Income Tax Appellate Tribunal - Mumbai
Piramal Glass Ltd, Mumbai vs Dcit 7(3)(2), Mumbai on 4 January, 2017
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A s se s smen t Yea r 2 0 1 1 - 1 2 आयकर अपील य अ धकरण "के" यायपीठ मुंबई म ।
IN THE INCOME TAX APPELLATE TRIBUNAL "K" BENCH, MUMBAI ी अ मत शु ला, या यक सद य एवं ी मनोज कुमार अ वाल, लेखा सद य के सम ।
BEFORE SHRI AMIT SHUKLA, JM AND
SHRI MANOJ KUMAR AGGARWAL, AM
आयकर अपील सं./I.T.A. No. 157/Mum/2016
( नधा रण वष / Assessment Year : 2011-2012)
M/S PIRAMAL GLASS LTD. DEPUTY COMMISSIONER OF
(earlier known as 'Gujarat Glass Pvt. Ltd.') INCOME TAX 7(3)(2)
Piramal Tower बनाम/ Room No. 669A, 6th Floor
Ganpatrao Kadam Marg Vs. Aaykar Bahwan
Lower Parel M.K.Road, Churchgate
Mumbai 400013 Mumbai 400020
थायी ले खा सं . /जीआइआर सं . /PAN/GIR No. AABCG-0093-R
(अपीलाथ& /Appellant) : ('(यथ& / Respondent)
अपीलाथ& क) ओर से / Appellant by : Shri Ronak Doshi & Shri Manthan
Shah, ARs
'(यथ& क) ओर से/Respondent by : Shri M.Murali & Smt. Malathi
Shridharan, DRs
सनु वाई क) तार,ख / : 22/12/2016
Date of Hearing
घोषणा क) तार,ख /
: 04/01/2017
Date of Pronouncement
आदे श / O R D E R
Per Manoj Kumar Aggarwal (Accountant Member)
1. The captioned appeal by assessee for Assessment Year [AY] 2011-2012 assails final assessment order dated 30/11/2015 of Ld. Deputy Commissioner of Income Tax [AO] 2 I TA N O. 1 5 7 / Mu m/2 0 1 6 M/ s P i ra ma l G la ss L td .
A s se s smen t Yea r 2 0 1 1 - 1 2 passed u/s 143(3) r.w.s. 144C(13) of the Income Tax Act, 1961 by raising as many as 18 Grounds of appeals.
2. Briefly stated, the assessee, being resident corporate assessee, was engaged in the business of manufacturing of glass bottles, glass containers and vials for pharma and non-pharma purposes. It belongs to 'M/s Nicholas Piramal India Ltd.' [NIPL] group of company and also having business of generating power and investment activity for its surplus funds. The assessee e-filed its return of income for impugned AY on 30/11/2011 declaring 'Nil' income which was picked up for scrutiny assessment u/s 143(3). Since transfer pricing issues were involved, the same was referred to Transfer Pricing Officer-II(2) [TPO] u/s 92CA(1) for determination of Arm's Length Price [ALP] of these transactions. The TPO finalized its order on 16/10/2014 and following the same, draft assessment order dated 31/03/2015 was finalized by AO and sent to DRP for its directions. The assessee raised objection before DRP on 28/04/2015 and after hearing the same, DRP finalized its directions vide order dated 16/10/2015. Lastly, final assessment order was passed by AO u/s 143(3) r.w.s. 144C(13) of the Income Tax Act on 30/11/2015 determining total income at Rs.1,15,32,71,020/- under normal provisions and Rs.1,09,85,13,266/- under MAT provisions.
3. The assessee has assailed various issues arising out of AO's final order by raising eighteen grounds of appeal out of which Ground Nos. 1, 3 4 & 5 are not pressed during proceedings before us. Ground No. 18 is general in nature. Hence, we are left with Ground Nos. 2 & 6 to 17 which are taken one by one in the succeeding paragraphs.
