TMI Blog2014 (9) TMI 517X X X X Extracts X X X X X X X X Extracts X X X X ..... transfer pricing dispute – thus, the matter is remitted back to the AO for fresh adjudication – Decided in favour of assessee. Invocation of section 14A r/w Rule 8D – Disallowance made for expenses incurred – Held that:- The assssee received dividend income - For making investment in shares and for earning such huge dividend income, it cannot be said, that the assesee has not incurred any indirect expenses such as management establishment expenses and other office overheads - The AO has given a categorical finding that the assessee’s method of calculating expenditure in relation of income not included in the total income is not satisfactory - the AO’s disallowance by invoking provisions of section 14A read with 8D (2) (iii) is justified and is in accordance with law – Decided against assessee. - I.T.A. No. 5765/DEL/12 - - - Dated:- 29-8-2014 - Shri R. S. Syal And Shri George George K,JJ. For the Petitioner : Sh. Ajay Vohra, Advocate, Shri Neeraj Jain, Advocate For the Respondent : Shri Yogesh Kumar Verma, CIT DR ORDER Per George George K, JM. This appeal arises out of assessment order dated 12.9.2012 passed u/s 143(3) read with section 144 C of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... disallowing a sum of s. 5,32,712/- under section 14A of the Act, without appreciating that no expenditure, direct or indirect, was incurred by the appellant in earning the exempt dividend income. 3.1. That the assessing officer/DRP erred on facts and in law in not appreciating that only expenditure having nexus to the earning of exempt income could be disallowed under section 14A of the Act. 3.2 The assessing officer erred on facts and in law in making the aforesaid disallowance by simply applying the formula given in Rule 8D of the Income Tax Rules, 1962, without appreciating that the said rule had no application on the facts of the appellant s case. 2.1 Ground No. 1 is general in nature and no specific adjudication is called for, hence, the same is dismissed. Ground No. 2 to 2.9 relate to transfer pricing adjustment on account of international transactions of payment of corporate charges. Ground No. 3 to 3.2 is with reference to disallowance of a sum of ₹ 5,32,712/- by invoking the provisions of section 14A of the Act read with rule 8D of the Income Tax Rules 1962. 3. The assessee is a wholly owned subsidiary of Roulands Rubber, Denmark. It is engaged in the b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... credit has been given for this. No independent party would have made a payment in uncontrolled circumstances for the evident lack of services. Therefore, by the application of CUP, the arm s length of this transaction of payment of service fee is determined at ₹ 7,20,010/- as against ₹ 1,58,01,022 determined by the assessee. 4.2 The Dispute Resolution Panel ( DRP ) sustained Transfer Pricing adjustment made by the TPO. However the DRP on an ad-hoc basis increased deduction from 5% as allowed by the TPO to 10% of the total expenditure. The relevant finding of the DRP need as follows :- Assessee s submission filed on 22.8.2012 giving the allocation key have been considered expense allocated to India are product, plant administration, selling including PE selling and F.G. A. Invoices, travel details have been submitted. However, DPR finds that these costs are charged to the assessee not on actual but on allocation basis. In the circumstances, it cannot be denied that some of the group costs may be loaded on this charge out. The TPO has allowed 5% adhoc deduction on this account. But after examining all the submissions and the economic factors including increas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... appeal. It was submitted broad details with reference to the services rendered by the AE to assesee was given to the TPO/DRP. However, the complete break up of cost allocated could be obtained from assessee s AE in Germany only subsequent to the proceedings before the TPO and the DRP. Therefore, it was submitted that in the interest of substantial justice and for a proper adjudication of the transfer pricing dispute involved in the appeal, the additional evidence in question need to be admitted in terms of Rule 29 of the Income Tax Appellate rules. 4.4. Ld. DR opposed the admission of the additional evidence. Alternatively, it was submitted by the Ld. DR, in the event additional evidence is admitted on record, the transfer pricing dispute need to be restored to the Ld. TPO for denovo consideration. 4.5. We have heard the rival submissions and perused the material on record. The assessee, in accordance with the terms of service agreement dated 20.10.2006 received various technical, marketing and administrative support service from its AE. The TPO had restricted the payment of service fee to an amount of ₹ 7,20,010/- (5% of the total payment) as against 1,58,01,22/- dete ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not taken into account the indirect expenses incurred to earn the exempt income. The assesee could not explain satisfactorily the basis of NIL disallowance of expense related to exempted income. The method of calculating expenditure in relation of income non includible in total income that has been adopted by the assesee is not satisfactory. In view of the above, I am not satisfied with the correctness of the claim of the assessee in respect of such expenditure in relation to income which does not form part of the total income under this Act. And I hereby held that this is a fit case for invoking the provisions of S.14A (2) of the I.T. Act 1961 and to compute the expenses related to exempted income in accordance with the Rule 8D of the Income Tax Rules 1962. 5.1 DRP affirmed the view taken by the AO. Hence the assessee is in appeal before us on this issue. 5.2. The Ld. AR reiterated the submissions made before the Income Tax authorities. The DR present was duly heard. 5.3. We have heard the rival submissions and perused the material on record. The assssee is in receipt of dividend income to the tune of ₹ 56,83,646/-. For making investment in shares and for earni ..... X X X X Extracts X X X X X X X X Extracts X X X X
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