TMI Blog2024 (5) TMI 535X X X X Extracts X X X X X X X X Extracts X X X X ..... hical adjustment. Disallowance on account of prior period expenses - assessee was unable to establish that the expenses was crystalised in the impugned AY - as argued DRP ought to have allowed prior period expenses crystallized during the year claimed after netting off with prior period income - HELD THAT:- ITAT [ 2022 (7) TMI 1497 - ITAT AHMEDABAD ], in its order allowed the claim of prior period expenses following the decision of Adani Enterprise Ltd. [ 2016 (7) TMI 1250 - GUJARAT HIGH COURT ] holding that where the disallowance of prior period expenses is a tax neutral exercise, since the assessee has incurred year to year with the tax rate also being the same in the years, there is no reason to make any such disallowance of prior period expenses. The Tribunal had noted the fact that the assessee had been consistently debiting prior period expenses in the past also, and considering this fact, we hold that the disallowance of prior period expenses is not tenable and is directed to be deleted. Disallowance of expenses invoking provision of section 14A r/w rule 8D - nexus between borrowed funds and investments - HELD THAT:- We hold that the following the decision of the Special Ben ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ce on expenses made u/s 14A - HELD THAT:- As decided in Vireet Investment P.Ltd. [ 2017 (6) TMI 1124 - ITAT DELHI ] as held that no adjustment to the book profits is permissible on account of disallowance of expenses made under section 14A of the Act in terms of provisions of section 115JB of the Act, we have no hesitation in deleting the disallowance made in the present case on identical facts. The AO is directed to delete the adjustment so made to the books profits on account of disallowance of expenses under section 14A. - Smt. Annapurna Gupta, Accountant Member And Shri T.R. Senthil Kumar, Judicial Member For the Assessee : Shri S.N. Soparkar, Sr.Advocate And Shri Parin Shah, AR For the Revenue : Dr.Darsi Suman Ratnam, CIT-DR ORDER PER ANNAPURNA GUPTA, ACCOUNTANT MEMBER The present appeal has been filed by the assessee against order passed by the Assessing Officer (AO), Ahmedabad dated 28.10.2014 under section 143(3) read with sections 144C(13) of the Income Tax Act, 1961 ( the Act for short) pertaining to Assessment Year 2010-11. 2. The assessee is in the business of manufacturing and sale of range of chemicals like dyes, agro chemicals, bulk drugs, commodity chemicals and i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rnal comparables. 5. Ld. DRP erred in law and on facts in confirming action of TPO rejecting alternative contention of the appellant to consider associated enterprise as tested party in case of application of internal comparables over external comparables as considered by the appellant. Ld. DRP ought to have accepted alternative contention of the appellant. 6. Ld. DRP/TPO/AO erred in law and on facts in rejecting contention of the appellant to grant adjustment relating to business volume and geographical differences that ought to have been allowed considering nature of volume discount geographical differences between AE and unrelated parties. 5. Before us, the ld. Counsel for the assessee contended that his arguments were restricted only to ground no.6 raised before us. He contended that the assessee is aggrieved only on account of rejection of its contention by the DRP/AO to grant business volume discount adjustment and geographical difference adjustment while determining the Arms Length Price(ALP) of its International Transaction with its associate enterprise (AE). In this regard, the contention of the ld. Counsel for the assessee before us was that, the ITAT has, in the case of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , as noted above, is that while determining the ALP of the transaction, adjustment be made on account of volume discount given to the AE, considering huge volume of turnover with the AEs as compared to the small volume of turnover with different non-AEs. The assessee has also sought adjustment on account of sales made in different geographical areas fetching difference prices on account of various factor determining the price in different geographies. As pointed out by the ld. Counsel for the assessee and as conceded by the ld.DR also, the assessee has been allowed business volume discount adjustment in Asst.Year 2006-07 by the ITAT. Copy of the order of the ITAT for the same, in ITA No.908/Ahd/2016 dated 12.7.2022 was placed before us, wherein the ITAT has allowed this adjustment to the assessee. Finding of the ITAT in this regard from para 31 to 33 of the order are as under: 31. The issue relates to TP adjustment made to the international transaction of purchase of goods from AE s on account of quantity discount given to them by the assessee. As transpires from the orders of the authorities below, the ITAT had restored the issue back to TPO/AO in the first round, with the direct ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rice. In my opinion, the approach adopted by the appellant is reasonable and further the appellant has effectively demonstrated its commercial policy substantiating it with its sales to AE's and A/on AE's. It has been observed that the TPO has rejected this adjustment of the appellant merely because there was not written agreement to this effect. As stated earlier, the appellant has not executed any written agreement for quantity discount but the same is duly documented in the form of a commercial policy which is the practice adopted by the appellant since long. I further find that TPO during the original proceedings had allowed the quantity discount based on this very commercial policy. However, he restricted the adjustment on account of quantity discount claimed by the appellant with respect to only 4 products in which sales to AEs were less than Non-AEs. If that be so, the action of AO in not granting quantity discount based on well accepted commercial policy is not correct. Commercially, it is well accepted that bulk purchasers are generally given .some discount and the appellant has given such discount to AEs as per its commercial policy. Accordingly, the AO is directe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent in the sale price fetched by the assessee from the transaction with it's AEs, but on the other hand the TPO has allowed three adjustments i.e. (i) adjustment of 5% towards marketing financial risk, (ii) adjustment of 11% of long terms contract (iii ) adjustment of 30% to 50% of price difference due to lower price of China market. But the TPO has not allowed two adjustments i.e (1) an adjustment of 100% towards 'difference in application' and (2) an adjustment of 2% to 5% towards 'quantity discount'. After giving his reasons in the impugned referral order passed u/s 92CA(3), the TPO has attached four A , B , C D Annexure giving the details of comparative data of sales made to AE and Non-AE. 11. Therefore, it is clear that the assessee has been allowed adjustment to the sale price to its AEs on account of volume discount and on account of geography of sale. 12. Having said so, we consider it fit to restore this issue back to the TPO to re-adjudicate the issue after considering the facts placed before us by the assessee on the issue of quantity discount and geographical adjustment. 