4. Ground No. 2 is related with application of correct rate of surcharge on dividend distribution tax [DDT]. The assessee proposed dividend in the accounts for the year ended 31/03/2011. The same got approved in Annual General Meeting on 12/08/2011. The corresponding Dividend Distribution Tax was paid on 24/08/2011 at the following rates specified by Finance Act, 2011:-
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Particulars Rate
Tax 15%
Surcharge (5% of 15%) 0.75%
Education Cess (3% of 15.75%) 0.4725%
Effective Rate 16.2225%
The assessee declared dividend of Rs.28,15,21,576/- and worked out DDT liability @16.2225% which amounted to Rs.4,56,69,838/-. However, AO following Finance Act, 2010, worked out effective rate as follows:-
Particulars Rate
Tax 15%
Surcharge (7.5% of 15%) 1.125%
Education Cess (3% of 16.125%) 0.48375%
Effective Rate 16.60875%
The difference in rate resulted into additional demand of Rs.10,87,377/- (Rs.4,67,57,215/- Rs.4,56,69,838/-] as per 'Income Tax Computation Form' dated 05/02/2016 issued with 'Notice of Demand' u/s 156 of the Income Tax Act, 1961. The Ld. AR has contended that rate of DDT has wrongly been applied by AO. The dividend liability got crystallized on the date of approval by AGM and hence the rate applicable on that date would apply. However, it is found that in the grounds of appeal, the assessee has attributed the difference to interest u/s 115P and pleaded for deletion of interest on the premises that DDT has been paid by assessee within time. Further, the issue of additional demand does not form subject matter of final assessment order assailed before us. Rather, the demand has been raised in 'Notice of Demand' u/s 156 and 'Income Tax Computation Form'. Therefore, the proper course of action, in such a case, would be to file rectification application before the AO. Therefore, this ground requires no adjudication / direction at our end and the same is accordingly, dismissed.4
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5. Ground No.6, 7 & 8 are alternate grounds which assails disallowance of depreciation on non-compete fees amounting to Rs.18 crores capitalized over various assets. During AY 1999-2000, the assessee company purchased Glass division from NIPL as a going concern on slump sale basis for a net consideration of Rs.186.52 crores. In the absence of specific values being ascribed to the various assets while arriving at the above sale consideration, the net slump purchase consideration of Rs. 186.52 crores was apportioned over various assets and liabilities on fair basis. These values were arrived at on the basis of Technical estimates made by the management in accordance with Accounting Standard-10. The assessee claimed depreciation u/s 32 on values recorded in the books of assessee Company. In the alternative, the assessee claimed depreciation @25% on non-compete fees being 'intangible assets'. But DRP following Tribunal's order in assessee's own case for earlier years, decided both the alternatives against assessee. The Ld. Counsel for Assessee [AR] has fairly conceded that depreciation on fixed assets have not been allowed in earlier years. Even the claim of 25% depreciation on non-compete fees paid by him was also not allowed by Tribunal in AY 1999- 2000. But thereafter, Tribunal in AY 2001-02, relying upon the judgment of Madras High Court in Pentasoft Technologies Ltd. V DCIT 222 Taxmann 209 & Karnataka High Court in CIT Vs Ingersoll Rand International Ltd. 227 Taxmann 176 and Mumbai Tribunal in Shreya Life Science ITA No. 7071/Mum/2010, allowed the claim of 25% depreciation on non- compete fees being 'intangible assets'. Further, the issue was again settled in favor of assessee by Tribunal in AY 2006-2007. The Ld. DR fairly conceded the settled position. We have perused various orders of Tribunal in assessee's own, the details of which are as follows:-
i. ITA No. 4842/M/04 order dated 05/04/2013 AY 1999-2000 ii. ITA No. 9645 & 9498/M/04 order dated 02/03/2016 AY 2001-02 iii. ITA No. 8360/M/10 order dated 16/12/2016 AY 2006-07 5 I TA N O. 1 5 7 / Mu m/2 0 1 6 M/ s P i ra ma l G la ss L td .
A s se s smen t Yea r 2 0 1 1 - 1 2 After perusal of the same and following the above, we dismiss Ground No. 6 of assessee's appeal but allow Ground No. 7. Ground No. 8 relates with write-off of the impugned expenditure and since we have already allowed Ground No. 7, the same is dismissed as infructuous. The assessee is entitled for depreciation @25% on WDV of non-compete fees, being intangible in nature. Ground No. 6 & 8 is dismissed. Ground No. 7 is allowed.
