TMI Blog2018 (6) TMI 1535X X X X Extracts X X X X X X X X Extracts X X X X ..... in ALP of interest rate required to be charged by the assessee from its AE on the loans given by it - assessee has pointed out that LIBOR is the prevailing rate and it has charged LIBOR plus 1% - Held that:- No defect has been pointed out in this rate. Only thing is that one of the AEs has obtained loan from European market, therefore, the ld.TPO has applied that rate. To our mind this action of the ld.TPO could be justified if he has pointed out that a tested party in India has granted loan to its AE in dollar denomination at a higher rate than the LIBOR plus 1%. It is also pertinent to note the cost of the funds to the assessee. The assessee has contended that it has raised funds by issuing of FCCB at nominal cost 0.5% to 1% and it has given these funds to its AE. Thus, the assessee has demonstrated that the rate charged by it was at a market rate and its transactions were at arm’s length. No adjustment can be made in the rate of interest charged by the assessee from its AE on providing loans in dollar denomination. We allow the appeal of the assessee on this aspect, and delete adjustment recommended by the ld.TPO. Adjustment recommended by the AO on the guarantee provided - H ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... enditure etc. However, considering volume of expenditure and part details submitted by the assessee i.e. incurred towards library books, R&D, deferred revenue expenses etc. we have confirmed the expenditure on adhoc basis at ₹ 10 lakhs. The ld.AO shall give necessary effect in these years also. This will meet ends of justice. Provision of bad and doubtful debts - Held that:- The assessee has not actually written off debts, and therefore, its claim cannot be allowed. The ld.CIT(A) has rightly upheld the disallowance. We do not find any error in this ground of appeal, hence it is rejected. Loans/investments in foreign subsidiaries - Whether on capital account and loss on account of capital assets ought not to be allowed under section 37? - Held that:- If the ld.Revenue authorities are accepting the gains on account of foreign exchange fluctuations as taxable then how and why the loss could be denied to the assessee? No specific finding has been recorded about the nature of loans and how such losses on account of fluctuations loss could be disallowed. Therefore, taking into consideration all the facts that ld.Revenue authorities have failed to examine the issue by keeping ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... we allow the grounds of appeals of the assessee and reject that of the Revenue. Addition under section 14A while computing book profit - calculation of profits both under MAT and normal provisions - Held that:- As in the case of ACIT Vs. Vireet Investment P. Ltd.[2017 (6) TMI 1124 - ITAT DELHI] Special Bench after discussing the issue in detail and considering various authoritative pronouncements answered in favour of the assessee by holding that scope of section 14A could not be extended to the provisions of section 115JB, and computation of book profits under section 115JB is to be made without resorting to disallowance under section 14A read with rule 8D of the Act. Therefore, following the judgment of the Special Bench in the case of Vireet Investment P. Ltd. (supra) we direct the AO to recompute the book profit by excluding disallowance under section 14A and we allow this ground of appeal of the assessee. - ITA No. 955/Ahd/2012, 1043/Ahd/2012, 262/Ahd/2013, 386/Ahd/2013, 2958/Ahd/2013, 3087/Ahd/2013 - - - Dated:- 20-6-2018 - SHRI RAJPAL YADAV, JUDICIAL MEMBER AND SHRI AMARJIT SINGH, ACCOUNTANT MEMBER Revenue by : Shri Vasundhara Upmanyu, CIT-DR Shri R.P. Maurya, Sr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rope Limited, UK Procurement of raw material availed to from the AE 36941047 4. Dishman FZE, Dubai Short term loan given 932800 2. Total 177,72,94,788 Assessment Year : 2008-09 Sr. No. AE Name Nature of Transactions Value of transaction (Rs.) 1. Dishman Europe Limited, UK Apportionment of Expenses 79,19,759 2. CAD KMiddle East Pharma Industrial Share application monies, pending allotment of shares 3,33,08,000 3. Dishman Europe Limited, UK Sale of 13,55,333 kgs. of various products 1,90,12,96,933 4. Dishman, USA 5. Dishman Switzerland Limited 6. Carbogen Amics Ag. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 12. DISHMAN EUROPE LTD. Apportionment of insurance premium 11,78,932 TNMM 13. DISHMAN EUROPE LTD. Reimbursement of expenses 1,84,13,221 TNMM 14. DISHMAN Australasia pty Ltd. Short term loan 1,05,51,694 TNMM 15. Dishman Pharma Chemicals (Shanghai) Co. Ltd. Short term loan 10,05,10,000 TNMM 16. Dishman Europe Limited Short term loan 22,74,113 TNMM 4. Let us first take the facts in the assessment year 2007-08 on this issue. It is pertinent to note that in the value of international transactions of ₹ 177,72,94,788/- extracted above, the ld.TPO recommended upward adjustment of ₹ 11,12,88,512/-. The adjustments were made qua four components viz. (a) adjustment in sale price of ₹ 4,78,99,891/-; (b) interest on loan of ₹ 87,19,932/-; (c) guarant ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 by the assessee on the above facts of the case. Even the honourable apex court in the case of Morgan Stanley Co. has clearly upheld the adoption of TNMM method as most appropriate method and the relevant particular line from the judgement reads as under: as regards income attributable to the P E, we hold that the transactional net margin method was the appropriate method for determining the arm's length price in respect of transactions between Morgan Stanley Co and MSAS . Even the honourablespecial bench of this tribunal in the case of Aztec software and technology services Ltd has held, that the computation of arms length price is effect to exercise. Each case depends on its own facts and circumstances. In many cases where identical or almost similar uncontrolled transactions are available for comparis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rate of LIBOR + 1% however one of the AEs have obtained borrowings from European bank at the rate of Euribor + 3.75%. Since appellant charged interest at a low rate, transfer pricing was justified in making adjustment in respect of interest. It is only because transaction was with AE, the low rate of interest was charged. The reasons given by the appellant do not explain the charge of interest at the low rate. In view of the detailed reasons and judicial decision given by the TPO which is quoted earlier, the adjustment in respect of interest made by the TPO is confirmed. - However, while making adjustment in respect of interest, TPO did not allow set off of interest already charged by the appellant. Since the interest worked out by the This is total interest which should've been charged at ALP, obviously Interest already charged by the appellant has to be reduced making TP adjustment. Accordingly assessing officer is directed to reduce interest already charged by the appellant from the total interest chargeable from the AEs. The adjustment of such net amount computed is confirmed, (c) Guarantee fees- TPO made the adjustment on account of commission in respect of corporate ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rvices or business consideration and accordingly the ALP of this transaction is Nil. Since appellant made payments to its AE, the same was clearly within the purview of pricing regulation. Appellant could not explain the business consideration and the purpose of making payment on account of insurance even when it cannot take any insurance from foreign insurer. In view of this, the adjustment made by the TPO is justified and addition is accordingly dismissed. 5. In the assessment year 2008-09, the ld.TPO has recommended upward adjustment in the value of international transactions at ₹ 11,99,88,464/-. He has recommended such adjustments on three accounts viz. (a) adjustment in sale price of ₹ 5,05,24,457/-; (b) interest on loan of ₹ 1,02,58,808/- and (c) guarantee fees of ₹ 5,92,05,199/-. On appeal, the ld.CIT(A) has deleted adjustment qua item no.(a) and (c) i.e. adjustment in sale price and guarantee fees. The ld.CIT(A) confirmed adjustment recommended for charging of interest on loan partly. In this year, the ld.CIT(A) has not recorded any independent finding rather followed her predecessor s order in the assessment year 2007-08. This fact has not only ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... high price in domestic market as compared to export price to its AE. Thus, the ld.TPO has changed method from TNMM to CUP method and thereafter recommended adjustment. Before the ld.CIT(A) it was contended by the assesee that right from the assessment year 2003-04, it has been following TNM method. The ld.CIT(A)has accepted the TNM method in the assessment years 2003-04 to 2006-07. Orders of the ld.CIT(A) in the assessment years 2003-04 and 2004-05 have been upheld by the ITAT. The ld.CIT(A) has considered this aspects and thereafter held that in the case of assessee TNMM is the right method. 