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2018 (4) TMI 502 - AT - Income TaxTPA - Determination of arm’s length price under section 92CA(3) - Purchase of bakery shortening for trading - Held that:- The assessee’s operative margin from the trading of bakery shortening is at 1.63% whereas the TPO while determining the arm’s length price by applying the TNMM as most appropriate method and OP/Total Cost (TC) as PLI has arrived at Mean margin of 4.07%. Therefore, the price of international transaction undertaken by the assessee is within the tolerance range of (+)(-) 5% of the arm’s length price determined by the TPO. Accordingly, as per the second proviso to section 92C(2) the price of international transaction in respect of purchase of bakery shortening will be determined at arm’s length price and consequently no adjustment is called for on this account. Hence the price of international transaction is within the tolerance range as provided under the second proviso to section 92C(2), we do not go into the issue of most appropriate method applied by the assessee as well as by the TPO. Accordingly, we do not find any reason to interfere with the order of ld. CIT (A) qua this issue. Interest received from AE - There is no dispute that the assessee has advanced a loan in foreign currency to its AE and charged interest @ 10%. We find that the issue of charging interest from AE in respect of the money advanced in foreign currency, the arm’s length interest is to be considered by taking the LIBOR instead of PLR - the associate enterprise (AE) had utilized the loan in its stock and debtors, which was apparent from the balance sheet of the associate enterprise (AE). The assessee had not incurred any brokerage or processing fees in advancing the loan to the associate enterprise (AE). Appellant company had not given any loan or advances to Data Foods (P) Limited., Sri Lanka during the financial year 2006-07. Accordingly the adjustment made on account of loan given to M/S Data Houseware (P) Ltd., U.K. was not justified. Further the appellant was a secured creditor as it had sold goods to the concerned AE also. The position of the appellant company was that of a unpaid seller since the AE owed to it an amount comprising of loan as well as amount for goods purchased. Therefore the TPO had erroneously held that the position of the appellant was that of a unsecured creditor/loanee -addition deleted Disallowance on account of Miscellaneous Expenses - Held that:- Though the assessee has incurred the expenditure in cash to the extent of ₹ 7,41,322/-, however, majority of the said amount of ₹ 7,41,322/- has been incurred for tea, refreshments, cold drinks and sweets to the employees and customers. So far as the expenditure incurred towards fringe benefits to employees, the assessee has already paid the FBT and accordingly by considering this fact, we restrict the disallowance of the expenditure incurred in cash to 5% instead of 10% sustained by ld. CIT (A). Disallowance made on account of printing and stationary expenses - Held that:- CIT (A) has deleted the disallowance by considering the fact that the assessee has maintained complete bills/supporting vouchers for the expenditure incurred on account of printing and stationary. Further, the expenditure was incurred out of business expediency and in the absence of any discrepancy in the vouchers maintained by the assessee, the disallowance is uncalled for. We do not find any error or illegality in the order of ld. CIT (A) Disallowance on account of repair and maintenance expenses - Held that:- When the assessee has incurred the expenditure to the extent of ₹ 4,79,526/- in cash and only self made vouchers are produced by the assessee, then the disallowance made by ld. CIT (A) restricting the expenditure incurred in cash is just and proper. Hence we do not find any reason to interfere with the finding of the ld. CIT (A) on this issue. Addition of consumable stores and chemical expenses - Held that:- The assessee has maintained complete bills/supporting vouchers for the expenses incurred on account of chemicals and consumable stores. The AO has not conducted any enquiry or found out any discrepancy in the vouchers. Thus the adhoc disallowance made by the AO was rightly deleted by ld. CIT (A) Disallowance made on account of depreciation on Wind mill - Held that:- This issue is covered by the decision of this Tribunal in assessee’s own case for the assessment year 2004-05. Hence we do not find any merit or substance in this ground of the revenue’s appeal. Addition on account of packing material expenses - Held that:- CIT (A) has taken note of the fact that the expenditure for the year under consideration is at 4.32% of the turnover in comparison to 4.96% for the assessment year 2006-07 and 4.37% for the assessment year 2005-06. Further, the addition made by the AO in this respect for the assessment year 2005-06 was deleted by the Tribunal in assessee’s own case. The factual details given by ld. CIT (A) have not been controverted before us. Disallowance made on foreign travel expenses - Held that:- Disallowance made by the AO was deleted by the ld. CIT (A) by accepting the explanation of the assessee that the foreign tour of Managing Director was not personal but was for attending the conference of International Association of Seed Crushers in London. There is no quarrel on the point that if the foreign tour was undertaken by the MD to attend the alleged conference then the same will be considered as an expenditure incurred for the purpose of business of the assessee. However, the assessee has not produced the details of the timing of the foreign tour undertaken by the MD and specific date of the journey as well as the timing of the conference of International Association of Seed Crushers as claimed by the assessee. Therefore, if the foreign visit of the MD is matching with the conference date then the claim of the assessee cannot be doubted. Hence we direct the AO to verify this fact and then consider this issue afresh. Disallowance made under section 14 read with rule 8D - Held that:- CIT (A) has considered the availability of interest free funds of assessee being share capital, reserve and surplus which is much more than the investment in the shares. Further, when rule 8D is not applicable for the year under consideration, the disallowance on account of administrative expenses has to be made on some reasonable basis. Accordingly, in view of the above facts and circumstances of the case, when the assessee is having its own sufficient funds then no disallowance is called for on account of interest expenditure. As regards the disallowance on account of administrative expenses, we are of the view that 10% of the dividend income will be a reasonable and proper estimate for disallowance of expenditure on account of common indirect administrative expenses for earning the exempt income under section 14A. Hence this ground of the revenue’s appeal is partly allowed. Deemed dividend addition u/s 2(22)(e) - Held that:- In view of the earlier order of this Tribunal as well as the decision of Hon’ble Jurisdictional High Court in assessee’s own case wherein the transactions of outstanding have been considered as commercial transactions between the parties. Accordingly, we do not find any reason to interfere with the order of the ld. CIT (A) qua this issue.
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