6. Ground No. 9 is related with value of assets acquired by assessee in pursuance of Scheme of arrangement. Since assessee acquired glass division from NIPL on slump sales basis, he considered fair value of the depreciable assets of the transferred business as actual cost to the assessee and claimed deprecation thereupon. AO treated the transaction as amalgamation and took WDV of the transferred assets as it stood in the books of the transferor company as actual cost to the assessee. Before, DRP, the assessee contended that slump sale was quite distinct from amalgamation and therefore, various explanations to Section 43(1) and 43(6) were not applicable. Further, for AY 1999-2000 Tribunal vide its order dated 16/12/2008 set aside this issue to the file of Ld. CIT(A) for adjudicating the matter by passing a speaking order which is still pending before Ld. CIT(A). For 2006-07, this issue was decided against assessee by DRP directions and appeal against that issue is pending before Tribunal. In the impugned AY, DRP has followed outcome of AY 2006-07 and disallowed the claim of the assessee which has been assailed before us. The Ld. AR has contended that, following Tribunal's directions in 1999-2000, the issue may be sent back to lower authorities for fresh adjudication. Therefore, in view of the factual situation, the matter is restored back to AO for fresh adjudication with a directions to decide the same on the basis of outcome of Ld. CIT(A) decision in assessee's case for 1999-2000. This ground is allowed for statistical purposes.
7. Ground No. 10 & 11 are alternative grounds qua interest disallowance u/s 36(1)(iii) for Rs.353.79 Lacs. AO noted that the assessee claimed interest expenditure of Rs.44.82 6 I TA N O. 1 5 7 / Mu m/2 0 1 6 M/ s P i ra ma l G la ss L td .
A s se s smen t Yea r 2 0 1 1 - 1 2 crores u/s 36(1)(iii) whereas had made following share investments in subsidiary companies:-
No. Name of the Concern Nature of Investment Amount (Rs. in Lacs)
1. Piramal Glass Ceylon PLC, Sri Lanka Share Capital 3480.90
2. Gujarat Glass International Inc. USA Share Capital 12.10
3. Gujarat Glass USA Inc. Share Capital 2276.10
4. Piramal Glass (UK) Ltd. Share Capital 115.90
5. Piramal Glass Europe SARL Share Capital 31.30
6. Other Investments Share Capital 10.00 Total 5926.30 AO computed estimated cost of borrowing @5.98% on share capital investment which came to Rs. 353.79 Lacs and disallowed the same u/s 36(1)(iii) on the ground that the same was not used for business purpose. Before DRP, the assessee contended that investment formed integral part of its business activity and assessee derived various benefits viz. Dividend, royalty, technical / management fees, sale of goods out of said investments which have duly been offered to tax over several years. Reliance was placed in various judicial pronouncements. Rejecting the same, DRP concluded that the said investment were made to gain controlling interest in subsidiary company and were pure investment activity in nature which called for impugned disallowance. AO following, DRP directions, made impugned disallowance. Before us, the Ld. AR has made various contentions, the foremost being that the assessee has sufficient owned funds to make these investments and investments are made to acquire controlling interest in subsidiary and out of the said investment, the assessee has derived multiple benefits which are duly offered to tax. Thus the investments have been made out of commercial expediency. Further, these were old investments only and no new fresh investment has been made during the year. Our attention is drawn to Page-284 & 285 of the paper book to support the contention that the assessee has derived various incomes 7 I TA N O. 1 5 7 / Mu m/2 0 1 6 M/ s P i ra ma l G la ss L td .
A s se s smen t Yea r 2 0 1 1 - 1 2 against share investments from all these subsidiaries over several years. A chart showing net worth of the assessee has been placed at Page-286 against the contention that owned funds are sufficient to cover the impugned investments. Reliance has been placed on following judicial pronouncements:-
i. Assessee's own case for AY 2001-02 ITA No. 9645 & 9498/M/04 order dated 02/03/2016 ii. Assessee's own case for AY 2006-07 ITA No. 8360/M/10 order dated 16/12/2016 iii. S.A.Builders Vs. CIT [Supreme Court 288 ITR 1] iv. CIT Vs Reliance Utilities [313 ITR 340 Bombay High Court] v. CIT Vs Reliance Communication Infrastructure [207 Taxmann 219 Bombay High Court] vi. CIT Vs. Phil Corp. Ltd [244 CTR 226 Bombay High Court] vii. CIT Vs Shristi Securities [321 ITR 498 Bombay High Court] Per Contra, Ld. DR supported the stand lower authorities. We have heard various contentions and perused relevant material including cited case laws. After analyzing the various judicial pronouncements, we find strength in the various arguments of Ld. AR. The perusal of Net worth statements reveals that as on 31/03/2011, the assessee's capital structure stood as follows:-
Liabilities Amount (Rs. in Crores) Assets Amount (Rs. in Crores) Shareholders' Fund 437.248 Fixed Assets 652.646 Loan Funds 577.339 Investments 59.263 Deferred Tax Liabilities 13.516 Net Current Assets 316.194 TOTAL 1028.103 1028.103 It can be observed that against Share Holders' funds of Rs.437.248 crores, the impugned investments stood at Rs.59.263 crores and hence owned funds are sufficient to cover the said investments. It is well settled by catena of judgments that in such a scenario, it is to be presumed that the investment made in subsidiary were out of own funds and not out of borrowed funds. Further, the assessee has derived varied incomes by way of dividend, royalty, technical fees, management fees, sale of goods etc. out of these investments. These were primarily old investments which can be gauged from the fact that investment as on 8 I TA N O. 1 5 7 / Mu m/2 0 1 6 M/ s P i ra ma l G la ss L td .
