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2022 (8) TMI 35 - AT - Income TaxTP Adjustment - international transactions at Arm s-length - as per CIT-A operating margin earned by the assessee company is higher than the arithmetic mean of the margins of the comparable company and therefore the international transactions are at Arm s-length - HELD THAT - CIT- A has categorically, after including/excluded certain comparables computed the arithmetic mean of the comparable companies at 18.30%, compared with the margin of the assessee as computed by the TPO at 20.34% and as the margin of the assessee is higher than the margin of the comparables, he deleted the transfer pricing adjustment. Here, the learned assessing officer is not aggrieved with any of the comparables included or excluded by the learned CIT A. Therefore, we do not find any merit in any of the 2 grounds raised by AO, thus dismissed. Deduction u/s 10A - Whether loss of one eligible unit was required to be set off against the profit of the other eligible unit, and that the said loss could not be set off against the income computed under the head Profits Gains of Business or Profession ? - HELD THAT - As decided in M/S YOKOGAWA INDIA LTD. 2016 (12) TMI 881 - SUPREME COURT from reading provisions of section 10A it is more than clear that the deductions contemplated therein is qua the eligible undertaking of an assessee standing on its own and without reference to the other eligible or non-eligible units or undertakings of the assessee. Thus, it was held that though section 10A, as amended, is a provision for deduction, the stage of deduction would be while computing the gross total income of the eligible undertaking under Chapter IV and not at the stage of computation of the total income under Chapter VI. - Decided in favour of assessee. Correct head of income - treatment of lease rent received - whether chargeable to tax as income from house property as per AO or under the head business profit as per assessee - HELD THAT - As decided in the case of CIT Vs Shambu Investment Pvt. Ltd. 2001 (3) TMI 77 - CALCUTTA HIGH COURT has held as under Where prime object of the assessee under the agreement was to let out the portion of the said property to various occupants by giving them additional right of using the furniture and fixtures and other common facilities for which rent was being paid month by month. Income derived from the said property is an income from property and should be assessed as such.. Disallowance u/s 14A r.w.r. 8D - HELD THAT - AO has disallowed under Section 14A of the Act invoking the provisions of rule 8D which is not in existence for A.Y. 2005-06. Therefore, disallowance cannot be upheld, hence deleted. However, though the disallowance as per Rule 8D of the Rules is deleted but section 14A cannot be ignored. In earlier years for A.Y. 2002-03, 2004-05 and 2006-07 in assessee‟s own case 2015 (3) TMI 933 - ITAT MUMBAI the disallowance of ₹1 lacs upheld by the co-ordinate bench. Therefore, respectfully following the same, for this year also we uphold the disallowance of ₹1 lacs. Disallowance u/s 14A added while computing the book profit under Section 115JB - HELD THAT - We find that there is no relation of disallowance under Section 14A of the Act while computing the book profit u/s 115 JB of the Act. The reason being that explanation (1) of Section 115JB of the Act adjustment is to be worked out as clause (f) where the amount of expenditure in relation to any exempt income other than specified income is required to be added to the book profit. Therefore, there is a separate mechanism provided for adjustment to the book profit of this kind of expenditure. Identical issue has been decided by Special bench in case of ACIT vs. Vireet Investment Pvt. Ltd. 2017 (6) TMI 1124 - ITAT DELHI -Therefore, we hold that the lower authorities are not correct in adding notional expenditure as computed u/s 14A and increasing the book profit by that sum under Section 115JB of the Act. In the result, ground are allowed.
Issues Involved:
1. Computation of deduction under Section 10A. 2. Taxation of lease rent received. 3. Disallowance of depreciation on leased property. 4. Disallowance under Section 14A. 5. Transfer pricing adjustments. Detailed Analysis: 1. Computation of Deduction under Section 10A: The assessee contended that the loss of one eligible unit should not be set off against the profit of another eligible unit while computing the deduction under Section 10A. This issue was resolved in favor of the assessee based on the Supreme Court decision in CIT v. Yokogawa India Ltd., which clarified that the deduction under Section 10A is to be computed independently for each eligible unit without reference to other units. 2. Taxation of Lease Rent Received: The assessee argued that the lease rent received should be taxed under "Profits & Gains of Business or Profession" instead of "Income from House Property." The tribunal upheld the lower authorities' decision, citing the assessee's own case from earlier years, where it was consistently held that the lease rent income should be taxed under "Income from House Property." The tribunal dismissed the assessee's grounds on this issue. 3. Disallowance of Depreciation on Leased Property: The assessee claimed depreciation on the leased property, which was disallowed by the Assessing Officer and confirmed by the CIT(A). The tribunal, following the precedent set in the assessee's own case in earlier years, upheld the disallowance of depreciation, reiterating that the income from the leased property is to be taxed under "Income from House Property." 4. Disallowance under Section 14A: The Assessing Officer made a disallowance under Section 14A amounting to ?3,82,733/- based on Rule 8D, which was not applicable for the assessment year 2005-06. The tribunal deleted the disallowance under Rule 8D but upheld a disallowance of ?1 lakh, consistent with the disallowance made in the assessee's earlier years. 5. Transfer Pricing Adjustments: The CIT(A) had deleted the transfer pricing adjustment made by the Assessing Officer, concluding that the operating margin of the assessee was higher than the arithmetic mean of the margins of comparable companies. The tribunal found no merit in the Assessing Officer's appeal, as there was no grievance regarding the comparables included or excluded by the CIT(A). Hence, the tribunal dismissed the grounds raised by the Assessing Officer on this issue. Conclusion: - The tribunal allowed the assessee's appeal regarding the computation of deduction under Section 10A. - The tribunal dismissed the assessee's appeal concerning the taxation of lease rent and disallowance of depreciation. - The tribunal partly allowed the assessee's appeal on the disallowance under Section 14A, reducing it to ?1 lakh. - The tribunal dismissed the Assessing Officer's appeal on transfer pricing adjustments. - The assessee's cross-objections were dismissed as academic. Final Order: The assessee's appeal was partly allowed, the Assessing Officer's appeal was dismissed, and the cross-objections filed by the assessee were dismissed as academic.
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