Income Tax Appellate Tribunal - Mumbai
Gharda Chemicals Ltd , Mumbai vs Assessee on 16 January, 2015
आयकर अपीलीय अिधकरण, अिधकरण के खंडपीठ मुंबई INCOME TAX APPELLATE TRIBUNAL,MUMBAI - 'K' BENCH.
सव[ौी आय.पी.बंसल, Ûयाियक सदःय एवं राजेÛि, लेखा सदःय Before S/Sh.I.P.Bansal, Judicial Member & Rajendra,Accountant Member आयकर अपील सं/.ITA No.4405/Mum/2007,िनधा[ िनधा[रण वष[/Assessment Year-2003-04 ACIT Rg. 9(1), Gharda Chemicals Ltd.
R.No. 223, Aayakaar Bhavan, 5 Jer Mention, W.P. Warde Road,
Mumbai-20 V/s. Bandra(W), Mumbai-400050.
ःथा.ले
ःथा ले.सं./PAN:AAACG1255E
(अपीलाथȸ/ Appellant) (ू×यथȸ / Respondent)
आयकर अपील सं/.ITA No.4246/Mum/2007,िनधा[
िनधा[रण वष[/Assessment Year-2003-04
Gharda Chemicals Ltd. JCIT (OSD) 9(1),
5/6 Jer Mention, W.P. Warde Marg, (Now assessed DCIT-9(1)
Off Turner Road, Mumbai-400050. V/s. Mumbai-20
ःथा.ले
ःथा ले.सं./PAN:AAACG1255E
(अपीलाथȸ/ Appellant) (ू×यथȸ / Respondent)
राजःव कȧ ओर से/ Revenue by : Shri N.K.Chand
िनधा[ǐरती ओर से / Assessee by : Shri P.B. Chhapgar & Shri Ketan Ved.
सुनवाई कȧ तारȣख/ Date of Hearing : 12-01-2015
घोषणा कȧ तारȣख / Date of Pronouncement : 16-01-2015
आयकर अिधिनयम,
अिधिनयम 1961 कȧ धारा ( 1 ) 254 के अÛतग[ त आदे श
Order u/s .254(1)of the Income-tax Act,1961(Act)
Per Rajendra,AM ले खा सदःय राजे Ûि के अनु सार: ार
Cross-appeals have been filed by the assessee-company and the Assessing Officer (AO) challenging the order dated 12.03.2007 of the CIT(A)-9, Mumbai. The grounds of appeal filed by the assessee read as under:
1.On the facts and in the circumstances of the case, the learned Commissioner of Income-tax (Appeals) ['CIT(A)']legally erred in not directing the learned Assessing Officer ('AO') to delete the addition of Rs. 2,60,65,427 made to the value of closing stock on account of unutilised MODVAT credit.
It is prayed that the learned AO be directed to delete the addition of Rs. 2,60,65,427 made to the value of closing stock.
2.On the facts and in the circumstances of the case, the learned CIT(A) legally erred in not directing the learned AO to increase the value of opening stock by RS.6,06,70,534 in view of the order of the learned CIT(A) for Assessment Year 2002-03 confirming the addition of RS.6,06,70,534, being unutilised MODVAT credit as on March 31,2002, to the value of closing stock.
It is prayed that the learned AO be directed to increase the value of opening stock by unutilised MODVAT credit of RS.6,06,70,534 added to the closing stock in Assessment Year 2002-03.
3.On the facts and in the circumstances of the case, the learned CIT(A) legally erred in confirming the disallowance of deduction under Section 80HHC.
It is prayed that the learned AO be directed to allow deduction under Section 80HHC as claimed by the appellant company.
2 ITA No. 4405 & 4246/M/2007 Dharda Chemicals Ltd.
4.On the facts and in the circumstances of the case, the learned CIT(A) legally erred in not deleting the addition made by the learned AO on account of provision for doubtful debts for the purpose of computing the book profits under Section 115JB of the Act. It is prayed that the learned AO be directed to delete the addition of provision for doubtful debts while computing the book profits under Section 115JB of the Act.
Reference to the TPO - mechanical in nature
5.On the facts and in the circumstances of the case, the learned CIT(A) has legally erred in confirming the learned AO's action of making a reference to the Transfer Pricing Officer (TPO'), which is not in accordance with the provisions of Section 92CA(1) of the Act. It is prayed that the proceedings initiated by the learned TPO under Section 92CA of the Act on the basis of the said reference be held as void ab initio and thus the order passed by the learned TPO under Section 92CA(3) of the Act and the consequent action of the AO be cancelled. Adjustment made on account of export of Dicamba
6.Without prejudice to the above, on the facts and in the circumstances of the case, the learned CIT (A) has legally erred in not deleting the entire adjustment made by the AO based on the fact that the Appellant's Associated Enterprise ('AE') (to whom Dicamba was exported) has incurred losses and thereby there is no avoidance of tax by the Appellant in respect of the said transaction. It is prayed that the learned AO be directed to delete the addition of Rs. 1,30,80,722.