A s se s smen t Yea r 2 0 1 1 - 1 2 31/03/2010 stood at Rs.58.95 crores as against Rs.59.26 crores as on 31/03/2011. We find that on identical set of facts, the issue has been decided by Tribunal in assessee's favor for AY 2006-07. Moreover, Hon'ble Bombay High Court in CIT Vs Phil Corp. Ltd. 14 Taxmann.com 58 has taken a view that investment in subsidiary company for acquisition of shares form integral part of assessee's business and hence interest thereupon is allowable. Keeping all these factors in mind, we are inclined to delete impugned additions. Ground No. 10 relating to allowability of interest u/s 36(1)(iii) is allowed whereas Ground No. 11 is alternative ground and therefore, the same becomes infructuous and hence dismissed.
8. Ground No.12 assails additions of proportionate interest on borrowed funds for Rs.73.87 lacs qua 'receivables' from subsidiary companies. AO noted that assessee paid interest on borrowed loans at Rs.44.82 crores whereas it had advanced loans to its subsidiaries, some of which were interest free. AO computed average cost of assessee's borrowing as 5.98% and made disallowance in the following manner:-
No. Name of the Party Total Rate of Interest Proportionate Loans/Advances Charged interest @5.98%
1. M/s Ceylon Glass Ltd.-Sri Lanka- 12,35,43.056/- Nil 73,87,875/-
receivables on account of debtors for sales / technical fees
2. Gujarat Glass International USA (now 47,03,07,000/- 9% to 11% Nil known as Piramal Glass USA Inc)
3. Piramal Glass UK Ltd. 5,10,18,240/- Nil Nil Total 73,87,875/-
Qua party No. 1, AO noted that these amounts were pending since a long time and details like outstanding period, the terms of contract and credit period etc. could not be submitted by assessee which justified impugned additions. No adjustment was required against Party No.2 as the funds were interest bearing and also against Party No. 3 as TP adjustment thereof was already made by TPO. DRP upheld the same on the premises that sufficient details to justify the same could not be adduced by the assessee. Before us, the Ld. AR has contended that the 9 I TA N O. 1 5 7 / Mu m/2 0 1 6 M/ s P i ra ma l G la ss L td .
A s se s smen t Yea r 2 0 1 1 - 1 2 assessee earned certain incomes by way of royalty / technical fees / dividend income amounting to Rs. 12.35 Crores from its subsidiary namely 'M/s Ceylon Glass Co. Ltd', Sri Lanka [CGCL] which stood outstanding as 'receivable' at year end. AO treated the same as interest free loans to sister concerns and disallowed proportionate interest thereupon @5.98% which amounted to Rs.73.87 lacs. Our attention has been drawn to P-284 of the paper-book to show the details / nature of income earned by assessee out of transactions undertaken with CGPL. Moreover, even assuming that these were loans to subsidiaries yet the similar issue was covered in assessee's own favor by Tribunal's decision for AY 2006-
07. Although, AR fairly conceded that no TP adjustment thereof has been made by TPO for these transactions. We have perused the relevant material. It is observed that the assessee has earned following income during the year from CGPL:-
No. Head Amount (Rs. in crores)
1. Project Fees / Management Fees 8.38
2. Sale of finished Goods 2.12
Total 10.50 Crores
It can be observed that as against the income of Rs.10.50 crores earned by assessee during the year, the outstanding receivables are at a much higher figure of Rs.12.35 crores, which prima facie reveals that the receivables represent outstanding for more than one year. Further, clause (i)(c) of explanation to Section 92B covers 'receivables' as international transaction w.e.f. 01.04.2002. Therefore, we are of the view that benchmarking of the same could have been done by comparing credit period allowed by assessee for other receivables i.e. internal CUP could have been used to benchmark this transaction. The assessee has relied upon the order of Tribunal in assessee's own case for 2006-07, ITA No. 8360/Mum/2010 order dated 16/12/2016. But a perusal of paragraphs 20 to 25 of the said order reveals that Tribunal has relied firstly upon order for AY 2001-02 and secondly upon 10 I TA N O. 1 5 7 / Mu m/2 0 1 6 M/ s P i ra ma l G la ss L td .
