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2015 (6) TMI 673 - ITAT MUMBAI

2015 (6) TMI 673 - ITAT MUMBAI - TMI - Disallowance u/s 14A - disallowance in respect of the investment in the wholly owned Indian subsidiaries - Held that:- The fund flow statement filed by the assessee is only regarding the fresh investment made by the assessee during the year which is otherwise excluded for the purpose of disallowance u/s 14A being the investment in foreign companies. It is not clear from the record whether any disallowance was made on account of interest expenditure in the e .....

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r assessment years on this account. Accordingly, in the facts and circumstances of the case, we set aside this issue to the record of Assessing Officer to decide this issue afresh by considering the finding of the earlier A.Ys on this issue and further in view of the decisions in case of JM Financial Ltd. Vs. Addl. CIT (2014 (4) TMI 752 - ITAT MUMBAI) as well as Garware Wall Ropes Ltd. Vs. Addl. CIT (2015 (2) TMI 628 - ITAT MUMBAI ). - Decided in favour of assessee for statistical purposes.

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tion u/s 80IB/80IC of the Act was reasonable and there was no justifiable reason for the A.O. to disturb the same and make reallocation on adhoc basis. We, therefore, delete the addition made by the A.O. by restricting the claim of the assessee for deduction u/s 80IB/80IC of the Act by reallocating the common indirect expenses - Decided in favour of assessee.

Depreciation on UPS - at the rate of 15% OR 60% - Held that:- We are in agreement with the view that computer accessories and p .....

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oducts to various AEs - Held that:- The concept of clubbing and aggregating the transaction is based on the premise that such transactions influenced by each other and particularly in determining the price and profit involved in the transactions then such transactions can safely be regarded as closely linked transactions. The OECD guidelines has referred a portfolio approach as business strategy consisting of tax payers bundling certain transaction for the purpose of earning an appropriate retur .....

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I 1007 - ITAT MUMBAI ). Thus we are of the view considered opinion that all the insecticide products sold by the assessee to its AE in each country shall be clubbed together for the purpose of determining the armís length price. Consequently, the addition made by the Assessing Officer is deleted. - Decided in favour of assessee. - ITA NO.598/Mum/2013 - Dated:- 11-3-2015 - SHRI VIJAY PAL RAO AND SHRI D. KARUNAKARA RAO, JJ. For The Revenue : Shri F.V. Irani For The Assessee : Shri S.D. Srivastava .....

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/units of mutual funds is subjected to tax in the hands of the payer under section 115-0/ 115-R of the Act and as the Appellant receives an amount after the tax has been paid, it cannot be said that such dividend income is not chargeable to tax under the Act and, hence, the provisions of Section 14A are not attracted in the case of the Appellant. 2) Without prejudice to Ground No.1, the learned DRP erred in confirming that interest expenditure on borrowings utilized for the purpose of business a .....

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d grossly excessive and the same requires to be reduced substantially. 4) The learned DRP erred in confirming the disallowance of administrative and other expenditure aggregating to ₹ 8,28,725/- towards the earning of exempt dividend income under sub-clause (iii) of Clause 2 of Rule 8D. 5) Without prejudice to above ground and in any event, the Appellant submits that the disallowance computed at ₹ 8,28,725/- is arbitrary and grossly excessive and the same requires to be reduced subst .....

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k profits to be computed under section 115JB' of the Act. 8) The learned DRP and the Assessing Officer erred in disregarding the method of allocation consistently adopted by the Appellant and in re-allocating 50% of the following overheads of the non-eligible undertakings of the Appellant, while computing the deduction u/s 80rB 1 80lC of the Act:-  Miscellaneous Expenses  Conveyance and Travelling Expenses  Rent, Rates and Taxes  Advertisement and Publicity &# .....

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by the Appellant. 11) The learned DRP erred in confirming the action of the Transfer Pricing Officer / Assessing Officer that the actual sales price and arms length price of each related party transaction are to be compared independently and not on an aggregate country-wise basis for exports made to the AEs. 2. Ground nos. 1 to 5 are regarding disallowance u/s 14A. During the assessment proceedings, the Assessing Officer disallowed a sum of ₹ 22,73,821/- u/s 14A of the Income Tax Act by a .....

