TMI Blog2018 (5) TMI 1640X X X X Extracts X X X X X X X X Extracts X X X X ..... penses to be written off - Held that:-After taking into consideration the finding of the ld.CIT(A), we are of the view that lump-sum addition confirmed by the ld.CIT(A) is little on the higher side, because the assessee has contended that if written off is not allowable, then actual expenses incurred during the year ought to be allowed. In other words, case of the assessee is that by following mercantile system of accounting, it has incurred various expenses, which has been written off in this year. Therefore, to meet ends of justice, assessee deserves a further relief of ₹ 5,00,000/-. In other words, addition confirmed by the ld.CIT(A) of ₹ 15,00,000/- is restricted to ₹ 10,00,000/- (Ten Lakhs) only, and thus the assessee gets a further part relief. Accordingly, this interconnected ground raised in the appeal of the Revenue and CO of the assessee is partly allowed. Deemed dividend u/s 22(22)(e) - Held that:- When the CIT(Appeals) as well as Tribunal concurrently held that looking to large number of adjustment entries in the accounts between two entities, the amounts were not in the nature of loan or deposit, but merely adjustments, application of section 2(22) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... /2011 And ITA NO 773/Ahd/2011 - - - Dated:- 23-5-2018 - SHRI RAJPAL YADAV, JUDICIAL MEMBER AND SHRI AMARJIT SINGH, ACCOUNTANT MEMBER For The Revenue : Shri Vasundhara Upmanyu, CIT-DR Shri R.P. Maurya, Sr.DR For The Assessee : Shri T.P. Hemani, AR with Shri Parimal Parmar, AR ORDER PER RAJPAL YADAV, JUDICIAL MEMBER: In this bunch of 7 appeals, assessee and Revenue are challenging orders of the ld.CIT(A) passed in assessment years 2005-06 and 2006-07. Since common issues are involved, therefore, we heard these appeals together and deem it appropriate to dispose of them by this common order. 2. First we take appeals for the assessment year 2005-06 i.e. ITA No.692/Ahd/2011, CO No.89/Ahd/2011 and ITA No.2447/Ahd/2011. 3. ITA No.692/Ahd/2011 is directed at the instance of the Revenue against order of ld.CIT(A)-VI, Ahmedabad dated 16.12.2010. Assessment order was framed under section 143(3) on 22.12.2008 by the Addl.CIT, Range-1, Ahmedabad. On receipt of notice, the assessee has filed cross-objection in this appeal bearing no.89/Ahd/2011. ITA No.2447/Ahd/2011 is also directed at the instance of the Revenue, but against order of ld.CIT(A) dated 5.7 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 105,72,23,402 1,29,57,787 5. Since adjustments have been made by the TPO with regard to first two transactions, therefore, we will be confining our discussion qua these two items. In order to demonstrate that its transactions with its AE are at ALP, the assessee has submitted TP study report wherein it has determined ALP by using Transactional Net Margin Method ( TNMM for short). However, the ld.TPO was not satisfied with methodology adopted by the assessee and he recorded a finding that the assessee sold various chemicals, active pharmaceutical ingredients to its subsidiaries in US and UK, whereas it has sold similar products to other parties as well at much higher rate. Thus, in the opinion of the TPO, when the internal unrelated party price i.e. internal comparable uncontrolled price ( CUP for short) are available, then assessee ought to have determined the ALP of its internal transaction by using CUP method instead of TNMM adopted by the assessee. The ld.AO reproduced details in tabular form exhibiting description of items sold by the assessee. Geographical locations of its AE i.e. US, UK and Europe, quantity of items sold, rate at wh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pted contentions and deleted upward adjustment made by the AO on the recommendation of the TPO. Basically, the ld.CIT(A) has relied upon order of his predecessor passed in the assessment year 2002- 03, 2003-04 and 2004-05. Finding recorded by the ld.CIT(A) reads as under: 2.3. I have considered the facts of the case, order passed by transfer pricing officer and appellant's submission. Appellant had various international transactions with associated enterprises (AEs) during the year which were categorized as- sale of products, contract research services, services for procurement of raw material and management services. TPO made adjustments with regard to first two categories. Appellant followed TNMM method for calculating arms length price which was changed by the assessing officer to CUP method and then worked out variation as adjustment. Apart from this, assessing officer made adjustment in contract research services by applying resale margin method. As regards change of method from TNMM to cup, the issue is squarely covered by the orders of my learned predecessors for assessment years 2002 -03, 2003-04 and 2004-05 (covering all appeals prior to this assessment year). T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... an the overall PBIT, the very ground for rejecting the said 26 TNMM method goes away. Under the circumstances, there was no reasonable ground for changing the method for determining the arm's length prices. Under the circumstances, I hold that there was no justification on the part of the AO in changing the TNMM method is adopted by the assessee in determining the arm's length prices. Accordingly, AO is directed to adopt the TNMM method and not the cup method. Facts of the appellant's case are similar to assessment year 2004-05 with the only difference in appellant's PBIT at 24.87% as compared to average PBIT of such similar entities at 18.36%. The arguments given by the TPO are similar and therefore this issue is covered by the earlier appellate decision in the appellant's own case in the similar facts and circumstances. Appellant also submitted decision of ITAT Ahmedabad in the case of Schutz Dishman biotech private Ltd (a sister concerns in the similar line of business) for assessment year 2002-03 in ITA number 554/AHD/2006 dated 15 February 2008. The relevant part of the decision is quoted below- We find no fault with the TNMM method adopted ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in quantity sold, different geographical area, difference in timing, frequency of transactions, smallness of difference etc. If all these reasons are considered, there is hardly any material difference calling for adjustment. There are instances where sales to associate enterprises are at higher prices than non-associate enterprise reflecting that sales were made at arm's length prices. In view of the submissions of the appellant, the adjustments made by adopting CUP method will not survive. As regards adjustments on contract research services, TPO made upward adjustment of RS 4.6 Crores. Out of these adjustment of ₹ 2.96 crores was made in the case of USA subsidiary and balance in the case of UAE subsidiary. It is a matter of record that the appellant has charged US $ 4000 per month per Full Time Employee (FTE) to its AE for carrying out research activities. The appellant has charged the same rate to Non - AEs which is very much evident from the copy of invoices which are placed on record at pages nos.179 to 182 of Paper Book - II. While appellant received US dollar 11.90 lakhs from these two AEs at the rate of $4000 per men month, appellant also received USdollar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or any of the transactions entered into by the appellant for the year under consideration is called for and assessing officer is directed to delete the same. 7. The ld.counsel for the assessee at the very outset submitted that the order of the ld.CIT(A) in the assessment years 2002-03, 2003-04 and 2004-05 have been upheld in ITA No.903 1234/Ahd/2010 for the Asstt.Year 2002-03. Similarly, order for the Asstt.Year 2003-04 and 2004-05 was upheld in ITA Nos.154, 587, 2180 and 3213(Ahd) of 2007. It is reported in 45 SOT 37. Copy of this order has also been placed on record by the ld.counsel for the assessee. 8. The ld.CIT-DR while impugning order of the ld.CIT(A) submitted that Shri R.I.Patel, CIT-DR has filed written submissions, vide letter dated 26.6.2015. Copy of such submissions under signature of Shri B.Y. Chavan, Jt.CIT (TPO), Ahmedabad are available on record. She relied on these submissions. 9. We have duly considered rival contentions and gone through the record. The ld.TPO has not pointed out defects in TNMM applied by the assessee for demonstrating ALP of its international transactions. Without any reasons, he simply changed method and held that CUP method is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not the solitary or isolated transaction with any other third non-EE party. Transaction can either the arena of comparison only if it s a transaction which is a regular transaction. In the facts of the present case, transaction selected by ld. TPO are such isolated or solitary transactions and therefore the very comparison is erroneous or misconceived. 2 3 Cetrimide BP 98,250 and 92,800 No comments for the smallness of amount. 4 PhenyleTrimethyle Ammonium Chloride 5,87,523/- The appellant would like to point out that there is a mistake on the part of ld. TPO in taking average price at ₹ 299.27 instead of ₹ 246.10. Summarised table of quantity sold to Non AEs and average price thereof is given hereunder for ready reference to clarify the issue: Country Qty. Avg. Rate Argentina 600 535.67 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 233.08 In the given case, the appellant has charged average price ₹ 233.08 to AE whereas average price to Non-AE work out to be to ₹ 246.10 which is certainly within limit of 5% and therefore as per 2 nd Proviso S. 92C(2)of the Act no transfer pricing adjustment is required to be made. Without prejudice to above, the appellant submits that in any case the instances are not comparable at all due to quantity and geographical factors 6 Sodium Picosumlphat 78,713/- No comments for the smallness of amount. 7 Tetrabutyl Ammonium Bromide 31,81,642/- FAR Analysis : As Above. Quantity factor : The instances is taken by the ld. TPO is summarised as under : Country Qty. Avg. Rate Isreal 28800 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... AE- 1,04,625 201.63 Europe All three instances are not comparable as there is huge differences in quantity of the product sold to AE and Non-AE. Even if the near quantity i.e.16,900 taken into consideration that also average rate is ₹ 234.02, which is also for the required to be discounted considering quantity factor i.e.16,900kgs. to Non-AE against 1,04,625 Kgs. toAE as well as geographical factors and certainly FAR factors. Geographical factors. Non- AEs aresituateat different Geographical area and therefore also they are not comparable. Regularity of transaction : As above (1). 10 Tetra Butyle Ammonium Fluoride Thihyderate 6,63,789/- FAR Analysis : As Above. Quantity Factor : Only one instance has been taken into consideration by the ld. TPO i.e only 10 Kgs sold to customer in Brazil, whereas the appellant has sold 400 kgs. to AE. Certainly this instance is not comparable looking into huge difference in quantity as well as only one transaction has been entered into by the Appellant with such Non AE. Geographical factors : As ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Total 3,188 273.04 AE- Europe 1,50,000 182.66 All four instances are not comparable is there is huge difference in quantity of the product sold AE and Non-AEs. Even if nearer quantity is taken into consideration i.e 3000 at average rate ofRs. 252.02, then also it is for the required to be discounted considering huge difference of quantity sold to Non AE and AE i.e 3000 kgs. to nonAE against 1,50,000, as well as geographical factors and FAR Analysis. Geographical factors : As Above (1). Regularity of transaction : As above (1). 14 Tetra Ethyle Ammonium Bromide 1,05,475/- For the smallness of amount it is not considered. 15 Lidocain 3,22,720/- FAR Analysis : As Above. Quantity Factor : The instances taken by the ld. TPO has summarised as under : Country Qty. Avg. Rate C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... comparison cannot make transfer pricing adjustments. Geographical factors : As Above (1). Regularity of transaction : As above (1). 