7.Without prejudice to the above, on the facts and in the circumstances of the case, the learned CIT (A) has legally erred in determining the Arm's Length Price ('ALP') of the international transaction of export of Dicamba ('the said transaction') at Rs. 15,00,49,190 as against that determined by the Appellant in accordance with the provisions of Chapter X of the Act at Rs. 13,69,68,468.
It is prayed that the learned AO be directed to delete the addition of Rs. 1,30,80,722.
8.Without prejudice to the above, on the facts and in the circumstances of the case, while determining the ALP, the learned CIT(A) has legally erred by incorrectly applying the provisions of Proviso to Section 92C(2) of the Act.
It is prayed that the learned AO be directed to allow the benefit of 5% to the ALP determined by the learned CIT(A).
9. Without prejudice to the above, on the facts and in the circumstances of the case, the learned CIT(A) has legally erred in confirming the learned AO's action of upholding the order passed by the TPO and thereby sustaining / confirming the adjustment of Rs. 1,30,80,722 made by the learned TPO, without making any independent / further enquiries to satisfy himself that whether the said adjustment (made on account of export of Dicamba) was warranted. It is prayed that the learned AO be directed to delete the addition of Rs. 1,30,80,722 made under Section 143(3) of the Act on the basis of the order passed by the TPO under Section 92CA(3) of the Act.
10. Without prejudice to the above, on the facts and in the circumstances of the case, the learned CIT(A) has legally erred in confirming the learned AO's action of upholding the adjustment made by the learned TPO without appreciating that none of the conditions set out in Section 92C(3) of the Act supported by Circular 12 are satisfied in the instant case of export of Dicamba by the Appellant.
It is prayed that the learned AO be directed to delete the addition of Rs. 1,30,80,722.
11. Without prejudice to the above, on the facts and in the circumstances of the case, the learned CIT(A) erred in confirming the learned AO's action of upholding the adjustment made by the learned TPO without appreciating the fact that the said addition (made in respect of export of Dicamba) cannot be considered as income of the Appellant.
It is prayed that the learned AO be directed to delete the addition of Rs. 1,30,80,722. Disallowance of payment of usage charges
12. Without prejudice to the above, on the facts and in the circumstances of the case, the learned CIT(A) has legally erred in not deleting the disallowance of Rs. 31,12,541 made for payment of usage charges for registration rights.
It is prayed that the disallowance of Rs. 31,12,541 be deleted.
The Appellant craves leave to add, alter, amend or withdraw all or any of the Grounds of Appeal herein and to submit such statements, documents and papers as may be considered necessary either at or before the appeal hearing.
The assessee has also filed below mentioned additional grounds of appeal:
3 ITA No. 4405 & 4246/M/2007 Dharda Chemicals Ltd.
"1.The appellant submits that the learned Commissioner (Appeals) ought to have allowed an additional deduction under section 35(2AB) of Rs.3,49,93,461, being 50% of the total in-house research and development expenditure of Rs.6,99,86,922 incurred by the appellant during the previous year."
We have gone through the additional ground and find that it is a pure legal issue and does not require examination of facts.Therefore,additional ground is taken on record.
ITA No.4405/Mum/2007:AO had filed following grounds of appeal:
1.On the facts and in circumstances of the case and in law the CIT(A) erred in deleting the disallowance of interest expenses amounting to Rs.44,06,055/-.
2.Without prejudice to ground No. 1, the CIT(A) erred in not holding that the clarificatory amendment to section 36(1)(iii) by inserting a proviso thereto by Finance Act, 2003 would have application to assessment years prior to A.Y. 2004-05.
3.Without prejudice to ground No. 1, the CIT(A) erred in not holding that the clarificatory amendment to section 36(1)(iii) by inserting a proviso thereto by Finance Act, 2003 would have application to assessment years prior to A.Y. 2004-05. Without prejudice to ground No. 1 & 2,the CIT(A) erred in not confirming the disallowance out of interest of Rs.44, 06, 055/- even though in view of converse operation of explanation 8 to section 43(1) of the Income tax Act, 1961, the interest paid before the asset is first put to use is to be treated as capital expenditure.
