TMI Blog2013 (8) TMI 1158X X X X Extracts X X X X X X X X Extracts X X X X ..... s common order for the sake of convenience and brevity. ITA No. 2393/Mum/2009 A.Y. 2004-05 2. Ground No. 1.1 relates to disallowance in respect of physician s samples distributed amounting to ₹ 4,30,32,095/- 3. During the course of the scrutiny assessment proceedings while scrutinizing the audit report filed along with return of income, the Assessing Officer sought explanation relating to the physical quantity of stock statement and details of shortage, free samples, giveaways etc. The assessee furnished necessary details relating to sample distribution. The assessee claimed that the free samples constituted 0.86% of total sales. The AO was not convinced with the reply filed by the assessee. According to the AO, the shortages are in high proportion and in no way corresponds to the 0.86% of samples claimed by the assessee. Further, according to the AO, the assessee has not been able to conclusively prove the amount of samples given. The AO observed that no credible evidence has been given to support the figures and the figures are not verifiable in the absence of adequate supporting evidences from the assessee, the AO went on to make the addition on account of ex ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the files of the AO for passing fresh order after necessary examination of the details filed. 6. The Ld. Departmental Representative could not bring any distinguishing facts on record. 7. We have carefully perused the orders of the lower authorities. We also have the benefit of the order of the Tribunal (supra). We find that a similar issue has been decided by the Tribunal in assessee s own case. After considering the entire facts and the submissions, the Tribunal thus held as under: The matter in our view requires fresh examination after verification of details about names and addresses of doctors before the AO. We, therefore, set aside the order of CIT (A) on this point and restore the issue to the file of AO for passing a fresh order after necessary examination of the details filed by the assessee and after allowing opportunity of hearing to the assessee . 8. We find that the facts and the circumstances are similar for the year under consideration, therefore, respectfully following the findings of the Tribunal in ITA No. 925/M/07 (supra), we restore this issue back to the files of the AO for passing a fresh order after necessary examination of the details filed b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n not taking cognizance of price charged by Merck Swiss to other Merck entities. The assessee further pointed out to other defects in the order of the TPO. 10.1. After considering the entire facts and submissions made by the assessee, the Ld. CIT(A) observed that the arguments of the assessee regarding the method used by the TPO, price charged by Merck Swiss to other Merck entities regarding the customs valuation, grant of opportunity and use of contemporaneous and publicly available data have no force and are hereby rejected. According to the Ld. CIT(A), the CUP method should be the most preferred method and the TPO has correctly taken the method. However, the Ld. CIT(A) went on to agree with the contention of the assessee who has challenged the adoption of the ALP by the TPO of Bisoprolol Fumarate on the basis of weighted average price method instead of normal average price method. According to the Ld. CIT(A), as per the proviso of Sec. 92 C(2) of the Act, arithmetical mean of such prices shall be taken to be the Arm s Length price which would be ₹ 57,049/- per kg instead of ₹ 48,930/- per kg. adopted by the TPO. The Ld. CIT(A) revised the adjustments at ₹ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sfer Pricing adjustments, the assessee is before us. 12. The Ld. Counsel for the assessee stated that on identical facts in the earlier assessment year i.e. A.Y. 2003-04, the Tribunal has an occasion to decide on identical facts and has considered certain evidences regarding quality and comparative price and has restored the issue back to the files of the Ld. CIT(A) for passing fresh order. 13. The Ld. Departmental Representative fairly conceded to this submission made by the Ld. AR. 14. We have carefully perused the orders of the lower authorities and the order of the Tribunal in ITA No. 925/M/07. We find that the dispute relating to Transfer Pricing Adjustments have been considered by the Tribunal at para-22 page 39 of its order. We find that the assessee has submitted an independent third party certificate regarding the superior quality of the material imported by the assessee. We also find that the assessee has obtained the comparative rate of sale in the similar product manufactured by Torrent Pharma and Unichem laboratories Ltd., which shows that the assessee was importing at higher rate. Reliance was placed on the decision of the Jaipur Bench of the Tribunal in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rily required to be provided to the assessee, but it is not so in the present case. The agreement listed certain services on which the assessee requires guidance/assistance from time to time. The assessee was thus entitled to any of the services as and when required. Therefore, applying CUP method to the service not availed by the assessee during the year is not justified. It would have been appropriate if the AO had applied CUP method to the payment made during the year by the assessee for the three services and compared with similar payment for such services by an independent party. No efforts have been made by TPO/AO to determine the market value of services received by the assessee during the year relating to SAP implementation and quality control to show that the assessee had paid more compared to any independent party for the same services. The assessee had submitted that in case the assessee had paid to the AE at man hour rate for the technical services provided during the year in relation to SAP implementation, the fees payable