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2015 (10) TMI 1890 - ITAT DELHI

2015 (10) TMI 1890 - ITAT DELHI - TMI - Transfer pricing adjustment - addition made by the AO on account of difference in arms length price deleted by CIT(A) - Held that:- It is clearly established that the assessee is carrying on the business activity other than as per service agreement with the principle. Therefore, the 10% markup is to be made only of ₹ 32,69,372/- in the absence of any comparable transaction. The action of the AO in making addition of ₹ 20,41,412/- is not in orde .....

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7; 2,18,994/- respectively are partly connected with the earning of dividend income and investment. Such disallowance should not be more than 10% of expenses of ₹ 12,17,518/- (i.e. ₹ 1,21,752/-) when the assessee has already disallowed and capitalized in investment a sum of ₹ 3,08,710/-.) - In view of the above discussion the disallowance, we find that the Ld. CIT(A) has rightly restricted to when no director's remuneration has been claimed by the Ld. CIT(A). Therefore, we are .....

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he asstt. year 2009-10, on the following grounds:- "1(a).Whether the Ld. CIT(A) has erred on facts and in law in deleting addition of ₹ 20,41,412/- made by the AO on account of difference in arms length price. 2. Whether the Ld. CIT(A) has erred on facts and in law in restricting disallowance u/s. 14A to ₹ 1,21,752/- that was in accordance to the provisions of Rule 8D which otherwise should have been restricted to the amount of dividend receipts. 3. The appellant craves leave fo .....

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oss of (-) ₹ 1563256. The return was processed u/s. 143(1) of the Income Tax Act, 1961 on 30.12.2010. the case was selected for scrutiny and notice u/s. 143(2), dated 23.8.2010, was issued and served upon the assessee. The assessee company is a 100% subsidiary of AvH NV, Belgium established with an objective of establishing Joint Ventures in cement, mining, building materials, renewable energy and other infrastructure sectors. The AO has completed the assessment at an income of ₹ 41, .....

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by the assessee. 4. Aggrieved with the aforesaid order of the Ld. CIT(A), Revenue is in appeal before us. 5. Ms. Y. Kakkar, Sr. DR has relied upon the order of the Assessing Officer and reiterated the contention raised in the grounds of appeal. With regard to addition of ₹ 20,41,412/- on account of arms length transaction is concerned, the Ld. DR stated that assessee has been set up primarily with an objective to undertake studies on behalf of its holding company in India and to identify .....

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ppeal may be allowed 5.1 As regards the another addition of ₹ 37,12,429/- made u/s. 14A r.w. rule 8D of the I.T. Rules is concerned, Ld. DR submitted that the main objective of the company is to establish JVs in cement, mining, building material, renewable energy and other infrastructure sectors. The manner of deployment of funds also reveal that they are utilized for making investments or kept in bank. The contention of the assessee that the expenses debited in P&L account have no nex .....

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is exempt u/s. 10(34) or Long Term Capital Gain (exempted u/s. 10(38) from the same shares. She lastly therefore, stated that the provisions of section 14A(2) of the Income Tax Act, 1961 read with rule 8D of the Income Tax Rules, 1962 are applicable, hence, the disallowance of ₹ 37,12,429/- was rightly made by the AO which needs to be sustained and accordingly the ground no. 2 raised by the Revenue may be allowed. 6. On the contrary, Ld. Counsel of the assessee relied upon the order passed .....

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t been enclosed with the Paper Book. 7. We have heard both the parties and perused the records available with us, especially the orders of the revenue authorities and the Paper Book filed by the assessee containing pages no. 1 to 58. But we find that the pages no. 56 to 58 which is the copy of the MOU with M/s Alps Industries Ltd. were not found on record, hence, we have not considered it. We find that Assessee filed its income tax return declaring loss of Rs. -(1563256) on 30.9.2009 and subsequ .....

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frastructure sectors. The AO has completed the assessment at an income of ₹ 41,90,586/- against the returned loss of ₹ 15,63,256/- after making the additions / disallowances of ₹ 20,41,412/- on account of difference on a/c of arms length price and ₹ 37,12,429/- u/s. 14A vide assessment order dated 02.2.2012 passed u/s. 143(3) of the I.T. Act, 1961. Aggrieved with the assessment order dated 02.2.2012 passed by the AO, assessee filed an appeal before the Ld. First Appellate .....

