TaxTMI 
TaxTMI 
2015 (12) TMI 514
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....nly the net dividend income while computing book profits under Section 115JB of the Act. 2) The learned DRP erred in directing the Assessing Officer to rely on the provisions of Section 14A of the Act and Rule 8D of the Rules while computing the amount liable to be added back to the book profits to be computed under section 115JB of the Act. 3) The learned DRP and the Assessing Officer erred in disregarding the method of allocation consistently adopted by the Appellant and in re-allocating 50% of the following overheads of the non-eligible undertakings of the Appellant, while computing the deduction U/S 80lB/ 80lC of the Act:- Miscellaneous Expenses Conveyance and Travelling Expenses Rent, Rates and Taxes Advertisement and Publicity Schemes and Promotions 4) The learned DRP erred in directing the Assessing Office to restrict the claim for depreciation under Section 32 of the Act on computer peripherals @15% as against the rate of 60% claimed by the Appellant. 5) The learned DRP erred in confirming the action of the Transfer Pricing Officer 1 Assessing Officer that the actual sales price and arms length....
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....AO, without any supportive justification, to not to apply the average rate of profit margin within the 80-IC/80-IE/80-IB eligible Units of Guwahati with that of Pondicherry belonging to the assessee company. Thereby erred in allowing the assessee to claim higher deduction u/s. 80-IC/80- IE/80-IB in respect of 2 Guwahati Units to the extent of Rs. 52,79,23,037/- as compared to the products manufactured at Pondicherry Units. 2. The assessee is a company incorporated under the provisions of the Companies Act, 1956 and is, inter-alia, engaged in the business of manufacturing/marketing of mosquito repellent, mats, coils, mat fitting machine, air freshener and trading of hair care and household care products. For the year under consideration, the assessee-company filed its return of income declaring a total income of Rs. 52,87,89,996/-, which was subject to a scrutiny assessment. In an assessment finalized under section 143(3) r.w.s. 144C(1) dated 30/12/2013 in accordance with the directions of the DRP dated 30/10/2013, the total income has been assessed at Rs. 68,31,94,653/-, after making certain additions/disallowances, which are subject matter of controversy in the cross appeals of....
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....n foreign companies. It is not clear from the record whether any disallowance was made on account of interest expenditure in the earlier assessment years. Since the investment was made in the earlier assessment years, therefore, the disallowance on account of interest expenditure has to be as per the funds available with the assessee and the finding on the issue of disallowance u/s 14A for the earlier years is relevant for the purpose of deciding this issue for the year under consideration. Similarly, the issue of disallowance on account of administrative expenses has to be decided keeping in view the finding of the earlier assessment years on this account. Accordingly, in the facts and circumstances of the case, we set aside this issue to the record of Assessing Officer to decide this issue afresh by considering the finding of the earlier A.Ys on this issue and further in view of the decisions relied upon by the Ld. Authorized Representative in case of JM Financial Ltd. Vs. Addl. CIT (supra) as well as Garware Wall Ropes Ltd. Vs. Addl. CIT (supra)." 4.1 It was submitted that, the matter be restored back to the file of the Assessing Officer to be decided afresh in the light of t....
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....enses amounting to Rs. 0.83 crores, miscellaneous expenses amounting to Rs. 0.72 crores, conveyance and traveling expenses amounting to Rs. 0.47 crores and rent, rate & taxes amounting to Rs. 0.48 crores. As explained by the ld. counsel for the assessee before us, the expenditure on advertisement & publicity and schemes and promotions was incurred mainly to create and promote the brand image for the company's product and this position was accepted even by the A.O. in his order. The, A.O., however, held that the trader normally would never incur expenditure on advertisement and brands of the manufacturer out of the trading profit. He, however, appears to have overlooked the fact that goods procured from the third party were sold by the assessee company as a part of trading activity under the same brand name and the benefit of the said expenditure thus was available equally to the trading segment. Incidentally, the A.O. also impliedly accepted this position while observing in his order that such expenses on advertisement & publicity and schemes have to be allocated to some extent to the non-eligible segment. He, however, held that such allocation could not be very large amount an....
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....disturb the same and make reallocation on adhoc basis. We, therefore, delete the addition made by the A.O. by restricting the claim of the assessee for deduction u/s 80IB/80IC of the Act by reallocating the common indirect expenses and allow ground No. 1 & 2 of the assessee's appeal." 6.1 The aforesaid decision was followed by the subsequent Benches of the Tribunal for assessment year 2005-06 and 2008-09 vide orders in ITA Nos. 7227/M/2011 and 598/M/2013 dated 19.2.2014 and 11.3.2015 respectively. Following the aforesaid precedents, the issue raised in Ground No. 3 in assessee's appeal is allowed. 7. By way of Ground No. 4, assessee company has assailed the action of the Assessing Officer in allowing depreciation on UPS & Printers @ 15% treating them as Plant & Machinery instead of 60% claimed by the assessee treating them as part and parcel of computers. In assessment year 2008-09, the Tribunal vide order dated 11.3.2015 (supra), allowed the claim of depreciation @ 60% on the cost of UPS & Printers. Following the precedent, ground of appeal raised by the assessee is allowed. 8. By way of Ground No. 5, assessee company has assailed an addition of Rs. 11,72,710/- on....
