2019 (11) TMI 864 - AT - Income Tax

TP Adjustment - admit the additional evidence - HELD THAT - Following the decision of the Tribunal in assessee s own case for the immediately preceding two assessment years, we admit the additional evidence filed by the assessee in the form of affidavit and restore the issue to the file of the A.O./TPO to determine the ALP of the commission paid by the assessee, after considering the affidavit of Mr. Ernst Huber, Director, Taratec SA, Switzerland and in the light of the decision of the Tribunal in assessee s own case in the immediately two preceding assessment years. The appeals filed by the Revenue for all the three years are accordingly allowed for statistical purposes. Disallowance u/s 14A r.w. Rule 8D - HELD THAT - In view of the decision of the Hon'ble Delhi High Court in the case of Holcim India Ltd. 2014 (9) TMI 434 - DELHI HIGH COURT where it has been held that no disallowance u/s 14A r.w. Rule 8D can be made when the assessee has not received any exempt income during the year, we uphold the order of the CIT(A) and the ground raised by the Revenue is dismissed. Disallowance u/s 14A r.w. Rule 8D - HELD THAT - There is no satisfaction of the Assessing Officer in the instant case. He had categorically asked the assessee and the assessee has computed such disallowance as per the provisions of section 14A r.w. Rule 8D of the Act. We, therefore, do not find any infirmity in the order of the Assessing Officer in making a disallowance of ₹ 5,50,945/-. The ld.CIT(A) has rightly disallowed the same. We, therefore, uphold the action of the CIT(A) in sustaining the addition of ₹ 5,50,945/-. So far as assessment year 2009-10 is concerned, it is seen from the computation statement filed at page 96 of the paper book that the actual dividend received by the assessee during the year is ₹ 4,21,566/- only. It has been held in various decisions that the disallowance u/s 14A r.w. Rule 8D cannot exceed the actual exempt income received. We, therefore, modify the order of the CIT(A) and direct the Assessing Officer to restrict the disallowance u/s 14A r.w. Rule 8D to the actual dividend income received during the year. The ground raised by the assessee for the A.Y. 2008-09 is accordingly dismissed and the ground raised for the A.Y. 2009-10 is partly allowed. Disallowance on account of club membership and club service charges - AO disallowed on the ground that the assessee did not file any reply on this issue - CIT(A) upheld the action of the Assessing Officer on the ground that the assessee, during the assessment proceedings as well as the appeal proceedings has not filed any evidence in support of the claim of expenses - HELD THAT - Considering the totality of the facts and in the interest of justice, we deem it proper to restore the issue to the file of the Assessing Officer with a direction to give one final opportunity to the assessee to substantiate the claim of expenses on account of club membership and club service charges. This ground raised by the assessee for assessment year 2009-10 is accordingly allowed.

Summary

Issues Involved:
1. Transfer Pricing Adjustment
2. Disallowance under Section 14A read with Rule 8D
3. Disallowance of Club Membership and Service Charges

Detailed Analysis:

1. Transfer Pricing Adjustment:
The first issue raised by the Revenue pertains to the deletion of additions on account of transfer pricing adjustments for the assessment years 2007-08, 2008-09, and 2009-10. The Assessing Officer (AO) had referred the matter to the Transfer Pricing Officer (TPO), who proposed upward adjustments. The CIT(A) deleted these adjustments, agreeing with the assessee's use of the Transactional Net Margin Method (TNMM) for benchmarking. The CIT(A) noted that the TPO had not properly analyzed the comparability of products and rejected the entire documentation based on product dissimilarity without considering the broad similarity of functions, assets, and risks. The CIT(A) also found that the TPO failed to adjust for commission payments when applying the Comparable Uncontrolled Price (CUP) method. The Tribunal, following its previous decisions, admitted additional evidence and restored the issue to the AO/TPO for reconsideration, directing them to determine the Arm's Length Price (ALP) of the commission paid after considering the additional evidence.

2. Disallowance under Section 14A read with Rule 8D:
The second issue involves the disallowance of expenses under Section 14A read with Rule 8D. For the assessment year 2007-08, the AO disallowed ?12,84,473/- which was deleted by the CIT(A) on the ground that the assessee had not received any exempt income during the year, relying on the Delhi High Court's decisions in Cheminvest Ltd. vs. CIT and CIT vs. Holcim India Ltd. The Tribunal upheld the CIT(A)'s decision, dismissing the Revenue's appeal.

For the assessment years 2008-09 and 2009-10, the AO disallowed ?5,50,945/- and ?11,81,011/- respectively. The CIT(A) upheld these disallowances, noting that the investments were not static and administrative and financial expenditures were likely incurred. The Tribunal found merit in the AO's and CIT(A)'s findings but modified the disallowance for the assessment year 2009-10 to restrict it to the actual dividend income received, which was ?4,21,566/-. The Tribunal dismissed the assessee's appeal for 2008-09 and partly allowed the appeal for 2009-10.

3. Disallowance of Club Membership and Service Charges:
The third issue for the assessment year 2009-10 involved the disallowance of ?27,919/- on account of club membership and service charges. The AO disallowed the amount due to lack of evidence from the assessee, and the CIT(A) upheld this decision. The Tribunal, considering the assessee's submission that it could substantiate its claim if given an opportunity, restored the issue to the AO for reconsideration, directing the AO to provide the assessee with a final opportunity to substantiate its claim.

Conclusion:
The Tribunal allowed the Revenue's appeals for statistical purposes, dismissed the assessee's appeal for the assessment year 2008-09, and partly allowed the appeal for the assessment year 2009-10. The decision was pronounced in the open court on 13.11.2019.