8. On due consideration of order of the ld.CIT(A), we are of the view that along with these appeals, we have heard appeals of the assessee for the assessment years 2005-06 and 2006-07, where similar issue was involved. We have taken note of the order of the ld.CIT(A) passed in the assessment year 2005-06. The assessee in its submissions has prepared a comparative table exhibiting profit, arm s length price adjustments and why comparison made by the TPO was not proper. In other words, the assessee has highlighted factors responsible for not applying CUP method on its transactions. After mak ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and no adjustment in this sum of ₹ 296.26 lakhs can be made. The 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the assessment year 2005-06 have been sold in these years to different AEs in different geographical locations. If on sale of these products CUP method was not upheld in earlier years, then we do not see any reasons to apply that very method in this year as well. Therefore, respectfully following the orders of the ITAT in the assessment year 2003-04 to 2006-07 on this issue, we do not find any error in the finding of the ld.CIT(A). The benchmarking on sale price of various products to AEs is to be tested by following TNM method and if that method is being followed then, it would reveal that the assessee has rightly justified its transactions at arm s length, because the margin shown by it are higher than the average margin shown by the comparable entities, and therefore no adjustment can be made. The ld.CIT(A) has rightly deleted such adjustment in this year, and the order of the ld.CIT(A) is upheld qua first issue. 10. Next common item in all these three years is adjustment recommended in ALP of interest rate required to be charged by the assessee from its AE on the loans given by it. 11. Brief facts of the case are that in the assessment year 2007-08, he assessee has ex ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g cash credit account with Corporation Bank and given loan from these accounts to Dishman Pharma Solution. The assessee has given loans in dollar. These loans have been given from Singapore Branch. The question before us is whether the interest rate charged by the assessee at LIBOR plus 1% is at market rate or it has given some undue benefit to its AEs and thus, its rate could not be considered as arm s length price. The ld.TPO has not made much discussion on this aspect. He harboured a belief that since one of the AEs. borrowed funds from European bank and paid higher rate of interest, thus funds given by the assessee should also carry that very rate of interest. In our opinion, the ld.TPO failed to appreciate the fact that the assessee is the tested party and not the AE. The factum of business requirement in a foreign country at what rate of interest funds are being borrowed by the AE is totally irrelevant aspects. The question before the TPO was at what rate an Indian concern should provide loans in dollar denomination to an unrelated party from India. The AE has obtained loans from European market, which is altogether a different currency and the requirement of AE could be diff ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... much as corporate guarantee was given to the AE for smooth functioning of the business of the assessee. On the strength of ITAT, Hyderabad Bench order passed in ITA No.1405/Ahd/2010 in the case of Four Soft Ltd. Vs. DCIT, the assessee has contended that following aspects are required in order to identify whether transactions within the ambit of international transactions provided in section 92B of the Income Tax Act. The ld.CIT(A) has reproduced the submissions of the assessee. The relevant part reads as under: 5.4 The Appellant most respectfully submits that to invoke transfer pricing provisions in the hands of the assessee, three basic conditions are required to be satisfied cumulatively, which are as under: (a) Income arising from; (b) International transaction and (c) Entered into with the associate enterprise. 5.5 So far as condition (c) is concerned, if is admitted facts that the DEL and DPS are wholly owned subsidiary companies of the Appellant and therefore they are associate enterprise of the Appellant as per the provisions of S.92A of the Act. The Appellant most respectfully submits that providing bank guarantee is admittedly (a) not a purchase of Purchase ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s accepted this contention of the assessee and held that providing a corporate guarantee was not international transaction, hence, no adjustment on account of guarantee commission should be made. He deleted the addition. Similar arguments have been advanced in the assessment year 2008-09 and 2009-10. Because the finding of the ld.CIT(A) extracted (supra) in the assessment year 2007-08 has been followed by the ld.Revenue authorities in the assessment year 2008-09 and 2009-10. 