TMI Blog2019 (11) TMI 147X X X X Extracts X X X X X X X X Extracts X X X X ..... Ground No.1 of the revenue stands dismissed. Attribution of salary of staff to the SEZ units - Disallowance of salary expenditure wrongly claimed by the assessee as part of Non SEZ units - HELD THAT:- The correct fact is that out of the 8 employees mentioned by the Ld. A.O, salary of 5 employees already stands debited to the SEZ units and the exemption has been claimed on the profits arrived after deducting the expenses of salary of the 5 employees to whom the total amount was paid. Further the Ld. A.O has made the impugned disallowance without bringing any detail on record so as to prove that the alleged salary was payable in the non SEZ units. The assessee s books of accounts are duly audited and it has bifurcated the salary expenses correctly under non SEZ units and SEZ units. In the case of the assessee for the determination of ALP in specified domestic transactions reference could have been made to the TPO but certainly the Ld. A.O has no power to make such disallowance. As per the provision of Section 92BA of the Act for the year under appeal the domestic pricing transfer provisions could apply if the aggregate of such transactions entered into by the assessee in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Assessment Year 2014-15 was filed on 21.11.2014 declaring income u/s 28 to 44D of the Act at ₹ 15,30,51,500/- and book profit u/s 115JB at ₹ 76,65,48,837/-. Assessment was completed u/s 143(3) of the Act by Ld. A.O assessing total income u/s 28 to 44D at ₹ 19,17,06,073/- and u/s 115JB at ₹ 80,52,03,407/- making additions of gain from foreign currency at ₹ 1,52,82,274/-, addition due to attribution of staff salary to SEZ units at ₹ 2,07,68,143/- and disallowance u/s 40(a)(ia) at ₹ 26,04,156/-. Aggrieved assessee preferred appeal before Ld. CIT(A) and succeeded. 3. Now aggrieved revenue is in appeal before the Tribunal raising following grounds of appeal; On the facts and in the circumstances of the case the Ld. CIT(A):- 1.Whether on the facts and in circumstances of the case the Ld. CIT(A) has erred in summarily deleting the addition of gain from foreign currency made at ₹ 1,52,82,274/- holding, in a summary manner that the same is business income, without giving any factual finding regarding the details and nature of receipt of foreign income fluctuation. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 3.1 This ground was made by the AO in spite of the fact that the assessee itself has added this amount in its income. 3.2 Further the AO's addition is based on finding that income of the nature booked as income from other sources cannot be claimed as except u/s 10AA. 3.3 This observation of the AO is factually incorrect. The assessee has offered this income as business income in computation as well as in the Balance Sheet. Perhaps he got confused with the fact that this amount is shown as other income in P L A/c. There is huge difference between other income and income from other sources. 3.4 That this income was rightly been shown as business income as the gain/loss from foreign currency fluctuation was arising during the course of business and was incidental to business. It was not the case that the assessee was involved in foreign currency transaction separately. Rather the gain in foreign currency fluctuation was outcome of business activity. 8. Ld. Counsel for the assessee placed reliance on the judgment of Hon'ble Supreme Court in the case of Sutlej Cotton Mills Ltd vs. CIT reported in 116 ITR ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reign currency held by it, on conversion into another currency, such profit or loss would ordinarily be a trading profit or loss if the foreign currency is held by the assessee on revenue account or as a trading asset or as a part of circulating capital embarked in the business. But, if on the other hand, the foreign currency is held as a capital asset or as fixed capital, such profit or loss would be of capital nature. 13. In the light of the above judgment it has to be examined that whether the alleged gain is on account of revenue proceeds received from the Special Economic Zone. We find that there is no dispute to this fact that the alleged amount is the net of gain/loss of the foreign currency received during the year from the revenue operations carried out by the assessee in the Special Economic Zone units running at Hyderabad and Pune. Therefore the issue is squarely covered by the judgment of Hon ble Supreme Court in the case of Sutlej Cotton Mills Ltd (supra) and the Ld. CIT(A) has rightly deleted the addition treating the amount as part of relief eligible for exemption u/s 10AA of the Act. Even otherwise the assessee is required to pay tax o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s a specified domestic transaction u/s 92BA clause (v) of the Income Tax Act, 1961, and a subject matter of transfer pricing assessment, hence A.O. does not have power to make such adjustment. So according to section 92CA and Para 3.7 of CBDT Instruction No. 3 of 2016 on 10thMarch 2016 for implementation of transfer pricing (TP) provisions, A.O. has to refer such transaction to the Transfer Pricing Officer. (iii) Section 10AA(9) (Corresponding Section 80IA(10)), Clause (v) of Section 92BA, of the Income Tax Act, 1961, para 3.7 of CBDT Instruction No. 3 of 2016 are furnished below for your ready reference. Para 3.7 of CBDT Instructions No 3 of 2016 For administrating the transfer pricing regime in an efficient manner, it is clarified that though A.O power under section 92C to determine the ALP of international transactions or specified domestic transactions, determination of ALP should not be carried out at all by the AO in a case where reference is not made to TPO. However, in such cases, the AO must record in the body of the assessment order that due to the Board's instruction on this matter, the transfer pricing issue has not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd subject matter of transfer pricing. In support of its contention CBDT instruction No. 3 of 2016 was referred which speaks of determination of ALP in specified domestic transaction. 