Home Case Index All Cases Income Tax Income Tax + AT Income Tax - 2023 (11) TMI AT This
Forgot password New User/ Regiser ⇒ Register to get Live Demo
2023 (11) TMI 196 - ITAT AHMEDABADTP adjustment on interest on advances given to AEs - assessee had charged interest on the outstanding amount of advances to the AE at the rate of 3.22% - derived on the basis of LIBOR + 260 basis points - rejection of internal Comparable of the assessee - HELD THAT:- we see no reason given by the authorities below, nor is there any finding by the Revenue Authorities below to the effect that quotation of the Bank of Nova Scotia, Singapore was, in any way, not authentic. There is no investigation or inquiry conducted by the Revenue Authorities with regard to the authenticity of the quotation, and the Bank of Nova Scotia, Singapore is a renowned bank having global operations. Therefore, there is no basis for doubting the authenticity of the quotation. Basis with the ld. CIT(A) for rejecting the internal CUP of the assessee was not correct. Having held so, there is no doubt that the internal CUP is the best comparable which can be taken for comparability analysis as compared to external comparable and no deficiency having been found in the internal CUP, the external CUPs taken by the AO/TPO are rejected as not applicable for comparability analysis in the present case. We hold that the transactions of loans advanced to AEs by the assessee was adequately demonstrated by the assessee to be at Arm’s Length Price based on the comparability analysis done with its internal comparable. No transfer pricing adjustment to the same was warranted and the transfer pricing adjustment made by the authorities below is directed to be deleted. TP Adjustment - outstanding receivables of the assessee for the overdue period of outstanding by charging interest thereon treating them as in the nature of loans and advances made to the Associated Enterprises - HELD THAT:- As decided in KUSUM HEALTH CARE PVT. LTD. [2017 (4) TMI 1254 - DELHI HIGH COURT] where the international transactions of sales has been demonstrated to be at arm’s length by adopting the TNMM method and after making working capital adjustment to the Profit Level Indicator (PLI), there remains no scope for making any further adjustment on account of overdue outstanding receivables on account of the very same sales transactions made to AEs. The reasoning being that the working capital adjustment made to the PLI take care of the overdue outstanding receivables. Having said so, we completely agree with the ld. Counsel for the assessee that the said decision squarely applies to the facts of the present case since the assessee in the present case had done the TP analysis of its international transactions using the TNMM method and after making working capital adjustment to its PLI. These facts were sufficiently demonstrated before us through relevant documents of the transfer pricing report as noted above by us and were not controverted by the ld. DR also before us. Thus we hold that no upward adjustment of interest on the outstanding trade receivables of the assessee relating to its AEs was warranted in the present case and the adjustment, therefore, made is directed to be deleted. TP Adjustment made on account of specified domestic transactions undertaken with the AEs - argument of the assessee that the impugned transaction was not covered u/s 92BA - HELD THAT:- We find that the assessee had reported this transaction qualifying as specified domestic transaction u/s 92BA(i) of the Act as transactions relating to section 40A(2)(b) - TPO has also accepted this fact which finds mention in his order. The proposition of law canvassed by the assessee has remained uncontroverted before us. Ld.DR was unable to distinguish the decisions relied upon by the assessee before us. Thus following the proposition of law laid down in the case of Texport [2017 (12) TMI 1719 - ITAT BANGALORE] followed by various coordinate benches of the Tribunal, we hold that the impugned transaction of purchase by the assessee from its associate enterprise did not qualify as a specified transaction in terms of section 92BA of the Act. The entire exercise of determining its ALP in terms of section 92BA of the Act therefore fails. The adjustment made to the income of the assessee accordingly does not survive and is therefore directed to be deleted. Thus addition on account of specified domestic transaction is deleted. Deduction u/s 35(2AB) - R&D expenditure incurred in in-house facility of the assessee - Claim in excess of that allowed by the DSIR in Form 3CL - quantum to which the assessee is eligible? - claim of the department being that the assessee is eligible to claim deduction only on the expenditure approved by the prescribed authority in Form No.3CL and the assessee arguing otherwise - HELD THAT:- What is only to be reported by the prescribed authority is the cost of in-house research facility, mentioning specifically the expenditure incurred on land & building, since the expenditure on land & building is not eligible to weighted deduction as per section 35(2AB) of the Act. Therefore, we are convinced with the contentions made by assessee that the reporting by the prescribed