IN INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH , MUMBAI BEFORE SHRI G.S.PANNU, ACCOUNTANT MEMBER AND SHRI RAMLAL NEGI, JUDICIAL MEMBER ITA No. 786/Mum/2014 (Assessment Year 2009-10) M/s. Anchor Electricals Pvt. Ltd. Steel House, B-Wing, Plot No.24, Mahal Industrial Estate, Mahakali Caves Road, Near Paper Box, Andheri (E), Mumbai 400 093 PAN:AAECA 2190C ...... Appellant Vs. ACIT, Cen. Circle -41, Room No.655, 6th Floor, Aaykar Bhavan,M.K.Road, Mumbai 400020. .... Respondent Appellant by : Shri J.D.Mistry Respondent by : Shri R.P.Meena Date of hearing : 20/09/2016 Date of pronouncement : 23/09/2016 ORDER PER G.S.PANNU,A.M: captioned appeal filed by assessee pertaining to A.Y. 2009-10 is directed against order of ACIT, Cen. Cir.41, (in short Assessing Officer ) passed under section 143(3) r.w.s. 144C(13) of Income Tax Act, 1961 ( in short Act) dated 04/12/2013, which is in conformity with direction of Dispute Resolution Pannel-1, Mumbai dated 20/11/2013. 2 ITA No. 786/Mum/2014 (Assessment Year 2009-10) 2. In this appeal, assessee has raised following grounds of appeal:- GROUNDS OF APPEAL Based on facts and circumstances of case and in law, Anchor Electricals Private Limited (hereinafter referred to as 'Appellant') craves leave to prefer appeal against order passed by learned Assistant Commissioner of Income Tax, Central Circle 41, Mumbai (hereinafter referred to as 'learned AO' or 'AO') under section 143(3) read with section 144C(13) of Income-tax Act, 1961 (hereinafter referred to as 'Act') in pursuance of directions issued by Hon'ble Dispute Resolution Panel-I, Mumbai (hereinafter referred to as 'DRP') on following grounds, each of which are without prejudice to one another: A. General 1. on facts and in circumstances of case and in law learned AO based on directions of DRP erred in assessing total income at Rs 70,36,92,880 as against income computed as Nil by Appellant, under normal provisions of Act. B. Transfer pricing adjustments on facts and in circumstances of case and in law, learned AO/ Additional Commissioner of Income-tax (Transfer Pricing) - 1(1) ('TPO') has: Non consideration of comparability analysis as documented in transfer pricing study report 2. erred in not considering/ accepting comparability analysis as documented by Appellant in Transfer Pricing study report for benchmarking international transaction of payment of royalty to its Associated Enterprise ('AE') ie Matsushita Electric Works Limited ('MEW'). Incorrect rejection of TNMM for benchmarking purposes 3. erred in rejecting Transactional Net Margin Method ('TNMM') adopted by Appellant for bench marking international transaction of payment of royalty to its AE. Incorrect application of CUP method for benchmarking purposes 4. erred in not appreciating non-applicability of Comparable Uncontrolled Price ('CUP') method for benchmarking international transaction of payment of royalty by Appellant to its AE, MEW. Controlled transaction used as comparable by TPO while applying CUP Method 3 ITA No. 786/Mum/2014 (Assessment Year 2009-10) 5. without prejudice to above, erred in benchmarking transaction of payment of royalty using controlled transaction ie payment of royalty by Assessee to another AE (Ave Anchor Private Limited) for applying CUP method. 6. without prejudice to above, failed to appreciate that rate at which royalty is paid by Assessee to its AE ie MEW is at arm's length even as per internal controlled CUP applied by learned TPO. Determining arms length price of royalty as Nil 7. erred in disallowing payment of royalty to its AE ie MEW by considering Assessee as economic owner of brand names/trademarks, ignoring fact that brand names/trademarks for which royalty is paid, are legally owned by MEW. 8. erred in making factually incorrect observation that Appellant used brand names/trademarks currently owned by its AE, MEW in earlier years without paying any royalty. Commercial expediency Benefit Test 9. erred in not appreciating various benefits received/receivable by Appellant from its AE and thereby challenging commercial expediency of Appellant. C. Corporate tax adjustments on facts and in circumstances of case, learned AO based on directions of DRP has: Deduction under section 80IC of Act Restricting deduction under section 