Income Tax Appellate Tribunal - Mumbai
Syngenta India Ltd, Pune vs Assessee on 20 June, 2013
आयकर अपील य अ धकरण "के " यायपीठ मंब
ु ई म।
IN THE INCOME TAX APPELLATE TRIBUNAL "K" BENCH, MUMBAI ी पी.एम. जगताप, लेखा सद य एवं वजय पाल राव, या यक सद य के सम ।
BEFORE SHRI P.M. JAGTAP, AM AND SHRI VIJAY PAL RAO, JM आयकर अपील सं./I.T.A. No.2977/Mum/2006 ( नधारण वष / Assessment Year : 2002-03 ) M/s Syngenta India बनाम/ बनाम The Jt. Commissioner of Limited, Income Tax (OSD), Vs. Amar Paradigm, Range 1(3), Survey No. 110/11/13, Aayakar Bhavan, Baner Road, M.K. Marg PUNE - 411 045. Mumbai- 400 020.
थायी ले खा सं . /PAN : AAECS9424 P
(अपीलाथ /Appellant) .. ( यथ / Respondent)
आयकर अपील सं./I.T.A. No. 6575/Mum/2010
( नधारण वष / Assessment Year : 2003-04 )
M/s Syngenta India बनाम/
बनाम The Jt. Commissioner of
Limited, Income Tax (OSD),
Vs.
Amar Paradigm, Range 1(3),
Survey No. 110/11/13, Aayakar Bhavan,
Bance Road, M.K. Marg
PUNE - 411 045. Mumbai- 400 020.
थायी ले खा सं . /PAN : AAECS9424 P
(अपीलाथ /Appellant) .. ( यथ / Respondent)
आयकर अपील सं./I.T.A. No. 6448/Mum/2010
( नधारण वष / Assessment Year : 2003-04 )
The Dy. Commissioner बनाम/
बनाम M/s Syngenta India
of Income Tax (OSD), Limited,
Vs.
Range 1(3), Amar Paradigm,
Aayakar Bhavan, Survey No. 110/11/13,
M.K. Marg Bance Road,
Mumbai- 400 020. PUNE - 411 045.
थायी ले खा सं . /PAN : AAECS9424 P
(अपीलाथ /Appellant) .. ( यथ / Respondent)
2 ITA 2977/M/06, 6575/M/10,
ITA 6448/M/10,856/M/11 &
ITA 954/M/11
आयकर अपील सं./I.T.A. No. 856/Mum/2011
( नधारण वष / Assessment Year : 2004-05 )
M/s Syngenta India बनाम/
बनाम The Addl. Commissioner
Limited, of Income Tax (OSD),
Vs.
Amar Paradigm, Range 1(3),
Survey No. 110/11/13, Aayakar Bhavan,
Bance Road, M.K. Marg
PUNE - 411 045. Mumbai- 400 020.
थायी ले खा सं . /PAN : AAECS9424 P
(अपीलाथ /Appellant) .. ( यथ / Respondent)
आयकर अपील सं./I.T.A. No. 954/Mum/2011
( नधारण वष / Assessment Year : 2004-05 )
The Dy.Commissioner बनाम/
बनाम M/s Syngenta India
of Income Tax (OSD), Limited,
Vs.
Range 1(3), Amar Paradigm,
Aayakar Bhavan, Survey No. 110/11/13,
M.K. Marg Bance Road,
Mumbai- 400 020. PUNE - 411 045.
थायी ले खा सं . /PAN : AAECS9424 P
(अपीलाथ /Appellant) .. ( यथ / Respondent)
Assessee by : Shri Nitesh Joshi &
Shri Bipin Pawar
यथ क ओर से/ Shri Ajeet Kumar Jain &
Shri A.C. Tejpal
Respondent by :
सनवाई
ु क तार ख / Date of Hearing : 20-06-2013
घोषणा क तार ख /Date of Pronouncement : 31-07-2013 3 ITA 2977/M/06, 6575/M/10, ITA 6448/M/10,856/M/11 & ITA 954/M/11 आदे श / O R D E R PER BENCH :
Out of these five appeals, one appeal being ITA No. 2977/Mum/2009 is the appeal of the assessee for A.Y. 2002-03 while the remaining four appeals are cross appeals for assessment years 2003-04 and 2004-05. Since some common issues are involved in all these appeals, the same have been heard together and are being disposed of by this single consolidated order for the sake of convenience.
2. First, we shall take up the appeal of the assessee being ITA No. 2977/Mum/2006 which is directed against the order of ld. CIT(A)-XXI, Mumbai dated 20-02-2006.
3. The issue raised in ground No. 1 relates to the disallowance of Rs.
5,14,328/- made by the A.O. and confirmed by the ld. CIT(A) u/s 14-A of the Income Tax Act, 1961 (the Act) on account of expenses incurred in relation to the earning of exempt dividend income.
4. The assessee in the present case is a company which is engaged in the business of manufacturing and trading of agrochemical products and seeds. The return of income for the year under consideration was filed by it on 31-10-2002 declaring total income of Rs. 29,64,91,568/-. In the said return, dividend income of Rs. 1,02,86,569/- was claimed to be exempt from tax by the assessee. No disallowance on account of expenses incurred in relation to the earning of the said exempt income, however, was made by the assessee as per section 14A of the Act on the ground that the investment in the corresponding mutual fund was made out of its own funds and there were no other expenses incurred for earning the dividend income on mutual fund. The A.O. did not accept this stand of the assessee. According to him, some of 4 ITA 2977/M/06, 6575/M/10, ITA 6448/M/10,856/M/11 & ITA 954/M/11 the expenses directly attributable to the earning of the dividend exempt income such as stamp duty, bank commission etc. must have been incurred by the assessee. He also observed that even the portion of indirect expenses such as salary and other overheads was partly attributable to the earning of dividend income. He, therefore, estimated such expenses at Rs. 5,14,328/- being 5% of the exempt dividend income and made the disallowance to that extent u/s 14A of the Act.
5. The disallowance made by the A.O. u/s 14-A of the Act was challenged by the assessee in an appeal filed before the ld. CIT(A) and besides challenging the action of the A.O. in invoking the provisions of section 14A of the Act to make a disallowance, the assessee contended alternatively that the disallowance u/s 14A made by the A.O. to the extent of 5% of the dividend income was highly excessive and unreasonable. The ld. CIT(A) did not find merit in the contention raised on behalf of the assessee and relying on the decision of the SMC Bench of the Tribunal in the case of Rhythm Exports Pvt. Ltd. vs. ITO, (2005) 2 SOT 429 (Mum) (SMC), he held that it was the duty of the assessee to allocate expenditure attributable to the exempt dividend income. Since there was a failure on the part of the assessee to do so, the ld. CIT(A) held that the A.O. had no option but to disallow the expenses relatable to exempt income on proportionate basis. He also held that since the claim of the assessee of having incurred any expenses in relation to the earning of dividend income was not acceptable, the A.O. was fully justified in making the disallowance u/s 14A of the Act by allocating the administrative and other expenses on proportionate basis at 5% of the dividend income, which was quite reasonable.
6. The ld. counsel for the assessee submitted that the dividend income can be earned without even incurring any expenditure. He invited our attention to the balance sheet of the assessee as on 31st March, 2002 placed 5 ITA 2977/M/06, 6575/M/10, ITA 6448/M/10,856/M/11 & ITA 954/M/11 at page 69 of his paper book to point out that sufficient own funds of Rs. 222.72 crores were available with the assessee to make the investment of Rs. 18.32 crores in the mutual fund. He submitted that there was also no other expenditure incurred by the assessee which could be attributable to the earning of dividend income. He contended that there was thus no justification to make any disallowance u/s 14A of the Act and in any case, the disallowance made by the A.O. and confirmed by the ld. CIT(A) to the extent of 5% of dividend income is highly excessive and unreasonable.
7. The ld. D.R., on the other hand, submitted that the investment activity was the substantial activity of the assessee and since fresh investment in mutual fund was made by the assessee in the year under consideration, it cannot be claimed that no expenditure was incurred in relation to dividend income on mutual funds. He contended that even to continue with the existing investment involves decision making and since the portion of the common expenses on salaries and other administrative accounts was partly attributable to the earning of exempt dividend income, the disallowance u/s 14A of the Act was rightly made in the case of the assessee on proportionate basis. He contended that even the disallowance so made @ 5% of exempt dividend income is quite fair and reasonable in the facts and circumstances of the case.
8. We have considered the rival submissions and also perused the relevant material available on record. It is observed that the investment in units of mutual funds made by the assessee stood at ` 6.03 crores as on 31-03-2001 which was increased to ` 18.32 crores as on 03-03-2002 which clearly shows that the investment activity was substantial activity of the assessee and sizeable new investment was made in the units of mutual funds by the assessee during the year under consideration. Keeping in view of this factual position of the assessee's case, we are of the view that although the 6 ITA 2977/M/06, 6575/M/10, ITA 6448/M/10,856/M/11 & ITA 954/M/11 investment in mutual funds had been made by the assessee out of its own funds and there was no interest expenditure incurred in relation to the earning of dividend income, the portion of administrative expenses incurred by the assessee was certainly attributable to the earning of the said income. As rightly held by the A.O. as well as the ld. CIT(A), since no working whatsoever was given by the assessee showing the expenses attributable to the earning of dividend income, estimation of such expenses on proportionate basis to quantify the disallowance u/s 14A of the Act was very much called for. As regards the estimation so made by the authorities below at 5% of the dividend income, we, however, find merit in the alternative contention of the ld. counsel for the assessee that the same is excessive and unreasonable keeping in view that such estimation to the extent of 2% of the dividend income has been held to be reasonable consistently by the Tribunal in various cases. Accordingly, we modify the impugned order of the ld. CIT(A) and restrict the disallowance u/s 14A of the Act at 2% of the dividend income. Ground No. 1 of assessee's appeal is thus partly allowed.
