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TMI Blog2023 (11) TMI 387X X X X Extracts X X X X X X X X Extracts X X X X ..... rder of the Commissioner of Income Tax (Appeals)-18, Chennai in ITBA/APL/M/250/2022-23/1046514079(1) dated 28.10.2022. The assessment was framed by the ACIT, Central Circle 1(3), Chennai u/s. 143(3) r.w.s. 92CA(3) of the Act dated 07.03.2016. Assessee's Appeals in IT(TP)A Nos. 77 & 78/CHNY/2022 2. The only common issue in these two appeals of assessee for the assessment years 2012-13 & 2013-14 is as regards to the order of CIT(A) confirming the action of the AO in disallowing expenses relatable to exempt income by invoking the provisions of section 14A of the Act r.w.rule 8D(2)(ii) & 8D(2)(iii) of the Income Tax Rules, 1962 (hereinafter the 'Rules') for interest disallowance and administrative expenses disallowance. For this, the assessee has raised various grounds in both the years, which are exhaustive and argumentative and hence, need not be reproduced. 3. The facts and circumstances are exactly identical in both the years and hence, by way of this common order these appeals are being disposed off. 4. Brief facts relating to assessment year 2012-13 in IT(TP)A No.77/CHNY/2022 are that the AO while framing assessment noticed that the assessee has received dividend income of Rs ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ame cannot be included while computing disallowance. The assessee has given revised working for making disallowance and added that only disallowance under Rule 8D(2)(ii) will be at Rs. 51,29,547/- and under Rule 8D(2)(iii) at Rs. 8,79,583/- , thereby total disallowance of expenditure should be restricted at Rs. 60,09,130/- as against computed by the AO at Rs. 5,14,38,221/-. When these revised working was provided to the Revenue, the ld.Senior DR could not controvert the above fact situation but only requested that matter can be referred back to the file of the AO for considering the availability of funds i.e, interest free funds available with the assessee on 31.03.2012. The relevant revised working is reproduced from the order of CIT(A) as under:- S.No. Particulars Amount i. Amount of expenditure directly attributable ii Amount calculated as per formula A*B*C Expenditure by way of interest not directly attributable "A" 8,25,37,238 Total Investments : As on 01.04.2011 17,59,16,568 As on 31.03.2012 17,59,16,566 Average Investments "B" 17,59,16,566 Total Assets : As on 01.04.2011 1,82,51,55,577 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ned above have sh0wn an increase of Rs. 28.39 crores. The increase in profits could also have gone into these assets. The assessee has not maintained separate accounts and this is a case of mixed borrowed funds and hence it cannot be said that the investments were made out of cash profit of the year. According to the AO, the case laws relied on would not support the appellant's case. In the appellant's case a finding has been made on the basis of the financials that expenditure was incurred for earning tax-free income and therefore the said case law relied upon by the assessee is not applicable. With regard to the decision of the ITAT Chennai in EIH Associated Hotels Ltd., the AO observed that the decision of the ITAT Chennai was not accepted by the Department and an appeal is pending before the Hon'ble High Court and that the appellant has not demonstrated as to how the investment has been made in Trimex Sands Pvt. Ltd is on account of business expediency. The AO therefore computed the disallowance as per Rule 8D and determined the amount to be disallowed u/s 14A at Rs. 5,36,47,265/-. After deducting the amount already disallowed by the appellant of Rs. 36, 12,589/-, t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Rs. 11.07 crores compared to last year's of Rs. 1.36 crores and Rs. 5.10 crores respectively. According to AO in view of the above, the assessee had made substantial borrowings and paid huge interest in respect of the same which has been claimed as business expenditure amounting to Rs. 3,30,08,590/-. Hence, he required the assessee to explain as to why the interest pertaining to the above interest free advance given to subsidiaries or sister concern i.e., investment shown in Trimax Sands as on 31.03.2009 at Rs. 57 crores, donation paid of Rs. 5 crores to Sri Sathya Sai Medical Trust on 04.08.2008, advance made to Pradeep Shipping of Rs. 34,16,061/- on 28.02.2009 and interest claimed on the same to be disallowed. The assessee vide letters dated 11.02.2013, 14.02.2013 and 18.02.2013 submitted explanation. The AO after considering the reply of the assessee noted that the assessee has paid huge interest of Rs. 17,01,69,396/- and this interest includes major payment of interest to the following:- Interest-Term Loan-HDFC loan - Rs. 1,30,78,318/- Interest on cash credit - Rs. 9,19,29,044/- Therefore, the AO worked out disallowance of interest at 12% per annum on the interest free ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... business, the