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2023 (3) TMI 1376 - AT - Income TaxTP adjustment - MAM - export of finished goods by applying internal TNMM - Comparables - HELD THAT - Though assessee had filed detailed benchmarking analysis of the comparable companies as given in the TP Study Report (TPSR) and certain submissions were also made with regard to exclusions of comparables suggested by TPO. TPO has not analysed those comparables on the ground that he has gone with internal TNMM for making the adjustment and there is no analysis or reasoning for accepting or rejecting external comparables selected by the assessee. We agree with the contention of the ld. DR that this issue should be restored back to the ld. TPO to analyse the comparable companies selected by the assessee and decide this issue afresh TP adjustment for payment of Central Fee for Services - HELD THAT - The assessee has given all the detailed submission and analysis not only demonstrating the rendition of central services but also commensurate benefits derived from such services to the assessee. It cannot be held that either there was no rendition or no benefit as observed by the ld. TPO. Apart from that the CUP analysis done by the assessee by taking four comparables in both the assessment years in providing advisories management advisory strategic planning business administration services marketing plan protocols procedures etc. wherein mean margin determined was 2.75% in A.Y.2015- 16 and 5.75% in A.Y.2016-17; whereas the assessee has made payment at 0.50% in A.Y.2015-16 and 0.75% in 2016-17. Thus the payment made by the assessee for Central services are at ALP and the adjustments made by the ld. TPO is deleted. Disallowance u/s. 14A r.w.r. 8D - Necessity of recording satisfaction - assessee demonstrated that assessee had sufficient own funds as compared to the quantum of investment - HELD THAT - We are in tandem with the contentions of assessee because in so far as investment made in A.Y.2015-16 is concerned these are mostly growth options of UTI mutual funds which does not yield any dividend income but are taxable as capital gains hence the same cannot be taken up for computing the disallowance u/s 14A. If the average investment of Rs.0.29 Crores is taken into consideration then disallowance would work out under Rule 8D(2)(iii) would be only Rs.1.45 lakhs which is much less than the suo-moto disallowance made by the assessee. Similarly in A.Y.2016-17 also the investment in Kotak Mahindra Mutual Fund-Direct Growth and Reliance Mutual Fund-Direct Plan Grown which yields taxable income and therefore same cannot be taken as part of computation for the purpose of disallowance. Once these are excluded from the disallowance then according to Rule 8D(2)(iii) the disallowance in A.Y.2016-17 would be Rs.1.45 lakhs. AO has mechanically applied Rule 8D without having recorded his satisfaction or examining the nature of investments whether they have yielded any exempt income or not thus such disallowance made by the ld. AO are to be deleted. Disallowance u/s. 37(1) of unrealized foreign exchange - assessee has incurred an unrealized foreign exchange loss - HELD THAT - Since this issue is similar to the appeal decided by the Tribunal in the case of Unilever Industries Private Limited. 2023 (1) TMI 1263 - ITAT MUMBAI following the same we direct the ld. AO to allow the deduction. Disallowance of Employee Share Option Scheme Expense - HELD THAT - As for Assessment Year 2009-10 onwards the Assessing Officer has permitted the deduction of ESOP expenses and in view of law laid down by Supreme Court in Radhasoami Satsang 1991 (11) TMI 2 - SUPREME COURT the revenue cannot be permitted to take a different stand with regard to the Assessment Year in question In view of preceding analysis the substantial questions of law framed by a bench of this court are answered against the revenue and in favour of the assessee. Excess levy of interest u/s. 234B - AO has not granted credit for self-assessment tax paid u/s 140A by the assessee on 30/11/2016 while computing the shortfall in payment of advance tax as required by the provisions of section 234B(2) of the Act. Accordingly the ld. AO is directed to rectify the error and compute the correct interest payable as per Section 234B.
Issues Involved:
1. Transfer Pricing Adjustments 2. Disallowance under Section 14A 3. Disallowance under Section 37(1) of Unrealized Foreign Exchange 4. Disallowance of Employee Share Option Scheme (ESOP) Expense 5. Excess Levy of Interest under Section 234B Summary: 1. Transfer Pricing Adjustments: The assessee challenged the TP adjustment related to the export of finished goods by applying internal TNMM and the payment of Central Fee for Services. The Tribunal rejected the use of internal TNMM by the TPO and accepted the external TNMM for benchmarking, following its own decision in the assessee's case for earlier years. The Tribunal directed the TPO to re-examine the comparable companies selected by the assessee and decide the issue afresh. Regarding the payment of Central Fee for Services, the Tribunal found that the assessee had demonstrated the rendition and benefits of the services and benchmarked the transaction using the CUP method. The Tribunal deleted the adjustment made by the TPO, following its earlier decision in the assessee's case. 2. Disallowance under Section 14A: The AO and DRP rejected the assessee's working of expenses attributable to earning exempt income and computed disallowance under Rule 8D. The Tribunal found that the investments made by the assessee were mostly in growth options of mutual funds yielding taxable capital gains, not exempt income. The Tribunal ruled that such investments should not be considered for disallowance under Rule 8D and deleted the disallowance made by the AO. 3. Disallowance under Section 37(1) of Unrealized Foreign Exchange: The assessee claimed deduction for unrealized foreign exchange loss based on the Supreme Court judgment in CIT vs. Woodward Governor India Pvt. Ltd. The Tribunal, following its decision in a similar case, directed the AO to allow the deduction for the unrealized foreign exchange loss. 4. Disallowance of Employee Share Option Scheme (ESOP) Expense: The assessee claimed ESOP expenses based on the decision of the Special Bench in Biocon Ltd. v. DCIT. The Tribunal, following its earlier decision and the Karnataka High Court judgment in M/s. Biocon Ltd., directed the AO to delete the disallowance of ESOP expenses. 5. Excess Levy of Interest under Section 234B: The AO computed interest under Section 234B without granting credit for self-assessment tax paid by the assessee, resulting in excess levy of interest. The Tribunal directed the AO to rectify the error and compute the correct interest payable under Section 234B. Conclusion: The Tribunal partly allowed the appeals of the assessee, providing relief on the issues of transfer pricing adjustments, disallowance under Section 14A, unrealized foreign exchange loss, ESOP expenses, and excess levy of interest under Section 234B.
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