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2015 (5) TMI 1027 - ITAT MUMBAI

2015 (5) TMI 1027 - ITAT MUMBAI - TMI - Disallowance u/s 14A - CIT(A) restricted part disallowance - Held that:- In the present case, the entire investment has been made by the assessee in the subsidiary company, therefore, it is not a case of reshuffling investment of portfolio by the assessee which requires the involvement of the management in the regular decision making process. It appears that this is a strategic investment and further does not require regular e–valuation and re–consideratio .....

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sent issue. - Decided against revenue

Transfer pricing adjustment - clubbing of results of three group companies of Suzlon for the purpose of determining the arm's length price - Held that:- Suzlon Energy Ltd. was engaged in the activities of supply alone whereas the assessee is in the business of supply, installation, commissioning as well as development of sites. Thus, it is clear that the business activities carried out by the assessee are not comparable with the Suzlon Energy Ltd. .....

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lubbed the margins of all the three companies. Further, we note that the Transfer Pricing Officer has determined the arm's length price at 13.39% in the comparison to the operating margin of the assessee @ 11.57%. However, the Transfer Pricing Officer has not given the benefit of tolerance range of + 5% while making the adjustment. Without going into the controversy whether the learned CIT(A) is justified in taking the consolidated results of three group companies of Suzlon, we note that when th .....

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terfere with the order of the learned CIT(A) qua this issue when the action of the Transfer Pricing Officer including Suzlon Energy Ltd. in the list of comparable is not sustainable. - Decided against revenue - ITA no.8373/Mum./2010 - Dated:- 29-5-2015 - SHRI VIJAYPAL RAO, JUDICIAL MEMBER AND SHRI B.R. BASKARAN, ACCOUNTANT MEMBER Appellant by : Shri N.K. Chand Respondent by : Shri J.P. Bairagra ORDER PER VIJAYPAL RAO, JUDICIAL MEMBER The present appeal preferred by the Revenue is directed agains .....

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ade u/s 92CA by the Transfer Pricing Officer / Assessing Officer. 2. During the year under consideration, the assessee had received interest on investment made in the subsidiary company which was exempt under section 10(23G) of the Act. The Assessing Officer noted that the assessee has invested a sum of 107.16 crores in its subsidiary companies. Accordingly, the Assessing Officer proposed to disallow the expenditure under section 14A by invoking the provisions of rule 8D of the I.T. Rules, 1962. .....

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ection 14A. 3. On appeal, the learned CIT(A) held that provisions of rule 8D is not applicable for the year under consideration in view of the judgment of the Hon'ble Jurisdictional High Court in Godrej & Boyce Mfg. Co. Ltd. v/s DCIT, [2010], 328 ITR 081 (Bom.). However, the learned CIT(A) has made a reasonable estimate of disallowance at 5,00,000, under section 14A. 4. Before us, the learned Departmental Representative submitted that though the provisions of rule 8D is not applicable fo .....

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pany which was claimed as exempt under section 10(23G) of the Act. The assessee has not incurred any expenditure in respect of the investment made in the subsidiary company and consequently, for earning exempt income in the shape of interest. Thus, he has supported the order of the learned CIT(A) that 5,00,000, is a reasonable disallowance. 6. Having considered the rival submissions as well as the material on record, we note that the Assessing Officer has not disputed the fact that the entire in .....

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present case, the entire investment has been made by the assessee in the subsidiary company, therefore, it is not a case of reshuffling investment of portfolio by the assessee which requires the involvement of the management in the regular decision making process. It appears that this is a strategic investment and further does not require regular e-valuation and re-consideration of retaining or reshuffling of the investment. Further, we find that the estimate of disallowance on account of gener .....

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engaged in the manufacturing of wind turbine generators and installation of wind mills. It is a joint venture between Anarcom GmbH and the Indian promoter with the shareholding of 56% to 44% respectively. The assessee has recorded international transaction during the year under consideration as under:- Sr.no. Category Description Amount of Transaction ( in lakh) 1. Imports - goods components and spare parts EIL imports raw material from its group entities for its manufacturing activity 31624.14 .....

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e group entity for its manufacturing activities by adopting the TNMM as most appropriate method and selecting 11 comparable companies. The assessee has arrived mean margin of the comparable at 7.16% in comparison of the assessee s operating margin @ 11.57%. Accordingly, the assessee claimed that its international transactions are at arm s length. The Transfer Pricing Officer rejected the comparables selected by the assessee and asked the assessee to furnish the TNMM analysis after considering th .....

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fficer did not accept the objection of the assessee on the ground that the assessee has not furnished the relevant details and documents in this respect. The Transfer Pricing Officer finally took three companies as comparable and arrived at mean margin of 13.39% as under:- Sr.no. Name of the Company Turnover EBIT Profit / Sales (%) 1. NEPC India Ltd. 299.68 -80.72 -26.94% 2. Suzion Energy Ltd. 1917.50 430.92 22.47% 3. Vestas R rb India Ltd. 553.36 23.88 4.32% 10. Before the learned CIT(A), the a .....

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anies, is carrying out various activities of supplying of wind mill, installation & commissioning and land purchase and development of site. Thus, the assessee submitted that all other activities of installation, commissioning and land purchase and development of site are performed by the other group companies and not by the Suzlon Energy Ltd. and, therefore, Suzlon Energy Ltd. is not a functionally comparable with the assessee. The assessee has also provided the data of the other two compan .....

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nies at 18.10% and, thereafter, worked out the operating mean margin of the comparables at 11.21% as against the profit margin of the assessee @ 11.15% and held that the international transaction of the assessee is at arm s length and consequently, deleted the addition which was made by the Transfer Pricing Officer on account of transfer pricing adjustment. 11. Before us, the learned Departmental Representative submitted that the learned CIT(A) has considered the re-calculation of the margin of .....

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IT(A), therefore, the order of the learned CIT(A) is not sustainable as per the provisions of the transfer pricing. 12. On the other hand, the learned Counsel for the assessee has submitted that it is not a fresh evidence or details filed by the assessee before the learned CIT(A) but the assessee took this objection before the Transfer Pricing Officer. The Transfer Pricing Officer did not accept the objection raised by the assessee against the inclusion of Suzlon Energy Ltd. in the set of compar .....

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companies were taken into account by the learned CIT(A) to make them functionally comparable with the assessee. He has further submitted that the Transfer Pricing Officer has taken the operating profit of the Suzlon Energy Ltd. prior to depreciation and interest whereas in case of the assessee and other comparable, the operating margin was taken after depreciation, therefore, the action of the Transfer Pricing Officer is not sustainable. 13. We have considered the rival submissions as well as re .....

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is dealt with by Sarjan Realities Ltd., a group company of Suzlon Energy Ltd. Therefore, Suzlon Energy Ltd. was engaged in the activities of supply alone whereas the assessee is in the business of supply, installation, commissioning as well as development of sites. Thus, it is clear that the business activities carried out by the assessee are not comparable with the Suzlon Energy Ltd., for the purpose of determination of arm's length price. The Transfer Pricing Officer included the Suzlon E .....

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