TMI Blog2018 (5) TMI 581X X X X Extracts X X X X X X X X Extracts X X X X ..... revenue in nature and were deductible. Exemption u/s 10A/10B - Interest income - deposits made with banks for obtaining letters of credit - these letters of credit are utilised for purposes of export activity carried on by assessee - Held that:- Since there is no bifurcations that has been provided by assessee either before us or before the authorities below it cannot be assumed that entire interest income claimed by assessee could be linked with the export activity. - Benefit of deduction u/s 10B on interest income related to export activity allowed - AO directed to bifurcate the interest related to export activities and other activities. Bad debts deleted by holding that these are unascertained liabilities - Held that:- Hon’ble Supreme Court in the case of CIT versus HCL Commet Systems & Services Ltd. [2008 (9) TMI 18 - SUPREME COURT] has held that provisions for bad and doubtful debts being ascertained liability are not required to be added in the matter of computation. He submitted that subsequent to the decision of Hon’ble Supreme Court, an amendment has been made in section 115 JB by Finance Act 2009 with retrospective effect from 2001, and the issue now has to be deci ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... porate tax issues. 2.1. For sake of convenience Ld.AR started arguing for Assessment Year 2005-06. Assessment Year 2005-06 2.2. Brief facts of the case for the year under consideration are as under: Assessee filed its return of income for year under consideration declaring loss of ₹ 1,65,43,08,282/- on 31/10/2005. The case was selected for scrutiny and statutory notices were issued, in response to which representatives of assessee appeared before Ld.AO from time to time and filed requisite details. 2.3. Ld.AO during assessment proceedings observed that assessee is a company engaged in business of manufacture of optical and magnetic, storage media. The product range includes recordable compact discs (CD-R) rewritable compact disc (CDRW), pre-recorded CD/DVD, digital versatile discs in optical media and compact cassettes, micro floppy disks and digital audio tapes in magnetic media segment. 2.4. Ld.AO referred case to Transfer Pricing Officer (TPO), as assessee undertook international transactions with its Associated Enterprises (AEs). Ld.TPO observed that assessee has expanded its business in Europe through its Subsidiary. 2.5 . Ld.TPO observed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng products through its subsidiaries to Imation Corporation (which is a joint venture partner in M/s GDM), or to other related parties of assessee. This is recorded by Ld.TPO in paragraph 10.2 at page 32-33 of his order that assessee refused to furnish relevant data of tested party selected by it and having regard to decision of this Tribunal in the case of Ranbaxy Laboratories Ltd vs. ACIT reported in 167 Taxmann 30 ., Ld.TPO rejected submissions of assessee regarding AE as tested party since its details were not easily available in public domain to test comparability. 2.9 . It is recorded by Ld.TPO that details were called for in respect of products sold by assessee in domestic market and to submit profitability from exports to Associated Enterprises and to non-Associated Enterprises in response to which, assessee vide order sheet entry dated 18/02/2008 informed that no details of above could be prepared. 2.10 . Ld.TPO accordingly rejected transfer pricing studies conducted by assessee by observing as under: In view of the above stated reasons, the transfer pricing analysis carried out by the assessee was held as unreliable. The transfer pricing methodology of assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e its claim of deduction under section 10 B of the Act, with reference to remittance of foreign exchange against export proceeds. Assessee was asked to show cause as to why unrealised export proceeds should not be disallowed for purposes of deduction under section 10 B of the Act, more so since assessee failed to produce any order of extension of time for this purpose by RBI. 2.13. Ld.AO after considering submissions made by assessee rejected the claim and denied benefit under section 10 B, as there was no direct and proximate nexus between the said income and manufacturing activity of eligible undertaking. 2.14. Ld.AO observed that assessee during the year credited P L account of eligible unit by a sum of ₹ 46,10,308/- and ₹ 1,09,59,410/- under the head miscellaneous income . Ld.AO rejected said sums as in eligible under section 10 B, since it had no direct and proximate nexus with the manufacturing activity of assessee. 2.15. Ld. AO observed during the assessment proceedings that assessee incurred ₹ 37,73,17,928/- towards expenditure on royalty and fees for technical services. It was observed that royalty was paid in connection with grant of lice ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 5,37,688 from the profits of the undertaking allegedly on the ground that the same was not derived from the business of the undertaking. 