TMI Blog2015 (6) TMI 673X X X X Extracts X X X X X X X X Extracts X X X X ..... e 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. Disallowance u/s 80IB/80IC - allocation of expenses made by the assessee between eligible business and non-eligible business - Held that:- Keeping in view the decision of Hon’ble Supreme Court in the case of Consolidated Coffee Ltd. v. State of Karnataka (2000 (11) TMI 136 - SUPREME Court) 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 business for the purpose of computing deduction 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 i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on of DRP dated 7.9.2012 passed u/s 144C(5) of the Income Tax Act for the A.Y. 2008-09. The assessee has raised following grounds in this appeal:- 1) The learned DRP erred in holding that the provisions of Section 14A of the Act were applicable in the case of the Appellant, since the dividend from shares/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 activities of the Appellant was not allowable under Section 36(1)(iii) of the Act and in confirming the disallowance of interest expenditure aggregating to ₹ 2,48,648/- towards the earning of exempt dividend income under sub-clause (ii) of Clause 2 of Rule 8D. 3) Without prejudice to the Appellant's contention that no interest is allocable to the earning of exempt dividend ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 applying the provisions of Rule 8D of income tax Rules. This amount of disallowance comprising the disallowance u/s 14A on account of interest expenditure as per Rule 8D(2)(ii) amounting to ₹ 7,78,133/- as well as disallowance of administration expenses amounting to ₹ 14,95,688/- as per Rule 8D(2)(iii). The assessee objected before the DRP against the disallowance made by the Assessing Officer u/s 14A and submitted that out of the total investment a sum of ₹ 21.36 crore has been 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 Assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the assessee. Thus the Ld/ DR has submitted that the disallowance u/s 14A is mandatory when the assessee has earned the tax free income from the investment. 4. 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 extent the DRP has already directed the Assessing Officer to recomputed the disallowance. The issue before us is limited to the extent of disallowance in respect of the investment in the wholly owned Indian subsidiaries. The assessee has raised two contentions in this respect that the investment in question is out of the assessee s own fund and that too in subsidiaries. It is pertinent to note that the fund flow statement filed by the assessee is only regarding the fresh investment made by the assessee during the year which is oth ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f this Tribunal in assessee s own case for A.Y. 2005-06 and 2006-07. 10. On the other hand, the Ld. DR has relied upon the orders of authorities below. 11. We have considered the rival submissions as well as relevant material on record. The Assessing Officer has made reallocation of the following expenses:- Miscellaneous Expenses Conveyance and Travelling Expenses Rent, Rates and Taxes Advertisement and Publicity Schemes and Promotions. 12. We find that these expenses are identical as in the A.Y. 2006-07 and 2005-06 reallocated by the Assessing Officer for the purpose 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 ₹ 141.91 crores were directly allocated by the assessee to the eligible units being directly attr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd 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 are of the view that the basis of turnover adopted by the assessee to allocate the said expenses was more scientific and reasonable. On the other hand, the reallocation of the said expenses made by the A.O. on adhoc basis was not supported or substantiated by him and the same, in our opinion, cannot be accepted as a reasonable basis. In the case of Consolidated Coffee Ltd. v. State of Karnataka (supra) cited by the ld. counsel for the assessee, it was held by the Hon ble supreme Court that when a 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 appl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... puter accessories and peripheries such as printers, scanners, servers etc., was held to be entitled for depreciation at the rate of 60% in para 5 and 6 as under:- 5. However, upon a perusal of the file, we find that the higher rate of depreciation was allowed both by the Commissioner of Income-tax (Appeals) ( the CIT(A) ) and the Tribunal. In fact, the Tribunal in its impugned order has observed as 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 F Bench in the case of Expeditors International (India) (P.) Ltd. v. CIT [2008] 118 TTJ 652 (Delhi) has held that peripherals such as printer, scanners, NT Server, etc., form integral part of the computer and the same, therefore, are eligible for depreciation at the rate of 60 per cent. as applicab ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ons 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 all products and has compared the arm s length net sales price to be charged with the net sales value actually charged for each particular product and accordingly made addition on this account. 23. Before us, the Ld. Authorized Representative of the assessee has submitted that The assessee company is engaged in the manufacture of household insecticide products which inter alia include insect repellant mats and the heaters associated therewith, insect repellant liquids and the vaporizers associated 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and Tax Administrations and submitted that the guidelines provide that in order to arrive at the most precise or proximate arm s length conditions, the arm s length principle should be applied on a transaction-by-transaction 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 Boskalis International Vs. Dy. Director of Income Tax ITA No. 4862/Mum/2008. He has also relied upon the decision of this Tribunal in the case of Taj Sats Air Catering Ltd. Vs. Additional CIT dated 20.08.2013 in ITA No. 8790/Mum/2011. 24. On the other hand, the Ld. DR has relied upon the order of authorities below and submitted that each product sold by the assessee to the AE is a separate product and, therefore, as per the provisions of Transfer Pricing, each transaction has to b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ), the Tribunal while considering a similar issue has held in para 11 and 12 as under 11. We have considered the rival submissions as well as relevant material on record. The limited issue before us is whether the lease rental paid by the assessee to its Associated Enterprises in respect of various dredging equipments taken on lease can be recorded as closely linked or continuous transactions which cannot be evaluated separately on individual basis. If a number of transactions are closely linked or continuous in nature and arising from a continuous transactions of supply of amenity or services the transactions can be 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 subsequent transaction is carried out and dependent wholly or substantially on t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... her words the transactions carried 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 transactions is possible only with respect to the transactions which are carried out between the Assessee and each associate enterprise. Since the Assessee has hired these equipments and dredgers from more than one associate enterprise, therefore, the aggregation of the transaction is permitted only in respect of those which are between the Assessee and one enterprise separately. Accordingly AO/TPO is directed to determine the ALP by aggregating the various transactions between the Assessee and each associate enterprise separately and not by clubbing the transactions with all associate enterprises. 26. There is no dispute that if the number of transactions are close ..... X X X X Extracts X X X X X X X X Extracts X X X X
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