A s se s smen t Yea r 2 0 1 1 - 1 2 the fact that TP adjustment qua these transactions was already made by the TPO and disallowing the same would amount to double deduction. We also find that the assessee was allowed relief in AY 2001-02 on account of 'commercial expediency' and following Apex court judgment in S.A.Builders Vs. CIT 288 ITR 1. But the facts are different here. No TP adjustment has been made for the impugned transaction and secondly the outstanding amount represent 'receivables' on account of debtors for sales / technical fees as per the contention of the assessee. Therefore, on the facts and circumstances of the case, we deem it fit to restore this issue back to the file of AO for fresh adjudication in proper perspective including benefits derived by AE on account of receivables vis-à-vis normal debtors of the business. The assessee is directed to cooperate with the lower authorities forthwith to substantiate its claim forthwith falling which the AO shall be at liberty to adjudicate the same on the basis of material available on record.
9. Ground No.13 is related with TP adjustments of Rs.18,02,730/- & Rs.7,35,50,404/- against loan transaction and corporate guarantee respectively. These two transactions were reported by assessee in Form 3CEB and TPO suggested TP adjustment of Rs.7,86,52,228/- against the same. We take up the same one by one.
Interest Free Loan to Subsidiaries The assessee advanced interest free loans to one of its subsidiary namely 'M/s Piramal Glass UK Ltd.' for Rs.5.10 Crores. The assessee contended that the advances have been made to meet working capital requirements of the AE and with a view to expand its operations in foreign markets. Applying internal 'CUP' of USA AE, TPO determined the ALP rate of interest @10% and made TP addition of Rs.51.01 Lacs. Before DRP, assessee raised similar contentions and relied upon Apex Court judgment in S.A.Builders s CIT (supra). DRP after considering various judicial pronouncements benchmarked the same to LIBOR+3%. Before us, Ld. AR has contested the same on the ground that loan is given for working capital and 11 I TA N O. 1 5 7 / Mu m/2 0 1 6 M/ s P i ra ma l G la ss L td .
A s se s smen t Yea r 2 0 1 1 - 1 2 out of commercial expediency and hence, no TP adjustment is called for. Without prejudice, he asserted that adjustment, if any, which is called for, should be restricted to LIBOR only without any mark up. Per Contra, Ld. DR asserted that to determine the appropriate mark up, the matter may be remanded back to AO as the department has procured a sophisticated 'Bloomberg' database which scientifically calculates the applicable interest rate and mark up. We have heard the rival contentions. In principal it is agreed that LIBOR rate plus some mark-up shall apply to the transaction. To calculate the appropriate mark-up on the same, as per contentions of Ld. DR, we deem it fit to restore the matter back to the file of AO for limited purposes of calculation of appropriate mark up with the help of the said data base. The ground is allowed for statistical purposes.
Corporate Guarantee The assessee provided Corporate Guarantee of USD 83 million to one of its USA AE. Treating the same as international transaction, TPO benchmarked the same @3% by applying bps mark up of 1.25% on SBI bank guarantee rate of 1.75%. Applying the same on outstanding balance at each quarter end, TP adjustment thus got worked out to Rs.7.35 Crores. Before DRP, the assessee contested that guarantee is not international transaction and without prejudice, contested the benchmarked rate of 3% and relying upon various judicial pronouncements, pleaded to restrict the same to maximum of 0.5%. But rejecting the same, DRP confirmed the said benchmarked rate. Before us, Ld. AR raised similar contentions but fairly conceded that in view of amendment in Section 92B and jurisdictional Bombay High Court judgment in CIT Vs. Everest Kento Cylinders Ltd. 378 ITR 57, the said transaction constitute international transaction. On merits, he asserted that rate of 3% benchmarked by applying mark up on SBI rate is too high and not correct. In number of judgments, the rate ranging from 0.20% to 0.50% has been found to be acceptable. The Ld. DR has justified the said rate. We have heard rival contentions and find strength in Ld. AR's 12 I TA N O. 1 5 7 / Mu m/2 0 1 6 M/ s P i ra ma l G la ss L td .
