9911796707
TMI Blog2022 (10) TMI 251X X X X Extracts X X X X X X X X Extracts X X X X ..... tical purposes. Disallowance u/s 14A - HELD THAT:- We find that Rule 8D has been applied by Ld. AO without recording any satisfaction as to why the disallowance computed by the assessee was not acceptable having regards to the accounts of the assessee. In the absence of such a satisfaction, no such disallowance could have been made by Ld. AO as per the ratio laid down by Hon ble Supreme Court in Maxopp Investment Ltd. [ 2018 (3) TMI 805 - SUPREME COURT] . Therefore, the additional disallowance of Rs.2.63 Lacs as made by Ld. AO is not sustainable. We order so. Ground No.2 stand allowed. Disallowance of Loans Written-off - HELD THAT:- The assessee has advanced separate advertising loans to its AEs which are subject matter of determination of ALP by revenue. The loans so granted by the assessee to TIHBV have been stated to have become irrecoverable and accordingly, written-off in the books of accounts. The assessee has accrued interest on these loans in earlier years. Even this interest has not recovered and deduction of the same has been claimed as well as allowed in terms of provisions of Sec.36(1)(vii). In the given factual matrix, we are of the considered opinion that th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... order dated 27.12.2011. The grounds raised by the assessee read as under: A. Transfer Pricing (Ground 1): The learned Assessing Officer ( AO ) has grossly erred in facts and law in upholding the positions taken by the Transfer Pricing Officer ( TPO ) in making an adjustment of Rs.55,246,168/, with respect to the imputed cost of interest on interest advances provided by the Appellant and in determining arm's length royalty receipts from affiliates and unrelated third parties under the Income Tax Act, 1961 (the and thereby grossly erred; a. In bringing within the ambit of tax hypothetical income as against real income; b. In not distinguishing between a loan and an advance and thereby not appreciating the facts specific to this case; c. In neglecting the fact that the trade advances granted is by no means a departure from the general practice followed uniformly across all industries wherein regular grants of such advances are made for expenses incurred by one company behalf of another within an MNE group; d. In classifying the non-associated enterprises as deemed associated enterprise without analyzing the evidence and documents provided to substa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he business of the appellant and is therefore, revenue in nature. e. The learned AO has failed to appreciate the fact that the loans can be classified as trading debt since interest received on the said advances have been offered and accepted as business income in the returns of income filed by the appellant for earlier years. Ground 4: Apportionment of common expenses on the basis of turnover for purposes of deduction under section 80IC: Rs.180,228,538 Ground 4.1: Apportionment of corporate overheads (head office expenses) a. The learned AO has erred in allocating/apportioning the following expenditure between Dehradun unit II, Roorkee and Baddi unit on the basis of total turnover as against the method used by the appellant: Research and development expense; Assembly overheads; and Corporate expenditure. b. The learned AO has failed to appreciate that the appellant had already allocated common expenditure in ratio of number of watches produced by each division to the total number of watches produced by the watch division before arriving at the profit eligible for deduction under section 80IC of the Act. c. The learned AO ough ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the software so as to treat the same expenditure. f. The learned AO ought to have appreciated the fact that the ownership license vests with SAP and other vendors and not with the appellant appellant does not own the Intellectual Property Rights of the software appellant cannot sell the software nor can it be used in any other computer system. Ground 6: Short grant of Tax deducted at source ( TDS ) amount: Rs. 1,103,588 a. The learned AO erred in not granting the credit for taxes deducted at source amounting to Rs.1,103,588. b. The learned AO ought to have relied on Form No.16A issued by the deductors while giving effect to the taxes deducted at source. Ground 7: Calculation of Interest on resulting adjustment The learned AO erred in charging the interest under section 234C as consequential in nature and not on the returned income. 2. This appeal was heard along with assessee s appeal for AYs 2006-07 2007-08 on the same day. The appeals for AYs 2006-07 2007-08 have separately been disposed-off by us. It was admitted position that the facts as well as issues in this year are substantially the same and adjudication of earlier years would ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bunal Rules, 1963 for admission of additional evidences. Similar application has been filed for this year also. Since the issue is recurring in nature, the issue of royalty on sales stands restored back to the file of Ld. TPO / AO on similar lines. The corresponding ground stand allowed for statistical purposes. 4.5 The assessee has raised an additional ground for this year and submitted that advertisement expenditure would otherwise be allowable as business expenditure incurred in the course of business or the same being an irretrievable loss. We find that no such issue arises from the order of lower authorities and accordingly, this ground is not admitted. 5. Disallowance u/s 14A 5.1 The assessee earned exempt income of Rs.5.05 Lacs and offered suo-motu disallowance of Rs.5,750/- in the return of income. However, Ld. AO computed aggregate disallowance of Rs.2.69 Lacs u/r 8D(2) which was interest disallowance u/r 8D(2)(ii) for Rs.2.27 Lacs and indirect expense disallowance u/r 8D(2)(iii) for Rs.0.41 Lacs. The Ld. DRP confirmed the same. 5.2 We find that Rule 8D has been applied by Ld. AO without recording any satisfaction as to why the disallowance computed by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... xigency and accordingly, the write-off of the loans was disallowed. Further, the TIHBV was integral part of assessee s group and therefore, the assessee was exercising control over it at every stage. Finally, the interest accrued for Rs.389.42 Lacs as claimed by the assessee as bad-debts written-off was allowed but the principal loan of Rs.3815.45 Lacs was disallowed. The stand of Ld. AO, upon confirmation by Ld. DRP, is in further appeal before us. 6.4 Upon due consideration of material, facts, it could be seen that the assessee is a manufacturing / trading entity and not engaged in the business of making investments. In earlier years, it has granted certain long-term loans on interest to its AE namely TIHBV which is into making investments. The loans so granted by the assessee have been further advanced to other AEs and are mostly in the shape of preference share capital which is in capital field only. The assessee has advanced separate advertising loans to its AEs which are subject matter of determination of ALP by revenue. The loans so granted by the assessee to TIHBV have been stated to have become irrecoverable and accordingly, written-off in the books of accounts. The a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d to watch division as well as jewellery division. The units availing deduction u/s 80-IC were watch division. The entire deprecation was allocated by assessee to non-eligible unit, which in the opinion of Ld. AO, was to be allocated to eligible units also. 7.3 Accordingly, adjusting the allocation of overhead and depreciation as above, Ld. AO reduced deduction by Rs.18.02 Crores. Aggrieved, the assessee is in further appeal before us. 7.4 We find that similar issue has been adjudicated by us in ITA No.1913/Chny/2011 for AY 2007-08 as under: - 7.2 This issue has been adjudicated by us in ITA No.2192/Chny/2010 order dated 17.08.2022 as under: - 4.2 We find that all the other overhead expenses have been allocated by the assessee on the basis of turnover. Only design and development cost and assembly share of common facilities have been allocated on the basis of number of watches produced. The Ld. AO has apportioned the same on the basis of turnover. In our considered opinion, design and development cost and assembly share of common facilities are not proportional to the number of watches produced. The expenditure is largely salary expenditure of the two department ..... X X X X Extracts X X X X X X X X Extracts X X X X
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