2.1 That the Commissioner of Income-tax (Appeals) erred on facts and in law in not appreciating that the aforesaid gain on account of sale of forward exchange contract constituted profit and gains derived from the business of the undertaking eligible for deduction under section 10B of the Act. 3. That the Commissioner of Income-tax (Appeals) erred on facts and in law in disallowing a sum of ₹ 57,40,656 alleging the same to be incurred for earning exempt dividend income invoking provisions of section 14A of the Act. 3.1 That the Commissioner of Income-tax (Appeals) erred on facts and in law in observing that .................. when the appellant is having both interest bearing and interest free funds, it cannot be said that from which bucket investment in mutual fund has been made as the money in fungible ............ 3.2 That the Commissioner of Income-tax (Appeals) erred on facts and in law in holding that since the appellant has taken long term loan of ₹ 2,94,35,40,490, it could not be said that the investme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... an / overseas comparables without appreciating that their FAR profile is different as compared to the appellant. 4.5 Without prejudice that the Commissioner of Income-tax (Appeals) erred on facts and in law in computing profitability from sales made to AE and non-AE , by considering incorrect number of units sold for the two segments, ie. 97,69,62,220 units being principal item of product sold as per form 3CEB as sales to AE and 1,15,99,46,265 units being the balancing figure considering total units of principal and non principal item of sold as per form 3CD, as sales to non-AE. 4.6 Without prejudice that the Commissioner of Income-tax (Appeals) erred on facts and in law in computing profitability from sales made to AE and non-AE, by ignoring directly identified royalty expenditure. 4.7 Without prejudice that the Commissioner of Income-tax (Appeals) erred on facts and in law in ignoring profitability of AE and non AE segment computed as per the certificate issued by Chartered Accountant. 4.8 Without prejudice that the Commissioner of Income-tax (Appeals) erred on facts and in law in not allowing benefit of +/- 5% as per proviso to section 92C(2) of the Act. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eds amounting to ₹ 86,40,995/-out of ₹ 11,01,40,842/-. Assessee before us is disputing export proceeds of ₹ 3,53,61,363/- disallowed by Ld.AO out of ₹ 10,54,47,600/-. In our view, authorities below upheld this addition due to lack of evidence, in respect of the said sum having been realised by assessee even within extended time granted by RBI Circular(supra). On the contrary the claim of the assessee is that the amount was realised within the period allowed by Circular dated 01.07.2005. 4.7 . Before us also Ld.AR has not placed evidence on record to substantiate the realisation of export proceeds of ₹ 3,53,61,363/ was on or before the period allowed by Circular dated 01.07.2005. We therefore set aside this issue to Ld.AO for granting one more opportunity to assessee to substantiate by way of evidence regarding receipt of said sum on or before the period allowed by Circular dated 01.07.2005 to the satisfaction of Ld.AO. In the event no evidence is provided by assessee, the addition may be upheld. 4.8. In the result the ground raised by assessee stands allowed for statistical purposes. 5. Ground No. 2 This ground raised by assessee aga ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d has been raised by assessee in respect of disallowance made by Ld.AO under section 14A read with Rule 8D of the Act. 6.1. At the outset Ld.AR submitted that for year under consideration provisions of Rule 8D of I.T. Rules, 1962 are not applicable. He submitted that Rule 8D is prospective in nature and is applicable from Assessment Year 2008-09. He placed reliance upon the decision of Hon ble Supreme Court in the case of Godrej and Boyce vs. CIT reported in (2017) 81 Taxman.com 111 . 6.2 . Ld.AR submitted that for purposes of computing disallowance as per Rule 8D, Assessing Officer has to record satisfaction regarding expenditure that is allocable for earning exempt income, having regards to accounts of assessee. He submitted that there is no such satisfaction that has been recorded by Ld.AO and therefore disallowance made by him is without jurisdiction. 6.3 . On the contrary Ld. CIT DR placed reliance upon orders of authorities below. 6.4 . We have perused the submissions advanced by both the sides in the light of records placed before us. 6.5 . We agree with submissions advanced by Ld.AR in respect of non applicability of Rule 8D for year under considerat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sion that since the AE (GMI) had incurred loss therefore assessee could not be expected to have made more profits than the combined profit made the assessee and its AE i.e. GMI, if it were to make sales directly to the third party customers. The support is drawn from the Delhi Bench of Tribunal in the case of Globe Vantedge (P) Ltd. vs. DCIT (ITA No. 2763 2764/D/2009) wherein it is held that adjustment on account of arm s length price of international transactions cannot exceed the maximum arm s length price