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....rice then a price of a refilling bottle. Therefore, the vaporizer sold with heater cannot be compared with a refilling vaporizer /refilling bottle. We note that all the products are falling in the category of insecticides and used as complimentary to each others. Some of the products are cheapest versions of insecticide and may be sold by the assessee only for the purpose of marketing strategy to promote other products of the assessee in a particular market. Therefore, all the products are falling in the category of insecticides and used as supplementary to each other then these products may be priced by taking a portfolio approach by the assessee and not considering the profit motive from each and every single product within the portfolio. We note that in the case of Boskalis International Vs. Dy. Director of Income Tax (supra), the Tribunal while considering a similar issue has held in para 11 and 12 as under "11. We have considered the rival submissions as well as relevant material on record. The limited issue before us is whether the lease rental paid by the assessee to its Associated Enterprises in respect of various dredging equipments taken on lease can be recorded ....
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....te transactions. 12. In the case in hand the Assessee has taken a number of dredging equipments from more than one associate enterprises. In the business decisions when number of transactions are entered into between two parties then it is a very important and material factor to consider a portfolio approach rather than the individual transaction approach for determination of price of the transactions between the parties. Even otherwise the scheme of Transfer pricing provisions is to avoid Base Erosion and Profit Shifting from one tax jurisdiction to another tax jurisdiction. Therefore, the hiring of various equipments to be used for execution of a project can be aggregated for the purpose of determination of ALP only to the extent of the transactions or to the extent of number of transactions with each associated enterprise. In other words the transactions carried out with different associate enterprises cannot be clubbed or aggregated because they cannot be termed as closely linked or continuous so as to influence the price in aggregate or the profit of the parties arising from these transactions. Hence, in principle we accept argument of the ld.AR that the various dredg....
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....old by the assessee to its AE in each country shall be clubbed together for the purpose of determining the arm's length price. Accordingly, we decide this issue in favour of the assessee. Consequently, the addition made by the Assessing Officer is deleted." 8.2 Following the aforesaid precedent, the ground No. 5 in the appeal of the assessee is allowed. 9. By way of Ground No. 6, assessee-company has assailed the disallowance of Rs. 20,00,000/- representing reimbursement of advertisement expenses by the assessee to its associated enterprise. In brief, the relevant facts are that the assessee company paid Rs. 20,00,000/- to Koninklinjke Douwe Egberts, Netherlands, towards reimbursement of advertising expenses. After considering the submissions of the assessee-company, the TPO observed that the assessee could not substantiate the basis on which the amount was reimbursed to the associated enterprise. He determined the arm's length price of the said payment at 'Nil' on account of non-furnishing of any supporting document. The Assessing Officer passed the draft assessment order in conformity with the order of the TPO. Before the DRP, assessee raised objections agai....
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....on which the expense was incurred. In nut-shell, Ld. CIT-DR has relied upon the findings of the DRP, which has formed the basis for the disallowance by the Assessing Officer. 9.4 Having considered the rival submissions carefully, we find that the prime reason weighing with the income tax authorities to disallow the impugned sum was failure on the part of the assessee to establish the incurrence of such expenditure wholly and exclusively for the purposes of business. Apart therefrom, the TPO has also recorded a finding that the assessee-company could not substantiate the basis on which the impugned amount of Rs. 20.00 lacs has been reimbursed to its associated enterprise, so as to determine as to how the stated expenditure of Rs. 20.00 lacs could be considered as an arm's length price. The explanation rendered by the assessee before us is on the same lines as was made before the lower authorities. In our considered opinion, the explanation rendered by the assessee continues to suffer from the same vices, as has been noted by the income tax authorities. Apart from making bald assertions, there is no cogent material brought on record by the assessee to substantiate the incurren....
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....tion was availed by the associated enterprise and disbursed in Bangladesh only. Therefore, it directed the AO to rework the addition on this count by considering the rate borne by the associated enterprise in Bangladesh, which resulted in scaling down of the adjustment to Rs. 6,27,920/- instead of Rs. 14,82,960/- proposed in the draft assessment order. In the final assessment order dated 30/12/2013, an addition of Rs. 6,27,920/- has been made. The aforesaid addition is in challenge before us by way of Ground of appeal No.7 in assessee's appeal. In cross appeal, Revenue has also challenged the direction of the DRP in reducing the arm's length price of the guarantee commission from 5.22% proposed in the draft assessment order to 0.94%. 10.2 Since the cross Grounds relate to the same issue, they are being taken up together. In this context, it was a common ground between the parties that the aforesaid issue had come up before the Tribunal in assessee's own case for assessment year 2006-07 and 2005-06 vide orders dated 22/11/2013(supra) and 19/2/2014 (supra) respectively. The Ld. CIT-DR appearing for the Revenue has also not controverted the factual matrix that the issue....
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....on exercise has been carried out by the AO so as to give effect to the directions of the DRP. 11.3 In our considered opinion, the direction of the DRP is unexceptional and we find no reason to interfere with it, which is aimed at removing double addition in two assessment years. The AO is hereby directed to verify the factual position in assessment year 2005- 06 and if it is found that the claim stands disallowed in assessment year 2005-06, then the AO may grant the deduction in the instant assessment year as per law. Thus, in principle, we affirm the stand of the DRP on this aspect and direct the Assessing Officer to effectuate the same as per law. Thus, on this aspect assessee succeeds for statistical purposes. 12. The only other ground remaining is Ground of appeal No.3 in the appeal of the Revenue, which arises from the action of the CIT(A) whereby the recomputation of profits of two units manufacturing mosquito repellent mats and liquid located at Guwahati was reworked by the Assessing Officer. 12.1 In this regard, brief facts are that the assessee company has various manufacturing units spread over Assam, Meghalaya, Tamil Nadu, Pondicherry, etc. Some of the manufactu....