9911796707
TMI Blog2012 (11) TMI 111X X X X Extracts X X X X X X X X Extracts X X X X ..... e to host of factors. The intent and purpose of these provisions is not to ensure that there is no diminution in the tax liability of Indian Enterprise as well as its AE on a total basis. Rather the logic is to make certain that the transactions between the AE should not be arranged in such a way that the ultimate tax payable in India is artificially reduced. Important factor is the payment of tax qua India and not qua the assessee along with its AE on a whole. Therefore, rejecting the submission of assessee as devoid of any merit that there was no force in this argument of establishing a tax avoidance motive by the Revenue Department. Reference to TPO without providing an opportunity of hearing - Held that:- Decision of the AO to refer the international transaction to TPO for determination of ALP do not in any manner visit the assessee with any civil consequence. A safe-guard has already been provided in the Statute by making a compulsory provision about seeking of prior approval from the CIT by the AO. It was held that there should not be any grievance to the assessee because the TPO had given due opportunity to the assessee. We therefore hold that in the absence of any Statutory ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the year under consideration. How it was termed as an income of earlier years if it was earned during the year under consideration. Since all such information is not available on record, therefore the natural justice demands to restore this issue back to the stage of the AO to be decided. Disallowance u/s.14A - Held that:- Under Section 14A(1) it is for the Assessing Officer to determine as to whether the assessee had incurred any expenditure in relation to the earning of income which does not form part of the total income under the Act and if so to quantify the extent of the disallowance after furnishing an opportunity to the assessee - remand the proceedings back to the AO for a fresh determination the fact of the present case was that the Assessing Officer had not enquired the issue in the light of applicability of Rule 8D. Disallowance in respect of irrecoverable balance written off - Held that:- The description of the equipment, the use of the equipment and the details about the advance given to the said party was not informed. Rather, it appeared that the assessee wanted to acquire a capital asset, as held by the AO, therefore the expenditure or advance being related to an ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s. 144C dated 22.10.2010. 2. Ground-wise decision is as under. Ground Nos.1 to 6 :- 1. Learned AO/DRP has erred in law and on facts in adding Rs.4,46,52,496/- on account of adjustments to the Arm's length price without there being any jurisdiction as well as legal and factual basis for the same. 2. Learned AO has erred in law and on facts in referring the case of the appellant to the transfer pricing officer. Under the facts and circumstances of the case, there was no reasons to interfere with the pricing adopted by the appellant as the same is falling within the parameters of transfer pricing laid down under the scheme of the Act. 3. Alternatively and without prejudice, the order of the Additional Commissioner of Income Tax acting as Transfer Pricing Officer is without jurisdiction and against the express provisions of law in as much as Commissioner of Income Tax could not have acted as transfer pricing officer. 4. The learned assessing officer has erred in law and on facts in invoking the provisions of Chapter X without prima facie demonstrating that there was some tax avoidance. 5. The learned assessing officer has erred in law and on facts in making a reference to t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ancy in the nature of sale of product code 111108 (product name Novatic Brown R Pure) to non AE parties was through oversight shown as sale of product code 110308 (product name Novatic Olive R Pure). A certificated dated 6th August 2011 of M/s.Ghanshyam Parekh & Co., Chartered Accountants with the sale Invoices in support of the above contention are annexed herewith for appreciation of the Hon'ble Bench." 3.1 The ITAT Bench has considered the petition and thereafter vide an order sheet entry dated 25.01.2012 has decided that the additional evidences as mentioned at Serial no. 1 & 2. are to be admitted , but the additional evidence at Serial No. 3 was not allowed to be admitted. With this back ground now we shall proceed to decide the controversies raised in this appeal. 4. Before us in respect of the above grounds the Appellant has primarily raised the objections about the stand taken by the T.P.O. in respect of the following two additions:- (a) Upward adjustment in respect of the goods sold by the assessee to 'AE' at lower price as compared to the third party, the upward adjustment of ….. Rs.1,74,69,516/- (b) Commission received from M/s. Atul Europe Ltd. ($ 1,54,53 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l comparable uncontrolled price for all the products exported to the A.E.'s. Hence for the purpose of determination of Arm's Length Price it was asked to furnish the comparable transaction for bench-marking. 