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2016 (5) TMI 334 - ITAT CHENNAI

2016 (5) TMI 334 - ITAT CHENNAI - TMI - Disallowance u/s 14A - investments made in the sister concerns - Held that:- In view of the judgment of Apex Court in S.A. Builders Ltd. v. CIT (2006 (12) TMI 82 - SUPREME COURT) this Tribunal is of the considered opinion that the investments made by the assessee in the equity shares of the sister concerns, which were established by joint venture, have to be necessarily treated as for business purpose. Therefore, as rightly found by this Tribunal by majori .....

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any are suffering persistent loss in their business activities. The assessee-company is also making losses. However, it is not a persistent loss making company as that of comparables. Except for the year under consideration, the assessee-company is also making positive profit. Therefore, this Tribunal is of the considered opinion that the assessee-company is not a persistent loss making company. The loss suffered by the assessee during one year might not be compared with that of the comparable c .....

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Lucas TVS has no segment wise details for manufacturing components for cars, two wheelers, etc. The TPO or DRP has not taken any effort for taking the segment wise details while preferring Lucas TVS for making adjustment in the assessee’s case. Taking the overall profit of Lucas TVS in the TVS group of companies manufacturing automobile products, this Tribunal is of the considered opinion that Lucas TVS cannot be a comparable case at all. Therefore, in the given facts and circumstances of the ca .....

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, Accountant Member For the Appellant : Sh. T. Banusekar, FCA For the Respondent : Sh. Arun C. Bharath, CIT ORDER Per N. R. S. Ganesan, Judicial Member This appeal of the assessee is directed against the order of the Assessing Officer, consequent to the direction of the Dispute Resolution Panel, Chennai, for the assessment year 2009-10. 2. The first issue arises for consideration is with regard to disallowance made by the Assessing Officer to the extent of ₹ 88,36,545/- under Section 14A o .....

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ese investments during the year under consideration. Placing his reliance on the judgment of Delhi High Court in Cheminvest Limited v. CIT (2015) 94 CCH 2, the Ld. representative submitted that when the assessee had not earned any taxable income during the year under consideration, then the corresponding expenditure cannot be worked out for disallowance. Therefore, according to the Ld. representative, there is no question of disallowance under Section 14A of the Act, especially when there was no .....

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of the assessee, therefore, the investments were made due to commercial expediency. According to the Ld. representative, Bosh Electrical Drives India Private Ltd. was a joint venture company with M/s Bosh Electricals. Similarly, IJT Plastics and Tools Private Ltd. was also formed as joint venture with Yang International Group. Therefore, according to the Ld. representative, the investments made by the assessee in the joint venture companies are only for commercial expediency and not for earning .....

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cial Bench of this Tribunal found that where the dividend is exempted under Section 10(34) of the Act, the interest paid on the borrowed capital, which is utilized for purchase of shares, is hit by Section 14A of the Act irrespective of the fact whether the stock was held as stock-in-trade. The Tribunal further found that the business income from dividend would not make any difference under Section 14A of the Act. The Ld. D.R. further submitted that even though no income was earned, the assessee .....

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ns on either side and perused the relevant material available on record. It is not in dispute that Bosh Electrical Drives India Private Ltd. and IJT Plastics and Tools Private Ltd. are joint venture companies. In other words, these are sister concerns of the assessee. The investments made in the sister concerns of the assessee are for commercial expediency. It is not the case of the Revenue that the sister concerns, which received the investments, diverted the funds for non-business purposes. Th .....

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ies, is incidental one, therefore, the investments made by the assessee in its subsidiary companies cannot be reckoned for disallowance under Section 14A of the Act. A similar view was taken by Delhi High Court in CIT v. Oriental Structural Engineers Pvt. Ltd. in ITA 605/2012 dated 15.01.2013, a copy of which is available at page 80 of the paper-book. The Mumbai Bench of this Tribunal in JM Financial Ltd. v. Addl. CIT in ITA No.4521/Mum/2012 has also taken a similar view. The assessee has produc .....

