TaxTMI 
TaxTMI 
2017 (3) TMI 1626
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....es, procurement support services, receipt of commission as well as transactions relating to interest received on extended credit period offered on exports. B. International Transaction relating to export of IC Engines 2. Rejection of benchmarking done by the Appellant: 2.1 The learned DCIT erred in law and on the facts and in circumstances of the case pursuant to the directions of the learned DRP in rejecting the "aggregation approach" followed by the Appellant for benchmarking of international transactions in respect of manufacturing function of the Appellant. 2.2 The learned DCIT erred in law and on the facts and in circumstances of the case pursuant to the directions of the learned DRP in accepting the benchmarking done by the Transfer Pricing Officer ["TPO"] and stating that benchmarking done by the Appellant is not reliable. 3. Inappropriate issue of two show cause notices 3.1 The learned DCIT, pursuant to the direction of the learned DRP, erred in law and on the facts and in circumstances of the case in issuing two show cause notices. 4. Inappropriate comparison of profitability of "export to Associated Enterprise....
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.... in circumstances of the case pursuant to the directions of the learned DRP in allocating administrative expenses and selling and distribution expenses on the basis of sales. 7. Inappropriate approach adopted by TPO in application of net profit to cost as Profit Level Indicator (PLI) 7.1 The learned DCIT erred in law and on facts and in circumstances of the case pursuant to the directions of the learned DRP in considering PLI as "net profit to total cost" as against "net profit to sales" as selected by the Appellant without providing cogent reasons. 8. Benefit of the variation / reduction of 5 percent from the arithmetic mean 8.1 The learned DCIT pursuant to the directions of learned DRP has erred in law and on the facts and in circumstances of the case in confirming the computation of arm's length price undertaken by the TPO without considering lower +/- 5 percent range from the price computed based on arithmetic mean as provided in proviso to Section 92C (2) of the Act. C. International Transaction relating to Payment of Royalty 9. Inappropriate approach adopted by the TPO for benchmarking payment of royalty to associated ....
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....ons of the learned DRP erred in rejecting TNMM followed by the Appellant for benchmarking the payment of technical know-how. 10.3 The learned DCIT erred in facts and in circumstances of the case pursuant to the directions of the learned DRP in determining the value of the international transaction of payment of technical know-how as 'Nil' without applying any of the prescribed methods under section 92C(2) of the Act. E. International Transaction relating to Procurement Support Services 11. Inappropriate approach adopted by TPO in benchmarking procurement support services provided to associated enterprises 11.1 The learned DCIT erred in law and on facts and in circumstances of the case pursuant to the directions of the learned DRP, in rejecting the aggregation approach in respect of manufacturing function followed by the Appellant for benchmarking the international transaction relating to provision of procurement support services. 11.2 The learned DCIT pursuant to the direction of the learned DRP erred in facts and circumstances of the case in following cherry picking approach in selection of the comparable companies. 11.....
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....es (NEPI). 14.2 The learned DCIT erred in law and on the facts and in circumstances of the case pursuant to the directions of the learned DRP in not appreciating that the price of the engine sold during the year included NEPI obligation and hence accrual of NEPI fees was a proper charge to the Profit and Loss Account of the company in the year of sale. 14.3 Further the learned DCIT erred in law and on the facts and in circumstances of the case pursuant to the directions of the learned DRP in not appreciating that the provision was made on a scientific basis and it was not excessive / out of proportion as compared to the actual requirements of the Appellant Company. 14.4 The learned DCIT erred in law and on the facts and in circumstances of the case pursuant to the directions of the learned DRP in not following the ratio of the following decisions: (i) The order of ITAT Pune Bench in ITA No. 510/PNI1998 in the case of the Appellant Company for Assessment Year 1994-95 (ii) Rotork Controls India P. Ltd. v. CIT (2009) 314 ITR 62 (SC) (iii) CIT v. Ericssion Communicat....