9. In ground No. 2, the assessee has challenged the action of the ld. CIT(A) in upholding the action of the A.O. in disallowing the deduction claimed by the assessee u/s 80IB of the Act in respect of the following items of other income on the ground that the same was not derived from the eligible undertaking:-
Monocrotphos(Rs) Topik (Rs.)
i) Sale of raw materials and packing 32,958/- 5,402/-
material
ii) Interest on employee loans 21,653/- 3,549/-
iii) Sale of mango, wood, Coconuts 21,117/- 3,461/-
etc.
iv) Ciba Specialty Chemicals (India) 9,67,788/- 1,48,957/-
Ltd.- service charged
v) Write back of retention money 33,841/- 5,547/-
7 ITA 2977/M/06, 6575/M/10, ITA 6448/M/10,856/M/11 & ITA 954/M/11
10. In its return of income filed for the year under consideration, the assessee had claimed deduction u/s 80IB of the Act in respect of the profits derived from Topik and Monocrotophos units. The said claim of the assessee was examined by the A.O. and on such examination, he found that certain items of other income included by the assessee in the profits and gains derived from its two units for the purpose of claiming deduction u/s 80IB of the Act were such that the same could not be said to be derived from the eligible undertakings. He, therefore, excluded the amount of such items of other income from the profits eligible for deduction u/s 80IB of the Act and restricted the claim of the assessee for the said deduction to that extent. On appeal, the ld. CIT(A) allowed part relief to the assessee on this issue upholding the action of the A.O. in excluding five items of other income for the purpose of computing profits eligible for deduction u/s 80IB of the Act which are the subject matter of appeal before us. The main reason given by the ld. CIT(A) in support of his conclusion on this issue was that the said five items of other income did not originate from the eligible undertaking of the assessee inasmuch as their immediate source was not the said undertaking.
10. We have heard the arguments of both the sides and also perused the relevant material available on record. As regards the sale of raw materials and packing materials, it is observed that income from sale of scrap has been held to be eligible for deduction u/s 80IB of the Act by the ld. CIT(A) vide his impugned order relying on various judicial pronouncements. In our opinion, the ratio of the said judicial pronouncements is equally applicable to sale of raw materials and packing materials which is nothing but the recovery of cost incurred by the assessee having no profit element. We are, therefore, of the view that the sale proceeds of raw materials and packing materials cannot be excluded for the purpose of computing the profit of the eligible undertaking for the purpose of deduction u/s 80IB of the Act. As regards the interest on employee's loan, it is observed that a similar issue was decided by the 8 ITA 2977/M/06, 6575/M/10, ITA 6448/M/10,856/M/11 & ITA 954/M/11 Tribunal in assessee's own case for A.Y. 2001-02 vide an order dated 9-11-2012 passed in ITA No. 7699/Mum/2004 holding that the interest on employee's loan cannot be said to be income derived from the industrial undertaking for the purpose of computing deduction u/s 80IB of the Act. In our opinion, even the sale of mango, wood, Coconuts etc. and write-back of retention money cannot be said to be income derived from the eligible undertaking as the immediate source of the said income is not the said undertaking. As regards the service charges received from Ciba Specialty Chemicals (India) Ltd., the ld. counsel for the assessee has submitted that the same is nothing but recovery of expenses actually incurred by the assessee. It is, however, observed that there is nothing on record to substantiate this stand of the assessee. Moreover, the assessee himself has declared service charges received from Ciba Specialty Chemicals (India) Ltd. as its other income. We are therefore unable to agree with the stand taken by the ld. counsel for the assessee on this issue. Accordingly, we hold that sale of raw materials and packing materials cannot be excluded from the profits of the eligible undertaking for the purpose of computing deduction u/s 80IB of the Act whereas the remaining four items are liable to be excluded for this purpose. As regards the alternative contention of the ld. counsel for the assessee on this issue that only net income is to be excluded after allowing the expenses incurred for earning the respective income, we direct the A.O. to consider this plea of the assessee and allow appropriate relief after necessary verification. Ground No. 2 of assessee's appeal is accordingly partly allowed.
11. In ground No. 3, the assessee has challenged the action of the ld. CIT(A) in confirming the disallowance made by the A.O. on account of assessee's claim for deduction of ` 8,59,555/- on account of expenses disallowed in A.Y. 2003-04 being related to A.Y. 2002-03.
9 ITA 2977/M/06, 6575/M/10, ITA 6448/M/10,856/M/11 & ITA 954/M/11
12. In the tax audit report for A.Y. 2003-04, royalty to Hoechst on sale of cotton dhaval variety debited to the P&L account was stated to be the expenditure of earlier year. During the course of assessment proceedings for A.Y. 2002-03, the assessee therefore claimed deduction on account of the said expenses stating that the same were pertained to A.Y. 2002-03. Since the provision for the said expenses was not made by the assessee in its books of account in A.Y. 2002-03, the A.O. disallowed the deduction claimed by the assessee in A.Y. 2002-03. On appeal, the ld. CIT(A) confirmed the disallowance made by the A.O. on this issue observing that there was nothing in the tax audit report for A.Y. 2003-04 to show that the expenditure on royalty was related to A.Y. 2002-03.
13. We have heard the arguments of both the sides and also perused the relevant material available on record. It is observed that the royalty amount in question was claimed by the assessee in A.Y. 2003-04 and the A.O. disallowed the same in that year on the basis of tax audit report wherein it was stated that the royalty debited by the assessee to the P&L account was related to earlier year. The relevant extract from the said audit report is placed at page 116 of the assessee's paper book and a perusal of the same shows that there is nothing contained therein to indicate that the royalty was the expenditure pertaining to A.Y. 2002-03 as claimed by the assessee. The ld. counsel for the assessee has also not brought to our notice any other material to show that the royalty in question was related to A.Y. 2002-03. We therefore find no infirmity in the impugned order of the ld. CIT(A) confirming the disallowance made by the A.O. on this issue in A.Y. 2002-03. Ground No. 3 of assessee's appeal is accordingly dismissed.
14. In ground No. 4, the assessee has challenged the action of the ld. CIT(A) in upholding the action of the A.O. in excluding the following items of 10 ITA 2977/M/06, 6575/M/10, ITA 6448/M/10,856/M/11 & ITA 954/M/11 miscellaneous income from the "profits of business" for the purpose of computing the deduction u/s 80HHC of the Act.
Rs.
i) CSCIL - Service charges 38,83,788/-
ii) Sale of old seeds/farm produce 64,16,955/-
iii) Sale of raw material/packing material 1,42,963/-
iv) Excise duty refund 4,10,409/-
v) Write back of retention money 1,35,537/-
vi) Sale of mango, wood, coconuts 84,574/-
vii) Others 12,91,163/-
15. While computing deduction u/s 80HHC of the Act, the assessee had included other income in the "profits of the business". According to the A.O., certain items of other income were liable to be excluded to the extent of 90% from the profits of the business as per Explanation (baa) to section 80HHC of the Act and accordingly the amount of such items was excluded by him from the profits of the business and the claim of the assessee for deduction u/s 80HHC of the Act was restricted to that extent. On appeal, the ld. CIT(A) held that certain items were not liable to be excluded while computing the profits of the business as per Explanation (baa) to section 80HHC of the Act. Out of the remaining items, he held that the six items of other income i.e. service charges received from CSCIL, sale of old seeds/farm products, sale of raw material/packing materials, excise duty refund, write back retention money and sale of wood, mango, coconuts etc. were not established to be in the nature of operational income of the assessee and relying on the decision of Hon'ble Bombay High Court in the case of CIT vs. Bangalore Clothing Company [2003] 260 ITR 371), he held that the said six items of other income were liable to be excluded from the profits of the business for computing deduction u/s 80HHC of the Act as per Explanation ("baa"). As regards the remaining amount of miscellaneous income of ` 12,91,163/-, the ld. CIT(A) found that no details were furnished by the assessee of such miscellaneous 11 ITA 2977/M/06, 6575/M/10, ITA 6448/M/10,856/M/11 & ITA 954/M/11 income and he therefore upheld the exclusion of 90% of the said amount from the profits of the business for computing deduction u/s 80HHC of the Act.
16. We have heard the arguments of both the sides and also perused the relevant material available on record. It is observed that the exclusion of miscellaneous income from the profits of the business for the purpose of computing deduction u/s 80HHC of the Act to the extent of ` 12,91,163/- was upheld by the ld. CIT(A) in the absence of any details furnished by the assessee in respect of the said income. Even before us, the ld. counsel for the assessee has not furnished any such details and in the absence of the same, we confirm the exclusion of miscellaneous income amounting to ` 12,91,163/- from the profits of the business for the purpose of computing deduction u/s 80HHC of the Act.
17. As regards the excise duty refund of ` 4,10,409/-, it is observed that this issue is squarely covered in favour of the assessee by the decision of the co-ordinate bench of the Tribunal in the case of Extrusion Process (P.) Ltd. vs. ITO [2007] 106 ITD 336) wherein it was held that refund of excise duty earlier claimed as deduction is nothing but business profits in its texture, colour and character for the purposes of section 80HHC of the Act and the same cannot be excluded from the profits of the business under Explanation (baa) to section 80HHC of the Act. Respectfully following the said decision of the co- ordinate Bench of the tribunal, we direct the A.O. to exclude the excise duty refund from the profits of the business for computing deduction u/s 80HHC of the Act.
18. As regards the sale of raw materials and packing materials, we have already held while dealing with the issue of deduction u/s 80IB of the Act that the same is in the nature of recovery of expenses earlier incurred without any element of profit. The same, therefore, is not in the nature of any item of 12 ITA 2977/M/06, 6575/M/10, ITA 6448/M/10,856/M/11 & ITA 954/M/11 income which can be excluded from the profits of the business as per Explanation (baa) to section 80HHC of the Act.
