CIBA INDIA LTD ( PREVIOUSLY KNOWN AS CIBA SPECIALTY CHEMICALS (I) LTD) (THROUGH THEIR SUCCESSORS BASF INDIA LTD), MUMBAI V. DCIT 8(1), MUMBAI

CO 151/MUM/2013

• Counselvise Citation: [2013] 122 COUNSELVISE.COM (IT) 8960 (ITAT-MUMBAI)
• Duration Of Justice: 1 month(s) 17 day(s)
• Appeal Type: Cross Objection
• Pronouncement Date: 28-08-2013
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: Not Allotted
• Assessment Year: 2005-2006
• Appeal Filed On: 11-07-2013
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: AJEET KUMAR JAIN; VIRENDRA OZHA
• Keywords: Business income; Transfer pricing; Opportunity of being heard; International transaction; Earning of tax free income
• Section: 80HHC; 14A; 80IB

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH K, MUMBAI . . , . . !'# , $ % BEFORE SHRI I.P. BANSAL, JUDICIAL MEMBER AND SHRI N.K. BILLAIYA, ACCOUNTANT MEMBER . : 7779 / / 2010, 2002-03 ITA NO. 7779/MUM/2010 (ASSESSMENT YEAR: 2002-03) . : 7780 / / 2010, 2003-04 ITA NO. 7780/MUM/2010 (ASSESSMENT YEAR: 2003-04) . : 792 / / 2011, 2005-06 ITA NO. 792/MUM/2011 (ASSESSMENT YEAR: 2005-06)` C.O. 174/MUM/2012, 2003-04 C.O. NO. 174/MUM/2012 ARISING OUT OF ITA NO. 7529/MUM/2010, AY 2003-04 C.O. 151/MUM/2013, 2005-06 C.O. NO. 151/MUM/2013 ARISING OUT OF ITA NO. 1034/MUM/2011, AY 2005-06 ------------------------------------------ M/S CIBA INDIA LIMITED, VIBGXOR TOURES UNIT NO. 101, 1 ST FLOOR, G BLOCK, C-62, BKC, BANDRA EAST, MUMBAI -400 051 VS DCIT-9(1) MUMBAI (APPELLANT)/CROSS OBJECTOR (RESPONDENT) . : 7528 / / 2010, 2002-03 ITA NO. 7528/MUM/2010 (ASSESSMENT YEAR: 2002-03) . : 7529 / / 2010, 2003-04 ITA NO. 7529/MUM/2010 (ASSESSMENT YEAR: 2003-04) . : 1034 / / 2011, 2005-06 ITA NO. 1034/MUM/2011 (ASSESSMENT YEAR: 2005-06) DCIT-9(1) MUMBAI VS M/S CIBA INDIA LIMITED, MUMBAI PAN: AAACC 4147 P (APPELLANT) (RESPONDENT) APPELLANT CROSS OBJECTOR BY : SHRI KANCHUN KAUSHAL & MS AARTI SATHE RESPONDENT REVENUE BY : S/SHRI AJEET KUMAR JAIN & VIRENDRA OZHA /DATE OF HEARING : 19-08-2013 / DATE OF PRONOUNCEMENT : 28-08-2013 M/S CIBA INDIA LIMITED & SEVEN OTHERS ITA 7779/MUM/2010 7 OTHERS 2 ) O R D E R PER BENCH : ITA NO. 7779/MUM/2010 AND ITA 7528/MUM/2010 ARE CRO SS APPEALS BY THE ASSESSEE AND THE REVENUE FOR AY 2002-0 3, ITA 7780 & ITA 7529/MUM/2010 ARE CROSS APPEALS BY THE ASSESSEE AND THE REVENUE AND CO 174/MUM/2012 BY THE ASSESSEE FOR AY 2 003-04 AND ITA 792/MUM/2011 AND ITA 1034/MUM/2011 ARE CROSS AP PEALS BY THE ASSESSEE AND THE REVENUE AND CO 151/MUM/2011 FOR AY 2005-06 BY THE ASSESSEE FOR AY 2005-06. AS COMMON ISSUES ARE IN VOLVED IN ALL THESE APPEAL, THEY WERE HEARD TOGETHER AND DISPOSED OFF BY THIS COMMON ORDER FOR THE SAKE OF CONVENIENCE AND BREVITY. ITA 7779/MUM/2010, ASSESSEES APPEAL FOR AY 2002-03 : 2. THE ASSESSEE HAS RAISED SIX SUBSTANTIVE GROUNDS OF APPEAL. GROUND NO. 1, 2 & 3 RELATE TO CORPORATE TAXES WHEREAS GROUNDS NO. 4, 5 & 6 RELATES TO TRANSFER PRICING ISSUE. 3. WE FIRST TAKE-UP TRANSFER PRICING ISSUES RAISED VIDE GRO UNDS NO. 4, 5 & 6. 