i.e. the amount received by the associated enterprise from the customer and the actual value of international transactions. The Hon ble Jurisdictional High Court vide order dated 14.3.2013 (in ITA Nos 1828/2010, 1829/2010 1254/2011) had dismissed the revenue s appeal against the said order of the Tribunal. The Special Leave Petition (SLP) of the revenue against the said order has also been dismissed by the Supreme Court vide order dated 2.1.2014. Reliance is also placed on the judgment of Hon ble High Court in the case of Sony Ericsson Mobile Communications India (P) Ltd. vs. CIT 374 ITR 118 wherein it has been held as under: 77. As a concept and principle Chapter ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f class of product with the quantity of that class of product 8. Manpower cost Head office not directly allocable to non-AEs Audited financials detailed and trial balance Allocated to AE and non-AE segments in the ratio of factory cost 9. Other Administrative Costs not directly allocable to non-AEs Audited financials and detailed balance trial Allocated to AE and non-AE segments in the ratio of factory cost 10. Freight and Forwarding expenses Audited financials Allocated to AE and non-AE segments in the ratio of factory cost 11. Royalty and technical know how Audited Financials On actual basis between AE and non-AE It was submitted that while preparing segmental accounts Ld.TPO made certain errors and inflated the profit margins in non-AE segment. 7.2. On the contrary Ld. CIT DR submitted as under: * Regarding 1st limb of argument regarding foreign AE as tested party, he submi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... given in TP study conducted by the appellant, it appears that GDM is least complex between two options. But the reasons given by the TPO for not selecting GDM as tested party are quite relevant. Unless complete financials are made available before TPO, any meaningful analysis cannot be done. Further, GDM is in existence for too short period which makes it less reliable as compared to the appellant itself. Two companies are using different periods as accounting period which also creates mismatch. There are no strong reasons available why appellant cannot be taken as tested party when this approach can solve above mentioned problems in doing comparability analysis. In view of this, I find no fault with TPO s approach of taking appellant as tested party instead of GDM . 7.5 . Financials of AE placed at pages 342-358 of paper book being the audited report prepared by independent auditor for the year under consideration, wherein at page 351 policy adopted while preparing consolidated financial statement in respect of trade receivables and revenue recognition is placed, which reads as under: Trade receivables Trade receivables are carried at original invoice amount (w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... unal refrained from dealing with the other objections raised by assessee therein since the Hon ble Bench was convinced with the arguments of Ld.AR regarding actual value of transactions received by AE therein. 7.9 . Considering totality of facts, we find it is necessary to set aside this issue back to Ld.TPO for due verification of argument advanced by Ld.AR in the 2nd limb on the basis of documents filed by assessee in respect of the same. Ld.TPO is directed to accept assessee s contention of foreign AE to be a tested party in the event assessee is able to provide complete financials of GDM Dubai along with complete financials of relevant comparables required to benchmark the international transaction. Ld.TPO shall then consider the foreign AE to be a tested party. Ld.TPO shall then verify is the Foreign AE could be considered as least complex with minimum adjustments and for which comparables are available easily on public domain. 7.10 .In the event assessee is not able to provide complete details as recorded hereinabove, Ld.TPO shall consider assessee to be the tested party in the light of arguments advanced by assessee in 2nd limb of his argument, which has attained fin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... contrary Ld.AR placed reliance upon the order of Ld. CIT (A). 8.4 . We have perused the submissions advanced by both the sides in light of the records placed before us. 8.5 . It is observed from the findings of Ld.CIT (A) that assessee claimed credit balances as deduction in P L account, in earlier years and hence profits were reduced correspondingly in earlier years. As has been submitted by Ld.AR that amount written off were offered to taxation in immediately preceding assessment year and therefore satisfies the requirement of section 32 (7) of the Act. 8.6. In so far as claim of insurance of ₹ 9,63,407/- is concerned, Ld.CIT(A) has observed that Coordinate Bench of Mumbai Tribunal in case of Anil L Shah vs. ACIT reported in 95 TTJ 216 has held that insurance claim etc. have direct nexus with industrial undertaking. And therefore, Ld.CIT(A) directed to include the miscellaneous income for deduction u/s 10B of the Act. We do not find any infirmity in the observations of Ld.CIT(A) and accordingly the same is upheld. 