TMI Blog2012 (12) TMI 811X X X X Extracts X X X X X X X X Extracts X X X X ..... allowance u/s 14A - Interest expense in relation to earning income u/s 10 – Held that:- Once the profit and loss account of the floriculture division has been accepted and the net profit(loss) excluded from the total income there is no question of further estimating disallowance of interest. Prior to insertion of sub-section 2 & 3 to Sec 14A, the AO has no power to artificially allocate certain expenditure as having been incurred in relation to earning the income which does not form part of the total income. In absence of any finding that some expenditure were definitely incurred in relation to earning dividend income no artificial allocation can be made so as to disallow the same. Delete the estimated addition of notional interest on borrowed funds deemed to have been utilized for floriculture division. In favour of assessee Deduction in respect of certain inter-corporate dividends – AO restrict the deduction u/s 80M - Assessee contended that the balance non-corporate dividend should also be considered as deemed dividend for the purpose of deduction u/s 80M – Held that:- Since this aspect has not been adjudicated by either by the AO or by CIT(A), we restore this issue to the fi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he above addition on the basis of findings in TPO s order dated 09/03/06, wherein he held that the ALP of export transactions of the assessee with its AE, M/s Gulf Oil, Philliphines, (shown by the assessee at Rs. 1,45,65,203/-), after applying the CUP method and comparing with the domestic rates after allowing permissible deductions, would come to Rs. 1,95,94,083/-. Accordingly, the AO had made an addition of Rs. 50,28,877/- representing difference in ALP and the assessee s price regarding the above export transactions. 4. Aggrieved by the order of the AO, the assessee had come in appeal before the CIT(A) and made the following submissions:- i) The action of the TPO denied various adjustments made by the appellant to domestic prices to make the prices comparable which indicates incorrect application of facts and law. ii) The TPO has ignored DEPB incentives earned by the company and failed to add the same to the export price while comparing the export prices to domestic prices under CUP method adopted by him. The total fixed cost include regional fixed cost and advertisement expenditure for domestic sales which comprise to the tune of 52% of the total which pertained only for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... different dates and worked out the ALP of the transactions at Rs. 1,95,94,080 for the relevant previous year, which is properly based. I further find that the price shown for the exports to AEs by the appellant at Rs. 1,45,65,203/- was at variance of more than 5% (about 25%) from the ALP determined by the TPO which necessitates a transfer pricing adjustment. In view of this, I confirm the addition of Rs. 50,28,877 made by the AO on this issue, and dismiss the ground taken by the appellant. 7. Aggrieved by the order of the CIT(A), the assessee is in appeal before us on this issue and the learned counsel for the assessee Shri Ratnakar submitted as follows: i) that it is not possible for the assessee company to make a profit of 1/3rd of sale price as its margin. ii) the assessee has shown that it was able to utilize only 36.42% of its capacity in the domestic market and had surplus unutilized capacity of about 63.58%. Since there was no possibility to increase domestic sales, the assessee exported lubricant oil to AEs at a competitive price in the international market. Certain adjustments have to be made to the sale price of domestic sales and certain deductions additions ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee to their AEs in terms of Rule 10B of the Act. Thus, the ground Nos. 1 to 3 are allowed for statistical purposes. 9. The next issue raised in Ground No. 4 is regarding confirmation of disallowance of Rs. 3,28,162/- as capital loss. 10. The Assessing Officer disallowed the amount of Rs. 3,28,162/-, stated to have been advanced to one of the subsidiaries which was stated to have become sick and incurring loss, on the ground that under the relevant provisions, only a proper debt of revenue nature which had been taken into account in computing the income of the assessee in that previous year or some earlier previous year can be allowed as bad debt. The AO also noted that the assessee was neither a money lender nor the amount written off was a trading liability. In view of this, he considered the amount claimed by the assessee as a capital loss. Aggrieved, the assessee carried the matter in appeal before the CIT(A). 11. On appeal, the CIT(A) confirmed the order of the Assessing Officer relying on the decision of Grindwel Norton Ltd. Vs. DCIT, 91 ITD 412 (Mum.)(TM) and Hashimara Industries Vs. CIT, 231 ITR 842. Aggrieved by the order of the CIT(A), the assessee is in appea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the disallowance to Rs. 9.50 lakhs. Aggrieved by the order of the CIT(A), the assessee is in appeal before us. 18. The learned counsel for the assessee before us submitted as follows:- i) the company has substantial funds of its own and there can be no presumption that the funds required for floriculture division were used out of borrowed funds; ii) As a fact, there were no borrowal of funds for starting this unit. The unit was started in the year 1996; iii) The AO s presumption that at least 1/3 of the moneys employed in the floriculture division should be treated as out of loans and estimated notional interest at 15% should be disallowed, is only imaginary and without any factual foundation; iv) all expenses incurred on the floriculture division have been allocated to it and its computation was separately filed before the AO; v) merely because there were borrowed funds in the balance sheet, it cannot be said that a part of the borrowed funds must necessarily be on the floriculture division. vi) no part of the borrowings are used for the floriculture division; The learned counsel for the assessee contended that the CIT(A) arbitrarily confirmed the proportionate dis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ve been utilized for floriculture division. Accordingly, ground No. 7 is allowed. 21. Ground No. 8 is directed against the action of the CIT(A) in restricting the deduction u/s 80M of Rs. 13,07,376/- only and against the entire dividend income shown by the assessee at Rs. 35.13 lakhs. 22. The Assessee had claimed deduction of the entire dividend amount of Rs. 35.13 lakhs u/s 80M because the dividend declared by the assessee company is much more than the dividend received by it. The AO restricted the deduction to Rs. 13.07 lakhs and disallowed the balance amount. On appeal, the CIT(A) confirmed the order of the AO. Aggrieved the assessee is in appeal before us. 23. Before us, it was submitted that it is settled position that UTI is also treated as a company. It also pays dividend distribution tax and any dividend declared by it on its mutual funds is eligible for deduction u/s 80M of the Act. It is treated as inter corporate dividend. It was further submitted that the learned CIT(A) at para 11.2 has erroneously denied the assessee the benefit of dividend declared by the UTI while computing the deduction u/s 80M of the Act. 24. We have heard the arguments of both the parties ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... which relates to omission to give credit for the following amount of taxes deducted at source: i) TDS by UTI out of interest income Rs. 21,08,971/- ii) TDS by remaining bank - Rs. 4,21,797/- 30. Before us, the learned counsel for the assessee submitted that to the enclosures filed by the assessee along with the additional grounds copies of the letters written to the department from time to time and also copies of the TDS certificates filed were enclosed. The originals of the TDS certificates have already been filed with the department. He further submitted that the TDS certificates for the taxes deducted by UTI for Rs. 21,08,971/- were filed along with the return for assessment year 2004-05 because the TDS certificates were belatedly sent by UTI. It is submitted that the original certificate of TDS for the sum of Rs. 21,08,971 was filed vide letter dt. 17/03/2005 for assessment year 2004-05 and the assessee requested that this amount may be given credit for assessment year 2003-04 as the interest income of Rs. 1,00,42,718/- received from UTI was taxed in the assessment year 2003-04. This was not done. The learned counsel for the assessee as regards TDS for Rs. 4,12,795/- t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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