4. BRIEFLY STATED THE FACTS OF THE CASE ARE THAT CIBA IN DIA LIMITED (CIL) IS A PUBLIC LIMITED COMPANY ENGAGED IN MANUFACTURE AN D TRADE OF SPECIALTY CHEMICALS. IT WAS FORMED IN 1996 AFTER HAVING O FF OF THE SPECIALTY CHEMICALS UNDERTAKING OF HINDUSTAN CIBA GEIGY LTD. (HCGL). DURING FEBRUARY 1998, RBI POST ON AN APPLICATION FRO M THE ASSESSEE TRANSFERRED THE RBI APPROVAL IN THE NAME OF CI L. PURSUANT TO RECEIPT OF RBI APPROVAL CIL ENTERED INTO A TECHNOLOGY T RANSFER AGREEMENT DATED 15.02.1999 WITH CIBA SPECIALTY CHEMICALS IN C. BASED AT SWITZERLAND (CIBA BASEL) TO PROVIDE CIL WITH AN EXCLUSIVE NON- TRANSFER LICENSE TO USE PLANT, TECHNOLOGY FOR MANUFACTURE O F CERTAIN FINISHED GOODS. THE TERMS OF APPROVAL WAS MODIFIED BY THE R BI VIDE LETTER DATED 15.03.2000 TO PAY ROYALTY @ 4% OF ALL DOMEST IC AND EXPORT M/S CIBA INDIA LIMITED & SEVEN OTHERS ITA 7779/MUM/2010 7 OTHERS 3 SALES FOR A PERIOD OF 7 YEARS. THE ASSESSEE, IN THE TRANSF ER PRICING STUDY REPORT, DOCUMENTED THE BENCH MARKING ANALYSIS TO ALL PAYMENT OF ROYALTY MADE TO CIBA BASEL BY ADOPTING A COMPARABLE UN CONTROLLED PRICE (CUP) METHOD AS THE MOST APPROPRIATE METHOD (MAM) T O DETERMINE THE ARMS LENGTH PRICE OF THE ROYALTY PAYMENT S MADE TO CIBA BASEL. THE TPO DISREGARDED MOST APPROPRIATE METHOD (MAM) SELECTED BY CIL IN RESPECT OF ROYALTY TRANSACTION I.E. CUP AND ADOPTED TRANSACTIONAL NET MARGIN METHOD (TNMM) AS THE MOST APP ROPRIATE METHOD FOR THE PAA SEGMENT. THE ASSESSEE WAS ASKED TO SUBMIT COMPARABLES TO BENCH MARK THE TRANSACTION USING TNMM. T HE ASSESSEE WITHOUT PREJUDICE TO HIS CUP METHOD SUBMITTED THE DETAILS. THE TPO WENT ON TO MAKE ADJUSTMENT TO THE TUNE OF RS 78,28,908/ -. 5. WHEN THE MATTER WAS CARRIED BEFORE THE CIT(A), THE CI T(A) REJECTED ASSESSEES CONTENTION OF APPLICABILITY OF CUP AS THE MOST APPROPRIATE METHOD FOR THE CURRENT YEAR. 6. AGGRIEVED BY THIS FINDING, THE ASSESSEE IS BEFORE US. 7. THE COUNSEL FOR THE ASSESSEE DREW OUR ATTENTION TO THE AGREEMENT ENTERED BETWEEN THE ASSESSEE AND THE CIBA BASEL EXHIBITED ON PAGE 1 TO 9 OF THE PAPER BOOK. THE COUNSEL ALSO DRE W OUR ATTENTION TO THE RBIS AMENDED APPROVAL FOR THE PAYMENT OF ROYALT Y AS EXHIBITED ON PAGE 10 OF THE PAPER BOOK. THE COUNSEL POINTED OUT T HAT THE AGREEMENT IS FOR 7 YEARS, THE COUNSEL FURTHER DREW OUR A TTENTION TO THE DIRECTIONS ISSUED BY THE DRP U/S 144C(5) OF THE ACT PERT AINING TO THE AY 2006-07 AND SUBMITTED THAT, ON IDENTICAL FACTS, THE DRP IN SUBSEQUENT AY I.E. 2006-07 HAS DIRECTED THE TPO TO ACCE PT THE CUP METHOD OFFERED BY THE ASSESSEE. IT IS THE SAY OF THE COU NSEL THAT, SINCE IN SUBSEQUENT YEARS, THE REVENUE HAS ACCEPTED THE CUP METHOD AS THE MOST APPROPRIATE METHOD ON THE IDENTICAL FACTS, THE SAME VIEW SHOULD BE ADOPTED FOR THE YEAR UNDER CONSIDERATION. 8. THE DR RELIED UPON THE FINDINGS OF THE LOWER AUTHORITIES. M/S CIBA INDIA LIMITED & SEVEN OTHERS ITA 7779/MUM/2010 7 OTHERS 4 9. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND PERUSED THE ORDERS OF THE LOWER AUTHORITIES AND ALSO THE RELEVANT MAT ERIAL EVIDENCE BROUGHT ON RECORD IN THE FORM OF PAPER BOOK. WE HAVE A LSO BENEFIT OF GOING THROUGH THE DIRECTIONS ISSUED BY THE DRP FOR AY 20 06-07. WE FIND FORCE IN THE CONTENTION OF THE LD. COUNSEL THAT IN SUBS EQUENT YEAR THE DRP HAS ACCEPTED THE CUP METHOD AS THE MOST APP ROPRIATE METHOD. THE DRP THUS HAS DIRECTED THE TPO AS UNDER: THE FACTS OF THE CASE HAVE BEEN CONSIDERED BY THE D RP. IT IS SEEN THAT THE ASSESSEE ON THE BASIS OF ITS OWN SEARCH FROM TH E DATABASE HAS FOUND OUT THE FOLLOWING CUP: (I) 4.46% ON EXPORT SALES AND (II) 4.01% ON DOMESTIC SALES. AGAINST THIS APPROACH OF THE ASSESSEE, THE TPO HAS PLACED RELIANCE ON TNMM WITHOUT ANALYZING