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....t the Appellant Company had made the provision based on engine-wise detailed scientific working considering past experience which was also filed during the course of Assessment proceedings. 16.4 The learned DCIT erred in law and on the facts and in circumstances of the case pursuant to the directions of the learned DRP in not following the ratio of the following decisions : (i) Rotork Controls India P. Ltd. v. CIT (2009) 314 ITR 62 (SC) (ii) CIT v. Ericssion Communications P. Ltd. (2009) 318 ITR 340 (Delhi) (iii) CIT v. Vinitec Corporation Pvt. Ltd. (2005) 278 ITR 33 (iv) CIT v. Beema Mfrs. (P) Ltd. (2003) 130 Taxman 400 (Mad.) (v) ITO v. Wanson [India] Ltd. [1983] 5 ITD 102 (Pune) (vi) Wipro GE Medical Systems Ltd. v. Dy. CIT (2003) 81 TTJ 455 (Bang.) (vii) IBM India Ltd. v. CIT (2007) 105 ITD 1 (Bang.) 17. Proposed disallowance out of Deduction u/s. 80IB by the DCIT 17.1 The learned DCIT erred in law and on the facts and in circumstances of the case pursuant to the directions of the learned DRP in disallowing the deduction u/s. 80IB by allocating a portion of Head Office Expenses and D....
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....iod of five years for which the Agreement was entered into. 19. Initiation of Penalty Proceedings 19.1 The learned DCIT erred on the facts and in law in initiating penalty proceedings under section 271(1) (c) of the Act. 20. Each one of the above grounds of appeal is without prejudice to the other. 3. The first issue raised in the present appeal is against transfer pricing adjustment made by the Assessing Officer / Dispute Resolution Panel (DRP) amounting to Rs. 40,64,87,070/- on account of international transaction entered into by the assessee with its associate enterprises pertaining to export of IC Engines, Payment of royalty and technical know-how fees, procurement support services, receipt of commission as well as transaction relating to interest received on extended credit period offered on exports. 4. Briefly, in the facts of the case, the assessee had furnished return of income declaring total income of Rs. 210,40,80,385/- on 23.11.2006. The case of the assessee was selected for scrutiny. In view of various international transactions detailed in the audit report in Form 3CEB, reference under section 92CA(1) of the Act was m....
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....of Rs. 4.01 crores towards interest on extended credit. It was further seen that the gross margins to sales in respect of third party sales stood at 21.33% compared to 16.77% gross margins excluding the amount of interest received on extended credit, was generated from exports to associate enterprises. The TPO in view of the internal comparable available for benchmarking the transactions relating to export of IC engines to associate enterprises, proposed to adopt Cost Plus Method (CPM) for the purpose of benchmarking and also adopting gross profit as Profit Level Indicator (PLI). The assessee was thus, show caused to explain as to why the adjustment should not be made towards international transaction undertaken by the assessee towards export of IC engines to associate enterprises. 5. The next item considered was the payment of royalty. The TPO noted that the rates of royalty paid ranges from 1% to 8% and the total royalty paid was Rs. 22,28,27,492/-, out of which royalty amount paid @ 8% of net sales was at Rs. 17,13,10,967/-. The TPO worked out the said payment of royalty @ 4.56% on total sales of Rs. 375.95 crores. The assessee was asked to give the details in respect of the ....
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....s worked out to 5.99% as against 10.77% of LHP Division. The TPO rejected the aggregation of transactions and proposed an adjustment on account of receipt of commission at Rs. 43.24 lakhs and the financing activities at Rs. 1.41 crores. No adjustment was proposed to the LHP division. 8. The TPO vide para 7 after considering the details filed in respect of international transactions relating to export of manufactured IC engines to associate enterprises, issued another show cause notice to the assessee dated 07.10.2009. The TPO refers to the earlier show cause notice issued and the reply of assessee and made observations in respect of international transactions relating to export of manufactured IC engines to the associate enterprises. The TPO took note of the fact that the comparability was made by the assessee at the level of net profit margins in case of exports to associate enterprises of the manufactured IC engines. However, the TPO was of the view that allocation of expenses wherein administrative expenses of Rs. 39.35 crores had been allocated against domestic sales, whereas Rs. 8.49 crores was allocated to exports to associate enterprises and similarly, in respect of selli....
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....dministrative expenses and selling & distribution expenses and re-computed the proposed adjustment of Rs. 34,17,53,480/- to the international transactions relating to export of IC engines. In respect of payment of royalty, wherein the assessee had paid royalty @ 8% on net sales towards manufactured goods exported to its associate enterprises. The TPO noted the contention of assessee that effective rate of royalty on gross sales of Rs. 961.24 crores worked to 2.32%, whereas the average rate of royalty paid by other companies worked out to 3.5% and hence, the same was at arm's length price, but rejected the same, where the rates of royalty on other group companies were at 3% - 4% for both domestic and exports, whereas in the instant case, rate of royalty was 8%. The TPO was of the view that in case the rate of royalty was up to 5% on net sales, the same were at arm's length price. However, the royalty paid at 8% was very higher. Another aspect noted by the TPO was that Cummins Inc had incurred expenditure of about 3% of sales during the year and if the expenditure was 3% of sales, then he was of the view that royalty @ 3.5% on gross sales as proposed in the show cause notice ....