8.7. Accordingly this ground raised by revenue stands dismissed. 9. Ground No. 2 This ground has been raised by revenue against the de ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dvanced by both sides in the light of records placed before us. 9.5. The issue before us is regarding treatment of payment made to various parties with whom assessee entered into a know-how agreement. Assessee during year made payments to various parties which were treated as revenue expenses. Assessee contends that expenditure incurred on acquisition of right to know-how/technical information would not satisfy test of enduring benefit. Assessee placed reliance upon decision of Hon ble Supreme Court in the case of CIT vs. Ciba India Ltd. reported in 69 ITR 692 . 9.6 . Whereas Department contends that right acquired by assessee enabled assessee in trading results in practical and commercial sense and therefore satisfies test for enduring benefits. 9.7. Certain facts as observed by Ld.CIT (A) are that know-how are owned by owners and assessee was granted right to use for period of time till agreement continues to exist. And that upon termination, assessee has to discontinue manufacturing activities and sale of products where the use of such know-how is applicable. 9.8 . Further Ld.AO observed that assessee has been using know-how since 2003. Ld.TPO observed that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... /12/2003. The return was processed under section 143 (1) of the Act and statutory notices thereafter was issued to assessee in response to which representatives of assessee appeared from time to time and the case was discussed. 12.1 . Ld.AO during assessment proceedings observed that assessee is engaged in manufacture of magnetic disk, compact disc recordable and storage units. Assessee company was having units under section 10 A/10 B at Noida Export Processing Zone, a 100% EOU unit at Noida Phase II and at Greater Noida . In original return as well as revised return filed on 31/03/05 assessee claimed loss of ₹ 10,95,56,02,820/- from Greater Noida 100% EOU under section 10 B, to be carried forward and in computation of income net profit before tax as per consolidated P L account was taken at ₹ 2,35,98,40,176/- which had included loss from Geater Noida unit. Ld.AO thus observed that assessee was claiming double deduction of loss for Greater Noida unit at ₹ 10,95,56,02,820/-. Assessee was asked to show cause as to why claim of carry forward loss of return of this unit should not be disallowed. 12.2 . Ld. AO noted from P L account that assessee debited provis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bad Enterprises vs. CIT reported in 253 ITR 319 (KER), CIT vs. Jose Thomas reported in (2002) 253 ITR 553(Ker), and CIT vs. Cochin Refineries Ltd., Reported in (1994) 43 CTR 103. 12.4 . Ld.AO observed from computation of income that assessee claimed long term capital loss of ₹ 1,01,779/- from sale of shares. It was observed that assessee took indexation benefit of ₹ 94,279/-. Assessee was asked to show cause vide notice dated 07/03/06 as to why benefit of indexation should not be disallowed as per Explanation to Section 73, treating share transaction as speculative, as sales/purchase of shares is not its usual business activity. Assessee accordingly vide its letter dated 20/03/06 briefly submitted that it is not speculative transaction as defined in section 43(5) as sale of shares was done on delivery basis and it is not business activity of the assessee. It was submitted that this was only single transaction entered into by assessee of purchase of shares during the year under consideration. 12.5 . Ld. AO rejected contentions of assessee and disallowed indexation of ₹ 94,279/-. Ld. AO thus computed the speculative loss of ₹ 7,500/-which was allowed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s to the extent of 87% [625/675) only are considered as pertaining to exports. This works out to ₹ 2,48,71,844. Total number of CDs and floppies exported to UREs are 66,06,24,848. Selling distribution expenses per CD for export sales to markets other than USA therefore works out to Rs. O.38/-. This needs to be subtracted from the export prices charged to UREs in accordance with Rule 10B(3) of IT Rules. It may be mentioned here that similar treatment was given to this adjustment in A. Y. 2002-03 under section 92CA(3). 12.8 . LD.TPO rejected claim of adjustments on account of geographical differences due to purchasing power parity/general low prices in USA etc were not substantiated by assessee. 12.9. Ld.TPO observed that this was the stand adopted by revenue for assessment year 2002-03 in a similar/identical transaction. Ld.TPO computed adjustment in the hands of assessee at ₹ 93,87,137/-. 12.10 . Ld. AO accordingly passed final assessment order by making adjustment as proposed by Ld. TPO. Against order of Ld.AO, assessee preferred appeal before Ld.CIT (A). The Ld.CIT (A) after considering various submissions advanced by assessee partly allowed the appea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... unt of selling expenses incurred by GMI was to reduce the average selling and distribution expenses incurred by the appellant from the prices charged from unrelated parties. 