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TMI Blog2013 (8) TMI 1158X X X X Extracts X X X X X X X X Extracts X X X X ..... together and disposed off by this 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 a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stored this issue 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 deta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... red in 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 ..... 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 case of Ele ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 that the margin shown ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 findings of the Ld. CIT(A) made for A.Y. 200 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... milar 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 accordingly set aside the order of CIT (A) and delete the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... med 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 submissions, perused the orders of the lower authorities. It is not in dispute that t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 36/-. 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 substantiate its arguments and claim and confirmed the additions made by the AO. 52. Before us, the L ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... '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/M/03 and computed the disallowance at ₹ 24,11,250/-. 59. Aggrieved by this finding of the Ld. CIT(A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 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, as per Explanation (baa) below section 80HHC inserted w.e.f. 1.4.1992, 90% of such receipts have to be excluded from the profits of the business before computing deduction u/s. 80-HHC (3). The AO thereafter relied upon certain judicial decisions at page-34 of his order and rejected the contention of the assessee that only net receipts are to be excluded in respect of interest. The AO thereafter computed the deduction u/s. 80HHC disregarding the claim made by the assessee. 64. The assessee carried this issue before the Ld. CIT(A) and the CIT(A) has considered this issue at para-20 page 38 of his order. The assessee furnished the details relating to interest income, insurance claim, income from instrument service contracts a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 62/- 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 as a trading item. This claim has not been controverted before us. Therefore, such income has to be considered as integral part of business operations which is not required to be reduced as per Explanation (baa). We, therefore, set aside the order of CIT (A) on this point and direct the AO to not reduce 90% of such income from profit of business as per Explanation (baa). In relation to miscellaneous income, it was submitted that these also included scrap sales, sundry sales and cash discount receipts which were integral part of business operation. This aspect in our view requires verification. We, therefore, restore this issue to the file of AO for passing a fresh order after necessary verification. The receipts on account of scrap sa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt 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 given by the Tribunal so far as instrument service contracts amounting to ₹ 1,06,21,791/- is concerned. The AO is directed to follow the directions of the Tribunal given in A.Y. 2003-04. 74. Regarding miscellaneous income of ₹ 1,37,18,862/-, we find that the Tribunal has restored this issue back to the file of the AO to verify whether these miscellaneous income includes scrap sales, sundry sales and cash discount and if found so then such items should not be reduced from business profits. We accordingly direct the AO to follow the directions of the Tribunal given in A.Y. 2003-04. 75. The last item remains is interest on FD with banks amounting to ₹ 1,43,28,772/-. We find that the Tribunal has directed the AO to exclude 90% of net interest after necessary verification. Facts being identical, we accordingly direct the AO to decide this issue afresh after following the directions of the Tribun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iven 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 account of the sales made earlier and were charged to tax in the respective year and deleted the addition of ₹ 78,63,967/- 77.3. Aggrieved by this finding of the Ld. CIT(A), Revenue is before us. 77.4. The Ld. DR strongly supported the findings of the AO. 77.5. The Ld. Counsel for the assessee submitted that the assessee has fulfilled all the conditions provided in Sec. 36(1)(vii) read with Sec. 36(2) of the Act and therefore the claim of bad debts deserves to be allowed. 77.6. We have considered the rival submissions and perused the orders of the lower authorities. It is not in dispute that the debts written off by the assessee are on account of the sales made in earlier years which has been charged to tax in the respective year. Meaning thereby that the basic condition for write off of debts as provided u/s. 36(2) has not been disputed by the AO. After 1.4.1989 the assessee has to show that it has actually written ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ctfully 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. 2.2 relates to double taxation of ₹ 1,73,563/- . The sole grievance of the assessee is that the AO has not followed the directions of the DRP. 85.1. We have carefully perused the orders. We find force in the contention of the assessee. We accordingly direct the AO to follow the directions of the DRP and decide this issue afresh. This ground of the assessee is allowed for statistical purpose. 86. Ground No. 2.3 relates to club expenses of ₹ 11,020/-. The Ld. Counsel for the assessee reiterated that the AO did not follow the directions of the DRP which has directed the AO to delete the said addition. 86.1. We have gone through the respective orders. We find force in the submission of the Ld. Counsel. The AO is directed to follow the directions of the DRP and decide this issue afresh. This ground of the assessee is allowed for statistical purpose. 87. Ground No. 2.4 relates to disallowance of royalty paid for trade mark at ₹ 6,73,73,683/-. It is ..... X X X X Extracts X X X X X X X X Extracts X X X X
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