4.On the facts and in circumstances of the case and in law the CIT(A) erred in directing the A.O. to allow deduction u/s 4. B in respect of employers contribution to P.F. paid after due date and before filing of return of income.
5.On the facts and in circumstances of the case and in law the CIT(A) erred in directing the A.O. to allow deduction u/s. 36(1)(va) of the Act of employees contribution to P.F. paid within the grace period without appreciating the fact that due date is well defined in sec.36(1)(va) and does not include grace period.
6.On the facts and in circumstances of the case and in law the CIT(A) erred in not confirming the addition of Rs. 2,60,65,427/4- made by the A.O. towards increase in the valuation of closing stock to include MODVAT expenses
7.On the facts and in circumstances of the case and in law the CIT(A) erred in directing the A.O. to reduce the profits eligible for deduction u/s 80 HHC of the Act in computing the book profit u/s 1 15JB without appreciating the fact that in the regular computation, the CIT(A) has confirmed the A.O's finding that the assessee is not entitled to deduction u/s 80HCC of the Act.
8.On the facts and in circumstances of the case and in law CJT(A) erred in not confirming the disallowance of provision for doubtful debts amounting to Rs.1 ,46,43,8161- made by the A.O. while computing book profit u/s 11 5JB of the Act.
9.On the facts and in circumstances of the case and in law CIT(A) erred in restricting to 40% the adjustment u/s 92CA fo Rs.3,27,01,804/made by the A.O. without appreciating the facts of the case.
10.On the facts and in circumstances of the case and in law the CIT(A) erred in not confirming the action of the A.O. in making disallowance of payment of usage rights of registration charges paid at Rs.31,12,541/on account of transfer pricing adjustments as per TPOs order and in giving directions to A.O.regarding deletion of the addition without complying with Rule 46A of Income Tax Rules 1962.
11.The appellant prays that the order of the CIT(A) on the grounds be set aside and that of the ITO/AC/DC be restored.
12.The appellant craves leave to amend or alter any grounds or add a new ground which may be necessary.
Assessee-company,engaged in the business of manufacturer of agro chemicals and polymer, filed its return of income on 01.12.2003 declaring total income at Rs. 24,37,07,329/- under the regular provisions of the Act and the same was reduced to Nil,after setting off the brought forward unabsorbed depreciation.The AO completed the assessment u/s 143(3) of the Act on 27.02.2006 determining the income of the assessee at Rs. 3,58,14,345/- .
4 ITA No. 4405 & 4246/M/2007 Dharda Chemicals Ltd.
2.The first ground of appeal filed by the assessee is about addition of Rs. 2.60 Crores of unutilised Modvat Credit to Closing Stock.During the assessment proceedings,the AO found that the assessee was accounting for purchases on net of Modvat credit basis,that the unutilised Modvat Credit balance as on 31.03.2003 was Rs.2,60,65,427/-,that the amount was not included in the valuation of closing stock.The AO was of the opinion that the method followed by the assessee would require the closing balance of unavailed Modvat to be added to tune of closing stock in order to determine the exact value of the stock as per the provisions of Sec.145A of the Act.He directed the assessee to explain why the same should not be included in the valuation of closing stock. It was explained by the assessee that no addition was required to be made as the purchases were also accounted for on net of Modvat basis,that same was pointed out in the Tax Audit Report and it did not have an impact on the net profit.The AO held that the explanation of the assessee was not acceptable in view of the express provisions of Section 145A,that the correct valuation of the closing stock could be obtained only upon considering the unutilised Modvat Credit as per of the value of stock.As a result,an amount of Rs. 2.60 Crores was added to the value of closing stock.