THE SUITABILITY OR GIVING AN Y SPECIFIC REASONS FOR REJECTION OF THE CUP PROVIDED BY THE ASSESSEE. THE A.O. ON THE BASIS OF TNMM ANALYSIS, HAS COME TO A CONCLUSION THAT IN ORDER TO BE ABLE TO ACHIEVE COMPARABLE MARGIN OF 5.83%, THE EXPENSE WIL L HAVE TO BE REDUCED AND ON THAT BASIS THE ROYALTY WILL HAVE TO BE DETERMINED AT NIL VALUE. THE METHOD ADOPTED BY THE TPO IS NOT REASONA BLE IN AS MUCH AS THE REQUIRED REDUCTION IN THE COST CANNOT BE MADE O NLY IN RESPECT OF ONLY ONE INTERNATIONAL TRANSACTION, WHEREAS THE ASSESSEE HAS ENTERED INTO AS MANY AS 16 INTERNATIONAL TRANSACTIONS. IT IS ALSO S EEN THAT THE TPO HAS ACCEPTED THE CUP METHOD IN RESPECT OF AGENCY COMMIS SION. THEREFORE, IT DOES NOT APPEAR REASONABLE TO TREAT THE VALUE OF RO YALTY AT NIL ON THE BASIS OF COMPARABLE MARGIN. SINCE THE CUP METHOD HA S ALREADY BEEN ACCEPTED IN THE CASE OF AGENCY COMMISSION AND OTHER CHARGES, THE TPO IS DIRECTED TO EXAMINE THE CUP AS OFFERED BY THE AS SESSEE IN ITS TP REPORT AND ADJUSTMENT IF ANY REQUIRED SHOULD BE MAD E ON THAT BASIS. 10. AS NO DISTINGUISHING FACTS HAVE BEEN BROUGHT ON RECO RD, WE DO NOT FIND ANY REASON WHY THE DIRECTIONS ISSUED BY THE DRP FOR AY 2006- 07 SHOULD NOT BE FOLLOWED FOR THE YEAR UNDER CONSIDERATION WHEN THE FACTS AND THE CIRCUMSTANCES FOR PAYMENT OF ROYALTY ARE T HE SAME. WE, ACCORDINGLY, DIRECT THE AO TO EXAMINE THE CUP OFFERED BY THE ASSESSEE IN ITS TP REPORT AND ADJUSTMENT, IF ANY, REQUIRED SHOULD BE MADE ON THAT BASIS. 11. GROUNDS NO. 4, 5 & 6 ARE ACCORDINGLY ALLOWED. M/S CIBA INDIA LIMITED & SEVEN OTHERS ITA 7779/MUM/2010 7 OTHERS 5 12. GROUND NO. 1 RELATES TO THE DISALLOWANCE OF EMPLOYEES HOUSING LOAN WRITTEN OFF TO THE EXTENT OF RS. 4,67,633/- AND ADVANC ES WRITTEN OFF AT RS. 1,55,904/-. 13. THIS ISSUE HAS BEEN CONSIDERED BY THE AO AT PARA 4 OF HIS ORDER. WHILE SCRUTINIZING THE STATEMENT OF ACCOUNTS DURING THE CO URSE OF THE ASSESSMENT PROCEEDINGS, THE AO OBSERVED THAT THE ASSE SSEE HAS DEBITED TO THE PROFIT & LOSS ACCOUNT AN AMOUNT OF RS. 11,3 9,950/- BY WAY OF EMPLOYEE HOUSING LOAN WRITE-OFF AND AN AMOUNT OF RS . 1,55,904/- BY WAY OF ADVANCES WRITTEN OFF REPRESENTED BY THE MISCELLANEOUS BALANCES OUTSTANDING IN THE NAME OF VARIOUS P ARTIES. THE ASSESSEE WAS ASKED TO EXPLAIN THE ALLOWABILITY OF THESE AMOUNTS, IT WAS EXPLAINED BY THE ASSESSEE THAT THE LOANS WERE GRAN TED TO THE EMPLOYEES IN THE ORDINARY COURSE OF ITS BUSINESS AND SINCE THE EMPLOYEES HAVE LEFT THE SERVICES OF THE ASSESSEE, RECOVER Y COULD NOT BE PURSUED AND HENCE THE AMOUNTS WERE WRITTEN OFF AND CLA IMED AS ALLOWABLE BUSINESS EXPENSE. SIMILARLY, THE MISCELLANEOUS BALANCE S WRITTEN OFF HAD BEEN ADVANCED IN THE ORDINARY COURSE OF IT S BUSINESS AND, THEREFORE, DESERVED TO BE ALLOWED AS BUSINESS EXPENS E. THE AO REJECTED THE CLAIM OF THE ASSESSEE, STATING THAT ALLOWABILITY OF THE BAD DEBT IS GOVERNED BY SECTION 36(1)(VII) R.W.S. 36(2) OF THE ACT AND ASSESSEES CASE DOES NOT FALL WITHIN THE FOUR WALLS OF THESE SECTIONS. 