Income Tax Appellate Tribunal - Ahmedabad
Dy.Cit, Gandhinagar Circle, , ... vs Eci Technology Pvt. Ltd.,, Gandhinagar on 2 May, 2017
IN THE INCOME TAX APPELLATE TRIBUNAL
AHMEDABAD "I" BENCH
(BEFORE SHRI R.P. TOLANI, VICE PRESIDENT
& SHRI N.K. BILLAIYA, ACCOUNTANT MEMBER)
ITA. No: 918/AHD/2015 & C.O. No. 85/Ahd/15
(Assessment Year: 2009-10)
Deputy Commissioner of V/S ECI Technology P. Ltd.
Income-Tax, Gandhinagar 903, 9th Floor, Shalin,
Circle, Gandhinagar Sector-11, Gandhingar-
382011
ECI Technology P. Ltd. V/S
903, 9th Floor, Shalin, Deputy Commissioner of
Sector-11, Gandhingar- Income-Tax, Gandhinagar
382011 Circle, Gandhinagar
(Appellant) (Respondent)
PAN: AACCG1850F
Appellant by : Shri Byomkesh Panda, D.R.
Respondent by : Shri Dhinal Shah, C.A.
(आदे श)/ORDER
Date of hearing : 26 -04-2017
Date of Pronouncement : 02 -05-2017
PER N.K. BILLAIYA, ACCOUNTANT MEMBER:
1. ITA No. 918/Ahd-2015 & C.O. No. 85/Ahd/2015 are appeal of the Revenue and cross objection by the Assessee preferred against the very same order 2 ITA No. 918/Ahd/15 & C.O. No. 85/Ahd/15 . A.Y. 2009-10 of the Ld. CIT(A), Gandhinagar dated 15.01.2015 pertaining to A.Y. 2009-10. The appeal and the cross objection were heard together and are disposed of by this common order for the sake of convenience.
2. The revenue has raised following substantive grounds of appeal:-
1. The Ld. CIT(A) has erred in law and on facts in allowing/deleting the addition made on account of disallowance u/s.10B stating that the claim is identical to that of A.Y.2007-08 and 2008-09 which was allowed. The assessee has already obtained the approval in year 2011 and was filed before the A.O.
2. The Ld. CIT(A) has erred in law and on facts in allowed the appeal of the assessee holding that the trade advances written off represents actual business loss incurred by the assessee, which is incidental to the business of the assessee. The assessee need not be in banking business in order to claim write-off of trade advance, which was given to a supplier in the ordinary course of business.
3. The Ld. CIT(A) has erred in law and on facts in allowed of the assessee by relying on the decision of Hon'ble Chennai Income tax Appellate Tribunal (ITAT) in the case of Intimate Fashions (India) Pvt. Ltd Vs. ACIT(Supra) which is squarely applicable in this case and further held that the price differential paid to the AEs by the assessee due to change in copper prices is being at arm's length under section 92 of the Act.
3. The assessee is in the business of manufacturing of wiring harness. During the year under consideration, the assessee has claimed deduction u/s. 10B of the Act at Rs. 7,31,57,477/-. The assessee was asked to explain why deduction claimed u/s. 10B of the Act may not be disallowed. Assessee filed a detailed reply in support of its claim which did not find any favour with the A.O. who dismissed the claim of the assessee u/s. 10Bof the Act.
3 ITA No. 918/Ahd/15 & C.O. No. 85/Ahd/15. A.Y. 2009-10
4. Assessee agitated the matter before the ld. CIT(A) and reiterated its claim of deduction u/s. 10B of the Act.
5. After considering the facts qua the issue, the ld. CIT(A) held as under:-
"I find that identical issue had come up before my predecessor for AY 2007-08 and AY 2008-09 in the Appellant's own case, wherein the matter was decided as under:
"4.3 I have considered the facts of the case, the submissions of the assessee and the comments of the AO and the Addl.CIT in the remand report. The position of the law read with instructions of the CBDT are unambiguous. In fact the AO has himself spelt them out in para. 10 of the assessment order. The position of law on this issue is as under: i) As per Clause (iv) of Explanation -2 to section I0B of the Act, the undertaking should be approved by the Board of Approval (BoA) for claiming exemption u/s.l0B of the IT Act. ii) The CBDT vide its Instruction dated 09/03/2009 has made it amply clear that the approval granted by the Development Commissioner in the case of an export oriented unit will be considered valid, once such an approval is ratified by the Board of Approval.
The assessee has shown by filing the additional evidence, that the approval granted by the Development Commissioner has been ratified by the Board of Approval. The AO and the Add!. CIT both in their remand report have stated that the claim of the assessee for deduction u/s.l0B was disallowed only for the reason that the ratification of the Board of Approval was not there till the date of assessment order. They have not raised any objection against the assessee's claim for deduction u/s. 106, subsequent to the filing of additional evidence. The ratification is no 4 ITA No. 918/Ahd/15 & C.O. No. 85/Ahd/15 . A.Y. 2009-10 doubt of the approval originally granted. It means that the approval granted would be considered valid with effect from the date approval was given by the Development Commissioner, The objection of the AO spelt out in the assessment order has been met. In the circumstances, the assessee is eligible for the claim-of deduction u/s. I0B. The ground of appeal of the assessee is accordingly, allowed."