17 Tetra ButyleAmm. Hy. 3,53,418 FAR Analysis : As Above. Quantity Factor : The instances taken by the ld. TPO has summarised as under : Country Qty. Avg. Rate Germany 500 743.52 Japan 300 635.04 Netherland 2000 766.50 Total 2800 748.31 AE- USA 1300 291.71 The appellant has entered into only one transaction wit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... appellant submits that ld. TPO has already made adjustments in respect of transaction of sales of goods by applying the CUP method and the same has been the subject matter of challenge in the earlier grounds. Having done that, it is not open to ld. TPO to once again apply the gross mark up method and make one more addition on this same set of sales with the same AE.If the TPO has chosen a particular method for determining ALP, the same has to be applied uniformly to all the transactions. It is then not open to the TPO to say that if a particular transaction is at ALP in the first chosen method the same has to be realigned and readjusted by applying a different method for deter mining ALP. Once the transaction is at ALP under a particular method the said transaction has to be accepted as a transaction entered into at ALP and the same cannot be disturbed thereafter by applying a different method for determining the ALP. 10. In the written submissions, the ld.TPO has reiterated observation made in the order passed under section 92CA dated 21.10.2008. Apart from the observation of the TPO, it has been contended in the written submissions that the assessee has carried out compara ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion made by the ld.CIT(A) is being challenged by the Revenue in its ground no.2, whereas addition retained by the ld.CIT(A) is being challenged by the assessee in its CO. The break-up of ₹ 18,45,974/- is as under: a) R D Expenses : Rs.94,830/- b) Library A/c. : Rs.17,11,144/- c) Life Membership to clubs : Rs.40,000/- 14. The ld.counsel for the assessee submitted that as far as disallowance is concerned, ₹ 15.00 lakhs is on a higher side. The assessee has written off this expenditure. He further contended if the claim with regard to library books is not being given, then assessee be allowed depreciation on the books. On the other hand, the ld.DR relied upon order of the AO. 15. We have duly considered rival contentions and gone through the record carefully. A perusal of the CIT(A) s order would indicate that ad hoc disallowance was confirmed by the ld.CIT(A) after experiencing nonavailability of necessary information. The ld.CIT(A) has observed that the assessee failed to give details about purpos ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the ITAT in the case of ACIT Vs. Bhaumik Color P.Ltd., 118 ITD 1 (Mum)(SB) such loans are not to be treated as deemed dividend. The ld.consel for the assessee submitted that in the case of SDBPL issue travelled to the Hon ble High Court in Tax Appeal No.958 of 2015 wherein Hon ble High Court upheld order of the ITAT by observing that the Tribunal has rightly held that there are large number of adjustment entry in the accounts between two entities; the amounts were not in the nature of deposits, but merely adjustments and section 2(22)(e) of the Act would not be applicable. The ld.counsel for the assessee further drew our attention towards the order of the ITAT passed in the assessee s own case for the Asstt.Year 2003-04 and 2040-05. He placed on record copy of the Tribunal s order in ITA No.2015 2125/Ahd/2012. It appears that in these assessment years also there must be some reopening that is why second round of litigation is there. The ld.DR on the other hand relied upon order of the AO. He failed to controvert submission made by the ld.counsel for the assessee. 20. We find that in the Asstt.Years 2003-04 and 2004-05, the Tribunal has considered identical issue in assesse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d its associate concern M/s Schutz Dishman Biotech Ltd was there since assessment year 2004-05 onwards and during the year the debit balance in the appellant's account was substantially reduced. Since CIT (A) did not find the transactions between appellant and its associate concern as loans and advances given, logically the same cannot be loans and advances received by the appellant. It is not in dispute that in the books of the associate concern, there are five accounts relating to various transactions in the name of appellant and six accounts in the name of associate concern in the books of appellant. In these many accounts where a large number of debit and credit entries involving different business transactions. Apart from this, there are certain financial . transactions also in these accounts. The movement of funds was not for any period but was frequent and in both ways. Respectfully following the decision of Id CIJ (appeal) in the case of associate concern holding that transactions are not in the nature of loan and also decisions of jurisdictional ITAJ relied upon by the appellant, the addition on account of deemed dividend cannot survive in this year. Fact ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... any merit in this appeal. It is rejected. 22. In the next ground of appeal, grievance of the Revenue is that the ld.CIT(A) has erred in deleting addition of ₹ 2,78,06,483/- which was added by the AO by making a disallowance under section 40(a)(ia) of the Act. 23. Brief facts of the case are that assessee made payments of professional fees, commission, interest and discharge of certain contractual obligations. It was required to deduct TDS. It has deducted TDS, but paid it belatedly. In other words, TDS between April 2004 and February 2015 due date for payment of the same into government account was 31st March, 2015 while TDS in March, 2005 due date for payment in Government account was on or before the due date of filing the return i.e. 31.10.2005. In other words, the AO was of the view that the TDS from April 2004 to February 2005 ought to have been paid before 31st March, 2005. He therefore disallowed payment/ expenditure incurred by the assessee on which TDS was