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2019 (2) TMI 1067 - AT - Income TaxAddition u/s 41(1) - cessation of liability towards payment of sundry creditors - Held that:- Addition u/s 41(1) of the Act has been made by the AO without any cogent reason. No case has been made out that the AO has made any enquiry and found that these creditors are not payable. Just because the creditors are outstanding for more than three years, there is no universal rule that the balance has to date back under section 41(1) of the Act. We further note that similar addition in earlier was deleted by the ITAT. Accordingly we do not find any infirmity in the order of the CIT(A). Disallowance u/s 14A r.w. Rule 8D - Consequential effect u/s 115JB is also prayed - Held that:- As regards the first plea of the ld. Counsel of the assessee that in prior years, disallowance was restricted to 10%, hence, the same can be accepted. We note that this plea is not sustainable. In view of the applicability of Rule 8D, the applicability of which for the current assessment year is upheld in the case of Godrej & Boyce vs. CIT [2010 (8) TMI 77 - BOMBAY HIGH COURT]. As regards contention of the assessee that no disallowance should be made for interest, as the assessee has sufficient interest free funds, we note that the submission of the assessee has considerable cogency in view of the Hon’ble Jurisdictional High Court decision relied upon. Hence, we remit this issue to the file of the A.O. to examine the veracity of the submission and thereafter decide as per the decision of the Hon’ble Jurisdictional High Court as above. As regards the submission of the assessee that disallowance u/s. 14A should be restricted to the amount of the exempt income during the year, is also acceptable in view of the case laws relied herein above. The A.O. is directed to follow the proposition as above. As regards the other contention of the ld. Counsel of the assessee that for the purpose of disallowance u/s.14A, for the purpose of computing the average value of investment, only those investment should be computed on which exempt income is earned, is sustainable in view of the Special Bench decision in the case of ACIT v. Vireet Investments Private Limited [2017 (6) TMI 1124 - ITAT DELHI] as above. The A.O. is directed to follow the same. Disallowance for earning exempt income u/s.115JB, we note that the Special Bench of the ITAT in the above case law has expounded that the disallowance cannot be made u/s. 14A. The disallowance should be made by the A.O. in accordance with the provision of clause (f) of section 115JB of the Act. The A.O. is directed accordingly. TP adjustment made by TPO to the extent of 3% of the amount of guarantee given by the assessee on behalf of AE's - Held that:- As relying on assessee's own case for previous years disallowance of 0.53% for guarantee commission on all the guarantee given serves the purpose. MAM selection - TPO applying CUP method instead of TNMM used by the assessee - Held that:- assessee is correct in placing reliance upon the Hon’ble Jurisdictional High Court decision in the case of Pr. CIT vs. Amphenol Interconnect India P. Ltd. [2018 (3) TMI 536 - BOMBAY HIGH COURT] that geographical difference, volume difference are also to be considered in making the comparison in similar cases. The TPO is totally wrong in holding that these matters are of academic interest only. Hence, without factoring in the difference in FAR, the comparison done by the TPO is not sustainable. In the background of the aforesaid discussion and precedent, we uphold the order of the ld. CIT(A) that there is no proper reason to apply CUP method, instead of that consistently applied earlier method of TNMM, as the most appropriate method (MAM). Addition being R & D expenses allocated to Baddi & Solan Unit of the assessee - Held that:- We find that the ITAT in assessee's own case for A.Y. 2009-20 has restored identical issue to the file of the AO to give finding as to the utilization of R & D expenditure with respect to these units. In this view of the matter, in our considered opinion, the doctrine of stare decisis mandates that we follow the ITAT’s order of earlier year. Accordingly, following the same finding of the ITAT in the earlier year we remit the issue to the file of the AO with direction to the AO to decide the issue after granting reasonable opportunity of hearing to the assessee. Addition being interest expenditure allocated to Baddi & Solan units on the basis of sales turnover ratio, while computing deduction u/s 80IC - Held that:- Upon careful consideration, we find that the factual details submitted corroborate that the baddi unit had huge accumulated profit. In fact, its operational cash flow is being used by the head office. In the balance sheet, the debit balance of Head Office account is ₹ 2,470,281,148/- as on 31.03.2010. There is no borrowing secured or unsecured for this unit. In fact, the balance sheet shows that the unit has huge reserve and surplus amounting to ₹ 3,920,730,627/- covering the entire assets of the unit. Thus when no loan is there for baddi unit and the unit is generating huge profits, the case law relied by the ld. Counsel of the assessee duly support the proposition that only the interest expenses which have direct nexus in earning the income of the tax exempt unit should be considered. Since the documentary evidence duly support the plea that there is no direct nexus between the expenses allocated by the A.O. to the unit, we do not find any infirmity in the order of the ld. CIT(A) in this regard. - Appeal filed by the Revenue stands partly allowed for statistical purpose.
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