TMI Blog2013 (8) TMI 1092X X X X Extracts X X X X X X X X Extracts X X X X ..... : 2. That the assessing officer erred on facts and in law in making addition to the income of the appellant to the extent of ₹ 106,44,25,680 on account of the alleged difference in the arm's length price of international transactions. 2.1 That the assessing officer erred on facts and in law in making transfer pricing adjustment amounting to ₹ 106,44,25,680 in relation to the advertisement, marketing and sales promotion expenses (hereinafter referred to as 'the AMP expenses') incurred by the appellant. 2.2 That the assessing officer/DRP erred on facts and in law in not appreciating that expenditure on advertisement and brand promotion, unilaterally incurred by the appellant, could not be regarded as a 'transaction' in the absence of any understanding / arrangement between the appellant and the associated enterprise. 2.3 That the assessing officer/DRP erred on facts and in law in not appreciating that the AMP expenses, etc., incurred by the appellant in India cannot be characterized as an international transaction as per section 92B, so as to invoke the provisions of section 92 of the Act. 2.4 That the assessing officer/DRP erred on f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the absence of any understanding / arrangement between the appellant and the associated enterprise, the associated enterprise was under no obligation to reimburse the AMP expenses incurred by the appellant for sale of its products. 2.12 That the assessing officer erred on facts and in law in not appreciating that the AMP expenses incurred by the appellant, did not result in creation of any marketing intangibles; much less on account of the AE. 2.13 The TPO / DRP erred on facts and in law in holding that the efforts to create marketing intangibles are in the nature of services and entrepreneurial efforts undertaken by the appellant. 2.14 That the assessing officer erred in failing to appreciate that the scheme of Transfer Pricing under Chapter-X of the Act only provides for determination of 'price' from an international transaction including any expenditure arising from an international transaction but it cannot determine the 'quantum' of international transaction or extent of business expenditure. 2.15 That the assessing officer erred on facts and in law in not appreciating that the characterization of the appellant being that of a full fledged manuf ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to advertise and promote the brand in the overseas market which must have also benefited the appellant. 2.22 That the assessing officer erred on facts and in law hi relying upon the decision of the case of DHL Incorporated and Subsidiaries vs. Commissioner of Internal Revenue Tax Court, TCM 1998-461, aff d in part, rev'd in part 285F.3d.1285. 89AFTR2d2002-1978(CA-9,2002);and Glaxo Smith Kline Holding (Americas) Inc. vs. Commissioner, T.C.No. 5750-04 and T.C.No. 6959-05, which were rendered in the context of specific provision under the Transfer Pricing Regulations of United States of America. 2.23 Without prejudice that the assessing officer erred on facts and in law hi considering the following expenses for the purpose of calculating alleged AMP expenditure of the appellant TABLE Particulars Amount (Rs in lacs) Selling and distribution expenses 1067.50 Market Research expenses 969.16 Total 2036.66 2.24 Without prejudice that the assessing officer erred on facts and in law hi not considering the following companies as comparable for benchmarking advertisement and publicity expenses: Company Name Total Sales Dist Expn/Sales % ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e added expenses incurred by the appellant for providing the alleged service in the nature of brand promotion. Corporate Tax Issues 3. That the assessing officer erred on facts and in law in disallowing consumer market research expenses of ₹ 9,69,15,622/- under section 37(1) of the Act alleging the same to be capital in nature. 4. Without prejudice, that the assessing officer erred on facts and in law in not allowing depreciation on the amount of market research expenses disallowed as capital expenditure. 4.1 That the assessing officer erred on facts and hi law in reducing the returned income by an amount of ₹ 170,88,165/-, without appreciating that the assessee had claimed a deduction of the closing balance lying in PLA amounting to ₹ 32,62,786/- and consequently added back the opening balance lying in PLA amounting to ₹ 2,03,50,951/- resulting in a net addition of ₹ 1,70,88,165/- 5. That the assessing officer erred on facts and in law in making disallowance of ₹ 1,72,00,000/-, claimed in respect of liability for post retirement medical benefits to employees on the basis of actuarial valuation, in accordance with the revised ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed by the appellant, the assessing officer was justified in computing proportionate interest for the purpose of disallowance. 7.4 Without prejudice, that the assessing officer erred on facts and in law hi not allowing depreciation (in the year of capitalization of the CWIP) on interest expenses of ₹ 1,54,76,000/- held to be capital in nature. 8. That the assessing officer erred on facts and in law in making further disallowance of ₹ 1,02,32,000 under section 14A of the Act, being the difference between disallowance computed as per method provided in Rule 8D of the Income Tax Rules, 1962 ('the Rules') and the amount suo motu disallowed by the appellant. 8.1 That the assessing officer erred on facts and in law in invoking Rule 8D of the Rules and computing disallowance of ₹ 1,08,39,000/- under section 14A of the Act, without appreciating that conditions precedent for applying Rule 8D as prescribed hi sub-sections (2)7 (3) of the said section were not satisfied. 8.2 That the assessing officer erred on facts and in law in attributing part of the interest expenditure incurred during the year towards earning of the exempt income, while computing d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 5,329.52 The facts in relation to the aforesaid ground of appeal are already on record. No fresh investigation in the aforesaid is called for. It is accordingly prayed that the enlargement of the ground of appeal may kindly be permitted and the same adjudicated on merits. 4. The learned A.R. for the assessee vehemently stressed that the said enlargement of ground of appeal No.2.23 may be allowed to the assessee in order to adjudicate the issue. The learned A.R. for the assessee further submitted that the said issue is squarely covered by the order of the Tribunal in the earlier year. Without going into the merits of the said plea of enlargement of ground of appeal No.2.23 we are of the view that the ground of appeal raised by the assessee i.e. original ground of appeal No.2.23 takes care of the issue and there is no merit in the request made by the learned A.R. for the assessee and the same is rejected. 5. The brief facts of the case are that the assessee was engaged in the manufacturing and selling of nutritional products i.e. malted milk food products and drinks under the brands Horlicks, Boost, Maltova and Viva. During the year under consideration the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Bench of the Tribunal vide several parts of the decision and we proceed to deal with the same in the paras hereinbelow. 10. The learned D.R. for the Revenue pointed out that the issue stands covered against the assessee by the decision of Special Bench of the Delhi Tribunal in M/s L.G. Electronics India P. Ltd. Vs. ACIT (supra). However, in view of the directions of the Special Bench the matter has to be referred back to the Transfer Pricing Officer for computation purposes. 