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2016 (7) TMI 1695 - AT - Income TaxDisallowance u/s 14A r.w.r.8D under normal computation as well as in computing book profit /s 115JB - HELD THAT - Normal computation - Since this issue is relating to the assessment year 2007-08 the provisions of Rule 8D will not be applicable in the case of the assessee as it came into effect from 24.03.2008. On earlier occasion in the case of M/s. Hyundai Motor India Ltd. 2015 (9) TMI 962 - ITAT CHENNAI this Bench of the Tribunal had observed that disallowance of 2% to 5% of the dividend income earned would suffice for meeting the requirement of section 14A of the Act. Accordingly we hereby direct the Assessing Officer to disallow 5% of dividend income as allowable expenditure invoking the provisions of section 14A of the Act while computing the profit and loss under normal computation. MAT computation - We hereby direct the AO to compute the profit and loss of the assessee under section 115JB of the Act without making disallowance of expenditure under section 14A. See M/S. BEACH MINERALS COMPANY PVT LTD. 2015 (8) TMI 1031 - ITAT CHENNAI Addition of foreign exchange loss relating to interest on loan for acquisition of fixed assets under normal provisions as well as u/s 115JB - Under normal provisions - HELD THAT - As observed by the Revenue that the assessee had debited to its profit loss account net foreign exchange loss related to interest on the loan obtained for acquiring assets. Therefore the learned Assessing Officer added the same to the profit of the assessee by capitalizing the interest and added the same to the cost of the asset by virtue of section 43A of the Act but however gave the benefit of depreciation @ 15%. No infirmity in the orders of the Revenue on this issue because section 43A of the Act provides that such expense has to be capitalized. AO has capitalize the loss and granted the benefit of depreciation. Hence the order of the Revenue is hereby confirmed on this issue. Under section 115JB of the Act - The same ratio mentioned herein above in para 4.3 will be applicable because section 43A of the Act and section 115JB of the Act both has a legal fiction and therefore section 43A of the Act cannot be imposed while making computation under section 115JB of the Act. Hence the interest expense cannot be excluded from the book profit u/s 115JB of the Act. Addition in relation to interest on loan for acquiring fixed assets under normal computation as well as in computing book profit u/s 115JB - HELD THAT - No infirmity in the order of the Revenue because there is no section in the Act for granting deduction towards provision made for bad and doubtful debts. Further Explanation I(c ) (i) to section 115JB of the Act clearly provides that the book profit has to be increased by (c) the amount or amounts set aside to provisions made for meeting liabilities other than ascertained liabilities (i) the amount or amounts set aside as provision for diminishing in the value of any asset. Accordingly this issue is decided against the assessee. TP Adjustment - Determining the arm s length price of the international transaction relating to the commission paid by the assessee towards availing marketing services - AO adopting the internal cup method disallowed the commission paid to its AEs - As sbmitted that the scope of transactions between both the AEs is altogether different and that for the sale made through Saint Gobin Exprover the AE Saint Gobain Exprover only acted as a commission agent and products were directly sold by the assessee to the purchaser - HELD THAT - We are of the considered view that in the interest of justice the matter needs to be remitted back to the file of the learned TPO for de novo consideration. Accordingly we hereby remit the matter back to the file of the learned TPO for hearing the issue afresh.
Issues Involved:
1. Disallowance under section 14A r.w.r. 8D of the Rules under normal computation and section 115JB of the Act. 2. Addition of foreign exchange loss relating to interest on loan for acquisition of fixed assets under normal provisions and section 115JB of the Act. 3. Addition of interest on loan for acquiring fixed assets under normal computation and section 115JB of the Act. 4. Addition of provision for doubtful debts while arriving at book profits under section 115JB of the Act. 5. Determining the arm's length price of the international transaction relating to the commission paid for availing marketing services. Detailed Analysis: Issue 1: Disallowance under section 14A r.w.r. 8D of the Rules under normal computation and section 115JB of the Act - Normal Computation: The Tribunal noted that Rule 8D was not applicable for the assessment year 2007-08 as it came into effect from 24.03.2008. Referring to a previous decision in M/s. Hyundai Motor India Ltd., the Tribunal directed the Assessing Officer to disallow 5% of the dividend income as allowable expenditure under section 14A. - Section 115JB: The Tribunal referenced the case of M/s. Beach Minerals Company P. Ltd., holding that disallowance under section 14A cannot be made while computing book profits under section 115JB, as both sections are provisions with legal fictions. Therefore, the Tribunal directed the Assessing Officer to compute the profit and loss without making disallowance of expenditure under section 14A. Issue 2: Addition of foreign exchange loss relating to interest on loan for acquisition of fixed assets under normal provisions and section 115JB of the Act - Normal Provisions: The Tribunal upheld the Revenue’s decision to capitalize the foreign exchange loss related to interest on the loan for acquiring assets under section 43A, allowing depreciation at 15%. - Section 115JB: The Tribunal applied the same reasoning as in Issue 1, stating that section 43A cannot be imposed while making computation under section 115JB, and thus, the interest expense cannot be excluded from the book profit. Issue 3: Addition of interest on loan for acquiring fixed assets under normal computation and section 115JB of the Act - The Tribunal reiterated its stance from Issue 2, confirming that the interest payment must be capitalized under section 43A and cannot be excluded from book profit under section 115JB. However, the Tribunal remitted the issue back to the Assessing Officer to ensure the benefit of depreciation is granted if not already provided. Issue 4: Addition of provision for doubtful debts while arriving at book profits under section 115JB of the Act - The Tribunal found no infirmity in the Revenue’s disallowance of the provision for doubtful debts under both normal provisions and section 115JB. It cited Explanation I(c) & (i) to section 115JB, which mandates increasing book profit by the amount set aside for provisions for meeting liabilities other than ascertained liabilities and for diminishing the value of any asset. Issue 5: Determining the arm's length price of the international transaction relating to the commission paid for availing marketing services - The Tribunal noted the differing scope of transactions between the assessee and its two AEs. The Tribunal observed that the Revenue misunderstood the nature of transactions and thus remitted the matter back to the Transfer Pricing Officer (TPO) for fresh consideration. Conclusion: - The appeal was partly allowed for statistical purposes, with specific directions for the Assessing Officer and TPO to reconsider certain issues based on the Tribunal’s observations.
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