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2018 (10) TMI 1669 - AT - Income TaxTP Adjustment - method adopted by the transfer pricing officer for computing the arm's-length price - HELD THAT - 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. M/S. KODAK INDIA PVT. LTD. 2016 (7) TMI 677 - BOMBAY HIGH COURT held that method adopted by revenue to determine ALP was alien to the methods prescribed under section 92C and, therefore, declined to restore the issue to the Assessing Officer for redetermining the ALP by adopting one of the methods as listed out in section 92C. Respectfully following the precedent we hold that since the method adopted by the transfer pricing officer for computing the arm's-length price is not as per the provision of law, the action of the authorities below is not sustainable. Hence, we direct that addition in this regard should be deleted. Addition u/s.14A - Dividend income as exempt from tax u/s. 10(34) - HELD THAT - It is the case of the assessee that financials for the current year are same. In this view of the matter disallowance on account of interest for making the tax-free investments is not sustainable. Furthermore, the learned counsel of the assessee placed reliance upon the decision in the case of HDFC Bank Ltd. 2016 (3) TMI 755 - BOMBAY HIGH COURT is also cogent in this regard. As regards the disallowance of 0.5% on the average value of investment is concerned the submission of the learned counsel of the assessee is cogent that the special bench in the case of Vireet Investment Pvt. Ltd. 2017 (6) TMI 1124 - ITAT DELHI has held that for computing the average value of investment only investments which yield exempt income is to be considered. Accordingly, we remit this issue to the file of assessing officer to consider the issue afresh in light of the decision of special bench in the case of ACIT vs. Vireet Investment Pvt. Ltd. for the necessary computation in this regard. Deduction u/s.80IA - assessee opted not to claim the deduction under this section for the current year and the deduction will be claimed by it for 10 consecutive years beginning from any of the subsequent assessment year as may be decided by the company - HELD THAT - As decided in WARTSILA INDIA LIMITED VERSUS DCIT, RANGE-3 (3) MUMBAI 2015 (6) TMI 518 - ITAT MUMBAI no claim was made by the assessee u/s 80IA and admission by the D.R. that no such claim was made, there is no question of making any addition/disallowance. - Decided in favour of the assessee.
Issues Involved:
1. Addition in respect of adjustments made by the Transfer Pricing Officer under Section 92CA(3) of the Act. 2. Disallowance under Section 14A of the Act. 3. Disallowance of deduction under Section 80IA of the Act for future years. Issue-wise Detailed Analysis: 1. Addition in respect of adjustments made by the Transfer Pricing Officer under Section 92CA(3) of the Act: Brief Facts: The assessee, engaged in manufacturing and trading of diesel engines and engineering goods, had international transactions involving reimbursement at cost from its Associated Enterprises (AEs) in Finland. The Transfer Pricing Officer (TPO) noted that the assessee recovered ?24,48,960/- towards marketing and promotion expenses from the AE without charging a markup, which was deemed not at arm's length. Arguments: - Assessee's Argument: The reimbursement was on a cost-to-cost basis with no service element, hence no markup was necessary. - Revenue's Argument: The TPO contended that the transaction included a service element and applied a 10% markup to align with arm's length price. Judgment: The Tribunal found that the method adopted by the TPO for computing the arm's length price was not as per the methods prescribed under Section 92C(1) of the Act. Citing the precedent from the case of CIT vs. Kodak India (P) Ltd., it was held that the addition was not sustainable. The Tribunal directed the deletion of the addition. 2. Disallowance under Section 14A of the Act: Brief Facts: The assessee claimed dividend income of ?4,38,43,536/- as exempt under Section 10(34) of the Act but did not disallow any expenses under Section 14A. The Assessing Officer (AO) applied Rule 8D and computed the disallowance at ?1,14,81,363/-. Arguments: - Assessee's Argument: The assessee claimed no expenditure was incurred for earning the exempt income and offered ?5 lakhs as disallowance. It also argued that interest-bearing funds were not used for investments yielding exempt income. - Revenue's Argument: The AO and CIT(A) held that Rule 8D was applicable and the assessee failed to provide a satisfactory computation of attributable expenses. Judgment: The Tribunal noted that the AO had expressed dissatisfaction with the assessee's claim and the assessee had not provided a cogent rebuttal. However, it was established that the interest-bearing funds were not used for making investments. The Tribunal referred to the decision in HDFC Bank Ltd. and directed the AO to reconsider the disallowance of 0.5% on the average value of investments, considering only those investments which yield exempt income, as per the ITAT Special Bench in ACIT vs. Vireet Investment Pvt. Ltd. 3. Disallowance of deduction under Section 80IA of the Act for future years: Brief Facts: The AO disallowed the claim for deduction under Section 80IA for future years, stating that the assessee had not maintained separate books of account and balance sheet for the same. Arguments: - Assessee's Argument: The assessee argued that no claim was made under Section 80IA for the current year, hence there was no question of fulfilling the conditions required under the section. - Revenue's Argument: The CIT(A) affirmed the AO's action. Judgment: The Tribunal referred to its decision in the assessee's own case for A.Y. 2007-08, where it was held that no addition/disallowance was warranted as no claim was made under Section 80IA. Since the Revenue did not provide evidence of a reversal by the jurisdictional High Court, the Tribunal decided the issue in favor of the assessee and set aside the orders of the authorities below. Conclusion: The appeal was partly allowed, with the Tribunal directing the deletion of the addition under Section 92CA(3), remitting the Section 14A disallowance issue for fresh consideration, and setting aside the disallowance under Section 80IA for future years. The order was pronounced in the open court on 04.10.2018.
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