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ity also and (b) whether mark up percentage should be applied on the entire expenditure debited to P&L etc or it should be applied only on the expenditure attributable to the services done for the parent company. We note on going through the assessment order that AO has referred to the service agreement dated 30.4.2008 only with the principel company. He has not accepted the version of the assessee that it is carrying on other activity also (other than mentioned in the service agreement) i.e .....

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ition to the services being given to the parent company the appellant will do other activity also. For ready reference we are reproducing the main objects of the company as under:- "To carry on in India, or elsewhere, directly or through subsidiaries or through strategic partnerships and investment alliances or through joint ventures or through acquisition, the business of manufacturing, treating, processing, preparing, refining, importing, exporting, purchasing, selling in all types and ki .....

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ous land relating to saline or chemical substances, mineral & metals such as coal, lignite, rockphosphate, brimstone, brine, bauxite, rare earths, which may seem suitable or useful for any of the Company's treat and to turn to account ores, all sorts of major and minor minerals, working deposits and sub soil minerals and to crush win, set, quarry, smelt, calcine, refine, dress, preserve, amalgamate, process, harden, temper, polish, manufacture, manipulate and prepare for market metals an .....

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han that mentioned in the service agreement stands also confirmed from an agreement dated 11.08.2010 with M/s Alps Industries Ltd., which shows the assessee to be in the business process of hydro power generation etc. Besides this, it has made investment in shares of M/s Sagar Cement Ltd. as appearing in the Balance sheet. The Profit and Loss a/c shows sales of ₹ 35,96,309/- which is nothing but payments received on account of the services rendered to the parent company as per the service .....

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f ₹ 32,69,372/- made for the services rendered to the principle company. The sales have been shown with 10% markup of ₹ 32,69,372/- at 35,96,309/-. 7.5 From the above, it is clearly established that the assessee is carrying on the business activity other than as per service agreement with the principle. Therefore, the 10% markup is to be made only of ₹ 32,69,372/- in the absence of any comparable transaction. The action of the AO in making addition of ₹ 20,41,412/- is not .....

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ich otherwise should have been restricted to the amount of dividend receipts is concerned, we find that Rule 8D is applicable from the AY 2008-09 (Godrej and Boyce Manufacturing Company Ltd Vs DCIT 328 ITR 81(Bombay) and Max Opp Investment Ltd. vs. CIT 203 Taxman 364 (Del) . In the appeal under consideration the assessment year involved is 2009-10, therefore Rule 8D is applicable in case the necessary conditions are fulfilled. We find that the Hon'ble Supreme Court in the case of CIT vs. Wal .....

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ns of Sec.14A r.w.r.8D have been examined by the ITAT, Delhi 'G' Bench in its order dated 7.02.2012 in ITA NO.3001/Del/2011, Assessment Year 2007-08, in the case of Shri Ram Global Enterprises Ltd., Vs. JCIT. We note that the Tribunal has referred to the judgement of jurisdictional High Court in the case of Max Opp Investment Ltd. vs. CIT 203 Taxman 364 (Del) and has observed in para-6 of the order that; "In the said decision, it has been held that even for the pre- Rule 8D period, .....

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correctness of such claim. In case the AO is satisfied with the claim of the assessee with regard to the expenditure or no expenditure, as the case may be, the AO is to ascertain the claim of the assessee in so far as the quantum of disallowance under Section 14A is concerned. In such eventuality, the AO cannot embark upon a determination of the mount of expenditure for the purposes of Section 14A(1). In case, the AO is not, on the basis of objective criteria and after giving the assessee a rea .....

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igh Court of Delhi is applicable in the cases pertaining to the assessment years subsequent to the asstt years 2007-08 also. As per the order of the ITAT and of the High Court there should be satisfaction of the AO in rejecting the assessee's claim arrived at after objective analysis of facts. 'Satisfaction' is subjective, therefore the 'standard of normal prudence' in similar facts and circumstances has to be applied. From a perusal of the asst. order-page-7, it has been see .....

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