TMI Blog2019 (4) TMI 1654X X X X Extracts X X X X X X X X Extracts X X X X ..... ₹ 5 lakhs for disallowance u/s.14A on an adhoc basis during the course of assessment proceedings. Even this was not considered by the ld. AO while framing the assessment. Only dividend bearing investments are to be considered for the purpose of computing the disallowance u/s.14A of the Act r.w.rule 8D of the rules. Reliance in this regard is placed on the special bench decision of Delhi High Court in the case of ACIT vs. Vireet Investments Pvt. Ltd. [ 2017 (6) TMI 1124 - ITAT DELHI] Consideration of revised claim made by the assessee towards deduction of provision for bad and doubtful debts written back - HELD THAT:- CIT(A) had accepted the claim for reducing the provision for doubtful debts written back in the sum of ₹ 23,96,673/- from the total income after considering the fact that the said sum was duly disallowed by the assessee in the computation of income in earlier years in the year in which said provisions were made. Hence, adding the very same sum in the year under consideration would lead to double addition. Accordingly, we hold that the ld. CIT(A) had rightly granted relief to the assessee by placing reliance on the decision of Hon ble Jurisdictional H ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n of income. The assessee did not make any disallowance of expenses u/s.14A of the Act in respect of earning such exempt income. The ld. AO asked the assessee to furnish details of expenses incurred for earning exempt income and also show-caused as to why the expenses incurred and claimed in respect of exempt income should not be disallowed u/s.14A of the Act r.w.r 8D of the rules. 2.1. In response, the assessee vide its letter dated 30/01/2013 submitted that it had not incurred any expenditure in relation to exempt income and hence, no disallowance u/s.14A was per se called for. The ld. AO not satisfied with this reply observed that assessee failed to bring on record that it has not incurred any expenditure for earning such exempt income. Accordingly, he proceeded to derive the disallowance figure by adopting the computation mechanism provided in rule 8D of the rules as under:- (i) Under rule 8D(2)(ii) -Rs.14,93,095/- (ii) Under rule 8D(2)(iii) - ₹ 56,76,077/- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ee cannot be forced to prove the negative and hence we are unable to persuade ourselves to agree to this observation of the ld. AO. We hold that the ld. AO had not recorded any satisfaction having regard to the accounts of the assessee with regard to the claim of the assessee that no expenditure was incurred for earning exempt income in terms of 14A(3) r.w.r. 8D(1) of the rules. It is now well settled that without recording any subjective satisfaction with cogent reasons, the ld. AO cannot proceed to make disallowance u/s.14A of the Act or by adopting computation mechanism provided in rule 8D(2) of the rules. This position has been made very clear by the recent decision of Hon ble Supreme Court in case of Maxopp Investment Ltd., vs. CIT reported in 402 ITR 640. 4.1 Respectfully following the aforesaid decision and in view of the fact that the ld. AO had not recorded any satisfaction with cogent reasons for rejecting the claim of the assessee that no expenditure was incurred for earning exempt income, the disallowance u/s.14A of the Act made by the ld. AO deserves to be deleted. 4.2. We also find that assessee had suo-moto offered a sum of ₹ 5 lak ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... holders Pvt. Ltd., reported in 349 ITR 233. 6. Against this action of the ld. CIT(A), revenue is in appeal before us vide ground No.1. 7. We have heard rival submissions. We find that the ld. CIT(A) had accepted the claim for reducing the provision for doubtful debts written back in the sum of ₹ 23,96,673/- from the total income after considering the fact that the said sum was duly disallowed by the assessee in the computation of income in earlier years in the year in which said provisions were made. Hence, adding the very same sum in the year under consideration would lead to double addition. Accordingly, we hold that the ld. CIT(A) had rightly granted relief to the assessee by placing reliance on the decision of Hon ble Jurisdictional High Court in the case of Pruthvi Brokers and Shareholders Pvt. Ltd., supra wherein the Hon ble Jurisdictional High Court clarified that the judgment of Hon ble Supreme Court in the case of Goetze India Ltd., reported in 284 ITR 323 does not impinge upon the hearing of the Income Tax Appellate Tribunal as well as CIT(A) to consider the claim of the assessee and direct the Assessing Officer to allow the claim of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d to the AEs of ₹ 38,30,014/-. From examination of the reimbursement recovered by the assessee, it was noticed by the TPO that an amount of ₹ 24,48,960/- has been recovered towards marketing and promotion expenses which TPO observed that prima facie, carries a service element in it. He further observed that since the recovery was towards a service rendered by the assessee to the AE, the assessee ought to have charged a mark-up on the amount of service charges recovered from the AE. The TPO also observed that since, this transaction has not been conducted at arm's length, the AR of the assessee was asked by the him to explain as to why a mark-up of 10% shall not be charged by the assessee on the above amount of services rendered to the AE. 4. The AR of the assessee contended that the amount represented reimbursement of actual expenditure, hence no mark-up should be charged thereon. However the TPO did not find such submission of the appellant as acceptable. He observed that the very narration of the expenditure suggested that the assessee had rendered marketing and promotional services, the cost of which has been recovered without charging any markup ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has carefully analyzed the reimbursements. He submitted that only those reimbursements which have an element of service have been identified by the transfer pricing officer. Upon that markup of 10 % has been added. He submitted that the services are in the nature of selection of advertiser, identification for specific bookings etc. He submitted that these certainly include an element of service. However, the learned departmental representative would not dispute the proposition that the computation of arm's-length price is not as per the any prescribed provision of the Act. 10. Upon careful consideration we find that section 92C(1) provides the following methods for computation of arm's-length price: Computation of arm's length price. 92C. (1) The arm's length price in relation to an international transaction or specified domestic transaction shall be determined by any of the following methods, being the most appropriate method, having regard to the nature of transaction or class of transaction or class of associated persons or functions performed by such persons or such other relevant factors as the Board may prescr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... owing the precedent we hold that since the method adopted by the transfer pricing officer for computing the arm's-length price is not as per the provision of law, the action of the authorities below is not sustainable. Hence, we direct that addition in this regard should be deleted. 10. The decision rendered hereinabove in the light of the aforesaid facts shall apply mutatis mutandis for the year under consideration also and accordingly the ground No.2 raised by the revenue is dismissed. IV. Disallowance of liquidated damages :Rs.1,64,43,351/- Ground No.4 of revenue s appeal 11. The brief facts of this issue are that the ld. AO observed that assessee has claimed expenditure of ₹ 1,64,43,351/- on account of liquidated damages in respect of following parties:- Sr.No. Name Amount 1. Sterlite Industries India Limited 44,62,112 2. Toyota Kirloskar Auto Parts Private Ltd ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... preciated the fact that in the normal course of business, the assessee had entered into various contracts with its customers, as per which, it is required to fulfill certain obligations of adhering to certain terms and conditions of dispatch, delivery and commissioning specific performances etc., In case if the assessee does not fulfill any of the said terms, then it is liable to incur certain damages to its customers under the concerned contract. Moreover, it was pleaded that the corresponding income in respect of such customers has been offered in the books of accounts of the assessee and the liquidated damages, if any, are later determined and debited to the profit and loss account of the assessee and claimed as deduction. In other words, the liquidated damages are payable by the assessee as and when the same are being claimed by the customers as per the contract. 14. The ld. CIT(A) duly appreciated the fact that this expenditure was incurred under the contractual obligation and incurred in the normal course of business of the assessee. The ld. CIT(A) also found that this issue has been decided in favour of the assessee by this Tribunal in earlier y ..... X X X X Extracts X X X X X X X X Extracts X X X X
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