19. As regards the remaining four items of other income i.e. sale of old seeds, service charges received from CSCIL, write back retention money and sale of wood, mango, coconuts etc., it is observed that the exclusion of these items of income from the profits of the business for the purpose of computation of deduction u/s 80HHC of the Act was upheld by the ld. CIT(A) relying on the decision of Hon'ble Bombay High Court in the case of Bangalore Clothing Company (supra). In the case of CIT vs. Dresser Rand India P. Ltd. [2010] 323 ITR 429 (Bom), the Hon'ble Bombay High Court has held, relying on the decision of Hon'ble Supreme Court in the case of CIT vs. K. Ravindranathan Nair [2007] 295 ITR 228 (SC), that the decision in the case of CIT vs. Bangalore Clothing Company is no longer a good law by observing as under:-
"However, it was sought to be urged that the decision in Bangalore Clothing was cited before the Supreme Court in its decision in Baby Marine Exports [2007] 290 ITR 323. The submission of the assessee is that the judgment in Bangalore Clothing must be regarded as being impliedly approved by the Supreme Court in Baby Marine Exports [2007] 290 ITR 323. The issue before the Supreme Court in Baby Marine Exports [2007] 290 ITR 323 was whether an export house premium received by the assessee is includible in the profits of the business of the assessee while computing the deduction under section 80HHC. The assessee was engaged in the business of selling marine products both in the domestic and international markets in pursuance of a contract which it had entered into with export houses. The assessee received the entire FOB value of the exports together with a payment which was described as an export house premium of 2.25 per cent. of the FOB value. The Tribunal in that case held that the export house premium received by the assessee was includible in the profits of the business under section 80HHC. The contention of the Revenue before the Supreme Court was that as a supporting manufacturer, the assessee was entitled to a deduction only on the sale price of its goods and the premium received could not be held to be derived from the business of export. Before the Supreme Court reliance was placed by the assessee on the judgment of the Division Bench of this court in Bangalore Clothing [2003] 260 ITR 371 in support of the submission that if a particular receipt is in the nature of an operational income, it must be included in business profits. The Supreme Court 13 ITA 2977/M/06, 6575/M/10, ITA 6448/M/10,856/M/11 & ITA 954/M/11 held that the assessee being a supporting manufacturer under section 80HHC(1A) it was entitled to a deduction of the profit derived from the sale of goods or merchandise to an export house for the purposes of export. The assessee, as consideration for the sale of the goods to an export house, received the entire FOB value of the goods and an export house premium of 2.25 per cent. The Supreme Court noted in its following observations that as a matter of fact the premium was a part of the sale price realized by the assessee (page 334) :
"The Appellate Tribunal has arrived at the definite conclusion that the export house premium is nothing but an integral part of sale price realised by the assessee-a supporting manufacturer from the export house. The Tribunal further held that the Export House premium cannot possibly be considered to be either commission or brokerage, as a person cannot earn commission or brokerage for himself."
The Supreme Court affirmed the finding of the Tribunal that the export house premium was an integral part of the sale price realized by the assessee from the export house. The submission of the Revenue that the premium was totally unrelated to export was held to be lacking in merit. The Supreme Court held that the submission was contrary to the specific terms of the agreement entered into by the assessee. The export house premium, as held by the Supreme Court, could be included in the business profits "because it is an integral part of business operation of the respondent which consists of sale of goods by the respondent to the export house". The decision of the Supreme Court in Baby Marine Exports [2007] 290 ITR 323, therefore, rests on two foundations. Firstly, the Supreme Court affirmed the finding of fact of the Tribunal that the export house premium was an integral part of the consideration for the sale realized by the assessee, which was a supporting manufacturer for an export house. Secondly, the premium, as a matter of fact, was related to the export activity since it formed an integral part of the business of the assessee which consisted of the sale of goods to an export house. The Supreme Court has, as a matter of fact, in the course of the discussion not affirmed the judgment of this court in Bangalore Clothing [2003] 260 ITR 371. The decision undoubtedly was cited on behalf of the assessee but that in itself is not a ground for this court to hold that it was impliedly approved. There is nothing in the judgment of the Supreme Court to suggest that the judgment in Bangalore Clothing [2003] 260 ITR 371 was either expressly or impliedly approved. The submission which has been urged on behalf of the assessee cannot, therefore, be accepted. The ambit of Explanation (baa) has been considered by the judgment of the Supreme Court in Ravindranathan Nair's case [2007] 295 ITR 228. The legislative policy underlying the provision is that items which are unrelatable to the export activity must be excluded in the computation of business profits in order to prevent a distortion in the computation of the deduction under section 80HHC. What provision should be made consistent with the legislative policy underlying section 80HHC is evidently a matter for Parliament to determine. The duty of the court is to interpret the language of the provision. In the present 14 ITA 2977/M/06, 6575/M/10, ITA 6448/M/10,856/M/11 & ITA 954/M/11 case the interpretation of the provision by the Supreme Court is binding and has to be followed." ( Para 14 & 15 A similar issue again came up for consideration before the Hon'ble Bombay High Court in the case of CIT vs. Pfizer Ltd. [2011] 330 ITR 62 (Bom) in the context of insurance claim related to stock-in-trade wherein a question involved was whether the insurance claim related to stock-in-trade of the assessee company was liable to be excluded while computing eligible profit u/s 80HHC and the said question was answered by the Hon'ble Bombay High Court in favour of the assessee for the following reasons given in para 10 and
11. Again, in paragraph 21, the Supreme Court observed as follows (page 241) :
"The said clause stated that 90 per cent. of incentive profits or receipts by way of brokerage, commission, interest, rent, charges or any other receipt of like nature included in business profits, had to be deducted from business profits computed in terms of sections 28 to 44D of the Income-tax Act. In other words, receipts constituting independent income having no nexus with exports were required to be reduced from business profits under clause (baa). A bare reading of clause (baa)(1) indicates that receipts by way of brokerage, commission, interest, rent, charges, etc., formed part of gross total income being business profits. But for the purposes of working out the formula and in order to avoid distortion of arriving export profits clause (baa) stood inserted to say that although incentive profits and `independent incomes' constituted part of gross total income, they had to be excluded from gross total income because such receipts had no nexus with the export turnover."
In determining in each case as to whether a receipt which forms part of the profits of business is liable to undergo a reduction of ninety per cent. as stipulated in clause (1) of Explanation (baa), it is necessary for the court to consider whether the receipt is "of a similar nature included in such profits". The rationale for excluding ninety per cent. of the receipts by way of brokerage, commission, interest, rent or charges is that these are independent incomes and their inclusion in the profits of business would result in a distortion. In determining whether any other receipt is liable to undergo a reduction of ninety per cent. the basic prescription which must be borne in mind is whether the receipt is of a similar nature and is included in the profits of business. To be susceptible to a reduction the receipt must be of a nature similar to brokerage, commission, interest, rent or charges."
15 ITA 2977/M/06, 6575/M/10, ITA 6448/M/10,856/M/11 & ITA 954/M/11 The Hon'ble Bombay High Court thus has laid down the guidelines in the decisions rendered in the case of Dresser Rand India (P) Ltd (supra) & Pfizer Ltd. (supra) and the issue as to whether a particular item of income is liable to be excluded from the profits of the business for the purpose of computing deduction u/s 80HHC of the Act is required to be considered and decided in the light of the said guidelines. Since the benefit of the said two decisions of the Hon'ble Bombay High Court rendered subsequently was not available either to the A.O. or to the ld. CIT(A), we consider it just and proper to restore the issue relating to the exclusion of the remaining four items of other income from the profits of the business for computing the deduction u/s 80HHC of the Act to the file of the A.O. for deciding the same afresh in the light of the said two decisions of the Hon'ble Bombay High Court.
20. As regards the alternative contention of the ld. counsel for the assessee that if any item of other income is to be excluded from the profits of the business, only net income after allowing the corresponding expenses is to be excluded, we direct the A.O. to consider and decide the same after necessary verification.
21. As regards the other issue raised in ground No. 4 relating to assessee's claim for deduction u/s 80HHC of the Act in respect of DEPB entitlement of ` 3,03,720/-, it is observed that this issue is squarely covered by the decision of Hon'ble Supreme Court in the case of Topman Exports vs. CIT [2012] 342 ITR 49 (SC) wherein it was held that the face value of the DEPB which represents it cost is chargeable as income under clause (iiib) of section 28 whereas the profit on transfer of DEPB is chargeable as income under clause (iiib) of section 28. It was held that only 90% of the profits on the transfer of DEPB covered under clause (iiib), therefore, has to be excluded to arrive at the profits of the business under clause (baa) of Explanation to section 16 ITA 2977/M/06, 6575/M/10, ITA 6448/M/10,856/M/11 & ITA 954/M/11 80HHC of the Act and not 90% of the entire face value. The A.O. is accordingly directed to allow appropriate relief to the assessee on this issue as per the decision of the Hon'ble Supreme Court in the case of Topman Exports (supra). Ground No. 4 of assessee's appeal is thus partly allowed.
22. As regards the issue raised in ground No. 5 of assessee's appeal relating to the enhancement of assessment made by the ld. CIT(A)by directing the A.O. to exclude the addition made u/s 92-C of the Act while determining the profits of the business for the purpose of computing deduction u/s 80HHC of the Act, the ld. counsel for the assessee has fairly conceded that this issue is squarely covered against the assessee by proviso to sub section (4) of section 92-C of the Act which clearly lays down that no deduction under chapter VI-A shall be allowed in respect of the amount of income by which the total income of the assessee is enhanced after computation of income of the assessee having regard to the arm's length price determined u/s 92-C of the Act. We therefore find no merit in ground No. 5 of assessee's appeal and dismiss the same.
23. Ground No. 6 to 9 of the assessee's appeal involve a common issue relating to the addition of ` 71,03,561/- made by the A.O. and confirmed by the ld. CIT(A) on account of transfer pricing adjustment.