11. The learned A.R. for the assessee, however, pointed out that in line with the ratio laid down by the Special Bench, the issue needs to be looked at by the Transfer Pricing Officer after considering the comparables in order to compute the transfer pricing adjustment on account of AMP expenses. The plea of the learned A.R. for the assessee was that opportunity should be given by TPO to the assessee to furnish the list of relevant comparables. 12. We have heard the rival contentions and perused the record. The brief facts of the case are that the assessee had furnished return of income declaring total income of ₹ 2,75,73,15,234/-. The Assessing Officer vide letter dated 9.8.2010 and thereafter ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 53.35 3. Advertisement expenses 1064.11 4. Market Research 969.16 5. Sales Promotion 4460.21 6. Development Scientific research 244.60 Total 17447.09 14. The TPO vide para 7.5 at page 7 of the order, considered the shareholding pattern of two companies and observed that GSK Asia Pvt. Ltd. is subsidiary of S.B. Port Louis Ltd., Mauritius, an Associated Enterprise. Similarly Glaxo Group Ltd., U.K. (an Associated Enterprise) has 35.99% share holding in GSK Pharmaceuticals Ltd. Thus the provisions of section 92A(2)(b) of the I.T. Act are attracted. Further the TPO vide para 7 analyzed the transfer pricing approach adopted by the assessee. The TPO further noted that the assessee was paying royalty which was deemed international transaction between the assessee and its AE. The other aspect noted by the TPO was marketing royalty for use of Horlicks and the assessee had i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ting intangible of the AE. Para 8.5.21 Benchmarking of international transaction. Para 8.6 Other contentions raised by the assessee. Para 9 Selection of comparables for benchmarking of routine AMP expenditure. 17. The TPO vide para 9 selected only four companies as comparables as against sixteen companies selected by the assessee. The selling and distribution expenditure of the said concern as compared to the sales were noted by the TPO and the average was worked out at 2.20%. On the other hand, the total marking expenditure incurred by the assessee during the year under consideration was ₹ 17447.09 lacs on gross sales of ₹ 149745.66 lacs. The AMP expenditure of the assessee accounted for 11.65% of the income as compared to average AMP expenditure to income ratio of 2.20% for the comparables i.e. comparables under control price, selected by the TPO. The TPO thus concluded by establishing that the assessee had incurred huge non routine expenditure on development marketing intangible for the AE. The said comparability analysis also prove that AMP expenditure in the case of the assessee was in excess of the bright line test more than routine marketing expend ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s made to the TPO under section 92CA of the Act for computation of arm s length price of the international transactions of over ₹ 5 crores as per Form No.3CEB filed by the assessee. In view of the order of the TPO and DRP, the Assessing Officer recalculated the arm s length price of reimbursement received by the assessee for brand promotion and marketing intangibles of the AE in India and the difference in the amount of arm s length subsidy and the value of international transaction undertaken being more than 5%, adjustment of ₹ 1,06,44,25,680/- was made to the income of the assessee, after considering the reply of the assessee on the issue. 21. The assessee is in appeal against the order of the Assessing Officer passed under section 143(3) r.w.s. 144C of the Act and has raised various grounds of appeal. Both the authorized representatives fairly admitted that the issue has been deliberated upon by the Special Bench of Delhi Tribunal in M/s L.G. Electronics India Pvt. Ltd. Vs. ACIT (supra) and majority view in the said decision is against the assessee. Multiple grounds of appeal have been raised by way of ground Nos.,2 to 2.30. The learned A.R. for the assessee fu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... slature also deems certain transactions as international transactions as per sub- sec. (2) of sec. 92B. Elaborating sub-sec. (2) of sec. 92B, it was put forth that a transaction with a third party is deemed as an international transaction if there is a prior agreement in relation to the relevant transaction between the third person and the associated enterprise or the terms of relevant transaction are determined in substance between such third person and the associated enterprise. It was stated that the case of the assessee cannot be brought even within the purview of subsec. (2) because there is no allegation by the Revenue that the third parties who were paid by the assessee for defraying advertisement expenses had any understanding with the foreign AE so as to determine the terms of their agreements for advertisement with the assessee. Once a transaction is not covered under sub-sec. (1) of section 92B, the ld. AR stated that the same can be deemed as an international transaction only when it falls under sub-sec. (2) of sec. 92B. If a transaction does not satisfy the pre- requisites for inclusion either in sub-sec. (1) or sub-section (2) section 92B, it cannot be reckoned as an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... profits, income, losses or assets of such enterprises'. Third part is inclusive which provides that it shall include a mutual agreement or arrangement between two or more associated enterprises for the allocation or apportionment of...any cost or expense ...in connection with a benefit, service or facility provided or to be provided to any one or more of such enterprises.' 14.5. The ld. DR argued that the instant transaction can be viewed as international transaction not on one but on three different counts. The first being, the earlier part of sub-section (1), which is in the nature of the exhaustive part of the definition referring to.in the nature of ....provision of services'. It was stated that the authorities below have primarily viewed this transaction as in the nature of provision of a service of creating, improving or maintaining marketing intangible for the foreign AE, in lieu of which the foreign AE ought to have reimbursed the assessee. 14.6. The ld. DR contended that it can also be considered as an international transaction having a bearing on the profits, income, losses or assets' of the assessee. Bearing on the profits of an enterprise was ex ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 14.8. The ld. DR argued that the payment to third parties for advertising is not an international transaction. It has never been the case of the Revenue that the payment made to the third parties towards advertisement expenses be treated as an international transaction. He stated that rather the international transaction is restricted to the activity done by the Indian AE in relation to foreign AE for adding value to a brand (being an intangible property of the foreign AE), the payment for which made by the Indian assessee is included in the overall AMP expenses claimed as deduction by the assessee. 