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2021 (2) TMI 1135 - AT - Income TaxTP Adjustment - payment made towards SAP ERP implementation - HELD THAT:- Cost paid by the assessee for implementation of SAP ERP system without any mark–up cannot be treated as nil by applying the benefit test. It is for the assessee to decide whether a particular system or investment would be beneficial to him or not. The Transfer Pricing Officer certainly cannot step into the shoes of the assessee or the Assessing Officer to evaluate the business expediency of a cost incurred for business purpose and the benefit derived. His job is to determine the arm's length price by adopting any one of the prescribed methods. In the facts of the present case, though, the Transfer Pricing Officer has stated that he has adopted CUP method for determining the arm's length price, however, in reality, he has determined the arm's length price at nil on purely ad–hoc basis by stating that the assessee has not derived any benefit. Moreover, the allegations of the Transfer Pricing Officer and learned Commissioner (Appeals) that the assessee has failed to furnish supporting evidence to establish its claim is found to be baseless as the assessee has furnished sufficient documentary evidences not only to prove the implementation of SAP ERP system but also the benefit derived by it from such system. Moreover, when the Transfer Pricing Officer has accepted the payment made towards SAP ERP implementation in the earlier years, there is no reason to deny the same in the current year by determining the arm's length price at nil. In any case of the matter, it is a fact on record that the assessee has implemented the SAP ERP system and is utilizing it for its business purpose. The Transfer Pricing Officer has also stated that SAP ERP system is a necessary tool for carrying out business works. That being the case, the determination of arm's length price at nil, that too, on ad–hoc basis is unsustainable. Accordingly, we have no hesitation in deleting the addition made on account of transfer pricing adjustment. Disallowance u/s 14A - disallowance of interest expenditure under rule 8D(2)(ii) - HELD THAT:- No interest disallowance should be made when the assessee has surplus interest free fund available with it. Secondly, only those investments which have yielded exempt income during the year should be considered for disallowance under rule 8D(2)(iii). On a perusal of impugned order of learned Commissioner (Appeals), we find that the assessee had made a submission that as against the interest free surplus funds available of ₹ 281,90,44,000, investment stood at ₹ 150,85,55,000 - assessee had sufficient interest free fund available with it to take care of the investment. Therefore, as per the settled legal principles, no disallowance of interest expenditure can be made under rule 8D(2)(ii). Hence, the disallowance made under rule 8D(2)(ii) has to be deleted. As regards disallowance of administrative expenditure under rule 8D(2)(iii), we direct the Assessing Officer to compute such disallowance by taking into account only those investments which have yielded dividend income during the year. In this regard, the Assessing Officer is directed to verify the correctness of disallowance computed by the assessee at ₹ 3,91,961.79. This ground is disposed off accordingly. Disallowance u/s 43B - leave encashment paid - HELD THAT:- We find that while deciding the issue in assessee’s own case for the assessment year 2007–08, the Tribunal [2016 (5) TMI 1546 - ITAT MUMBAI] has restored the issue to the Assessing Officer for fresh adjudication. Facts being identical, following the aforesaid decision of the Co–ordinate Bench, we restore the issue to the Assessing Officer for fresh adjudication. Ground is allowed for statistical purposes. Disallowance of depreciation claimed on the WDV of the royalty expenditure - HELD THAT:- We find that the royalty expenditure incurred by the assessee in the assessment year 2001–02 was held to be of capital in nature. However, the Tribunal directed the Assessing Officer to allow depreciation on such expenditure. Therefore, when depreciation has been allowed to the assessee on the expenditure incurred on royalty in the preceding assessment years, consequential benefit of depreciation has to be allowed to the assessee in the impugned assessment year as well. The ground raised by the assessee is allowed.
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