TMI Blog2017 (12) TMI 422X X X X Extracts X X X X X X X X Extracts X X X X ..... der the facts and circumstances of the case, in our opinion, will meet the ends of justice Disallowance on account of capitalization of interest - assessee company on the one hand has made decapitalization of interest income of ₹ 3066.07 lacs and on the other hand has shown such interest expenses as revenue to the extent of ₹ 9539.99 lacs - Held that:- We find identical issue had come up before the Tribunal in assessee’s own case. We also find the Tribunal has accepted the alternate contention of the assessee and allowed deduction of interest expenses incurred on earning interest income on certain deposits u/s 57(iii). Respectfully following the decision of the Co-ordinate Bench of the Tribunal in assessee’s own case [2017 (6) TMI 591 - ITAT DELHI] we restore the issue to the file of the Assessing Officer with a direction to follow the order of the Tribunal and re-compute the disallowance. The ground raised by the Revenue is accordingly allowed for statistical purposes. Claim of deduction u/s 80IA - Form No.10CCB filed by the assessee is incomplete and proper balance sheet and profit and loss account are not available for each unit - Held that:- Since the Tribuna ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... learly which requires a re-visit to the file of the TPO for proper appreciation of the facts. We, therefore, in the interest of justice, deem it proper to restore the ground raised by the assessee relating to TP adjustment to the file of the TPO for fresh adjudication of the issue in the light of the submissions/details filed by the assessee in the Paper Book. The grounds by the assessee are accordingly allowed for statistical purposes. - ITA No.4111/Del/2013 And ITA No.4248/Del/2013 - - - Dated:- 3-11-2017 - SHRI R. K. PANDA, ACCOUNTANT MEMBER AND MS. SUCHITRA KAMBLE, JUDICIAL MEMBER For The Department : Shri Kumar Pranav, Sr. DR For The Assessee : Shri Ajay Vohra, Sr. Adv. Shri Neeraj Jain, Adv. Shri Abhishek Agarwal, CA ORDER PER R. K. PANDA, AM : These are cross appeals. The first one is filed by the Revenue and the second one filed by the assessee and are directed against the order dated 29.04.2013 of CIT(A)-XX, New Delhi relating to assessment year 2006-07. For the sake of convenience, these were heard together and are being disposed of by this common order. 2. Facts of the case, in brief, are that the assessee company has an Integrated Sta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 8377; 50,000/- u/s 14A on the ground that the assessee has earned sum of ₹ 482.26 crores as dividend on investment of ₹ 25,209.08 lacs and no disallowance has been made u/s 14A of the I.T. Act. Similarly, out of total claim of ₹ 3066.07 lacs on account of decapitalization of interest the Assessing Officer disallowed an amount of ₹ 24,91,16,438/-. Further, as against the claim of ₹ 732,77,722/- u/s 80IA made by the assessee, the Assessing Officer allowed ₹ 6,43,01,040/- being 10% of total turnover of Power Units No.V VI at ₹ 64,30,10,400/-. This resulted into disallowance of ₹ 89,76,682/- on account of excess deduction claimed u/s 80IA of the I.T. Act. Similarly, the Assessing Officer also made disallowance of ₹ 87,45,000/- on account of bad debts and made addition of ₹ 1,45,001/- on account of deduction treating the same as unsubstantive. 4. In appeal, ld. CIT(A) allowed the claim of deduction u/s 80IA of ₹ 89,76,682/-, deleted the addition on account of bad debts amounting to ₹ 87,45,000/-, deleted the disallowance of ₹ 50,000/- made by the Assessing Officer u/s 14A and deleted the addition of ͅ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 6. That the order of the Ld. CIT(A) is erroneous and is not tenable on facts and in law. ITA No.4248/Del/2013 (By Assessee) : 6. Grounds of appeal : 1. That the Commissioner of Income Tax (Appeals) erred on facts and in the law in sustaining transfer pricing adjustment to the extent of ₹ 28,89,032/- made in respect of the international transactions or export of steel products on the basis of the order passed under section 92CA(3) of the Income-tax Act, 1961 ( the Act ) by the Transfer Pricing Officer. 1.1 That the Commissioner of Income Tax (Appeals) erred on facts and in law in not appreciating that the price paid on international transaction of export of goods to associated enterprise was within arm s length range of +/-5% of the price charged to unrelated third parties, in terms of the proviso to section 92C(2) of the Act. 1.2 That the Commissioner of Income Tax (Appeals) erred on facts and in law in holding that the benefit of arm s length range of +/-5% as per the proviso to section 92C(2) of the Act would not be applicable where the arms length price so determined is only a single price and not average of multiple arms length price. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e and made adhoc disallowance of ₹ 50,000/- which has been upheld by the CIT(A). It is the submission of the ld. counsel for the assessee that no disallowance has been made in the past and no nexus has been proved by the Assessing Officer. No material has been placed on record to show that the assessee has incurred some expenditure for earning tax-free income. In our opinion, although, there is no disallowance of interest expenditure for earning tax-free dividend income, however, it cannot be said that no administrative expenditure has been incurred for earning the tax-free income of ₹ 3,60,000/- on the investment of ₹ 15,00,000/-. Since the dividend income is on account of investment in Magnum Global Fund of ₹ 15,00,000/-, therefore, considering the totality of the facts of the case, disallowance of ₹ 50,000/- on ad-hoc basis under the facts and circumstances of the