80IC of Act 10. erred in restricting deduction under section 80lC of Act to extent of Rs 53,59,76,608 as against claim of Rs 107,58,95,338; Re-computing deduction under section 80IC of Act by considering Rs 94,42,44,756 instead of Rs 160,88,54,139 as base point 11. erred in re-computing deduction under section 80lC of Act by considering Rs 944,244,756 instead of Rs 1,608,854,139 as starting point based on Auditors Report under section 80lC and 80lB of Act (ie Form 10CCB); Deduction under section 80IC of Act on interest and rent 12. erred in holding that Assessee has claimed deduction under section 80lC of Act on interest income of Rs 13,04,27,014 and rent income of Rs 12,23,568; 4 ITA No. 786/Mum/2014 (Assessment Year 2009-10) Reducing income pertaining to 80IB unit while re-computing deduction under section 80IC of Act 13. erred in reducing income pertaining to 80IB unit of Rs 2,85,71,926 while re-computing deduction under section 80IC of Act without appreciating that same was already set off against losses of other units; Deduction in respect of scrap sales under section 80IC of Act 14. erred in not allowing deduction under section 80IC on scrap sales derived from manufacturing activity of eligible Haridwar unit; 15. without prejudice to above, should have reduced scrap sales only of Haridwar unit amounting to Rs 1,19,22,639 on which deduction under section 80IC of Act has been claimed, as against scrap sales amounting to Rs 12,40,48,000 which pertains to entire entity; Deduction in respect of miscellaneous income under section 80IC of Act 16. erred in reducing deduction under section 80IC of Act on miscellaneous income; 17. without prejudice to above, should have reduced miscellaneous income only pertaining to Haridwar unit amounting to Rs 17,01,687, as against miscellaneous income amounting to Rs 4,69,66,000 which pertains to entire entity; Deduction in respect of trading profits under section 80IC of Act 18. erred in reducing profits eligible for deduction under section 80IC of Act by Rs 20,84,00,000 on ground that same is earned from trading activity. Should have appreciated that trading profits have already been set off against losses of other units and no deduction has been claimed under section 80IC of Act on trading profits; 19. without prejudice to above, should have reduced trading profits only relating to Haridwar unit from profits eligible for deduction under section 80IC of Act; Deduction in respect of central excise incentive under section 80IC of Act. 20. erred in considering that central excise incentive amounting to Rs 2,82,222 forms part of Haridwar unit and thereby reducing same from deduction under section 80IC of Act; Short credit granted in respect of Tax Deducted at Source 5 ITA No. 786/Mum/2014 (Assessment Year 2009-10) 21. erred in not granting credit for tax deducted at source of Rs 59,79,929, claimed by Assessee during course of assessment proceedings Levy of Interest under section 234B of Act 22. erred in levying interest of Rs 6,89,75,151 under Section 234B of Act; Initiation of penalty proceedings under section 271(1)(c) of Act 23. erred in initiating penalty under Section 271(1)(c) of Act. Appellant craves, to consider each of above grounds of appeal without prejudice to each other and craves leave to add, alter, delete or modify all or any of above grounds of appeal. 3. In brief, relevant facts are that appellant is company incorporated under provisions of Companies Act, 1956 and is, inter-alia, engaged in business of manufacturing and trading of electrical goods. For assessment year under consideration, it filed return of income declaring Nil income, which inter-alia, included claim of deduction under section 80IC of Act of Rs.158,02,82,213/- in respect of Haridwar Unit and under section 80IB of Act of Rs.85,71,578/- in respect of Daman Unit. In assessment finalized under section 143(3) r.w.s. 144C(13) of Act dated 4/12/2013, Assessing Officer has determined total income under normal provisions of Act at Rs.70,36,92,880/-, which inter-alia, included scaling down of deductions under section 80IC and 80IB of Act to Rs.54,45,48,186/- and also adjustment to determine arm's length price of international transactions at Rs.17,23,45,725/-. aforesaid assessment has been finalized in terms of directions issued by DRP vide order dated 20/11/2013 in response to objections raised by assessee against draft assessment order passed by Assessing Officer dated 4/2/2013. Before us, 6 ITA No. 786/Mum/2014 (Assessment Year 2009-10) assessee company is in appeal on afore-stated Grounds of appeal, which we shall deal in seriatim. 