14.9. Replying to the ld. DR's contention that section 92B has been worded very widely to include each and every transaction between the two AEs within the pale of international transaction, the ld. counsel for some of the interveners relied on the judgment in Addtl. CIT Vs. Income Tax Appellate Tribunal Anr. [(1975) 100 ITR 483 (AP)] to contend that simultaneous use of the words means' and includes' in a definition make it exhaustive and not inclusive. It was highlighted that only the transactions set out in section 92B can be considered as international transactions ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion' u/s 92B, being exhaustive or inclusive. It is noticed that such definition as per sub-section (1) uses both the words means' and includes' at two different places. A definition is exhaustive when it incorporates the word means' in its opening part and thereafter lists out certain items, say A and B. In that case it will mean that only A and B form the content of the thing defined. A definition is inclusive when it uses the word includes' in its opening part and thereafter lists out certain items, say A and B. In that case it will mean that not only A and B but also other items not listed, say C or D, can also form the content of the thing defined, if these are otherwise of the same nature. If however a definition includes both the words means' and includes', that is, it says that it means A' and includes B', then it will again mean that it is an exhaustive definition to include both A and B and not C or D etc. A definition despite being exhaustive can still be inclusive, if one or more of its components are again defined in an inclusive manner. Suppose in the definition of the third category discussed above, having both A and B by u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t of this order, we have held that the brand building by the assessee for its foreign AE constitutes a transaction'. So far as the second requisite is concerned, there is no dispute on the fact that LG Korea is an associated enterprise of the assessee. Thus, there are two AEs in the present case and one of them, namely, LGK is a non-resident. This condition also stands satisfied. 14.16. The third requisite is that the transaction' as per the first requisite must be of the nature as referred to in section 92B. All the three requisites must be cumulatively satisfied so as to make a transaction' an international transaction'. If there is a transaction between two AEs and one or both of whom are non-residents, it will not become an international transaction so as to fall within the domain of Chapter-X, unless it is of the nature as defined in section 92B. 14.17. It has been vigorously argued by the ld. counsel for the assessee and some of the interveners that clause (i) of Explanation to section 92B gives meaning to the expression in the nature of international transaction' and since sub-clauses (a) to (e) of clause (i) do not refer to transaction of bran ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... onal transaction into a non-international transaction. 14.18.3. Ordinarily a service may be professional, public or a business service. Even in common parlance provision of service means the act of performing a task for a person which that person requires it in exchange for some consideration. Cl. (i) of Explanation to section 92B defining international transaction' includes through sub-clause (d) : provision of services, including provision of market research, market development, marketing management.....'. Clause (ii) of the Explanation defining intangible property' includes through sub-clause (a) : marketing related intangible assets, such as, trademarks, trade names, brand names, logos'. When we consider both these provisions together, it becomes clear that provision of services defined in an inclusive manner encompassing all the market related services including those specifically covered like market development, research and administration and the further fact that brand name and logos have been specifically considered as marketing intangibles, there remains no doubt about the brand building being a provision of service in the present context. In the li ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f consideration has not been made as a condition precedent for inclusion of any transaction within the ambit of section 92B. The transfer pricing provisions should be seen in the backdrop of the fact that these are special provisions for avoidance of tax on the transactions structured between two associated enterprises. The simple fact that the foreign AE did not pay any consideration to the Indian AE will not take the transaction out of the purview of the transfer pricing provisions, if it is otherwise an international transaction. 14.21 Thus it is palpable that all the three necessary ingredients as culled out from bare reading of section 92B are fully satisfied in the present case. There is a transaction of creating and improving marketing intangibles by the assessee for and on behalf of its foreign AE; the foreign AE is non-resident; such transaction is in the nature of provision of service. Resultantly, we hold that the Revenue authorities were fully justified in treating the transaction of brand building as an international transaction in the facts and circumstances of the present case. 22. In view of the majority decision of the Special Bench in M/s L.G. Electronics In ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ofit rate declared by the assessee is higher than other comparable cases. It was submitted that the assessee made imports from its foreign AE which were subjected to the TP provisions under the transactional net margin method (hereinafter called the TNMM) and hence there was no warrant for making any further addition on the transaction of brand building expenses incurred by the assessee for the foreign AE. The ld. counsel stated that the overall higher net profit rate implies that, firstly, there was no advertisement by the assessee for the brand of the foreign AE and secondly, if at all it was there, the same stood compensated by the foreign AE in terms of sale of goods to the assessee at lower rates. The sale of goods at lower prices to the assessee by the foreign AE should be considered as a quid pro quo for the foreign brand building. For ascertaining as to whether or not the foreign enterprise sold goods to the assessee at a lower price, the ld. AR urged that the overall net profit rate of the assessee should be considered, which will naturally absorb the effect of incurring such brand building expenses. If the overall profit rate is higher, it will mean that the expenses incu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt relied. The crux of the ld. AR's submission in this regard is that when the international transaction of import of raw material was scrutinized by the TPO under TNMM and the overall net profit of the assessee was found to be higher than other comparables, then no other international transaction could have been processed under the TP provisions. There are two sub-arguments in this main argument of the ld. AR. First, that the international transaction of import of raw material has been processed under the TNMM on entity level and second that when on doing this exercise, the overall net profit was found to be better than other comparables, then the no addition was called for by subjecting the AMP expenses to the TP provisions. 