case appears to be on higher side. Although, the ld. counsel for the assessee submitted that no disallowance has been made in the past, however, it was not brought to our notice as to whether the disallowance was not made in scrutiny assessment or summary assessment. Considering the totali ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ceipt. The High Court held that the appellant was right in claiming it as capital receipt by setting off/ netting off against interest on borrowed sum. In the present case also, the appellant netted off the interest received on the amount which was borrowed for investment in green field Orissa Project against the expenditure incurred on the project. Further, the Hon ble High Court of Delhi in the case of NTPC SAIL Power Company Pvt. Ltd. (supra) has discussed the case cited by the AO, namely, Tuticorin Alkali Chemicals and Fertilizers Ltd. (supra) in the judgment. Therefore, respectfully following the decision of the Hon ble High Court as well as decision of the Hon ble Supreme Court in the case of CIT vs Bokaro Steel Ltd. (1999) 102 Taxman 94 (SC), I hold that the interest received on the borrowed fund exclusively for the purpose of setting up of a unit at Orissa is not taxable as interest income. AO is directed to delete the addition made in this regard. 13. We find identical issue had come up before the Tribunal in assessee s own case. We also find the Tribunal vide ITA No.2518/Del/2013 order dated 30.05.2017 has accepted the alternate contention of the assessee and allowe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing Officer is directed to verify the amount of expenditure apportioned for the investment required for earning such interest income. The ground no.2 to 2.3 raised by the assessee are accordingly partly allowed for statistical purposes. 14. Respectfully following the decision of the Co-ordinate Bench of the Tribunal in assessee s own case, we restore the issue to the file of the Assessing Officer with a direction to follow the order of the Tribunal and re-compute the disallowance. The ground raised by the Revenue is accordingly allowed for statistical purposes. 15. In ground no.4, the Revenue has challenged the order of the ld. CIT(A) in deleting the claim of deduction u/s 80IA amounting to ₹ 89,76,682/-. 16. After hearing both the sides, we find the claim of deduction of ₹ 7,32,77,722/- u/s 80IA was rejected by the Assessing Officer on the ground that the Form No.10CCB filed by the assessee is incomplete and proper balance sheet and profit and loss account are not available for each unit. The Assessing Officer, therefore, estimated the profit eligible for deduction u/s 80IA of the I.T. Act at the rate of 10% turnover of the power units and worked out the de ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erned, the same relates to the order of the ld. CIT(A) in deleting the addition of ₹ 87.45 crores on account of bad debt written off. 20. After haring both the sides, we find the assessee had claimed deduction of ₹ 87.45 crores as bad debt in the Profit Loss Account. These bad debts arise out of the sale of cold rolled stainless steel coils made to Dai Ichi USA, NY in the financial year 2004-05 on account of quality issue. However, the Assessing Officer concluded that the conditions as enumerated in the provisions of section 36(2) of the I.T. Act are not fulfilled and therefore, he disallowed the claim of bad debts of ₹ 87.45 crores. 21. We find in appeal the ld. CIT(A) allowed the claim of such bad debts on the ground that the Assessing Officer has not given the reason for his conclusion. From the various submissions filed by the assessee, he observed that the assessee had booked the income in the earlier year by raising invoice against the party and assessee had concluded that the amount standing against the party was not realizable and consequently has actually written off as the amount as bad debts. He held that the various decisions relied upon by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lved in exports of steel products. In the transfer pricing documentation, the assessee has benchmarked the transaction of export of steel products to related party by comparing it with export of steel products to unrelated party on monthly average price basis. However, TPO found that the dates of the comparable transactions were different and went out to compare the transactions happening on the same dates. As a result of this, the TPO ended up comparing different products traded on the same dates which resulted into an addition of ₹ 2.75 crores. 3.4. I have carefully examined the issue based on the submission of the appellant, material on record and order of the TPO. The international transactions under dispute have taken place on 22.04.2005, 30.04.2005. 19.08.2005, 27.02.2006 and 01.03.2005 to 15.03.2005 (the actual transaction happened 02.04.2005 onwards). The transactions on these days are discussed and decided in the following paragraphs. There are two common issues relevant in this case regarding the determination of the ALP of the international transaction. They are 1. The similarity of products to be compared. 