appellant was not able to adduce any evidence as to how the investment in the subsidiary company setting up beach sand project would improve the appellant's business in processed minerals. Even otherwise it is an investment in another company and cannot be considered as amount used for the purpose of the appellant's existing business. The interest on loan borrowed for making the investment in the subsidiary company should have been capitalized and added with the investment in the subsidiary company. As the appellant failed to establish any nexus between the investment in subsidiary and the business of the appellant, the amount advanced cannot be considered as amount used for the purpose of business of the appellant. I therefore confirm the disallowance made by the AO for the reasons given by him in the assessment order. 6.3.5 Regarding the advance made to Pradeep Shipping of Rs. 34,16,061/-, the AO had taken into account the amount transferred and has taken into account the fact that the major payment of Rs. 34,16,061/- was made during the year on 28th February 2009 and after that no payment received from said party, the AO made disallowance of Rs. 34,160/- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... accordingly. The appeal of the assessee is allowed. Revenue's Appeal in ITA No.1035/CHNY/2022, AY 2009-10 15. The first issue in this appeal of Revenue is as regards to the order of CIT(A) deleting the addition made by AO/TPO towards adjustment on account of transfer pricing relating to barite-lumps. For this, Revenue has raised the following grounds:- 2. On the facts and circumstances of the case, the learned CIT(A) has erred in deleting the addition of Rs. 3,16,27, 440/- made towards adjustment on account of transfer pricing relating to barite-Lumps. 2.1 The Ld. CIT(A) has failed to note that the adjustment was done by the AO as per the relevant provisions of the Act / Rules, taking into account all the comparability characteristics prescribed. 16. Brief facts are that the assessee is a private limited company produced minerals like Feldspar and also procures Barites, Bentonite, etc., from the mine owners, processes them to suite the requirement of the customers, transports them to the nearest port by rail and/or road, arranges export to overseas customers on FOB basis. The TPO noted that the assessee has adopted Internal cost plus method for the sale of barite lumps where ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... margins of AE with non-AE to whom there is only a single export transaction made post increase in the price and so the CUP treated by TPO is not exact one. For this, he observed in para 5.3 as under:- "5.3 I have gone through of the case of the appellant on this issue aid considered the arguments of the AR. The TPO has ignored the submission of the appellant and not considered the increase in procurement price demonstrated by the appellant. Accordingly, the TPO has proceeded to compare the margins of AE with Non-AE, to whom there is only single export transaction made post increase in the price and so the single CUP chosen by the TPO is not appropriate one. The TPO has not taken into consideration the submissions made by the appellant demonstrating the effect of foreign exchange fluctuation on the rate charged for the sale transactions to the AE and Non-AE. The sale price to Non-AE at USD73 is not much significantly different from the sale price to the AE compared to the volume of transactions with AE. The arguments of the AR have much force which have not been rebutted by the TPO. In view of the above reasons, the adjustment of Rs. 3, 16,27,440/- on account of transfer pricing m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... est free credit for a period of 90 days. Thereafter it has renegotiated the supplies for either cash or payment of interest for the credit period enjoyed by the assessee. The assessee has paid a sum of Rs. 26,44,193/- as compensation charges for the credit period obtained by it. This amount was debited by the assessee under the interest. The assessee further stated that the payment made to APMDC is compensatory in nature but not interest as contemplated u/s. 194A for the purpose of deduction of tax at source as held by AO. The assessee relied on the decision of Co-ordinate Bench of Ahmedabad Tribunal in the case of ITO vs. Parag Mahasukhalal Shah, [2011] 12 taxman.com 37 (Ahd-ITAT), wherein it was held that "When a payment is compensatory in nature and not related to any deposit/ debt/ loan then such a payment is out of ambits of provisions of section 194A. In this case, the assessee was allowed interest free credit for a period of 60 days. In case of overdue payment cost of Purchase was paddled with a liability to pay a Compensatory sum which was termed as interest. It was further held that the compensatory payment had a direct link and immediate nexus with the trade liability ..... X X X X Extracts X X X X X X X X Extracts X X X X
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