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TMI Blog2014 (4) TMI 520X X X X Extracts X X X X X X X X Extracts X X X X ..... -eligible business for purpose of computing deduction u/s 80IB/80IC of Act was reasonable - No justifiable reason for A.O. to disturb same and make re-allocation on adhoc basis – Delete addition made by A.O. by restricting claim of assessee for deduction u/s 80IB/80IC of Act by re-allocating common indirect expenses - Decided partly in favour of Assessee. Transfer pricing adjustment - Transfer pricing adjustment in respect of guarantee given by Appellant on behalf of its Associated Enterprises – Held that:- Similar issue relating to determination of Arm's Length Rate of guarantee commission was involved in case of M/s Nimbus Communications Ltd. [2013 (9) TMI 204 - ITAT MUMBAI] - A.O. is accordingly directed to recompute addition to be made on account of transfer pricing adjustment in respect of guarantee commission by taking Arm's Length Rate of guarantee commission at 0.5% - Decided partly in favour of Assessee. - I .T.A. No. 7369/Mum/2010 - - - Dated:- 22-11-2013 - P.M. JAGTAP And AMIT SHUKLA, JJ. For the Appellant : F.V. Irani. For the Respondent : Chandrajit Singh ORDER:- PER : P.M. JAGTAP This appeal filed by the assessee is directed against the orde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... xpenditure such as miscellaneous expenses, conveyance and traveling expenses, rent rates and taxes, advertisement and publicity and schemes and promotions should not be entirely allocated to 80IB (eligible) segment. In reply, the following explanation was offered by the assessee: "Overheads allocation We would like to draw to your attention that while looking at a figure of Rs 12.72 crores of overheads, one has to see that the total figure was 154.63 crores out of which Rs 141.91 crores has been allocated to eligible units only. The Company's total overhead expenses under following heads have been allocated to various units on actual basis where applicable and general overheads on sales basis Employee Costs Rs 27,04,75,709 Admin and Other Expenses Rs 22,75,90,572 Advt. selling and promotions Rs 38,22,18,426 Excise Duty Rs 37,64,34,934 Freight, power and fuel Rs 28,96,31,483 Total Rs 1,54,63,51,124 Detailed basis of allocation is as in sheet enclosed - Ann 2. Out of above administration expenses and overheads (including head office expenses) etc have b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to Rs. 36,37,784/- is held as reasonable expenditure related to non-80IB section. Consequently, the balance expenditure of Rs.36,37,784/- is held as pertaining to the manufacturing units of the assessee. 4.7 Conveyance Traveling Rs. 46,78,131 and Rent, rates taxes Rs. 48,28,515. Considering the fact that the trading is not the main activity, only 50% of the conveyance, traveling and rent, rates taxes are held reasonable, as related to Non-801B activities. Accordingly, Rs 47,53,324/- is allocated under these heads. The balance expenditure of Rs. 47,53,324/-is held as pertaining to manufacturing unit. 4.8 Advertisement and Publicity Rs.4, 23,76,829/- The assessee has allocated advertisement expenses on the basis of turnover. The trader normally would never incur expenditure on advertisement and brands of the manufacturer out of the trading profit. It appears excessive for a trader to spend such huge amount on the item. The trader would normally sell the goods which are popular and fast moving in the market. It is also extraordinary profit in trading activity undertaken by the assessee. The G.P ratio in the trading section of the assessee is 12.92% b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s taxes. Rs.2,11,88,415/- Out of Advertisement publicity Rs. 41,54,715/- Out of Schemes and Promotions Rs.3,37,34,238/- Total Accordingly, the above expenses were re-allocated by the A.O. to the 80IB units/segment and consequently the claim of the assessee for deduction of Rs. 47,46,23,571/- was restricted by the A.O. to Rs. 45,13,35,909/- in the draft assessment. The assessee raised objection to this disallowance proposed by the A.O. in the draft assessment before the D.R.P. challenging the basis of allocation of expenses adopted by the A.O. The D.R.P., however, did not find the said objection sustainable and accepting the basis given by the A.O. for re-allocation of expenses in the draft assessment order as scientific, the objection raised by the assessee on this issue was overruled by the D.R.P. Accordingly, the disallowance proposed in the draft assessment order on account of deduction u/s 80IB/80IC of the Act was confirmed by the A.O. in the final assessment order passed u/s 143(3) r.w.s. 144C(13) of the Act vide order dated 30-8-2010. 6. The ld. counsel for the assessee submitted that the only dispute involved o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ier years was accepted by the Department. 