2.1.Aggrived by the order of the AO,the assessee filed an appeal before the First Appellate Authority (FAA).He held that the assessee had argued that it had been following exclusive method of accounting for element of excise duty,that closing stock should not be increased by excise element,that the above argument advanced by the assessee could not be accepted,that law in terms of section 145A of the Act provided for specifie adjustments in respect of duties and taxes and to include dutues etc.for purpose of valuing inventories as well.He further held that the AO had made adjustment only in respect of closing stock to include duty and taxes without giving due effect to sales and purchases. For the purpose of determining the correct income as per the section 145A,he directed the AO to re-compute the income of the assessee after valuing the purchases,sales and inventories in line with the section 145A of the Act. 2.2.Before us,Authorised Representative(AR)stated that the Tribunal vide order dated 30.11.2009 (ITA2242/Mum/2006/-AY.2002-03)had restored back the matter to the file of the AO,that the AO did not give effect to the order of the Tribunal in the manner it was argued,that the assessee had approached the FAA,that he allowed the relief sought for,that the AO had challenged the order of the FAA before the Tribunal,that the Tribunal had dismissed the appeal of the AO on 22. 05.2013,that matter could be restored to the file of the AO for the year under appeal also.He relied upon the decision of jurisdictional High Court delivered in the case of Mahalakshmi Glass Works(P)Ltd.(381ITR116).He referred to page no.1 to 4 of the paper book.Departmental Represe
-ntative(DR)stated that he had no objection if the matter was sent back to the AO. 2.3.We have heard the rival submissions and perused the material before us.We find that at page no.4 of the paper book, the assessee has given the impact of the adjustment of Modvat Credit to the Profit & Loss Account for the year under consideration.In our opinion, in the interest of justice matter should be restored back to the file of the AO for fresh adjudication.He is directed to decide the issue after considering the order of the Tribunal dated 22.05.2013 and the decision of the Hon'ble jurisdictional High Court in the case of Mahalakshmi Glass Works (P) Ltd.(supra). Ground no.1 is decided in favour of the assessee, in part.
3.Second ground of appeal also deals with unutilised Modvat credit as on 31.03.2002.Before us,the AR stated that if the ground no.1 is restored back to the file of the AO,ground no.2 would become infructuous.As we have already remitted the issue raised in ground no.1 to the file of the assessee,so,we are dismissing ground no.2 as infructuous.
4.Ground no.3 is about disallowance of deduction u/s.80HHC of the Act.During the assessment proceedings the AO found that the assessee had made claimed deduction u/s.80HHCof Rs.10,22, 55,280/-against the gross total income of Rs.34,59,62,609/-,that it had also made a claim of brought forward losses and depreciation of Rs.93,08,73,001/-,that the gross total income had been considered before the set off of brought forward losses and depreciation. As per the AO it was an incorrect method,that the assessee was required to set off the brought forward losses and 5 ITA No. 4405 & 4246/M/2007 Dharda Chemicals Ltd.
depreciation from the gross total income before the claim of deduction under Chapter VIA in view of provisions of Section 32(2) r.w.s.72(2)of the Act,wherein the same was to be considered first before allowing any deduction u/s.80HHC.He referred to the judgment of the Hon'ble Supreme Court in the case of Ipca Laboratories Limited(266 ITR 521)and held that while computing deduction u/s.80HHC brought forward loss is to be reduced before claiming deduction,that the assessee's income became NIL after considering the unabsorbed brought forward depreciation it would not be entitled to any deduction u/s. 80HHC.In short,the claim of deduction u/s 80HHC was disallowed.He further held that the exporters having export turnover exceeding Rs. 10 Crores during the previous year had an option to choose either duty draw back or duty free replenishme certificate being duty Remission Scheme,that the assessee's export turnover exceeded Rs.10 crores,that it did not fulfill the above mentioned conditions,that DEPB benefit could not be considered for working out deduction u/s. 80HHC.As such in view of NIL profit as discussed above the assessee company is not entitled for deduction u/s. 80HHC. 4.1.In the appellate proceedings,the FAA held that in light of the judgment of Ipca Laboratories Ltd.(supra),order of the AO had to be upheld.
4.2.Before us,the AR fairly conceded that the issue is decided against the assessee by the order of the Tribunal dated 30.11.2009(supra).We find that the Tribunal has,at page 2 para 4 of the order, held as under:
4.Ground No.2 is against confirmation of disallowance of deducton under section 80HHC.
At the very outset,the ld.counsel for the a ssessee fairly conceded that in the absence of any profit available to the assessee from exports,the benefit of deduction under section80 HHC was rightly not available.In our considered opinion the ld CIT(A)was justified in rejecting the ground of the assessee on the claim of deduction under section 80HHC in the absence of any ehgihle profit.This ground is therefore,not allowed.
Respectfully,following the above,we dismiss the ground no.3 against the assessee.