8. That the Commissioner of Income-tax (Appeals) erred on facts and in law in not appreciating that the even if the adjustments on account of (i) selling and distribution expenses incurred by GMI and (ii) geographical differences were to be alternatively made for the prices of export of COs to the unrelated prices, the international transactions of export, GMI would still be regarded as being at arm's length price. 9. That the Commissioner of Income-tax (Appeals) erred on facts and in law in rejecting the adjustment made on account of geographical difference for determining the arm's length prices of export to U A being lower than the prices of export to European countries, holding that the details of export to unrelated parties does not reveal any price pattern on the basis of country difference. 10. That the Commissioner of Income-tax (Appeals) erred on facts and in law in holding that while claiming 10% loading on account of geographical market difference has not brought on record s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d in support of adjustment on account of geographical differences. 19. That the Commissioner of Income-tax (Appeals) erred on facts and in law in holding that the reference to Big Mac Index by the appellant is also misplaced. The prices of a burger in US could be lower for a number of reasons. 20. That the Commissioner of Income-tax (Appeals) erred on facts and in law in holding that the adjustment relating to higher cost of performing distribution function in US compared to Europe has already been taken care of through selling and distribution expenses incurred by the appellant. 21. That the Commissioner of Income-tax (Appeals) erred on facts and in law in holding that the reference to lower prices of home electronics and household appliances in US is also misplaced as these belong to different product categories. 22. That the Commissioner of Income-tax (Appeals) erred on facts and in law in holding that incurrent of loss by a related party does not have a bearing on the determination of arm's length price in the transaction between the appellant and its subsidiary GMI. 23. That the Commissioner of Income-tax (Appeals) erred on facts and in law in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... facts and in law in upholding the action of the assessing officer in increasing the book profit computed under section II5JB of the Act to the extent of interest income on margin money on LCs, etc., of ₹ 2,17,02,726/-. The appellant craves leave to add, alter, amend or vary from the above grounds of appeals before or at the time of hearing. 13.1. Ground Nos. 1 to 26 These grounds have been raised by assessee in respect of TP adjustment made by Ld.TPO. 13.2 . Ld.AR submitted that only issue that remains to be addressed is in respect of adjustments rejected by Ld.TPO on account of sales and distribution expenses incurred by AE as well as adjustment on account of geographical differences. At the outset Ld.AR submitted that this issue stands covered vide order dated 14.12.2015 in assessee s own case for assessment year 2002-03 in ITA No. 882/Del/2008. 13.3 . He has referred to para 19 to 21 of the said order which is reproduced herein below: 19. From the aforesaid conclusion it is apparent that the CIT(A) has not disputed that geographical adjustment is to be allowed for comparing two sets of transactions. However on the facts of the case of the asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... submission that since the AE (GMI) had incurred loss therefore assessee could not be expected to have made more profits than the combined profit made the assessee and its AE i.e. GMI, if it were to make sales directly to the third party customers. The support is drawn from the Delhi Bench of Tribunal in the case of Globe Vantedge (P) Ltd. vs. DCIT (ITA No. 2763 2764/D/2009) wherein it is held that adjustment on account of arm s length price of international transactions cannot exceed the maximum arm s length price i.e. the amount received by the associated enterprise from the customer and the actual value of international transactions. The Hon ble Jurisdictional High Court vide order dated 14.3.2013 (in ITA Nos 1828/2010, 1829/2010 1254/2011) had dismissed the revenue s appeal against the said order of the Tribunal. The Special Leave Petition (SLP) of the revenue against the said order has also been dismissed by the Supreme Court vide order dated 2.1.2014. Reliance is also placed on the judgment of Hon ble High Court in the case of Sony Ericsson Mobile Communications India (P) Ltd. vs. CIT 374 ITR 118 wherein it has been held as under: 77. As a concept and principle Ch ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... me derived from industrial undertaking and hence were held to be not eligible for deduction under section 10 A/10 B of the Act. 14.1. Ld.AR submitted that during the year under consideration assessee earned interest income of ₹ 2,17,02,726/- on fixed deposits placed with bank as margin money, for obtaining letter of credit/bank guarantees. The said interest income having direct nexus with eligible undertaking of assesse under the provisions of section 10 A/10 B of the Act, was considered as business profits for purposes of computing deduction. 