4. In so far as Ground of appeal No.1 is concerned, same is general in nature, which does not require any specific adjudication. Grounds of appeal Nos.2 to 9 involve issues relating to determination of arm's length price of international transaction of payment of royalty to associated enterprise. On these aspects, Ld. Representative for assessee submitted that appellant does not wish to press any of Grounds in view of Mutual Agreement Procedure (MAP) order dated 07/07/2014 passed by competent authority. In this context, copy of order giving effect to MAP order passed by Assessing Officer dated 13/3/2015 has also placed on record. Accordingly, Grounds No.2 to 9 stated above are dismissed as not pressed. 5. In so far as Ground of appeal Nos.10 to 20 are concerned, same relate to claim made by assessee for deduction under section 80IC of Act in relation to profits earned in Haridwar Unit. Before we proceed to adjudicate each of Grounds, brief background can be summarized as follows. assessee company has multiple units and so far as its claims for deduction under chapter VIA of Act is concerned, it pertains to Haridwar Unit for which deduction has been claimed under section 80IC of Act and Daman Unit(1&2), for which deduction under section 80IB of Act has been claimed. In so far as, claim of deduction under section 80IB of Act is concerned, there is no dispute and it has been determined by Assessing Officer at Rs.85,71,578/-, as returned by assessee. In so 7 ITA No. 786/Mum/2014 (Assessment Year 2009-10) far as claim for deduction under section 80IC of Act in relation to Haridwar Unit is concerned, same has been restricted by Assessing Officer to Rs.53,59,76,608/- as against Rs.158,02,82,213/- returned by assessee. In instant year, aforesaid claims are not new in sense that instant year is 4th year of claim. There is no difference between assessee and Revenue on issue of basic entitlement of assessee for benefits of section 80IC of Act. area of difference is primarily relating to manner of computing deduction eligible under section 80IC of Act and allowability of claim with respect to certain elements of income. In this background, Ld. Representative for assessee furnished chart showing unit-wise computation of income, including determination of amounts eligible for deduction under section 80IC and 80IB of Act as also profit/loss of other units, and it has been explained that same formed basis for filing return of income. 6. Elaborating error on manner in which deduction under section 80IC of Act has been computed by Assessing Officer, Ld. Representative for assessee referred to para-14 of assessment order, where Assessing Officer has tabulated deduction allowable to assessee under section 80IC of Act and in this calculation he has started from figure of Rs.94,42,44,756/-, which is profit of business(net of profits/losses of all units). Further, it is seen that he has further reduced certain amounts from aforesaid figure, on account of scrap sales, miscellaneous income, profit from trading activity, central excise incentives and income attributable to 80IB unit, etc. Ld. Representative for assessee pointed out 8 ITA No. 786/Mum/2014 (Assessment Year 2009-10) that if starting point was net business profit of assessee Assessing Officer ought to have adjusted other profits/losses of all other units namely Haridwar, Daman( Unit 1 & 2), Daman( Unit -3), Daman( 4), Kutch, Dharampur, Kundi, etc. to arrive at profit of Haridwar unit. In fact what Ld. Representative for assessee has sought to point out is mathematical discrepancy in calculation of deduction allowable to assessee under section 80 IC of Act . Apart therefrom, it is sought to be pointed out that Head Office and other inter-unit transactions have been allocated by assessee over different units as evidenced by chart furnished before us. It is also pointed out that profit in Head office account has also been allotted to all units