24. During the year under consideration, the assessee had entered into various international transactions with its AEs. In this regard, a reference was made by the A.O. u/s 92CA(2) of the Act to the TPO for determining the ALP of the said transaction. The said transactions, inter alia, were comprised of royalty of Rs. 2.84 crores paid by the assessee to its holding company M/s Syngenta, Switzerland. All the international transactions with its AEs were bench marked by the assessee by applying TNMM. For this purpose, the 17 ITA 2977/M/06, 6575/M/10, ITA 6448/M/10,856/M/11 & ITA 954/M/11 profit of its crop protection business was compared by the assessee with profits earned by other entity engaged in the similar business. In its transfer pricing report, the assessee had taken 21 comparable companies whose average operating margin was worked out at 5.21% and since the operating profit margin of the assessee in this segment was 6.21%, the international transactions entered into in its crop protection business were claimed to be at arm's length price. Similarly, the operating profit margin of its seeds business was compared by the assessee with operating profit margin of other entities engaged in the same line of business and since the average operating profit margin in the case of such comparables selected by the assessee was 11.06% as against its operating profit margin of 12.06%, the international transactions entered into in its seeds business were claimed to be at arm's length price. The transactions involving payment of royalty to its AEs in Switzerland, however, was not separately benchmarked by the assessee claiming that its margin at entity level after charging the royalty being better than the comparable companies, the royalty paid was at arm's length price.
25. The TPO did not consider making of any TP adjustment in respect of international transactions entered into by the assessee with its AEs except the payment of royalty. In this regard, she required the assessee to furnish the relevant details of royalty paid to its AEs, which the assessee furnished as under:-
18 ITA 2977/M/06, 6575/M/10, ITA 6448/M/10,856/M/11 & ITA 954/M/11 Product Name Sales (Rs) Cost of Royalty Sales Royalty On Royalty imported (Rs) Rate Domestic Amount (Rs) spares /Export (Rs.) Sales Profenophos Agreement Curacron Bulk 13,815,693 Curacron 50 EC 273,809,385 Polytrin C 44 29,270,193 Sub Total 316,895,271 (386,063) 316,509,208 @5% Domestic 17,583,845 (Net of tax) Thiomethoxam Agreement ACTARA 68,230,596 (2,941,079 65,289,517 @5% Domestic 3,627,195 ) (Net of tax) ACTARA 15,049,602 Thiomethoxam 5,489,274 Sub Total 20,538,875 Nil 20,538,875 @3% Export 684,629 (Net of tax) Pretilachlor Agreement Petilachlor 72,080,768 Rifit 19,210,564 Lapa 411,516 Sub Total 91,702,848 (3,821) 91,699,027 @7% Export 6,418,932 (Subject to tax) Quinalphos Agreement Ekalux AF 2,604,952 Nil 2,604,952 @5% Domestic 130,248 (Sales upto Jun- (subject
01) to tax) TOTAL 28,444,848
26. In order to evaluate the assessee's international transaction with its AEs involving payment of royalty amounting to Rs. 2.84 crores, the details of payment made by other pesticide/agrochemical companies as available in "Prowess" database were examined by the TPO which revealed that the royalty paid by the assessee to its AEs was much higher than most of other companies operating in this line of business. She, therefore, proceeded to 19 ITA 2977/M/06, 6575/M/10, ITA 6448/M/10,856/M/11 & ITA 954/M/11 examine further the international transaction of the assessee with its AEs involving the payment of royalty. In this regard, she did not accept the main contention of the assessee that the royalty paid by it to the AE was in consonance with the common policy permitting the payment of royalty up to 5% on domestic sales and 8% on export sales. According to her, the Government policy referred to by the assessee was relating to the Foreign Exchange Regulation and the same was framed from time to time considering the foreign exchange situation. She held that such regulation or permission to remit the Foreign currency does not imply that the relevant transactions were in accordance with the transfer pricing provisions. She also did not find merit in the other contention raised by the assessee that the overseas entity having invested substantial amount on the R&D of the product manufactured by the assessee, it was required to be compensated by paying the royalty. She held that the pesticide industry was a generic industry as stated in the TP study report furnished by the assessee with most of the molecules off the patent and there was nothing to show that any of the products on which royalty was paid is a patented product.
27. Having rejected the contentions of the assessee justifying the payment of royalty, the TPO proceeded to examine the profit margin of its product separately on which royalty was paid and recorded her findings in respect of each such products as under:-
"9.1 Pretilachlor: Total export sales of this product to Associate Enterprises is of Rs. 7.20 crores. Royalty is payable @ 7% on export. Total Royalty paid is Rs. 50,45,424/-. According to the assessee, this product is comparable to "Refit EX" Local sales. Hence the profitability of the two items as provided by the assessee is as under:-
Refit EC 200 Ltr Pretilachlor
Local Non. AE Export to AE
Quantity 28,000 1,87,720
SP/Unit 190.00 237.11
Less: Costs 181.46 223.42
Royalty - 16.60
Total Costs 181.46 240.02
Profit (Loss) 8.54 (2.91)
Profit margin on costs 4.71% (1.21)%
20 ITA 2977/M/06, 6575/M/10,
ITA 6448/M/10,856/M/11 &
ITA 954/M/11
As can been seen, the export of Pretilachior has two international transactions embedded in it. The sale is to the associated enterprise of the assessee. Hence, it is an international transaction for which Arms Length Price is to be determined. Further, the assessee is also paying royalty to its associated enterprise on such sale. The Royalty payment is also an international transaction for which Arms Length Price is to be determined. ALP for export sales of this product by applying the comparable margin earned on local sales of 4.7 1% on costs is Rs. 251.32.
The International--Transaction of export is not within ±5% range of the Arms Length Price. Hence even on the export transaction, an adjustment is required @ Rs. 14.21 per kg which is only slightly less than Royalty paid per k.g. sold of Rs. 16.60.
9.2 Refit : Total export of this product to AE is Rs. 1.92 crores. Royalty payable on the export is @7%. Royalty paid is of Rs. 13,44,789/-. This item is also sold locally. Profit margin on comparison is as follows:-
Refit EC 200 Ltr Pretilachlor
Local Non. AE Export to AE
Quantity 28,000 1,61,200
SP/Unit 190.00 142.89
Less: Costs 181.46 140.62
Royalty - 5.20
Total Costs 181.46 145.82
Profit (Loss) 8.54 (2.93)
Profit margin on costs 4.71% (2.01)%
As in the case of Pretilachlor, here also the sale of Refit to Associate Enterprise consists of two international transactions (i.e. sale to Associate Enterprise and Royalty paid to Associate Enterprise), which have to be benchmarked. Arms Length Price for export sales of Refit by applying comparable margin on third party sales of 4.71% on costs is Rs.152.68 The International Transaction of export is not within ± 5% range of the arms length price determined. Hence, even on the export transaction, an adjustment is required @ Rs. 9.79 per kg which is more than the Royalty paid @Rs. 5.20.
9.3 Lava : Total sales (export) of this product to Associate Enterprise is Rs.4,11,516/-. Royalty paid is @ 7% on export sales of Rs.28,806/. The assessee has provided the profit margin on this product. Assessee has earned a profit margin on cost @ 1.2%. As against the same, the average margin on local sales of the assessee is 6.23%. Thus, it is seen that even on this product, the margin is less after payment of Royalty.
21 ITA 2977/M/06, 6575/M/10, ITA 6448/M/10,856/M/11 & ITA 954/M/11 9.4 Actara Export sales of this is Rs.1,50,49,6021-. Royalty @ 3% is Rs.4,51,488/-. Assessee's margin on export sales of 46.93% on costs is less than local margin of 53.07% (in the local sales, the assessee has in fact paid 5% Royalty) Hence, this clearly shows that the assessee has lower margins on export sales to the associated enterprise on which Royalty is paid. If the Royalty paid on local sales is excluded, the export margins would be still lesser in comparison.
On the basis of the above findings, the TPO came to the conclusion that although the royalty was claimed to be paid by the assessee for commercial exploitation of the technology, the assessee in fact was earning lesser margin on its exports to its AEs after the payment of royalty. She, therefore, held that there was no justification or commercial reason to pay royalty on export of seeds of Actara, pretilachlor, thiomethoxam, rifit and lapa. Accordingly, the transfer pricing adjustment of Rs. 71,03,561/- was worked out by the TPO on account of payment of royalty to that extent, which in the opinion of the TPO was without any commercial reason.
28. The TP adjustment made by the TPO/AO was disputed by the assessee in the appeal filed before the ld. CIT(A). Before the ld. CIT(A), it was submitted on behalf of the assessee that the international transactions with its AEs involving payment of royalty were existing even before the introduction of TP regulations. It was submitted that as per the TP study carried on by the assessee using TNMM, its operating margin was found to be higher than the operating margin of the comparable companies and the TPO having accepted the same, he was not justified to evaluate the royalty transactions as separate and distinct transactions. It was submitted that for evaluating the royalty transaction, the benefits of superior manufacturing technology, information and technical assistance, access to technology, provision of enhanced product basket to its customers as well as increased capacity utilization should be taken into consideration. It was contended that the TPO should have given due regard to all these factors which were vital for comparability analysis and should have adopted the basket of product approach.