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in the shares of foreign subsidiaries of the assessee and the dividend income from the foreign subsidiaries is taxable, therefore, no disallowance can be made u/s 14A in respect of the investment made in the foreign subsidiaries. The assessee has also contended that the investment has been made from the assessee s own fund, therefore, no disallowance is called for on account of interest expenditure u/s 14A. The DRP has directed the Assessing Officer to exclude the investment made in the foreign .....

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ere made by the assessee and both were in the foreign subsidiaries of the assessee, therefore, no disallowance is called for on account of interest expenditure. The Ld. Authorized Representative has pointed out that during the year under consideration, the assessee has acquired the shares of two companies for an aggregating amount of ₹ 54.51 crores. The said investments have been funded out of the cash flow generated from the operating activities of the assessee s company. The Ld. Authoriz .....

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trategic investment and not for earning the dividend income. In support of his contention he has relied upon the following decisions of this Tribunal:- (i) Garware Wall Ropes Limited Vs. Addl. CIT (ITA No. 5408 & 4957/Mum/2012) (ii) M/s JM Financial Limited Vs. Addl CIT (ITA No. 4521/Mum/2012 (iii) ACIT Vs. M/s Oriental Structural Engineers (P) Ltd. (ITA No. 4245/Del/2011) 3. On the other hand, the Ld. DR has relied upon the orders of authorities below and submitted that the issue is covered .....

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. We have considered the rival submissions as well as relevant material on record. The investment as on 31st March 2007 was ₹ 6.74 crores whereas the investment as on 31.03.2008 is ₹ 61.25 crores, therefore, there is an increase in the investment during the year to the extent of ₹ 54.51 crores. We note that this fresh investment of ₹ 54.51 crore is clearly in the two foreign subsidiaries of the assessee and dividend from the foreign company is taxable, therefore, to that .....

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ssessee during the year which is otherwise excluded for the purpose of disallowance u/s 14A being the investment in foreign companies. It is not clear from the record whether any disallowance was made on account of interest expenditure in the earlier assessment years. Since the investment was made in the earlier assessment years, therefore, the disallowance on account of interest expenditure has to be as per the funds available with the assessee and the finding on the issue of disallowance u/s 1 .....

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view of the decisions relied upon by the Ld. Authorized Representative in case of JM Financial Ltd. Vs. Addl. CIT (supra) as well as Garware Wall Ropes Ltd. Vs. Addl. CIT (supra). 5. Ground No. 6 &7 is regarding disallowance of expenditure incurred for earning the exempt income for the purpose of computation of book profit u/s 115JB. 6. This ground is consequential to the issue raised in ground nos. 1 to 5. Since the ground nos. 1 to 5 have been set aside to the record of Assessing Officer, .....

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essee has been allocating the overheads in the ratio of sales which has been accepted by the Department in the past years up to the A.Y. 2004-05. For the A.Y. 2005-06 onwards, the Assessing Officer has made the disallowance by allocating the 50% of the overheads to the eligible undertaking thereby reducing the claim u/s 80IB. The Ld. Authorized Representative has pointed out that the issue is now covered by the decision of this Tribunal in assessee s own case for A.Y. 2005-06 and 2006-07. 10. On .....

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of deduction u/s 80IB and 80IC of the Act. We note that an identical issue has been considered and decided by the Tribunal in assessee s own case for 2006-07 vide order dated 22.11.2013 in ITA No. 7369 in para 8 and 9 as under:- 8. We have considered the rival submissions and also perused the relevant material available on record. It is observed that out of the total overheads of ₹ 154.63 crores incurred by the assessee during the year under consideration, overheads to the extent of ₹ .....

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s, schemes and promotions expenses amounting to ₹ 0.83 crores, miscellaneous expenses amounting to ₹ 0.72 crores, conveyance and traveling expenses amounting to ₹ 0.47 crores and rent, rate & taxes amounting to ₹ 0.48 crores. As explained by the ld. counsel for the assessee before us, the expenditure on advertisement & publicity and schemes and promotions was incurred mainly to create and promote the brand image for the company s product and this position was acce .....

