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TMI Blog2024 (5) TMI 535X X X X Extracts X X X X X X X X Extracts X X X X ..... Act and * the directions of the Dispute Resolution Panel on the objections raised by the assessee to the additions proposed by the AO in his draft assessment order in terms of section 144(C)(13) of the Act. Aggrieved by the same the assessee has come up in appeal before us. 3. The assessee has raised as many as sixteen grounds of appeal. 4. Ground no.1 to 6, raised by the assessee, it was contended before us, related to the issue of transfer pricing adjustment made to the international transactions entered into by the assessee with its AE in terms of provisions of section 92CA of the Act. The said grounds read as under: "1. Ld. AO/ TPO/ DRP erred in law and on facts in determining upward adjustment of Rs. 1, 60, 31, 0507- in respect of international transaction without any legal and factual basis for the same. Such confirmation by Id. DRP of adjustment determined by TPO without independent application of mind or justification ought to be quashed and such adjustment be deleted. 2. Ld. DRP erred in confirming action of TPO in partially using internal CUP and partially transactional net margin method (TNMM) method without any justification. Ld. DRP ought to have quashed appli ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d out that in earlier years, the TPO had allowed adjustment on account of geographical difference to be made while computing the ALP of the transaction. 6. The ld.DR on the other hand, contended that though the assessee was right in stating that it had been allowed volume discount adjustment in earlier years by the ITAT , and geographical difference adjustment by the TPO in earlier year ,but in the impugned year both had been denied in the absence of any evidence filed by the assessee in support of its contentions. He referred to the findings of the DRP in this regard before us. 7. The ld. Counsel for the assessee countered by stating that, in principle, the assessee was entitled to such adjustment on account of the decision of the ITAT in the preceding years, and the matter, if restored back to the TPO the assessee would be able to demonstrate and establish its case for claiming such adjustment before him. 8. Having heard both the parties, we shall now proceed to adjudicate the issue by first bringing out the facts relating to the case. 7. As transpires from the orders of the authorities below the assessee had entered into international transactions with its AE's pertaining to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r claiming quantity discount on the sales made to its AE. The ld.CIT(A) however allowed the claim of the assessee noting that the assessee had placed before him its commercial policy in this regard along with comparative data of sales to its AE and non AE's and he found that approach of the assessee in this regard as reasonable. He noted that the assessee had effectively demonstrated its commercial policy, substantiated it with its sales with AE and non-AE and considering the same, he held that rejection of the claim of the assessee by the TPO therefore merely for the reason that there was no written agreement for the same, was not correct. The ld.CIT(A) further noted that the TPO in the original proceedings had allowed quantity discount on this very commercial policy with respect to four products in which the sales to AE was less than the non-AE's. He therefore held that the AO, having accepted the commercial policy of the assessee, in this regard, was not right in holding that the assessee had no such commercial policy with regard to rest of the quantity discount given. The relevant part of the ld.CIT(A)'s order are as under: "6.4.1 As far as second issue with regard to quantit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... partly allowed." 32. Before us, the ld.DR relied on the order of the TPO to the effect that no justification had been furnished by the assessee by way of agreement with its AE or non-AE. The ld. Counsel for the assessee, on the other hand, relied on the order of the ld.CIT(A). 33. We have perused the orders of the authorities below, and we do not find any infirmity in the order of the ld.CIT(A). The ld.CIT(A) has noted to the effect that the assessee had demonstrated its commercial policy with regard to quantity discount to be given to both its AE and non-AE by submitting data in this regard before him. We have further find that the ld.CIT(A) had also noted that even the AO had accepted quantity discount given by the assessee in all except four cases on the basis of existing instances of commercial policy in this regard of the assessee; that noting so, he held, having accepted existing commercial policy of the assessee to grant quantity discount and the assessee having exhibited existence of such quantity discount vis-à-vis both of its AE and non-AE, therefore, the claim of the assessee of having paid quantity discount was substantiated and proved to be at ALP. The ld.DR ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stallized during the year claimed after netting off with prior period income. It be so held now." 15. As is evident from the perusal of the above ground, the issue in challenge before us relates to confirmation by the ld.DRP/AO of disallowance of prior period expenses incurred by the assessee amounting to Rs. 59,49,105/-. The contention of the ld. Counsel for the assessee before us was that an identical issue had been adjudicated in favour of the case in Asst.Year 2006-07 and 2007-08 by the ITAT. Our attention in this regard was drawn to the order passed by the ITAT in ITA No.908/Ahd/2016 and IT(TP)A.No.1108/ Ahd/2017 pertaining to Asst.Year 2006-07 and 2007-08, both by a consolidated order dated 12.7.2022. Copy of the order was placed before us, and our attention was drawn to relevant paragraph of the order dealing with this issue. The ld.DR fairly conceded to the aforestated facts. 