21.4. There is a basic fallacy in the first sub-argument, which lies in not properly appreciating the modus operandi of applying the TNMM. This method provides for benchmarking of an' international transaction by considering the operating profit from the concerned international transaction vis- -vis certain basis as given in Rule 10B(1)(e), being total cost, sales, capital employed etc. Here it is significant to note the meaning of the term trans ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lso becomes apparent from the language of section 92(3) as discussed infra. Thus it is clear that the sanction is for applying the TNMM only on a transactional level and not on entity level. Of course, the TNMM can be correctly applied on entity level if all the international transactions are of sale by the assessee to its foreign AE and there is no other transaction of sale to any outsider and also there is no other international transaction. But if there are several unrelated international transactions, as is the case before us and the assessee or the TPO has applied the TNMM in a wrong manner on entity level for testing any of such transactions, then the remedy lies in correcting such mistake rather than drawing legally unsustainable conclusions by taking such mistake as a correct legal position. 21.6. Now we espouse the second sub-argument that when on applying the TNMM on entity level for the transaction of import of raw material the overall net profit is better than other comparables, then no addition is called for by subjecting the AMP expenses to the TP provisions. We have held in an earlier para that when there are different unrelated international transactions, the app ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to include a part representing branding building for the foreign AE to the tune of ₹ 20/-. In such a case, notwithstanding the fact that the assessee's overall profit at ₹ 120/- is more than the arm's length profit earned by comparable cases at ₹ 100/-, still there will be a requirement for making adjustment of ₹ 20/- on account of advertisement expenses incurred by the assessee towards the brand building on behalf of the foreign AE. If we accept the assessee's contention that since ₹ 120/-, being the profit declared by the assessee from the international transaction is more than the arm's length profit of ₹ 100/- and hence no further adjustment on account of AMP expenses should be made, then the assessee's income would stand reduced to ₹ 120/- as against the actual income of ₹ 140/-. We fail to appreciate as to how the judgment in the case of Calcutta Discount Co. Ltd. (supra) advances the case of the assessee. There cannot be any quarrel on the proposition that the assessee cannot be compelled to earn maximum profit. As it is the real profit which is to be taxed and the assessee cannot be expected to earn maximum ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ach other, having independent effect on the overall net profit of the Indian AE, both are required to be separately processed as per the TP provisions. 21.10. It was also contended on behalf of the assessee that if the overall profit of the Indian entity is more than the comparable cases then it should be presumed that the foreign enterprise supplied goods at relatively low price to make up for the AMP expenses incurred in India towards brand promotion. In our considered opinion there are no roots for such a presumption. In order to take benefit of such a contention the assessee is required to directly prove the fact of cheap purchases de hors the overall higher net profit rate. This fact can be established by demonstrating that the foreign AE charged a specially low price from the assessee in comparison with that charged for the similar goods supplied to other independent entities dealing with it in India or in case there is no other independent entity in India, then the price charged for similar goods from other foreign parties. It can also be proved by showing that goods with identical features are available in the Indian market at a higher price. The fact that the assessee h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ;s length price. It means that each international transaction is required to be subjected to the TP provisions distinctly. What is relevant to note on a conjoint reading of sub-section (1) and sub-section (3) of section 92 is that if there are two distinct international transactions and the determination of ALP in respect of the first transaction leads to an increase in total income as per subsection (1) but no adjustment is called for in respect of the second transaction as per sub-section (3) because of the ALP on the negative side, then the ALP in respect of the first transaction shall be considered in computing the total income, but the ALP of the second transaction shall be ignored. There is no provision which permits set off of negative adjustment with the positive adjustment to the income on account of different international transactions. The outcome of both the transactions has to be given effect distinctly. It, therefore, divulges that two or more international transactions are required to be separately processed under the TP provisions. The contention that if TNMM has been applied on one international transaction, then it would oust the jurisdiction of the TPO to process ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... termining the ALP of an international transaction then it is open to the TPO to process other international transactions through the TP provisions, but if some other method is so used, then all other international transactions are immune from such processing. The ld. AR could not draw our attention towards any such provision in the Act. At best, the application of any method including TNMM shows that the said transaction is at ALP. In our considered opinion, the requirement of benchmarking all other international transactions of expenses including AMP, also needs to be scrupulously done, apart from testing one international transaction under the TNMM. 22.1. Notwithstanding his argument that the when the TNMM is applied to international transaction of imports, no addition can be made by processing any other international transaction, the ld. AR then contended that the addition by way of adjustment made is not sustainable because the determination of ALP in this case is not based on any of the methods prescribed under the transfer pricing regulations. Referring to sec. 92C, the ld. AR submitted that five methods have been listed in specific and there is a general clause i.e. (f), ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h goes against the principles of natural justice. 22.3. The learned Counsel for one of the interveners submitted that any contract for purchase/service involves two elements viz. quantity and price. Chapter-X of the Act only touches price aspect and not quantity aspect. By adopting the bright line method, the learned counsel contended that the TPO has impinged on the quantum aspect of the advertisement expenses which cannot fall within the purview of Chapter-X. He submitted that by applying the bright line method, the TPO/AO have taken a view that the assessee should not have incurred so much expenses on AMP. He also contended that Chapter-X of the Act is a complete code in itself inasmuch as it includes not only the substantive but also the machinery provisions. If machinery provision cannot be applied then the subject matter goes out of the tax net. In support of this contention, he relied on the judgment of the Hon'ble Supreme Court in the case of CIT v. B.C.Srinivasa Setty [(1981) 128 ITR 294 (SC)] and another judgment of the Hon'ble Supreme Court in the case of PNB Finance Limited v. CIT [(2008) 307 ITR 75 (SC)]. In the light of these judgments it was submitted that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... learned Departmental Representative contended that the DRP applied cost plus method. Even if in any case there is a wrong application of method by the authorities, the right course is to send the matter back to the AO/TPO for correcting the deficiency instead of taking away the jurisdiction itself. 