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accepted this position while observing in his order that such expenses on advertisement & publicity and schemes have to be allocated to some extent to the non-eligible segment. He, however, held that such allocation could not be very large amount and accordingly re-allocated 50% of the said expenses to eligible unit on adhoc basis. In our opinion, such reallocation made by the A.O. on adhoc basis cannot be sustained having regard to all the facts of the case including especially the fact tha .....

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sement, schemes and promotions expenses on the basis of turnover, the profit of trading segment was 6.59%. 9. Similarly, the other indirect expenses on conveyance and traveling, rate and taxes and miscellaneous were incurred by the assessee during the normal course of its business of selling the finished goods, whether manufactured or procured from third party and since the said expenses were incurred equally for the benefit of eligible business as well as non-eligible business of trading, we ar .....

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bifurcation of expenses is not possible, some reasonable test will have to be adopted and that adoption of the method of apportioning on the basis of gross receipts could not be said to be a perverse method to apply. Keeping in view the decision of Hon ble Supreme Court in the case of Consolidated Coffee Ltd. v. State of Karnataka (supra) and having regard to the facts of the case, we are of the view that the allocation of expenses made by the assessee between eligible business and non-eligible .....

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ecided this issue by following the decision for A.Y. 2006-07. Thus this issue is a recurring issue and the Tribunal for the A.Y. 2005-06 and 2006- 07 has decided this issue in favour of the assessee. To maintain the rule of consistency, we follow the earlier order of this Tribunal and decide this issue in favour of the assessee and consequently the addition made by the Assessing Officer on this account is deleted. 14. Ground no. 9 is regarding erroneous re-computation of profits of two units eli .....

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the claim of 60%. 17. We have heard the Ld. AR as well as Ld. DR and considered the relevant material on record. The Ld. Authorized Representative of the assessee has relied upon the following decisions:- (i) CIT Vs. BSES Yamuna Powers Ltd. 358 ITR 47 (Delhi) (ii) Hughes Systique India P. Ltd. Vs. ACIT [2013] 25 ITR (Trib) 556 (Delhi) (iii) Rayban Sun Optics India Ltd. Vs. DCIT [2013] 27 ITR (Trib) 440 (Delhi) 18. At the outset, we note that this issue is now settled by the Judgment of Hon ble H .....

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s under : "The issue involved in this appeal is covered by the decision of co-ordinate Bench of the Tribunal as discussed below : In the case of ITO v. Samiran Majumdar [2006] 98 ITD 119 (Kol.), Income-tax Appellate Tribunal Kolkata Bench "B", has taken a view that the printer and scanner are integral part of the computer system and are to be treated as computer for the purpose of allowing higher rate of depreciation, i.e., 60 per cent. 3.2 The Income-tax Appellate Tribunal, Delhi .....

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iation at 60 per cent. on computer peripherals and accessories, and, thus, the ground raised by the Revenue is rejected. 5. In the result, the appeal filed by the Revenue is dismissed." 6. We are in agreement with the view of the Tribunal that computer accessories and peripherals such as, printers, scanners and server, etc., form an integral part of the computer system. In fact, the computer accessories and peripherals cannot be used without the computer. Consequently, as they are the part .....

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to 77 as under:- 75 It is a settled proposition that a 'computer system' comprises of not only the central processing unit (CPU) but also all input / output devices including printer, monitor and other devices, etc. Reference is made to CIT v. IBM World Trade Corpn. [1981] 130 ITR 739 (mum.). 76 Further, the issue stands covered by the decision of Special Bench of Mumbai Tribunal in the case of Dy. CIT v. Datacraft India Ltd. [2010] 40 SOT 295/6 taxmann.com 85 and Delhi High Court in the .....

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e of 60%. 21. Ground no. 11 is regarding Transfer Pricing adjustment in respect of sale of insecticide products to various AEs. 22. The assessee company has entered into sale transactions with its Associated Enterprises located in various countries. The sales consist of insecticide products manufactured by the assessee. The assessee bench marked its international transaction by aggregating the country wise all products exported. The TPO has not accepted this basis of country wise aggregation of .....

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ed therewith, insect repellent coils and insect repellent hit-line chalks. All these products are basically household insecticides and are used as insect repellents and are covered under the general category of Insecticides. All these products are exported by the assessee Company to its associated enterprises globally depending on the market preferences and requirements of each country. The transfer pricing adjustments as explained above, have been made in respect of sales to four countries name .....

