TMI Blog2021 (3) TMI 1X X X X Extracts X X X X X X X X Extracts X X X X ..... purchased a property during the year and carried out suitable repairs/renovation to make it fit for use. The decision of the ld. CIT(A) capitalizing 40% of the expenditure as against 80% done by the AO, was approved by the Tribunal. Once a particular amount has been held to be capital expenditure on a building purchased by the assessee, the same has to be subjected to depreciation. As the Tribunal has approved the capitalizing of certain amount to Building account, we, therefore, direct the AO to allow depreciation on such amount as per law. Disallowance of depreciation on the expenditure of software - HELD THAT:- Once such software development have been treated as capital expenditure, then it is but natural that depreciation on the same will have to be allowed in the succeeding years as well, including the year under consideration. However, it is relevant to keep in mind that the assessments of the assessee for the assessment years 2008-09 and 2009-10 have been quashed by the Tribunal on a legal issue. Thus while granting consequential depreciation on the software development cost for the year under consideration, the AO should keep in mind to compute the opening w.d.v. by r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the disallowance in respect of interest expenditure is, therefore, deleted. Disallowance under rule 8D @ 0.5% of the average investment yielding exempt income towards administrative expenses as relying on own case [ 2019 (7) TMI 949 - ITAT PUNE] we direct the Assessing Officer to sustain % of the disallowance on administrative expenses attributable to exempt income. - ITA No. 1356/PUN/2015 ITA No. 816/PUN/2017 - - - Dated:- 25-1-2021 - SHRI R. S. SYAL , VP AND SHRI PARTHA SARATHI CHAUDHURY, JM Assessee by : Shri R. Murlidhar Revenue by : Shri Amol Kamat ORDER PER PARTHA SARATHI CHAUDHURY, JM These two appeals preferred by the assessee emanates from the different orders of the Ld. CIT(Appeals)-13, Pune dated 27.07.2015 27.01.2017 for the assessment years 2010-11 2011-12 as per the grounds of appeal on record. 2. Both the parties herein have agreed that the facts and circumstances involved in both the assessment years of appeals along with issues are identical and similar. Therefore, considering the submissions made by parties herein, both appeals are heard together and disposed of vide this consolidated order. First, we would adjudicate the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dt. 18th May, 1967, the Hon ble Rajasthan High Court in Chambal Fertilisers and Chemicals Ltd.(supra.) has held that Education cess is not disallowable u/s.40(a)(ii) of the Act. The said judgment has also been followed by the Pune bench of the Tribunal in DCIT Vs. Bajaj Allianz General Insurance Company Ltd. (ITA No.1111/PUN/2017) vide its order dated 25.07.2019, a copy of which has been placed on record by the ld. AR. No contrary precedent has been brought to our notice by the ld.DR. Following the precedent, we allow this additional ground of appeal. 6. The Tribunal has fairly considered the legal precedent and judicial pronouncement of the Hon ble Rajasthan High Court in the case of Chembal Fertilizers Ltd. and Another and Vs. JCIT and Another (2018) 102 CCH 0202 Raj. HC which was followed by the Pune Bench of the Tribunal in the case of DCIT Vs. Bajaj Allianz General Insurance Company Ltd. (ITA No.1111/PUN/2017) dated 25.07.2019. The Tribunal has also observed that the decision of the Hon ble Rajasthan High Court (supra) was based on the Circular F. No.91/58/66-ITJ(19) dated 18th May, 1967. It was also submitted by the Ld. Counsel for the assessee that the Hon ble Bo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee s own case (supra.), we direct the Assessing Officer to follow the directions given at Para 36 of the order of the Tribunal for assessment year 2005-06. Thus, additional ground No.2 raised in appeal by the assessee is allowed. 9. Additional Ground No.3 pertains to the consequential claim of depreciation on the expenditure of software which was disallowed in the assessment year 2007-08. 9.1 The facts apropos this issue are that the assessee, in its return for the A.Y. 2007-08, claimed deduction of ₹ 15,60,198/- towards Software development expenses. The Assessing Officer treated the same as capital in nature. After allowing depreciation of ₹ 4,68,039/- @30% (half of 60%), the Assessing Officer made net addition of ₹ 10,92,139/-. When the matter came up before the Tribunal for consideration, the assessee did not press this ground. Ex consequenti, the addition of ₹ 10,92,139/- came to be affirmed. Once such software development have been treated as capital expenditure, then it is but natural that depreciation on the same will have to be allowed in the succeeding years as well, including the year under consideration. However, it is relevant to kee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... disallowance of ₹ 1,00,000/-towards miscellaneous expenses. 