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2015 (6) TMI 667 - AT - Income TaxDisallowance u/s 14A - CIT(A) deleted the addition - Held that:- This is admitted position of law as per the judgment of M/s Godrej & Boyce Mfg. Co. Ltd. Vs. DCIT reported in [2010 (8) TMI 77 - BOMBAY HIGH COURT] that Rule 8D is prospective and therefore, applicable from assessment year 2008-09 and afterwards. Therefore, Rule 8D is not applicable in the present year. At the same time, even prior to assessment year 2008-09 from when Rule 8D is applicable, some reasonable disallowance has to be made u/s 14A of the Act. The learned CIT(A) has confirmed the disallowance of ₹ 12,000/- . In our considered opinion, the disallowance of ₹ 12,000/- for average investment of ₹ 491.08 lac is not reasonable and therefore, we hold that disallowance should be made of ₹ 50,000/- on account of administrative expenses. - Decided partly in favour of assessee. Addition on account of adjustment of arms length price - CIT(A) deleted the addition - Held that:- From the provisions of clause (b) of sub Rule 1 of Rule 10B of Income-tax Rules, it is seen that resale price method is applicable where there is purchase of property or service from associate enterprise but in the present case, the assessee is not purchasing the goods from the associate enterprises but the assessee is selling the goods to associate enterprise. Based on this fact, this finding is given by CIT(A) that resale price method does not apply to the assessee ‘s case. After examining the facts and after giving this finding that the T.P.O., while dealing with international transactions with the A.Es., has himself accepted the commission rates upto 10% given to the US (A.E.) on referred sales and upto the 8% to UK(A.E.) and therefore, the CIT(A) has held that the gross margin available to the A.E. should have been benchmarked at 8% and not at 5% as the T.P.O. has himself treated all these commission payment at arm’s length and has made no adjustment in the commission transactions of the assessee. Thereafter, the CIT(A) has examined the agency agreement and held that that certain adjustments on account of functional differences between a person who acts as ‘principal to principal’ i.e. a trader and a person who acts as a mere ‘commission agent would be allowed because in case of ‘principal to principal’ transaction, person, inter alia, incurs expenditure on imports, storage and distribution of the goods which in normal course are not incurred by a commission agent and therefore, suitable adjustments for such expenditure has to be given and then only the resultant gross margin can be compared with the benchmarked 8% gross margin. On this basis, the CIT(A) has reduced the import expenses of goods from sale price by the A.E. and worked out the gross margin of the A.E. @7.04%, which is less than 8% even when no other expenses have been allocated except import expenses on goods and under these facts, it was held by CIT(A) that the adjustment made by the T.P.O. is not justified and correctly deleted the same.- Decided against revenue.
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