alongwith administrative, sales and interest expenses in ratio of respective sales in order to calculate unit- wise profit or loss. Ld. Representative for assessee pointed out that manner in which deduction under section 80IC has been computed by Assessing Officer, it shows that allocation of Head office transactions over different units done by assessee has not been accepted. It was pointed out that this is in variance to stand of Assessing Officer in earlier assessment years of 2006-07, 2007-08 and 2008-09, wherein computation of unit-wise profit/lose made by assessee has been accepted. It is pointed out that in current assessment year of 2009-10, it is first year when basis for arriving at unit-wise profits/losses has been disturbed. copy of assessment order for assessment year 2008-09 passed under section 143(3) r.w.s. 144C(13) dated 15/12/2010 has been placed on record to say that method by which unit-wise profits/losses have been computed was accepted by Assessing Officer. In 9 ITA No. 786/Mum/2014 (Assessment Year 2009-10) particular, attention was invited to chart annexed to assessment order for assessment year 2008-09 showing working of unit-wise income for eligibility of deduction under section 80IC and 80IB of Act. It was pointed out that manner of working is similar to chart, which was furnished at time of hearing before us, albeit in relation to instant assessment year 2009-10. Pointing out apparent mistakes in computation made by Assessing Officer in para-14, Ld. Representative for assessee pointed out that Assessing Officer has excluded amount of Rs.12,40,48,000/- as scrap sale whereas scrap sale pertaining to Haridwar Unit which is subject-matter of claim of deduction under section 80IC of Act, was only to tune of Rs.1,19,22,639/-. Similarly, mistakes has also been pointed out in exclusion of amounts of miscellaneous income and profits on trading activity of Rs.4,69,66,000/- and Rs.20,84,00,000/- respectively. 6.1 On this aspect, Ld. Departmental Representative referred to discussion made by DRP in para 3.4.1 and 3.4.2 to point out that there were certain inconsistency between figure reported by Auditor in Form No.10CCB showing calculation of deduction under section 80IC of Act and figures of profit revealed by audited final statements, and referred to following discussion :- This also means that figure reported by auditor in its from 10CCB at Rs.158.02 is also not correct as it does not match with audited financials attached to form 10CCB showing profits at Rs.186,15,73,678/-, wherein above mentioned expenses have been allocated on different basis. In other words, there is clear mismatch in figure reported in form 10CCB by auditor and in audited financials. It also means that correct quantification of amount eligible for deduction under section 80IC is not available or authenticated and assessee is trying to claim amount without proper verification. This also means that amount worked out in 10 ITA No. 786/Mum/2014 (Assessment Year 2009-10) sheet submitted before us of unit wise computation of income for eligibility of 80 IC and 80IB , cannot be relied upon. Thus, it is held that unit wise bifurcations and allocations of various incomes and expenses as shown in sheet are unsubstantiated and make-believe. 6.2 In this context, Ld. Representative for assessee invited our attention to page 109 of Paper Book, wherein is placed copy of Form 10CCB, wherein profit eligible for deduction under section 80IC of Act of Haridwar Unit is comuted at Rs.158,02,82,213/-. P&L Account of Haridwar Unit is annexed at Page 117 of Paper Book and net profit depicted therein is Rs.186,15,73,678/-, and this difference has prompted Assessing Officer as well DRP to hold that there was incorrect quantification of deduction under section 80IC of Act. 6.3 In this context, we have perused relevant reconciliation at page 137 of Paper Book, which was also before lower authorities. In terms of said reconciliation, profit of Haridwar Unit computed in P&L Account at Rs.186,15,73,678/- has been adjusted for interest, selling and distribution expenses and administrative and miscellaneous expenses to Rs.193,70,15,244/-,which corresponds to figure in chart of unit-wise computation of profits, which in-turn has formed basis for filing