14. THE ASSESSEE STRONGLY AGITATED THIS ISSUE BEFORE T HE CIT(A) BUT, WITHOUT SUCCESS. IT WAS POINTED OUT TO THE LD. CIT(A) THA T THE LOANS WERE GIVEN TO TWO EMPLOYEES WHO HAVE LEFT THE SERVICES OF THE COMPANY AND DID NOT SETTLE THE AMOUNTS OUTSTANDING. IT WAS FURTH ER SUBMITTED THAT THE LOAN GIVEN TO MR. RAJAN CHOURSE HAS BEEN SUBS EQUENTLY SETTLED IN THE YEAR 2004-05 AND THE SAME HAS BEEN OFFER ED FOR TAXATION UNDER SECTION 41(1) OF THE ACT AND SO FAR AS THE LOAN GIVE N TO THE OTHER EMPLOYEE, IT WAS SUBMITTED THAT THE SUIT IS TILL PENDING. THE CIT(A) DIRECTED THE AO TO ALLOW THE CLAIM OF DEDUCTION OF RS. 6,17,31 7/- BEING LOAN GIVEN TO MR. RAJAN CHOURSE AS THE SAME HAS BEEN RECOVERED IN TH E M/S CIBA INDIA LIMITED & SEVEN OTHERS ITA 7779/MUM/2010 7 OTHERS 6 SUBSEQUENT YEAR. HOWEVER, THE CIT(A) CONFIRMED THE DISALLOWA NCE OF RS. 4,67,633/- BEING LOAN TO ANOTHER EMPLOYEE AND ALSO CON FIRMED THE ADVANCES OF RS. 1,55,904/-. 15. THE ASSESSEE IS BEFORE US AGAINST THIS FINDING OF THE CIT(A). 16. BEFORE US, THE LD. COUNSEL REITERATED THAT THE LOANS AND MISCELLANEOUS ADVANCES WERE GIVEN IN THE ORDINARY COURSE OF BUSINESS, THEREFORE, THE SAME SHOULD BE ALLOWED AS A BUSINESS LOSS. THE COUNSEL RELIED UPON THE DECISION OF THE MUMBAI BENCH, IN THE CASE OF EDELWEISS CAPITAL LTD. IN ITA NO. 3971/MUM/2009 WHEREIN, THE TRIBUNAL HAS ALLOWED THE ADVANCES. THE DR STRONGLY SUPPORTED THE FIND INGS OF THE LOWER AUTHORITIES. 17. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND PERUSED THE ORDERS OF THE LOWER AUTHORITIES AND ALSO THE ORDER OF THE TRIBUNAL RELIED UPON BY THE COUNSEL. WE FIND THAT THE TRIBUNAL IN ITA NO. 3 971 HAS ALLOWED WRITE-OFF OF THE ADVANCES AS A BUSINESS LOSS. SINCE T HERE IS NO DISPUTE IN THE PRESENT CASE THAT THE ADVANCES HAVE BE EN GIVEN IN THE ORDINARY COURSE OF BUSINESS. RESPECTFULLY FOLLOWING THE FINDING S OF THE TRIBUNAL IN ITA 3971 ( SUPRA ) WE DIRECT THE AO TO ALLOW THE CLAIM OF DEDUCTION AS A BUSINESS LOSS. GROUND NO. 1 IS ACCORDINGLY ALLOWED. 18. GROUND NO. 2 RELATES TO THE EXCLUSION OF THE 90% OF T HE FOLLOWING RECEIPTS WHILE WORKING PROFITS OF THE BUSINESS FOR THE PURPO SE OF CALCULATION OF DEDUCTION U/S 80HHC OF THE ACT: SR. NO. PARTICULARS AMOUNT (RS) (1) (2) (3) 1 REIMBURSEMENT OF GOREGAON CANTEEN/ OTHER EXPENSES RECEIVED FROM NOVARTIS 17,79,029 2 CUSTOMERS BALANCES WRITTEN BACK DURING THE YEAR 2 ,41,523 2 INCOME RECOVERED FROM EMPLOYEES FOR CANTEEN EXPENSES 1,57,730 3 SALES TAX REFUND RECEIVED DURING THE YEAR 5,82,39 5 4 INSURANCE CLAIM RECEIVED DURING THE YEAR AGAINST DAMAGE/LOSS OF COMPANYS GOODS 6,16,674 5 RECOVERY OF EXPENSES FROM EMPLOYEES 30,068 M/S CIBA INDIA LIMITED & SEVEN OTHERS ITA 7779/MUM/2010 7 OTHERS 7 (1) (2) (3) 6 INCOME FOR RETURNS OF GOODS PURCHASED 5,73,817 7 MISCELLANEOUS SCRAP SALES 2,92,375 8 CASH DISCOUNT RECEIVED 9,62,437 9 REIMBURSEMENT OF EXPENSES RECEIVED FROM DIAMOND DYE-CHEM LIMITED 1,24,399 10 SCRAP SALES 23,34,232 TOTAL 76,94,679 19. THIS ISSUE HAS BEEN DISCUSSED BY THE AO AT PARA 7 O F HIS ORDER AND AT PARA 7.2.1 FOR THE DETERMINATION OF THE PROFITS OF TH E BUSINESS DID NOT ACCEPT THE PLEA OF THE ASSESSEE THAT THE AFOREM ENTIONED RECEIPTS ARE NOT COVERED BY THE PROVISIONS OF EXPLANATIO N BAA TO SECTION 80HHC. IT WAS STRONGLY CONTENDED BY THE ASSES SEE BEFORE THE AO THAT THE AFOREMENTIONED RECEIPTS ARE NORMAL BUSINESS INCOME EARNED IN THE ORDINARY COURSE OF BUSINESS AND, THEREFORE , ARE NOT REQUIRED TO BE REDUCED FROM THE PROFITS FOR DETERMINING D EDUCTION U/S 80HHC. THE AO DID NOT ACCEPT THE CONTENTIONS OF THE AS SESSEE AND HELD THAT THE AFOREMENTIONED RECEIPTS TO THE TUNE OF RS . 76,94,679/- ARE IN THE NATURE OF RECEIPTS GOVERNED BY EXPLANATION (BA A) TO SECTION 80HHC AND, THEREFORE, ARE REQUIRED TO BE REDUCED FROM TH E PROFITS OF THE BUSINESS TO THE EXTENT OF 90%. 