4.4 The assessee has furnished the details of the products sold and also furnished the internal & external uncontrolled prices which were stated to be available to the assessee. The assessee had asked for the adjustments namely; (a) difference in application, (b) quantity discount, (c) marketing risk, (d) financial risk. The adjustments claimed by the assessee were listed by the TPO as under :- "(i) The assessee has claimed 100% adjustments in prices for issue of difference in applications. (ii) The assessee has claimed quantity discount of 2% and 5%. (iii) The assessee has claimed adjustment for marketing risk at 5% and for financial risk at 2%. (iv) The assessee has claimed adjustment in price due to long term contract at 11%. (v) The assessee has claimed price difference of 30-50% due to lower price prevailing in China market." 4.5 It is worth mentioning that the TPO has accepted the adjustment mentioned in column no. iii) , iv) and v) i.e. adjustment for marketing ri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o these 4 products regarding upward quantity adjustment is rejected." 4.8 Finally the TPO has concluded that the upward adjustment as offered by the assessee of Rs. 1,09,80,062/- was to be increased to Rs. 1,74,69,516/-. To arrive at this figure there are Annexures to the said order as 'Annexure A to D' in relation to all the four Associate Enterprises, summarised as under :- Annexure "A" Rs. 1,11,28,585/- Annexure "B" Rs. 40,46,606/- Annexure "C" Rs. 42,62,272/- Annexure "D" Rs. 18,68,053/- Total Rs. 1,74,69,516/- 5. The matter was referred to Dispute Resolution Panel (in short DRP) and for the sake of completeness the relevant observations shall only be discussed. The chief objection of the assessee was that the over-all sale-price charged from the A.E. was more than comparing the Non-A.E. So it was pleaded that no adjustment was needed as the said International Transaction was at ALP. Secondly, it was urged that no profit was shifted from India to outside country, rather the over-all profit was retained in India by charging on the whole more price. Thirdly, it was also argued that there was no motive or incentive in shifting such an amount because the assessee is an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ong-with the A.E. The rationale behind the T.P. provisions is to curtail the avoidance of tax in India. Intent and purpose is to ensure that there is no diminution in the tax liability of an Indian Enterprise. How much tax is paid by the foreign A.E. is not relevant in the determination of correct tax liability in the hands of an Indian Enterprise. The payment of tax by A.E. abroad does not contribute anything to Indian exchequer. So it is wrong to argue that the tax liability of an Indian Enterprise is to be seen along-with the abroad tax liability of A.E. on a total basis. For this legal proposition the case law relied upon was Gharda Chemicals Ltd. 5.4 On the question of proposed adjustments of slae-price the comment of the Ld. DRP was that if a product has been manufactured and sold using similar functional analysis , by taking into consideration the Assets and the Risks assumed, then no adjustment could be allowed on account of any non-economic indicator. No such adjustment is envisaged in 10 B except where the assessee is able to show that the transaction entered into with the parties could materially affect the price in the open market. According to DRP no such proof had be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nce the amount which was overcharged was higher in figure, therefore the net amount was in the minus figure. Thus showing that there was no requirement of any adjustment since ultimate result of all the transaction was that there was no transfer of profit by charging less from the AEs. 5.7 He has also drawn our attention on OECD guidelines which were narrated to the Revenue Authorities and the extract of the same is as under:- "In this context, we rely on the clause (d) of Rule 10A of the income tax rules 1962 which permits aggregation of individual transactions for determination and application of arm's length price. Rule 10A(d) defines the transaction as follows: For the purposes of this rule and rules 10B to 10E. (a) uncontrolled transaction means a transaction between enterprises other than associated enterprises, whether resident or non-resident. (b) Property includes goods, articles or things and intangible property. (c) Services include financial services. (d) Transaction includes a number of closely linked transactions We also draw your honor's kind attention to paragraph 1.42 to OECD Guidelines which expressly advocates the principle of aggregation in the cases ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f adjustment in respect of marketing risk and lower price prevailing in China market as also adjustment in price due to long term contract at 11%, but not allowed "difference in application" and "quantity discount". The adjustments as made by the TPO in annexure ABC & D are hypothetical and without any basis. 5.9 Ld.AR has vehemently contested that it was wrong on the part of the AO as well as TPO that the assessee himself has offered upward transfer pricing adjustment of Rs.1,09,80,061/-. He has informed that the amount was not offered but it was compared with the transactions with 4 AEs where the assessee has overcharged. He has argued that there was no "under charge" of sale price as alleged by the TPO because the price was fixed after considering several factors as prescribed under law. If those factors are to be taken into account and to be adjusted against the alleged under charged sale price, then there would be no difference in the sale price. 