return of income. Once this figure is seen in chart of unit-wise computation of income, it would be clear that after allocation of profits of other branches and income tax disallowances pertaining to Haridwar Unit, net income of Haridwar Unit comes to Rs.158,02,82,213/-. In our considered opinion, Assessing Officer and DRP have merely noted difference in figures without appreciating reconciliation and unit-wise computation of net income made by assessee, 11 ITA No. 786/Mum/2014 (Assessment Year 2009-10) which is in conformity with methodology accepted in past in income-tax returns filed by assessee. Therefore, at time of hearing, it was put to parties that matter be restored back to file of Assessing Officer, who shall recompute total income of assessee based on unit-wise computation of income made by assessee for calculating eligibility of deduction under section 80 IC and 80IB of Act by adopting same methodology as was accepted in past years. Ld. Representative for assessee submitted that assessee would be satisfied if verification of assessee s computation of income eligible for 80IC benefits is carried out as per methodology accepted in past. On this aspect, in our view, there is apparent mistake made by Assessing Officer in computing amount of deduction allowable to assessee under section 80IC of Act. Pertinently, basis of allocation of administrative, sales and interest expenses, etc. adopted by assessee to arrive at eligible deduction under section 80IC is similar to that adopted for computing deduction under section 80IB of Act. Whereas, Assessing Officer accepts working of deduction under section 80IB of Act as determined by assessee, while on other hand, determination of deduction under section 80IC of Act has been tinkered with. This reflects inherent inconsistency on part of Assessing Officer on issue of allocation of transactions of Head office and on account of administrative, sales and interest expenditure, etc. to other manufacturing units, including those eligible for deduction under section 80 IB and 80 IC of Act. For said reasons, we deem it fit and proper to set-aside matter back to file of Assessing Officer, who shall revisit computation of deduction allowable to 12 ITA No. 786/Mum/2014 (Assessment Year 2009-10) assessee under section 80IC of Act afresh. In ensuring proceedings, Assessing Officer shall not deviate from methodology adopted and accepted in case of assessee for earlier assessment years. 7. Apart from aforesaid, by way of Ground of appeal No.12, it is sought to be pointed out that Assessing Officer has wrongly excluded amount of interest and rental income of Rs.13,04,27,014/- and Rs.12,23,568/- respectively while computing deduction under section 80 IC of Act. In this context, Ld. Representative for assessee pointed out that assessee has itself excluded rent and interest income for purposes of computing deduction eligible for deduction under section 80IC of Act for Haridwar Unit and referred to chart of computation in this regard. It was pointed out that in any case, figures adopted by Assessing Officer are wrong as they pertain to assessee as whole and not to Haridwar Unit alone. On this aspect, we restore matter back to file of Assessing Officer, who shall verify claim of assessee and exclude amounts of rent and interest income for computing deduction u/s. 80IC of Act to extent it pertains to Haridwar Unit only. 8. Ground of appeal No.13, does not require any specific adjudication as we have already remanded matter relating to computation of deduction u/s.80IC of Act back to file of Assessing Officer in earlier paras. 9. In Grounds of appeal No.14 & 15, issue relates to exclusion of income by way of scrap sales for purposes of deduction u/s. 80IC of Act. On this aspect, Assessing Officer has excluded sum of 13 ITA No. 786/Mum/2014 (Assessment Year 2009-10) Rs.12,40,48,000/-, which ostensibly is figure of sale of scrap of assessee as whole and not in relation to section 80IC eligible Haridwar Unit. Therefore, adoption of figure of Rs.12,40,48,000/- by Assessing Officer is anyway incorrect. scrap sales in relation to Haridwar Unit is only at Rs.1,19,22,639/-. In any case, on merit of claim, it is quite clear that income by way of sale of scrap generated in manufacturing and production process is also entitled for claim of deduction u/s. 80IC of Act. Before us, Ld. Representative for assessee has relied upon following judgments in support of such claim:- (i) CIT vs. Sandhu Forging Limited, 336 ITR 0444 (Del) (ii) CIT & Another vs. Modi Xerox Ltd.,265 ITR 200 (All) (iii)Asia Investments Ltd. vs. DCIT, 90 ITD 0630 (Mum.Trib) (iv)CIT vs. Micro Turners , 205 Taxman 18. 