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2016 (5) TMI 1276 - AT - Income TaxDisallowance of sales promotion expenses - Held that:- Respectfully following the decision of the Co-ordinate Bench in assessee’s own case, we delete the adhoc disallowance made by the Assessing Officer in respect of gifts articles Eligible profit for deduction u/s. 80HHC - Disallowance of bank interest as business income and excluding the same while computing the deduction u/s. 80HHC - Held that:- In the case on hand, the assessee has received interest on current account balances. The interest earned on current account balances cannot be said to be derived on business of exports. Earning of interest income from current account balances cannot be construed to be a direct and proximate nexus with the business of exports. Thus we hold that such interest income cannot be considered as income derived from business for the purpose of computing deduction u/s. 80HHC of the Act. However, the alternative argument of the assessee that only the net interest should be eliminated under clause (baa) to Explanation is accepted and this is also the view of the Special Bench in the case of Lalsons Enterprises (2004 (2) TMI 294 - ITAT DELHI-E ) which was approved by the Supreme Court in the case of ACG Associates Capsules (2012 (2) TMI 101 - SUPREME COURT OF INDIA). Thus, we direct the Assessing Officer to exclude only the net interest. Upholding deduction of 90% of (a) insurance claim (b) Miscellaneous income (c) Service charges (d) Cenvat credit (e) Extraordinary income as per clause (baa) of Explanation to Sec. 80HHC - Held that:- In so far as insurance claim and sale of scrap is concerned, in our view, this income is generated from business and therefore 90% of such income cannot be reduced for the purpose of computing deduction u/s. 80HHC of the Act. This also supported by the decision of the Hon’ble Bombay High Court in the case of Pfizer Ltd (2010 (6) TMI 433 - Bombay High Court ). In so far as service charges are concerned, we are of the view that this income is not derived from the business operations of the assessee therefore, we uphold the action of the Assessing Officer in reducing 90% of such income while computing deduction u/s. 80HHC of the Act. Coming to Cenvat credit, it is held that is derived from the industrial undertaking therefore cannot be treated as other income and cannot be reduced 90% of such income while computing deduction u/s. 80HHC. Coming to extraordinary income, it is the submission of the Ld. Counsel for the assessee that this amount is not income at all but should go to capital reserve as this income represents only excess income over liabilities in the process of acquiring the business by the assessee. In the circumstances, we are of the view that this aspect has to be looked into by the Assessing Officer for the reason that if this amount is not income at all, the question of reducing 90% will not arise. Thus, we restore the matter to the file of the Assessing Officer for fresh adjudication. E-connectivity charges - revenue v/s capital - Held that:- On going through the agreement entered into by the assessee, we find that assessee has not acquired any software from its parent company but assessee is paying activity charges for the facility of access/usage of various applications, intranet websites, emails, global resources etc for day today running of the business. We do not find any acquisition of software by the assessee by payment of this activity charges. We also do not find any enduring benefit for the assessee. Thus, we hold that the e-connectivity charges paid by the assessee are of Revenue in nature. Transfer pricing adjustment - MAM - TNMM or CUP - Held that:- Under TNMM all the objections raised by the TPO in his remand report have been addressed by the appellant as discussed and accordingly it is held that the appellant's margin is quite high as compared to arithmetical mean margin of the comparables and hence the adjustment made by the AO/TPO being CUP as MAM is directed to be changed following the decision of the Hon'ble ITAT in appellant's own case for A.Y. 2002-03 and 2003-04. However, the Assessing Officer/TPO would be at liberty to factually verify the benchmarking analysis carried out by the appellant under TNMM on transaction to transaction basis in consonance with directions of IT A T while giving effect to this order. This ground of appeal is therefore allowed subject to verification as above”. As seen from the above, the Ld. CIT(A) adopted the directions given by the DRP for the Assessment Year 2006-07 and 2008-09 for the year under consideration to change the method following the decision of the ITAT. The above findings have not been rebutted by the Revenue, we do not find any infirmity in the order passed by the Ld. CIT(A) for the year under consideration also.
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