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2014 (2) TMI 1421 - AT - Income TaxExcess deduction u/s 80IB/80IC - method of allocation consistently adopted by the Appellant and in re-allocating 50% of the following overheads of the non-eligible undertakings to the eligible undertakings of the Appellant, while computing the deduction u/s 80IB/80IC - HELD THAT - As decided in assessee own case for AY 2006-07 2014 (4) TMI 520 - ITAT MUMBAI allocation of expenses made by the assessee between eligible business and non-eligible business for the purpose of computing deduction u/s 80IB/80IC of the Act was reasonable and there was no justifiable reason for the A.O. to disturb the same and make re-allocation on adhoc basis. We, therefore, delete the addition made by the A.O. by restricting the claim of the assessee for deduction u/s 80IB/80IC by reallocating the common indirect expenses and allow ground No. 1 2 of the assessee s appeal. TP Adjustment - treating the guarantee to a banker as an international transaction within the meaning of Section 92B - HELD THAT - The issue covered in the grounds are covered by the decision of the Coordinate Bench in its own case in 2014 (4) TMI 520 - ITAT MUMBAI wherein take the rate of guarantee commission at 0.5% as ALP by respectfully following the decision of coordinate Bench of this Tribunal in the case of Nimbus Communications Ltd. 2013 (9) TMI 204 - ITAT MUMBAI
Issues:
1. Disallowance of excess deduction claimed under sections 80IB/80IC of the Income Tax Act. 2. Re-allocation of overhead expenses for eligible and non-eligible undertakings. 3. Treatment of guarantee to a banker as an 'international transaction' under Section 92B of the Act. 4. Consideration of aggregate rate charged by ICICI bank for guarantee commission. 5. Arbitrariness and excessiveness of adjustment made. Issue 1: Disallowance of Excess Deduction under Sections 80IB/80IC: The appeal challenged the CIT(A)'s decision regarding the excess deduction claimed under sections 80IB/80IC of the Income Tax Act. The appellant argued for the re-computation of the deduction based on the allocation of overheads adopted in the Return of Income. The ITAT, in a similar case, held that the allocation of expenses by the assessee was reasonable and scientific, rejecting the AO's adhoc reallocation. Consequently, the ITAT deleted the addition made by the revenue authorities. Issue 2: Re-allocation of Overhead Expenses: The dispute involved the re-allocation of overhead expenses between eligible and non-eligible undertakings for computing the deduction under sections 80IB/80IC of the Act. The ITAT noted that the expenses related to advertisement, publicity, schemes, and promotions were incurred to promote the brand image, benefiting both segments. The ITAT found the assessee's allocation based on turnover reasonable, rejecting the AO's adhoc reallocation. Citing the decision in Consolidated Coffee Ltd. v. State of Karnataka, the ITAT held that the allocation method was justified, leading to the deletion of the addition by the A.O. Issue 3: Treatment of Guarantee as an International Transaction: The dispute centered on treating the guarantee to a banker as an 'international transaction' under Section 92B of the Act. The ITAT, referring to a similar case, directed the AO to recompute the guarantee commission at 0.5% as the Arm's Length Price (ALP), following the decision of the coordinate Bench. The ITAT set aside the CIT(A)'s order and instructed the AO to adjust the ALP accordingly. Issue 4: Consideration of Aggregate Rate for Guarantee Commission: Regarding the consideration of the aggregate rate charged by ICICI bank for guarantee commission, the ITAT upheld the decision to adopt a 0.5% guarantee fee as the ALP, aligning with rates charged by various banks. The ITAT directed the AO to recompute the addition for transfer pricing adjustment based on the 0.5% ALP, following the decision of the coordinate Bench. Issue 5: Arbitrariness and Excessiveness of Adjustment: The appellant raised concerns about the arbitrariness and excessiveness of the adjustment made. The ITAT, relying on the decisions of the coordinate Bench, partly allowed the appeal, setting aside the CIT(A)'s order and instructing the AO to recompute the ALP as per the directions of the coordinate Bench. The ITAT pronounced the order in favor of the appellant on 19th February 2014.
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