22 ITA 2977/M/06, 6575/M/10, ITA 6448/M/10,856/M/11 & ITA 954/M/11
29. The ld. CIT(A) did not find merit in the submissions made on behalf of the assessee on this issue and rejected the same for the following reasons given in para 28 and 29 of his impugned order:
"28. I have carefully considered the appellant's submissions. The appellant has stated that the TPO has disregarded the approvals relating to the payment of royalty. As stated in para 5.2 of the submissions dt.6.9.2003, the Indian Exchange Control Regulations currently in force allow an Indian company to remit royalties upto 5% of the Indian company's domestic sales and 8% of the export sales, under the automatic route to overseas entities. The amount is therefore, the maximum permissible limit and can only be taken to be Government order in force as per Rule 1OB(2)(d) for the maximum permissible amount and not an approval for the quantum of royalties. The Appellant has relied on LIC vs. Escorts Ltd. & Others, (1986) 1 SCC 264 which was a case in which the• provisions of the Foreign Exchange Regulation Act were so structured as to make it clear that it is for the Reserve Bank of India alone to consider whether the requirements of the provisions of the Foreign Exchange Regulation Act and the Rules, directions and orders issued from time to time have been1iIfihIed and whether permission should be granted or not. The Hon'ble Supreme Court further observed that there is no provision of the Act [FERA] which enables an individual or authority functioning outside the Act [FERA] to determine for his own or its own purpose whether the Reserve Bank of India was right or wrong in granting permission uls.29(l) of the Act [FERA] and that it is certainly not open to a company whose shares have been purchased by a non-resident company to refuse to register the shares even after permission is obtained from the Reserve Bank of India on the ground that permission ought not to have been granted under the FERA. The facts of the present case are distinguishable, since as pointed out above, the Exchange control regulations only stipulates the maximum permissible limit for remittance of royalties. The other decisions at 72 TTJ (Pune) 72 and 94 TTJ 53 (Del) are also distinguishable since in those cases, there was specific approval granted by Government of India/RBI.
29. The appellant has sought to plead that since the TPO observed that the amounts paid by the appellant on account of royalty was higher than most of the other companies operating in this industry, the TPO felt the need to further examine the international transaction on account of royalty but this is not correct since the appellant derived benefits from the receipt of technology and further, the average of percentage of R&D expenses to sales of some of reputed agro chemical companies of 1.56% is comparable with 1.63% of expenses on R&D plus royalty [1.75% after amortising the technical know-how fees over 7 years] of Syngenta India's crop protection business. I find that the 23 ITA 2977/M/06, 6575/M/10, ITA 6448/M/10,856/M/11 & ITA 954/M/11 percentage of R&D expenses to sales vary between to 1.43% for four concerns and it is only in one concern i.e., Gharda Chemicals that the percentage is 2.6%, thus resulting in an increase in the average R&D expenditure as a percentage of sales. Compared to the general trend as revealed by the details of the four companies above, the expenses on R&D plus royalty of Syngenta India's crop protection business are higher and thus the TPO's observations are justified. As regards the TPO's observation that no information was provided regarding any study undertaken by the overseas entity for the purpose of fixing the royalty, and the appellant's reference to its letter dt. 23.2.2005 in this context, I find that it was accepted in the letter dt. 232.2005 that Syngenta group has not conducted any study for the purpose of determining the rate of royalty. As regards royalty charged by Syngenta AG and Syngenta Crop Protection AG to other group entities, the letter dt. 23.2.2005 refers to China in which royalty @ 3% on sales for a period of 10 years is paid [in India the rates between 3% to 7%] but claims that this is not comparable. It may be relevant to add that the TPO has noted in para no.8(b) that the assessee has not shown that any of the products on which royalty is paid is a patented product in India and that even in the study report furnished by the assessee, it is stated that the pesticide,, industry is a generic industry with most of the molecules off the patent".
30. After rejecting the main contentions of the assessee raised on the issue of transfer of pricing adjustment, the ld. CIT(A) proceeded to verify the produce-wise adjustment worked out by the TPO and recorded his findings in respect of royalty paid for each item separately as under:-
"3. As regards Rifit, the appellant's contention is that the quantity sold in the local market 42,000 litres] is significantly lower than the quantity sold in the export market [1,6 1,200 litres], volume discount is required to be considered along with differences which cannot be quantified with reasonable accuracy relating to differential functions and risks, geographical markets, size of the markets, contractual terms, and level of market. Taking into account the appellant's submissions, it is felt that the provisions of Rule 10B(1)(e)(iii) are applicable and the comparable margin of 4.7 1% computed by the TPO is required to be adjusted to the extent of 0.5% i.e., the AO is directed to compute the arm's length price for export sales of Rifit to AE by applying comparable margin of 4.21% on costs of Rs.145.82 as against 4.71% on costs of Rs.145.82 applied by the TPO. Since the adjustment still remains more than the royalty paid, the TPO's order reducing the ALP for royalty by the royalty on export sales óf Rifit is confirmed.
24 ITA 2977/M/06, 6575/M/10, ITA 6448/M/10,856/M/11 & ITA 954/M/11
35. As regards Pretilachlor, it is stated that the quantity sold in the local market of Rifit being 28,000 litres is significantly lower than the quantity sold in the export market of Pretilachlor being 3,04,000 [stated to be erroneously written as 1,87,720 by TPO in para 9.1 of the TP order]. It has been stated the Pretilachlor is not sold in the local market and accordingly, the TPO has taken margin on local sales of Rifit bulk to extrapolate the margin of Pretilachlor but it is vital to note that Rifit is a formulation and Pretilachlor is a technical pesticide and thus Pretilachlor would achieve a lower margin. However, I find that as per discussion in para 9.1 and 9.2 of TP order, the profit margin on costs of Pretilachlor export to AE [loss of 1.21%] is more than the profit margin on costs of Rifit EC 200ltr export to AE-[loss of 2.01 %] Taking this fact into consideration and the comparable being the same as for Rifit supra, and for the reasons given in respect of Rifit supra, the AO is directed to compute the arm's length price for export sales of Pretilachlor to AE by applying comparable margin of 4.21% 14.71% less adjustment 0.5%I on costs of Rs.240.02 and make adjustment for royalty on export sales of Pretilachlor accordingly.
36. With regard to LAPA, the sales [export] to AE are Rs.4,1 1,516/-, royalty paid is 7% on export sales, assessee has earned a profit margin on cost at 1.2%. The AO has observed that the average margin on the local a1es of th1 assessee is 623% and therefore, the margin is less after payment of royalty. The appellant's contention is that the TPO has used the average margin earned on total local sales [6.23%] (including products bearing royalty) to compare the margin earned from sale of LAPA to 'AEs [1.2%] and the arm's length principles cannot be applied since the local segment has international transactions and further, there are differences in functions performed and risks assumed. It has therefore, been pleaded that the net margin on local sales on non- royalty beating products would serve as a better comparable which 5.41% and after exercising the option under the proviso to Section 92C(2), the International transaction meets the arm's length standard as required under the TP Regulations. The appellant's contention regarding application of proviso to Section 92C(2) are not being accepted since more than one price is not being determined by the most appropriate method [refer discussion supra]. However, the appellant is justified in stating that the net margin on local sales of non-royalty bearing products of 5.41% would serve as a better comparable. The AO is therefore, directed to compute the arm's length price for export sales of LAPA by applying comparable margin of 5.41% and make adjustment for royalty on export sales of LAPA accordingly.
37. For Actara, the TPO has observed that the export sa1e is Rs.1,50,49,6021-, royalty at 3% is Rs4,51,488/- and assessee's margin on export sales of 46.93% on cost is less than local margin of 53.07% [on which royalty of 5% was paid]. The assessee's explanation is that sale of Actara to AE and non-AE cannot be compared due to differences 25 ITA 2977/M/06, 6575/M/10, ITA 6448/M/10,856/M/11 & ITA 954/M/11 in pack size; smaller packs tend to have higher material and overhead cost[sale to AE are of 10 gram pack whereas the sale to non-AE are of 40 gram pack]. It is further stated that the product-wise comparability analysis provided in the submission to the TPO did not cover the entire basket of Actara but was only in respect of a given product having sales of Rs.59,32,365/- which was extended by the TPO to the entire range of the products having sales of Rs. 1,50,49,6021- without providing any rationale. In view of the appellant's submissions, the AO is directed to reduce ALP for royalty on export sales of Acatra to the extent of royalty on the sales of a given product of Rs.59,32,3651- supra.
38. As regards Thiomethoxam, the appellant has pointed out that the TPO has disallowed the payment of royalty amounting to Rs.1,82,976/- on sale of Thiomethoxam but on perusal of the TP order, it may be observed that in the order, there is no discussion about the same and the TPO has not given any show cause notice in this regard. It has been submitted that Syngenta India earned a net margin of 7.2% on sale of Thiomethoxam to AE and this profit margin is higher than the margin earned on local sales of product not bearing royalty which is 5.4 1%. In view of the appellant's contentions, the AO is directed not to reduce the ALP for royalty by the amount of royalty on export sales of Thiomethoxam".
The ld. CIT(A) thus allowed part relief to the assessee on the issue of transfer pricing adjustment and restricted the addition made on account of TP adjustment to the extent indicated above. Still aggrieved, the assessee has raised this issue relating to addition on account of TP adjustment made by the A.O. and confirmed by the ld. CIT(A).
31. The ld. Counsel for the assessee submitted that when the operating profit margin of the assessee company at entity level was found to be more than the average operating profit margin of the comparables as per the TP study report furnished by the assessee and the same was not disputed by the TPO, there was no justification in determining the arm's length price of royalty since the operating profit margin of the assessee which was found to be at arm's length price was worked out after the payment of royalty. He contended that the method adopted by the TPO to evaluate the transaction involving the payment of royalty was completely misleading as the same did not reveal the actual royalty rates applied in the third party arrangements 26 ITA 2977/M/06, 6575/M/10, ITA 6448/M/10,856/M/11 & ITA 954/M/11 without which the analysis was meaning less. He submitted that the TPO has not brought any material on record to prove that the royalty paid by the assessee to its AE per se was unreasonable. He contended that the royalty, on the other hand, was paid by the assessee at the rate lower than the rates approved by the RBI under FERA and since the objective of the FERA was to regulate the foreign exchange resources, the RBI looked at the rate of royalty from reasonableness perspective. He contended that although the RBI approval is not conclusive for determining of arm's length price of international transactions as held inter alia by the Hon'ble Delhi High Court in the case of Nestle India reported in 337 ITR 103, the same has to be given consideration while determining the arm's length price of the transaction as held by the Delhi Tribunal of ITAT in the case of Reebok India Company (ITA No. 5857/Del/2012). He contended that the TPO has neither disputed the benefit derived by the assessee from the licensing of crop technology nor has placed any material on record to show that the royalty rate charged to the assessee by its AEs was unreasonable or excessive. He submitted that even the TPO has not rebutted the comparable royalty rates from the broader chemical industry submitted by the assessee during the assessment proceedings. He contended that the quantum of royalty in any case cannot be linked with the profit since the profit is a derivative figure depending on various features.