17. With the assistance of the ld.representatives, we have gone through the record carefully. Te ld.counsel for the assessee relied upon the order of the ITAT, Ahmedabad Bench in the case of Micro Ink Ltd. Vs. ACIT, 63 taxmann.com 353 wherein it has been held that corporate guarantee given by the assessee on behalf of its subsidiary company is the nature of quasi-capital or shareholding activity and not in the nature of provision of service , and therefore, such transactions is to be excluded from the scope of international transactions under section 92B. 18. On the other hand, the ld.DR relied upon the order of the TPO. It was further contended that the by Finance Act, 2012 a retrospective amendment has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be given effect in the computation of income. The issue has been discussed by the ld.CIT(A) in the assessment year 2007- 08 and in other two years, the ld.CIT(A) has followed orders of the ld.CIT(A). The assessee had accounted for income of ₹ 40,11,972/- pertaining to prior period in the assessment year 2007-08. It has claimed expenditure of ₹ 47,34,697/- and net different amount of ₹ 7,22,725/- has been debited to the profit loss account. In the assessment year 2008-09, it has ₹ 29,69,575/- prior period income and it adjusted prior period expenditure of ₹ 38,93,319/-. Similarly, in the assessment year 2009-2010, the assessee has income of ₹ 1,30,352/- and claimed expenditure of ₹ 13,36,441/-. 24. The case of the Revenue is that the income pertaining to any period has to be accounted for either on receipt basis or accrual basis. Once the assessee has shown income, it is to be taxed. But expenditure could be allowed if the assessee is able to demonstrate that such expenditure was incurred for earning of such income. According to the ld.Revenue authorities, the assessee has failed to demonstrate that this expenditure was incurred for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Diamond Association : Rs.1,01,618/- iii) Iskon Ahmedabad : Rs.1,01,618/- iv) Ahmedabad Municipal Corpn : ₹ 16,939/- Total Rs.9,23,882/- 29. Originally, it claimed deduction under section 80G of the Income Tax Act but failed to produce relevant material, therefore, it claimed deduction under section 37(1) of the Act. The ld.AO did not allow deduction to the assessee and the order of the AO has been confirmed by the ld.CIT(A). 30. We have duly considered rival contentions and gone through the record. This expenditure was incurred by the assessee in order to perform its corporate social responsibility. Expenditure was given to Municipal Corporation, Surat and Ahmedabad and Surat Diamond Association. According to the assessee there were heavy rains and request came from Municipal Corporation. In order to fulfill the social responsibility, it has given the amounts. On due consideration of the facts, we are of the view that there cannot be any doubt about the genuineness of the payment. The payment was made to Municipal Corpo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 36. Brief facts of the case that the assessee has made provision for doubtful debts amounting to ₹ 10,52,773/- alleged to be outstanding against three parties viz. Ranbaxy Laboratories Ltd. ₹ 3,72,431/-, Perfect Protene ₹ 65,245/- and Dr.Reddy s Laboratories ₹ 6,15,097/-. The ld.AO disallowed claim of the assessee by observing that provision of bad and doubtful debts is not allowable. The assessee ought to have written off this amount in its books of accounts. Before the ld.CIT(A), the assessee put reliance upon the decision in the case of Vijay Bank Vs. CIT reported in 190 taxman 257 (SC). After considering the case of the assessee, the ld.CIT(A) has upheld disallowance by observing as under: 6.3 I have considered the facts of the case; assessment order and appellant's submission. Appellant claimed provision for bad and doubtful debts as allowable deduction which was rejected by the assessing officer since section 36 (1) (vii) does not allow provisions for bad debts. The reply of the appellant was quoted in the assessment order and as per that appellant clearly stated that only provision was created in the cases of doubtful debts. Since the deduct ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Dubai 1082800 01/04/06 Shankai Chemical Industries park 144000 01/04/06 China Project 14840 31/03/07 Dishman Dubai 37400 31/03/07 Dishman Pharma -Solution AG loan 2977500 31/03/07 China Project 6820 31/03/07 Loon to Dishman Europe Ltd. 4413640 Total 8677000 As con be seen from the above table/ all the entries are in respect