not deposited. On the other hand, case of the assessee is that section 40(a)(ia) has been amended by Finance Act, 2010 w.e.f 1.4.2005 which contemplates that if an assessee has deposited TDS deducted during ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ordingly, an addition of this amount has been made to the total income of the assessee. Dissatisfied with the addition, the assessee carried the matter in appeal before the ld.CIT(A). The assessee has filed written submissions before the ld.CIT(A) which has been reproduced by the ld.CIT(A) on page 2 to 17 of the impugned order. The ld.CIT(A) thereafter observed that issue in dispute is squarely covered in favour of the assessee by the order of his predecessor as well as by the order of the ITAT in assessee s own case. Following this order, the ld.CIT(A) has deleted the adjustment made by the AO on the basis of recommendation of TPO. The finding of the ld.CIT(A) reads as under: Respectfully following the above decisions of my learned predecessors in the appellant's own case and jurisdictional ITAT on the issue of change of method from TNMM to cup in the case of appellant's sister concerns having identical facts, assessing officer is directed to accept TNMM method as against cup method taken up by TPO. In TNMM method, appellant's margin is higher than average margin of comparable entities and therefore no adjustment can be made on the issue of sales made to associa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 17 of the impugned order. For the sake of brevity of repetition, we do not want to take cognizance of those comparative analysis. We have gone through it, and we are of the view that if TNMM is being adopted as most appropriate method, for bench marking of international transaction, then assessee s transactions are at ALP. After taking into consideration the finding of the ld.CIT(A), we do not find any merit in this ground of appeal. It is rejected. 33. Ground No.2. In this ground of appeal, grievance of the Revenue is that the ld.CIT(A) has erred in directing the AO to take correct figure of gratuity provision. 34. Brief facts of the case are that in the statement of income the assessee had disallowed a sum of ₹ 93,34,526/- as the provisions for gratuity. It had filed a letter dated 1.12.2009 and submitted that though in the statement of income it had made disallowance of ₹ 93,39,526/-, but the actual amount of provision of current year is of ₹ 20,60,905/-. The assessee has submitted certificate from chartered accountant. However, the ld.AO did not accept this claim the assessee. On appeal, the ld.CIT(A) accepted the claim of the assessee and observed that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hence this ground of appeal is rejected. 39. Ground No.4: In this ground of appeal, grievance of the Revenue is that the ld.CIT(A) has erred in deleting addition of ₹ 3,10,423/- out of misc. expenses claimed by the assessee and disallowed by the AO. 40. This ground of appeal is inter-connected with ground nos.23 and 24 of the assessee s appeal i.e. ITA No.773/Ahd/2011. We take all these grounds together. 41. The assessee had debited the following amounts: a) Library books : Rs.14,84,530/- b) Club Membership fees : Rs.40,000/- c) R D Expenses : Rs.94,830/- d) Deferred Revenue Expenses : Rs.1,91,063/- 42. The ld.AO has disallowed the claim of the assessee. However, on appeal, the ld.CIT(A) has allowed the claim of the assessee partly. On adhoc basis, the ld.CIT(A) has confirmed an addition of ₹ 15 lakhs. An identical issue came up before us in the assessment year 2005-06. We have ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed from the export turnover; ii) Other income not considered for eligible deduction u/s 10B ; iii) Custom Duty allocated on the basis of raw material imports in EOUs and Non-EOU ; iv) Packing expenses and packing material expenses allocated in proportion to quantum of sales in EOUs and Non-EOU ; v) Clearing and Forwarding exports expenses allocated in proportion to quantum of sales in EOUs and Non-EOU ; vi) Allocation of Administrative and Interest expenses in proportion to. total sales in EOUs and Non-EOU. 47. Out of the above six points, the assessee is challenging order of the ld.CIT(A) on issue no.1 and 2 whereas Revenue is challenging order of the CIT(A) on issue nos.3 to 6. 48. With the assistance of the ld.representatives, we have gone through the record carefully. There is no dispute with regard to the proposition that assessee is entitled for grant of deduction under section 10B of the Act. The dispute relates to quantification of the deduction. First we take the issue agitated by the Revenue in its grounds of appeal. In the first fold of grievance, the Revenue has contended that the AO has rightly allocated custom duty on the basis of r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rom the total turnover while computing the eligible amount for grant of deduction under section 10B. 52 We find force in this contention, because if an item does not fall in export turnover, then it is to be excluded from total turnover also. We direct the AO to exclude unrealized exports from the export turnover as well as from total turnover for computing deduction admissible under section10B of the Act. 53. In the next fold grievance, assessee has pleaded that the ld.CIT(A) has erred in not including other income in the eligible profit for deduction under section 10B. The ld.counsel for the assessee at the very outset submitted that this issue is squarely covered in favour of the assessee by the order of Special Bench of the ITAT in the case of Maral Overseas Ltd. Vs. CIT, 136 ITD 177. He further contended that ITAT, Ahmedabad has followed this decision in the case of Sonic Technology P.Ltd. rendered in ITA NO.2665 2720/Ahd/2011. On the other hand, the ld.DR relied upon the orders of the ld.CIT(A). 