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2022 (2) TMI 1279 - ITAT BANGALORETransfer Pricing adjustment - payment of royalty to the Associated Enterprises (AE) by restricting to 1% against 4% as done by the assessee - HELD THAT:- Considering the decision of coordinate Bench in assessee's own case [2021 (12) TMI 1167 - ITAT BANGALORE] we allow this ground in favour of the assessee and hold that payment of royalty @ 4% is at arm's length. TP adjustment - payment of interest on CCDs by re-characterizing the same to be External Commercial Borrowing (ECB) - HELD THAT:- In the instant case, admittedly, the CCDs are issued in JNR, interest is paid in INR and CCD's are repaid also in INR. Therefore, placing reliance on the judgment of the Hon'ble Delhi High Court in the case of CIT v. Cotton Naturals (I) Pvt. Ltd. [2015 (3) TMI 1031 - DELHI HIGH COURT] we hold that the TP study of the assessee to justify the interest rate by arriving at average rupee cost and comparing the same with SBI prime lending rate is correct - we uphold the TP study done by the assessee to arrive at the interest rate of 9% and 12% calculated based on the average rupee cost comparing the same with SBI prime lending rate. The assessee's claim in this ground is allowed. Disallowance of expenditure u/s. 14A r.w Rule 8D - HELD THAT:- Disallowance made u/s. 14A of the Act ought to be deleted, since the assessee was not in receipt of any exempt income during the relevant assessment year - we allow this ground in favour of the assessee to hold that the disallowance made u/s. 14A is to be deleted as the assessee was not in receipt of any exempt income during the relevant assessment year. Disallowance u/s 37 - foreign exchange fluctuation loss incurred in respect of loans availed - HELD THAT:- We have perused the RBI approval letter where it is clearly stated that the loan is required to be used only for the purpose for which it is approved that is the general corporate purposes - cash flow statement does not provide any basis to the finding that the amount is used for the repayment of short term loans unless there is a thorough examination is done on the inflows and outflows in the cash flow statement. We also take into consideration the fact that the assessee has offered the forex gain in respect of the same loan in the previous year and in the interest of justice it is only correct when the loss arises out of forex movement the same be allowed. Pursuant to the binding decision of the coordinate bench of the Bangalore Tribunal and based on the facts placed before us we hold that the loss claimed by the assessee due to the forex fluctuation of the loan is to be allowed. This ground is allowed in favour of the assessee Disallowance of suo moto disallowance made in the earlier financial year 2009-10 u/s 40(a) - recharacterized as disallowance under section 37 - HELD THAT:- Whether the impugned expenditure can be disallowed u/s. 37 of the Act has not been dealt with either by the AO nor by the DRP. A.O. has authority to hold that expenditure (though provision expenditure) is not an allowable deduction u/s. 37 - Only those expenditure otherwise allowable u/s. 30 to 38 of the Act is deductible as per proviso to section 40(a)(ia) - Therefore, any expenditure not for the purpose of business, the A.O. can certainly re-characterize the same as not allowable expenditure u/s. 37 of the Act. However, as mentioned earlier, the A.O. nor DRP has not examined whether the said expenditure is allowable business expenditure u/s. 37 - A.O. held that provision of Rs. 5,42,35,783 disallowed by the assessee u/s. 40(a)(ia) of the Act cannot be allowed as deduction in the subsequent assessment year, since, the expenditure does not pertain to the subsequent year. DRP did not adjudicate the issue by observing that there is no variation to the returned income on this count. Therefore, the matter needs to be reconsidered by the AO afresh. Tribunal has given a clear direction that the allowability of the impugned expenditure in 2011-12 or in the year under consideration needs to be reconsidered by the AO afresh. Respectfully following the decision of the coordinate bench of the Bangalore Tribunal we remand the claim of the assessee back to the AO and AO is directed accordingly. The appeal of the assessee on this ground is allowed for statistical purposes.
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