3. The Hon'ble CIT (Appeals) erred in disallowing ₹ 36,30,760 under section 14A of the Income-tax Act, 1961 ('the Act'). 4. The Hon'ble CIT(Appeals) erred in making following observation: It is a matter of common sense that the Appellant has to incur some expenditure to keep track of the receipt of tax-free income, for its accounting as well as administrative staff, accounting staff and of treasury personnel, stationery, communication and other miscellaneous expenses. Such expenditure mayor may not be substantial. The magnitude of such expenditure would depend on the facts of the case. However, in no circumstances, the expenditure can be stated to be Nil. Therefore, the Appellant s claim of Nil expenditure is incorrect .. The appellant objects to the above observation of the Hon ble CIT(Appeals) which is contrary to the facts of the case and in law. 5. Each one of the above grounds of appeal is without prejudice to the other. 6. The appellant reserves the right to amend, alter or add to the grounds of appeal. 12. Ground No.1 of appeal memo pertains to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... irmation of transfer pricing addition of ₹ 2,24,11,726/- in the international transaction of `Export of manufactured finished goods with transacted value of ₹ 50,95,90,294/-. This transaction was shown by the assessee at ALP under the TNMM in an aggregate manner considering two other transactions including payment of Royalty, which has been discussed in the earlier part of this order. The TPO observed qua this transaction that number of items were sold by the assessee to AEs and non-AEs, which included Elastic pins, Regulating assembly, Rubber packing, Springs etc. It was seen from the details filed by the assessee in Annexure-1 that for the same product the price charged from AEs was less than that charged from non-AEs, giving a cumulative difference of ₹ 2,24,11,726/-. The TPO, therefore, rejected the application of TNMM on aggregate basis and applied the Comparable Uncontrolled Price (CUP) as the most appropriate method for determining the ALP of this transaction. On being called upon to explain its position on such difference in prices, the assessee, inter alia, submitted that there was a vast difference in the quantities sold to the AEs and non-AEs. As again ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has referred to Annexure-1, whose copy has been placed at page 559 onwards of the paper book. The first item dealt with in Annexure-1 is Elastic Pin. Sale of this product made by the assessee to its AE in Belgium is at the average rate of ₹ 11.52 per unit with quantity of 2855 units as against sale of 20 units made to a Sri Lankan non-AE, namely, Bogala Graphite Lanka Ltd. at the average rate of ₹ 44 per unit. It is thus seen that there is a substantial difference in the quantity sold to AE and non-AEs. Price has been less charged from AEs with sale of higher quantity. Second item in the Annexure is Regulating Assembly. The assessee sold its 100 units to non-AE at a price of ₹ 2658 per unit and 50 units to AE at a price of ₹ 2683.80 per unit. Here, it is seen that the position has reversed in as much as the assessee charged higher price from its AE vis- vis non-AE on the sale of a lower quantity to AE. The next item is Rubber Packing. The assessee supplied 10 units of this item to Sri Lankan non-AE at ₹ 23.25 per unit as against 1983 unit supplied to its Belgium AE at an average rate of ₹ 6.86 per unit. There is substantial difference in rates c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 3) of Rule 10B transpires that the comparability of an international transaction can be properly done with a similar uncontrolled transaction, if the latter has similar characteristics, contractual terms and geographical locations etc. In case, some differences exist between the two sets of transactions, then, the effect of such differences should be ironed out by giving a reasonable adjustment in the profit margins etc. 9. Adverting to the facts of the instant case, we find that though description of items sold by the assessee to its AE and non-AEs is similar, but there are several differences in the two, such as, location of the parties, quantities lifted and customization of products. Such differences have significant bearing on the price charged by the assessee. No adjustment has been allowed by the TPO on account of such differences. In the same manner, the ld. DR also could point out any mechanism for giving adjustment on account of such material differences. In such circumstances, the price charged from AEs and non-AEs cannot be compared under the CUP method. The Hon ble jurisdictional High Court in Pr. CIT Vs. Amphenol interconnect India Pvt. Ltd. (2019) 410 ITR 373 ( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... onal transactions including export of manufactured finished goods and