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TMI Blog2024 (12) TMI 904X X X X Extracts X X X X X X X X Extracts X X X X ..... g of interest. From the chart, it can be seen that the actual difference of credit when the sales are made by AE to AAL, is much less than the credit period when sales were made by the assessee directly to AAL. Since all the apprehensions of the DRP has been explained in the chart exhibited the impugned TP adjustment was uncalled for on the facts mentioned hereinabove. Therefore, we direct the AO/TPO to delete the impugned TP adjustment. Ground Nos. 1 to 4 are allowed. Disallowance u/s 14A r.w.r. 8D - The undisputed fact is that the assessee has own interest free funds and has earned cash profits during the year under consideration. The interest free own funds are far more in excess of the investments and the cash flow statement already on record suggest that no borrowings have been invested in purchasing of investments. We further find that nowhere the AO has recorded his dis-satisfaction insofar as the suo moto disallowance of Rs. 18.61 Lakhs is concerned. AO has simply stated that some expenses need to be disallowed for earning exempt income without pointing out why the suo moto disallowance made by the assessee is not sufficient for earning the exempt income. Thus no merit in t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... imately resulted in a higher profit on the transaction. 5. Both lower authorities erred in disallowing a further amount of Rs. 1,83,46,780/- u/s.14A read with Rule 8D(2). 6. The Appellant submits that the Assessing Officer recorded no objective satisfaction while making an addition to the disallowance u/s 14A already made by the Appellant in its Return of Income. 7. Without prejudice to ground nos. 5 6, the Appellant submits that disallowance of expenditure u/s. 14A be restricted to 2% of the dividend income earned by the Appellant, following appellate orders in the assessee's own case in earlier years. 8. Without prejudice to ground nos. 5 6, the Applicant submits that the disallowance is highly excessive and arbitrary. 9. Without prejudice to ground nos. 5, 6, 7 8, the appellant submits that no disallowance is called for u/s.14A read with Rule 8D in respect of those investments on which no dividend income has been received during the year. 10. Both lower authorities erred in including, in Book-Profit (u/s 115JB), the amount of disallowance made u/s 14A. The Applicant submits that the Assessing Officer be directed to delete the addition to Book-Profit in respect of disallowanc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for computation of ALP in relation to the international transactions. During the year the assessee has sold goods to its AE, Tata Chemicals International Pte Ltd. Singapore (TCIPL). These goods are sold on Bill To Ship To Model basis i.e., the billing is done to TCIPL and the goods are sold directly to third party i.e., Adama Agan Ltd. The international transactions relating to sale of goods was to the tune of Rs. 1,77,65,21,572/- and the assessee adopted other method as the most appropriate method. 7. The peculiar facts are that from April to 29th August, the assessee sold directly to Adama Agan Ltd. (AAL), but post 29th August, the assessee sold goods through its AE i.e., TCIPL. When the goods were sold directly by the assessee, the credit period allowed to AAL was 150- 180 days for the pesticides Metribuzin (Metri) and Pendimenthalin (Pendi) whereas the credit period allowed to TCIPL is immediately on receipt of invoice or after 7-10 days of receipt of invoice. It was explained that due to the differed in credit period, Rallis India had to discount the bills from the banks and for which Rallis India had to pay the bill discounting charges. Justifying its sales through TCIPL, it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bills at a cost. When the goods were sold through AE, TCIPL, the assessee received payments within 8 to 10 days as explained in the chart thereby showing that there was substantial savings in the interest minimizing the credit risk arising from non-payment of dues by customers. The TPO and the DRP also ignored the market risk as now the AE is responsible for carrying out all the sales and marketing related activities for the products. Thus, the assessee does not bear the market risks. The ld. Counsel for the assessee concluded by saying that the TP adjustment made by the AO is unwarranted and uncalled for in the peculiar facts and circumstances of the case. 8.1. Per contra, the ld. D/R strongly supported the findings of the TPO. 9. We have given a thoughtful consideration to the orders of the authorities below. The undisputed fact is that the assessee was selling goods directly to AAL. The credit period was between 150-180 days and the assessee was bearing the cost of bill discounting, credit risk arising from non-payment of dues by customers and also market risk where the prices keep on fluctuating in the international market. Post 29th August, when the assessee started selling i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wards earning of dividend income. It was explained that the dividend are directly credited to the assessee s bank account through ECS. It was further explained that by way of abundant caution, the assessee has suo moto disallowed Rs. 18,61,000/- which represents 1/10th salary of the CFO, Treasury head and Manager Treasure. 11. Before us, the ld. Counsel for the assessee placed strong reliance on the decision of the Hon ble Bombay High Court in the case of PCIT vs. Godrej Boyce Mfg Co. Ltd. reported in (1029 of 2018) (Bom HC) and PCIT vs. Tata Capital Ltd. (1081 of 2018) (Bom HC). Both these decisions are by the Hon ble Jurisdictional High Court of Bombay and further relied upon the decision of the Hon ble Supreme Court in the case of South Indian bank vs. CIT (438 ITR 1)(SC). 12. Per contra, the ld. D/R supported the findings of the AO. 13. We have carefully considered the orders of the authorities below. The undisputed fact is that the assessee has own interest free funds to the tune of Rs. 1409 Crores and has earned cash profits during the year under consideration to the tune of Rs. 239.27 Crores. The interest free own funds are far more in excess of the investments and the cash ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n ble High Court of Bombay in the case of Tata Capital Ltd. (supra). The relevant findings read as under:- 7. We agree with the finding of the CIT(A) and the ITAT that though the AO has stated that Assessee's explanation is not acceptable, he has not given reasons why it was not acceptable to him. Subsection (2) of Section 14A and Rule 8D provides that if the Assessing Officer is not satisfied with the correctness of the claim in respect of expenditure made by Assessee in relation to income which does not form part of the total income under the Act, he shall determine the amount of expenditure in relation to such income in accordance with the provisions prescribed. The most fundamental requirement, therefore, is the Assessing Officer should record his dissatisfaction with the correctness of the claim of Assessee in respect of the expenditure and to arrive at such dissatisfaction, he should give cogent reasons. 14. Considering the facts in light of the judicial decisions discussed hereinabove, we do not find any merit in the impugned disallowance made u/s 14A of the Act. The same is directed to be deleted. Accordingly, Ground Nos. 5 to 9 are allowed. 15. Ground No. 10 becomes ot ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e approached the Tribunal. The Tribunal by the impugned judgment allowed the appeal inter-alia holding that the prescribed authority shall submit its report in relation to the approval of the in-house research and development in Form 3CL to the Director General of Income Tax (Exemption) within 60 days of its granting approval. In the opinion of the Tribunal, same was merely in form of intimation to be sent by the prescribed authority to the department. In case of the assessee, the research and development activity having already been approved in Form 3CM, the assessee thereafter, had no further role to play in the interdepartmental correspondence. The Tribunal therefore, held that the assessee was entitled to deduction on the capital and revenue expenses incurred on in-house research and development amounting to Rs. 237,77,05,310/-. 5. Having heard learned counsel for the parties and having perused the orders on record, we are broadly in agreement with the view of the Tribunal. Undisputedly, the research and development facility set up by the assessee was approved by the prescribed authority and necessary approval was granted in the prescribed format. The communication in Form 3CM ..... X X X X Extracts X X X X X X X X Extracts X X X X
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