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2015 (10) TMI 2049 - AT - Income TaxDisallowance of R&D expenses in respect of product adaptability and demonstration expenses - Held that:- The issue of R&D expenses are recurring in nature and are incurred on yearly basis. Similar nature of expenditure have been allowed from the stage of the Tribunal and also by the Assessing Officer in pursuant of the finding given in earlier years. As stated in assessee’s line of business R & D expenses are continuous process without which assessee cannot carry out its business. Hence such a R & D expenses need to be allowed under section 35D. As regard details of expenses, these are already available on recorded and accordingly, we direct the Assessing Officer to allow the expenses u/s 35 after verification and in accordance with the precedence of the earlier years. - Decided in favour of assessee. Disallowance of depreciation u/s 32 in respect of compensation received - Held that:- If out of the total claim of expenditure of ₹ 74,85,711/-, which was claimed as revenue expenditure by the assessee, sum of ₹ 55 lakhs has been held to be ‘capital expenditure’ on which depreciation has been allowed, then for the balance amount of ₹ 19,85,707/- also on the same reasoning it has to be held as ‘capital expenditure’, on which the assessee should be liable for depreciation u/s 32. Such a claim cannot be disallowed merely on the ground that assessee had not deducted TDS and therefore is to be disallowed u/s 40(a)(ia). Such a direction of the DRP cannot be sustained in law, firstly, the disallowance under the provisions of section 40(a)(ia) can be invoked only in the cases where the assessee is claiming ‘revenue expenditure’ and not where it has been held to be disallowable as ‘capital expenditure’ and secondly, if provision of 40(a)(ia) is to be invoked then the entire expenditure has to be first treated as revenue expenditure and then it has to be examined, whether it attracts TDS provisions. Thus, there is inherent inconsistency in the finding of the DRP. Accordingly, on these facts we hold that depreciation should be allowed on the balance amount of ₹ 19,85,707/- also as has been done/allowed for the sum of ₹ 55 lakhs.- Decided in favour of assessee. Transfer pricing adjustment - international transaction of import of seeds made by the assessee from its AE - adoption of MAP - Held that:- The entire transfer pricing adjustment has been made after rejecting the assessee’s method of benchmarking the transaction; that is Resale Price Method and instead by adopting TNMM as MAM by the TPO. This selection of most appropriate method of TNMM by the department has been found to be inappropriate by the Tribunal in the earlier years and assessee’s RPM has been accepted. As a result of adopting RPM as MAM, similar adjustments made in the earlier assessment years stands deleted. Thus, as a matter of judicial precedence and without there being any change of material facts and circumstances, we also direct the TPO/Assessing Officer to adopt RPM as most appropriate method for benchmarking the transaction of import of seeds to its AE and carry out comparability analysis for benchmarking the assessee’s gross margin and determined the appropriate ALP. Addition on account of fall in gross profit margin - Held that:- there are exceptional items in this year like inventory written off aggregating to ₹ 16,36,68,410/- and extra ordinary increase in sales expenses at ₹ 6,12,55,579/-. If these two factors are taken into account, then the difference/gap between the GP of the preceding year and the current year would be very low. In such a situation, the addition made by the Assessing Officer will also scale down substantially. However, in wake of letter given by the assessee before the DRP agreeing for the GP addition, we are restraining ourselves to give any finding on merits and sustain whole of the GP addition as accepted by the assessee before the DRP. To this extent, we agree with the contention of the Ld. DR that if the TP adjustments are deleted, then there would be no telescoping and the entire addition made on account of fall in gross margin will get sustained. Accordingly, we direct the Assessing Officer that in case the TP adjustments are deleted after adopting the RPM as MAM, then the entire GP addition should be sustained.
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