of foreign exchange loss on translation of foreign currency on account of loans / investments. As per the Indian Company's Act we-have to prepare our books of account as provided in the provisions of the-company's act. The company's act also makes it mandatory for all the companies to follow the accounting standards prescribed by the Institute of Chartered Accountants of India. As per accounting standard AS11 of the Institute of Chartered ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Y.2006-07, the Appellant has earned foreign exchange gain amounting to ₹ 12,41,640/-(comprising Of ₹ 10,82,800/- + ₹ 1,44,000/- + ₹ 14,8401- )which has been offered for taxation as income in A.Y.2006-07. (pl. refer copy of grouping of other income for A.Y.2006-07 attached herewith on page nos.67 to 72 of written submission). Similarly, the foreign exchange loss amounting to ₹ 74,35,540/- (comprising of ₹ 37,400 + ₹ 29,77,5001- + ₹ 6,820/- + ₹ 44, 13,640/-) claimed on 31/03/2007 has been reversed on 01/04/2007 and the same has been offered for taxation in the next year A.Y.2008-09. (pi. refer copy of grouping of other income for A.Y.0809 attached herewith on page nos.73 to 75 of written submission). It is also to be pointed out that the said amount was reversed on 01/04/2006, which is also the subject matter of addition during the year under consideration. Hence, there is double taxation, once the same has been taxed as income in A.Y.2006-07 and twice when the same has been disallowed during the year under consideration.' (g) whether the assessee has been consistent and definite in making entries in the account books in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... respectfully submits that foreign exchange -loss incurred, by the Appellant should be allowed and disallowance made by the ld. AO is required to be deleted in view of above made submission and the Apex court decisions. 41. The ld.First Appellate Authority has gone through these submissions of the assessee but did not concur. According to the ld.CIT(A), the loans/investments in foreign subsidiaries is on capital account and loss on account of capital assets ought not to be allowed under section 37 of the Income Tax Act. Before us, the ld.counsel for the assessee contended that the issue in dispute is covered in favour of the assessee by the judgment of the Hon ble Supreme Court in the case of CIT Vs. Woodward Governor India Pvt Limited, 312 ITR 254. On the other hand, the ld.DR relied upon the order of the ld.CIT(A). 42. We have duly considered rival contentions and gone through the record carefully. Assessment order as well as order of the ld.CIT(A) are silent on the submissions made by the assessee. The assessee has contended that being company, it is required to prepare its accounts by following accounting standard AS-11 where it is required to restate all its foreign exch ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... idend income of ₹ 2,44,60,691/- which has been claimed as exempt income under section 10(34) of the Act. According to the ld.AO, no expenditure was offered by the assessee being attributable to earning of such exempt income. Therefore, he issued a show cause notice inviting the explanation of the assessee as to why expenditure ought not to be disallowed with help of Rule 8D. The assessee filed detailed reply, and after considering the case of the assessee, the ld.AO has worked out administrative cost at 0.5% of average investment of ₹ 1.36 lakhs and partly interest expenditure he made an estimated disallowance in way at ₹ 3,93,000/- in the assessment year 2007-08. Under similar lines, he has made disallowance in other two years. 45. Before the ld.CIT(A), it was contended that Rule 8D is not applicable in the assessment year 2007-08 because it has been brought in the statute book w.e.f. assessment year 2008-09. The ld.CIT(A) took cognizance of this fact, but made disallowance at the same amount on an adhoc basis. 46. With the assistance of the ld.representatives, we have gone through the record. It is pertinent to note that the assessee has demonstrated inter ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ears 2008-09 and 2009-10. In other words, grounds of appeal of the assessee in the assessment year 2007-08 are partly allowed, whereas grounds in the assessment year 2008-09 and 2009-10 are rejected. 48. Ground Nos.14 to 21 in the Asstt.Year 2007-08; ground nos.12 to 15 in the Asstt.Year 2008-09 and ground nos.10 to 13 in the assessment year 2009- 10: In these grounds of appeal, assessee is aggrieved by the Action of the Revenue authorities in confirming disallowance of ₹ 1,56,69,776 (Asstt.Year 2007-08), ₹ 82,92,297/- (Asstt.Year 2008-09) and ₹ 44,58,072/- (Asstt.Year 2009-10) under section 40(a)(i) of the Act and disallowance of ₹ 25,78,986 out of reimbursement of administrative expenditure. 