14.2. Ld.AR submitted that both authorities below denied claim of assessee by holding it to be covered under income from other sources and denied deduction under section 10 A/10 B of the Act. Ld.AR placed reliance upon decision of Full bench of Hon ble Karnataka High Court in the case of Hewlett Packard Global Soft Ltd., reported in 87 Taxmann.com 182 . He submitted that Hon ble court held that profit and gains of 100% EOU including incidental income by way of interest on bank deposits or staff loan would be entitled to 100% exemption of deduction under section 10 A/10 B of the Act. He also placed reference to the decision ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssary requirements to enable the appellant to make the export. From the above it is clear that the interest income received on the short-term deposits though it can be attributed to the export business cannot be treated as income which is derived from the export business. In the above circumstances, even assuming that the bank had insisted for making shortterm deposits for opening letters of credit and for other facilities, it cannot be said that the income is derived from the export business. . . . (p. 673) The above decision in K. Ravindranathan Nair ( supra ) has been affirmed by Hon'ble Supreme Court by dismissal of Special Leave Petition [order reported in 263 ITR (Statutes) 3 ]. However Hon ble Delhi High Court in the case of CIT vs Shri Ram Honda Power Equip. (supra) after considering all the aforestated decisions has observed as under: 20. The other category is where the exporter is required to mandatorily keep monies in fixed deposit in order to avail of credit facility for the export business. The argument on behalf of the assessee is that but for such a stipulation by the bank there was no need for the exporter to keep the money in fixed deposit a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g Officer increased the book profits for the year under consideration by the amount of interest income that has been disallowed from deduction claimed by assessee under section 10 A/10 B of Act. 15.1 . Ld.AR submitted that this ground shall be academic in nature in view of issue raised in ground No. 28-30. 15.2 . Ld. CIT DR also supported the view of the Ld.AR. 15.3 . We have perused submissions advanced by both sides in the light of records placed before us. 15.4. As we have set aside the issue of the claim of interest to be considered for the purposes of deduction under section 10 A/10 B of the Act with certain directions, this ground also would be set-aside to Ld.AO for recomputation of book profits in accordance with the interest that would be actually disallowed upon verification of the details submitted by assessee. 15.5. Accordingly this ground raised by assessee stands allowed for statistical purposes. 16 . ITA No. 894/Del/08 (revenue s appeal) 1. The order of the Ld.CIT(A) is erroneous and contrary to facts and law. 2. The Ld.CIT(A) erred in holding that provision for bad doubtful debts at ₹ 3,88,50,137/- adjusted by A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dment made in Sec.115 JB by Finance Act, 2009, this issue raised by revenue stands allowed. 16.7. Accordingly the ground raised by the revenue stands allowed. 17. Ground No. 3: This ground has been raised by revenue against indexation that has been granted by Ld. CIT (A) on the sale of shares by assessee of State Bank of Bikaner and Jaipur. 17.1 . Ld.CIT DR placed reliance upon observations made by Ld.AO. 17.2 . Ld.AR submitted that assessee claimed long term capital loss of ₹ 1,01,779 from sale of shares of State Bank of Bikaner and Jaipur. It has been submitted that loss was computed after taking benefit of indexation of ₹ 94279/-. Ld.AO treated it as speculative and invoked Explanation to section 73 of the Act, thereby denying indexation to assessee. Ld.AR before us submitted that these are one single transaction entered into by assessee during the year under consideration and solitary transaction of sale/purchase cannot be held to be business activity. He supported the observations of Ld. CIT (A). 17.3 . We have perused the submissions advanced by both the sides in the light of the records placed before us. Ld. CIT (A) has observed as unde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... des in the light of records placed before us. 18.3. It has been submitted by Ld.AR that assessee computed book profits at ₹ 2,50,55,084/- on the basis of certificate issued from a chartered accountant. Later on being advised of legal position submitted revised return of income on 31/03/05 computing book profit under section 115 JB of the Act at ₹ 15,34,798/- after excluding gross expenditure and income chargeable to which provisions of section 10 A/10 B apply in terms of clause (f) and/or (ii) of section 115 JB. Ld. AO however following order for assessment year 2001-02 held that for purposes of computing book profit under section 115 JB of the Act, amount of deduction under section 10 A/10 B of the