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2024 (5) TMI 535 - AT - Income TaxTP adjustment - rejection of assessee's contention by the DRP/AO to grant business volume discount adjustment and geographical difference adjustment while determining the Arms Length Price(ALP) - HELD THAT - As pointed out by the assessee and as conceded by the DR also, the assessee has been allowed business volume discount adjustment in Asst.Year 2006-07 by the ITAT. Similarly, it was pointed out to us that the ITAT in the case of the assessee in its order reported in 2012 (11) TMI 111 - ITAT AHMEDABAD had noted that the TPO himself had allowed adjustment of transaction of sales with AE on account of geography. Therefore, it is clear that the assessee has been allowed adjustment to the sale price to its AEs on account of volume discount and on account of geography of sale. Having said so, we consider it fit to restore this issue back to the TPO to re-adjudicate the issue after considering the facts placed before us by the assessee on the issue of quantity discount and geographical adjustment. Disallowance on account of prior period expenses - assessee was unable to establish that the expenses was crystalised in the impugned AY - as argued DRP ought to have allowed prior period expenses crystallized during the year claimed after netting off with prior period income - HELD THAT - ITAT 2022 (7) TMI 1497 - ITAT AHMEDABAD , in its order allowed the claim of prior period expenses following the decision of Adani Enterprise Ltd. 2016 (7) TMI 1250 - GUJARAT HIGH COURT holding that where the disallowance of prior period expenses is a tax neutral exercise, since the assessee has incurred year to year with the tax rate also being the same in the years, there is no reason to make any such disallowance of prior period expenses. The Tribunal had noted the fact that the assessee had been consistently debiting prior period expenses in the past also, and considering this fact, we hold that the disallowance of prior period expenses is not tenable and is directed to be deleted. Disallowance of expenses invoking provision of section 14A r/w rule 8D - nexus between borrowed funds and investments - HELD THAT - We hold that the following the decision of the Special Bench in the case of Vireet Investments P.Ltd. 2017 (6) TMI 1124 - ITAT DELHI the AO is directed to re-compute the disallowances of administrative expenses, considering only those investments, which have earned exempt income. Disallowance of bad debts claimed - claim of the irrecoverable amounts written off in the books - HELD THAT - We find merit in the contention of assessee, and do not consider it fit to restore the issue back to the AO for verification of the facts, whether the impugned amounts represent the business advances. The nomenclature /description of te amounts as deposit and the fact that they relate to several parties involving small amounts , therefore considering the materiality of the amount involved, it is not considered fit to seek verification of the fact by the AO noting that it is a very old appeal pertaining to A.Y 10- 11. Accepting, therefore, the fact that these advances were in the nature of business advance, and considering the decision of jurisdictional High Court in the case of Abdul Rasak Co. 1981 (2) TMI 27 - GUJARAT HIGH COURT we hold that the assessee be allowed claim as business loss in terms of section 28 of the Act. Assessee has not contested its original claim of these amounts written off being in nature of bad debts written off in terms of section 37(1) of the Act. Therefore, it is only the alternate claim of the assessee of the allowance of its amount in all to Rs. 6.51 lakhs out of the total claim of Rs. 17.15 lakhs, as business loss under section 28 of the Act, that is being allowed to the assessee. Disallowance on account of excess claim of depreciation - HELD THAT - As in order of the ITAT in the case of the assessee pertaining to Asst.Year 2009-10 2022 (7) TMI 1497 - ITAT AHMEDABAD and we find that identical issue was dealt wherein the Tribunal noted that the assessee has been disallowed excess claim of depreciation on account of depreciation thrust upon it in Asst.Year 2001-02 on asset, on which it had not claimed depreciation in the said year by the ITAT in Asst.Year 2006-07, 2008-09 and 2009-10 and even Asst.Year 2005-06. Further taking note of the admission of assessee that identical claim of excess depreciation has been disallowed in the preceding years by the ITAT, we have no hesitation in confirming the impugned disallowance of excess depreciation. Adjustment made to the book profits for disallowance on expenses made u/s 14A - HELD THAT - As decided in Vireet Investment P.Ltd. 2017 (6) TMI 1124 - ITAT DELHI as held that no adjustment to the book profits is permissible on account of disallowance of expenses made under section 14A of the Act in terms of provisions of section 115JB of the Act, we have no hesitation in deleting the disallowance made in the present case on identical facts. The AO is directed to delete the adjustment so made to the books profits on account of disallowance of expenses under section 14A.
Issues Involved:
1. Transfer Pricing Adjustment 2. Disallowance of Prior Period Expenses 3. Disallowance u/s 14A 4. Disallowance of Bad Debts 5. Disallowance of Excess Depreciation 6. Adjustment to Book Profits u/s 115JB 7. Reference to Transfer Pricing Officer Summary: 1. Transfer Pricing Adjustment: The assessee contested the transfer pricing adjustment made by the TPO amounting to Rs. 1,60,31,050/-. The primary contention was the rejection of adjustments for business volume discount and geographical differences. The ITAT referred to its previous decisions allowing such adjustments and restored the issue back to the TPO for re-adjudication after considering the facts presented by the assessee. 2. Disallowance of Prior Period Expenses: The AO disallowed prior period expenses of Rs. 59,49,105/- due to lack of evidence of crystallization in the impugned year. The ITAT, following its decisions in earlier years and the jurisdictional High Court's ruling, allowed the claim, noting it was a tax-neutral exercise. 3. Disallowance u/s 14A: The AO disallowed Rs. 37,03,505/- u/s 14A, comprising interest and administrative expenses. The ITAT directed deletion of interest disallowance, as the assessee had sufficient interest-free funds. For administrative expenses, the ITAT instructed the AO to re-compute disallowance considering only those investments that earned exempt income, following the Special Bench decision in Vireet Investments P.Ltd. 4. Disallowance of Bad Debts: The AO disallowed bad debts of Rs. 17,15,000/-. The assessee clarified that Rs. 10.64 lakhs related to Gujarat Synthwood Ltd. was not contested. The ITAT allowed the remaining Rs. 6.51 lakhs as business loss u/s 28, considering them as business advances, following the jurisdictional High Court's decision in Abdul Razak & Co. 5. Disallowance of Excess Depreciation: The AO disallowed Rs. 74,09,818/- as excess depreciation, considering depreciation thrust upon the assessee in AY 2001-02. The ITAT confirmed the disallowance, noting consistent decisions against the assessee in preceding years. 6. Adjustment to Book Profits u/s 115JB: The AO added disallowance u/s 14A to the book profits. The ITAT, following the Special Bench decision in Vireet Investments P.Ltd. and jurisdictional High Court rulings, directed deletion of this adjustment. 7. Reference to Transfer Pricing Officer: The assessee's grounds challenging the reference to the TPO were dismissed due to lack of arguments presented. Conclusion: The appeal was partly allowed for statistical purposes, with specific directions for re-adjudication and deletions as detailed above.
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