9911796707
|
Home
Forgot password New User/ Regiser ⇒ Register to get Live Demo
2019 (2) TMI 1067 - AT - Income TaxAddition u/s 41(1) - cessation of liability towards payment of sundry creditors - Held that - Addition u/s 41(1) of the Act has been made by the AO without any cogent reason. No case has been made out that the AO has made any enquiry and found that these creditors are not payable. Just because the creditors are outstanding for more than three years, there is no universal rule that the balance has to date back under section 41(1) of the Act. We further note that similar addition in earlier was deleted by the ITAT. Accordingly we do not find any infirmity in the order of the CIT(A). Disallowance u/s 14A r.w. Rule 8D - Consequential effect u/s 115JB is also prayed - Held that - As regards the first plea of the ld. Counsel of the assessee that in prior years, disallowance was restricted to 10%, hence, the same can be accepted. We note that this plea is not sustainable. In view of the applicability of Rule 8D, the applicability of which for the current assessment year is upheld in the case of Godrej & Boyce vs. CIT 2010 (8) TMI 77 - BOMBAY HIGH COURT . As regards contention of the assessee that no disallowance should be made for interest, as the assessee has sufficient interest free funds, we note that the submission of the assessee has considerable cogency in view of the Hon ble Jurisdictional High Court decision relied upon. Hence, we remit this issue to the file of the A.O. to examine the veracity of the submission and thereafter decide as per the decision of the Hon ble Jurisdictional High Court as above. As regards the submission of the assessee that disallowance u/s. 14A should be restricted to the amount of the exempt income during the year, is also acceptable in view of the case laws relied herein above. The A.O. is directed to follow the proposition as above. As regards the other contention of the ld. Counsel of the assessee that for the purpose of disallowance u/s.14A, for the purpose of computing the average value of investment, only those investment should be computed on which exempt income is earned, is sustainable in view of the Special Bench decision in the case of ACIT v. Vireet Investments Private Limited 2017 (6) TMI 1124 - ITAT DELHI as above. The A.O. is directed to follow the same. Disallowance for earning exempt income u/s.115JB, we note that the Special Bench of the ITAT in the above case law has expounded that the disallowance cannot be made u/s. 14A. The disallowance should be made by the A.O. in accordance with the provision of clause (f) of section 115JB of the Act. The A.O. is directed accordingly. TP adjustment made by TPO to the extent of 3% of the amount of guarantee given by the assessee on behalf of AE s - Held that - As relying on assessee s own case for previous years disallowance of 0.53% for guarantee commission on all the guarantee given serves the purpose. MAM selection - TPO applying CUP method instead of TNMM used by the assessee - Held that - assessee is correct in placing reliance upon the Hon ble Jurisdictional High Court decision in the case of Pr. CIT vs. Amphenol Interconnect India P. Ltd. 2018 (3) TMI 536 - BOMBAY HIGH COURT that geographical difference, volume difference are also to be considered in making the comparison in similar cases. The TPO is totally wrong in holding that these matters are of academic interest only. Hence, without factoring in the difference in FAR, the comparison done by the TPO is not sustainable. In the background of the aforesaid discussion and precedent, we uphold the order of the ld. CIT(A) that there is no proper reason to apply CUP method, instead of that consistently applied earlier method of TNMM, as the most appropriate method (MAM). Addition being R & D expenses allocated to Baddi & Solan Unit of the assessee - Held that - We find that the ITAT in assessee s own case for A.Y. 2009-20 has restored identical issue to the file of the AO to give finding as to the utilization of R & D expenditure with respect to these units. In this view of the matter, in our considered opinion, the doctrine of stare decisis mandates that we follow the ITAT s order of earlier year. Accordingly, following the same finding of the ITAT in the earlier year we remit the issue to the file of the AO with direction to the AO to decide the issue after granting reasonable opportunity of hearing to the assessee. Addition being interest expenditure allocated to Baddi & Solan units on the basis of sales turnover ratio, while computing deduction u/s 80IC - Held that - Upon careful consideration, we find that the factual details submitted corroborate that the baddi unit had huge accumulated profit. In fact, its operational cash flow is being used by the head office. In the balance sheet, the debit balance of Head Office account is ₹ 2,470,281,148/- as on 31.03.2010. There is no borrowing secured or unsecured for this unit. In fact, the balance sheet shows that the unit has huge reserve and surplus amounting to ₹ 3,920,730,627/- covering the entire assets of the unit. Thus when no loan is there for baddi unit and the unit is generating huge profits, the case law relied by the ld. Counsel of the assessee duly support the proposition that only the interest expenses which have direct nexus in earning the income of the tax exempt unit should be considered. Since the documentary evidence duly support the plea that there is no direct nexus between the expenses allocated by the A.O. to the unit, we do not find any infirmity in the order of the ld. CIT(A) in this regard. - Appeal filed by the Revenue stands partly allowed for statistical purpose.