Act actually allowed as per normal provisions amounting to ₹ 1,09,00,43,334/- was to be excluded. Ld. CIT (A) decided the issue by observing as under: 16.5. I have carefully examine this issue and also considered the submissions made by the appellant and all the relevant material placed on record. The issue relating to the computation of book profit under section 115 JB of the act is well settled in view of the judicial pronouncements quoted by the appel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed issue relating to computation of book profit under section 115 JB of the Act and weather deduction/exemption under section 10 A and 10 B should be taken at ₹ 9825.14 Lacs as against ₹ 13,34 3.61 Lacs allowed in original assessment. Hon ble court observed that, difference arose because assessee in books of accounts, provided for depreciation on straight-line method but while computing taxable income for purpose of the Act, was calculated depreciation as per written down value method. Hon ble court also observed as under: 8. In the present case, the findings recorded by the tribunal are that in the books of accounts maintained under the companies act, 1956, the respondent assessee was regularly following straightline method to compute depreciation. This position is not disputed. Assessing officer in terms of explanation 1 could have recomputed the income disclosed the books of account maintained under companies act, 1956 to the extent permitted and allowed by the said explanation. By virtue of clause (f) and (ii) to explanation 1, the assessing officer could not have reworked the differentiation computed by the respondent assessee in the books of account maintai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ls of tested party must be available and produced during the transfer pricing proceedings. Vide order sheet entry dated' 02.02.2009, the assessee was specifically asked to submit the details of sales made by GDM Dubai to other global AEs of the assessee. The assessee was also asked to state whether GDM Dubai was making third party sales. The assessee was also required to state as to whether sales made by GDM Dubai are controlled transaction or not. 10.2.2. The assessee has furnished reply dated 24.02.2009. In its reply, assessee has conveniently avoided furnishing of above stated information. Assessee has furnished information regarding sales made by the AE of the assessee, i.e. GDM Dubai. In its submission dated 2nd April' 2009, the assessee has stated that GDM has sold goods through its subsidiaries viz. MBI International FZ, LLC Dubai. From the details submitted, it is seen that the AE of the assessee, which was selected as the tested party by the assessee was making controlled transactions with respect to both purchase and sale. Further, the sales made by GDM through its subsidiaries were further sold to related parties. It is not possible to ascertain, whether GD ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... shed to the tax administration. The taxpayer is not then entitled to take a stand that such data cannot be called for or insisted upon from the taxpayer. The ratio of this judgment is squarely applicable to the identical facts of this case, wherein the assessee had failed to discharge its responsibility of furnishing the financial information related to GDM, UAE which was selected as a tested party. For aforestated reason I am of considered view that the assessee was not justified in selecting GDM as a tested party. 11. In order to cross check method adopted by the assessee analysis of internal uncontrolled comparables has been carried out. Assessee had sold products outside India to both AE and non-AEs. Further, assessee had also sold products in the domestic market. The assessee is exporting a major portion of its sale in foreign market. Therefore, the application of internal TNMM would be the most ideal way to benchmark the international transactions undertaken by the assessee. It is undisputed fact that the internal uncontrolled comparable are always preferable, reliable and accurate way to benchmark the international transactions. 12. Summary of reaso ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessment order on 31/05/13 under section 143 (3) read with 144C of the Act making addition in respect of international transaction as recommended by DRP. 19.5 . Ld.AO made addition in respect of claim of deduction under section 10 B of the Act towards, foreign exchange gain/loss accrued to assessee by virtue of exports made. Ld. AO was of the opinion that the foreign exchange gain/loss due to fluctuation was not inextricably linked to business activity of eligible undertaking and accordingly disallowed it. 19.6 . Ld. AO also observed that assessee during the year had incurred ₹ 31,54,78,020 towards expenditure on royalty and fees for technical services. It was observed that royalty has been paid in connection with Grant of license/right to assessee by various intellectual property parties like Philips, Hitachi, Taiyo, Samsung for manufacture of products. Ld.AO disallowed same by holding it to be capital expenditure as it gave enduring benefits to assessee. 