5.10 Ld.AR has persuasively drawn our attention on the provisions of Rule 10A(d) of IT Rules, 1962 which prescribes that for the purpose of Rule 10B to 10E the term "transactions" includes number of closely linked transactions. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sale transaction to non-AE. He has pleaded that the assessee has therefore considered the products as a closely linked transaction for the purpose of comparability in accordance with the provisions of rule 10A(d), but it was an incorrect understanding of the said sub-section. Even under Rule 10B(1), the sub-rule(ii) says that the price is to be adjusted between the international transaction and the comparable uncontrolled transactions. The term used is "transaction" has significance because each transaction is to be compared which would materially effect the price in the open market. The ld. DR has argued that one of the criterion of comparability is the "Specific characteristics" of the property being transferred. Thus the aggregation is required to be carried out to such an extent that the specific characteristics of the property are not changed significantly, otherwise the aggregated transactions would no longer remain comparable. In this context, it is seen that the aggregation adopted by the assessee in TP report and accepted by the TPO is carried out in respect of all the transactions pertaining to a single product. For such aggregation the "characteristics" of the product be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rice is required to be determined for each international transaction as defined in section 92(1) of the IT Act where in the section talks about "an" international transaction. By aggregating the transactions of different products, the non-arm's length nature of one transaction is masked by the price of other, which is clearly not as per the provisions of Indian law. In this respect reliance is also placed on the judgment delivered by ITAT, Mumbai in the ACIT v. Tara Ultimo Pvt. Ltd. 5.16 Ld.DR has also undertook to counter an another argument of Ld. AR where he has referred an OECD guideline wherein it was opined that there are often situations where separate transactions are so closely linked or continuous that they cannot be evaluated adequately on a separate basis. According to him, ALP is required to be computed on a transaction-by-transaction basis. An aggregation is only required when a transaction cannot be evaluated on a separate basis. He has quoted Aztech Software and technology Services Ltd. 107 ITD 141 (Bangalore)(SB) for the legal proposition that the assessee is required to place on record relevant material to justify the comparable transactions before the Revenue Au ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dertaken with unrelated enterprises by the assessee company were internally compared. It is worth to comment, which shall have a bearing in our decision hereinbelow, that those were somewhat similar transactions, but neither the same transaction nor identical transactions. There is no dispute that the most appropriate method selected by the assessee was the CUP method thus fulfilled the requirement of Rule 10C of I.T. Rules. The accepted policy is that under CUP method, the arm's length price for the transfer of tangible property being transacted between the related parties is to be determined by the price paid for the same or similar property in a transaction between unrelated parties. A little more to elaborate, so that the issue raised can be decided with in this parameter, a transaction is considered comparable only if both the tangible property, i.e. the product for sale, and the circumstances surrounding the controlled transaction, are substantially the same as those of the uncontrolled transaction. So the comparability depends upon the quality of the product, the volume of the sale, the market level, the geographical conditions, the date, other realistic factors governing th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... -AE. Annexure 'A' suggested the maximum upward adjustment of Rs.1,11,28,585/-. We have studied this annexure. There are four Divisions covered in 'A' Anx. We have further noticed that the maximum difference is in respect of a Product (110308) . The quantity sold to A.E. of this product was 9,259 Kg. but to Non A.E. quantity sold was 17,820 Kg. The FOB per Kg. rate was for A.E. at Rs.664.47 but rate charged from Non-A.E. was at Rs. 1,778.79. This was the basic reason of objection raised by the TPO. Since the rate per charged from the Non-A.E. was higher for the same product therefore it was objected that why the same was not charged from the assessee's subsidiaries. 