Since, the Appellant had already obtained the approval from the Board of Approval in year 2011 and which was also filed before the AO during course of assessment proceedings, the ground of AO in denying deduction under section IOB of the Act does not arise. Hence, following the orders of my predecessor for AY 2007-08 and AY 2008-09, deduction under section IOB of the Act is allowed to the Appellant, The ground of the appeal is, therefore, allowed."
6. Before us, the ld. D.R. could not bring to the notice factual/legal error in the findings of the ld. CIT(A). On the other hand, we find that the Hon'ble Jurisdictional High Court of Gujarat has decided this issue in favour of the assessee and against the revenue in Tax Appeal No. 203 of 2015. The relevant part reads as under:-
5. Heard the learned advocates appearing on behalf of the respective parties at length. At the outset, it is required that the assessee claimed the deduction under Section 10B of the Act claiming 100% EOU. It is an admitted position that there was already a permission/approval granted by the Development Commissioner declaring/approving the assessee as 100% EOU. However, on considering the word, approved by the Board of Approval as mentioned in Section 10B of the Act and at the relevant time there was no ratification of the decision of the Development Commissioner by the Board of Approval, the Assessing Officer denied the deduction under Section 10B of the Act. However, it is required to be noted and it is not in dispute that vide Circular/instruction of the CBDT dated 09/03/2009 it was clarified that the approval granted by the Development Commissioner in the case of Export 5 ITA No. 918/Ahd/15 & C.O. No. 85/Ahd/15 . A.Y. 2009-10 Oriented Unit set up in an Export Processing Zone will be considered valid, once such an approval is ratified by the Board of Approval for EOU Scheme. In the present case, it is not in dispute that the permission/approval granted by the Development Commissioner has been ratified by the Board of Approval, may be subsequently. The moment the decision/approval of the Development Commissioner is ratified by the Board of Approval it will relate back to the date on which the approval was granted by the Development Commissioner. If that be so, it cannot be said that the assessee was not a Export Oriented Unit, which was entitled to the deduction under Section 10B of the Act. Incidentally it is to be noted that in the subsequent circular No.68 issued by the Export Promotion Council for EOUS & SEZS dated 14/05/2009 it mentions that from 1990 onwards Board of Approval had delegated the power of approval of 100% to the Development Commissioner and, therefore, it can be very well argued and said that the Development Commissioner while granting the approval of 100% EOU exercises delegated powers. In any case and apart from the above when it is found that at the relevant time the Development Commissioner granted the approval of 100% EOU in favour of the assessee-Company, which came to be subsequently ratified by the Board of Approval and as observed hereinabove as such the ratification shall be from the date on which the Development Commissioner granted the approval, both the learned CIT(A) as well as the learned Tribunal have rightly held that the assessee was entitled to deduction under Section 10B of the Act as claimed. We confirm the view taken by both the authorities below holding that the assessee was entitled to 100% EOU as claimed. No substantial question of law arises in the present Tax Appeal. Hence, the present Tax Appeal deserves to be dismissed and is accordingly dismissed.
7. A perusal of the aforementioned findings of the Hon'ble High Court shows that the issue is no more res integra and has been decided in favour of the assessee and against the revenue. Respectfully following the same, we decline to interfere. Ground no. 1 is dismissed.
6 ITA No. 918/Ahd/15 & C.O. No. 85/Ahd/15. A.Y. 2009-10
8. Ground no. 2 relates to the deletion of disallowance made by the A.O. on account of write-off of trade advances.
9. While scrutinizing the return of income, the A.O. noticed that the assessee has written off trade advances of Rs. 13.98 lacs in its Profit and Loss account. The assessee was asked to justify the claim. The assessee stated that it has made advance with respect to manufacturing of moulds. However, due to poor quality of the moulds, the assessee cancelled the order and since the party did not return the trade advances, the same was written off in the Profit and Loss account. The A.O. was of the opinion that the amount claimed to be written off has never been offered by the assessee as its income in Profit and Loss account. Since, the assessee is not engaged in banking business; therefore, write off of trade advance was not allowable. The A.O. made the addition of Rs. 13,98,298/-.
10.Before the ld. CIT(A), the assessee submitted the copy of the ledger account of the supplier to demonstrate that the trade advances have actually been written off.
11.After considering the facts and the submissions, the ld. CIT(A) was of the opinion that the trade advances written off represents actual business loss incurred by the assessee which is incidental to the business of the assessee and accordingly directed the A.O. to delete the impugned addition.
7 ITA No. 918/Ahd/15 & C.O. No. 85/Ahd/15. A.Y. 2009-10
12.Before us, the ld. D.R. relied upon the findings of the A.O. Ld. Counsel for the assessee reiterated what has been stated before the lower authorities. There is no dispute that the assessee has actually written off Rs. 13,98,298/- being advance to the supplier. There is also no dispute relating to the return of moulds by the assessee on finding them not suitable for the purposes of its business. The undisputed fact is that the advance of Rs. 13,98,298/- was given by the assessee in its ordinary course of business. Therefore, any write off is a business loss incurred in the ordinary course of its business. Therefore, we do not find reason to interfere with the findings of the ld. CIT(A). Ground no. 2 is dismissed.
