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2018 (6) TMI 1843 - AT - Income TaxTP Adjustment - royalty payment made to associate enterprise - Nil ALP determined - HELD THAT:- It is clear first of all that the lower authorities have been very fair in not holding the assessee’s royalty transactions to be a sham ones. They have applied benefit and commercial expediency test in the instant case whilst computing nil ALP. We see no reason to approve the same these two tests of benefits and commercial expediency are not to be invoked as per the above legal position. The impugned action of the lower authorities under challenge is therefore held to be not sustainable. Quantification of the impugned ALP - TPO admittedly applied ‘CUP' method in his order (supra). He appears to have treated the tax payer itself as a valid comparable as it had not paid any royalty to the very payee in earlier assessment years. This made him to adopt nil price of the impugned royalty so as to make the adjustment in question. No reason to concur with such a course of action since the assessee itself having paid Nil amount in the past to the AE, cannot be taken as a valid comparable. This tribunal in the case of Technimont ICB India (P) Ltd.[2013 (9) TMI 595 - ITAT MUMBAI] has concluded long back that a transaction between payee and its AE is not an uncontrolled one so as to be taken as a comparable. We accept the assessee’s instant first substantive ground both on legality as well as on quantification therefore. The impugned ALP adjustment stands deleted accordingly. Disallowing provision for leave encashment u/s 43B(f) - HELD THAT:- This issue deserves to be remitted back to the Assessing Officer for taking a fresh call after the hon’ble apex court’s decision in the Revenue’s special leave petition converted to appeal staying operation of hon’ble jurisdictional high court’s judgment in Exide Industries Ltd.. [2007 (6) TMI 175 - CALCUTTA HIGH COURT] deleting identical disallowance as well as holding the statutory provision itself to be unconstitutional. We accept this fair stand and direct the AO to keep the instant issue in abeyance to be decided after the hon’ble apex court’s final verdict in the department’s appeal hereinabove. Accrual of expenditure - Addition of commission charges - year of allowability - disallowance on the ground that the same is raised on accrual basis without any details being submitted - HELD THAT:- Departmental Representative, fails to dispute that the assessee’s stand throughout is of having filed all the relevant details before the AO. We therefore conclude that in absence of any material doubting accrual of the impugned expenditure in the relevant previous year, the same has to be held allowable in the assessment year in question only as per decision in the case of Bharat Earth Movers [2000 (8) TMI 4 - SUPREME COURT The assessee succeeds in its instant substantive ground. Computing book profit u/s 115JB when Section 14A r.w.r 8D disallowance pertaining to its exempt income - HELD THAT:- Learned counsel’s only plea during the course of hearing is that the assessee has already offered the very sum in its return at the first instance. We therefore leave it open for the Assessing Officer to carry out necessary verification in order to avoid double disallowance. This substantive ground is taken as accepted for statistical purposes. TP Adjustment - goods exported to Associate Enterprises outside India forming subject matter of international transactions - MAM selection - whether such domestic sales in case of independent parties vis-à-vis export sales to AEs could be taken as comparables or not? - HELD THAT:- A co-ordinate bench in M/s. Wrigley India Private Limited[2015 (1) TMI 193 - ITAT DELHI] declined the Revenue’s similar arguments applying CUP Method in identical circumstances -Undoubtedly, direct methods of determining ALP, including cost plus method, have an inherent edge over the indirect methods, such as TNMM, but such a preference can come into play only when appropriate comparable uncontrolled transactions can be identified and analysed accordingly. That has not been done in the present case. There is, therefore, no good reason to disturb the TNMM method adopted by the assessee. Addition of club expenditure invoking Section 40(9) - HELD THAT:- No dispute about genuineness of the impugned expenditure to have incurred in a club set up at IEL, Gomia for entertainment and seminars. We observe in this backdrop that the lower authorities have wrongly invoked Section 40(9) as the same is attracted in case of specified purpose only and not qua a claim raised u/s 37 - DRP has deleted the very disallowance in the preceding assessment year. The same has attained finality. We thus adopt judicial consistency to delete the impugned disallowance as well. Assessee appeal partly allowed.
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