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2016 (9) TMI 1362 - ITAT CHENNAITransfer pricing regulation - value of international transactions undertaken by the assessee to its AE - adoption of TNM method for benchmarking - Claim of the assessee that its transactions should be segregated between domestic and international, and its own PLI for comparability purpose should be computed from its international transactions - Held that:- When TNM method is applied, comparison of net profit margin realized by an enterprise from an international transaction or an aggregate of international transactions has to be done and not comparison of operating margin as such of an enterprise. This is the rule laid down by the Mumbai Bench of the Tribunal in the case of Tej Diam (2010 (1) TMI 806 - ITAT, Mumbai). A reading of sec. 92C also would justify this view. Arm’s Length pricing is to be determined on the international transactions by the assessee with its AEs. Hence, PLI, if considered on an aggregate basis, including both international as well as domestic transactions, it would give a distorted figure. In our opinion, the lower authorities fell in error in considering the PLI as a whole of the assessee for the purpose of comparability. Nevertheless, it is to be added that such segregation is also to be done in relation to the comparables that are selected so that the average PLI of the comparables are also worked out on a similar footing. In the facts and circumstances of the case, we are of the opinion that the matter needs a fresh look by the lower authorities. Disallowance u/s 14A r.w.r 8D - Held that:- There is no dispute that Rule 8D was not applicable for the impugned assessment year. Nevertheless we also find that assessee had itself agreed for disallowance of 2% of the exempt income. Even when Rule 8D is not applicable, in our opinion, a disallowance u/s 14A could be made for the simple reason that assessee would have incurred some expenditure for earning the exempt income. Co-ordinate Benches of this Tribunal has been taking a consistent view that prior to the period when Rule 8D could be applied, disallowance of 2% of exempt income would suffice. Accordingly, we restrict the disallowance to 2% of the exempt income. Disallowance of interest on a loan advanced to is subsidiary - business expediency - Held that:- The Apex Court in the case of S.A Builders (2006 (12) TMI 82 - SUPREME COURT) had clearly held that advances given to subsidiary company could only be considered as one for commercial expediency. In the case before us assessee had advanced loan to its subsidiary and it was out of compulsion and not voluntary. In such circumstances, we are of the opinion that the disallowance of proportionate interest was not called for. Such disallowance stands deleted. Disallowance of bad debts - as per assessee the amount advanced could not be recovered since the company had become sick and the assessee written off the debts during the relevant previous year - Held that:- DRP took a view that assessee had claimed the deduction on a premise that for the year ended 31.3.2005 the provision was added back while computing its income for assessment year 2005-06. However, as per the ld. DR in the copy of the return filed for assessment year 2005-06 no such add back was there. We are of the opinion that the issued requires a fresh look by the Assessing Officer. If the assessee had written off the debts in its books of account and if the debt had came out of its trading transactions, then the claim has to be allowed. Disallowance of 20% of commission and discounts paid to customers - Held that:- It is not in dispute that assessee had claimed discount of ₹ 3,19,55,499/-. The details filed by the assessee was only in relation to 11 parties totalling to ₹ 1,75,48,192/-. Assessee was given number of opportunities by the Assessing Officer as well as DRP for proving its claim of discount of ₹ 3,19,55,499/-. In our opinion, claim of the ld. AR that Assessing Officer did not call for the details to prove the expenditure is incorrect. This is because of the reason that Assessing Officer had specifically required the assessee to give details of the claim in the format provided by him, but assessee failed to furnish it. In such circumstances, we find that the lower authorities were justified in making the disallowance of 20% of such discount Disallowance of export promotion expenses - share of expenditure of London Liaison Office - assessee could not produce any evidence towards expenditure by the said London Liaison Office - Held that:- Explanation of the assessee was that Liaison Office worked on behalf of all the group companies and M/s Amalgamations Pvt Ltd one of the group companies made payment to London Liaison Office and recovered share of expenditure from the individual companies. We are of the opinion that except for giving this explanation, which was not supported by any evidence, assessee had not given any details of the services rendered by the London Liaison Office nor any correspondence with them. Assessee also could not show the need of Liaison Office and why the payments were routed through a holding company. In such circumstances, the disallowance was rightly made. We do not find any reason to interfere with the orders of the lower authorities. Disallowance of 10% of the expenditure incurred towards marketing incentives - Held that:- As per the assessee, dealer was required to give the cash discount to such customers. Though the assessee claimed that it was having evidence in this regard it could not produce dealerwise details of the reimbursement and how the sum of ₹ 2,41,62,616/- was arrived at. When no evidence in support of the claim was produced by the assessee, lower authorities, in our opinion, was justified in making a disallowance of 10%. We do not find any reason to interfere with the orders of the lower authorities. Disallowance of additional depreciation - Held that:- It is not disputed that the disallowance was on disallowance of the balance of the additional depreciation of ₹ 72,87,449/- carried forward from the earlier year since assessee had put the new assets in use for a period less than 180 days in such earlier year. In view of the judgment of the Karnataka High Court in Rittal India Pvt. Ltd (2016 (1) TMI 81 - KARNATAKA HIGH COURT) we find that the assessee is entitled to claim the balance amount in the succeeding year.
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