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TMI Blog2016 (9) TMI 1362X X X X Extracts X X X X X X X X Extracts X X X X ..... ng both international as well as domestic transactions, it would give a distorted figure. In our opinion, the lower authorities fell in error in considering the PLI as a whole of the assessee for the purpose of comparability. Nevertheless, it is to be added that such segregation is also to be done in relation to the comparables that are selected so that the average PLI of the comparables are also worked out on a similar footing. In the facts and circumstances of the case, we are of the opinion that the matter needs a fresh look by the lower authorities. Disallowance u/s 14A r.w.r 8D - Held that:- There is no dispute that Rule 8D was not applicable for the impugned assessment year. Nevertheless we also find that assessee had itself agreed for disallowance of 2% of the exempt income. Even when Rule 8D is not applicable, in our opinion, a disallowance u/s 14A could be made for the simple reason that assessee would have incurred some expenditure for earning the exempt income. Co-ordinate Benches of this Tribunal has been taking a consistent view that prior to the period when Rule 8D could be applied, disallowance of 2% of exempt income would suffice. Accordingly, we restrict the disall ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that Liaison Office worked on behalf of all the group companies and M/s Amalgamations Pvt Ltd one of the group companies made payment to London Liaison Office and recovered share of expenditure from the individual companies. We are of the opinion that except for giving this explanation, which was not supported by any evidence, assessee had not given any details of the services rendered by the London Liaison Office nor any correspondence with them. Assessee also could not show the need of Liaison Office and why the payments were routed through a holding company. In such circumstances, the disallowance was rightly made. We do not find any reason to interfere with the orders of the lower authorities. Disallowance of 10% of the expenditure incurred towards marketing incentives - Held that:- As per the assessee, dealer was required to give the cash discount to such customers. Though the assessee claimed that it was having evidence in this regard it could not produce dealerwise details of the reimbursement and how the sum of 2,41,62,616/- was arrived at. When no evidence in support of the claim was produced by the assessee, lower authorities, in our opinion, was justified in making a di ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... AR was that if assessee's working of its own PLI at 9.27% was accepted then this fell within ±5% of the arithmetic mean of the PLI of the comparables. Thus according to him, there was no requirement for making any adjustment for ALP. Ld. AR submitted that the Assessing Officer had took the profits on enterprise basis, considering the company as a whole without segregating the export and local business. A per the ld. AR, the TPO had considered the margin of operating profit over cost for the assessee-company as a whole, and this was the reason why TPO's PLI came to 4.37%. According to him, such an erroneous calculation led to the recommended adjustment of ₹ 41,36,103/- towards ALP of its international transactions. 6. Per contra, ld. DR submitted that when the PLI of the comparables was taken on aggregate basis, there was no reason why the assessee's sales should be segregated between export and non- export, for transfer pricing analysis. 7. We have considered the rival contentions and perused the orders of the authorities below. What we find is that the assessee had not objected to the adoption of TNM method for benchmarking its international transactions. The inter ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... actions undertaken by the assessee. According to him, when working out the PLI, profits earned by the assessee from international transactions alone had to be considered and not from the company as a whole. Reliance was placed on the decision of Mumbai Bench of the Tribunal in the case of CIT vs Tej Diam, [2010] 37 SOT 341. 10. Per contra, ld. DR supported the orders of the authorities below. 11. We have heard the rival contentions carefully. Claim of the assessee is that its transactions should be segregated between domestic and international, and its own PLI for comparability purpose should be computed from its international transactions. When TNM method is applied, comparison of net profit margin realized by an enterprise from an international transaction or an aggregate of international transactions has to be done and not comparison of operating margin as such of an enterprise. This is the rule laid down by the Mumbai Bench of the Tribunal in the case of Tej Diam (supra). A reading of sec. 92C also would justify this view. Arm's Length pricing is to be determined on the international transactions by the assessee with its AEs. Hence, PLI, if considered on an aggregate basis, in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is Tribunal has been taking a consistent view that prior to the period when Rule 8D could be applied, disallowance of 2% of exempt income would suffice. Accordingly, we restrict the disallowance to 2% of the exempt income. Ordered accordingly. Ground No.3 is partly allowed. 16. In the very same Ground No.3 assessee has assailed disallowance of interest of ₹ 17,16,611/- on a loan advanced to is subsidiary M/s I.P Power & Cylinders Systems Ltd. 17. Ld. AR relying on the judgment of Apex Court in the case of S.A. Builders vs CIT, 288 ITR 1, submitted that once loan was given to a subsidiary, disallowance of interest could not have been made u/s 37 of the Act. 18. Per contra, ld. DR supported the orders of the authorities below. 19. We have considered the rival contentions and perused the orders of the authorities below. Assessee had provided financial assistance to the tune of ₹ 3,15,00,000/- to its subsidiary M/s I.P Power & Cylinders Systems Ltd. and had not charged any interest thereon. Assessing Officer was of the opinion that assessee had borrowed considerable funds. According to the Assessing Officer, unsecured loans came to 15.42 crores and secured loans came to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Vide Ground 5, the grievance raised by the assessee is disallowance of 20% of commission and discounts paid to customers. 