22.7. In rejoinder, the learned AR found fault with the argument of the ld. DR on the application of the cost plus method by contending that this method cannot be applied as the transaction is not in the nature of rendering of service. His contention was that unless an assessee itself is regularly engaged in the provision of service which is provided to the AE, the cost plus method u/s 10B(1)(c) cannot apply. 22.8. We have considered the rival submissions. Before proceeding further it is imperative to note that we have dealt with the contention of the ld. AR about the application of bright line test by the authorities below by holding that such method has been employed to determine the cost/value of international transaction and not its ALP. Another contention has been raised by the ld. AR that unless an assessee itself is regularly engaged in the business of providing services, t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... also provides in the same manner that ―.... the arm's length price in relation to an international transaction shall be determined by any of the following methods, being the most appropriate method........ Here also the word any' is succeeded by the word following', which implies that it can be any of the five methods prescribed in the following part of the rule. When we read subsection (1) of section 92C in entirety along with Rule 10B(1), there remains no doubt that the arm's length price is required to be determined by any single method out of the five prescribed methods. It is further pertinent to note the prescription of Rule 10C which deals with the determination of most appropriate method to be applied for determining ALP. Sub- rule (1) provides that the most appropriate method for the purpose of section 92C(1) shall be the method which is best suitable to the facts and circumstances of each case. Subrule (2) which assumes significance in the present context provides that : ―In selecting the most appropriate method as specified in sub-rule (1), the following factors shall be taken into account........... Use of the definite article ―the in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The mere fact that DRP did not specifically mention it in so many words, will not ipso facto mean that it did not apply the cost plus method, when the essence of the working matches with the methodology provided in that method. 23.2. At this stage it will be apt to note the directive of cost plus method' as per rule 10B(1) (c), which is as under :- (c) cost plus method, by which,-- (i) the direct and indirect costs of production incurred by the enterprise in respect of property transferred or services provided to an associated enterprise, are determined ; (ii) the amount of a normal gross profit mark-up to such costs (computed according to the same accounting norms) arising from the transfer or provision of the same or similar property or services by the enterprise, or by an unrelated enterprise, in a comparable uncontrolled transaction, or a number of such transactions, is determined ; (iii) the normal gross profit mark-up referred to in sub- clause (ii) is adjusted to take into account the functional and other differences, if any, between the international transaction and the comparable uncontrolled transactions, or between the enterprises entering into such tra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... transaction under consideration. Consequently, the profit mark-up under steps 2 and 3 should in the present case be the rate which an independent third party earns for creating marketing intangible for and on behalf of the foreign enterprise. In the present case, the DRP suggested 13% mark-up. The DRP went wrong in applying steps 2 and 3 by arbitrarily determining the rate of mark-up at 13% without showing as to how much an independent comparable entity has earned from an international transaction similar to one which is under consideration. 23.5. At this juncture we consider it expedient to refer clause (ii) of section 92F which defines ―arm's length price to mean ―a price which is applied or proposed to be applied in a transaction between persons other than associated enterprises, in uncontrolled conditions. Rule 10A of the Income-tax Rules, 1962 gives meaning to ―uncontrolled transaction under clause (a) as ―a transaction between enterprises other than associated enterprises, whether resident or non- resident‖. It is this expression ―uncontrolled transaction‖ which has been used in Rule10B(1) inter alia in clause (c) i.e. cost p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ional transaction at 161.21 crore and restored the matter to the file of AO/TPO for determining such value afresh after allowing a reasonable opportunity of being heard to the assessee. This determination would provide the figure of first step as per the cost plus method, being the cost/value of the international transaction. As the DRP also did not correctly proceed to compute the correct rate of mark-up as per law, in our considered opinion the ends of justice would adequately meet if the process of determining normal profit markup as per steps 2 and 3 of Rule 10B(1)(c) as against 13% applied by the DRP/AO, is also restored to the file of the AO/TPO so that he may determine the cost/value of international transaction in the first instance and then the ALP of this international transaction. 24.1. We do not find any substance in the contention of the learned AR that since the authorities below did not apply any of the recognized methods, their orders be declared as void ab initio without requiring any restoration for fresh determination. The obvious reason is that, even if it is presumed that the contention of the ld. AR is correct, which is otherwise not because of the applica ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sh. Consequently, ground Nos.2.8 to 2.13 are allowed for statistical purposes. 25. The issue raised vide ground Nos.2.17 to 2.22 is identical to the issue raised before the Special Bench of the Tribunal (majority view) in M/s L.G. Electronics India (P) Ltd. Vs. ACIT (supra) and also before Chandigarh Bench of the Tribunal in assessee s own case where the issue has been set aside to the file of the Assessing Officer/TPO. In view thereof, following the majority view of the Special Bench of the Tribunal (majority view) in M/s L.G. Electronics India (P) Ltd. Vs. ACIT (supra) and the Chandigarh Bench of the Tribunal in assessee s own case relating to assessment year 2007-08, we set side the present issue also back to the file of the Assessing Officer/TPO for adoption of prescribed method for determining the arms length price in relation to AMP expenditure. The Assessing Officer/TPO would provide reasonable opportunity of hearing to the assessee, who in turn is at liberty to furnish fresh list of comparables before the TPO in order to adjudicate the issue afresh. Thus the ground Nos.2.17 to 2.22 raised by the assessee are allowed for statistical purposes. 26. The issue in ground ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it has referred to only two expenses i.e. selling and distribution expenditure and marketing research expenditure, whereas even sales promotion were considered as part of AMP expenses. 29. The learned D.R. for the Revenue had no objection to inclusion of sales promotion expenses as part of ground No.2.23. 