TMI Blog2016 (10) TMI 1303X X X X Extracts X X X X X X X X Extracts X X X X ..... r Unit and for its products, in our opinion, without any evidence being brought on record the lower authorities should not have taken a view that such expenditure was also relatable to Pondicherry Unit - reallocation of R D expenditure was not called for in the facts and circumstances of the case. Such reallocation of R D expenditure and the consequent reduction in claim u/s 80IB of the Act stands deleted. Benefit of deduction u/s 80IB denied - Foreign exchange fluctuation gain/loss - HELD THAT:- . Rule of consistency requires that when foreign exchange loss is considered as expenditure for calculating deduction u/s 80IB of the Act in earlier years, when there is a surplus in a subsequent year, it should not be excluded. When a similar set of facts permeates through a number of years and there is nothing on record to show that a different view was required to be taken on such set of facts, though rule of res judicata does not apply to income tax proceedings, rule of consistency has to be applied unless there is a gross violation of law which calls for a deviation. We are of the opinion that the lower authorities erred in not allowing the claim of deduction u/s 80IB of the Act ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ansactional net margin method and any other method prescribed by the Board could have been applied. In our opinion, the question of benchmarking the transaction of the nature mentioned, applying any of the methodology prescribed in sec.92C(1) did not arise at all due to the particular facts and circumstances. According to us, fastening of an interest rate on the assessee when there was no comparable uncontrolled rate that could have been identifiable was incorrect. We, therefore, have no hesitation in deleting the addition made by the Assessing Officer/TPO. Interest u/s 234A - HELD THAT:- We are of the opinion that this matter can be looked into by the Assessing Officer and if there was no delay in filing the return, question of levy of interest u/s 234A of the Act would not arise. Accordingly, this ground is allowed for statistical purposes. Addition based on TDS certificates - payment to the assessee fell u/s 194J of the Act and sec. 194C was mentioned by mistake - HELD THAT:- Assessee had placed before the Assessing Officer letter dated 5.6.2013 issued by M/s Visteon Climate Systems India Ltd where they had mentioned that they had received some testing service from the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t was completed under scrutiny assessing total income at ₹ 14,86,32,750/-. Assessee is engaged in the business of manufacture of carburetors, fuel injection parts and fuel pumps for automotive applications. Against the above assessment order, assessee had preferred an appeal. The CIT(A) passed an order on nine grounds taken in appeal which related to restriction of claim u/s 80HHC and 80IB of the Act. Against the relief granted by the CIT(A), Revenue had moved before the Tribunal. The Tribunal vide its order dated 16.11.2007 in I.T.A.No. 2192/Mds/2006 had dismissed such appeal. In the impugned order dated 20.7.2009 passed by the Assessing Officer it was mentioned that it was being passed to give effect to the Tribunal order in I.T.A.No.2192/Mds/2006. Since the order referred to the Tribunal order which had confirmed the order of the CIT(A), assessee chose to move in appeal once again. As per the assessee, what was stated in the impugned order i.e it was for giving effect to the order of the Tribunal in I.T.A.No.2192/Mds/2006 dated 16.11.2007 was incorrect. It seems that while passing the impugned order, the Assessing Officer also considered an audit objection and endeavoured ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... year declaring income of ₹ 13,64,09,870/- which was revised to ₹ 19,47,94,754/-. During the course of assessment proceedings it was noted that while claiming deduction u/s 80IB of the Act assessee had not allocated Head Office rent and electricity charges to the Pondicherry unit on which said claim was preferred. As per the Assessing Officer, assessee had paid rent of ₹ 96,95,630/- and electricity charges of ₹ 5,92,718/-. Further, as per the Assessing Officer, Head Office was at Maraimalainagar Unit and there was no separate office for the Pondicherry Unit. It was noted by the Assessing Officer that 40% of the Head Office space was used by common staff. He came to a conclusion that 60% of the rent, electricity charges would relate to Maraimalainagar Unit whereas balance 40% was common expenditure attributable to Pondicherry as well as Maraimalainagar Unit. This came to ₹ 40,75,339/-. Ld Assessing Officer allocated this amount proportionately between Pondicherry Unit and Maraimalainagar Unit based on the turnover. The deduction u/s 80IB of the Act claimed by the Pondicherry Unit was reworked downwards through