32. At this stage, the ld. counsel for the assessee was asked by the Bench to explain as to how the assessee himself adopted the profit based TNMM method to justify the payment of royalty at arm's length price when it is not linked with the profit. He was also asked to explain whether the CUP would be the most appropriate method to determine the arm's length price of royalty payment. In this regard, he submitted that reliable data to apply CUP was not available as the year under consideration was the first year of TP adjustment. He however agreed that comparable royalty rates from the 27 ITA 2977/M/06, 6575/M/10, ITA 6448/M/10,856/M/11 & ITA 954/M/11 broader chemical industry were submitted by the assessee during the course of assessment proceedings, but the A.O. did not take the same into consideration. The Bench, in this regard, noted that in para 6.1 of her order, the TPO has clearly mentioned that in order to evaluate the assessee's international transactions on account of royalty, the details of royalty paid by other Petrochemical Companies as available on process database were examined by her. When this aspect was brought to the notice of the ld. Representatives of both the sides and they were asked to explain as to whether CUP would be the most appropriate method to evaluate the royalty transactions, both of them agreed that CUP is certainly the most appropriate method for evaluating the royalty transaction especially when the royalty cannot be linked with the profit. Keeping in view of this position we consider it fair and proper and in the interest of justice to set aside the impugned order of the ld. CIT(A) on this issue and restore the matter to the file of the A.O. with a direction to redo the exercise of comparable analysis in respect of international transactions of the assessee with its AEs involving of payment of royalty by adopting the CUP method afresh.
33. During the course of appellate proceedings before the Tribunal, the assessee has raised the following additional ground with a request to admit the same.
"The AO erred in computing "profits of the business" for the purposes of deduction u/s 80HHC, by reducing the amount of deduction u/s 80IB there from."
34. In the application filed before the Tribunal seeking admission of the aforesaid additional ground, the assessee has submitted that the issue involved in the additional aground is purely a legal issue and all the relevant facts for adjudication thereof are available on record. It is further submitted that this issue was not raised before the ld. CIT(A) in view of string of adverse rulings available at the relevant time but the same is now being raised in view 28 ITA 2977/M/06, 6575/M/10, ITA 6448/M/10,856/M/11 & ITA 954/M/11 of the decision of Hon'ble Bombay High Court in the case of Associated Capsules (P.) Ltd. vs. DCIT reported in [2011] 332 ITR 42 (Bom) which is in favour of the assessee. Keeping in view of the submissions made by the assessee and since there was no objection raised by the ld. D.R., we have admitted the additional ground raised by the assessee and now, we proceed to decide the same on merit.
35. As agreed by the ld. Representatives of both the sides, the issue raised by the assessee in the additional ground is squarely covered in favour of the assessee by the decision of the Hon'ble Bombay High Court in the case of Associated Capsules (P.) Ltd. vs. DCIT (supra) wherein it was held that when the assessee is entitled to deduction u/s 80IA and 80HHC of the Act, profits of business for computation of deduction u/s 80HHC of the Act are not to be reduced by the profits of business allowed u/s 80IA of the Act. It was held that restriction in section 80IA of the Act relates to disallowance of deduction and not to computation of deduction. Since the relevant provisions of section 80IA of the Act are similar to section 80IB of the Act, we respectfully follow the decision of the Hon'ble Bombay High Court in the case of Associated Capsules (P.) Ltd. (supra) and direct the A.O. to recompute the deduction u/s 80HHC of the Act keeping in view the ratio of the decision of the Hon'ble Bombay High Court in the case of Associated Capsules (supra). The additional ground of the assessee is accordingly allowed.
36. As regards the issue raised in ground No. 10 relating to some calculation mistake in the interest charged u/s 234-C of the Act, the limited contention raised by the ld. counsel for the assessee is that the A.O. may be directed to verify the calculation u/s 234-C of the Act and allow appropriate relief to the assessee after such verification. We accordingly direct the A.O. to verify the working of interest charged u/s 234-C of the Act and rectify the mistake, if any, in the said working as pointed out by the assessee.
29 ITA 2977/M/06, 6575/M/10, ITA 6448/M/10,856/M/11 & ITA 954/M/11
37. As regards ground No. 11 of the assessee's appeal, it is observed that the issue involved therein relating to levy of interest u/s 234D of the Act is squarely covered against the assessee by the decision of Hon'ble Bombay High Court in the case of CIT vs. Indian Oil Corporation, 254 CTR 113 wherein it was held that the plain language of section 234D of the Act as well as Explanation 2 thereto inserted by Finance Act 2012 makes it clear that section 234D is applicable retrospectively even to the period prior to 2004-05. Respectfully following the said decision of the Hon'ble jurisdictional High Court, we dismiss ground No. 11 of the assessee's appeal.
38. Now, we shall take up the cross appeals for A.Y. 2003-04 being ITA No. 6575/Mum/2010 (assessee's appeal) and ITA No. 6448/Mum/2010 (Revenue's appeal) which are directed against the order of the ld. CIT(A) -15, Mumbai dated 22-06-2010.
39. In ground No. 1, the assessee has challenged the action of the ld. CIT(A) in upholding the action of the A.O. in disallowing the deduction claimed by the assessee u/s 80IB of the Act in respect of the following items of other income on the ground that the same was not derived from the eligible undertaking:-
Sr. No. Particulars Topik Multipurpose Total
Formulator
Unit (Rs)
i) Repacking charges 6,49,496/- 5,59,509/- 12,09,005/-
ii) Credit for duty 59,814/- 4,04,903/- 4,64,717/-
drawback
iii) Interested on employee 2,39,330/- 1,28,691/- 3,68,021/-
loans
Total 9,48,640/- 10,93,103/- 20,41,743/-
40. We have heard the arguments of both the sides and also perused the relevant material available on record. As already held by us while deciding a similar issue involved in assessee's own case for A.Y. 2002-03, there has to be 30 ITA 2977/M/06, 6575/M/10, ITA 6448/M/10,856/M/11 & ITA 954/M/11 a direct or first degree connection of the income and the business of the eligible undertaking in order to be eligible for deduction u/s 80IB of the Act. In the year under consideration i.e. A.Y. 2003-04, all the three items of other income are such that the immediate source thereof cannot be said to be the business of eligible undertaking and this being so, we are of the view that all these items of income cannot be said to be eligible for deduction u/s 80IB of the Act. As regards the alternative claim of the assessee that only the net amount of other income should be excluded while computing the profits eligible for deduction u/s 80IB of the Act, we direct the A.O. to consider the same on merit after verifying the claim of the assessee of having incurred expenses for earning the said income. Ground No. 1 of assessee's appeal is accordingly treated as partly allowed for statistical purpose.
41. In ground No. 2, the assessee has challenged the action of the ld. CIT(A) in upholding the action of the A.O. in excluding the following items of miscellaneous income from the "profits of business" for the purpose of computing the deduction u/s 80HHC of the Act.
Sr. No. Particulars Rs. (in'000)
(i) Scrap sales 5,586/-
(ii) Cash Discount 454/-
(iii) Guarantee Commission from HDFC 926/-
(iv) Sale of Tenancy Rights 2,300/-
(v) Repacking charges recovered 2,904/-
(vi) Fees charged to Ciba for use of facilities 2,737/-
(vii) Sale of Coconuts, Kaju etc. 8/-
(viii) Credit for duty drawback 1,253/-
(ix) Sale of waste chemicals 543/-
(x) Recovery of shares services charges from Syngenta 3,960/-
Seeds India Private Limited
Total 20,673/-
42. We have heard the arguments of both the sides and also perused the relevant material available on record. As regards item No. (iv) i.e. sale of tenancy rights, the ld. Counsel for the assessee has submitted that no 31 ITA 2977/M/06, 6575/M/10, ITA 6448/M/10,856/M/11 & ITA 954/M/11 deduction u/s 80HHC was claimed by the assessee in respect of this item of income. He, therefore, was not pressed ground No. 2 (iv).
43. As regards scrap sales, it is observed that this item of other income is held to be not liable to be excluded from the profits of the business for the purposes of computing deduction u/s 80HHC of the Act by the Tribunal in assessee's own case for earlier years. In A.Y. 2002-03, the ld. CIT(A) himself did not exclude this item from the profits of business for computing deduction u/s 80HHC of the Act. We, therefore, direct the A.O. to not to exclude scrap sales from the profits of the business for computing deduction u/s 80HHC of the Act.
44. As regards the remaining items of other income, we follow our conclusion drawn in A.Y. 2002-03 and restore the matter to the file of the A.O. with a direction to decide the same in the light of the decision of the Hon'ble Bombay High Court in the case of Dresser Rand India P. Ltd. (supra) and Pfizer Limited (supra).
45. As regards the alternative claim of the assessee to exclude only the net amount of business income, we direct the A.O. to consider the same after verifying the claim of the assessee of having incurred the expenses for earning the other income. Ground No. 2 of assessee's appeal is accordingly treated as partly allowed.