30. The learned A.R. for the assessee further pointed out that the Tribunal in assessee s own case vide paras 26 to 29 in the appeal relating to assessment year 2007-08 had directed the Assessing Officer to exclude expenditure incurred on marketing research, sales promotion and selling and distribution as not being linked to the brand promotion of products of AE. The learned A.R. for the assessee fairly pointed out that though out of total sales promotion expenses of ₹ 4460.21 lacs the TPO had already excluded expenses relating to local brands to the tune of ₹ 1167.35 lacs and had considered the balance sales promotion of international brands. The DRP had directed exclusion of expenses incurred on Scientific Research and discount on sales and the balance expenses considered by the Assessing Officer was ₹ 17149.14 lacs. 31. We find that similar iss ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... TPO. The learned D.R. for the Revenue placed reliance on the orders of the authorities below. 28. We have heard the rival contentions and perused the records. The claim of the assessee is that the total AMP expenditure considered by the TPO while determining the ALP included certain expenses which are in relation to the sales made by the assessee and are not related to the brand promotion. The claim of the assessee is with regard to the expenses totaling ₹ 5500.86 lacs as tabulated below: S.No. Name of Expenses Amount (Rs.Lacs) 1. Discount sales 60.52 2. Market Research 664.24 3. Sales Promotion 3939.90 4. Selling and distribution 826.17 5. Service charges paid to selling agent 10.03 Total 5500.86 29. We find that the Special Bench of the Tribunal (majority view) in M/s L.G. E ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d in brand building exercise and creating marketing intangibles for their brands cannot be taken as comparables, and only routine distributors are to be taken who are not engaged in any brand building exercise. The next contention of the assessee was that the Assessing Officer had erred in rejecting the benchmarking analysis undertaken by the assessee wherein closely linked transactions were benchmarked together and instead segregating the AMP expenses for the prupose of benchmarking such transactions. The assessee was also aggrieved by the findings of the Assessing Officer/DRP that it had rendered service to the AEs by incurring the AMP expense and by holding that markup had to be earned by the assessee in respect of the AMP expenses, alleged to have incurred for and on behalf of the AE. 35. We find that similar issue arose before the Tribunal in assessee s own case relating to assessment year 2007-08 and the Tribunal vide paras 30 and 31 had considered the issue and held as under: 30. The assessee vide ground Nos.2.17 and 2.18 had raised the issue of taking into consideration the comparable companies for benchmarking the advertisement and publicity expenses. Admittedly th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... en by the Special Bench of the Tribunal (majority view) in M/s L.G. Electronics India (P) Ltd. Vs. ACIT (supra) in this regard. The ground Nos.2.17 and 2.18 are thus allowed for statistical purposes. 36. As the issue of determining the transfer pricing adjustment in relation to AMP expenses incurred by the assessee during the year under consideration had been sent to the file of the Assessing Officer/TPO as per our directions in the paras hereinabove, we direct the TPO to consider the present aspect raised by the assessee also in this regard and redetermine the value of arms length price in relation to AMP expenses incurred by the assessee for brand promotion of foreign brand in turn following the observations of the majority view of the Special Bench of the Tribunal (majority view) in M/s L.G. Electronics India (P) Ltd. Vs. ACIT (supra). The assessee is at liberty to file list of fresh comparables in this regard before the Assessing Officer/TPO in line with the majority view of Special Bench of the Tribunal in M/s L.G.Electronics India P. Ltd. Vs. ACIT (supra). The ground Nos.2.24 to 2.30 are thus allowed for statistical purposes. 37. The issue in ground No.3 has been adjud ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ceding year and the Tribunal vide paras 38 to 41 allowed the claim of the assessee in turn following the ratio laid down by the Special Bench of the Tribunal in assessee s own case in ITA No.343/Chd/2005 relating to assessment year 2001-02 reported in 107 ITD 343 (Chd)(SB). We find that identical issue arose before the Tribunal in assessee s own case in earlier year wherein contention of the assessee was as under: 36. The learned A.R. for the assessee pointed out that the issue stands covered in favour of the assessee by the decision of the Special Bench of the Tribunal in assessee s own case relating to assessment year 200102, reported in 107 ITD 343 (Chd)(SB). The learned A.R. for the assessee pointed out that the Tribunal in assessment years 1998-99 to 2000-01 and 2002-03 to 2006-07 had followed the order of the Special Bench of Tribunal and allowed the relief to the assessee. Further reliance was placed in CIT Vs. Raj Sandeeps Ltd. [293 ITR 12 (P H)], CIT Vs. Modipon Ltd. [334 ITR 106 (Del)] and CIT Vs. Maruti Suzuki India Ltd. [250 CTR 140 (Del)]. The learned A.R. for the assessee further pointed out that the Hon'ble Supreme Court in CIT Vs. Shri Ram Honda Power Equ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rent, after the goods were manufactured, such amount was deductible. Following the same, we direct the Assessing Officer to allow the claim of the assessee in respect of incremental balance amounting to ₹ 25,23,710/- lying in PLA Account, under section 43B of the Act. The ground No.4 is allowed. 39. The Hon ble Punjab Haryana High Court in Ran Sandeeps Ltd. (supra) held as under: Held, that it was found as a fact by the Tribunal that duty as per the statutory provisions became payable, the moment goods were manufactured and the assessee was under an obligation to deposit that amount in the account-current and the amount so deposited in the account-current being non refundable, there was no reason for the Revenue to deny the benefit of deduction in the year in question when the goods were manufactured and the amount was deposited in the accountcurrent . The expense would certainly relate to the year in which the goods were manufactured and the amount was deposited, which the goods were manufactured and the amount was deposited, which could not possible be treated as an advance. The amount was deductible. 40. Further the Delhi High Court in CIT Vs. Modipon Ltd. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... prescribed by the rule is both a collection mechanism - dictated by convenience, as well 'as mandatory. It is convenient, for the reason, that if the assessee were to be asked to pay the exact amount, through some other method, by deposit, as a precondition for clearance, that would have been cumbersome to it as well as the Revenue; it would also have led to problems of storage of goods and slow down their supply and distribution. The rule-makers pragmatically directed that sufficient amounts ought to be maintained in the account, to cover the removals. Therefore, at any given point of time, there had to be an excess in the account, if the assessee were to remove the goods. Each clearance mentions the- quantum of goods and the duty amount, which is apparently reconciled at the end of the period, and shortfalls if any are appropriated from the account. The excess credit is likewise adjusted for the next day's clearances. The point to be underlined, is that there is no choice, and the amounts relate to the assessee's duty liability, falling within the description under s. 43B. The Tribunal was therefore justified in holding that the amounts deposited by the assessee in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ation the assessee had claimed expenditure of ₹ 1.72 crores on account of medical reimbursement to the ex-employees on the basis of actuarial valuation. The assessee during the preceding year had charged the said amount to the general reserve. However, during the year under consideration