allocation of the common expenditure to the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h not identical and therefore, the assessee s contention that benefits from the R D were enjoyed only by the Maraimalainagar Unit could not be accepted. He confirmed the reallocation made by the Assessing Officer insofar as it related to the R D expenditure and the subsequent reduction in claim u/s 80IB of the Act. 16. Now before us, ld. AR submitted that after accepting the products manufactured as not identical, the CIT(A) had summarily rejected the claim of the assessee that R D activities carried on had no bearing with Pondicherry Unit. Thus, according to him, the CIT(A) was not justified in confirming the recalculation done by the Assessing Officer. 17. Per contra, the ld. DR supported the orders of the authorities below. 18. We have heard the rival contentions and the perused the orders of the authorities below. It is stated in the annual report for financial year 2004-05 that R D carried out by the assessee was to absorb the technology for air assisted direct injection for two stroke engines, and product launch was proceeding as per schedule, for Indian three wheeler application. It is not disputed by the lower authorities that products manufactured at Pondicherry U ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l contentions and perused the orders of the authorities below. Claim of the assessee before the Assessing Officer was that foreign exchange benefits were intricately linked to the acquisition of material and sale of goods. Assessee had specifically mentioned before the CIT(A) that foreign exchange losss were considered as expenditure while calculating eligible deduction u/s 80IB of the Act for assessment years 2004-05 and 2006-07. Rule of consistency requires that when foreign exchange loss is considered as expenditure for calculating deduction u/s 80IB of the Act in earlier years, when there is a surplus in a subsequent year, it should not be excluded. When a similar set of facts permeates through a number of years and there is nothing on record to show that a different view was required to be taken on such set of facts, though rule of res judicata does not apply to income tax proceedings, rule of consistency has to be applied unless there is a gross violation of law which calls for a deviation. We are of the opinion that the lower authorities erred in not allowing the claim of deduction u/s 80IB of the Act on foreign exchange gains of ₹ 44,06,047/-. Such disallowance has to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... firmed the disallowance. 29. Strongly assailing the orders of the lower authorities, the ld. AR submitted that the R D expenditure was incurred for the same product line which assessee was engaged and hence it could be considered as a new business. Relying on the judgment of the Apex Court in the case of Alembic Chemical Works Co. Ltd vs CIT, 177 ITR 377, ld. AR submitted that when improvisation in process and technology was supplemental to the existing business and there was no fresh venture, expenditure incurred for such improvisation could not be considered as a capital outgo. Further, as per the ld. AR, break-up of expenditure given at page 64 of the paper book clearly proved that there was no capital outgo or capital acquisition. Hence, according to him, the disallowance was unjustifiably made. 30. Per contra, the ld. DR supported the orders of the authorities below. 31. We have considered the rival submissions and perused the orders of the authorities below. Assessee was already engaged in manufacture of fuel injection system and this has not been disputed by the Revenue. What the assessee was endeavouring to do through the agreement entered with M/s Orbital Engine C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... go to the product manufactured in the Pondicherry Unit. Accordingly, we are of the opinion that the assessee has to succeed on this issue. 36. In the result, appeal of the assessee for assessment year 2006-07 stands allowed. 37. Coming to the appeal of the assessee for assessment year 2010-11 in I.T.A.No.725/Mds/2015, it has altogether raised 10 grounds of which Ground Nos.1,5, 9 10 are general in nature needing no specific adjudication. 