A s se s smen t Yea r 2 0 1 1 - 1 2 argument. Hon'ble Bombay High Court in CIT Vs. Everest Kento Cylinders Ltd. (supra) has observed that issuance of a corporate guarantee are distinct and separate from that of bank guarantee and therefore, no TP adjustment can be made in respect of guarantee commission by making comparison between guarantees issued by commercial banks as against a corporate guarantee issued by holding company for benefits of its AE, a subsidiary company. Further, in the said case, the Hon'ble court has affirmed guarantee adjustment of 0.50% upheld by the Tribunal. Therefore, respectfully following the same, we restrict TP adjustment against bank guarantee to 0.50%. This ground is partly allowed.
10. Ground No. 14 is related with addition on account of certain interest income. The AO noted that Form 26AS of the assessee reflected receipt of interest income from 'Bank of America' for Rs.57,817/- but it was nowhere shown in the financial statements of the assessee. The assessee contended that it has not placed any FDRs with 'Bank of America' and these entries do not belong to assessee and erroneously being reflected in Form 26AS. It also stated that it has requested the Bank of America to rectify their TDS returns vide letters dated 26/11/2012 and 18/11/2015. AO rejected the contentions of the assessee and added impugned amount to the income of the assessee. Before us, Ld. AR has asserted that the assessee has not entered into any transaction with 'Bank of America' which can give rise to interest income. The assessee has twice requested the concerned bank to rectify their TDS returns. Thus, adequate efforts have been made by assessee and the assessee cannot be asked to prove the negative. We agree with AR's stand that additions cannot be made solely on the basis of Form 26AS entries only which is well settled by various judicial pronouncements. The revenue has not brought anything on record to substantiate its stand and relied merely upon entries in Form 26AS. It appears that the same is erroneous and has crept in due to quoting of wrong PAN by the Bank in their TDS returns and therefore, at least addition, in such a scenario, in the hands of assessee could not be in made. Thus, we are inclined to 13 I TA N O. 1 5 7 / Mu m/2 0 1 6 M/ s P i ra ma l G la ss L td .
A s se s smen t Yea r 2 0 1 1 - 1 2 delete the impugned addition. The bench was informed that similar entries are appearing in Form 26AS of the assessee for other assessment years also. Therefore, the assessee is directed to pursue the correction thereof forthwith with due diligence. The revenue is also directed to scrutinize the TDS return of 'Bank of America' and enable to Bank to take steps in rectifying the impugned errors.
11. Ground No. 15 is related with foreign exchange gains of Rs.37.12 Lacs arising out of loans given to subsidiaries. The assessee stood benefitted to the extent of Rs.37.12 Lacs on account of reinstatement of foreign currency loan at year end advanced to its subsidiary companies. It treated the same as capital in nature and reduced it from the profit in computation of income. Relying upon the decision of Bombay High Court in Solid Containers Ltd. Vs. DCIT 308 ITR 417, AO and DRP found the gain to be revenue in nature and concluded the same to be taxable in the hands of the assessee. Before us, the primary contention of the AR is that it incurred losses on this account in AY 2010-11 but it did not claim the same as allowable expenditure. It has consistently followed accounting policy regarding treatment of foreign exchange on loans. The loans advanced to subsidiary are capital in nature and therefore, the same are not taxable. Reliance has been placed on the Apex court judgment of Sutlej Cotton Mills Ltd. V CIT 116 ITR 1 to contend that gain / loss on foreign exchange held on 'Capital Account' is capital in nature and held in 'revenue account' is revenue in nature. Per contra, Ld. DR contended that when assessee made suo- moto disallowance of exchange loss in 2010-11 then the benefit of the same could not be given by AO as he had no power to reduce the income of the assessee. We have heard the rival contentions and perused the relevant material including cited case laws. We find that foreign exchange gain or loss on acquisition of assets is covered by Section 43A whereas all the other foreign exchange gains / losses are covered by general accounting principles. Further, the assessee all along has assailed TP adjustment and interest adjustment u/s 14 I TA N O. 1 5 7 / Mu m/2 0 1 6 M/ s P i ra ma l G la ss L td .