20. THE ASSESSEE CARRIED THE MATTER BEFORE THE CIT(A) B UT FAILED TO CONVINCE THE CIT(A) THAT ALL THE RECEIPTS ARE BUSINESS REC EIPTS EARNED DURING THE COURSE OF THE BUSINESS. 21. AFTER CONSIDERING THE FACTS AND SUBMISSIONS MADE BY TH E ASSESSEE, THE CIT(A) WAS OF THE FIRM BELIEF THAT THERE IS NO NEXUS BETWEEN THESE RECEIPTS TO EXPORTS OF THE ASSESSEE. 22. BEFORE US, THE LD. COUNSEL FOR THE ASSESSEE HAS REITER ATED WHAT HAS BEEN SUBMITTED BEFORE THE LOWER AUTHORITIES. THE COUN SEL FURTHER RELIED ON THE DECISION IN THE CASE OF PFIZER LTD. 233 CTR 52 1 (BOM) EXHIBITED ON PAGE 112 OF THE PAPER BOOK. THE DR STRONGL Y SUPPORTED THE FINDINGS OF THE LOWER AUTHORITIES. M/S CIBA INDIA LIMITED & SEVEN OTHERS ITA 7779/MUM/2010 7 OTHERS 8 23. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND PERUSED THE ORDERS OF THE LOWER AUTHORITIES AND THE DECISION RELIED UPO N BY THE COUNSEL. WE FIND THAT THE AO HAS REJECTED THE CLAIM OF TH E ASSESSEE IN A SUMMARY MANNER WITHOUT CONSIDERING THE NATURE OF EACH ITEM OF INCOME VIS-A-VIZ BUSINESS OF THE ASSESSEE. THE CIT(A) HAS ALSO CONFIRMED THE ASSESSMENT WITHOUT CONSIDERING THE NATURE OF EACH RECEIPTS, THEREFORE, IN THE INTEREST OF JUSTICE, WE RESTORE THIS ISSUE BACK TO THE FILES OF THE AO. THE AO IS DIRECTED TO VERIFY EACH IT EM BEFORE COMING TO ANY CONCLUSION AND AFTER GIVING A REASONABLE OPP ORTUNITY OF BEING HEARD TO THE ASSESSEE. 24. GROUND NO. 2 IS ACCORDINGLY ALLOWED FOR STATISTICAL PURPOSES. 25. GROUND NO. 3 RELATES TO EXCLUSION OF THE FOLLOWING ITEMS OF INCOME WHICH ARE SET OFF AGAINST THE EXPENSES APPORTIONED TO INDUSTRIAL UNDERTAKING, FROM THE ELIGIBLE PROFITS OF THE INDUSTR IAL UNDERTAKING ON WHICH DEDUCTION U/S 80IB IS CLAIMED ON TH E FOLLOWING ITEMS: SR. NO. PARTICULARS AMOUNT (RS) 1 INDENT COMMISSION 1,93,186 2 INTEREST INCOME 14,35,550 3 FOREIGN EXCHANGE GAIN 6,45,691 4 REIMBURSEMENT OF GOREGAON CANTEEN/ OTHER EXPENSES RECEIVED FROM NOVARTIS 99,448 5 RENT INCOME FROM LETTING OUT OF HOUSE PROPERTY 1, 64,178 6 CUSTOMER BALANCES WRITTEN BACK DURING THE YEAR 13 ,501 7 INCOME RECOVERED FORM EMPLOYEES FOR CANTEEN EXP. 8,817 8 SALES TAX REFUND RECEIVED DURING THE YEAR 32,556 9 INSURANCE CLAIM INCOME 34,472 10 RECOVERY OF EXPENSES FROM EMPLOYEES 1,681 11 INCOME FOR RETURNS OF GOODS PURCHASED 32,076 12 RENT RECEIVED FROM CIPL 4,46,687 13 REIMBURSEMENT OF EXPENSES RECEIVED FROM DIAMOND DYE-CHEM LIMITED 6,954 TOTAL 31,14,797 26. THIS ISSUE HAS BEEN DISCUSSED BY THE AO AT PARA 8 O F THE ASSESSMENT ORDER AND AT PARA 8.1, OTHER INCOMES HAVE B EEN EXHIBITED TOTALING TO RS 33,21,357/-. THE ASSESSEE WAS ASKED TO E XPLAIN WHY THE M/S CIBA INDIA LIMITED & SEVEN OTHERS ITA 7779/MUM/2010 7 OTHERS 9 DEDUCTION U/S 80IB SHOULD NOT BE REDUCED BY EXCLUDING T HE OTHER INCOME OF RS 33,21,357/- FROM THE ELIGIBLE PROFITS. 27. IT WAS EXPLAINED THAT THESE ITEMS OF INCOME ARE COMM ON CORPORATE INCOME AND THE SAME ARE ADJUSTED AGAINST TH E COMMON CORPORATE EXPENSES BEFORE ALLOCATING THE EXPENSES TO 80 IB UNIT. THE EXPLANATION OF THE ASSESSEE DID NOT FIND FAVOUR WITH THE AO , WHO WENT TO RE-COMPUTE THE ELIGIBLE PROFIT FOR THE PURPOSES OF SECTIO N 80IB, AS EXHIBITED AT PARA 8.3 OF HIS ORDER. 