49. Though facts on vital points are common in all three years on this issue, we are taking facts from Asstt.Year 2007-08 for the purpose of reference. The AO on perusal of the details noticed that assessee has debited following expenditure Sr. No. Particulars Amount a) Reimbursement of Administrative Services to Dishman Europe Ltd. 1,47,37,061/- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t if the assessee has been making payment to a nonresident then either it should take a certificate from the AO under section 195(2) or deduct TDS on such payments. For this view, they are harping upon the decision of Hon ble Karnataka High Court in the case of Samsung Electronics (supra). However, the Hon ble Supreme Court did not concur with this view of Hon ble High Court and observed that expression chargeable under the provisions of the Act is being employed under section 195(1) and if element of income is involved in the payments made by the assessee only then the TDS has to be deducted. Keeping in view this decision in mind, let us examine the nature of payment made by the assessee. 81. Let us take first category of payment made towards professional charges. According to the assessee, non-resident was not having any permanent establishment in India or any business connection. Thus, such sum is not taxable in India and no question of deducting TDS would arise. Reference to circular no.786 dated 7.2.2000 is being made. The AO failed to bring on record any material showing that recipient is taxable in India. With regard to other two items i.e. reimbursement of administrati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Revenue s appeal for the assessment year 2007-08, grievance of the Revenue is that the ld.CIT(A) has erred in deleting the addition of ₹ 72,38,698/- added by the AO with help of section 2(22)(e) for the loan taken from the B.R. Laboratories. 55. Brief facts in this regard are that the AO noticed that the assessee has substantial interest in M/s.Bhadra Raj Holdings P.Ltd., and the B.R Laboratories Ltd. by way of shareholding. AO also noticed that assessee company has also indulged in monetary transactions in the forms of loans and advances with these two companies. The AO noticed that the assessee has taken loan of ₹ 11,25,268/- on 14.12.2006 and ₹ 1,19,87,744/- on 21.2.2007 from B.R. Laboratories Ltd., and the balance sheet of B.R. Laboratories Ltd. showed reserve of ₹ 72,38,698/- as on 31.3.2007. Therefore, the AO treated the entire reserve fund of ₹ 72,38,698/- as deemed dividend in the hands of the assessee under section 2(22)(e) of the Act. Similarly, the AO also observed that a loan of ₹ 15,75,00,000/- being given to the assessee company by the B.R. Holding P.Ltd. In the balance sheet of this company showed a reserve fund of ₹ 3, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rved that during the assessment proceedings of A.Y 2006-07, it was seen that Schutz Dishman Bio-tech P.Ltd. ( SDBPL for short) has given loans to the assesee. Assessee holds 22.3% share holding of SDBPL. Thus, the ld.AO was of the view that loans given to the assessee deserves to be treated as deemed dividend under section 2(22)(e) of the Act. Similarly, the assessee has received loan from B.R. Labs P.Ltd. amounting to ₹ 16,03,933/-. Both these loans were treated by the AO as deemed dividend in the hands of the assessee and addition of ₹ 2,41,04,933/- was made under section 2(22)(e) of the Act in reassessment order. Dissatisfied with the addition, the assessee carried the matter in appeal before the ld.CIT(A). 19. It contended that similar issue was taken in the hands of SDBPL. Dispute travelled upto the ITAT, and it was held that assessee and SDBPL were maintaining current accounts. These were not in the nature of loans which could be treated as deemed dividend. With regard BR Laboratory, it was contended that it is not a registered share holder of BR Laboratory, and therefore, in view of Special Bench decision of the ITAT in the case of ACIT Vs. Bhaumik Color P.Lt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... There is large number of debit and credit transactions. Meaning thereby, the appellant has given and received funds as and when required to and from its associate concern. It is not on account whereby loans and advances have been given to the associate concern. It is on account payments in the nature of current adjustment accommodation account wherein there is a movement of funds both ways, on the basis. Unlike