the said amount was debited to the Profit Loss Account and said fact has been noted by the Assessing Officer vide paras 7.1 at page 15 of the assessment order. The Assessing Officer rejecting the explanation filed by the assessee in respect of the deductibility of the said expenditure proposed disallowance of the claim of ₹ 1.72 crores, which in turn was confirmed by the DRP and consequent order was passed by the Assessing Officer. We find that similar issue arose before the Tribunal in assessee s own case relating to assessment year 2007-08 and the Tribunal vide paras 51 to 63 held as under: 51. We have heard the rival contentions and perused the record. The assessee was providing benefit of medical assistance/reimbursement of medical expenses to the employees post retirement. The said benefit was being allowed by the assessee in terms of the employment agreed upon between the com ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nefits such as gratuity, pension, other retirement benefits, post-employment life insurance and post-employment medical care; (c) Other long-term employee benefits, including long service leave or sabbatical leave, jubilee or other long service benefits, long-term disability benefits and, if they are not payable wholly within twelve months after the end of the period, profit-sharing, bonuses and deferred compensation. 53. Clause 7.3 of Revised AS-15 defines that post-employment benefits are employee benefits (other than termination benefits) which are payable after the completion of employment. Clause 24 of Revised AS-15 provides post-employment benefits include: (a) Retirement benefits, e.g., gratuity and pension; and (b) Other benefits, e.g., post-employment life insurance and post-employment medical care. Arrangements whereby an enterprises provides postemployment benefits are post-employment benefit plans. An enterprises applies this Standard to all such arrangements whether or not they involve the establishment of a separate entity to receive contributions and to pay benefits. 54. Under clause 73 of Revised AS-15 it has been laid down that actuarial assump ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Rs.1,50,000 per year Executives Rs.1,00,000 per year The Company has assured the benefits with National Insurance Company and pays premium annually. Such premium and any increase of the same has been duly considered. 4. VALUATION RESULTS: THIS IS TO CERTIFY THAT as per the ACTUARIAL VALUATION the total value of the post retirement Medical assistance benefit under the above assumptions works out to:- ₹ 11,73,99,623.00p. 5. The purpose of this valuation is to make incremental provision in the Books of Account. The valuation has been carried out keeping in view the provisions of AS-15 ( R ) as an on going concern basis. (A.D.GUPTA) 57. The auditors vide notes to the accounts vide note No.6 had reported as under: 6. (a) The Company has during the year adopted Accounting Standard 15 (Revised 2005) Employees Benefits . Accordingly, the transitional adjustment aggregating to ₹ 11,37.19 Lakhs (net of deferred tax asset rsNil) has been charged against the Opening General Reserves. The details of the transitional adjustment is as follows -Post Employm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t of liability towards medical reimbursement expenses aggregating to ₹ 11.09 crores being actuarial valuation in respect of subsisting liability has been correctly claimed by the appellant. (g) The Assessing Officer had disallowed the claim of the assessee observing that; (a) The amount of liability, which was incurred on the basis of actuarial valuation, was made on the basis of certain assumption and, thus, the same cannot be said to be ascertained liability. (b) The assessee has claimed double deduction in respect of same liability, viz., once at the time of payment of premium of insurance companies and secondly, at the time of creating the impugned provision for medical benefits. 59. The first aspect of the issue raised before us is whether the recognition of the liability in view of the revised Accounting Standard-15 which is a notified accounting standard by the ICAI is to be recognized while computing the income of the assessee in line with the method of accounting regularly followed by the assessee. The second aspect of the issue is whether such expenditure is to be allowed as a deduction though the liability has been recognized in the year under cons ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s but accrued due are brought in for income-tax assessment, so also liabilities accrued due would be taken into account while working out the profits and gains of the business; (iii) A condition subsequent, the fulfilment of which may result in the reduction or even extinction of the liability, would not have the effect of converting that liability into a contingent liability; (iv) A trader computing his taxable profits for a particular year may properly deduct not only the payments actually made to his employees but also the present value of any payments in respect of their services in that year to be made in a subsequent year if it can be satisfactorily estimated. So is the view taken in Calcutta Co. Ltd. vs CIT ( 1959 ) 37 ITR 1 ( SC ) wherein this court has held that the liability on the assessee having been imported, the liability would be an accrued liability and would not convert into a conditional one merely because the liability was to be discharged at a future date. There may be some difficulty in the estimation thereof but that would not convert the accrued liability into a conditional one; it was always open to the tax authorities concerned to arrive at a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Hon ble Apex Court that what is necessary to be considered is the true nature of transaction and whether in fact it has resulted in profit or loss to the assessee. Further the said deduction was claimed during the year under consideration and the claim being bonafide is to be allowed in the year in which the same accrues though the said liability is to be discharged at a later date. 62. Identical issue arose in Bokaro Power Supply Co. (P) Ltd. Vs DCIT (supra) of allowability of claim of deduction of post retirement medical benefits on the basis of actuarial valuation and the same was held to be not an unascertained liability and was held as allowable, observing as under: 5. We have heard both the sides on the issue. We have also perused the order of authorities below. The assessee company of was liable to pay for medical expenses of its retired employees in accordance with the terms of employment. Prior to this year, the assessee was claiming these expenses in the year of expenditure. Due to the change in the Accounting Standard in respect of the accounting of post retirement benefits, the assessee got done the actuarial valuation of these liabilities and started claiming ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed to the actual payment of gratuity during the year. Where the fixed assets are revalued and the difference between its cost and the value fixed on such revaluation is credited to the capital reserve, unless the Tribunal finds that the revaluation is mala fide, the interest on the amount of the reserve should be allowed as a deduction from the gross profits. From the provisions of section 6(c) and section 7 of the Bonus Act, it is evident that the Tribunal must first estimate the amount of direct taxes on the balance of gross profits as worked out under sections 4 and 6, but without deduction bonus, then work out the quantum of taxes thereon at rates applicable during the year to the income, profits and gains of the employer and, after deducting the amount of taxes so worked out, arrive at the available surplus. This will be consistent with the rule laid down by courts and tribunals before the Act was enacted, that the bonus amount should be calculated after provision for tax was made and not before, from which Parliament does not appear to have made a departure. Hon'ble Supreme Court in the case of Bharat Earth Movers Limited vs. CIT - 245 ITR 428 = (2002-TIOL-123-SCrm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , we are of the opinion that the deduction claimed by the assessee had to be allowed. We find no fault with the reasoning of the Tribunal. No substantial question of law arises for our consideration. 