19.7 . Ld. AO observed that assessee had received dividend of ₹ 1,37,48,911/-which was claimed exempt under section 10 (34) of the Act. It was observed that assessee had not disallowed any expenditure f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ( iv) ignoring the fact that appellant not only produces and sells principal product but also produces and sells the secondary products and the various products produced and sold by the appellant are of different kinds, having different cost and sale price; ( v) ignoring the directly identifiable royalty expenditure. 2.6 Without prejudice, that the assessing officer/TPO erred on facts and in law rejecting the Profit Level Indicator ( PLI ) of Operating Profit / Sales ( OP/Sales ) allegedly on the ground that the sales made by the associated enterprise, viz. GDM, is a related party transaction without appreciating the fact that the appellant has computed the PLI on the basis of consolidated financial statement of GDM. 2.7 Without prejudice the assessing officer / TPO erred on facts and in law in not appreciating that the adjustment on account of international transactions undertaken by the appellant cannot exceed the amount retained by the associated enterprise. 2.8 Without prejudice that the assessing officer / TPO erred in denying the benefit of +/(-) 5% under Section 92C(2) of the Act while making the impugned TP adjustment on account of the alleged dif ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... serving that although the nature of royalty payments is substantially revenue in nature, nevertheless, there is an element of capital cost also, which is linked to acquiring a trademark or a patent rights license for a fixed period, on an exclusive basis in relation to an assigned territory . 4.2 That the assessing officer erred on facts and in law in not appreciating that the appellant was a mere licensee for use of technical information and technical know- how, etc. and the payment of royalty or technical know-how fee did not result in acquisition of capital asset or enduring benefit in the capital field. 5. That the assessing officer erred on facts and in law in making disallowance of ₹ 78,43,390 allegedly being expenses to be incurred for earning exempt dividend income of ₹ 1,37,48,911 from investment in mutual funds, invoking provisions of section 14A of the Act read with Rule 8D of the Income Tax Rules 1962. 5.1 That the assessing officer erred on facts and in law in not appreciating that expenses to the extent of ₹ 1,95,300 were rightly estimated by the appellant as incurred for earning the aforesaid dividend income from the investment m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntical to grounds raised by assessee for assessment year 2005-06. They have reiterated similar arguments in respect of each ground raised by assessee in the present appeal. 20.2 . We have perused the submissions advanced by both the sides in the light of the records placed before us. 20.3. Ground No. 1 is general in nature and therefore does not require any adjudication. 20.4. Ground No. 2 raised by assessee herein is similar to ground No. 4 raised by assessee for assessment year 2005-06. 20.5 . Detailed discussion in respect of the arguments advanced by both the sides in respect of this ground has already been dealt vide para 7.8-7.10 herein above. As they are repetitive in nature the same are not reproduced again. We therefore refer to arguments advanced by both the sides therein. It is observed that based upon arguments advanced, and relevant observations by Ld. TPO (which has been reproduced hereinabove), similar to those that has been observed for assessment year 2005-06, we have set aside this issue back to Ld. TPO with certain directions for production of relevant materials by assessee to establish AE to be less complex for considering it to be the teste ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ce of royalty and fee for technical know-how which was paid by way of licence to various patent holders like Philips, Samsung, Taiyo Hitachi to be capital expenditure in the hands of assessee. 22.1 . It is observed that this ground is similar to Ground No.2 of revenue s appeal for assessment year 2005-06. 22.2 . Both Ld.AR as well as Ld. CIT DR reiterated similar arguments as submitted for assessment year 2005-06. 22.3 . It is observed that we have decided this issue in favour of assessee for assessment year 2005-06 in paragraphs 9.4 9.9 of this order. At the cost of repetition, the same is not reproduced herewith. 22.4. Since the facts and circumstances are same for the year under consideration respectfully following the same, this issue stands settled in favour of assessee on the observations made by this bench in paragraphs 9.4- 9.9. 22.5. Accordingly we allow this ground raised by assessee. 23. Ground No. 5 This ground has been raised by assessee against the disallowance of deduction under section 14 A read with Rule 8D of the Act. 23.1 . It is observed that this ground is similar to ground number 3 of assessee s appeal for assessment year 2005 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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