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2019 (5) TMI 1932 - AT - Income TaxTP Adjustment - Addition for guarantee fees for providing a guarantee by the assessee on loan taken by its AEs during the year under consideration - HELD THAT:- Since in the case on hand, the Guarantee is not having "bearing on profits, income, losses or assets," therefore, respectfully following the same we are also of the opinion that such guarantee issued by the assessee is not covered under the definition of section 92B of the Act. Accordingly, we direct the TPO/AO to delete the addition made by him. Thus the ground of appeal of the assessee is allowed. Disallowance of deduction u/s 35 (2AB) - disallowance of weighted deduction claimed by the assessee - HELD THAT:- We note that the issue raised by the assessee is covered against it by order of this tribunal in its case[2012 (7) TMI 273 - ITAT AHMEDABAD] thus find that the capital expenditure incurred by the assessee on purchase of motor cars cannot be considered as expenditure incurred by the assessee on in-house research & development and therefore, the same is not eligible for weighted deduction u/s. 35(2AB) of the Act. Similarly, capitalized interest on purchase of car is also not eligible for this benefit for same reasons because it is equal or similar to cost of car. Administrative expenses between the eligible and non-eligible unit based on the turnover - HELD THAT:- These expenses are incurred by a company regardless of whether the company produces or sells anything, generates income or incurs a loss. Most of these expenses either are fixed or semi-fixed, and there is a limited scope to reduce them. The companies that have a centralized management system tend to have higher general and administrative expenses. On the contrary in the case of decentralizing system, certain functions are delegated to subsidiaries. Similarly these expenses cannot be linked to any particular undertaking of the company in a case the assessee has more than one undertaking. Thus the dispute arises for the allocation of such expenses among the different unit/ undertaking of the assessee. Regarding the allocation, we are of the view that these expenses cannot be allocated based on the turnover. It is because the turnover of any undertaking is very much volatile and keep on changing depending upon the market forces, competition, Government policies, etc. There can be a situation that the turnover of one undertaking is very high in a particular year but in the subsequent year the turnover may go done or vice versa which will affect the pattern and consistency in the allocation of the administrative expenses and distort the presentation of the financial statements for different years. Therefore we are of the considered view that the basis of the allocation of administrative expenses based on the turnover is not advisable. What should be the basis of the allocation of the said expenses in the given facts and circumstances. Generally, the human resources working in any of the undertakings of the assessee does not frequently change as the market forces do not regulate it, unlike the sales. Therefore in the given facts and circumstances, we are of the view that the allocation of the administrative expenses should be done based on the human resources engaged in the different undertaking of the assessee. - Decided in favour of assessee. Addition on account of the expenses for Employee long term compensation plan ( for short ELTCP) - HELD THAT:- A.O. had disallowed the provision for leave encashment as no payment has been made against the said provision during the year. In the case of Bharat Earth Movers [2000 (8) TMI 4 - SUPREME COURT] has held if a liability has been ascertained with a reasonable certainty and the actual quantification is not material to claim the expenditure.We do not find a reason to interfere in the order of the ld. CIT-A. Hence, the ground of appeal raised by Revenue is dismissed. Depreciation at the rate of 60% on the items connected with the VSAT Allowed. Deduction under section 80-IC - assessee in its ROI claimed a deduction u/s 80-IC in respect of its unit located at Baddi - HELD THAT:- There is no dispute about the facts of the case. Therefore we are not inclined to repeat the same for the sake of brevity and convenience. The issue in the instant case relates whether the expenditure incurred by the assessee on research under the head discovery cost and capital cost is to be allocated to the unit eligible for deduction under section 80IC of the Act. The provisions of section 80IC of the Act mandates to claim the deduction in respect of eligible unit considering the income from such unit as only the source of income. The assessee in the case on hand has allocated the cost of research expenditure which was directly connected with its eligible unit. The assessee besides the direct cost has also incurred the cost of scientific research activity which did not materialize. Therefore the same was not allocated to the eligible unit as the same was not directly connected with the eligible unit. In our considered view the cost which is directly connected with the eligible unit is eligible for deduction while determining the deduction under section 80 IC of the Act. AO in the subsequent assessment year 2008-09 has not allocated the cost on scientific research under the head discovery and capital cost to the eligible unit. Thus in our considered view the principle of consistency needs to be applied in the case on hand as held by the Hon’ble apex court in the case of Radhaswoami Satsang [1991 (11) TMI 2 - SUPREME COURT]. Disallowance on account of the donation under section 80G - whether the donation paid by the assessee under section 80G of the Act needs to be allocated to the unit eligible for deduction under section 80-IC? - HELD THAT:- The scheme of the Act provides to claim the deduction under section 80G of the Act after claiming all the deduction provided under chapter VI-A of the Income Tax Act. Therefore the assessee can claim the deduction on account of such donation only against the Gross Total Income after claiming all other deduction. We further note that the donation paid by the assessee cannot be claimed as an expense in the profit and loss account as the same has not been incurred wholly and exclusively for the purpose of the business as provided under section 37(1) of the Act. Thus even if the assessee claimed the donation as an expense in the profit and loss account, then it has to be disallowed while computing the income under the head business and profession. Thus the only option available to the assessee to claim the deduction on account of such donation is only under the provisions specified under section 80G of the Act which can be claimed in the manner as discussed above. Upward adjustment by the TPO/AO on account of interest on Loan given to AEs - determination of ALP of the interest amount on loan given by the assessee to its AE’s - HELD THAT:- Addition in the rate of interest on account the credit risk suggested by the TPO is not sustainable. Basis of charging 0.50% margin from the AE - The assessee is charging margin at 37.50 bps from the AE which appears quite low as even the bank charges from the company having high net worth a margin of .50%. Therefore we are inclined to uphold the finding of the TPO for charging the margin at .50% over and above the 6 month average labor rate. In effect, the rate of interest charged by the assessee from the AE shall increase by 12.5 bps. Thus the ground of appeal of the assessee is partly allowed. Disallowance in respect of the expenditure incurred on the purchase of a motor car which was claimed as deduction under section 35(2AB) - HELD THAT:- CIT (A) has held that entertainment expenses claimed by the assessee were not incurred in connection with the scientific research activity without adducing any reason thereon. As such the submission of the assessee filed before the learned CIT (A) stating that the entertainment expenditures were incurred in respect of the professionals who visited the research center, has not been challenged based on any reasoning.AO has allowed 100% deduction in respect of such expenditure which proves that the expenditure incurred in connection with the business activities of the assessee. Such claim of the assessee was allowed under section 35(2AB) of the Act but at the rate of 100% instead of 150% i.e. weighted deduction. Therefore we are not inclined to uphold the finding of the authorities below. Hence we reverse the order of the learned CIT-A and direct the AO to delete the addition made by him. Hence the ground of appeal of the assessee is allowed. Deduction u/s 80IC - whether the miscellaneous income such as Penalty Received from Supplier, Discount Received from Vendors and Export Benefits are eligible for the deduction u/s 80IC? - HELD THAT:- We hold that the assessee is eligible for deduction in respect of the income as discussed above under section 80 IC of the Act. Accordingly, we direct the AO to delete the addition made by him. Hence the ground of appeal of the assessee is allowed, and the Revenue is dismissed.
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