transactions of loan and advances, the movement funds is both ways and the same is more in the nature of current account rather than a loan account. Transactions in the nature of loans and advances are usually very few and for a longer duration. In the facts of the present case, the nature of the transaction as in the form of current accommodation, adjustment account and therefore the same is not a transaction in the nature of loans and advances. In absence of any loans and advances, the provisions of section 2 (22) (e) of the act in respect of deemed dividend are not attracted and therefore the question of deduction of tax at source also would not arise. Since these transactions between appellant and its associate concern M/s Schutz Dishman Biotech Ltd was there since ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed basis. The transactions in the nature of loans and advances are usually very few in number whereas in the present case, such transactions are in the form of current accommodation adjustment entries. The Commissioner therefore, held that the transactions were not in the nature of loans and advances. The Revenue carried the matter in appeal. The Tribunal concurred with the view of the. CIT (Appeals) and held that the amounts were not in the nature of Inter Corporate Deposits and were therefore, not to be treated as loans or advances as contemplated in section 2(22)(e) of the Act. 5. The issue is substantially one of appreciation of facts. 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)(e) of the Act would not arise. Consequently, no question of law arises. Tax appeals are dismissed. 21. Respectfully following order of the Tribunal in assessee s own case, we do not find any merit in this appeal. It is rejected. According to this finding, section 2(22)(e) of the Act ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Hon ble High Court in earlier year, then it was pointed out that these were not simplicitor loan transactions, rather these are the business transactions whereby the current amount is being maintained. Both parties have given amounts to each other and these are adjustment entries. Considering the current account and number of transactions, and since the Hon ble High Court has upheld the finding of the Tribunal in earlier years that these are not loans, which could be brought in the ambit of section 2(22)(e) of the Act for the purpose of treating it as deemed dividend, we respectfully following the order of the ITAT in the assessment year 2006-07 as well as judgment of the Hon ble High Court in earlier years, are of the view that advance given to M/s.Bhadra Raj Holdings P.Ltd. cannot be treated as deemed dividend. We allow this ground of appeal. 61. Ground Nos.25 to 27, ground no.16 to 19 and 14 to 16 (assessee s appeals); ground no.5 to 8, ground no.4 to 6 and ground no.2 (in Revenue s appeal) for the assessment years 2007-08 to 2009-10 respectively. The issue agitated in all these years and all these grounds relates to determination of correct amount for grant of deduction ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r the EOU units. The ld.CIT(A) after making a detailed analysis held that there was no custom duty on the imports made required to be consumed in EOU units. If that be a fact, then how the AO could allocate such amount to such units ? The assessee has been maintaining separate books of accounts and debited actual expenditure in each unit. Therefore, the ld.CIT(A) is justified in holding that custom duty which is not incurred by the assessee on the imports of raw-material meant for EOU units cannot be allocated. We do not any merit in this fold grievance raised by the Revenue. It is rejected. 49. Next three fold grievances are common. The grievance of the Revenue in these folds of grievances relates to allocation of expenditure incurred towards packing material, clearing and forwarding expenses, administrative and interest expenses. It is pertinent to observe that where mixed accounts and common management is there, then certain overhead expenses required to be allocated at the level of HO, but if an assessee is maintaining separate books accounts and demonstrate all expenditure incurred by it; identifiable and allocatable, then on estimate basis such expenditure cannot be alloca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... z. sale of scrap etc. are not to be considered as derived from export activities. It is pertinent to observe that in the case of Sonic Technology P.Ltd. the assessee has claimed deduction after including interest income, sale of scrap, sundry balance written off, exchange rate fluctuations and incremental turnover and disbursement of subsidy from the government. These items were held to be eligible for grant of deduction under section10B of the Act. The ITAT in the case of Sonic Technology has further observed that order of the Special Bench Indore Bench has been upheld by the Hon ble Delhi High Court. Discussion made by the ITAT qua this issue reads as under: 11. We also find that the decision of Special Bench of Tribunal in the case of Maral Overseas Ltd. (supra) was upheld by Hon'ble Delhi High Court in the case of Hritnik Export Pvt. Ltd.