5.Ground no.4 deals with provision for doubtful debts for purpose of calculating book profit u/s. 115 JB of the Act.During the assessment proceedings the AO found that the assessee had paid tax on the book profit determined u/s 115JB at Rs.19,86,70,972/-,that the book profit had been determined by reducing the claim of deduction u/s.80HHC from the net profit.The AO held that the assessee was not eligible for deduction u/s.80HHC as the gross total income was NIL after set off of brought forward losses and depreciation,that deduction u/s.80HHC r.w.s.115JB of the Act had been wrongly calculated,Referring to Explanation (iv) to Section 115J B of the Act,he held that deduction u/s. 80HHC r.w.s. 115JB was to be considered as per actual deduction allowed under the same section,that deduction u/s. 80HHC r.w.S. 115JB could not be allowed as there was no income from the business.He further observed that the assessee had debited expenditure of Rs.1.46 Crores under the head provision for doubtful debts,that the said amount was not added back to the book profit.He held that the provision for doubtful debts was not ascertained liability,that it was based on estimation,that amount was to be added back to the income of the assessee.The AO reworked the book profit at Rs.31,55,70,068/- adding the provision for doubtful debts and determined the tax payable u/s.115JB at Rs.2,48,51,143/-. 5.1.In the appellate proceedings,the FAA held that the assessee had given the details of parties in respect of whom such provisions had been made,that the AO had made addition on wrong appreciation of facts.He directed the AO to verify the details of provisions for doubtful debts and take a decision accordingly.He partly allowed the appeal filed by the assessee. 5.2.Before us,the AR stated that the issue was decided against the assessee by the Tribunal in the AY.2002-03(ITA2747/Mum/2006/dated 16.07.2010).But,he placed reliance on the decision of the Hon'ble Karnataka High Court delivered in the case of Yokogawa India Ltd.(204Taxman305).He also referred to order of the Tribunal decided in the case of Trent Ltd.(ITA1073&1708/Mum /2005).
We find that the FAA had directed the AO make verification about the liabilities claimed by the assessee.He held that if the liabilities were ascertainable,he should allow the deduction and not otherwise.We are of the opinion,that there is perversity in the order of the FAA.It was duty of the 6 ITA No. 4405 & 4246/M/2007 Dharda Chemicals Ltd.
assessee to prove before the AO that the liabilities in question were not unascertainable.The assessee before us has not demonstrated as to how he proved his claim before the AO.So,we are of the opinion that the order of the FAA does not suffer from any legal infirmity. As far as cases relied upon by the assessee are considered,we want to state that they lay down general principles.The assessee has not proved that the facts of case under appeal were identical to the facts of the cases relied upon by it.Therefore,following the above mentioned order of the Tribunal i.e.-ITA2747/Mum/2006/dated 16.07.2010-we decide ground no.4 against the assessee.
6.Grounds no.5 to 11 pertain to Transfer Pricing(TP)adjustment.Before us,the AR did not press ground on 5,hence same is dismissed as not pressed.He further stated that grounds no.6 to 10 were arguments support of the effective ground and do not require separate adjudication,that effective ground was ground no.11 and same was to be decided.Accordingly,we are deliberating upon the ground no.11.
6.1.During the assessment proceedings the AO found that the assessee had filed Report-in Form No.3CEB alongwith the return detailing the international transaction(IT)covered by the provisions of Section 92E of the Act.A reference was made to the Transfer Pricing Officer (TPO),for computation of Arms Length Price(ALP)of the ITs.In persuances of the order of the TPO,the AO made adjustment of Rs.3,58,14,345/-to the total income of the assessee. 6.2.Aggrieved by the order of the AO,the assessee preferred an appeal before the FAA.After considering the submissions of the assessee and the assessment order the FAA held that that assessee-company had entered into transactions with Associated Enterprise viz. Gharda USA which was its 100% subsidiary,that it had also entered into transaction of sales of its products to independent parties to whom it had charged prices which were more than the price at which it had sold goods to its subsidiary in USA,that it was material to consider as to when the assessee company could sold the goods to parties in non USA countries at much higher price there was no reason to believe that it would ever prefer to sale goods at lower prices,that the AE could sell the same product in US market at the same or similar price at which it had exported goods to non USA countries,that it indicated that uncontrolled price of the product even in US market was no different than the same sold in other market,that the assessee's argument that the price at which product was sold to subsidiary was comparable with uncontrolled price could not be accepted, that it could sell its product through subsidiary at higher price indicated that report of Mr. Buhn was only an eye wash and could not be relied upon,that Non USA sales was affected through London branch,that expenses of the said branch were incurred by the assessee company,that AE had incurred all the expenses related with sale,that the TPO should have considered the factor affecting such price,that the method adopted by the TPO in coming to the conclusion that price should have been the same as that of Non USA sales did not rest on sound footings,that geographical territory and quantity of sales also had a bearing on such pricing,that without considering such factors simply making comparison of two prices suffered inborn infirmity and had to be corrected,that resale price method was one of the approved method of determining the ALP,that it could not be out rightly rejected,that the AO should also have considered the resale price method.Finally,partly allowing the appeal,the FAA directed the AO to restrict restrict the addition to 40% of Rs,3,27, 01,804/-.