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....esentative for the assessee herein pointed out that after receiving the reply of assessee explaining all the issues raised in the show cause notice, the TPO did not propose any addition but issued second show cause notice, wherein he proposed that CPM method may be applied for benchmarking international transactions of export of IC engines and payment of royalty. He pointed out that the TPO has mislead himself in comparing the two activities undertaken by the assessee i.e. manufacturing of items and sale to domestic market with the manufacturing and sale to associate enterprises. He pointed out that wherein, there was difference in the products and there was functional difference and also difference in risk in two activities undertaken by the assessee, there could not be comparison between the same. In any case, he pointed out that the comparison, if any is to be with Uncontrolled Transactions and not with the controlled transactions. The learned Authorized Representative for the assessee thereafter, referred to third show cause notice issued by the TPO, wherein he referred to allocation of administrative and selling expenses on sales ratio basis. He pointed out that the assessee h....
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.... way of domestic sales. Our attention was also drawn to the list of administrative expenses, where the cost of depreciation, rent, rates and repairs & maintenance were all debited to the domestic margins. The learned Departmental Representative for the Revenue questioned the basis of allocation of expenses by the assessee. He further stated that where the comparables were available internally, then the TPO applied the margins to benchmark the international transactions undertaken by the assessee, which is acceptable. Similarly, where the assessee had not maintained separate books of account and where the activity undertaken was common, then allocation of expenses was also aggregated. He further pointed out that the assessee had imported components which were used for both domestic and export sales and the TPO had not made any comparison of utilization. He relied on the reasoning of TPO in applying TNNM method with net margins as PLI. 14. We have heard the rival contentions and perused the record. The assessee is engaged in manufacture and sale of IC engines for power generation and industrial applications in the domestic market and it also manufactures and sells IC engines and c....
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....t the operations undertaken by it were predominantly relating to manufacture of internal combustion engines which in turn, are used for various applications and all the transactions should be aggregated as done by the assessee in its transfer pricing study report and the same be accepted to be arm's length price. The first issue raised by the assessee before us in this regard is as to whether such aggregation should be made in the hands of assessee. The learned Authorized Representative for the assessee in this regard has placed reliance on the ratio laid down by the Pune Bench of Tribunal in Cummins India Ltd. (supra) (dated 31.12.2014), which in turn, had followed the ratio laid down in Demag Cranes & Components (India) (P.) Ltd. v. Dy. CIT [2013] 30 taxmann.com 364/56 SOT 187 (Pune - Trib.). The concern Cummins India Ltd. in assessment year 2005-06 before the Tribunal was engaged in after market support for IC engines sold by Cummins entities. The activities consisted of customer support through sale of spare parts of Cummins engines, of Cummins products manufactured worldwide and also by Cummins India Ltd. Various international transactions were undertaken with the associat....
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....nclude 1. Some long term contracts for the supply of commodities or services; 2. Rights to use intangible property; and 3. Pricing a range of closely linked products (e.g. in a product line) when it is impractical to determine pricing for each individual product or transaction. Another example would be the licensing of manufacturing know- how and the supply of vital components to an associated manufacturer; it may be more reasonable to access the arm's length terms for the two items together rather than individually. Such transactions should be evaluated together using the most appropriate arm's length method. A further example would be the routing of a transaction through another associated enterprise; it may be more appropriate to consider the transaction of which the routing is a part in its entirety, rather than consider the individual transactions on a separate basis." 31. In this background, considering the legislative intent manifested by way of Rule 10A(d) read with Rule 10B of the Rules, it clearly emerges that in appropriate circumstances where closely linked transactions exist, the same should be treated as one composite transaction and a common transfer prici....
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....quently individuals orders are released for specific quantities. The various purchase transactions are closely linked transactions. 13.8 It may be noted that in order to be closely linked transactions, it is not necessary that the transactions need be identical or even similar. For example, a collaboration agreement may provide for import of raw materials, sale of finished goods, provision of technical services and payment of royalty. Different methods may be chosen as the most appropriate methods for each of the above transactions when considered on a standalone basis. However, under particular circumstances, one single method maybe chosen as the most appropriate method covering all the above transactions as the same are closely linked." (Underlined for emphasis by us). 32. In this background, we may now examine the facts of the present case. The primary activity of the assessee is to manufacture material handling equipments viz. cranes and hoists. It is seen from the documents placed in the Paper Book that the assessee enters into a single negotiation with the customers, which, inter-alia, includes manufacturing and supply of the material handling equipment, pro....