9.1 On this aspect also, we deem it fit and proper to restore matter back to file of Assessing Officer with direction that while re-computing eligible deduction u/s. 80IC of Act, sale of scrap generated during manufacturing and production process be included for benefit of section 80IC of Act. 10. In Grounds of appeal No.16 & 17, assessee has agitated action of Assessing Officer in excluding sum of Rs.4,69,66,000/- as miscellaneous income. On this aspect, Ld. Representative for assessee pointed out that miscellaneous income relatable to Haridwar Unit was Rs.17,01,687/- only and Assessing Officer has erred in considering miscellaneous income at Rs.4,69,66,000/-, which pertains to assessee as whole. Ld. Representative for 14 ITA No. 786/Mum/2014 (Assessment Year 2009-10) assessee submitted that Assessing Officer may be directed to reduce miscellaneous income relatable to Haridwar Unit for purposes of computing deduction u/s. 80IC of Act. This aspect of matter is also remanded to file of Assessing Officer to exclude miscellaneous income pertaining to Haridwar Unit only while computing deduction u/s.80IC of Act. 11. Similarly, by way of Grounds No.18 & 19, assessee is aggrieved by action of Assessing Officer in excluding sum of Rs.20,84,00,000/- for computing deduction u/s. 80IC of Act on ground that same related to trading activity. In this context, Ld. Representative for assessee pointed out that said figure adopted by Assessing Officer is wrong and is part of transactions of Head office account, which have been appropriately allocated over all units. On this aspect also, matter is remanded back to file of Assessing Officer to verify same afresh and reduce trading profits relating to Haridwar Unit only for computing deduction u/s. 80IC of Act. 12. By way of Ground of appeal No.20, assessee has contested action of Assessing Officer in excluding Central Excise incentive of Rs.2,82,222/- for purposes of computing deduction u/s. 80IC. said Ground of appeal has not been pressed at time of hearing and is accordingly dismissed as not pressed. 13. issue in Ground of appeal No.21 relates to non-grant of credit for tax deducted at Rs. 59,79,929/- claimed by assessee during assessment proceedings. In this context, Ld. Representative for assessee submitted that assessee has already moved rectification 15 ITA No. 786/Mum/2014 (Assessment Year 2009-10) application u/s. 154 of Act on 03/09/2012 to Assessing Officer, which is yet to be disposed off. Ld. Departmental Representative appearing for Revenue had no objection to matter being remanded back to Assessing Officer with direction that plea of assessee be disposed of expeditiously as per law. We order accordingly. 14. In so far as Ground of appeal No.22 is concerned, same relates to levy of interest u/s. 234B of Act, which is consequential in nature. 15. In so far as Ground of appeal No.23 relating to initiation of penalty proceedings u/s 271(1)(c) is concerned, same is dismissed as being premature in nature. 16. Before parting, we may state that in earlier paras, various issues relating to computation of deduction u/s 80IC of Act have been remanded back to file of Assessing Officer for verification/ adjudication afresh. On all these issues, Assessing Officer is directed to allow assessee appropriate opportunity of being heard before recomputing eligible deduction u/s. 80IC of Act as per law. 17. In result, appeal of assessee is partly allowed, as above. Order pronounced in open court on 23/09/2016 Sd/- Sd/- (RAMLAL NEGI) (G.S. PANNU) JUDICIAL MEMBER ACCOCUNTANT MEMBER Mumbai, Dated 23/09/2016 Vm, Sr. PS 16 ITA No. 786/Mum/2014 (Assessment Year 2009-10) Copy of Order forwarded to : 1. Appellant , 2. Respondent. 3. CIT(A)- 4. CIT 5. DR, ITAT, Mumbai 6. Guard file. BY ORDER, //True Copy// (Dy./Asstt. Registrar) ITAT, Mumbai M/s. Anchor Electricals Pvt. Ltd. v. ACIT, Cen. Circle -41, Mumbai