54. We have duly considered rival submissions and gone through the record. We find that Special Bench of ITAT in the case of Maral Overseas Ltd. (supra) has considered this ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e profits has been statutorily defined in sub-section (4) of section 10B of the Act. As per the formula stated above, the entire profits of the business are to be taken which are multiplied by the ratio of the export turnover to the total turnover of the business. Sub-section (4) does not require an assessee to establish a direct nexus with the business of the undertaking and once an income forms part of the business of the undertaking, the same would be included in the profits of the business of the undertaking. Thus, once an income forms part of the business of the eligible undertaking, there is no further mandate in the provisions of section 10B to exclude the same from the eligible profits. The mode of determining the eligible deduction u/s 10B is similar to the provisions of section 80HHC inasmuch as both the sections mandates determination of eligible profits as per the formula contained therein. The only difference is that section 80HHC contains a further mandate in terms of Explanation (baa) for exclusion of certain income from the ''profits of the business'' which is, however, conspicuous by its absence in section 10B. On the basis of the aforesaid distinct ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ( 4) For the purposes of sub-section (1), the profits derived from export of articles or things or computer software shall be the amount which bears to the profits of the business of the undertaking, the same proportion as the export turnover in respect of such articles or things or computer software bears to the total turnover of the business carried on by the undertaking . Sub-section (4), therefore, is the special provision which enables the assessee to compute the profits derived from the export of articles or things or computer software. We do not see any conflict between Sub- section (1) and Sub-section (4) to Section 10B, as Sub- section (1) states that deduction of such profits and gains as are derived by a hundred percent export-oriented undertaking from the export of articles or things or software would be eligible under the said Section. Sub- section (1) is a general provision and identifies the income which is exempt and has to be read in harmony with Sub-section (4) which is the formula for finding out or computing what is eligible for deduction under Sub-section (1). Neither of the two provisions should be made irrelevant and both have to be applied without ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cles is different from the income derived from the profits of the business of the undertaking. The profits of the business of the undertaking includes the profits and gains from export of the articles as well as all other incidental incomes derived from the business of the undertaking. It is interesting to note that similar provisions are not there while dealing with computation of income under Section 80HHC. On the contrary there is specific provisions like Section 80HHB which expressly excludes this type of incomes. Therefore, in view of the aforesaid provisions, it is clear that, what is exempted is not merely the profits and gains from the export of articles but also the income from the business of the undertaking. In view of the aforesaid position, the appeals have to be dismissed. We order accordingly. 12. We thus find that the decision of Special Bench of Tribunal in the case of Maral Overseas (supra) wherein the ratio that once on income forms part of the business of the income of the eligible undertaking of the Assessee, the . A.Y. 2007-08 same cannot be excluded from the eligible profits for the purpose of computing deduction u/s. 10B of the Act, has been up ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iture was incurred for earning such income. In this way, the ld.CIT(A) concurred with the AO. The ld.counsel for the assessee in support of its contentions relied upon the judgment of Hon ble Gujarat High Court in the case of Saurashtra Chemicals reported in 213 ITR 523 (Guj). He also relied upon the judgment of Hon ble Supreme Court in the case of CIT Vs. Excel Industries Ltd., 358 ITR 295 (SC). On the strength of the Hon ble Supreme Court s decision, it was contended that in every year the assessee has prior period expenditure as well as income because in such a big organization quantification of certain expenditure and their crystallization always remained depended upon many circumstances, and sometime they crystallised in the subsequent period. The AO ought to have followed the principle of consistency and allowed the deduction of such prior period expenditure. On the other hand, the ld.DR relied upon the orders of the Revenue authorities below. 60. We have duly considered rival contentions. We find that income of the assessee is being assessed at entity level. All the expenditure debited under different heads cannot be decided qua a specific receipt. Once the assessee has b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Vs. Suzlon Energy Ltd., 354 ITR 630 (Guj) and judgment of Bombay High Court in the case of CIT Vs. Reliance Utilities Power ltd., 313 ITR 340. On the other hand, the ld.DR relied upon the order of the Revenue authorities below. 64. As far reliance of the assessee on the judgment of the Hon ble Gujarat High Court and Hon ble Bombay High Court are concerned, proposition laid down in these judgments are not in dispute. The proposition in the decisions is if an assessee has interest free funds then no disallowance for interest expenditure in making investment, which would result exempt income be made. This proposition was accepted by the ld.CIT(A) itself. The ld.CIT(A) further accepted that in this year disallowance cannot be made with help of Rule 8D, because it was not applicable in the assessment year 2006-07. It has been made applicable from the assessment year 2008-09. The ld.CIT(A) thereafter examined the facts and observed that dividend income of ₹ 3,53,08,748/- has been earned by the assessee which is exempt from tax. Therefore, some administrative expenditure or some other expenditure must be attributable for earning such exempt income. On an estimate basis, the ld. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he AO s finding reads as under: 6. The ground No. 5 of concise ground of appeal is against addition of ₹ 2,40,940/- u/s 43B of the Act. 6.1 The A.O. has stated in the assessment order dated 26.02.2010, which is as under: As per 3CD report ESIC outstanding on March 2006 is ₹ 1,96,709/- whereas, as per the groupings of 1he Balance Sheet provided by the assessee, ESIC payable as at the year end works out to be ₹ 4,53,004/- of which the opening balance was ₹ 65,209/-. In this regard, the assessee contended that the difference reported in 3CD report and as shown in the groupings of accounts would be on account of Employees' contribution. However, as per the 3CD Report, Employees' Contribution outstanding as on 31.03.2006 is only ₹ 15,355/-. Hence, the difference ₹ 2,40,940/- (Rs.453004 -Rs. 196709 - ₹ 15355) remains unexplained. This amount is accordingly added u/s 43B. Penalty u/s.271(1)(c) for furnishing inaccurate particulars of income is separately initiated. 6.2 The appellant has submitted in its written submission which is as under: The Appellant submits that there is no outstanding balance of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... record. A perusal of the finding of the ld.CIT(A) recorded in para 7.3 would show that the assessee itself admitted before the ld.CIT(A) that this amount is not allowable under section 36(2) of the Act. In other words, it could not be claimed as bad debt written off. The assessee alternatively claimed it has business loss under section 28 of the Act. The ld.CIT(A) has observed that a business loss could be allowed to the assessee if it has suffered in normal course of running business, and it should not be in the nature of capital loss. The ld.CIT(A) further observed that the loss should be proved as irrecoverable. Judgment of Hon ble Supreme Court in the case of TRF Ltd. (supra) will be applicable on bad debts written off. Here the claim of the assessee was admitted to be not related to bad debts, but to a loss and the ld.CIT(A) further observed that it was in the nature of capital loss, which cannot be allowed to it. 74. After going through the finding of the ld.CIT(A) we do not find any merit in this ground of appeal. Judgment of the Hon ble Supreme Court is not applicable on the given facts. Hence, this ground of appeal is rejected. 75. Ground Nos.13 to 14: In these groun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... repayment of what has been already spent and is not a reward or a compensation for services rendered. TDS on expenses/costs reimbursed to a non-resident do not give rise to any chargeable income in the hands of a non-resident and going literally by the above principle section 195 should not get attracted for reimbursements. In addition to the payment for services received from a non-resident, the Indian ' entity generally under the terms of the contract also reimburses at actual expenses like insurance, travel, lodging, boarding etc. incurred by such foreign entity for provision of the services. 10.4 In such situations, the Courts have generally held that as there is no income element embedded in such pure reimbursements duly supported by bills etc. and contractual liability to bear them being of the resident, they are not taxable in the hands of the non-resident. Bombay High Court has in the case of CIT vs. Tata Engineering and Locomotive Co. Ltd. (245 ITR 823) held that no part of expenses of foreign technician deputed by a foreign company could be treated as payment in lieu of fees and was not liable to deduction of tax at source. In the case of CIT vs. Industria ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... esident agent is chargeable to tax in India. In this regard attention to CBDT Circular No. 23, dated 23rd July, 1969, is drawn where the taxability of 'Foreign Agents of Indian Exporters' was considered along with certain other specific situations. It had been clarified then that where the nonresident agent operates outside the country, no part of his income arises in India. Further, since the payment is usually remitted directly abroad it cannot be held to have been received by or on behalf of the agent in India. Such payments were therefore, held to be not taxable in India. The relevant sections, namely, section 5(2) and section 9 of the Income-tax Act, 1961, not having undergone any change in this regard, the clarification in Circular No. 23 still prevails. No tax is therefore deductible under section 195 and consequently, the expenditure on export payable to a non-resident for services rendered outside India becomes allowable expenditure . The appellant submits that the Circular issued by the Board is binding on the Assessing Officer in the light of the decision of the Supreme Court in the case of UCO Bank v. CIT [1999] 237 ITR 889 (104- Taxman 547). The appel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The Appellant submits that in subsequent year Dr. Henk had provided services in proportion to 40:40:20 to Dishman India, Dishman USA and Dishman UK but that does not mean that the same mechanism should be applied for the year under consideration when the Group Chairman has allocated such expenditure. Hence, the Appellant submits that this alternate addition is also required to be deleted. 78. The ld.CIT(A) did not accept the contentions of the assessee and confirmed addition. 79. Before us, the ld.counsel for the assessee contended that both authorities have based their finding on the decision of Hon ble Karnataka High Court in the case of Samsung Electronics, 320 ITR 209. This decision has been reversed by the Hon ble Supreme Court in the case of GE India Technology, 327 ITR 456. He further relied upon CBDT Circular No.786 dated 7.2.2000 and order of the ITAT in the case of ACIT Vs. Best Roses Biotech P.Ltd., ITA No.283/Ahd/2013. 