16. Having said so, we shall now proceed to adjudicate the issue first beginning with the facts related to the disallowance of prior period expenses by the AO and its confirmation by the ld.DRP/AO. 17. The assessment order reveals that the assessee had debited net prior period expenses of Rs. 59,49 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... present being identical to that of the preceding year, and the ld.DR was also enable to pointed out any distinction in facts from the preceding years, the decision rendered by the ITAT in Asst.Year 2006-07 and 2007-08 will clearly applied to the present case, following which, we hold that the disallowance of prior period expenses to the tune of Rs. 59,49,105/- is not tenable and is directed to be deleted. Ground No.7 is of the assessee is allowed. 20. The ground no.8 raised by the assessee reads as under: "Ld DRP/AO erred in law and on facts in confirming disallowance of expenses invoking provision of section 14A r w rule 8D of Rs. 37,03,505/-without establishing any nexus between borrowed funds and investments. Ld. DRP ought to have deleted total disallowance appreciating the fact that appellant invested in securities from internal accruals. It be so held now." 21. The issue raised in the above grounds relates to the disallowance of expenses pertaining to the earning of exempt income in terms of provisions of section 14A of the Act read with Rule 8D of the Income Tax Rules, 1962. 22. The arguments of the ld. Counsel for the assessee before us was that, the disallowance so ma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e administrative expenses to be disallowed amounting to Rs. 6,47,143/-; in effect resulting in disallowance of Rs. 37,03,505/- under section 14A of the Act. 28. On the aspect of disallowance of interest expenses under section 14A of the Act, it is settled law that where the assessee has sufficient owned interest free funds for the purpose of making investment, no disallowance of interest expenses is warranted. Hon'ble Apex Court has laid down this proposition in number of cases beginning with South Indian Bank Ltd. Vs. CIT (2021 130 taxmann.com 178. 29. Having said so, the ld. Counsel for the assessee has demonstrated the facts in the present case. Copy of the audited annual accounts pertaining to the impugned year filed before us in PB Page No.3 o 136. He drew our attention to specific page no.66 being the balance sheet of the assessee as on 31.3.2010, and has pointed out that while the reserves and surplus of the assessee were to the tune of Rs. 454.93 crores, investments were to the tune of Rs. 65.02 crores. 30. Having noted the aforestated facts, it is evident that the assessee had sufficient interest free funds for the purpose of making investment earning exempt income. App ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (Guj). The ld.DR however, countered by stating that the fact pleaded by the ld. Counsel for the assessee that the impugned amount related to the business advance, needed verification, and therefore, the matter needs to be restored back to the AO for this purpose. To this, the ld. Counsel for the assessee countered by saying that all the details of these advances sufficiently showed that these were very small amounts ranging from Rs. 10,000/- to Rs. 20,000/- (+ odd) given during the course of business, and being a very old appeal, no purpose will be served by restoring the issue back to the AO. He contended that the details of these advances would reflect that the assessee had initially claimed bad debts to the tune of Rs. 17.15 lakhs, and grounds raised before us also reflected the said fact. He contended that out of this claim of Rs. 17.15lacs, the assessee wanted relief only to the tune of Rs. 7.15 lacs with respect to small business advances given by the assessee, as reflected in the details; that amount advanced on account of capital ,amounting to Rs. 10.00 lakhs plus odd, was not being claimed by the assessee as a business loss under section 28 of the Act. He, therefore, plea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ), we hold that the assessee be allowed claim of Rs. 6.51 lakhs as business loss in terms of section 28 of the Act. 40. For the sake of completion, we may state that the assessee has not contested its original claim of these amounts written off being in nature of bad debts written off in terms of section 37(1) of the Act. Therefore, it is only the alternate claim of the assessee of the allowance of its amount in all to Rs. 6.51 lakhs out of the total claim of Rs. 17.15 lakhs, as business loss under section 28 of the Act, that is being allowed to the assessee. Ground No.9 and 10 accordingly are partly allowed as per the above terms. 41. Ground No.11 raised by the assessee reads as under: "Ld. DRP/ AO erred in law and on facts in confirming disallowance made of Rs. 74, 09, 818/- on account of excess claim of depreciation. Ld. DRP ought to have allowed depreciation as claimed by the appellant notionally reduced by AO on WDV worked out by thrusting depreciation not claimed in A Y 2001/02. It be so held now." 42. The issue, as is evident from the perusal of the above grounds relates to disallowance of excess depreciation claimed by the assessee, the contention of the ld. Counsel f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... made under section 14A of the Act. 48. The ld. Counsel for the assessee contended before us that this issue stands covered in favour of the assessee by the decision of the Special Bench in the case of ACIT V. Vireet Investment P.Ltd., (2017) 82 taxmann.com 415 (Del-Trib). He further pointed out that there are various decisions of the jurisdictional High Court also on this issue in favour of the assessee. The ld.DR was unable to controvert the above contentions of the ld. Counsel for the assessee, though, he relied heavily on the order of the ld.DRP/AO. 49. Having said so, we now proceed to bring out the facts relating to the case. 50. In the assessment framed in the present case, the AO had disallowed expenses relating/pertaining to the earning of exempt income in terms of provisions of section 14A of the Act amounting to Rs. 37,03,505/-. This disallowance made in the computation of income as per the provisions of the Act, was added back to the book profits of the assessee for the purpose of paying taxes on the book profits of the assessee in terms of provisions of section 115JB of the Act, and taxes levied thereon. It is, this, adjustment made to the book profits of the assess ..... X X X X Extracts X X X X X X X X Extracts X X X X
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