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s marketing strategy of aggregating similar products has been adopted by the assessee Company in Sri Lanka and Bangladesh. Similarly, when determining the sale price of the heaters and mats, which is the initial product offering by the assessee Company in this range, the pricing strategy is to sell the product at a lower cost. In this manner, the customer is enticed to buy the product. Thereafter, the assessee Company prices the mat refills at a higher price than the arms length price and recove .....

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similar products has been adopted by the assessee Company in Sri Lanka and Bangladesh. The Ld. Authorized Representative has thus submitted that some of the insecticides products are the cheapest versions of the insecticides sold by the assessee for enticing the customers into purchasing their products, therefore, at times these products are sold at a lower price mainly for market penetration to entice buyers to move up the product chain of the assessee. Therefore, the individual item which is p .....

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action basis. However, there are situations were separate transactions are closely linked or continuous that they cannot be evaluated adequately on a separate basis. Thus the Ld. Authorized Representative has submitted that the case of the assessee is covered by the OECD guidelines in this respect for clubbing the transaction for the purpose of evaluation and determination of ALP. In support of his contention he has relied upon the decision of this Tribunal dated 18-7-2014 in the case of Boskali .....

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controlled transactions without clubbing together. 25. We have considered the rival submissions as well as relevant material on record. The assessee bench marked its selling price using comparable uncontrolled price (CUP ) method. The TPO found that the assessee has aggregated all the exports made to a particular country for the purpose of bench marking against the comparable transactions with unrelated parties in those countries. The TPO held that such bench marking is required to be done for e .....

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ice. It is pertinent to note that the product sold by the assessee are insecticide products in the various forms i.e. coil, liquidvaporizing products, liquid repellants etc. There is no dispute that some of the products are sold as a package along with the accessories which are necessary for using these insecticide products. For instance a heater is required along with good knight vaporizer as well as mat and, therefore, the product sold in a single package comprising heater along with the liqui .....

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herefore, all the products are falling in the category of insecticides and used as supplementary to each other then these products may be priced by taking a portfolio approach by the assessee and not considering the profit motive from each and every single product within the portfolio. We note that in the case of Boskalis International Vs. Dy. Director of Income Tax (supra), the Tribunal while considering a similar issue has held in para 11 and 12 as under 11. We have considered the rival submis .....

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permitted as closely linked transactions for the purpose of transfer pricing and in terms of Rule 10A(d). Aggregation and clubbing of the closely linked transaction are permitted under the Rules and it is also supported by OECD transfer pricing guidelines. In order to examine whether the number of transactions are closely linked or continuous so as to aggregate for the purpose of evaluation it is to be considered that one transaction is follow-on of the earlier transaction and then the subsequen .....

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ely linked transactions. The OECD guidelines has referred a portfolio approach as business strategy consisting of tax payers bundling certain transaction for the purpose of earning an appropriate return across portfolio rather than single product. For instance some products may be marketed by the tax payer with a low profit or even at loss because they create a demand for other products or related services of the same tax payer that are then sold or provide high profit. Some of the examples give .....

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well as prices between the parties are determined based on the totality of the transactions and not on individual and separate transactions. 12. In the case in hand the Assessee has taken a number of dredging equipments from more than one associate enterprises. In the business decisions when number of transactions are entered into between two parties then it is a very important and material factor to consider a portfolio approach rather than the individual transaction approach for determination .....

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ed out with different associate enterprises cannot be clubbed or aggregated because they cannot be termed as closely linked or continuous so as to influence the price in aggregate or the profit of the parties arising from these transactions. Hence, in principle we accept argument of the ld.AR that the various dredging equipments hired from the associate enterprises can be aggregated for the purpose of determination of ALP in terms of Rule 10A(d). However, the aggregation of the various transacti .....

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ciate enterprise separately and not by clubbing the transactions with all associate enterprises. 26. There is no dispute that if the number of transactions are closely linked or continuous in nature and arising from a continuous transactions of supply or services the transactions can be classified as closely linked transactions for the purpose of transfer pricing and in terms of Rule 10A(d) of the income Tax Rules. The Aggregation and clubbing of the closely linked transaction are permitted unde .....

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