25. Ld. AR submitted that assessee had claimed discount(others) of ₹ 3,19,55,499/-, commission on exports of ₹ 10,18,845/-, sales commission of ₹ 16,52,365/- and discount on hundies of ₹ 8,12,170/-. As per the ld. A.R assessee had furnished full information and details regarding the above claim. Despite that, Assessing Officer had made disallowance of 20% of the amount of ₹ 3,19,55,499/-. As per the ld. AR, these were discounts offered to customers based on turnover targets and it went to reduce the amounts payable by the agents. Further, as per the ld. AR, the details of discounts/commission totalling to ₹ 1,75,48,192 was submitted before the lower authorities but were brushed aside. Ld. AR further submitted that if given an opportunity, assessee would be able to show that the expenditure was properly vouched. 26. Per contra, the ld. DR supported the orders of the authorities below. 27. We have considered the rival contentions and perused the orders of the authorities below. It is not in dispute that assessee had claimed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... do not find any reason to interfere with the orders of the lower authorities. Ground No.6 is dismissed. 32. Vide Ground No.7 grievance of the assessee is that the lower authorities disallowed 10% of the expenditure of ₹ 2,41,62,616/- incurred towards marketing incentives. 33. Ld. AR submitted that assessee had printed market incentive coupons valued at ₹ 2,41,62,616/- and distributed amongst its dealers during the relevant previous year. As per the assessee, the ultimate customer who opened the product and obtained these coupons were reimbursed by its dealers to the extent of value of the coupons. When the coupons were produced by the dealers, as per the ld. AR, credit notes were given to such dealers. This as for the ld.AR was purely a customer centric market expenditure and the lower authorities erred in making the disallowance. 34. Per contra, the ld. DR supported the orders of the authorities below. 35. We have considered the rival contentions and perused the orders of the authorities below. Claim of the assessee that every pack containing a set of pistons were pasted with a coupon which would give the buyers a right to a cash discount. As per the assessee, dea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e have held in para 15 that disallowance of 2% of the exempt income would suffice in the facts and circumstances of the case. Similar directions are given here also. Ground No.3 is partly allowed. 43. Vide Ground No.4, grievance raised by the assessee is on disallowance of additional depreciation of ₹ 20,15,922/- being residual of such depreciation claimed in the immediately preceding year. 44. Ld. AR submitted that the issue whether carried forward of additional depreciation for new machinery could be claimed in asucceeding year had come up before the Karnataka High Court in the case of CIT vs Rittal India Pvt. Ltd. 380 ITR 423, and the High Court has decided the issue in favour of the assessee. According to the ld. AR, the assessee was therefore, entitled for additional depreciation. 45. Per contra, the ld. DR supported the orders of the authorities below. 46. We have considered the rival contentions and perused the orders of the authorities below. The Karnataka High Court in the case of Rittal India Pvt. Ltd. (supra) had held as under: "6. The relevant provisions of section 32 are reproduced below : "32.(1) In respect of depreciation of- (i) buildings, machin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... grant of additional depreciation, under the aforesaid provision, is for the benefit of the assessee and with the purpose of encouraging industrialisation, by either setting up a new industrial unit or by expanding the existing unit by purchase of new plant and machinery, and putting it to use for the purpose of business. The proviso to clause (ii) of the said section makes it clear that only 50 per cent. of the 20 per cent. would be allowable, if the new plant and machinery so acquired is put to use for less than 180 days in a financial year. However, it nowhere restricts that the balance 10 per cent. would not be allowed to be claimed by the assessee in the next assessment year. 9. The language used in clause (iia) of the said section clearly provides that "a further sum equal to 20 per cent. of the actual cost of such machinery or plant shall be allowed as deduction under clause (ii)". The word "shall" used in the said clause is very significant. The benefit which is to be granted is 20 per cent. additional depreciation. By virtue of the proviso referred to above, only 10 per cent. can be claimed in one year, if plant and machinery is put to use for less than ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gment of Apex Court in the case of S.A. Builders (supra). Since the facts and circumstances are the same for the impugned assessment year also, we delete the disallowance. Ground No.4 of the assessee stands allowed. 50. Vide Ground No.6, grievance of the assessee is with regard to a disallowance of bad debts of ₹ 31,89,221/- written off. 51. We find that similar issue regarding disallowance of bad debt had come up in assessee's appeal for assessment year 2006-07 also as Ground No.4. We had remitted this issue back to the file of Assessing Officer for consideration afresh at para 23 above. For the impugned assessment year also we are of the opinion that the issue needs fresh look by the Assessing Officer. We, therefore, set aside the orders of the lower authorities on the issue of bad debts and remit it back to the file of the Assessing Officer for consideration afresh. Ground No.6 is allowed for statistical purposes. 52. Vide Ground No.7, grievance raised by the assessee is with regard to disallowance of 2% of commission and discounts of ₹ 74,64,985/-. 53. We find that similar issue has been dealt with by us in assessee's appeal for assessment year 2006-07 also. Ass ..... X X X X Extracts X X X X X X X X Extracts X X X X
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