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TMI Blog2019 (4) TMI 1654X X X X Extracts X X X X X X X X Extracts X X X X ..... e, trading in engineering goods and other engineering services. The assessee claimed dividend income as exempt in the sum of Rs. 3,07,16,292/- in the return 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) - Rs. 56,76,077/- Total Rs.71,69,172/- 2.2. This sum of Rs. 71 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 Rs. 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. 4.3. It is now well settled th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... en back in the sum of Rs. 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 the assessee. Thus, the Hon'ble Supreme Court has not negated the jurisdiction of the appellate authorities to entertain such claim. Accordingly, ground No.1 raised by the revenue is dismissed. III. Addition made towards compensation in the form of mark-up of reimbursement: Rs. 8,98,575/-. Ground No.2 of r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 thereon. As the transaction was not at arm's length, 10% mark-up was imputed there upon to bring the transaction on par with arm's length price. Accordingly, Rs. 2,44,896/- was adjusted to this transaction, representing 10% on the cost of expenditure recovered. 5. Upon the assessee's appeal, the ld. CIT(A) confirmed the TPO's action and inter alia observed as under: It can be seen from the above table that the appellant has recovered expenses totaling to Rs. 2, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 prescribe, namely :- (a) comparable uncontrolled price method; (b) resale price method; (c) cost plus method; (d) profit split method; (e) transactional net margin method; (f) such other method as may be prescribed23 by the Board. 11. It is undisputed that the method of computation of arm's-length price adopted by the transfer pricing officer is not as per any of the method prescribed under the act for the extant period. In similar circumstances, the Hon'ble jurisdictional High Court in the case of CIT vs. Kodak India (P) Ltd. [2017] 79 taxmann.com 362 (Bombay) vide order dated 11.07.2016 in ITA No. 15 OF 2014 has he ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Name Amount 1. Sterlite Industries India Limited 44,62,112 2. Toyota Kirloskar Auto Parts Private Ltd 1,28,240 3 Ajanta Manufacturing Limited 3,33,333 4. Reliance Infocomm In 36,821 5. Cement Corporation 2,650 6. Material Organization 6,91,909 7. Vedanta Aluminum Ltd 25,88,286 8. OPG Metals Pvt Ltd 45,00,000 9. Saint Gobain 37,00,000 Total 1,64,43,351/- 12. During the course of assessment proceedings, the assessee was asked to furnish the evidences and establish that the assessee was liable to pay liquidated damages to the clients mentioned above. The ld. AO observed that assessee did not furnish any evidence to show that the liability had in fact accrued and / or the payments are made. Hence, he observed that assessee had not established the fact that it had any liquidated damages or not. Accordingly, he concluded that the said liquidated damages are liable to be disallowed by applying the Explanation to Section 37(1) of the Act as the same tantamounts to default committed by the assessee warranting penalty for violating the law in force. Accordingly, he disallowed the sum of Rs. 1,64,43,351/- on account of liquidated dama ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at similar issues have been decided in favour of the assessee by the ITAT in its own cases for the assessment years 2000-01, 2001-02, 2003-04 and 2004-05 in ITA Nos. 7926/Mum/2004, 8794/Mum/2004, 4740/Mum/2008 and 1278/Mum/2009 respectively and copies of the said orders have also been submitted. Since identical issue has been decided in favour of the assessee on the said orders by the ITAT, we do not see any reason for taking a different view on this issue in the absence of any material change in the facts of the case and thus the order of the Ld.CIT(A) on this count is upheld."
17. Respectfully following the same, we do not find any infirmity in the order of ld. CIT(A) deleting said disallowance. Accordingly, ground No.5 raised by the revenue is dismissed.
18. Ground No.5 & 6 raised by the revenue are general in nature and does not require any specific adjudication.
19. Ground No. 'B' raised by the assessee in its appeal are general in nature and does not require any specific adjudication
20. In the result, appeal by the assessee is allowed and appeal by the revenue is dismissed.
Order pronounced in the open court on this 24/04/2019 X X X X Extracts X X X X X X X X Extracts X X X X
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