would have been significantly higher. There is nothing produced before us to controvert the said claim. The assessee has applied TNMM which shows th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nses filed we find that expenses on account of discount and commission have been claimed at .55% total sales of ₹ 344 crore compared to .43% on turnover of ₹ 345 crore in the immediate preceding year. Therefore, if we compute the expenditure this year at the same percentage as in the immediate preceding year, the expenditure comes to ₹ 1.47 crore against the claim of ₹ 1.89 crore. Thus on the basis of claim in the preceding year, there is an excess claim of about 42 lakhs. The AO has made estimated disallowance of only ₹ 5,00,000/-. In our view the disallowance made is quite reasonable and the same is upheld. Considering the facts and the circumstances for the year under consideration, we find that they are identical with the facts of preceding assessment year, therefore, respectfully following the findings of the Tribunal as mentioned hereinabove, the addition of ₹ 5,00,000/- is confirmed. Ground No. 1.3 is dismissed. 23. Ground No. 1.1 relates to the disallowance of ₹ 20,00,000/- out of Sales promotion expenses on adhoc basis. 24. The AO has discussed this issue at para-11, page-20 of his order wherein he has followed the findin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Ld. CIT(A) who has confirmed the addition of similar amount made in A.Y. 2003-04 and following the said findings of the Ld. CIT(A), the AO disallowed ₹ 10,00,000/- on adhoc basis. 31. When the issue was agitated before the Ld. CIT(A), the CIT(A) confirmed the additions made by the AO as per his findings at para-13.3. page 32 of his order wherein he has followed the findings of his Ld. Predecessor given in A.Y. 2003-04. 32. We have carefully perused the orders of the lower authorities. We find that both the parties have followed the findings of similar addition given in A.Y. 2003-04. We have the benefit of the order of the Tribunal for A.Y. 2003-04 vide ITA No. 925/M/07. We find that the Tribunal has considered similar disallowance at para-11, page-18 of its order. After considering the facts and the submissions, the Tribunal thus held as under: There is no material placed on record before us to show that the claim made by the assessee is excessive. No part of the claim can also be disallowed on account of personal uses in respect of vehicles etc. as the assessee is a company. Therefore in our view on the facts of the case disallowance made is not justified. We ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... penses to the tune of ₹ 1,94,400/-. 37. The assessee has claimed the website expenses of ₹ 1,94,400/-. During the course of the assessment proceedings, the AO sought explanation from the assessee to show cause why the website expenses should not be capitalized. On receiving no plausible reply, the AO disallowed the sum of ₹ 1,94,400/- 38. The assessee carried the matter before the Ld. CIT(A). The Ld. CIT(A) has considered this issue at para 15.3 of his order wherein he had directed the AO to verify the details of expenses and in case they are for modification/ upgradation/ maintenance of existing website, the same should be allowed as revenue expenditure. 39. Before us, the Ld. Counsel for the assessee submitted that the AO has questioned the allowability of the expenses merely on the assumption that they are of capital in nature though the Ld. CIT(A) has directed the AO to verify the nature of expenses. The ld. Counsel for the assessee argued that the expenses have been incurred only for the upgradation of the website. 40. The Ld. Departmental Representative relied upon the findings of the lower authorities. 41. We have considered the rival submiss ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f business. We accordingly direct the AO to allow the expenditure of ₹ 3,91,436/-. Ground No. 1.8 is accordingly allowed. 48. Ground No. 1.9 relates to the addition of ₹ 11,00,000/- added to the income of the assessee in respect of change in the basis of inventory valuation. 49. This issue has been discussed by the AO at para-16 page 22 of his order. While scrutinizing the cost audit report enclosed with the return of income, the AO found that the auditors have made the following note : During the year, the company has changed the method of valuing inventories from FIFO to Moving Weighted Average basis. As a result of this change, the value of closing inventory and PBT is lower by approximately ₹ 11 lakhs 50. The assessee was asked to explain the reasons for shifting from FIFO to MWA method. The assessee did not file any detail nor any reason for change. The AO accordingly added the sum of ₹ 11 lakhs. 51. The assessee carried the matter before the Ld. CIT(A) but without any success. The Ld. CIT(A) at para 18.3 of his order have observed that the assessee has failed to furnish the reasons/details hence assessee has not been able to substantia ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the exempt income. The assessee explained that the funds that are invested are generated from company s internal accruals. Since the assessee has not borrowed any funds for investments, no interest is attributable to the dividend income. Further, no significant administrative expenditure is attributable to earning of such dividend income. The AO disregarded the submissions made by the assessee and computed the disallowance at ₹ 49,58,761/-. 57. The assessee strongly agitated this matter before the Ld. CIT(A) and the CIT(A) has considered this issue at para-19 page 36 of his order. It was strongly contended before the Ld. CIT(A) that no specific expenditure has been incurred by the assessee for earning the dividend income. 