5.19 On the other hand, from the side of the assessee, a summary of comparative data for the sales made to AE and non-AE have also been furnished by the assessee as well. These details are from pages 95 to 105. In some of the cases, the overall result after the adjustment was that there was no adjustment required. Right now, we are concentrating on one product, i.e. product code number '110308'. In the foregoing paragraph, we have noted that for this product the TPO had made the maximum adjustment. The calculation of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ment in price for 'difference in application'. The claim of the assessee was that the clients use the product purchased differently as per their business requirement. It was argued that the products sold to different parties are being used differently by them. It was explained that a chemical can be utilized in different manner. Like-wise aromatics or colors were used in plastic paints as also can be used in auto paint. So the argument is that considering the application of a product, the price was fixed by the assessee, which was the cause of variation. We are not convinced by this proposal. The end use of a product by the buyer has no relevance in fixation of sale price. How a manufacturing company, like assessee, can alter the price of a manufactured product on the basis of it's utilization by a buyer. For e.g. a car is manufactured by an automobile manufacturer . Can the price of a car be different if used for private use, than the price of the identical vehicle used for commercial purpose, i.e. taxi etc. Naturally it is not probable. A manufacturer produces a commodity and sale the same in the market at the price fixed without even knowing about the product's usage by the buye ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is otherwise prevalent in the market and can be said to be a common market practice. But before claiming this adjustment the assessee must be fair in not claiming this adjustment on such sale transaction to A.Es. which are apparently lower than the sales to Non-A.E. Rather bulk- purchases by the A.Es. are only required to be taken into account for this adjustment. We direct accordingly. 5.20 We have given our thoughtful consideration on the argument advanced by both the sides on the application of principle of aggregation. In this regard, a reference of Rule 10A(d) was made. This sub-clause has defined the term "transaction" which includes a number of closely linked transaction. In our opinion, the closely linked transaction are those transaction where they cannot be segregated and if segregated, then such transaction cannot be evaluated adequately on a separate basis. There is a situation where a long term contract for a supply of commodity or for rendering the service has been entered into between the parties. If the term of the said contract spill over on number of transactions, then naturally all those transactions are required to be aggregated, so that the evaluation can be m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n cannot be compared with the product manufactured in other division. Rather, we have noted that there is a contradiction in the argument of ld.AR. Ld.AR has argued at one point of time that an adjustment is required on account of difference in application. In other words, the AR has admitted that the different products have different end-use. Whether such products can be considered as closely linked products is a question mark?. Rather, it is justifiable to hold, considering the FAR analysis of the case, that the arm's length price is required to be determined on a transaction-by-transaction basis. An aggregation, as suggested, is to be ruled out when ALP can be more accurately determined or evaluated on a separate basis. 5.22 From the side of the Revenue, Ld. DR Mr. Anurag Sharma has pleaded that the aggregation is suggested where the taxpayer's transactions are combined due to the adoption of 'portfolio-approach'. He has explained that a 'portfolio-approach' is a business strategy. It consisted of bundling of transactions. It is a business planning for the purpose of earning an appropriate return across the portfolio, rather than on any single product within the portfolio. This ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t the outset, we hereby place reliance on Azetc Software & Technology Services Ltd. v. Asst. CIT reported at [2007] 107 ITD 141 (Bang) (SB), wherein vide para 16 the Respected Tribunal has opined that as per the mandate of section 92(1), income from International transaction between AEs has to be computed having regard to arm's length price. Therefore, question of tax avoidance is to be established by following mandatory provisions. In the opinion of the Respected Bench, the language used by the legislature is plain and ambiguous and there is nothing in the language employed by the legislature on the basis of which it can be said that AO must demonstrate the avoidance of tax before invoking these provisions. Even in the case of Cocacola India Inc. 309 ITR 194 (P&H) the Hon'ble Court has expressed that there is no merit in the contention that the provisions of Chapter-X could not be made applicable to parties which are subject to jurisdiction of taxing authorities in India without demonstrating that there was tax avoidance motive. Even in the case of Tara Ultimo Pvt. Ltd. (supra) the view expressed in the case of Aztec Software (supra) was affirmed wherein it was held that it is not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that there should not be any grievance to the assessee because the TPO had given due opportunity to the assessee. We therefore hold that in the absence of any Statutory provision or a mandate of requirement of giving an opportunity before reference do not adversely affect a taxpayer because the TPO has definitely given sufficient opportunity to the assessee. Finally, in the result, this ground no. 1 along with the sub-grounds of the Assessee are restored back to the file of AO to re-compute the ALP as per the direction given hereinabove, however some of the contentions are rejected, therefore may be treated as partly allowed but for statistical purposes. 