28. THE ASSESSEE CARRIED THIS MATTER BEFORE THE CIT(A) BU T WITHOUT ANY SUCCESS. THE CIT(A) DID ALLOW RELIEF TO THE ASSESSEE, SO FAR AS SCRAP SALES, MISCELLANEOUS SALES AND CASH DISCOUNT RECEIPTS WERE CONCERNED. HOWEVER, FOR ALL OTHER ITEMS, THE CIT(A) WAS OF THE OPINION TH AT THEY ARE BEYOND THE FIRST DEGREE SOURCE AND HENCE LIABLE TO BE EXCLUDED. 29. BEFORE US, THE COUNSEL FOR THE ASSESSEE REITERATED WH AT HAS BEEN SUBMITTED BEFORE THE LOWER AUTHORITIES. THE DR STRONGLY SUPPORTED THE FINDINGS OF THE LOWER AUTHORITIES. 30. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND CAREFULLY PERUSED THE ORDERS BELOW. WE FIND THAT THE AO HAS REJECTED THE EXPLANATION OF THE ASSESSEE IN A SUMMARY MANNER WITHOUT EXAMINING THE NEXUS OF THE INCOME VIS-A-VIZ EXPENSES CLAIMED BY THE ASSESSEE. TH E CIT(A) HAS ALSO ERRED IN REJECTING THE CLAIM OF THE ASSESSEE IN A SUM MARY MANNER EXCEPT FOR THREE ITEMS ON WHICH THE CIT(A) HAS GIVEN RELIEF TO THE ASSESSEE. IN THE INTEREST OF JUSTICE AND FAIR PLAY, WE RES TORE THIS ISSUE BACK TO THE FILES OF THE AO, THE AO IS DIRECTED TO DECIDE THIS ISSUE AFRESH IN THE LIGHT OF THE DECISION OF THE HONBLE JURISDICTION AL HIGH COURT IN THE CASE OF ASSOCIATED CAPSULES PVT. LTD., 332 I TR 43 AFTER GIVING A REASONABLE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. 31. GROUND NO. 3 IS ALLOWED FOR STATISTICAL PURPOSES. M/S CIBA INDIA LIMITED & SEVEN OTHERS ITA 7779/MUM/2010 7 OTHERS 10 32. THE ASSESSEE HAS ALSO RAISED ONE ADDITIONAL GROUND B Y WHICH IT IS PLEADED THAT 90% OF NET AMOUNT SHOULD BE EXCLUDED WHILE COMPUTING THE PROFITS OF THE BUSINESS FOR THE PURPOSE OF D EDUCTION U/S 80HHC OF THE ACT. 33. FOLLOWING OUR FINDINGS FOR GROUND NO. 2, HEREINABOVE, WE R ESTORE THIS ISSUE BACK TO THE FILES OF THE AO TO ALLOW NETTING OF INT EREST BEFORE EXCLUDING 90% OF NET AMOUNT, IF REQUIRED. 34. ADDITIONAL GROUND IS ALSO ALLOWED FOR STATISTICAL PURPOSES. 35. IN THE RESULT, APPEAL FILED BY THE ASSESSEE IS PARTLY ALLOWED. ITA 7528/MUM/2010, REVENUES APPEAL, AY 2002-03 : 36. THE ONLY GRIEVANCE OF THE REVENUE IS THAT THE CIT(A) HAS ERRED IN DELETING THE INTEREST CHARGED U/S 234D OF THE ACT AMOUN TING TO RS 3,09,095/-. 37. THIS ISSUE HAS BEEN DECIDED IN FAVOUR OF THE REVENUE B Y THE HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF CIT VS. IND IAN OIL CORPORATION LTD. 25 TAXMANN.COM284. 38. RESPECTFULLY FOLLOWING THE DECISION OF THE HONBLE JURISDICT IONAL HIGH COURT, THE AO IS DIRECTED TO LEVY INTEREST U/S 234D OF THE ACT AS PER THE PROVISIONS OF THE LAW AFTER GIVING THE APPEAL EFFECT. 39. APPEAL FILED BY THE REVENUE IS ACCORDINGLY ALLOWED. ITA 7780/MUM/2010, ASSESSEES APPEAL, AY 2003-04 : 40. GROUND NO. 1 IS IDENTICAL TO GROUND NO. 2 OF ITA 7999, FA CTS BEING IDENTICAL FOR THE SIMILAR REASONS THIS GROUND IS ALSO DIS POSED OFF ACCORDINGLY. THE AO IS DIRECTED TO FOLLOW OUR FINDINGS GIVEN IN GROUND NO. 2 IN ITA 7779/MUM/2010. GROUND NO. 1 IS ALLOWED FOR STA TISTICAL PURPOSES. M/S CIBA INDIA LIMITED & SEVEN OTHERS ITA 7779/MUM/2010 7 OTHERS 11 41. GROUND NO. 2 RELATES TO TRANSFER PRICING ISSUE, WHICH IS IDENTICAL TO GROUNDS NO. 4, 5 & 6 IN ITA 7779/MUM/2010. FOR SIMILAR REASONS, THE AO IS DIRECTED TO FOLLOW OUR FINDINGS GIVEN IN ITA 7779. GROUND NO. 2 IS ACCORDINGLY ALLOWED. 42. GROUND NO. 3 BECOMES OTIOSE BY VIRTUE OF OUR FINDINGS GIVEN FOR GROUND NO. 2. 43. ADDITIONAL GROUND RAISED IN THIS APPEAL IS IDENTICAL TO THE ADDITIONAL GROUND RAISED IN ITA 7779. THE AO IS DIRECTED T O FOLLOW OUR FINDING GIVEN IN ITA 7779. 