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....noted earlier, it is only on account of the manufacturing activity that the activity of commissioning and installation of the equipment arises and pertinently all the aforesaid activities are negotiated and contracted for at one instance. With regard to the segmental profitability referred by the Assessing Officer, the position has been clarified by the assessee. According to the assessee, in the financial statements affirmed by the Auditors, the activities have been clubbed together in accordance with the Accounting Standards prescribed by the ICAI. It was clarified that the segmental profits were worked out by the assessee only at the asking of the TPO during the proceedings before him. The learned counsel pointed out with reference to the chart in this regard placed in the Paper Book and submitted that the segmental profitability was not computed on the basis of any separately maintained records viz. books of account or vouchers but was computed by undertaking a statistical exercise. The costs were allocated as a proportion of sales/revenues and not an actual basis. In view of the aforesaid fact situation, we do not find that the availability of separate segmental profits in the....
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.... of determining the arm's length price. In case, there is close link exists between the different transactions, the same should be treated as composite transaction and appropriate method should be applied to work out the transfer pricing analysis. Where two or more transactions emanate from common source being an order or contract or an agreement or an arrangement, then such transactions could be said to be closely linked as the nature, characteristic and terms of such transaction substantially flow from the said common source. 27. In the above said background, we analyse the different international transactions entered into by the assessee as pointed out by us in the paras hereinabove. The business of the assessee company was to provide aftermarket support to IC engines sold, in the form of sale of spare parts and rendering of after sales service including warranty administration. The assessee is thus, providing after sales support for engines sold by Cummins India Ltd., Cummins INC, etc. which were under warranty period and also post warranty period. The servicing, repair and annual maintenance contract, warranty period and for post warranty period were the services provid....
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....assessee was of import of spare parts to Rs. 29.45 crores as against which, the export of spare parts was only Rs. 0.87 crores. The payment for IT support received from associated enterprises was Rs. 1.09 crores and the payment for access to customized part catalogues was Rs. 0.02 crores. Further, the assessee had received Rs. 0.76 crores against warranty administration. All these international transactions are linked to the main business being carried on by the assessee and such closely linked transactions are to be analysed in aggregate to determine the arm's length price. The aggregation of the import of spare parts, export of spare parts, IT support services, access to customized parts catalogue and amount received for warranty consideration are inter-related transactions, which were the sourcing activities of the assessee company and have to be aggregated in order to benchmark the international transactions. The assessee had benchmarked the arm's length price of all the transactions by comparing results of the comparable companies which were found to be at arm's length price. The assessee had also furnished the segmental Profit & Loss Account for the exports to ass....
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....activity of importing engine parts and components, payment of royalty for getting know-how, provision of miscellaneous service i.e. procurement support services to the associate enterprises to help the sourcing of components, receipt of IT support services, design services and payment of technical know- how fees, etc. is closely linked to the export of manufactured IC engines. The principle of aggregation of closely linked transactions for undertaking benchmarking analysis applying TNNM method has been approved by the Hon'ble High Court of Delhi in Sony Ericsson Mobile Communications India (P.) Ltd. v. CIT [2015] 374 ITR 118/231 Taxman 113/55 taxmann.com 240. Accordingly, we hold that for benchmarking international transactions, various activities undertaken by the assessee under the head 'manufacturing activities' need to be aggregated. The Assessing Officer / TPO is directed so. 17. Now, coming to the second related issue arisen to benchmark the international transactions of the assessee. The TPO had issued various show cause notices to the assessee. In the first show cause notice, the assessee was asked to benchmark the international transactions by following TNNM....
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....#39;s appeal with CO No.53/PN/2014 and the Tribunal vide order dated 29.01.2016 held that in view of the provisions of Rue 10B(e) of the Rules as well as para 3.26 of OECD Guidelines and various other decisions, net profit margins of controlled transactions had to be compared with net profit margins of uncontrolled transactions. The Tribunal also held that comparing of gross margins was not envisaged under the IT Rules. Reliance was placed on the findings of CIT(A) in this regard, which are reproduced under para 17 at pages 10 to 11 of the Tribunal's order. The perusal of same reflects that the finding of CIT(A) which have been upheld by the Tribunal are that it has not been demonstrated by the assessee that there was material variation in margins of each product type, where all the manufactured products of the assessee fell into the basket of IC engines. The plea of assessee that it undertook functionally assumed more risk in the domestic market were rejected and it was observed that unless the enterprise demonstrates with relevant facts as to why it earned lower profits while exporting to associate enterprises as against domestic market, the assessee's argument on this is....