80. We have duly considered rival contentions and gone through the record. A perusal of the breakup of this expenditure would indicate that expenditure incurred by the assessee could be divided into three categories viz. (a) payments towards ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ocated amongst these concerns in the ratio of 40:40:20 based on advice given by the group chairman. On the basis of that ratio, the ld.AO has allocated this expenditure in this year also and worked out allowance expenditure out of ₹ 81,02,622/- debited under the head Administrative services . He observed that it should be allowed at ₹ 49,89,517/-. A perusal of the assessment order would indicate that the ld.AO has assigned two reasons for making disallowance, viz. (i) non-deduction of tax, and (ii) higher allocation of expenditure in the hands of the assessee which were incurred on Dr.Henk Pluim. As far as first party is concerned, these are simply reimbursement of administrative expenses incurred by Dr.Henk Pluim outside India. They did not involve any element of income and TDS was not required to be deducted. As far as second party is concerned, the ld.AO failed to bring any material on record to justify the administrative expenses required to be incurred for availing services of Dr.Henk. It is totally in the domain of the businessman and the AO cannot dictate terms how much salary and other expenses are necessary for availing the services. This disallowance made by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... claimed regular depreciation on these assets. The only question was whether additional depreciation could be allowed or not. Thus, the ld.CIT(A) ought to have entertained this claim of the assessee and ought to have decided the issue on merit. Taking into consideration all these aspects, we allow this ground of appeal for statistical purpose and restore this issue to the file of the AO for fresh adjudication The ld.AO shall decide this issue on merit whether additional depreciation as claimed by the assessee is admissible or not. These ground of appeal are allowed for statistical purpose. 86. Ground No.22: In this ground of appeal, grievance of the assessee relates to confirmation f disallowance of depreciation on electrical installation amounting to ₹ 1,00,938/-. The ld.counsel did not press this ground of appeal, hence, rejected. 87. Ground Nos.23 and 24: In these grounds of appeal grievance of the assessee relates to disallowance of misc. expenses to the tune of ₹ 15,00,000/- out of ₹ 18,10,423/-. 88. We have taken up this ground of appeal while considering the Revenue s appeal. 89. Ground No.25: In this ground of appeal grievance of the assessee is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er hand, in the exclusive method the cost of raw material debited in the purchase account is net of MODVAT element. In this system, the Appellant have a separate account for accounting for the excise duty payable and the MODVAT credit available to it. The Appellant submits that if the Appellant is following this method of accounting then the closing stock has to be valued exclusive of MODVAT element. It is however, explained that in either of the methods adopted as above, the profit of the Appellant would not change. It is, therefore, submitted that as the method adopted by the Appellant had not resulted into any reduction in the income of the Appellant, there was no justification in the Learned Assessing Officer making addition of ₹ 28,01,598/-. It is therefore, submitted that the addition made by the Id. AO u/s 145A is required to be deleted. The Appellant also relies on Jurisdictional Ahmedabad Tribunal Order in the case of M/s Alpanil Industries bearing ITA No. 169 170/Ahd/2005, wherein under identical facts, the Hon'ble Bench has deleted 'addition u/s 145A made by the Id. AO. Copy of the said order is enclosed on page no.223 to 244 of written submissi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that once the assessee has been claiming deduction, then it is for the assessee to explain. We have reproduced the finding of the AO, written submissions of the assessee before the ld.CIT(A) and we are unable to draw any conclusion from this half-baked facts. It is quite difficult to arrive at firm conclusion and how to apply decision of the Hon ble High Court. Therefore, we deem it appropriate to set aside this issue to the file of the AO. The assessee shall file complete details with working and its impact as to how it has worked out negative figure of ₹ 28,01,598/-. In view of the above, we allow this ground of appeal for statistical purpose. 93. Ground Nos.26 and 27: We have already taken up these two grounds along with ground no.6 and 7 of the Revenue s appeal. Hence, they are treated as allowed for statistical purpose. 94. Ground Nos.28 and 30. These grounds are general in nature and do not call for recording any specific finding, hence dismissed. 95. We now take ITA No.2957/Ahd/2013 (Revenue s appeal) and ITA No.3086/Ahd/2013 (Assessee s appeal). 96. These are cross-appeals at the instance of the assessee and Revenue against order of the ld.CIT(A) dated 31 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ation of TDS and income. ( 2) Addition of ESIC outstanding ( 3) Disallowance of sundry balances written off ( 4) Disallowance of MODVAT u/s.14A Penalty levied with reference to the following balance disallowances/additions is cancelled. ( 1) Addition of prior period income ( 2) Disallowance /s.14A ( 3) Disallowance u/s.40(a)(ia) ( 4) Disallowance of miscellaneous expenses ( 5) Disallowance of deduction u/s.10B AO is directed to re-compute the penalty accordingly. These grounds of appeal re partly allowed. 99. Thus, Revenue is aggrieved qua items on which penalty has been deleted by the ld.CIT(A) whereas the assessee in its appeal impugning confirmation of penalty by the ld.CIT(A). 100. With the assistance of the ld.representatives, we have gone through the record carefully. Section 271 (1)(c) of the Income Tax Act, 1961 has direct bearing on the controversy. Therefore, it is pertinent to take note of the section. 