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TMI Blog2023 (2) TMI 348X X X X Extracts X X X X X X X X Extracts X X X X ..... olerance range which may also be considered by Ld. TPO in accordance with law. The assessee is directed to provide requisite information and evidences in support of its case. The corresponding grounds stand allowed for statistical purposes. Disallowance u/s 14A - assessee earned exempt dividend income and offered suo moto disallowance - AO, applying Rule 8D, computed aggregate disallowance which was direct expenses disallowance u/r 8D(2)(i), interest disallowance u/r 8D(2)(ii) and indirect expenses disallowance u/r 8D(2)(iii) - HELD THAT:- The limited submissions of Ld. AR are that own funds far exceed the investments made by the assessee and therefore, a presumption would arise that the investments were funded out of own funds. Further, majority of the investments are old investments for which interest disallowance is not justified. Lastly, it is the submission of Ld. AR that only exempt yielding investments are to be considered while working out the disallowance. We find that both the pleas are duly supported by binding judicial precedents. Therefore, we direct Ld. AO to examine whether the own funds exceed the investments made by the assessee and the investments are old inv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r Pricing Officer-3, Chennai (TPO) vide order u/s 92CA(3) dated 30-12-2014. Incorporating the proposed adjustment, a draft assessment order was passed by Ld. AO on 31-03-2015 which was subjected to assessee s objections before Ld. DRP. Subsequently, Ld. TPO following directions of Ld. DRP, redetermined ALP pursuant to which final assessment was passed which is in further challenge before us. The grounds raised by the assessee read as under: - 1. The order of the A0/DRP is contrary to law, facts and circumstances of the case. 2. Transfer Pricing Adjustment 2.1 The AO/DRP erred in confirming the adjustment of Rs.10,93,91,827/- to the Arms Length Price. 2.2 The AO/DRP erred in not appreciating that the Fertilizer Market Bulletins (FMB) contain only the range of prices of goods quoted for specific period. 2.3 The AO/DRP erred in not considering the fact that while computing the downward price adjustment for the imported raw materials, the TPO has adopted different bases to arrive at the Arms Length Price. 2.4 The AO/DRP ought to have appreciated that while computing the rate adjustments between the invoice rate and the FMB price on the order date, the higher end pri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ciated that the investments in the domestic companies from which the dividend income of Rs. 3,23,96,073/- was earned, has reduced from Rs. 64.66 crores to Rs. 27.62 crores and that there was no fresh investment during the year. 3.8 The AO/DRP ought to have appreciated that in any case, the disallowance made u/s 14A r.w.Rule 8D cannot exceed the exempted income earned. 4. Disallowance of payment of funded interest converted into loan (FITL) amounting to Rs. 47,26,89,986/ - 4.1 The AO/DRP erred in confirming the disallowance of Rs.47,26,89,986/- being the Funded Interest converted as Loan (FITL) on the ground of non submission of a certificate for the payment from the lenders. 4.2 The AO / DRP ought to have appreciated that the said deduction was allowed by the assessing officer at the time of scrutiny assessment proceedings, based on the evidence of payment submitted to him. 4.3 The AO / DRP ought to have considered the Boards clarification issued vide Circular No. 07/2006, dt 07.07.2006 and allowed the deduction based on bank payment advices already furnished by the assessee at the time of scrutiny assessment treating them as evidences of actual payment. 5. The A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nter-alia, on the ground that there was no published record as to how much quantity was shipped and at what prices. However, the same could not find favor with Ld. TPO. 3.3 Before Ld. DRP, the assessee sought admission of additional evidences which were in the form of agreements with its AEs. The Ld. DRP chose not to admit the same on the ground that these documents were always available with the assessee but the assessee chose not to produce the same before Ld. TPO. The explanation that the person in charge left the taxation department and new incumbent was not fully conversant with the matter, was not convincing. 3.4 Finally, Ld. DRP directed Ld. TPO to adopt the middle value of the price band in FMB price list to iron out the various factors like insurances, extended credit facility etc. The directions of Ld. DRP reduced the TP additions to Rs.1093.91 Lacs which were incorporated in the final assessment order. Aggrieved, the assessee is in further appeal before us. Our findings and Adjudication 4. We find the dispute to be in a very narrow range. The import and export transactions have been benchmarked on transaction-to-transaction basis on the basis of rates publi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he submission of Ld. AR that only exempt yielding investments are to be considered while working out the disallowance. We find that both the pleas are duly supported by binding judicial precedents. Therefore, we direct Ld. AO to examine whether the own funds exceed the investments made by the assessee and the investments are old investments only. If so, interest disallowance would not be justified. Further, while working out the disallowance, only exempt income yielding investments are to be considered by Ld. AO. We order so. This ground stand allowed for statistical purposes. 7. Disallowance of interest converted into loans In the computation of income, the assessee reduced sum of Rs.4726.89 Lacs being funded interest converted as Loan (FITL) on payment basis u/s 43B. In earlier assessment orders for AY 2003- 04, 2004-05 2005-06, Ld. AO disallowed FITL for Rs.122.43 Crores as per Explanation 3(c) and 3(d) of Sec.43B on the ground that the interest was converted into loan only and not actually paid. During AY 2010-11, an amount of Rs.89.23 Crores was disallowed for want of certificate from lending bank. Out of above disallowance, the assessee claimed deduction of Rs.47. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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