payment of Royalty, automatically gets disturbed and cannot be construed as giving a correct profit level indicator of the distinct international transaction of export of manufactured goods simplicitor. Not only the effect of profit from the transaction of payment of Royalty needs to be removed from the aggregated profit level indicator of the assessee, even the comparables and their PLIs may also undergo change because of such exclusion. Thus, it is evident that the contention of the ld. AR in this regard cannot be accepted. Under the prevalent circumstances, the ALP of the international transaction of Export of manufactured finished goods is required to be separately done. We have held above that the CUP is not the most appropriate method in the given circumstances. In such a condition, there is a need for resorting to another suitable method for determining the ALP of international transaction of Export of manufactured finished goods. We, therefore, set aside the impugned order and remit the matter to the file of the AO/TPO for a fresh determination of ALP of the international transaction of Export of manufact ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he ld. DR also could point out any mechanism for giving adjustment on account of such material differences. In such circumstances, the price charged from AEs and non-AEs cannot be compared under the CUP method. The Hon ble jurisdictional High Court in Pr. CIT Vs. Amphenol interconnect India Pvt. Ltd. (2019) 410 ITR 373 (Bom.) has held that the CUP method is not appropriate method in case of geographical difference, volume difference, timing difference, risk difference and functional difference. 17. Reverting to facts of the instant case, we find that there are significant differences in the sales made by the assessee to its AEs and non-AEs, the effect of which has neither been given by the TPO nor it has been shown that how it can be given, we hold that the action of the authorities below in applying the CUP as the most appropriate method cannot be sustained. Following the view taken by the Tribunal in the earlier year in assessee s own case and placing reliance on the decision of the Hon ble Jurisdictional High Court, we set aside the impugned order and remit the matter back to the file of the AO/TPO with similar directions as given in our earlier order (supra.). Thus, Ground N ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al in ITA No.1311/PUN/2011 for the assessment year 2002-03 dated 16.07.2019 vide Para 7 of its order placing reliance on the decision of the Hon ble Bombay High Court in the case of CIT Vs. Reliance Utilities and Power Ltd. (supra.) has decided this issue in favour of the assessee by observing as follows: 7. We have perused the case records and heard the rival contentions. We have also given thoughtful consideration to the judicial pronouncements placed before us. With regard to the disallowance made u/s.14A of the Act, it is quite ascertainable and acceptable facts on record as placed before us at Page 19, Volume-1 of the paper book that the assessee had own funds far in excess of investment made during the year. The assessee had reserve and surplus of ₹ 115.27 Crores as on 31.03.2002 and profit before tax during the current year of ₹ 15.26 Crores. The Hon ble Bombay High Court in the case of CIT Vs. Reliance Utilities and Power Ltd.(supra.) analysed the situation that when it is established that the assessee is having sufficient funds then presumption would arise that investments was made out of such funds available with the company. In that case, the assessee ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed in this appeal are same and identical as raised in ITA No.1356/PUN/2015 for the assessment year 2010-11. Both the parties have also agreed that the facts and circumstances are also similar. Therefore, with regard to additional grounds No.1, 2 and 3 raised in this appeal, our decision rendered while adjudicating the additional grounds in ITA No.1356/PUN/2015 for assessment year 2010-11 shall mutatis-mutandis apply. Hence, all the additional grounds raised by the assessee in this appeal are allowed mutatis mutandis as in ITA No.1356/PUN/2015 for assessment year 2010-11. 26. Both the parties also unanimously admitted that the grounds in appeal memo are absolutely identical and similar and also facts and circumstances with the appeal of assessee in ITA No.1356/PUN/2015 for assessment year 2010-11. Ground No.1 raised in the appeal memo in this appeal is identical to ground No.1 raised in ITA No.1356/PUN/2015 for the assessment year 2010-11. Therefore our decision rendered while adjudicating Ground No.1 in ITA No.1356/PUN/2015 for assessment year 2010-11 shall mutatis mutandis apply in this appeal also. Thus, Ground No.1 raised in this appeal by the assessee is allowed for statisti ..... X X X X Extracts X X X X X X X X Extracts X X X X
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