Issues Involved:
1. Addition under Section 41(1) of the Income Tax Act, 1961. 2. Disallowance under Section 14A read with Rule 8D. 3. Transfer Pricing (TP) adjustment related to guarantee commission. 4. TP adjustment by applying CUP method instead of TNMM. 5. Allocation of R&D expenses to Baddi & Solan Units. 6. Allocation of interest expenditure to Baddi & Solan Units under Section 80IC. Issue-wise Detailed Analysis: 1. Addition under Section 41(1) of the Income Tax Act, 1961: The Assessing Officer (AO) disallowed ?5,64,498/- on the ground that some creditors were outstanding for more than three years, implying cessation of liability. The CIT(A) deleted this addition, referencing similar deletions in previous years by the ITAT. The Tribunal upheld the CIT(A)'s decision, noting the AO made the addition without cogent reasons or proper inquiry, and there is no universal rule that balances outstanding for more than three years must date back under Section 41(1). 2. Disallowance under Section 14A read with Rule 8D: The AO made a disallowance of ?7,23,91,578/- under Section 14A, rejecting the assessee's claim that investments were strategic and funded by own resources. The CIT(A) restricted the disallowance to ?26.11 lakhs, citing ITAT decisions that investments in subsidiaries for control purposes should not attract disallowance. The Tribunal agreed with the CIT(A) on interest disallowance, directing the AO to verify the sufficiency of own funds and restrict disallowance to the amount of exempt income earned during the year. 3. Transfer Pricing (TP) adjustment related to guarantee commission: The TPO made an adjustment of ?17,10,92,000/- by applying a 3% guarantee commission rate. The CIT(A) upheld the assessee's charge of 0.53% as reasonable, referencing ITAT decisions in the assessee's own case. The Tribunal followed previous decisions, directing that a 0.53% guarantee commission rate be applied to all guarantees. 4. TP adjustment by applying CUP method instead of TNMM: The TPO applied the CUP method, resulting in an adjustment of ?1,17,11,449/-, rejecting the TNMM method used by the assessee. The CIT(A) deleted this adjustment, noting geographical and quantity differences in transactions. The Tribunal upheld the CIT(A)'s decision, emphasizing the need for consistency in applying the TNMM method unless there is a change in facts or law. 5. Allocation of R&D expenses to Baddi & Solan Units: The AO allocated ?10,04,36,556/- of R&D expenses to Baddi & Solan Units, which the assessee argued should not be allocated as they were incurred at separate R&D centers. The CIT(A) deleted the allocation, citing a lack of evidence that the R&D expenses benefitted the units. The Tribunal remitted the issue back to the AO to follow the ITAT's previous year's direction to examine the utilization of R&D expenses. 6. Allocation of interest expenditure to Baddi & Solan Units under Section 80IC: The AO allocated ?11,88,53,122/- of interest expenses to Baddi & Solan Units based on sales turnover. The CIT(A) deleted this allocation, noting the Baddi unit had significant accumulated profits and no direct nexus between borrowed funds and the unit's operations. The Tribunal upheld the CIT(A)'s decision, agreeing that only interest expenses with a direct nexus to the unit's income should be considered. Conclusion: The Tribunal partly allowed the Revenue's appeal for statistical purposes, upholding the CIT(A)'s decisions on most issues but remitting the R&D expense allocation issue back to the AO for further examination. The order was pronounced in the open court on 1st February 2019.
|
