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2016 (9) TMI 146 - AT - Income TaxTransfer pricing adjustment - adjustment under the head interest - Held that:- TPO was not justified in making adjustment under the head interest to be charged. The rate of interest was higher than LIBOR, so, we hold that the IT in question was at arm’s length. Allowability of expenditure - Held that:- AO/FAA had not given any plausible reasoning for making the ad hoc addition. The assessee had filed audited accounts and the auditors had not qualified any item for disallowance out of the Miscellaneous Expenses. The AO had also not rejected the books of accounts of the assessee. It is also not clear from the order that as what was the basis for adopting 10% of the expenditure as not allowable. There is finding to show that the expenditure in question was not incurred wholly and exclusively for the business purposes. We find that the FAA had simply followed the order of his predecessor and had not met any of the arguments advanced by the assessee before him. Therefore, reversing his order, we decide ground in favour of the assessee. Computation of deduction u/s.80IB/80IC - Held that:- Gain on account of fluctuation in foreign exchange rate is entitled for deduction u/s.80IB of the Act. So, confirming the order of the FAA, issue is decided against the AO. Order of the FAA does not suffer from any legal infirmity as far as claim with regard to insurance receipt is concerned FAA was not justified in denying the 80IB/80IC deduction to the assessee on sale of scrap. Lease rent income of blow moulding machine - Held that:- It is a fact that the machine was not used by the assessee, that it was given to a contractor, that the contractor was performing certain activities that were related to the manufactured goods of the assessee. In our opinion for claiming deduction u/s.80IB/80IC there should be close nexus of the income and the business carried out by an industrial undertaking. Anything and everything indirectly linked to the business of the assessee cannot be held to an eligible activity for claiming deduction. Confirming the order of the FAA, we decide the issue before us, against the assessee. Disallowance made under section 14 A - Held that:- We find that the AO had made a disallowance of ₹ 4.45 lakhs, that the FAA had restricted the disallowance, that the assessee had claimed that it had not incurred an expenditure to earn the exempt income, that the AO/FAA had not brought on record any fact to prove that certain expenditure was incurred for earning dividend income. Therefore, the action taken by both the authorities cannot be endorsed. However, considering the judgement of Godrej Boyce and Mgf. Company Ltd.[2010 (8) TMI 77 - BOMBAY HIGH COURT ] we are of the opinion that a reasonable disallowance could be made for the year under consideration also with regard to disallowance to be made under section 14A of the Act. We are of the opinion that in the interest of justice the disallowance should be restricted to 5% of the dividend income, as held in the case of Godrej Agrovet (2014 (8) TMI 457 - BOMBAY HIGH COURT ). Ground number seven is allowed in favour of the assessee, in part.
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