271. Failure to furnish returns, comply with notices, concealment of income, etc. ( 1) The Assessing Officer or the Commissioner (Appeals) or the CIT in the course of any proceeding ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oncealment of income comes into play. This deeming fiction, by way of Explanation I to section 271(1)(c) postulates two situations; (a) first whether in respect of any facts material to the computation of the total income under the provisions of the Act, the assessee fails to offer an explanation or the explanation offered by the assessee is found to be false by the Assessing Officer or Learned CIT(Appeal); and, (b) where in respect of any fact, material to the computation of total income under the provisions of the Act, the assessee is not able to substantiate the explanation and the assessee fails, to prove that such explanation is bona fide and that the assessee had disclosed all the facts relating to the same and material to the computation of the total income. Under first situation, the deeming fiction would come to play if the assessee failed to give any explanation with respect to any fact material to the computation of total income or by action of the Assessing Officer or the Learned CIT(Appeals) by giving a categorical finding to the effect that explanation given by the assessee is false. In the second situation, the deeming fiction would come to play by the failure of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stated by hereinabove in the quantum appeal, therefore, there cannot be any penalty upon the assessee under section 271(1)(c) of the Act, and accordingly, we uphold the order of theld.CIT(A) on this issue. 105. Next item is with respect to addition of ₹ 15.00 lakhs out of misc. expenses. The assessee has claimed expenditure of ₹ 18,10,423/- under various heads viz. library books, club membership fees, R D expenses and deferred revenue expenses. Expenditure of ₹ 14,84,530/- was claimed towards library books as revenue expenditure. On an ad hoc basis, a disallowance of ₹ 15 lakhs has been confirmed. We have partly confirmed disallowance of ₹ 10 lakhs on ad hoc basis. The assessee has disclosed complete facts with regard to the above books, and alternatively claimed that depreciation on books be provided to it in case this expenditure is disallowed. Considering ad hoc disallowance, we are of the view that this is not an item which could be alleged that the assessee has intentionally furnished inaccurate particulars of income. The dispute between the assessee and the Revenue relates to whether expenditure incurred on books should be allowed as capital e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... /s.10B was claimed on the basis of the certificate of the Chartered Accountant in Form No.56G; thus, the claim was bonafide and appellant could not be said to have furnished inaccurate particulars or concealed income. In support thereof he relied on the cases cited at 147 TTJ 67 (Delhi), 136 ITD 177 (Indore Special Bench) and Ahmedabad Tribunal's decision in Kadam Exports Pvt. Ltd. Vs. ITO in ITA No.2890/A/2011. The deduction u/s.10B was claimed on the basis of the certificate of CA in No.56G. The disallowance made in the assessment order was reduced by order u/s.155 by the AO. All the necessary details in support of the claim were very much placed on record by the appellant. The disallowance confirmed by the CIT(Appeals) was with reference to the unrealized export turnover, which came to be rectified later by the AO u/s.155 and other items not considered for eligible deduction (since they were held to have not been derived from the EOU). Thus, it cannot be said that appellant furnished any inaccurate particulars of the deduction claimed or concealed any particulars. In the case relied on by the Id. A.R. of ACIT Vs. DSL Software Ltd. (147 TTJ 67) (Delhi) (2012), it was he ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he view that impugned part disallowance of the deduction claimed u/s.10B does not attract the penal provisions of Section 271(l)(c). Penalty levied with reference to the said disallowance is not sustainable. 107. Further, in the quantum appeal, we have observed that unrealized export turnover excluded from the eligible profit for grant of deduction under section 10(B) ought to be excluded from the total turnover. We have directed the AO to re-calculate the deduction admissible to the assessee, after this exercise. The ld.CIT(A) in quantum appeal further did not concur with the contention of the AO that custom duty ought to be re-allocated on the basis of raw-material imports in EOU and Non-EOU units. We have confirmed action of the ld.CIT (A) by holding that in EOU units no custom due was payable, and therefore, there is no requirement of re-allocating custom duty in EOU units from Non-EOU units. Thus, this addition has not been upheld by the Tribunal, and therefore, penalty qua this item could not be imposed upon the assessee. 108. Similarly, in this very order, we have rejected ground no.7 in Revenue s quantum appeal by holding that expenditure from non-EOU units ought ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r the groupings of balance sheet, ESI outstanding payable was of ₹ 4,53,004/-. The AO made addition of differential under section 43B of the Act. The case of the assessee is that in From No.3CD report outstanding was shown at ₹ 1,96,709/-. This amount has been added back. Therefore, the AO ought to have not taken cognizance of other amounts. On due consideration of the facts, we are of the view that on account of some difference of opinion, with regard to accounting entry this addition has been made. In the Form 3CD the assessee has shown outstanding of ₹ 1,96,709/- and this amount has been added back because it was not actually paid to ESIC account. Other amount mentioned for making addition is available in the balance sheet and not in 3CD report. There must be some communication gap or some reconciliation required, but it cannot be said that the assessee has furnished inaccurate particulars of this item. The ld.CIT(A) is not justified in confirming penalty. Penalty is accordingly deleted. 114. Next item on which the assessee has been visited with penalty relates to the addition of ₹ 2,86,051/-. The assessee has made payment of certain advances for purch ..... X X X X Extracts X X X X X X X X Extracts X X X X
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