44. ADDITIONAL GROUND IS DISPOSED OFF ACCORDINGLY. 45. IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWED IN PARTS. ITA 7529/MUM/2010, REVENUES APPEAL, AY 2003-04 : 46. GROUND NO. 1 RELATES THE DELETION OF DISALLOWANCE AMOUN TING TO RS. 8,96,777/- MADE BY THE AO ON ACCOUNT OF BACK WAGES PAID TO ONE WORKER. 47. A PERUSAL OF THE RECORD SHOW THAT, A SIMILAR ISSUE CAM E UP FOR HEARING IN THE CASE OF ASSESSEE FOR AY 2001-02 IN ITA NO . 6676/MUM/2006, WHEREIN, THE TRIBUNAL HAS CONSIDERED THE S IMILAR GRIEVANCE AT PARA 11 OF ITS ORDER AND HAS GIVEN ITS FINDING AT PARA 22. THE TRIBUNAL HAS, THUS, HELD THE ASSESSEE COMPANY HAVING STEPPED INTO THE SHOES OF THE PARENT COMPANY, IT IS ALSO LIABLE TO MAKE THE PAYMENT A ND ALSO ENTITLED TO CLAIM THE SAME AS REVENUE DEDUCTION AND IS ALLOWABLE, AS SUCH. IN VIEW OF THE SAME, THIS GROUND OF APPEAL OF THE ASSESSEE IS ALLOWED . AS NO DISTINGUISHING FACTS HAVE BEEN BROUGHT ON RECORD, R ESPECTFULLY FOLLOWING THE FINDINGS OF THE TRIBUNAL IN ASSESSEES OWN CASE FOR AY M/S CIBA INDIA LIMITED & SEVEN OTHERS ITA 7779/MUM/2010 7 OTHERS 12 2001-02 ( SUPRA ) WE DO NOT FIND ANY REASON TO INTERFERE WITH THE ORDER OF THE CIT(A). GROUND NO. 1 IS ACCORDINGLY DISMISSED. 48. GROUND NO. 2 RELATES TO THE CHARGING OF INTEREST U/S 234D. 49. THE ISSUE IDENTICAL TO REVENUES APPEAL IN ITA 7528/ MUM/2010 WHEREIN, WE HAVE FOLLOWED THE DECISION OF THE HONBLE JURISD ICTIONAL HIGH COURT IN 25 TAXMANN.COM284, THE AO IS DIRECTED TO FOLLO W THE SAME. GROUND NO. 2 IS ALLOWED. 50. IN THE RESULT, APPEAL OF THE REVENUE IS PARTLY ALLOWED. CO 174/MUM/2012 BY THE ASSESSEE FOR AY 2003-04 : 51. GROUND NO. 1 RELATES TO THE BACK WAGES. 52. THIS ISSUE HAS ALREADY BEEN DECIDED IN FAVOUR OF THE A SSESSEE VIDE GROUND NO. 1 IN ITA 7529, THEREFORE, THIS GRIEVANCE B ECOMES OTIOSE . 53. GROUND NO. 2 RELATES TO CHARGING OF INTEREST U/S 234D. 54. THIS ISSUE HAS BEEN DECIDED IN FAVOUR OF THE REVENUE, V IDE GROUND 2 OF ITA 7529/MUM/2010. THE CO IS ACCORDINGLY DISMISSED. 55. IN THE RESULT, ASSESSEES C.O. STANDS DISMISSED. ITA 792/MUM/2011, ASSESSEES APPEAL, AY 2005-06 : 56. GROUND NO. 1 & 2 ARE NOT PRESSED AND ARE ACCORDING LY DISMISSED. 57. GROUND NO. 3 & 4 RELATES TO THE TRANSFER PRICING ISSUE. 58 FACTS AND CIRCUMSTANCES ARE IDENTICAL WITH GROUND NO. 4, 5 & 6 CONSIDERED BY US IN ITA 7779. FOR SIMILAR REASONS ON SIMILAR FACTS, THE AO IS DIRECTED TO FOLLOW OUR FINDINGS IN ITA 7779. M/S CIBA INDIA LIMITED & SEVEN OTHERS ITA 7779/MUM/2010 7 OTHERS 13 59 IN THE RESULT, APPEAL OF THE ASSESSEE STANDS ALLOWED. ITA 1034/MUM/2011, REVENUES APPEAL, AY 2005-06 : 60. GROUND NO. 1 RELATES TO RESTRICTION OF DISALLOWANCE U/ S 14A FROM RS. 1,33,66,174/- TO RS. 2,00,000/-. 61. THIS ISSUE HAS BEEN DISCUSSED BY THE AO, AT PARA 5 O F HIS ORDER. WHILE SECURITIZING THE RETURN OF INCOME FOR THE YEAR UNDER CONSIDERATION, THE AO OBSERVED THAT THE ASSESSEE HAS S HOWN DIVIDEND INCOME OF RS. 3,10,95,178/-, WHICH IT IS CLAIMED EXEMPT U/S 1 0(34). THE AO FURTHER OBSERVED THAT THE ASSESSEE HAS NOT ALLO CATED ANY EXPENDITURE TOWARDS EARNING OF THIS INCOME. THE AO WENT ON TO APPL Y A RULE 8D BY INVOKING PROVISIONS OF SECTION 14A OF THE ACT AN D COMPUTED THE DISALLOWANCE AT RS. 1,33,66,174/-. 