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....ises segment and domestic sales segment. The ground of appeal No.2.6 is on the difference in FAR analysis of sales in export market than in domestic market. However, all these grounds of objections were not pressed by the assessee before the Tribunal and the same were dismissed while deciding the appeal relating to assessment year 2005-06 (order dated 29.01.2016). Further, the learned Authorized Representative for the assessee had placed reliance on various decision on difference between the sales in export market as compared to the sales of domestic market and difference in their margins. However, in view of withdrawal of similar issues by the assessee before the Tribunal in earlier year, we are not referring to the ratios laid down by the said decisions. 20. Another linked issue raised by the assessee is while computing the PLI and the cost have been re-worked by the Assessing Officer / TPO by comparing with administrative expenses for domestic segment and the exports. The assessee claimed that while preparing segmental profitability, it had applied generally accepted Costing Principles to allocate expenses. However, the Assessing Officer / TPO had rejected the same without an....
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....rking various payments made by the assessee i.e. by way of ground of appeal No.9, payment of royalty, ground of appeal No.10 of payment of technical know-how fees to associate enterprises, ground of appeal No.11 of procurement support services provided to associate enterprises. 25. In the paras hereinabove, we have already held that all these international transactions are to be aggregated and benchmarked in the hands of assessee. Accordingly, we do not adjudicate these issues individually and the Assessing Officer is directed to compute the arm's length price of international transactions and make adjustment, if any, after aggregating international transactions undertaken by the assessee under the head 'manufacturing activity'. 26. By way of ground of appeal No.5, the assessee is aggrieved by the order of TPO in ignoring interest received on extended credit while computing segmental profitability of exports to associate enterprises, since the same is linked to exports to associate enterprises, the same should be considered for ascertaining the segmental profitability of exports to associate enterprises. Accordingly, the grounds of appeal No.5, 9 to 11 are allowed....
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....The comparison of controlled transactions with another controlled transaction was held to be not correct. The learned Authorized Representative for the assessee in this regard, placed reliance on the ratio laid down by Mumbai Bench of Tribunal in Asstt. CIT v. Fuchs Lubricants (India) (P.) Ltd. [2013] 30 taxmann.com 404/56 SOT 246. 30. The learned Departmental Representative for the Revenue placed reliance on the order of TPO. 31. We have heard the rival contentions and perused the record. The assessee in addition to carrying on of its manufacturing activity had also declared another segment of receipt under the head 'sourcing activity', under which it had declared receipt of commission at Rs. 55,54,281/- to be at arm's length price by applying TNNM method as most appropriate method. The assessee had received commission of Rs. 14.21 lakhs from CPG, Kent, on sale of imported DG sets and sale to third party customers in India. Further, it had received commission of Rs. 41.33 lakhs from CPG, Singapore, wherein the gensets were directly sold by the associate enterprises to third party customers in India, introduced by the assessee. The TPO had benchmarked the transact....
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....in Varroc Engg. (P) Ltd. v. Asstt. CIT [2015] 54 taxmann.com 384 (Pune - Trib.). 35. We have heard the rival contentions and perused the record. The issue arising before us is in relation to interest charged by the assessee company to its associate enterprises on the outstanding amount due to the assessee, wherein as against credit period of 90 days, the amount was not received for further period of 60 days. Similar issue arose before the Pune Bench of Tribunal in iGATE Computer Systems Ltd. (supra) and it was held as under:- '29. The issue arising before us is in relation to the arm's length price of interest charged by the assessee company to its AEs on the amounts outstanding. The Mumbai Bench of Tribunal in Hinduja Global Solutions Ltd. Vs. Addl.CIT (2013) 145 ITD 361 (Mum) had held that CUP method was the most appropriate method to determine the arm's length rate of interest of the international transaction involving lending of the money by assessee in foreign currency to its AEs and LIBOR being inter-bank rate fixed for international transaction had to be adopted as arm's length rate. The Mumbai Bench of Tribunal further in DCIT Vs. Indian Hotels C....