7.2 The appellant further stated that even otherwise the AO was factually incorrect that the salaries of eight employees mentioned by him are debited in non SEZ. The fact is that out of eight employees mentioned by the AO, salary of five employees has been debited m SEZ unit. On this count also, the addition is not sustainable. 7.3 I have verified from the records submitted by the appellant that the contention of the appellant regarding addition made by the AO on wrong appreciation of facts is correct. The addition of ₹ 2,07,68,143/- made on wrong hypothesis is therefore deleted. As a result, this ground of appeal is allowed . 19. On going through the finding of Ld. CIT(A) as well as examining the records placed in the paper book we find force in the contention of Ld. Counsel for the assessee that the Ld. A.O grossly erred in giving the correct finding in its assessment order by treating the salary paid to 5 out of 8 employees being deb ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the book profits. Now the revenue is in appeal before the Tribunal. 23. Ld. Departmental Representative vehemently argued supporting the orders of Ld. A.O. 24. Ld. Counsel for the assessee submitted as under; 5.2 That the AO made similar addition in Book profit U/S 115 JB which were made while computing income u/s 28 to 44D. That the purpose of insertion of Section 115JB is very specific and for that as exhaustive set of addition and deletion clause has been given. The AO is not entitled to go beyond these specific clauses. However, as done throughout the assessment, the AO did not bother to restrict himself to the provisions of the Act and tried to do something which according to the Act, he was not empowered to do. 5.3 That as per explanation 1 to sub section 2 of section 115JB, only additions described in clauses a to k and reductions described in clauses (i) to (viii) only can be made. There are specific addition and reductions in book profits which are allowed in calculation of book profit. 5.4 The addition made by AO in above book profit are not in the list of additions and reductions in that part ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... efore us. Revenue has challenged the deletion of addition made to the book profits made by the Ld. A.O. Ld. CIT(A) decided the issue in favour of the assessee and the book profit shown by the assessee u/s 115JB of the Act was considered correct observing as follows; 8.0 This ground of appeal is with regard to making similar addition in returned book profit U/s 115JB which were made in section 28 to 44D. I have carefully gone through assessment order and submission of the appellant this regard. 8.1 The appellant has stated that section 115JB is regarding special provision for payment of tax. As per explanation 1 to section 115JB, only item given in (a) to (k) can be added. No other addit.ion other than given in (a) to (k) of explanation 1 can be made. For computing section 28 to 44D income, the provisions are different. The AO confused himself and added the same amount as he added in section 28 to 44D.' 8.2 The contention of the appellant is correct and no addition u/s 115JB can be made in returned income other than specified in explanation 1 of section 115JB. The entire additions made under section 115JB is directed to be deleted. A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... per Parts 11 and III of Sch. VI to the Companies Act only to the extent permissible under the Explanation thereto. The said Explanation has provided six items, i.e., item Nos. (a) to (f) which if debited to the P L a/c can be added back to the net profit for computing the book profit. The provision for bad and doubtful debt can be added back to the net profit only if item (c) stands attracted. item (c) deals with amount(s) set aside as provision made for meeting liabilities, other than ascertained liabilities. The assessee's case would, therefore, fall within the ambit of item (c) only if the amount is set aside as provision; the provision is made for meeting a liability; and the provision should be for other than ascertained liability, i.e., it should be for an unascertained liability. In other words, all the ingredients should be satisfied to attract item (c) of the Explanation to s. 115JA. item (c) is however not attracted in this case. The provision for bad and doubtful debt is made to cover up the probable diminution in the value of asset, i.e., debt which is an amount receivable by the assessee. Therefore, such a provision cannot be said to be a provision for liability, b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 5J has only the power of examining whether the books of account are certified by the authorities under the Companies Act as having been properly maintained in accordance with the Companies Act. The Assessing Officer thereafter h the limited power of making increase and reductions as provided for in the Explanation to the said section. To put it differently, the Assessing Officer does not have the jurisdiction to go behind the net profit shown in the profit and loss account except to the extent provided in the Explanation to section 1151. In this regard, it observed that the aforesaid judgment is not applicable in the case of the assessee as it has been discussed in the preceding paragraphs (para 5) that the accounts of the assessee has not been prepared In accordance with provisions of Part 11 to Schedule VI to the Companies Act. From the above, it is amply evident that the Hon'ble Apex Court has expounded that once the accounts have been certified by the auditors and adopted in the annual general meeting, the A.O. has only the power of examining whether the books of account are certified by the authorities under the Act as having been properly maintained in accordance with th ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