(ITA No. 219/2014 239/2014 order dated 13.11.2014) wherein Hon'ble High Court dismissed the appeal of Revenue by holding as under:- By way of these appeals, the Revenue has challenged the orders passed by Income Tax Appellate Tribunal (Tribunal, for short) dated 11th September, 2013 and 24th October, 2013 relating to assessment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ce an income forms part of the business of the income of the eligible undertaking of the assessee, the same cannot be excluded from the eligible profits for the purpose of computing deduction u/s 10B of the Act. As per the computation made by the Assessing Officer himself, there is no dispute that both these incomes have been treated by the Assessing Officer as business income. The CBDT Circular No. 564 dated 5th July, 1990 reported in 184 ITR (St.) 137 explained the scope and ambit of section 80HHC and the mode of determination of profits derived by an assessee from the export of goods. I.T.A.T., Special Bench in the case of International Research Park Laboratories v. ACIT, 212 ITR (AT) 1, after following the aforesaid Circular, held that straight jacket formula given in sub-section (3) has to be followed to determine the eligible deduction. The Hon'ble Supreme Court in the case of P.R. Prabhakar; 284 ITR 584 had approved the . A.Y. 2007-08 principle laid down in the Special Bench decision in International Reserarch Park Laboratories v. ACIT (supra). In the asses see's own case the I.T.A.T. in the preceding years, after considering the decision in the case of Liberty India ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The issue in question in this appeal which pertains to the Assessment Year 2009-10, relates to duty draw back in the form of DEPB benefits. As per Section 28, clause (iii-c), . A.Y. 2007-08 any duty of customs or excise repaid or repayable as drawback to a person against exports under Customs and Central Excise Duties Draw Back Rules, 1971 is deemed to be profits and gains of business or profession. The said provision has to be given full effect to and this means and implies that the duty draw back or duty benefits would be deemed to be a part of the business income. Thus, will be treated as profit derived from business of the undertaking. These cannot be excluded. Even otherwise, when we apply Sub-section (4) to Section 10B, the entire amount received by way of duty draw back would not become eligible for deduction/exemption. The amount quantified as per the formula would be eligible and qualify for deduction/exemption. The position is somewhat akin or close to Section 80HHC of the Act, which also prescribes a formula for computation of deduction in respect of exports. In view of the aforesaid, we do not find any merit in the present appeal and the same is dismissed. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... clude this other income in the eligible profit for the purpose of grant of deduction under section 10B of the Act. 56. In view of the above discussion, we do not find any merit in the appeal of the Revenue. It is dismissed. 63. Before us no disparity of the facts has been pointed out by the ld.DR in these years in this behalf. Therefore, following our order for the assessment year 2006-0 in assessee s own case we direct the AO to allow the claim of the assessee under section 10B in accordance with our directions contained in order for the assessment year 2006-07. Accordingly, we allow the grounds of appeals of the assessee and reject that of the Revenue. 64. In Ground No.28 for the assessment year 2007-08 the assessee is challenging confirmation of addition under section 14A while computing book profit. 65. Brief facts in this behalf are that assessee has shown dividend income of ₹ 2,44,60,691/- which was claimed as exempt income under section 10(34) of the Act. However, assessee has not disallowed any expenditure for earning such income. Assessee explained since business of the assessee is indivisible expenditure incurred could not be apportioned and therefore c ..... X X X X Extracts X X X X X X X X Extracts X X X X
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