46. As regards ground No. 3, it is observed that the issue raised therein relating to the assessee's claim for not reducing the amount eligible for deduction u/s 80IB of the Act while computing profits of the business for the purposes of deduction u/s 80HHC of the Act is squarely covered in favour of the assessee by the decision of Hon'ble Bombay High Court in the case of Associated Capsules (P.) Ltd. vs. DCIT (supra) wherein it was held that when the assessee is entitled to deduction u/s 80IA and 80HHC of the Act, profits 32 ITA 2977/M/06, 6575/M/10, ITA 6448/M/10,856/M/11 & ITA 954/M/11 of business for computation of deduction u/s 80HHC of the Act are not to be reduced by the profits of business allowed u/s 80IA of the Act. It was held that restriction in section 80IA of the Act relates to disallowance of deduction and not to computation of deduction. Since the relevant provisions of section 80IA of the Act are similar to section 80IB of the Act, we respectfully follow the decision of the Hon'ble Bombay High Court in the case of Associated Capsules (P.) Ltd. (supra) and direct the A.O. to recompute the deduction u/s 80HHC of the Act keeping in view the ratio of the decision of the Hon'ble Bombay High Court in the case of Associated Capsules (supra). Ground No. 3 of the assessee's appeal is accordingly allowed.
47. As regards ground No. 4, it is observed that the issue involved therein relating to the addition made by the A.O. and confirmed by the ld. CIT(A) by way of transfer pricing adjustment on account of payment of royalty by the assessee to its AEs is similar to the one involved in assessee's appeal for A.Y. 2002-03 which has been decided by us in the foregoing portion of this order. Following our decision rendered in A.Y. 2002-03, we restore this issue to the file of the A.O. for deciding the same afresh as per the same direction as given in A.Y. 2002-03. Ground No. 4 is thus treated as allowed for statistical purpose.
48. In ground No. 1 of its appeal for A.Y. 2003-04 (ITA No. 6448/Mum/2010), the Revenue has challenged the action of the ld. CIT(A) in allowing deduction of Rs. 8,59,555/- claimed by the assessee on account of royalty pertaining to A.Y. 2002-03.
49. In its P&L account for A.Y. 2003-04, royalty of Rs. 8,59,555/- was debited by the assessee. In the audit report, the said royalty was stated to be pertaining to the earlier year. The A.O., therefore, disallowed the royalty claimed by the assessee being expenditure pertaining to the earlier. Before the ld. CIT(A), it was pointed out by the assessee that the expenditure claimed 33 ITA 2977/M/06, 6575/M/10, ITA 6448/M/10,856/M/11 & ITA 954/M/11 on account of royalty was disallowed by the A.O. in A.Y. 2002-03 on the ground that the same was not accounted for in the books of account for that year. It was also brought by the assessee to the notice of the ld. CIT(A) that the said disallowance was confirmed by the ld. CIT(A) in 2002-03. It was contended before the ld. CIT(A) that consistent with the stand by the Department in A.Y. 2002-03, the expenditure on royalty should be allowed in A.Y. 2003-04 wherein the same was duly accounted for in the books of account. The ld. CIT(A) accepted this contention of the assessee and allowed the expenditure claimed on royalty.
50. We have heard the arguments of both the sides and also perused the relevant material available on record. It is observed that the relief given by the ld. CIT(A) to the assessee by allowing the expenditure on royalty has been challenged by the Revenue in its appeal on the ground that the assessee has kept alive the claim for royalty in A.Y.2002-03 by filing an appeal before the Tribunal. The said appeal of the assessee has already been disposed of by us confirming the disallowance made on account of royalty in A.Y. 2002-03. The ld. D.R. has also fairly agreed that the expenditure on account of royalty being genuine business expenditure is to be allowed in either of the years. Accordingly, we uphold the impugned order of the ld. CIT(A) allowing the claim of the assessee for royalty in A.Y. 2003-04 and dismiss ground No. 1 of Revenue's appeal.
51. As regards ground No. 2 of the Revenue's appeal for A.Y. 2003-04, it is observed that the issue raised therein relating to assessee's claim for deduction u/s 80HHC of the Act in respect of DEPB benefit now stands squarely covered in favour of the assessee by the decision of Hon'ble Supreme Court in the case of Topman Exports (supra). We, therefore, find no infirmity in the impugned order of the ld. CIT(A) to allowing the claim of the assessee for deduction u/s 80HHC of the Act in respect of DEPB benefit following the decision of Special Bench of the ITAT in the case of Topman Exports reported 34 ITA 2977/M/06, 6575/M/10, ITA 6448/M/10,856/M/11 & ITA 954/M/11 in 124 ITD 1 which has now been affirmed by the Hon'ble Supreme Court. Ground No. 2 of Revenue's appeal is accordingly dismissed.
52. Now, we shall take up the cross appeals for A.Y. 2004-05 being ITA No. 856/Mum/2011 (assessee's appeal) and ITA No. 954/Mum/2011 (Revenue's appeal) which are directed against the order of ld. CIT(A) -15, Mumbai dated 23-11-2010.
53. In ground No. 1, the assessee has challenged the action of the ld. CIT(A) in upholding the action of the A.O. in disallowing the deduction claimed by the assessee u/s 80IB of the Act in respect of the following items of other income on the ground that the same was not derived from the eligible undertaking:-
Sl. Particulars Topik Multipurpose TMX Unit Total (Rs.) No. (Rs.) Formulator Unit (Rs.)
1. Credit for Duty Drawback 15,15,433 11,06,366 54,933 26,76,732
2. Processing charges - 84,51,548 - 84,51,548 recovered
3. Miscellaneous income 56,330 22,507 716 79,553
4. Interest on Employee 1,45,228 81,313 29,473 2,56,014 Loans Total 17,16,991 96,61,734 85,122 1,14,63,847
54. We have heard the arguments of both the sides and also perused the relevant material available on record. As regards the first item of other income i.e. credit for duty draw back, it is observed that in the case of Liberty India vs. CIT (2009) 317 ITR 218 (SC), the Hon'ble Supreme Court has held that the immediate source of export incentive credit for duty draw back being the relevant scheme under which the said incentive is given and not eligible undertaking, deduction u/s 80IB cannot be allowed thereon. Ground No. 1 (1) is accordingly dismissed.
35 ITA 2977/M/06, 6575/M/10, ITA 6448/M/10,856/M/11 & ITA 954/M/11
55. As regards the third item of other income i.e. miscellaneous income of Rs. 79,553/-, the ld. Counsel for the assessee has not raised any argument in support of the assessee's claim.
56. As regards the 4th item of other income i.e. interest on employee loans amounting to Rs. 1,14,63,847/-, it is observed that a similar issue was decided by the Tribunal in assessee's own case for A.Y. 2001-02 vide an order dated 9-11-2012 passed in ITA No. 7699/Mum/2004 holding that the interest on employee's loan cannot be said to be income derived from the industrial undertaking for the purpose of computing deduction u/s 80IB of the Act. Ground No. 4 is accordingly dismissed.
57. As regards the second item of other income i.e processing charges received by the assessee amounting to Rs. 84,51,548/-, the ld. Counsel for the assessee has relied on the decision of Hon'ble Madras High Court in the case of CIT vs. Taj Fire Works Industries [2007] 288 ITR 92 (Mad.). In the said case, the assessee was engaged in the business of fire works on job work basis with material supplied by its customers. The A.O. disallowed the claim made by the assessee for deduction u/s 80HH of the Act and 80-I of the Act on the ground that the assessee was only a labour contractor and not an industrial undertaking. The ld. CIT(A) and the Tribunal, however, held that assessee was entitled for the said deduction and the Hon'ble Madras High Court upheld the said decision holding that the assessee had only been supplied with the raw materials by the customer and since it had engaged with its own labourers to produce the end product i.e crackers, it satisfied the test of manufacture making it entitled to special deductions u/s 80HH and 80I of the Act. In the present case, the assessee is engaged in the business of manufacturing of agro chemical products and seeds and the nature of processing charges received by the assessee is not very clear as neither the A.O. nor the ld. CIT(A) has given any finding in this regard so as to ascertain as to whether the processing charges were received by the assessee for 36 ITA 2977/M/06, 6575/M/10, ITA 6448/M/10,856/M/11 & ITA 954/M/11 manufacture of agro chemical products and seeds on job work basis with material supplied by the customers. On the other hand, it has been claimed by the ld. Counsel for the assessee while arguing a similar issue in earlier years that the recovery of processing charges was nothing but reimbursement of expenses. In these circumstances, we are unable to accept the contention raised by the ld. Counsel for the assessee relying on the decision of Hon'ble Madras High Court in the case of Taj Fire Works Industries (supra) which involved different facts. Accordingly, we hold that all the four items in question of other income are such that they cannot be said to be profit derived from the eligible undertaking of the assessee eligible for deduction u/s 80IB.
58. As regards the alternative claim of the assessee for excluding only the net amount of other income while computing the profit eligible for deduction u/s 80IB of the Act, we direct the A.O. to consider the same after verifying the claim of the assessee of having incurred the expenses for earning the said income. Ground No. 1 of the assessee's appeal for A.Y. 2004-05 is accordingly treated as partly allowed for statistical purpose.
59. As regards ground No. 2, it is observed that the issue involved therein relating to assessee's claim for deduction u/s 80HHC of the Act in respect of DEPB benefit is squarely covered in favour of the assessee by the decision of Hon'ble Supreme Court in the case of Topman Exports (supra). Accordingly, we direct the A.O. to recompute the deduction u/s 80HHC by applying the ratio of the decision of the Hon'ble Apex Court in this regard. Ground No. 2 of assessee's appeal is accordingly allowed.
60. In ground No. 3, the assessee has challenged the action of the ld. CIT(A) in upholding the action of the A.O. in excluding the following items of 37 ITA 2977/M/06, 6575/M/10, ITA 6448/M/10,856/M/11 & ITA 954/M/11 miscellaneous income from the "profits of business" for the purpose of computing the deduction u/s 80HHC of the Act.
Break up of income Rs.