7. The ld. D.R., on the other hand, strongly relied on the orders of the A.O. and DRP in support of the Revenue's case on this issue. He submitted that the allocation of common expenses made by the assessee on turnover basis was not accepted by the A.O. for specific reasons given in his order. He contended that keeping in view the said reasons given by the A.O., further adjustment was required to be made in the allocation of expenses between eligible segment and non-eligible segment and if at all such adjustment made by the A.O. to the extent of 50% of the corresponding expenses is found to be not reasonable, the same can be suitably varied. He contended that the non-eligible segment was carrying on trading activity and this being the undisputed position, some adjustment is required to be made in the allocation of common expenses made by the assessee on turnover basis. 8. We have considered the rival submissions and also perused the relevant material available on record. It is observed that out of the total overheads of Rs.154.63 crores incurred by the assessee during the year under consideration, overheads to the extent of Rs. 141.91 c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt was 12.92% and even after allocating advertisement, schemes and promotions expenses on the basis of turnover, the profit of trading segment was 6.59%. 9. Similarly, the other indirect expenses on conveyance and traveling, rate and taxes and miscellaneous were incurred by the assessee during the normal course of its business of selling the finished goods, whether manufactured or procured from third party and since the said expenses were incurred equally for the benefit of eligible business as well as non-eligible business of trading, we are of the view that the basis of turnover adopted by the assessee to allocate the said expenses was more scientific and reasonable. On the other hand, the reallocation of the said expenses made by the A.O. on adhoc basis was not supported or substantiated by him and the same, in our opinion, cannot be accepted as a reasonable basis. In the case of Consolidated Coffee Ltd. (supra) cited by the ld. counsel for the assessee, it was held by the Hon'ble supreme Court that when a bifurcation of expenses is not possible, some reasonable test will have to be adopted and that adoption of the method of apportioning on the basis of gross receipts could no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... unds raised by the assessee and now proceed to consider and decide the issue raised therein relating to the transfer pricing adjustment of Rs. 10,05,360/- made in respect of guarantee fees. 12. During the year under consideration, the assessee had given guarantee to banks on behalf of its subsidiary in Bangladesh. The said subsidiary had taken the loan from City Bank in Bangladesh for which a guarantee had been given by the assessee to the constituent branch of Citi Bank in India. The amount of bank Guarantee was Rs.5.68 crores. This international transaction of the assessee company with its associated concern was referred by the A.O. to the T.P.O. along with other international transactions for determining the Arm's Length Price (ALP). In this regard, the stand taken by the assessee before the T.P.O. was that it had not incurred any financial costs by way of Bank Guarantee commission, bank charges etc. and since this transaction had no bearing on its profits, losses or assets, no pricing should be put to such non-existent transaction. The T.P.O. did not accept the stand taken by the assessee on this issue. According to him, the transaction relating to provision of guarantee and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... her hand, strongly relied on the orders of the authorities below in support of the Revenue's case on this issue. 15. We have considered the rival submissions and also perused the relevant material available on record. It is observed that a similar issue relating to determination of Arm's Length Rate of guarantee commission was involved in the case of Nimbus Communications Ltd. (supra) and the same was decided by the Tribunal vide para No. 10 of its order as under: "10. As regards the rate of guarantee commission, it is noted that the arm's length price of guarantee commission was determined by the TPO by applying CUP method and the arithmetic mean of 1.5% of the guarantee commission charged by the HSBC Bank in the range of 0.15 to 3% was taken as arm's length price. The ld. CIT(A) upheld the CUP method applied by the TPO but adopted the rate of 0.25% of guarantee fee as arm's length price relying on the decision of French Court in the case of Societe Carrefour. The ld. D.R., at the time of hearing before us has relied on the decision of the co-ordinate Bench of this Tribunal in the case of M/s Everest Kanto Cylinder Ltd. (supra) wherein while accepting the CUP method as t ..... 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