5.26 The TPO had also made an upward adjustment of Rs. 2,71,82,980/- on account of commission transaction. In this regard, at the outset, assessee has raised an additional ground (supra - i.e. para 2.1) and agitated that a reference was made by the AO only in respect of goods sold to AE, however there was no reference in respect of commission transaction, hence the upward adjustment as suggested by the TPO for upward adjustment of commission receipt is without jurisdiction. Therefore, in the additional ground, it is submitted tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ile reading the order of the Hon'ble Delhi High Court (supra) in the case of Amadeus India (P) Ltd. we have noted that it was also pronounced that the assessment is an exclusive jurisdiction of the AO. In the present case, the AO was handicapped about this information being not reported in Form 3CEB. Therefore, at the time of reference the AO could not know whether there was a cross-order transaction between the assessee and the AE of commission payment. In this regard, from the side of the Revenue ld. DR Mr. Sharma had referred CBDT Instruction No. 3 of 2003 which says that, quote "….. In order to make a reference to the TPO, the Assessing Officer has to satisfy himself that the taxpayer has entered into an international transaction with an associated enterprise. One of the sources form which the factual information regarding international transaction can be gathered is Form No. 2CEB filed with the return which is in the nature of an account's report containing basic details of an international transaction entered into by the taxpayer during the year and the associated enterprise with which such transaction is entered into, the nature of documents maintained and the method ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t of the order under sub-section (3), the Assessing Officer shall proceed to compute the total income of the assessee under sub-section (4) of section 92C in conformity with the arm's length price as so determined by the Transfer Pricing Officer. The argument is that the AO shall compute the income in conformity with the arm's length price as determined by the AO, but if part of the TPO's adjustment is void ab initio, then that part ought not to be taken into account for the computation of total income. Ld. AR Mr. Soparkar has vehemently pleaded that such an exercise of computing the total income by taking into account an illegal procedure must not be approved and deserves to be held as void ab initio. In the present situation, as discussed hereinabove, specially when there was a non-disclosure on the part of the assessee, we are of the considered opinion that in terms of the provisions of section 92C(3) the AO is fully empowered to proceed to determine an international transaction which had come to his knowledge on the basis of any material or document available with him. Rather, sub-section (3) has apprehended certain situations where the document relating to an international tra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he assessee has an opportunity of hearing. The AO is thereafter shall in conformity with the directions of the DRP complete the assessment proceedings. Only under sub-section 13 of section 144C of the Act, such direction are binding upon the assessee. So the existence of an international transaction can be examined by the DRP at the instance of the assessee. The Court has said that there is nothing to limit the powers of DRP. Therefore, finally the conclusion was drawn in favour of the Revenue because the assessee had more than one opportunity of hearing to contest an impugned addition. The Hon'ble Court has placed reliance on a decision of Hon'ble Delhi High Court pronounced in the case of Soni India Pvt. Ltd. 288 ITR 52 (Delhi). 5.28 On the basis of the decision of Hon'ble Jurisdictional High Court, discussed hereinabove in the case of M/s. Veer Gems, we hereby hold that the AO within his jurisdiction and in terms of the provisions of section 92C(3) is empowered to determine the arm's length price on the basis of the material available to him and finalized the assessment accordingly. Once we have held this issue, then the question arises about the merit of the impugned internati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fied, then the impugned addition/upward adjustment is required to be deleted. With these directions, we hereby hold that the upward adjustment pertaining to the Transfer Pricing transaction regarding commission received from M/s. Atul Europe Ltd. of Rs. 2,71,82,980/- is to be decided afresh by the AO. This ground may be treated as partly allowed but for statistical purposes. 