TaxTMI 
TaxTMI 
2014 (1) TMI 1193
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....leting the addition of Rs. 6,08,935/- made on account of Transfer Pricing adjustment. 2. Whether on the facts and in the circumstances of the case and in law, the CIT (A) erred in restricting the disallowances made u/s 14A to 2% of exempt income i.e., Rs.1,12,843/- against disallowance of Rs. 9,09,636/- made by the AO." 3. Briefly stated relevant facts of the case are that the assessee is a Foreign Exchange Dealer, Travel Agent, Tour Operator etc and filed the return of income declaring the total income of Rs. 38,88,50,360/-. The assessment was completed u/s 143(3) of the Act declaring the total income of Rs. 39.30 Crs (rounded off). During the assessment proceedings, AO made certain additions i.e., (i) on account of Transfer Pricing (TP) adjustment amounting to Rs. 7,46,243/-; and (ii) disallowance u/s 14A amounting to Rs. 9,09,636/-. Addition wise facts and the adjudication is given as follows. 4. The facts relating to the issue relating to TP adjustment are that the assessee did not charge any fees from its Associated Enterprises (AE) (namely HSBC, Travellex and TCMOL), while he is charging the same from other related parties. Applying the Arm's Lengt....
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....ird parties (HSBC / Travelex) in respect of currency exported and corresponding counting fees paid is more than what it received by way of incentive / service fee. As such if both the service fees and counting fee are included / taken together in transactions with the AE, the appellant would be worse off. As such it discontinued this arrangement. The appellant by an Internal CUP (Travelex / HSBC) has demonstrated that counting fees for export of currency entails more expense than corresponding service fees or / incentive receipts. Thus, it has passed the test of comparability. It is a fact that counting fees for currency exported is charged by third parties (HSBC / Travelex) and so if the appellant AE did not charge it last year or this year, does not in any way negate the crucial fact that a third independent part would have charged it any case. The fundamentals underlying transfer pricing involves setting of prices within an MNE In line with what third parties would have negotiated in similar circumstances. In the present case had the AE insisted on charging counting fees for currency exported then it would have been more than t....
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.... book and mentioned that there are 6 investments, purchase and sales during the year and there is no specific employees or administrative expenses particularly incurred in connection with such investment activity. Further, he mentioned that the dividend income of Rs. 56,95,429/- was earned on Current Investments - Non Trade - on Units of Mutual and these are all dividends electronically transmitted to the accounts of the assessee and he does not involve any manual labour. Further, assessee filed a binding judgment in the case of CIT v. Godrej Agrovet Ltd. [IT Appeal No. 934 of 2011, dated 8.1.2013] for the proposition that making disallowance towards expenses u/s 14A @ 2% of the total exempt income would be considered reasonable for the AY 2005-2006. The relevant portion of the said judgment of the Bombay High Court (supra) reads as under: "4. So far as question (b) is concerned, the Tribunal in its impugned order dated 17.9.2010 while applying the decision of this court in the matter of Godrej (supra) has disallowed the expenditure only to the extent of 2% of the total exempt income earned by the respondent-assessee on the basis its order dated 27.2.2009 ....
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....e similarly of the facts, after hearing the Ld Representatives of both the parties, we grant relief to the assessee. Accordingly, ground no.2 is allowed. 19. Ground no.3 relates to the disallowance of Rs. 6,62,699/- u/s 14A towards the expenses relatable to the dividend income. Relevant facts in this regard are that the assessee earned dividend income of Rs 72,58,873/-. During the assessment, AO invoked the provisions of section 14A read with Rule-8D of the IT Rules, 1962 and determined the disallowance of Rs. 6,62,699/- (Rs. 3,13,350/- towards interest under Rule-8D(2)(ii) and Rs. 34,93,496/- towards administrative expenses). During the proceedings before the DRP, assessee made various submissions against the disallowances. DRP considered the above submissions and remanded the matter to the AO with a direction to disallow only the direct and indirect expenses which are proximity with the earning of exempt income. In the remand proceedings, AO repeated the same additions. During the proceedings before us, Ld Counsel reiterated the submissions made in connection the similar ground raised by the Revenue before the Tribunal for the AY 2005-2006 and also the decision of the ITAT, Mumb....