62. THE REVENUE CARRIED THIS MATTER BEFORE THE CIT(A), THE CIT(A) HAS CONSIDERED THIS ISSUE AT PARA 2 OF HIS ORDER. IT WAS CON TENDED BEFORE THE CIT(A) THAT NO DISALLOWANCE U/S 14A IS CALLED FOR SINCE NO EXPENDITURE HAS BEEN INCURRED FOR EARNING THE EXEMPT INC OME. THE ASSESSEE ALSO TOOK THE ALTERNATE PLEA THAT THE DISALLOWAN CE IS EXCESSIVE. THE CIT(A) AFTER CONSIDERING THE FACTS AND SUBM ISSIONS OBSERVED THAT THE ASSESSEE HAS NOT INCURRED ANY DIRE CT EXPENDITURE ON EARNING THIS EXEMPT INCOME. THE CIT(A) FURTHER OBSERVED T HAT ONLY TWO DIVIDEND WARRANTS WERE RECEIVED AND ELECTRONICALLY CREDITED TO T HE BANK ACCOUNT. THE CIT(A) RESTRICTED THE DISALLOWANCE TO RS. 2 LAKHS. 63. THE REVENUE IS BEFORE US AGAINST THIS FINDING OF THE CI T(A). THE DR STRONGLY SUPPORTED THE ASSESSMENT ORDER. THE COUN SEL FOR THE ASSESSEE REITERATED WHAT HAS BEEN SUBMITTED BEFORE THE LOWER AUTHORITIES. M/S CIBA INDIA LIMITED & SEVEN OTHERS ITA 7779/MUM/2010 7 OTHERS 14 64. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND PERUSED THE ORDERS OF THE LOWER AUTHORITIES. WE FIND THAT THE AO HAS A PPLIED RULE 8D BY INVOKING THE PROVISIONS OF SECTION 14A OF THE ACT. IT IS NOW WELL SETTLED THAT RULE 8D IS APPLICABLE FROM AY 2008-09 AS IS HE LD IN THE CASE OF DCIT VS. GODREJ AND BOYCE MANUFACTURING CO. LTD ., 328 ITR 81. THE CIT(A) HAS GIVEN A VERY CATEGORICAL FINDING THAT THE DIVIDEND WARRANTS WERE CREDITED ELECTRONICALLY. HOWEVER, THE CIT(A) HAS RESTRICTED THE DISALLOWANCE TO RS. 2 LAKHS, WHICH, IN OUR CON SIDERATE VIEW AND ON THE FACTS OF THE CASE APPEAR TO BE VERY RE ASONABLE. WE, THEREFORE, DO NOT FIND ANY REASON TO INTERFERE WITH THE FIND INGS OF THE LD. CIT(A). GROUND NO. 1 IS ACCORDINGLY DISMISSED. 65. GROUND NO. 2 RELATES TO THE DELETION OF THE DISALLOWANCE OF RS. 6,78,500/- ON ACCOUNT OF ACCOUNT OF BACK WAGES. 66. THIS ISSUE IS IDENTICAL TO GROUND NO. 1 OF ITA 7529, WHER EIN, WE HAVE DELETED THE ADDITION, FOLLOWING ORDER OF THE TRIBUNAL IN A SSESSEES OWN CASE. THIS GROUND IS ACCORDINGLY DECIDED ON SIMILAR LINES BECAUSE OF SIMILAR FACTS. GROUND 2 IS ACCORDINGLY DISMISSED. 67. IN THE RESULT, REVENUES APPEAL STANDS DISMISSED. CO 151/MUM/2013 BY THE ASSESSEE FOR AY 2005-06 : 68. THE ONLY ISSUE RAISED BY THE ASSESSEE IN THIS CO RE LATES TO THE PAYMENT OF BACK WAGES OF RS. 6,78,500/-. 69. AS WE HAVE DELETED THIS ADDITION IN REVENUES APPEAL IN ITA 1034 , THIS CO BECOMES OTIOSE . 70. IN THE RESULT, ASSESSEES C.O. STANDS DISMISSED. 71. TO SUM UP THE RESULTS: ASSESSEES APPEAL IN ITA 7779 IS PARTLY ALLOWED REVENUES APPEAL IN ITA 7528 IS ALLOWED ASSESSEES APPEAL IN ITA 7780 IS ALLOWED IN PARTS M/S CIBA INDIA LIMITED & SEVEN OTHERS ITA 7779/MUM/2010 7 OTHERS 15 REVENUES APPEAL IN ITA 7529 IS PARTLY ALLOWED ASSESSEES C.O. 174 STANDS DISMISSED ASSESSEES APPEAL IN ITA 792 STANDS ALLOWED REVENUES APPEAL IN ITA 1034 STANDS DISMISSED ASSESSEES C.O. 151 STANDS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 28 TH AUGUST, 2013. SD/- SD/- ( . . ) ( . . !'# ) $ (I.P. BANSAL ) (N. K. BILLAIYA) JUDICIAL MEMBER AC COUNTANT MEMBER MUMBAI, DATE: 28 TH AUGUST, 2013 / COPY TO:- 1) / THE APPELLANT. 2) / THE RESPONDENT. 3) THE CIT(A)-15, MUMBAI. 4) ' '# /CIT-9, MUMBAI THE CIT-9, MUMBAI 5) $%& ' ( , ' ' , )*+ / THE D.R. K BENCH, MUMBAI. 6) &, - COPY TO GUARD FILE. '.(/ / BY ORDER / / TRUE COPY / / [ 0 / 1 *2 ' ' , )*+ DY. / ASSTT. REGISTRAR I.T.A.T., MUMBAI *451 . . * CHAVAN, SR. PS