2. The dates of transactions to be c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... coil exported to the AE with the exports on the same date to third party (unrelated) customers by the AE. This is tabulated in Page No. 7 of the TPO order in Table No. III and IV which is further summarized in Table No. V and VI. The most important discrepancy pointed out by the appellant in the order of the TPO is that the quality of coil sold to the AE was Grade J4 Black coil which was different from J4 HRAP coils sold on the same date to unrelated parties (in the Table No. III of the TPO order) and therefore they cannot be compared. The appellant has also supplied the invoices to show that they are not comparable products which were being compared by the TPO. 4.1.1. Grade J4 coils being exported to the AE at Indonesia and J4 HRAP coils exported to third parties are described as follows in the submission of the appellant: It is further submitted that the price of products having grade J4 HRAP is higher as compared to the grade J4 black coil due to the reason that the former is a raw coil and the latter is a final product of stainless steel coil made after undertaking various process such as Annealing-Pickling, bathing with Electrolytic Sulphuric Acid and Mixed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... commission to the middle men in the transaction with unrelated parties and no such commission is payable in the transaction with AE. Therefore, the price paid to the unrelated parties need to be suitably adjusted by deducting the commission paid or to be paid from the invoice price raised against the third parties. The appellant had filed the details about commission paid before the TPO. The same is produced in the paper book as Annexure to the TP documentation at page no. 38. The appellant has paid USD 25 per metric ton as commission and it was built in the invoice price of USD 970. If this commission amount is reduced, then, the price paid by the third party customer to the identical goods comes to USD 945 per metric ton. As mentioned by the TPO, the 27 comparable transactions resulted into an average price of USD 970 per metric ton where in all the cases USD 25 per metric ton was paid as a commission. The TP documentation also contained 15 transactions with unrelated parties wherein price of USD 920 was charged even to unrelated parties on the same day on an identical good. There were totally 15 transactions under this head which was not considered by the TPO. It is also noticed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for transaction dated 30.04.2005. In the CUP method, transaction by transaction are compared. The nearest date on which similar commodity is sold is taken for comparison. On both the dates, the transactions have happened with the AE as well as with non AEs. The transaction with the non AEs has happened with the same price in all the invoices. Therefore, there is no multiple prices established for the transaction which has happened on the same day. Therefore, I hold that the TPO was right in rejecting the appellant's contention that the proviso to Section 92C(2) should be invoked. Therefore, the addition of ₹ 13,91,117/- and ₹ 14,97,915/- on account of international transactions conducted on 27.02.2006 and 30.04.2005 are upheld in this 4.5. Transaction between 01.03.2005 to 15.03.2005 (Table No. VII of the TPO order): The above dates are order acceptance dates ; the actual transactions have happened on/ after 02.04.2005. The appellant has sold the products at USD 1250 to USD 1325 per metric ton in all these 15 transactions. There was a transaction with the unrelated party on 08.03.2005. The rate was USD 1400 per metric ton. TPO has taken this ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1,325 580 I-Mar-2005 94.985 1,325 125,855 125,855 8 J4 HRAP Coils 1,325 580 I-Mar-2005 47.980 1,325 63,574 63,574 9 J4 HRAP Coils 1,325 580 I-Mar-2005 47.105 1,325 62,414 62,414 659.970 874,460 874,460 1,325 10 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1,168.345 1,509,929 1,509929 1,292 4.6. Further, the appellant has also stated that on 11.03.2005 the appellant had sold J4 HRAP coils at the rate of USD 1220 per metric ton. The name of the party to whom this was sold on 11.03.2005 was M/s Shunde Baisheng Trading Company Ltd. This information was part of the TP documentation which is at Page 26 of the Paper book. Accordingly, the average price of J4 HRAP coils should be taken at USD 1310 [(1400 * 1 + 1220 * 1)/ 2]. Therefore, the transactions in the S. No.1 to 9 of the above Table has taken place at USD 1325 which is above the average ALP at USD 1310. Therefore, they should be held at arm's length, Even the rest of the transactions mentioned from S. No. 10 to 15 of the above Table fall within +/-5% of the average ALP. It should be noted that appellant has pleaded that the quality of products sold are Grade J4 Black coil to the AE where as the quality sold to the non AE was J4 HRAP coil. Therefore, the total addition sustain in this case is to the extent of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ppeal the ld. CIT(A) sustained an amount of ₹ 28,89,032/- and deleted the addition of ₹ 21,54,152/- and such reasons are already mentioned in the preceding paragraphs. Although, the ld. CIT(A) has sustained only an amount of ₹ 28,89,032/- and deleted the balance amount we find the Revenue has challenged the deletion for addition of ₹ 21,54,152/- and has not challenged for the balance addition. So far as the addition of ₹ 21,54,152/- is concerned, the assessee has demonstrated before the ld. CIT(A) that he has also entered into transaction on sale of J4 HRAP Coils with unrelated third parties on 14.03.2005 at the price of USD 1120 PMT. Therefore, the ld. CIT(A) was fully justified in upholding the action of the CUP method. 29. So far as the sustaining of ₹ 21,54,152/- is concerned, it is the submissions of the ld. counsel for the assessee that price charged by the assessee from its AE is within +/-5% range. 30. We find from the submissions that the details are not coming out clearly which requires a re-visit to the file of the TPO for proper appreciation of the facts. We, therefore, in the interest of justice, deem it proper to restore the g ..... X X X X Extracts X X X X X X X X Extracts X X X X
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