authority in Form No.3CL of the revenue and capital expenditure incurred by the assessee can no way be relied upon and taken as that approved by the prescribed authority, restricting the assessee’s claim to weighted deduction to the expenditure allegedly approval by the prescribed authority. As noted above by us from the provisions of section and rules and form prescribed thereto, there is no requirement for the approval of any expenditure by the prescribed authority for the relevant assessment year i.e.Asst.Year 2013-14 and 2014-15. Therefore, we agree with assessee that the AO could not have relied on the Form No.3CL for restricting the claim of the assessee to the extent allegedly approved by the DSIR .Revenue’s contention of disallowing the assessee’s claim of weighted deduction on clinical trial is dismissed, since solitary contention of the Revenue is that DSIR had not approved this expenditure in Form No.3CL. As for the expenditure incurred on Exhibit Batches and other expenses, the explanation regarding nature of the expenditure being in relation to samples/prototype obtained for pilot studies and in relation to labour cost, staff training etc in the R&D units, they are all clearly incurred for the purpose of R&D activity only, and therefore are also eligible to claim weighted deduction - We hold that the entire claim of expenses u/s 35(2AB) were in accordance with law and called for no disallowance at all. Deduction of expenditure u/s 35(1)(iv) - claim has been made by appellant company during the course of assessment proceedings and not in the Return of Income.” - HELD THAT:- Both the authorities below have wrongly denied the assessee’s claim of deduction, for the simple reasoning that it does not make any difference that before the AO the assessee had made claim under section 35(1)(i), while before the CIT(A) the assessee claimed u/s 35(1)(iv) - What is pertinent is, whether the assessee is eligible to claim deduction in whichever section it qualifies. As long as the assessee is entitled to deduction, mere wrong quoting of section will not disentitle the claim of deduction. Assessee has claimed the allowability ,as the expenses were incurred for product development and qualified as capital expenditure on research and development, eligible for reduction under section 35(1)(iv) of the Act. Since the facts relating to eligibility of the claim have not been properly verified by the authorities below, we admit the claim of the assessee and restore the issue back to the AO to verify eligibility of the assessee’s claim and thereafter allow the same in accordance with law. Disallowance of u/s. 36(1)(iii) - borrowed funds had been used for investing in CWIP and computing the funds so allegedly deployed on CWIP on the average CWIP for the year he worked out the interest attributable to the same on proportionate basis which accordingly was disallowed in terms of section 36(1)(iii) - HELD THAT:- DR was unable to controvert the factual finding of the ld.CIT(A) that the assessee’s own interest free funds were much more than its investment made in CWIP during the year, as also the fact that even the profits earned during the year sufficed for the purpose of making investment in CWIP during the year. Also judicial proposition in this regard also stands settled by the decision of Reliance Industries Ltd [2019 (1) TMI 757 - SUPREME COURT] holding that where mixed funds are available and where sufficient interest free funds are there the presumption is that the same were used for the purpose of making interest free investments, calling for no disallowance under section 36(1)(iii) - DR was unable to point out any subsequent decision of the Hon’ble apex court unsettling the said proposition of law. Since the Ld.DR was unable to controvert the findings of the Ld.CIT(A) both on facts as well as law we see no reason to interfere in the order of the CIT(A) deleting the disallowance of interest made u/s 36(1)(iii) of the Act. Disallowance u/s 14A r.w.r. 8D - sufficiency of own funds - HELD THAT:- Where sufficient own interest free funds are available no disallowance of interest is called for u/s 14A - See Sintex Industries Ltd [2018 (3) TMI 1448 - SC ORDER]. Since the Ld.DR was unable to controvert the findings of the Ld.CIT(A) both on facts and on law, we see no reason to interfere in the order of the ld.CIT(A) deleting the disallowance made by the AO of interest made u/s 14A. CIT(A) deleted disallowance of administrative expenses u/s 14A of the Act noting that the assessee had suo moto disallowed expenses more than what was computed by the AO as disallowable -DR was unable to controvert the factual finding of the Ld.CIT(A) as above. In view of the same the order of the Ld.CIT(A) deleting the disallowance made by the AO of administrative expenses u/s. 14A of the Act calls for no interference. TDS u/s 195 - disallowance u/s. 40(a)(ia) of the IT. Act on export commission payments made to the Non-resident Agents - HELD THAT:- No reason to interfere in the order of the ld.CIT(A) deleting the disallowance of commission made under section 40(a)(ia) as AO was incorrect in holding that the commission income accrued in India and hence was liable to tax in India. Revenue appeal dismissed.
|