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TMI Blog2015 (6) TMI 667X X X X Extracts X X X X X X X X Extracts X X X X ..... e method is applicable where there is purchase of property or service from associate enterprise but in the present case, the assessee is not purchasing the goods from the associate enterprises but the assessee is selling the goods to associate enterprise. Based on this fact, this finding is given by CIT(A) that resale price method does not apply to the assessee ‘s case. After examining the facts and after giving this finding that the T.P.O., while dealing with international transactions with the A.Es., has himself accepted the commission rates upto 10% given to the US (A.E.) on referred sales and upto the 8% to UK(A.E.) and therefore, the CIT(A) has held that the gross margin available to the A.E. should have been benchmarked at 8% and not at 5% as the T.P.O. has himself treated all these commission payment at arm’s length and has made no adjustment in the commission transactions of the assessee. Thereafter, the CIT(A) has examined the agency agreement and held that that certain adjustments on account of functional differences between a person who acts as ‘principal to principal’ i.e. a trader and a person who acts as a mere ‘commission agent would be allowed because in case of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Therefore, Rule 8D is not applicable in the present year. At the same time, even prior to assessment year 2008-09 from when Rule 8D is applicable, some reasonable disallowance has to be made u/s 14A of the Act. The learned CIT(A) has confirmed the disallowance of ₹ 12,000/- . In our considered opinion, the disallowance of ₹ 12,000/- for average investment of ₹ 491.08 lac is not reasonable and therefore, we hold that disallowance should be made of ₹ 50,000/- on account of administrative expenses. Regarding deletion of disallowance of interest expenditure u/s 14A, it is held by CIT(A) that as per the judgment of Hon'ble Bombay High Court rendered in the case of CIT vs. Reliance Utilities and Power Ltd. [2009] 313 ITR 340 (Bom), when mixed funds are used for making investment, there should be presumption that the investments were made out of interest free funds. Prior to applicability of Rule 8D, we are of the considered opinion that the disallowance deleted by CIT(A) on account of interest expenditure on this basis that the interest free funds were sufficient to cover the investment, no interference is called for in the order of CIT(A). We, therefore, do ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pricing as defined in the Income Tax Act, 1961, it is very clear that Resale Price Method does not apply to the assessee as Resale Price Method applies to imports into the country. Thus, the resale price method as adopted by the TPO, per-se is not correct. However, after going through the order of the TPO, it is seen that the TPO has actually applied internal CUP method, but wrongly nomenclated it as Resale Price Method. The TPO has adopted the gross margin of the A.Es. @ 5%, which as per the TPO was the commission available to a commission agent. This assumption of 5% is by itself incorrect as the records shows that the average commission paid by the appellant to the AEs/non AEs on similar product is upto 20% and average being 7.2%. Further, the TPO has while dealing with international transactions with the AEs himself accepted the commission rates upto 10% given to the US-(AE) on referred sales and upto the 8% to UK-(AE). In this view of the matter, the gross margin available to the AE, should have been benchmarked at 8% and not at 5% as the TPO has himself treated all these commission payment at arms length and has made no adjustment in the commission transactions of the appella ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eceipt of full payment from the customer by the Principal. 5. The Agent will take care that all the consignment against order booked by them are immediately taken by the respective customers as per terms conditions of the contract / order. Complaints dispute, if any, may be settled by them to the best of immediately the intelligence on behalf and approval of the principal. 6. The Principal agrees that all the customers by KERAC will be regarded as exclusive to them. 7. This agreement it mutually agreed by both 'the commission agent KERAC (mention the name of commission agent) and the Principal M/s. Superhouse Ltd. India for a period of 05 (five) years only). The Agreement may further be extended / renewed with mutual consent by both parties. 8. This Agreement is subject to termination on the three months written notice by either party within the expiry of this Agreement but such termination will not be deemed final until and unless accounts are settled to the satisfaction of both parties. 6.3 Keeping in view the discussion above, I deal with the UAE (A.E). The details of transactions and expenditure is as under: Particula ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the same or similar property or from obtaining and providing the same or similar services, in a comparable uncontrolled transaction, or a number of such transactions; (iii) the price so arrived at is further reduced by the expenses incurred by the enterprise in connection with the purchase of property or obtaining of services; (iv) the price so arrived at is adjusted to take into account the functional and other differences, including differences in accounting practices, if any, between the international transaction [ or the specified domestic transaction] and the comparable uncontrolled transactions, or between the enterprises entering into such transactions, which could materially affect the amount of gross profit margin in the open market; (v) the adjusted price arrived at under sub-clause (iv) is taken to be an arm's length price in respect of the purchase of the property or obtaining of the services by the enterprise from the associated enterprise. 7.2 From the above provisions of clause (b) of sub Rule 1 of Rule 10B of Income-tax Rules, it is seen that resale price method is applicable where there is purchase of property or service from associate ..... 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