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2016 (12) TMI 454 - AT - Income TaxDeduction u/s 80IB disallowed for interest income on fixed deposit given as margin money towards loan/limit taken from the bank - Held that - Assessee has not substantiated his claim along with necessary evidences in order to demonstrate that interest income earned on fixed deposit are with regard to margin money. We are, therefore, of the view that the issue needs to be restored to the file of Assessing Officer to carry out necessary verification with the support of documentary evidences to be provided by assessee in order to prove that fixed deposits on which interest income has been shown are linked with margin money in order to enjoy secured loan/credit limits from banks. Needless to mention that proper opportunity of being heard may be given to the assessee. Accordingly, this ground of assessee is allowed for statistical purposes. Section 80IB deduction computation - whether gross interest or net interest is to be excluded from the profits for the purpose of calculating deduction? - Held that - Net amount is to be excluded from the profits for the purpose of computation of deduction u/s 80IB. See M/s ACG Associated Capsules Pvt. Ltd. 2012 (2) TMI 101 - SUPREME COURT OF INDIA Transfer pricing adjustment - ALP - applying operating profit margin being average of comparables selected - whetehr adjustment arising out of the Arm s Length Price (ALP) is to be restricted to only International Transactions with the Associated Enterprise instead of entire turnover of the assessee ? - Held that - Differential operating profit margin is to be applied only on the international transaction entered and not the total sales turnover. See CIT vs. Ratilal Becharlal & Sons 2015 (11) TMI 1524 - BOMBAY HIGH COURT We find that assessee has declared net operating profit margin of 3.73% during the course of assessment proceedings and thereafter has submitted a revised calculation of operating profit margin discussed above in para 28 and calculated at 4.51%. As against this ld. Assessing Officer made addition to the returned income of assessee by applying 7.27% operating profit margin being average of comparables selected by him which was sustained to 5.78% by ld. CIT(A). From going through these figures we find that the difference of operating profit margin at which the international transaction has actually been undertaken as against arm s length price determined by Assessing Officer is within tolerance range of ( ) 5% as provided in proviso to section 92C(2) of the Act. We are, therefore, of the view that in the given facts and circumstances, the price at which international transaction has actually been undertaken shall be deemed to be arm s length price and we accordingly set aside the order of ld. CIT(A) sustaining addition of ₹ 15,28,582/-, delete the impugned addition and allow the ground of assessee. Disallowing Managing Directors remuneration - Held that - The issue before us there has been no working on the part of Assessing Officer to justify the disallowance and to prove that remuneration paid to MD was excessive or unreasonable. We, therefore, set aside the order of ld. CIT(A) and allow the ground of assessee.
Issues Involved:
1. Reopening of assessment under section 147 of the Income Tax Act, 1961. 2. Deduction under section 80IB for interest on margin money deposit. 3. Exclusion of gross interest from profits for computing deduction under section 80IB. 4. Adjustment under section 92C r.w.s 92(1) for international transactions. 5. Disallowance of Managing Director's remuneration under section 40A(2). Detailed Analysis: 1. Reopening of Assessment under Section 147: The first ground concerning the reopening of assessment under section 147 was dismissed as not pressed by the assessee. 2. Deduction under Section 80IB for Interest on Margin Money Deposit: The assessee claimed deduction under section 80IB for interest on margin money deposit. The CIT(A) disallowed this claim, stating that the interest income was not derived from the industrial undertaking. The Tribunal referred to the judgment of the Bombay High Court in CIT vs. Jagdish Prasad M. Joshi, which held that interest on fixed deposits used for business purposes is eligible for deduction under section 80IA. However, the Tribunal noted that the assessee had not substantiated the claim with necessary evidence and restored the issue to the Assessing Officer (AO) for verification. 3. Exclusion of Gross Interest from Profits for Computing Deduction under Section 80IB: The assessee contested the CIT(A)'s decision to exclude the gross amount of interest from profits for computing deduction under section 80IB. The Tribunal referred to the Supreme Court's judgment in ACG Associated Capsules (P) Ltd. vs. CIT, which held that only the net amount of interest should be excluded from profits for calculating deductions. The Tribunal allowed the assessee's ground, directing that only the net interest be excluded. 4. Adjustment under Section 92C r.w.s 92(1) for International Transactions: The assessee challenged the CIT(A)'s confirmation of the AO's adjustment of international transactions, arguing that the AO had incorrectly computed the arm's length price (ALP) and ignored the provisions of section 92C(3). The Tribunal observed that the CIT(A) had accepted three comparables with an average operating margin of 5.78%, while the assessee's revised operating margin was 4.51%. The Tribunal held that the differential operating margin should be applied only to international transactions with the Associated Enterprise, not the total turnover, as per the Bombay High Court's ruling in CIT vs. Ratilal Becharlal & Sons. The Tribunal also noted that the difference in operating profit margin fell within the tolerance range of ±5% as provided in the proviso to section 92C(2). Consequently, the Tribunal set aside the CIT(A)'s order and deleted the addition. 5. Disallowance of Managing Director's Remuneration under Section 40A(2): The AO disallowed part of the Managing Director's (MD) remuneration, considering it unreasonable. The CIT(A) sustained the disallowance but directed the AO to verify the details. The Tribunal found that the AO had not provided any basis or comparable evidence to justify the disallowance. Referring to the Supreme Court's judgment in Upper India Publishing House (P) Ltd. vs. CIT and the Tribunal's decision in Jagdamba Rollers Flour Mill Ltd. vs. ACIT, the Tribunal held that the AO had not substantiated the claim that the remuneration was excessive or unreasonable. The Tribunal set aside the CIT(A)'s order and allowed the ground in favor of the assessee. Conclusion: The Tribunal partly allowed the assessee's appeal, addressing each issue comprehensively and providing detailed reasoning based on relevant legal precedents.
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