A s se s smen t Yea r 2 0 1 1 - 1 2 36(1)(iii) on the ground that transactions with subsidiary companies are out of commercial expediency and with a view to derive varied revenue benefits from these investments whereas on the contrary, this ground has been assailed on the premises that loans to subsidiaries are on capital account. It is also noted that the said transaction is reported in Tax Audit Report as follows:-
"13. Amounts not credited to the Profit & Loss Account, being-
(a) to (d)...
(e) Capital Receipt, if any Foreign Exchange Gain (Net) on Loans given to subsidiary companies Rs. 37,12,635/- ....."
We fail to understand when the item has not been credited to the Profit & Loss Account, how the deduction thereof could be claimed in the computation of income treating it as capital in nature. Therefore, on the facts and circumstances of the case, we are inclined to dismiss this ground of assessee's appeal.
12. Ground No. 16 is related with certain adjustment of provision for bad and doubtful debts from book profits u/s 115JB. While calculating book profit u/s 115JB, the assessee, due to oversight, did not reduced an amount of Rs.6.88 crores as provision for bad and doubtful debts written back from book profits. The said amount represented reversal of provision for bad and doubtful debts made by debiting profit & loss account in earlier years but added back to compute book profits for those years. Although, AO accepted the factual matrix, yet relying upon apex court decision in Goetz India Ltd. Vs CIT 284 ITR 323, did not entertain the claim of the assessee on the premises that the same could be admissible only by way of filing the revised return of income. The assessee took support of CBDT circular No. 14 (XL-35) dated 11/04/1955 to assert that it was the duty of AO to grant the admissible reliefs, although not claimed by the assessee due to oversight / inadvertent mistake. AO was duty bound to assess the correct income of the assessee. But DRP and AO rejected the same 15 I TA N O. 1 5 7 / Mu m/2 0 1 6 M/ s P i ra ma l G la ss L td .
A s se s smen t Yea r 2 0 1 1 - 1 2 relying upon Apex Court decision in Goetz India Ltd. Vs CIT(Supra). Before us, the Ld. AR has raised similar contentions. As the factual matrix is not in dispute and the lower authorities, in principal, agreed with the claim of the assessee, the issue is decided in favor of the assessee and hence the AO is directed the give the benefit of impugned amounts in computation of Book Profit u/s 115JB.
13. In Ground No. 17, the assessee is aggrieved by the stand of AO in not allowing set off of brought forward of business losses and unabsorbed depreciation amounting to Rs.104.23 crores. The assessee recomputed brought forward business losses and unabsorbed depreciation on the basis of outcome of appeals of earlier years at Rs.104.23 crores, the set off of which was not allowed to assessee. DRP concluded that since the issue was consequential, AO was directed to consider the said claim. However, in the final computation of income, we find that credit thereof was not granted to the assessee. Therefore, reiterating the stand of DRP, AO is directed to verify the claim of assessee in this respect and allow the same as per statutory provisions.
14. All the grounds of appeal are disposed off in the above manner and resultantly, the appeal of the assessee stands partly allowed.
Order pronounced in the open court on 04th January, 2017 Sd/- Sd/-
(Amit Shukla) (Manoj Kumar Aggarwal)
या यक सद य / Judicial Member लेखा सद य / Accountant Member
मुंबई Mumbai; 1दनांक Dated : 04.01.2017
Pooja K.,
K., PS
16
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आदे श क" # त%ल&प अ'े&षत/Copy of the Order forwarded to :
1. अपीलाथ& / The Appellant
2. '(यथ& / The Respondent
3. आयकर आयु त(अपील) / The CIT(A)
4. आयकर आयु त / CIT - concerned
5. 4वभागीय ' त न7ध, आयकर अपील,य अ7धकरण, मब
ंु ई / DR, ITAT, Mumbai
6. गाड: फाईल / Guard File
आदे शानस
ु ार/ BY ORDER,
उप/सहायक पंजीकार (Dy./Asstt. Registrar)
आयकर अपील य अ धकरण, मब
ंु ई / ITAT, Mumbai