(i) Miscellaneous credit balance written 1,84,34,000/-
back and bad debts recovered
(ii) Miscellaneous income consisting of 2,85,31,000/-
income from sale of farm products, sale
of scrap, cash discount, excise duty
refund, miscellaneous write off etc.
(iii) Provision no longer required consisting 36,69,000/-
of write back of superannuation
provision etc.
61. We have heard the arguments of both the sides and also perused the relevant material available on record. As regards item No. 1 & 3 of other income, the ld. Counsel for the assessee has submitted that the decision of the Tribunal in the case of Sandoz India P. Ltd. (supra) fully supports the case of the assessee on this issue wherein it was held that the amount written back by the assessee u/s 41(1) of the Act constitutes business profits and the same therefore has to be considered while working out deduction u/s 80HHC of the Act as business income. Respectfully following the said decision of the co-ordinate Bench of the Tribunal, we direct the A.O. to not to exclude these two items while computing the profits of the business for the purpose of deduction u/s 80HHC of the Act.
62. As regards the second item of other income i.e. miscellaneous income amounting to Rs. 2,85,31,000/-, it is observed that a similar issue has been restored by us to the file of the A.O. in the earlier year with a direction to decide the same afresh keeping in view the decision of the Hon'ble Bombay High Court in the case of Hon'ble Bombay High Court in the case of Dresser Rand India P. Ltd. (supra) and Pfizer Limited (supra). Similarly, this matter is also restored to the file of the A.O. for deciding the same afresh in the light of the said decision of the Hon'ble jurisdictional High Court.
38 ITA 2977/M/06, 6575/M/10, ITA 6448/M/10,856/M/11 & ITA 954/M/11
63. As regards the alternative claim of the assessee for excluding only the net amount of other income from the profits of the business, we direct the A.O. to consider the same after verifying the claim of the assessee of having incurred the expenses for earning the said income. Ground No. 3 of assessee's appeal for A.Y. 2004-05 is accordingly treated as partly allowed.
64. As regards ground No. 4, it is observed that the issue raised therein relating to the assessee's claim for not reducing the amount eligible for deduction u/s 80IB of the Act while computing profits of the business for the purposes of deduction u/s 80HHC of the Act is squarely covered in favour of the assessee by the decision of Hon'ble Bombay High Court in the case of Associated Capsules (P.) Ltd. vs. DCIT (supra) wherein it was held that when the assessee is entitled to deduction u/s 80IA and 80HHC of the Act, profits of business for computation of deduction u/s 80HHC of the Act are not to be reduced by the profits of business allowed u/s 80IA of the Act. It was held that restriction in section 80IA of the Act relates to disallowance of deduction and not to computation of deduction. Since the relevant provisions of section 80IA of the Act are similar to section 80IB of the Act, we respectfully follow the decision of the Hon'ble Bombay High Court in the case of Associated Capsules (P.) Ltd. (supra) and direct the A.O. to recompute the deduction u/s 80HHC of the Act keeping in view the ratio of the decision of the Hon'ble Bombay High Court in the case of Associated Capsules (supra). Ground Noo. 4 of the assessee's appeal is accordingly allowed.
65. As regards the issue raised in ground No. 5 relating to assessee's claim for interest u/s 244A of the Act upto the date of receipt of refund voucher instead of the date of issue of refund order as granted by the A.O., the ld. Counsel for the assessee has contended that the decision of Hon'ble "Bombay" (Calcutta High Court in the case of CIT vs. Sri Jagannath Steel 39 ITA 2977/M/06, 6575/M/10, ITA 6448/M/10,856/M/11 & ITA 954/M/11 Corporation191 ITR 676 fully supports this claim of the assessee. The A.O. is accordingly directed to grant interest u/s 244A of the Act keeping in view the decision of Hon'ble Bombay High Court in the case of Sri Jagannath Steel Corporation (supra) after verifying the relevant facts from record. Ground No. 5 of assessee's appeal is accordingly treated as allowed.
66. As regards ground No. 6, it is observed that the issue involved therein relating to the addition made by the A.O. and confirmed by the ld. CIT(A) by way of transfer pricing adjustment on account of royalty paid by the assessee to its AEs is similar to the one involved in the earlier years which has been decided by us in the foregoing portion of this order. Following our decision rendered in the earlier year, we restore this issue to the file of the A.O. for deciding the same afresh as per the same direction as given in A.Y. 2002-03. Ground No. 6 of the assessee's appeal for A.Y. 2004-05 is accordingly treated as allowed.
67. The next issue involved in the additional ground filed by the assessee, which has been admitted by us and ground No. 1 of Revenue's appeal relates to the disallowance u/s 14A of the Act made by the A.O. at Rs. 1,13,30,791/- and sustained by the ld. CIT(A) to the extent of Rs.19,69,550/-. As agreed by the ld. Representatives of both the sides, this issue is similar to the one involved in assessee's appeal for A.Y. 2002-03 which has already been decided by us in the foregoing portion of this order. Following our conclusion drawn in A.Y. 2002-03, we sustain the disallowance u/s 14A to the extent of 2% of the dividend income. Ground No. 1 of Revenue's appeal is accordingly dismissed while the additional ground raised by the assessee is partly allowed.
68. In ground No. 2 of its appeal for A.Y. 2004-05, the Revenue has challenged the action of the ld. CIT(A) in directing the A.O. to allow the claim 40 ITA 2977/M/06, 6575/M/10, ITA 6448/M/10,856/M/11 & ITA 954/M/11 of the assessee for deduction u/s 35(1)(iv) of the Act in respect of five cars, laptops, UPC etc. amounting to Rs. 60,62,770/-.
69. In its return of income, deduction of Rs. 60,62,770/- was claimed by the assessee u/s 35(1)(iv) of the Act on account of certain capital expenditure claimed to be incurred on scientific research. During the course of assessment proceedings, the said claim was examined by the A.O. and on such examination, he found that there was no evidence to show that the relevant capital expenditure incurred by the assessee on purchase of five cars, Green House land etc. was part of research and development activity. He, therefore, disallowed the claim of the assessee u/s 35(1)(iv) of the Act. On appeal, the ld. CIT(A) allowed the claim of the assessee for deduction u/s 36(1)(iv) of the Act relying, inter alia, on the copy of certificate issued by the Govt. of India, Ministry of Science & Technology recognizing in-house R&D units of the assessee.
70. We have heard the arguments of both the sides and also perused the relevant material available on record. As submitted by the ld. D.R., the certificate issued by the Govt. of India, Ministry of Science & Technology recognizing the in-house R&D Unit of the assessee was produced by the assessee before the ld. CIT(A) for the first time and relying on the same, the claim of the assessee for deduction u/s 35(1)(iv) of the Act was allowed by the ld. CIT(A) without giving any opportunity to the A.O. to verify the same. The ld. counsel for the assessee has not been able to dispute this position. The ld. D.R. has also contended that the capital expenditure incurred by the assessee on account of Green House Land in any case was not entitled for deduction u/s 35(1)(iv) of the Act. In this regard, the ld. counsel for the assessee has submitted that the said expenditure was incurred by the assessee on Green 41 ITA 2977/M/06, 6575/M/10, ITA 6448/M/10,856/M/11 & ITA 954/M/11 House installation and not on purchase of land. Keeping in view the submissions made by both the parties, we consider it fair and proper to restore this issue to the file of the A.O. with a direction to decide the same afresh after verifying the relevant certificate furnished by the assessee for the first time before the ld. CIT(A) as well as the exact nature of capital expenditure incurred on Green House Land. Needless to observe that the A.O. shall afford sufficient opportunity of being heard to the assessee. Ground No. 2 of Revenue's appeal for A.Y. 2004-05 is accordingly treated as allowed for statistical purpose.
71. As regards ground No. 3 of the Revenue's appeal for A.Y. 2004-05, it is observed that the issue involved therein relating to addition on account of disallowance made u/s 14A of the Act while computing the book profit u/s 115JB of the Act is consequential to the issue of disallowance u/s 14A of the Act while computing the total income of the assessee under the normal provisions of the Act. Following our decision on the main issue, we direct the A.O. to restrict the addition on account of disallowance u/s 14A while computing the book profit u/s 115JB of the Act to the extent of 2% of the dividend income. Ground No. 3 of the Revenue's appeal for A.Y. 2004-05 is dismissed.
72. In the result, appeals of the assessee for Assessment years 2002-03, 2003-04 and 2004-05 are partly allowed while appeal of the Revenue for A.Y. 2003-04 is dismissed and appeal of the Revenue for A.Y. 2004-05 is treated as partly allowed for statistical purpose.
42 ITA 2977/M/06, 6575/M/10, ITA 6448/M/10,856/M/11 & ITA 954/M/11 Order pronounced in the open court on 31-07-2013. .
आदे श क घोषणा खले ु यायालय म दनांकः 31-7-2013 को क गई ।
Sd/- sd/-
(VIJAY PAL RAO) (P.M. JAGTAP)
या यक सद य JUDICIAL MEMBER लेखा सद य / ACCOUNTANT MEMBER
मंुबई Mumbai; दनांक Dated 31-07-2013
व. न.स./ RK , Sr. PS
आदे श क त ल प अ े षत/Copy
षत of the Order forwarded to :
1. अपीलाथ / The Appellant
2. यथ / The Respondent.
3. आयकर आयु (अपील) / The CIT(A)--Concerned, Mumbai.
4. आयकर आयु / CIT - concerned, Mumbai
5. वभागीय त न ध, आयकर अपील य अ धकरण, मंुबई / DR, ITAT, Mumbai K Bench
6. गाड फाईल / Guard file.
ु / BY ORDER,
आदे शानसार
स या पत त //True Copy//
उप/सहायक पंजीकार (Dy./Asstt.
उप/ Registrar)
आयकर अपील य अ धकरण,
धकरण, मंुबई / ITAT, Mumbai