13. Ground Nos.1 to 6 are accordingly allowed as per above terms for statistical ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t with the issue of the prior period expenses noting the fact that in the said year, the assessee had netted off prior period expenses against prior period income and claimed the net as expenses; that the AO had disallowed entire prior period expenses and taxed the prior period income in the impugned year. The disallowance of prior period expenses had been made for the identical reason that the assessee was unable to establish that the expenses was crystalised in the impugned. The ITAT at para-20 of its order allowed the claim of prior period expenses following the decision of Hon ble jurisdictional High Court in the case of Adani Enterprise Ltd., in Tax Appeal No.566 of 2016 holding that where the disallowance of prior period expenses is a tax neutral exercise, since the assessee has incurred year to year with the tax rate also being the same in the years, there is no reason to make any such disallowance of prior period expenses. The Tribunal had noted the fact that the assessee had been consistently debiting prior period expenses in the past also, and considering this fact, and applying the decision of the Hon ble jurisdictional High Court, the Tribunal allowed the claim of prior ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Rule 8D of the Income Tax Rules, 1962, taking into consideration only those investments which had yielded exempt income. Reliance, in this regard was placed on the decision of the Special Bench of the ITAT in the case of Vireet Investments P.Ltd.(supra). 25. The ld.DR, however, countered by stating that the ld.DRP had already taken into consideration all aspects of the matter, while considering the issue of the disallowance of expenses under section 14A of the Act excluding such investments, which were not to be considered for the purpose of computing the disallowance. He therefore opposed the contentions of the ld. Counsel for the assessee in such terms and relied heavily on the findings of the ld.CIT(A) in this regard. 26. Having heard arguments of both the parties, we now proceed to bring out the fats relating to the issue. 27. A perusal of the order of the AO reveals on noting the fact that, the assessee had earned exempt income in the form of dividend income amounting to Rs. 4,96,83,989/- during the year while no disallowance of expenses pertaining to the earning of such exempt income was made by the assessee in terms of provisions of section 14A of the Act. He proceeded to c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sion of the Special Bench of the ITAT in the case of Vireet Investments P.Ltd. (supra), the AO is directed to re-compute the disallowances of administrative expenses, considering only those investments, which have earned exempt income. Ground no.8 raised by the assessee is allowed for statistical purposes in the above terms. 34. Ground Nos.9 and 10 read as under: 9. Ld. DRP/AO erred in law and on facts in confirming disallowance of bad debts claimed of Rs. 17,15,000/- by the appellant. Ld. DRP ought to have allowed the claim of the irrecoverable amounts written off in the books. It be so held now. 10. Alternatively and without prejudice amount advanced for the purpose of business written off in the books be allowed as 'business loss' or 'trading loss' u/s 28 of the Act. It be so held now. 35. As is evident from the perusal of the above grounds, the same relates to disallowance of bad debts claimed by the assessee amounting to R.17.15 lakhs. The contention of the ld. Counsel for the assessee before us was that the amounts in question related to business advances made by the assessee to various parties in the course of business, and on account of their irrecoverabilit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tional High Court in the case of Abdul Razak Co. (supra). 38. We have considered the contentions of the ld.DR, and also that pointed out by the AO that the amounts pertaining to business advance need verification, and have also taken note of counter arguments made by the ld. Counsel for the assessee that the amounts in challenge being very small amounts, pertaining to 12 parties, amounting in all to Rs. 6.15 lakhs, and the issue being very old and the nomenclature of its accounts itself reflecting the nature of their balance, the issue needs no reconsideration for verification at the end of the AO. 39. Considering the arguments by both the parties, we find merit in the contention of the ld. Counsel for the assessee, and do not consider it fit to restore the issue back to the AO for verification of the facts, whether the impugned amounts represent the business advances. The nomenclature /description of te amounts as deposit and the fact that they relate to several parties involving small amounts , therefore considering the materiality of the amount involved ,it is not considered fit to seek verification of the fact by the AO noting that it is a very old appeal pertaining to A.Y 10- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Rs. 74,09,818/- was accordingly disallowed. 45. We have gone through the order of the ITAT in the case of the assessee pertaining to Asst.Year 2009-10 in IT(TP) No.1108/Ahd/2017 dated 12.7.2022, and we find that identical issue was dealt by the ITAT at para 52 to 54 of its order, wherein the Tribunal noted that the assessee has been disallowed excess claim of depreciation on account of depreciation thrust upon it in Asst.Year 2001-02 on asset, on which it had not claimed depreciation in the said year by the ITAT in Asst.Year 2006-07, 2008-09 and 2009-10 and even Asst.Year 2005-06. Further taking note of the admission of the ld. Counsel for the assessee that identical claim of excess depreciation has been disallowed in the preceding years by the ITAT, we have no hesitation in confirming the impugned disallowance of excess depreciation amounting to Rs. 74,09,818/-. Ground No.11 of the appeal is dismissed 46. Ground No.12 raised by the assessee reads as under: Ld. AO erred in law and on facts in adding disallowance made u/s 14 A of Rs. 37,03,505/- to the total income computed u/s 115JB of the Act. 47. A perusal of the above ground reveals that the issue raised relates to the adjustmen ..... X X X X Extracts X X X X X X X X Extracts X X X X
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