5.2 Considering the facts of the assessee's case and also the decision of Hon'ble Supreme Court and Hon'ble jurisdictional High Court, we sustain the order of CIT (A) in ITA No.149/Del/2012 on this issue. We allow ITA No. 4921'/Del/2010 and dismiss revenue's appeal on this ground. 63. In view thereof, we direct the Assessing Officer to allow the deduction of ₹ 11.09 crores on account of post retirement medical benefits. The ground Nos.5 and 6 raised by the assessee are thus allowed. 46. The issue arising before us is identical to the issue arose before the Tribunal in assessee s own case and following the same parity of reasoning, we direct the Assessing Officer to allow the claim of the assessee in respect of the post retirement medical benefits to the employees claimed at ₹ 1.72 crores. The ground of appeal Nos.5 to 5.2 raised by the assessee are thus allowed. 47. The ground Nos. 6 to 6.2 raised by the assessee are against disallowance of ex ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lso held that the High Court is to decide whether the expenditure is revenue or capital in nature after construing the agreement between the parties. 9.8 Hence, it is seen that the Hon'ble Supreme Court has remitted the issues for fresh consideration by the High Court. In view of the discussion above, it is clear that the issue has not been settled and is not finalized in the case of M/s Swaraj Engines (supra). Accordingly, no action as a result of this judgement can be taken in this case. 9.9 Accordingly, in order to have a consistent stand, the expenditure aggregating to ₹ 55,56,64,000/- incurred by the assessee on account of royalty is held to be capital in attire and disallowed subject to the final outcome in the case of M/s Swaraj Engines (supra). Penalty proceeding u/s 271(l)(c) of the Income Tax Act are initiated separately for furnishing inaccurate particulars of income to the tune of ₹ 55,56,64,000/-. 50. The learned A.R. for the assessee pointed out that the said expenditure on account of royalty had been allowed to the assessee from year to year and only during the year under consideration, said expenditure had been held to be capital in nature ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... right to use the Trade Marks granted herein, SBCH shall pay to SB Asia a royalty of upto five (5) percent of the Net Sales Value of the Contract Products sold under the Trade Marks. Net Sales Value for the purpose of this Clause shall mean sales net of returns/allowances and net of excise duty. 54. The issue arising in the present appeal is whether such royalty paid by the assessee is in the nature of capital or revenue expenditure. The Assessing Officer and DRP had considered the allowability of the expenditure in view of the judgment of the Hon'ble Supreme Court in the case of CIT Vs. Swaraj Engines Ltd. (supra) wherein the issue was the applicability of section 35AB of the Act in the context of royalty paid as percentage of the net sale price being revenue and capital in nature. The Hon'ble Supreme Court held that after insertion of section 35AB of the Act, providing for allowance of expenditure on know-how as revenue or capital, would be a substantial question of law and the issue was set aside to the Hon'ble High Court for fresh consideration. The appeal before the Hon'ble Supreme Court related to the assessment year as on 30.12.1991. However, the pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... our allowing the ground Nos.6 and 6.1. 58. The issue in ground No.7 raised by the assessee is against disallowance of interest in terms of proviso to section 36(1)(iii) of the Act amounting to ₹ 1,54,76,000/-. 59. The brief facts relating to the issue are that during the year under consideration the assessee had shown investment in fixed deposits as closing work-in-progress(CWIP in short). The opening balance of CWIP as on 1.4.2007 was ₹ 767.17 lacs and the closing balance of CWIP as on 31.3.2008 was ₹ 18.12.21 lacs. The Assessing Officer noted that the assessee had paid interest on deposits at ₹ 290.06 lacs, interest to bank at ₹ 83.71 lacs and interest to others at ₹ 100.30 lacs. The total interest paid by the assessee was ₹ 474.07 lacs. The assessee was show caused to explain as to why the provisions of proviso to section 36(1)(iii) of the Act be not applied. The Assessing Officer in the absence of complete details being furnished by the assessee with regard to utilization of cash credit limit, long term loan and short term loan, in the assessment order passed pursuant to the directions issued by the DRP applied the provisions of p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Differential Interest on Housing Loan to employees 96.95 Interest on Others 3.35 TOTAL 474.07 63. Out of the above said list of interest paid, the differential interest on housing loan to employees at ₹ 96.95 lacs had been excluded on the instructions of the DRP by the Assessing Officer. However, as the net interest expenditure paid by the assessee was over and above the interest relatable to CWIP balance as on 31.3.2008, the disallowance of ₹ 154.76 lacs was made by the Assessing Officer. 64. The assessee company during the year under consideration had shown sales of ₹ 1389 crores, net of excise duty. Further the assessee had deposits with bank at ₹ 5750.00 lacs as against ₹ 1650.00 lacs alongwith reserves and surplus at ₹ 66248.2 lacs. The assessee had shown income of interest earned by it during the year at ₹ 608.44 lacs. The perusal of the interest expenditure incurred by the assessee reflects that the major portion as on interest on deposits from dealers/wholesalers at ₹ 290.06 lacs, which is being paid by the asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... disallowance of ₹ 102.32 lacs. 68. After hearing both the authorized representatives and after perusing the record, the first aspect of the issue is whether the provisions of section 14A of the Act read with Rule 8D of Income Tax Rules are applicable? The assessee during the year under consideration had received dividend on mutual funds amounting to ₹ 1954.70 lacs. The assessee on its own motion had disallowed expenditure of ₹ 6,06,977/- being relatable to earning of the exempt income. In other words, the assessee had admitted that it had incurred certain expenditure for earning the said exempt income. The claim of the assessee is that it had worked out all the disallowance in a scientific manner by making disallowance out of salaries and other heads involved in the investment activity and also out of administration and other expenses. The second aspect of the issue was that no borrowed funds were available with the assessee company. There was no merit in the disallowance under Rule 8D(ii) of Income Tax Rules on account of such interest expenditure. In view of our decision in the paras hereinabove in relation to the disallowance of interest under proviso to ..... X X X X Extracts X X X X X X X X Extracts X X X X
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