13.Ground no. 3 relates to the deletion of the Transfer Pricing adjustment of Rs. 5,55,03,842/-.
14.Briefly stated the facts qua the issue are that during the year under consideration, the assessee had closed down its business operation. As mentioned elsewhere, the assessee was manufacturing copper wire harness. It had surplus raw materials which remained unused. The surplus raw material consisted of copper wires imported from two unrelated parties namely Copperfield and Shenzhen Baohing Electric Wire. As copper wire is the main ingredient of the copper wire. The price of the copper wire is driven from price of copper in the global metal markets. Since the assessee could not have sold these raw materials in local market in India and since its AE was engaged into similar business, the assessee decided to sell these raw materials at the prevailing market price to its AE.
8 ITA No. 918/Ahd/15 & C.O. No. 85/Ahd/15. A.Y. 2009-10
15.The assessee explained the methodology to work out differential copper wire price reimbursed to AE. Since the market price of copper had reduced substantially at the time of assessee sold its raw materials to from the time they were purchased. It was explained that for computing the selling of raw materials, the assessee applied the same methodology as adopted while purchasing the raw materials from unrelated parties.
16.The TPO accepted this working of the assessee and also agreed that prices of raw materials were based on prices of copper quoted on London Metal Exchange. The TPO also agreed that the prices of copper had reduced significantly in the copper market between the time the assessee purchased its raw materials and sold to its AE.
17.However, the TPO was of the opinion that the assessee has received varying amount of discounts from its suppliers and there was no basis for quantification of this discount granted by the suppliers.
18.The TPO considered the Arms Length Price of the sale to be the cost of raw material at Rs. 184,4,84,112/- and made an upward adjustment of Rs. 5,55,03,842/-.
19.Before the ld. CIT(A), the assessee once again explained the factual matrix which was duly considered by the ld. CIT(A) and after examining the facts in issue, the ld. CIT(A) observed as under:-
9 ITA No. 918/Ahd/15 & C.O. No. 85/Ahd/15. A.Y. 2009-10 "The only dispute between the Appellant and the AO/TPO arose in respect of difference in quantum of discounts given by the two major suppliers of the Appellant and based on that the sale price of material was arrived at. The AO contended that since the Appellant had received varying amount of discounts from its suppliers during the year under appeal and since the Appellant has not provided any calculation and basis for the quantification of the discounts granted to it by its third party suppliers, the calculations of the sale price remains subjective; the assertion of the Appellant that the sale price is determined on the basis of prevailing London Metal Exchange (LME) price by following the same method as would be applicable in the case of determination of purchase price on the basis of prevailing LME price becomes fallacious; and hence, the Appellant is not able to justify the determination of the arm's length price of reimbursement of price differential on sale of the raw material on the basis of the market price. It is seen that raw material purchased from third parties, namely, Copperfield and Shenzhen Baohing accounted in books of accounts at the relevant purchase rate have not been disputed by the A.O/TPO.
Accordingly, if the purchase price of the Appellant is not disputed by the AO / TPO, it would be incorrect to challenge the difference in the quantum of discount given by two unrelated suppliers to the Appellant.
Further, I agree with the contention of the Appellant that the quantum of discount given by suppliers varies depending on commercial terms like quantity of material purchased, lead time of delivery etc. it is settled principle that AO cannot sit in the judgment for commercial transaction, and particularly it is purchased from third party. Accordingly, considering the fact that the Appellant used to purchase bulk of its raw materials from Copperfield, it is usual that it could ask for higher discount of Rs 30.72 as against discount of Rs 1.17 from Shenzhen Baohing. Hence, I find the difference in the/quantum of discount being commercially rationale and logical."
10 ITA No. 918/Ahd/15 & C.O. No. 85/Ahd/15. A.Y. 2009-10
20.Before us, the ld. D.R. could not point out any factual error in the findings of the First Appellate Authority.
21.After giving a thoughtful consideration to the orders of the authorities below and after understanding the factual matrix, we fail to understand how the assessee is expected to explain the quantification of the varying difference in the discount given by two unrelated parties. The assessee could not have approached the two unrelated parties and have asked them to explain why they were giving discount to the assessee. The upward adjustments made by the TPO are uncalled for and, therefore, calls for no interference with the findings of the First Appellate Authority. Ground no. 3 is accordingly dismissed.
22.In the result, the appeal filed by the Revenue is dismissed.
23.Since, we have dismissed the Revenue's appeal, the cross objection of the assessee becomes academic in nature and, therefore, calls for no adjudication.
Order pronounced in Open Court on 02- 05- 2017
Sd/- Sd/-
(R. P. TOLANI) (N. K. BILLAIYA)
JUDICIAL MEMBER True Copy ACCOUNTANT MEMBER
Ahmedabad: Dated 02/05/2017
Rajesh