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2015 (6) TMI 667 - ITAT LUCKNOW

2015 (6) TMI 667 - ITAT LUCKNOW - TMI - Disallowance u/s 14A - CIT(A) deleted the addition - Held that:- This is admitted position of law as per the judgment of M/s Godrej & Boyce Mfg. Co. Ltd. Vs. DCIT reported in [2010 (8) TMI 77 - BOMBAY HIGH COURT] that Rule 8D is prospective and therefore, applicable from assessment year 2008-09 and afterwards. Therefore, Rule 8D is not applicable in the present year. At the same time, even prior to assessment year 2008-09 from when Rule 8D is applicable, s .....

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the addition - Held that:- From the provisions of clause (b) of sub Rule 1 of Rule 10B of Income-tax Rules, it is seen that resale price method is applicable where there is purchase of property or service from associate enterprise but in the present case, the assessee is not purchasing the goods from the associate enterprises but the assessee is selling the goods to associate enterprise. Based on this fact, this finding is given by CIT(A) that resale price method does not apply to the assessee ‘ .....

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ustment in the commission transactions of the assessee. Thereafter, the CIT(A) has examined the agency agreement and held that that certain adjustments on account of functional differences between a person who acts as ‘principal to principal’ i.e. a trader and a person who acts as a mere ‘commission agent would be allowed because in case of ‘principal to principal’ transaction, person, inter alia, incurs expenditure on imports, storage and distribution of the goods which in normal course are not .....

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he adjustment made by the T.P.O. is not justified and correctly deleted the same.- Decided against revenue. - ITA No.127/LKW/2012 - Dated:- 11-6-2015 - Shri Sunil Kumar Yadav and Shri A.K. Garodia, JJ. For the Petitioner: Shri O. N. Pathak, D. R. For the Respondent: Shri P. K. Kapoor, C.A. ORDER PER A. K. GARODIA, A.M. This is Revenue s appeal directed against the order passed by learned CIT(A)-I, Kanpur dated 29/12/2011 for the assessment year 2007- 2008. 2. Ground No. 1 is as under: 1. The Ld. .....

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able. 3. Learned D. R. of the Revenue supported the assessment order whereas learned A. R. of the assessee supported the order of learned CIT(A). He also submitted that as per a decision of Hon'ble Bombay High Court rendered in the case of Godrej And Boyce Mfg. Co. Ltd. vs. DCIT And Another [2010] 328 ITR 81 (Bom), Rule 8D is not applicable prior to assessment year 2008-09. 4. We have considered the rival submissions. We find that this is admitted position of law as per the judgment of Hon&# .....

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disallowance of ₹ 12,000/- for average investment of ₹ 491.08 lac is not reasonable and therefore, we hold that disallowance should be made of ₹ 50,000/- on account of administrative expenses. Regarding deletion of disallowance of interest expenditure u/s 14A, it is held by CIT(A) that as per the judgment of Hon'ble Bombay High Court rendered in the case of CIT vs. Reliance Utilities and Power Ltd. [2009] 313 ITR 340 (Bom), when mixed funds are used for making investment, .....

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we hold that the disallowance of ₹ 50,000/- u/s 14A will serve the interest of justice. We hold accordingly. This ground of appeal is partly allowed. 5. Ground No. 2 is as under: 2. The Ld. CIT(A) has erred in law and on facts in deleting the addition of ₹ 1,29,19,127/- on account of adjustment of arms length price without appreciating the fact of the case as discussed by the T.P.O in order u/s 92CA(3). 6. Learned D. R. of the Revenue supported the assessment order whereas learned A. .....

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transfer pricing and no convincing reasons have been given by the TPO for not accepting such a study. The assessee had adopted cost plus method, which had been duly accepted by the erstwhile TPO(s) for earlier year(s). No reasons have been given by the present TPO to reject the method of Cost Plus basis adopted by the assessee and accepted by the Department in earlier year(s). I am aware that principle of res-judicata does not apply to the Tax proceedings; yet, one cannot brush aside the "P .....

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ommented upon by the earlier TPOs, the rejection of method and adjustments as proposed by the TPO is liable to be struck down as being in violation of "Principle of Consistency." 6.2.3 Notwithstanding the aforesaid, on Going through the provisions of transfer pricing as defined in the Income Tax Act, 1961, it is very clear that Resale Price Method does not apply to the assessee as Resale Price Method applies to imports into the country. Thus, the resale price method as adopted by the T .....

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e being 7.2%. Further, the TPO has while dealing with international transactions with the AEs himself accepted the commission rates upto 10% given to the US-(AE) on referred sales and upto the 8% to UK-(AE). In this view of the matter, the gross margin available to the AE, should have been benchmarked at 8% and not at 5% as the TPO has himself treated all these commission payment at arms length and has made no adjustment in the commission transactions of the appellant. 6.2.4 Having benchmarked t .....

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adjustments for such expenditure has to be given and then only the resultant gross margin can be compared with the benchmarked 8% gross margin. In this regard, it would be useful to reproduce a typical agency agreement entered into by the appellant which word indicate the functions being performed by a typical commission agent and also the rate of commission being charged. AGENCY AGREEMENT This agreement is made in good faith and honest understanding between ( name & address, phone, mail id .....

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cipal agrees that will use their best efforts and endeavours to make shipment of all orders with the confirmed delivery time, unless they are prevented from doing so by circumstances beyond control. 2. The Agent agrees that they will use their best efforts and endeavours at all times during the validity of the Agreement to promote the sales of the goods covered by the agreement. 3. The Commission of (mention the percentage of commission mutually agreed) 8 to 12.5% (EIGHT to TWELVE & HALF) on .....

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by them are immediately taken by the respective customers as per terms & conditions of the contract / order. Complaints dispute, if any, may be settled by them to the best of immediately the intelligence on behalf and approval of the principal. 6. The Principal agrees that all the customers by KERAC will be regarded as exclusive to them. 7. This agreement it mutually agreed by both 'the commission agent" KERAC (mention the name of commission agent) and "the Principal" M/s. .....

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expenditure is as under: Particulars Sale price by the AE in AED 4631945 Less:Import expenses of goods **170123 **This is an expense incurred for importing goods which is never borne by the commission agents in its normal course of business Adjusted sales in AED 4461822 Converted into India Rupees @11.74 52381790 Price charged by the assessee 48933769 Gross profit amount 3448021 Gross profit % 7.04% 6.3.1 As computed above, the gross margin of the AE is less than 8% even when no other expenses h .....

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f consistency cannot be brushed aside. He has given a clear finding that the assessee has followed cost + method and no reasons have been given to reject the same. The second basis given by him is that the resale price method does not apply in the assessee s case as resale price method is applicable to imports into the country. In this regard, we feel that clause (b) of Sub Rule (1) of Rule 10B of Income Tax Rules is relevant, which defines the resale price method and therefore, the same is repr .....

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or similar services, in a comparable uncontrolled transaction, or a number of such transactions; (iii) the price so arrived at is further reduced by the expenses incurred by the enterprise in connection with the purchase of property or obtaining of services; (iv) the price so arrived at is adjusted to take into account the functional and other differences, including differences in accounting practices, if any, between the international transaction [ or the specified domestic transaction] and th .....

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seen that resale price method is applicable where there is purchase of property or service from associate enterprise but in the present case, the assessee is not purchasing the goods from the associate enterprises but the assessee is selling the goods to associate enterprise. Based on this fact, this finding is given by CIT(A) that resale price method does not apply to the assessee s case. 8. In addition to these two basis discussed above, it is also stated by CIT(A) in Para 6.2.3 of his order t .....

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