assessee had advanced the loan is actively engaged in business of the assessee in Srilanka and U.K. and if the assessee s claim is found to be correct, no disallowance of interest should be made. The Assessing Officer, however, while finalising the assessment sustained the disallowance, though, at lesser figure of ₹ 13,87,213. 23. Learned Authorised Representative reiterating the stand taken before the DRP submitted that the Transfer Pricing Officer while determining the arm's length price of international transaction has already made an addition for loan given to Piramal Glass, U.K., Therefore, calculating notional interest again on the same loan would amount to double disallowance. He further submitted, in assessee s own case for assessment year 2001 02, the Tribunal has deleted similar disallowance. 24. Learned Departmental Representative relied upon the observations of the Assessing Officer. 25. We have considered the submissions of the pa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hile finalising the assessment in pursuance to the direction of the DRP the Assessing Officer again made the addition. 29. Learned Authorised Representative submitted, in assessee s own case, in assessment year 2001 02, the Tribunal has upheld the order of the learned Commissioner (Appeals) in deleting the addition made under section 41(1) in respect of sundry creditors existing for more than three years. He further submitted, in the subsequent years, assessee has either returned back the amounts representing sundry creditors or has offered it as income and paid tax. Therefore, no disallowance should be made in the impugned assessment year. 30. Learned Departmental Representative relying upon the observations of the Assessing Officer, submitted that the claim of the assessee that sundry creditors were returned back and offered to tax needs verification. 31. We have considered the submissions of the parties and perused the material available on record. Primary contention of the assessee before us is, in the impugned assessment year there is no remission / cessation of liability in respect of the sundry creditors. In this context, it needs to be observed that in the assessme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ordingly added back the amount of ₹ 71,25,000 and a further sum of ₹ 1.76 crore on account of provisions of inventory. 34. Before the DRP objecting to the addition proposed in the draft assessment order it was submitted by the assessee that the total addition aggregating to ₹ 2,47,25,000, consists of ₹ 1.76 crore towards provision of inventory which has already been added back by the assessee in the computation of business income and the balance amount of ₹ 71,25,000 was actually written off during the year under consideration. It was submitted, this inventory was not written off in the books of account and was claimed as deduction in the computation of income only. The Assessing Officer while computing business income has taken this amount as nil, therefore, making disallowance again would amount to double disallowance. After considering the submissions of the assessee, the DRP directed the Assessing Officer to examine assessee s submissions and if the inventory has been irrevocably written off in the books, only the amount i.e., brought to tax will be the amount received from the sale of this inventory. Accordingly, he directed the Assessing Offic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng Officer has not considered the same by applying his mind to the fact and material on record. It appears from the computation of income, the Assessing Officer has again made addition of ₹ 1.76 crore and ₹ 71,25,000. Further, the Assessing Officer has not properly implemented the direction of the DRP that in case the inventory has irrevocably written off in the books only amount which could be brought to tax is the amount received from sale of such inventory. Since the Assessing Officer has not properly examined the issue in strict compliance to the directions of the DRP, we are inclined to restore the issue to the file of the Assessing Officer for adjudication afresh after due opportunity of being heard to the assessee. The grounds no.7 and 8 are allowed for statistical purposes. 38. In ground no.8, the assessee has challenged the decision of the Departmental Authorities in including CENVAT credit to the opening and closing stock thereby resulting in addition of ₹ 19,82,740. 39. Brief facts are, during the assessment proceedings, the Assessing Officer noticing that the assessee has included unutilized CENVAT credit in the value of closing stock as on 31st ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... addition would amount to double addition. In support of such contention, he relied upon the following decisions: i) Hawkins Cooker Ltd. v/s ITO, ITA no.505/Mum./2004 dated 11.8.2008; ii) Sunshield Chemicals Pvt. Ltd. v/s ITO, 156 ITD 452; iii) R.R. Kabel Ltd. v/s ACIT, 25 taxmann.com 559; and iv) Ramratan Wires v/s ACIT, ITA no.2180/Mum./2012 dated 13.9.2013. 41. He submitted, the Assessing Officer should have examined whether assessee had followed guidance note of ICAI. 42. Learned Departmental Representative on the other hand submitted the issue can be verified by the Assessing Officer. 43. We have considered the submissions of the parties and perused the material available on record in the light of the decisions relied upon. On a reading of section 145A of the Act, it is to be noted that as per the said provision, while valuing the opening stock and closing stock further adjustment has to be made to include amount of any tax, duty, cess or fee actually paid / incurred by the assessee to bring the goods to the place of its location and condition as on the date of valuation. It is further relevant to observe, the Hon'ble Delhi High Court in CIT v/s Mahav ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... claim of deduction of an amount of ₹ 62,09,372, has been allowed by the first appellate authority while deciding assessee s appeal in assessment year 2005 06. That being the case, as the assessee has received the amount of bad debt in the impugned assessment year, it has to be assessed as income in the impugned assessment year. Accordingly, we dismiss assessee s ground no.9 on this issue. 50. In ground no.10, assessee has challenged the disallowance of deduction under section 80HHHC while computing book profit under section 115JB of the Act. 51. The Assessing Officer, while computing book profit under section 115JB, in the final assessment order, held that when the assessee is not eligible for deduction under section 80HHC under normal provisions, how it can be eligible for deduction under section 115JB. He further observed, as per clause (iv) to Explanation 1 of section 115JB, profit eligible under section 80HHC computed under section sub section (3) or (3A) of section 80HHC, shall be reduced from the book profit. Accordingly, he disallowed assessee s claim of deduction under section 80HHC while computing book profit under section 115JB. 52. Learned Authorised Repre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r has applied TNMM method even to non A.E. sales which is not proper. In this context, he relied upon the following decisions: i) CIT v/s Thaisan Group Industries India Pvt. Ltd., ITA no.2201 of 2013; and ii) DCIT v/s Alkatel India Ltd., 152 ITD 289. 58. Learned Departmental Representative submitted, the assessee itself has bench marked under TNMM. Therefore, it cannot have any grievance if the same was adopted by the Transfer Pricing Officer. 59. We have considered the submissions of the parties and perused the material available on record. Basic grievance of the assessee before us is, even while computing margin under TNMM, the Assessing Officer / Transfer Pricing Officer should have applied it to A.E. sales only that too in respect of sales to GG USA Inc. We find merit in the aforesaid submissions of the assessee. The purpose of introducing transfer pricing provisions is to ascertain whether international transactions between two related parties are at arm s length. Therefore, non A.E. transactions cannot be taken into account for computing the margin under TNMM. Accordingly, we direct the Assessing Officer / Transfer Pricing Officer to compute margin on the basis o ..... X X X X Extracts X X X X X X X X Extracts X X X X
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