6. Ground Nos.7 & 8 read as under: Prior Period Expenses of Rs.1,11,31,209/- 7. The learned AO/DRP has erred in law and on the facts of the case in proposing to add prior period expenditure to the tune of Rs. 1,11,31,209/- to the total income of the Appellant without appreciating the facts that the liability in respect of those expenditure was crystallized during the year under consideration. 8. Alternatively and without prejudice to above, the ld. AO/DRP ought to have considered that the Appellant has also received income of Rs. 71,74,782/- pertaining to earlier year and therefore the ld. AO/DRP ought to have proposed to add only net amount of Rs. 39,56,427/- as prior period expenditure. 6.1 It was observed by the AO that the total "prior period expenses" were amounting to Rs. 1,11,31,209/-. This amount w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... el) 104. 8. On the other hand, from the side of the Revenue, ld. DR Mr. D.P. Gupta has supported action of the AO primarily on the ground that the assessee has neither demonstrated the nature of liability nor demonstrated the basis on which it was considered that the liability had crystallized during the year. 9. We have heard both the sides. We have also perused the orders of the authorities below in the light of the compilation filed. It is worth to mention that the neither the Revenue Department nor the appellant, both have explained the facts in respect of the nature of the "prior period expenses". We have carefully perused the relevant orders, but unable to understand the nature of the expenditure which were claimed to have been crystallized during the year under consideration. It is also worth to mention that the Revenue Department as also the assessee have not placed on record the details of the expenditure along with the evidences through which it could be demonstrated the year for which it pertained but it was not claimed. It is also worth to mention that the assessee has not demonstrated that why the impugned expenditure could not be claimed in the year for which it bel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sed to invoke the provisions of section 14A to disallow the proportionate expenditure. The assessee's contention was that in the past there was huge accumulation of profits which was non-interest bearing, hence there was no requirement of disallowance of proportionate interest expense. It has also been argued that the loans taken were for specific purposes, hence not utilized for earning exempted dividend income. It has also been contended that in earlier years the assessee had claimed deduction u/s. 80M but no such allocation of expenditure was made for disallowance. The AO's observation was that the explanation of the assessee about the non-interest bearing accumulation of past profit was only in respect of the interest expenditure but there was no mention about the indirect expenditure incurred to earn the exempted income. According to AO, the investing-activity was an indivisible business activity of the assessee, therefore the natural corollary as per AO was that out of the expenditure incurred for the business activity would have also been incurred towards investment activity, may or may not be a direct expenditure. It was not established by the assessee that no indirect expe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nto account in the formula as applied by the AO. 12. From the side of the Revenue, ld. CIT-DR has supported the orders of the lower authorities and argued that the assessee has not placed on record the nexus of investment of non-interest bearing own funds towards investment in tax-free dividend income. 13. We have heard both the sides. The question of applicability of section 14A on the present facts of the case must not be doubted because undisputedly a substantial amount was received as dividend income by the assessee. The only question is that how the investment was made to earn the said exempted dividend income. The contention of the assessee was that there were sufficient non-interest bearing own funds paying accumulation of the past profits. But the question is that whether the assessee was in a position to demonstrate that the non-interest bearing funds were utilized towards such exempted investment. On the other hand, even the Revenue has also not discharged the obligation to demonstrate that the interest-bearing funds were used towards investment in exempted income assets. Therefore the proportionate disallowance of interest expense could only be made when the relevant f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 8, relevant findings are reproduced below:- "(a) The ITAT had recorded a finding in the earlier assessments that the investments in shares and mutual funds have been made out of own funds and not out of borrowed funds and that there is no nexus between the investments and the borrowings. However, in none of those decisions was the disallowability of expenses incurred in relation to exempt income earned out of investments made out of own funds considered. Moreover, under Section 14A, expenditure incurred in relation to exempt income can be disallowed only if the assessing officer is not satisfied with the correctness of the expenditure claimed by the assessee. In the present case, no such exercise has been carried out and, therefore, the Tribunal was justified in remanding the matter. (b) Section 14A was introduced by the Finance Act 2001 with retrospective effect from 1 April 1962. However, in view of the proviso to