6.3.Before us,the AR stated that the assessee had applied the external CUP method for benchmark
-ing the particular transaction with the AE,that it has used the Bhun database,that the TPO had rejected the method adopted by the assessee,that he applied the internal CUP method to determine the ALP,that the Tribunal had rejected the internal CUP method applied by the AO and had restored back the matter to his file.DR stated that matter could be sent to the AO for deciding the issue of TP adjustment.
6.4.We have heard the rival submissions and perused the material before us.We find that while deciding the TP adjustment issue,the Tribunal had restored back the matter to the file of the AO on 30.11.2009(ITA2242/Mum/2006/-AY.2002-03)We would like to mention that in the AY. 2002
-03,identical issue had arisen and the Tribunal had after considering the issue at length and after deliberating the arguments of both the sides had held as under:
7 ITA No. 4405 & 4246/M/2007 Dharda Chemicals Ltd.
"18.The ld. counsel for the assessee has placed on the record one Paper book c o nt a i n in g a d di t i o n a l evid en ce,wh ich in h is op in ion ha s certa in d ata fro m th e Government of USA agency relevant for determining ALP of Dicamba. Since the authorities below have gone by the determination of ALP on the basis of Internal CUP method, which in our considered opinion is not appropriate in the given circumstances. it will he in the interest of justice if impugned order is set aside on this score and the matter is restored to the file of AO. We order accordingly and direct him to get the fresh ALP determined from the TPO in the light of our foregoing discussion. Needless to say the assessee will be allowed a reasonable opportunity of being heard and will also he entitled to lead fresh evidence in support of its case."
We find that in the year consideration the basic facts remain same i.e.the assessee has adopted that external CUP method,that it relied upon the Bhun database,that the FAA had partly allowed the appeal filed by the assessee.Considering the peculiar facts and circumstances of the case,we are remitting the issue of TP adjustment to the file of the AO for fresh adjudication.He would follow the directions given by the Tribunal while deciding the appeal for the AY.2002-03(supra).He is directed to afford a reasonable opportunity of hearing to the assessee.
7.Last ground of appeal is about usages charges of registration rights.This ground is also related to TP adjustment.The TPO had determined the ALP of the amount in question at Rs.Nil.He observed that the assessee had not filed details in this regard.But,he held that if the assessee submitted evidences,ALP would be modified.The AO had passed the order as suggested by the TPO.In the appellate proceedings,the FAA directed the AO to verify the details of sales and payment made on the basis of the details given by the assessee.
7.1.Before us,the AR stated that while giving effect to the order of the FAA ,the AO had verified the claim made by it and had allowed it.We have gone through the order of the AO dated .We find that he has in the order giving effect to the order of the allowed the claim.Therefore,there is no reason for grievance by the assessee.In these circumstances,ground no. is allowed for statistical purposes.
8.Additional ground of appeal filed by the assessee,is about claim made by the assessee u/s.35(2AB)of the Act. In the return of income filed by it for the year it claimed a deduction for 100% of the expenditure incurred by it which qualified for deduction u/s. 35(2AB) of the Act. It was argued before us,that all details relating to the said expenditure were available in the Tax Audit Report filed by it,that deduction was allowable at the rate of 150% of the expenditure for the year under consideration,that the AO should be directed to allow the difference. After going through the submissions made by theassessee,we are of the opinion that the matter should be restored back to the file of the AO.He is directed to decide the allowability of the claim made by the assessee after affording a reasonalbe opprotunity of hearing to it.Additional ground of appeal is decided in favour of the assessee,in part.
ITA/4405/Mum/2007-AY.2003-04(Appeal filed by the AO)
9.Ground no.1-3 raised by the AO,deal with interest expenses of Rs.44,06,055/-.From the observa
-tion of the balance sheet,the AO found that an amount of Rs.2,93,73,699/- was shown as capital work-in-progress(WIP)as on 31.3.2003,that the assessee had charged a sum of Rs.27,04,86,000/- towards interest on funds borrowed for the purpose of business. The assessee was directed to show cause as to why proportionate interest relatable to the WIP should not be disallowed.On a reasonable estimated interest rate of 15% p.a. interest apportion able to WIP was calculated at Rs. 44,06,055/-.The assessee,vide its letter dated 18/01/2006 objected to the disallowance of interest on account of interest chargeable to capital WIP.Rejecting the claim made by the assessee,the AO held that the assessee had borrowed funds and used those funds business purpose as well as for Capital WIP from year to year,that interest cost was therefore apportionable to capital WIP for business,that a portion of Capital WIP was funded by interest-bearing borrowings,that the 8 ITA No. 4405 & 4246/M/2007 Dharda Chemicals Ltd.
borrowings had been used for expansion of the income generating apparatus of the company and not for the purpose of the business of the assessee the interest on the borrowings to the extent the same had been applied for investment in Capital WIP,was not allowable u/s.36(1)(iii) of the Act, that interest was also not allowable in view of Explanation 8 to Section 43(1),that the assessee did not file any material facts which would reveal the application of the borrowed funds for the purpose of the business only.Finally,he disallowed interest amounting to Rs.44.06 lakhs @ 15% of Capital WIP of Rs.2.93 Crores.