58. After considering the facts and submissions made by the assessee, the Ld. CIT(A) observed that the assessee has not maintained separate bank accounts and accounts of expenditure in respect of investments on which tax free income has been earned. The Ld. CIT(A) was convinced that the disallowance u/s. 14A r.w. Rule 8D have to be computed in view of the decision of the Tribunal in the case of ITO Vs Daga Capital Management Pvt. Ltd. in ITA No. 8057/ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 10,22,459/- Profit on sale of fixed assets 1,92,74,478/- Profit on sale of current investments 2,22,582/- Income from Instrument Service Contracts 1,06,21,791/- Miscellaneous income 1,37,18,862/- Total 13,55,52,948/- 63.2. On further perusal of computation of deduction u/s. 80-HHC, the AO observed that the assessee has excluded 90% of the interest income, sundry amounts written back and export incentives from the profits of business. The assessee was asked to explain why it has not excluded 100% /90% of other income from export turnover/total turnover. The assessee was further asked to explain the nexus of other income with deduction claimed. The assessee filed a detailed reply which is exhibited at page-33 of the assessment order. The AO did not accept the submissions of the assessee who was of the firm belief that the items of income mentioned hereinabove do not directly arise from the business of export even if they are incidental to that business. According to the AO, a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wed to the assessee. We find the claim reasonable because only the net income after deducting the expenses incurred for earning of the income has to be excluded from the profit of business. We, therefore, hold that net FD interest has to be excluded fully from the profit of business. The issue of netting is, however, restored to the file of AO for passing a fresh order after necessary examination and after allowing opportunity of hearing to the assessee. Respectfully following the above finding of the Tribunal, we restore this issue of netting to the file of the AO for passing a fresh order after allowing opportunity of hearing to the assessee. 67. Regarding other two items of income i.e. miscellaneous income of ₹ 1,37,18,862/- and instrument service contracts at ₹ 1,06,21,791/-, we find that the Tribunal in A.Y. 2003-04 had the occasion to consider the similar items of income at para-15 page 23 of its order. The Tribunal at para 15.6 at page-28 of its order held as under: As regards the income from instruments service contracts it has been submitted by the assessee that the service contract was a maintenance contract in relation to equipments sold by assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Tribunal, we confirm the reduction of DEPB income for computing deduction u/s. 80IB. Ground No. 1.12 is accordingly dismissed. 70. Ground No. 1.13 is not pressed accordingly it is dismissed as not pressed. 71. Ground No. 1.14 relates to exclusion from the profits of the business 90% of the following items: 1) Interest on delayed payment - ₹ 79,84,167/- 2) Income from instrument service contracts - ₹ 1,06,21,791/- 3) Miscellaneous income - ₹ 1,37,18,862/- 4) Interest on FD with banks - ₹ 1,43,28,772/- 72. A similar issue came up for hearing before the Tribunal in A.Y. 2003-04 in ITA No. 925/M/07 wherein we find that the Tribunal has decided this issue at para -15 page 23 of its order. So far as on delayed payment is concerned, the Tribunal has given directions to AO not to reduce such income on business profits. Respectfully following the directions of the Tribunal in ITA No. 925/M/07, we direct the AO not to reduce such income on business profits. 73. Similar directions have been ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the assessee has debited an amount of ₹ 78,63,967/- on account of bad debts. The assessee was asked to submit the details of bad debt written off. The assessee was also asked to give specific details with reasons of write off alongwith documentary evidence. The assessee filed a detailed reply giving names of the debtors along with amounts written off. Copy of the ledger accounts was also furnished. The reply filed by the assessee did not find favour from the AO. The AO has given his observations at para 6.9 of his order and after making the aforementioned observations, the AO disallowed the claim of bad debt of ₹ 78,63,967/-. 77.2. The assessee carried this matter before the Ld. CIT(A). It was strongly contended that after the amendment brought in the provisions of Sec. 36(1), the only thing that the assessee has to establish is that it has written off all the debts. It was explained that the assessee has given party-wise details alongwith copy of ledger account. After considering the facts and submissions of the assessee, the Ld. CIT(A) was convinced that the debts written off as bad debts have to be allowed in the year of write-off so long as the debts are on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essment year 2005-2006 is partly allowed. 82. In the result, the appeal filed by the assessee in ITA No. 5596/M/11 for A.Y. 2005-06 is partly allowed for statistical purpose. ITA No. 8222/Mum/2010 A.Y. 2006-07 Assessee s appeal 83. The issue involved in Ground No. 1.1 are identical with the issue in ITA No. 2393/M/09 for A.Y. 2004-05 in ground No. 1.2 at paras 9 to 17, though quantum may differ, therefore, on similar lines, similar reasons, the appeal filed by the assessee in ITA No. 8222/M/10 for assessment year 2006-2007 is partly allowed for statistical purpose. 84. Ground No. 2.1 relates to disallowance u/s. 145A in respect of MODVAT Credit. 84.1. This issue has been discussed at length in assessee s own case in A.Y. 2003-04 by the Tribunal in ITA No. 925/M/07 at para-3 page-2 of its order and the Tribunal while deciding this issue has directed the AO to make adjustment on account of tax, duty will also be made in the purchases. Respectfully following the aforementioned findings of the Tribunal, we direct the AO to follow the directions of the Tribunal given in A.Y. 2003-04 vide ITA No. 925/M/07. This ground of the assessee is allowed. 85. Ground No. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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