9911796707
TMI Blog2024 (5) TMI 1355X X X X Extracts X X X X X X X X Extracts X X X X ..... der: - "Adjustment on account of allocation of Royalty earned by Unilever 2. Erred in holding that the Assessee has performed significant functions when providing scientific and technical services to Unilever and accordingly, should be entitled to a share in the royalty earned by Unilever amounting to Rs. 70,81,50,000/- 3. Failed to appreciate that the Assesse is engaged into 'contract research services' and is bearing limited risk and therefore ought to have held the cost plus mark-up received by the Assessee is at Arm's length. 4. Erred in holding that the Assessee ought to have earned royalty over and above the cost plus mark-up it has received for provision of scientific and technical services. 5. The Assessee prays that the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ra, the Ld. DR does not object to the withdrawal of TP ground, and, therefore, we allow the request of the assessee in the light of the MAP order dated 11.10.2023. Therefore, ground nos. 2 to 6 stands dismissed. 6. Coming to ground nos. 7 to 12 which is against the action of the AO making disallowance u/s 14A of the Income Tax Act, 1961 (hereinafter "the Act") read with Rule 8D of the Rules. 7. Brief facts are that the assessee in AY. 2012-13 has received tax free dividend income of only Rs. 12,500/-. The AO applied Rule 8D of the Rules and computed disallowance at Rs. 12,94,325/- [0.5% of Rs. 25,88,65,000/-]. The limited plea of the assessee is that the disallowance be restricted to the extent of exempt income earned by assessee i.e. Rs. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... estimate of such an expenditure incurred to earn exempted income, it has to have a rational nexus with the amount of income earned itself. Disallowance under Section 14A of Rs. 2,48,85,000/- as expenses to earn exempted Dividend income of Rs. 1,80,30,965/- is per se absurd and hypothetical. The disallowance under Section 8D cannot exceed the expenses claimed by assessee under the Proviso to Rule 8D. Therefore, where the assessee claimed that assessee did not incur any such expenditure during the year in question to earn Dividends of Rs. 1,80,30,965/-, the burden was upon the assessing authority to compute the interest on such borrowed funds which were dedicatedly used for investment in securities to earn such exempted Dividend income. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... part of the total income under the Act. In the present case, the tribunal has recorded the finding of fact that the assessee did not make any claim for exemption of any income from payment of tax. It was on this basis that the tribunal held that disallowance under section 14A of the Act could not be made. In the process tribunal relied on the decision of Division Bench of Punjab and Haryana High Court in case of CIT v Winsome Textile Industries Ltd. [2009] 319 ITR 204 in which also the Court had observed as under : "7. We do not find any merit in this submission. The judgement of this court in Abhishek Industries Ltd. (2006) 286 ITR 1 was on the issue of allowability of interest paid on loans given to sister concerns, without interest. I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ould include a facet where the assessee's income exempt from tax is not NIL but has earned exempt income which is larger than the expenditure incurred by the assessee in order to earn such income. In such a situation that disallowance cannot exceed the exempt income so earned by the assessee during the year under consideration. We do not find any error in the view of the Tribunal. We record that the assessee had offered voluntary disallowance of expenditure of Rs. 1.30 crores, which is not been disturbed by the Tribunal. 5. The tax appeal is dismissed." 11. In view of the consistent view taken by the Hon'ble High Courts as noted (supra), the Hon'ble Bombay High Court in the case of M/s. Nirved Traders Pvt. Ltd. (supra) held that the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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