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sallowance made by the Assessing Officer is deleted. 7. The next issue arises for consideration is with regard to adjustment of Arm's Length Price to the extent of ₹ 9,30,00,000/-. 8. Sh. T. Banusekar, the Ld. representative for the assessee, submitted that the assessee-company is engaged itself in the business of manufacturing DC micro motors and sub-assemblies for DC motors. The assessee-company is a joint venture between Crompton Greaves Limited and Igarashi Electric Works Ltd., Jap .....

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ing companies, therefore, it cannot be compared. The Transfer Pricing Officer selected Lucas TVS as comparable and made adjustment of ₹ 9,30,00,000/-. 9. Referring to the profit ratio of the assessee, the Ld. representative for the assessee submitted that the assessee is also persistently making loss. When the Transfer Pricing Officer came to a conclusion that the comparables selected by the assessee are making persistent loss and the assessee is also equally suffering persistent loss, the .....

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business. Referring to the Lucas TVS, the Ld. representative submitted that this TVS group of company was established more than 50 years ago and they have made their market in the automobile industry. However, the assesseecompany is relatively a new entrant to the industry. The exports of Lucas TVS Ltd. are limited when compared to the assesseecompany. The product application of Lucas TVS Ltd. is for commercial vehicles, cars, two wheelers, tractors etc., whereas the product application of the .....

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Tata Motors, Mahindra, etc. However, the assessee-company sells the manufactured products to their own vendors. Thus, there is a vast difference in the business model of Lucas TVS and the assessee-company. 10. Referring to the order of the Dispute Resolution Panel, the Ld. representative for the assessee submitted that the Transfer Pricing Officer applied the filter with a threshold level having related for transactions upto 25%. The number of comparable companies operating in similar segments .....

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ne the Arm's Length Price. Referring to the three comparables rejected by the TPO on the ground that they are loss making companies persistently year after year, the Ld. representative submitted that the assessee is also equally a loss making company persistently, therefore, the reasoning of the Transfer Pricing Officer and the Dispute Resolution Panel for rejecting the comparables selected by the assessee is not justified. Therefore, the Arm's Length Price determined by the Assessing Of .....

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persistent loss as that of the comparables selected by the assessee, the Ld. D.R. pointed out that the assessee is not persistently loss making company except in the year under consideration. The assessee has made a positive profit in the earlier four years. Therefore, according to the Ld. D.R., incurring loss year after year is not the trend of the business segment but it happens due to various unique reasons. Therefore, the Transfer Pricing Officer has rightly rejected the comparables selected .....

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e. According to the Ld. D.R., only external comparable has to be considered for making adjustment while determining the Arm's Length Price of the transaction of the assessee. Therefore, according to the Ld. D.R., the DRP has rightly confirmed the order of the Transfer Pricing Officer. 14. We have considered the rival submissions on either side and perused the relevant material available on record. Admittedly, the assessee is manufacturing DC micro motors and sub-assemblies for DC motors. The .....

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t for diesel engines, Nozzles, elements, delivery valves, injector complete and single cylinder pump, and Suyaan Transmissions Ltd. is manufacturing crank shafts. These comparable companies selected by the assessee may be subassembling for DC motors. Admittedly, the comparable companies selected by the assessee-company are suffering persistent loss in their business activities. The assessee-company is also making losses. However, it is not a persistent loss making company as that of comparables. .....

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. 15. Now coming to the internal comparables, the DRP rejected the claim of the assessee on the ground that the only external comparable has to be considered. If only external comparable has to be considered, then Lucas TVS has related party transaction to the extent of 25%. Therefore, the Lucas TVS selected by the Transfer Pricing Officer also cannot be a comparable case while determining the Arm's Length Price in the case of the assessee. This Tribunal is of the considered opinion that whe .....

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