that Section, the disallowance thereunder could be effectively made from assessment year 2001-2002 onwards. The fact that the Tribunal failed to consider the applicability of Section 14A in its proper perspective, for assessment year 2001-2002 would not bar the Tribun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he recipient of dividend, income by way of dividend does not form part of the total income by virtue of the provisions of Section 10(33). Income from mutual funds stands on the same basis; (iii) The provisions of sub sections (2) and (3) of Section 14A of the Income Tax Act 1961 are constitutionally valid; (iv) The provisions of Rule 8D of the Income Tax Rules as inserted by the Income Tax (Fifth Amendment) Rules 2008 are not ultra vires the provisions of Section 14A, more particularly sub section (2) and do not offend Article 14 of the Constitution; (v) The provisions of Rule 8D of the Income Tax Rules which have been notified with effect from 24 March 2008 shall apply with effect from Assessment Year 2008-09; (vi) Even prior to Assessment Year 2008-09, when Rule 8D was not applicable, the Assessing Officer has to enforce the provisions of sub section (1) of Section 14A. For that purpose, the Assessing Officer is duty bound to determine the expenditure which has been incurred in relation to income which does not form part of the total income under the Act. The Assessing Officer must adopt a reasonable basis or method consistent with all the relevant facts and circumstances af ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... completed the work, however, the assessee-company had afterwards decided not to take the said equipment. The assessee had also not paid the balance amount. On the part of the said party the advance given was retained and the assessee was not given back the said advance. In the opinion of the AO the advance was given for acquiring a capital asset. Such an advance would not be treated as a trading loss according to AO. Placing reliance on Motiram Nandram 8 ITR 132 (Privy Council) and Khode India Ltd. 33 SOT 178 (Bang.) the AO has disallowed a sum of Rs. 12,50,444/-. 15. We have heard both the sides. We have enquired that what was the specification of the equipment and what was the purpose of advancing an amount to the said party, i.e. M/s. Sando Industries. From the side of the assessee, ld. AR has simply placed reliance on the submissions made before the Revenue Authorities and left the matter to be decided by the Bench as per law. We have noted that the description of the equipment, the use of the equipment and the details about the advance given to the said party was not informed. Rather, it appeared that the assessee wanted to acquire a capital asset, as held by the AO, therefo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the notional rate of electricity credit at Rs.3.699 which resulted into a loss, hence the assessee's claim was disallowed. 17. At the outset, ld. AR has informed that earlier vide an order dated 16.5.2008 for A.Y. 2001-02 in assessee's own case titled as "Atul Limited v. The Income-tax Officer" (ITA No. 3528/Ahd/2004) it was held that in respect of "New Power Plant" that the same was merely an expansion of the existing undertaking. According to the Tribunal, there was an existing unit wherein a new deadline was added and such a unit could not be regarded to be as an establishment of a new undertaking for qualifying the deduction u/s. 80IA of the Act. At the time when the assessment was made the said order of the Tribunal was in the knowledge of the AO. However, now we have been informed that the said order of the Tribunal on the finding of 80IA was recalled by ITAT "D" Bench titled as "Atul Limited v. ITO" [MA No. 324/Ahd/2008 (arising from ITA No. 3528/Ahd/2004 - A.Y. 2001-02)] order dated 11.5.2012 and the matter is recalled and the Registry is directed to fix a fresh hearing in respect of the said ground. In the said MA order, there is a reference of a decision of Gujarat Alkal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dabad in ITA No. 3528/Ahd/2004 vide an order dated 16/05/2008 has affirmed the findings of the ld. CIT(A) and the depreciation as allowed by the AO was affirmed. Due to this reason, we are of the view that ld. AR has correctly stated that the recalculation of depreciation for the year under consideration was nothing but a consequential effect of the re-computation of depreciation. We hereby confirm the view taken by the AO and dismiss this ground. 19. Ground No.13 reads as under: Non carried forward of unabsorbed depreciation loss of Rs. 9,28,32,049/- 13. The ld. AO/DRP erred in law and facts of the case by proposing not allowing to carry forward unabsorbed depreciation loss of Rs. 9,28,32,049/- to set off against the income of the year under consideration. 19.1 The assessee had claimed a carried forward unabsorbed depreciation of Rs. 9,89,30,646/- to be set off against the current income. The bifurcation of the unabsorbed depreciation was as under:- "A.Y. 2004-05 Rs.7,97,14,997/- A.Y. 2005-06 Rs. 1,92,15,649/-" 19.2 On perusal of past record, it was noted by the AO as follows:- "10.1 Perusal of the record of the assessee for A.Y. 2004-05 shows that out of depreciation cl ..... X X X X Extracts X X X X X X X X Extracts X X X X
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