9.1.Aggrieved by the order of the AO,the assessee filed an appeal before the FAA.Folliwng the order for the AY.2001-02 of his predecssor,the FAA decided the issue in favour of the assessee. 9.2.Before us,Representatives of both the sides agreed that the issue is covered by the order of the Tribunal for the earlier years.(ITA/2146-47/M/2007/-dated 12.12.2008,AY.2000-01,2001-02.).We have heard the rival submission.We find that in the earlier years identical issue had arisen in the appeal filed by the AO and the Tribuanl had held as under:
"6 . We ha ve heard the lea rn ed rep resen ta tives of th e parties a nd perused the record.We find that the issue is squarely covered by the judgment of Hon'ble Supreme Court in the case of Core Health L t d . ( s u p r a ) , o n w h i c h t h e a s s e s s e e h a s p l a c e d r e l i a n c e . W e respectfully follow the law laid down by the Hon'be Supreme Court in the said case and in the light of that we confirm the orders of the CIT(A) in both the assessment years 2000-01 and 2001-02."
Respectfully following the above,we decide ground.no.1-3 against the AO.
10.Ground no.4-5 are about delay in depositing contribution to Provident Fund(PF)account under both the categories-i.e.Employer's contribution and Employees' contribution.A perusal of the Tax Audit Report by the AO revealed that the assessee had delayed the payment of Employer's and Employees' Contribution to P.F.to the extent of Rs 31,67,767/- each.He held that if the employee contribution to PF was not deposited into the respective funds before the stipulated due dates same was not allowable as deduction and was taxable as income in the hands of the employer as per the provisions of section 36(1)(va) r.w.s.2(24)(x) of the Act.Similarly as per the provisions of section 43B of the Act,the employer's contribution to the PF was allowable as expenditure only if the said amount was paid within the stipulated due dates.He relied upon the decisions Hitek India P.Ltd.(227ITR446)and South India Corporation (242ITR 114),wherein such disallowances were confirmed.He further mentioned that he had examined the issue of Provident Fund contribution paid after the close of the financial year beyond the due dates but within the grace period as per the Provident Fund and held that the grace period was basically allowed for not invoking the penal provisions under the Provident Fund Act,that the grace period of five days was solely for the purpose of determining the amount of damages for noncompliance with the Provident Fund Act,that it did not automatically give immunity or relaxation to the assessee with regard to default under the provisions of Act.He worked the delayed payments towards Employer's and Employees' Contribution to P.F.at Rs 31,67,767/- each and disallowed Rs.63,35, 534/- under section 43B & u/s.36(1 )(va) and added back to the total income of the assessee.
10.1.In the appellate proceedings,the FAA held that even if some of the payments were made late but within the grace period no disallowance should be made.He relied upon the decision of the Special Bench of the Chennai Tribunal(284 ITR-AT 89)delivered in the case of Kwality Milk Foods Ltd.He directed the AO to verify the due dates and the grace period dates before allowing the claim of the assessee.
10.2.Before us,the AR argued that the Tribunal had,on 16.07.2010,decided the issue against the AO,while deciding the appeal for the AY.2002-03(supra).He referred to the judgment of the Hon'ble Bombay High Court delivered in the matter of Ghatge Patil Transport Ltd.(ITA 1002 of 2012 dated 14.10.2014).DR left the matter to the discretion of the Bench. 10.3.We have heard the rival submissions.We find that in the matter of Ghatge Patil Transport Ltd. the Hon'ble Bombay High Court has held that the decision of Alom Extrusion(319ITR 306) delivered by the Hon'ble Supreme Court was applicable of employer's contribution as well as to the employees' contribuntion.We find that the Hon'ble Gujarat High Court in the matter of 9 ITA No. 4405 & 4246/M/2007 Dharda Chemicals Ltd.