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....ging of interest on the loans advanced to the associated enterprises by the assessee. Where the assessee had made the borrowings on LIBOR+ rates and advanced the same at LIBOR+ rates, then the said transaction is at arm's length price and there is no merit in any adjustment to be made on this account. 16. The Chennai Bench of the Tribunal in M/s. Siva Industries & Holdings Limited Vs. ACIT, Chennai (2012) 26 taxmann.com 96 (Chennai) had held as under:- "The assessee had given the loan to the associated enterprises in US dollars, and assessee was also receiving interest from the associated enterprises in Indian rupees. Once the transaction between the assessee and the associated enterprises was in foreign currency and the transaction was an international transactions, then the transaction would have to be looked upon the applying the commercial principles in regard to international transactions. If that was so, then the domestic prime lending the rate would have no applicability and the international rate fixed being LIBOR would come into play. In the circumstances, the view that LIBOR rate had to be considered while determining the arm's length price inter....
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.... arm's length price of the international transactions. Reasonable opportunity of being heard shall be afforded to the assessee by the Assessing Officer / Transfer Pricing Officer. The grounds of appeal Nos.1 and 2 raised by the assessee are thus, allowed as indicated above." 31. The learned Departmental Representative for the Revenue placed reliance on the ratio laid down by the Delhi Bench of Tribunal in Cheil India (P.) Ltd. Vs. DCIT (supra). We find no merit in the said reliance placed upon by the learned Departmental Representative for the Revenue where it was directed that the interest should be computed on the basis of SBI base rate plus 150 basis points on the amount outstanding from the debtors. On the other hand, Pune Bench of Tribunal in Varroc Engineering (P) Ltd. Vs ACIT (supra) and other Benches of the Tribunal have upheld the application of international rates of interest to be applied for benchmarking the international transactions. 32. The assessee in the present set of facts was carrying on its business with its AEs and the majority of business receipts were receivable from the AEs. Once the transaction between the assessee and its AEs was in foreign curr....
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.... from its AEs. The grounds of appeal raised by the assessee are thus, partly allowed.' 36. Following the same parity of reasoning, we hold that LIBOR + rates have to be applied to the amounts due from associate enterprises for the extended period of credit and the extended period of credit. The Assessing Officer is directed to follow our directions in iGATE Computer Systems Ltd. (supra) to adjudicate the issue after affording reasonable opportunity to the assessee. 37. Now coming to the corporate issues raised by the assessee, the Ld. Authorised Representative for the assessee pointed out that Ground of appeal No.18 against disallowance out of depreciation of intangibles is not pressed, hence the same is dismissed as 'not pressed'. Ground of appeal No.19 against initiation of penalty proceedings is premature and hence the same is also dismissed. 38. The issue by way of Ground of appeal No.14 raised by the assessee is against disallowance of incremental provision for New Engine Performance Inspection Fee (in short "NEPI Fee'). 39. Brief facts relating to the issue are that during the year under consideration the assessee had made incremental provision for....
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....years of engine operation whichever is earlier 43. The inspections carried out by the assessee was to check the performance of IC Engines and such services were vital business requirements. The assessee pointed out that these inspections to the end user were being provided under contractual obligation since the products manufactured by the assessee were technically complex and considering its usage there was necessity to provide such inspection and servicing for certain specific period, after the equipment was commissioned. The assessee also claims that the selling price fixed by it includes the element of inspection to be offered and thus under the principles of matching costs and revenue, all the costs associated with revenue have to be recognized in the year, in which the revenue was recognized. 44. From the perusal of details, it transpires that the assessee was following a scientific basis for making the aforesaid provision which is not a contingent expenditure as the provision is made in relation to the IC Engines sold by the assessee. The assessee no doubt is making the provision and after the lapse of the period of inspection in case the expenditure has not ....
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....provision of Rule 8D of the Income Tax Rules were not applicable. He further pointed out that the assessee has sufficient reserves and surplus and current income, to make the aforesaid investments out of which majority of the investments are strategic investments and the income from the strategic investments made by the assessee in sister concerns or related concerns is to the tune of 78.52%. The Ld. Authorised Representative for the assessee also pointed out that similar disallowance under section 14A of the Act was made in Assessment Year 2005-06 wherein the Tribunal (order dated 29-01-2016) held that the provisions of Rule 8D were not applicable and disallowance on account of administrative expenses to the tune of Rs. 2 lakhs was made in the hands of the assessee. 49. The Ld. Departmental Representative for the revenue placed reliance on the orders of the authorities below. 50. We have heard the rival contentions and perused the record. The issue which arises in this ground is against disallowance under section 14A of the Act. The year under appeal is Assessment Year 2006 -07 and the provisions of Rule 8D of the Income Tax Rules do not apply to the instant assessment year ....