38. Vide Grounds 2 to 4, grievance raised by the assessee is that the Assessing Officer in the order passed u/s 143(3) r.w.s 144C of the Act, made an upward adjustment of ₹ 4,75,05,574/- for notional interest calculated on the advances given by the assessee to its wholly owned subsidiary called M/s Amtec Precision Products Inc, in USA. 39. Facts apropos are that assessee-company which was originally promoted with the objective of manufacturing carburetors and fuel pumps for Maruti range of vehicles, had diversified its product range by manufacturing carburetors for other vehicles also. Fuel pumps manufactured by the assessee were sold to M/s Amtec Precision Products Inc, which was a subsidiary of the assessee. The international ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of 10% to 12.75% to give advance. TPO noted that an Exim loan which was assigned in assessee s favour carried an interest rate of 5.07%. He worked out the interest relatable to the advances given by the assessee to its AE as under: Advance made during FY 2008-09 ₹ 20,64,09,438 - @ 10% 2,06,40,944 Advances made during F.Y 2009-10 ₹ 27,90,44,500/- @ 12.75% 2,12,43,317 Exim Loan of ₹ 33,72,41,800/- assigned in assessee s favour on 1.12.2009 (120 days) applying Libor 5.07% 56,21,313 4,75,05,574 42. When an upward adjustment on the above loans was suggested by the Assessing Officer, the assessee chose to move an application to the DRP. Argument of the assessee was that the loans were given for commercial and business reasons and there was no requirement of applying ALP regulations. However, DRP was not appreciative of this argument. According to it, transfer pricing adjustment and rates of determination of taxable income under regular proceedings were totally different. The question of commercial exped ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... adjusted to account for differences, if any, between the international transaction [or the specified domestic transaction] and the comparable uncontrolled transactions or between the enterprises entering into such transactions, which could materially affect the price in the open market. (iii) The adjusted price arrived at under sub-clause(ii) is taken to be an arm s length price in respect f the property transferred revenue services provided in the international transaction [or the specified domestic transaction]. 46. Thus, when CUP method is applied for benchmarking the international transaction, primary requisite is identification of price charged or paid for the property transferred or services provided in a comparable uncontrolled transaction. No doubt, the TPO had for the Exim loan considered Libor plus rate as the comparable uncontrolled price. However, the party to which loan was advanced by the assessee here was not only a subsidiary but also one whose capital stood completely eroded, and which was suffering continuous losses. No banker would have advanced any sums to such a company since the risk would have been too much. Thus the only source for such a subsidiary t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vance of the assessee is that TDS credit of ₹ 28,12,263/- was not given to it. 52. We are of the opinion that this issue can be verified by the Assessing Officer and if assessee is eligible for TDS claimed by it, this may be given. Ordered accordingly. Ground No.8 is allowed for statistical purposes. 53. In the result, appeal of the assessee for assessment year 2010-11 is partly allowed for statistical purposes. 54. Now coming to the appeal for assessment year 2009-10 in I.T.A.No.688/Mds/2014, the assessee has taken altogether nine grounds of which Ground Nos. 8 9 are general in nature needing no specific adjudication. 55. Vide its Ground Nos. 2 to 4, the grievance of the assessee is upward adjustment of ₹ 1,17,91,564/- being notional interest calculated for the advances given by the assessee to its subsidiary, M/s Amtec Precision Products Inc. 56. This ground is similar to Ground No. 2 to 4 taken for assessment year 2010-11. We held at para 45 and 46 that such upward adjustment was not called for in the facts and circumstances of the case. For the reasons cited in the said para, we delete the addition made by the Assessing Officer. Ground No.2 to 4 sta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... deductee in the assessee s account and the TDS was deducted u/s 194C of the Act at 2% plus cess. As per the Assessing Officer, the assessee and the deductee had thereafter changed their stand and reduced the sum from ₹ 160 lakhs to ₹ 32 lakhs and substituted the applicable section with 194J against 194C. He thus made an addition of ₹ 160 lakhs. 60. Now before us, d. AR strongly assailing the order of the Assessing Officer submitted that Form No.16A issued by the deductor M/s Visteon Climate Systems India Ltd. to the assessee was updated on 6.5.2013 showing the correct amount and correct section under which tax was being deducted. As per the ld. AR, observation of the Assessing Officer that updation of Form 16A was only an afterthought was incorrect. Ld. AR submitted that assessee ought not have been fastened with an income which never accrued to it. 61. Per contra, the ld. DR supported the orders of the authorities below. 62. We have considered the rival contentions and perused the orders of the authorities below. Assessee had placed before the Assessing Officer letter dated 5.6.2013 issued by M/s Visteon Climate Systems India Ltd where they had mentioned ..... X X X X Extracts X X X X X X X X Extracts X X X X
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