Gujarat State Road Transport Corporation,after extensively considering the judgment of the Hon'ble Apex Court in the case of Alom Extrusion(supra),has held if the assessee had not credited the employees' contribution to the employees' account in the relevant fund or funds on or before the due date mentioned in the Explanation to section 36(1)(va) ,the assessee would not be entitled to deduction of such amount in computing the income referred to in Sec.28(366 ITR 170). It was submitted by Ld DR that the judgment of the Hon'ble Gujarat High Court was not brought to the notice of the Hon'ble Bombay High Court when the appeal in the case of Ghatge Patil Transport Ltd. was being heard. But,as on today we are bound by the order of the jurisdictional High Court. Therefore,respectfully,following the order of Ghatge Patil Transport Ltd.(supra),we decide ground no. 4-5 against the AO.
11.Ground no.6 is about addition of Rs.2.60 Crores of unutilised Modvat credit to Closing stock. While dealing with the ground no.1 of the appeal filed by the assessee,we have restored back the matter to the file of the AO for fresh adjudication.Following the same,we decided ground no.6 in favour of the AO,in part.
12.Next ground of appeal pertains to deduction u/s.80 HHC of the Act for purpose of calculating book profits u/s.115JB of the Act.While deciding GOA no.4 filed by the assessee,we have narrated the facts related with the question under consideration. 12.1.Before us,Representative of both the sides conceded that issue was decided by the Tribunal in favour of the assessee.We find that originally the question was decided agaisnt the assessee. But,later on an appliaction was filed by the assessee u/s.254(2)of the Act before the Tribunal,who recalled its order.By its order dated 25.01.2012,the Tribuanl relying upon the decision of the Hon'ble Apex Court in the case of Bhari Information Technology symstems Ptv. Ltd. (17 taxmann.com.62),decided the issue in favour of the assessee.
12.2.Resectfully following the above,we also hold that deduction claimed u/s.80HHC had to be worked out on the basis of adjusted book profit u/s.115JA and not on the basis of profits computed under regular provisions of law applicable to computation of profits and gains of business.
13.Ground no.8 deals with provisions for doubtful debts of Rs.1,46,43,816/- for purpose of calculating book profits u/s.115JB of the Act.While deciding the issue of doubtful debts at paragraph no.5.2.of our order,we have held that in absence of evidences issue is to be decided agaisnt the assessee.Therefore,we allow the ground raised by the AO.
14.Next ground is about TP adjustment on account of export of Dicamba to the AE of the assessee.At paragraph no. of our order we have restored back the issue of TP adjustment to the file of the AO. Considering the above,ground of appeal filed by the AO stands partly allowed.
15.Last ground of appeal pertains to disallowance of usage charges of registration right.While deciding last ground of appeal filed by the assessee we found that the AO had after verifying the facts, allowed the claim made by the assessee,amounting to Rs.31.12 lakhs.As the AO himself is satisfied about the genuineness of the claim filed by the assessee,therefore in our opinion ground raised by him has to be dismissed as infructuous.
As a result,appeals field by the assessee and the AO stand partly allowed. फलतः िनधा[ǐरती और िनधा[ǐरती अिधकारȣ Ʈारा दाǔखल अपीलɅ आंिशक Ǿप से ःवीकार कȧ जाती हɇ .
Order pronounced in the open court on 26th January, 2015.
आदे श कȧ घोषणा खुले Ûयायालय मɅ Ǒदनांक 26 tuojh ,2015 को कȧ गई ।
Sd/- Sd/-
(आय.पी.बंसल /I.P. Bansal) राजेÛि/Rajendra)
(राजे ि
10 ITA No. 4405 & 4246/M/2007 Dharda Chemicals Ltd.
Ûयाियक सदःय /JUDICIAL MEMBER लेखा सदःय /ACCOUNTANT MEMBER
मुंबई/Mumbai,Ǒदनांक/Date: 26.01.2015.
आदे श कȧ ूितिलǒप अमेǒषत/Copy
षत of the Order forwarded to :
1. Assessee /अपीलाथȸ 2. Respondent /ू×यथȸ
3. The concerned CIT(A)/संबƨ अपीलीय आयकर आयुƠ,4.The concerned CIT /संबƨ आयकर आयुƠ
5. DR "K" Bench, ITAT, Mumbai /ǒवभागीय ूितिनिध ds खंडपीठ,आ.अ.Ûयाया.मुब ं ई
6. Guard File/गाड[ फाईल स×याǒपत ूित //True Copy// आदे शानुसार/ BY ORDER, उप/सहायक पंजीकार Dy./Asst. Registrar आयकर अपीलीय अिधकरण, मुब ं ई /ITAT, Mumbai