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2012 (4) TMI 225 - ITAT MUMBAIAO/DRP applied the provisions of Rule 8D of the Income Tax Rules - AO noticed that the assessee has received a dividend income - assessee submitted that as investments were made out of own funds, there were no interest costs involved - DRP directed the AO to recompute the disallowance by adopting average value of investments as also total assets - DRP has issued directions in tune with Godjrej & Boyce Mfg Co Ltd. (2010 -TMI - 78448 - BOMBAY HIGH COURT) that a reasonable disallowance can be made even for the earlier assessment years – Held that:- The AO applied rule 8 D for assessment prior to assessment years 2008-09 on the ground that this is the basis on which reasonable disallowance can be made, but then this approach is clearly directly contrary to the decision of Hon'ble Bombay High Court in Godrej & Boyce Mfg. Co. Ltd. case (supra) - no finding about the expenses incurred directly or indirectly for the purpose of earning the tax exempt income – in favour of assessee. disallowing provision on special discount – assessee submitted that as per correct accounting principles, liabilities attached to the sales of the current year, which can be determined with a fair degree of reasonableness, are required to be provided for in the current year itself - in the event of provision not being allowed as a deduction, the same should be allowed on payment basis – Held that:- Once the DRP holds that the provision has been made on a reasonable basis, a finding which cannot be challenged by the Assessing Officer, and is allowable in principle, its quantum can not be reduced solely on the ground that in the subsequent year the entire payment is not made – in favour of assessee and direction to AO to delete the impugned disallowance. disallowing the provision for sales return – AO was of the view that since sales returns have actually been made in the subsequent year, the same should have been accounted in the subsequent year itself - Held that:- there is no point in first taking into account income on sales, which never reached finality, and then accounting for loss on sales return in the subsequent year , thus the approach of the assessee is in consonance with the well settled accountancy principles and the Assessing Officer was not justified in rejecting the same – in favour of assessee. the assessee was remunerated on cost plus arm's length mark up price of 15% by the AEs of Rs. 83,75,217 on a cost of Rs. 5,58,34,783. - The assessee adopted certain comparables to demonstrate that mean margin is 13.86% and the margin of 15% adopted by the assessee is an ALP margin – DRP rejecting the mark up of 15% as not an arm's length price, an ALP adjustment is made of 54,27,141 – Assesee contented that Engineers India Ltd, a PSU dealing in engineering consultancy, is not at all engaged in low risk contract research work and it cannot be a valid comparable for this purpose and once EIL is excluded from the list of comparables, the arithmetic of mean of the remaining comparables will be within 5% range of the ALP margin – Held that:- the impugned ALP adjustment is deleted for the reason that EIL is not a valid comparable for contract research work and that once EIL is excluded, the mark up by the assessee is within 5% range of comparables finalized by the DRP – in favour of assessee.
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