TaxTMI 
TaxTMI 
2022 (2) TMI 1402
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.... 7.54% from its operation. For the assessment year 2014-2015, the return of income was filed on 29.11.2014 declaring total income of Rs.4,29,48,320 and book profits was shown at Rs.3,18,72,671. The return was selected for scrutiny by issuance of notice u/s 143(2) of the I.T.Act. During the course of assessment proceedings, the Assessing Officer made a reference to the TPO for determination of Arm's Length Price (ALP) of the international transactions undertaken by the assessee with its AEs. The TPO passed an order dated 31.10.2017 u/s 92CA of the I.T.Act determining the TP adjustment of Rs.3,40,85,922 in respect of international transaction of sale of goods and Rs.16,99,773 being notional interest on outstanding receivables (total TP addition aggregated to Rs.3,57,85,695). Thereafter, the TPO passed an order dated 13.03.2018 u/s 154 of the I.T.Act recomputing the aggregate adjustment at Rs.3,79,68,090. Pursuant to the TPO's order u/s 92CA of the I.T.Act, draft assessment order was passed on 27.11.2017 inter alia incorporating the aforesaid TP adjustments. Further, the A.O. also proposed to make addition u/s 14A of the I.T.Act and disallowance u/s 37 of the I.T.Act for expenses incu....
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....e not discussed in detail. We shall adjudicate the grounds / issues as under: A. TRANSFER PRICING ADJUSMTNET INTEREST ON DELAYED RECEIVABLE [GROUND 6(d)] 6. The TPO in the order passed u/s 92CA of the I.T.Act, determined the TP adjustment of Rs.16,99,773 (notional interest) in respect of delayed receivable from its AEs. The DRP rejected the contention of the assessee that the adjustment is not required in this regard, since it is not an international transaction. However, the DRP directed the TPO to recompute the interest by taking into consideration the credit period granted by the assessee in the invoices. Pursuant to the DRP's directions, the interest was reworked to Rs.8,91,560. The TPO determined the notional interest by adopting the rate of LIBOR + 300 / 400 basis points. 6.1 The limited submission of the learned AR before the Tribunal is that the rate of interest adopted by the TPO is erroneous and interest paid ought to be adopted at LIBOR + 2%. In this context, the learned AR relied on the Hon'ble Bombay High Court judgment in the case of CIT v. Aurionpro Solutions Limited (judgment dated 09.06.2017 in ITA No.1869/2014) and the order of the Bangalore Bench of t....
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.... case of CIT v. Phoenix Mecano (India) Pvt. Ltd. (judgment dated 07.06.2017 in ITA No.1182/2014). The learned AR further placed reliance on the following orders of the Tribunal:- (a) IKA India (P.) Ltd. v. DCIT reported in (2018) 98 taxmann.com 312 (Bangalore Tribunal) (b) IL Jin Electronics (I) Pvt. Ltd. v. ACIT reported in (2010) 36 SOT 227 (Delhi) (c) CIT v. Petro Araldite Pvt. Ltd. reported in (2018) 93 taxmann.com 438 (Bombay) (d) DCIT v. Starlite reported in 113 TTJ 425 (Mum.) 7.1 The learned DR was duly heard. 7.2 We have heard rival submissions and perused the material on record. The action of the TPO is wholly erroneous and contrary to the provisions of the Act and the Rules made there under. The A.O. has to refer the matter to the TPO for computation of ALP only in relation to the international transactions and the TPO is empowered to compute ALP only in respect of the said international transactions. The Bangalore Bench of the Tribunal in the case of IKA India (P.) Limited v. DCIT (supra) had decided an identical issue and held that the transfer pricing adjustment is to be limited only to the international transactions entered by....
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....tal revenue. The TPO is directed to rework the TP adjustment only in respect of the international transaction undertaken by the assessee with its AEs. It is ordered accordingly. 7.4 In the result, ground 7 is allowed for statistical purposes. B. CORPORATE TAX ISSUES DISALLOWANCE U/S 14A OF THE I.T.ACT (GROUND 10) 8. In the return of income filed, the assessee had made sou moto disallowance of Rs.15,48,462 for expenditure attributable to earning of exempted income. The Assessing Officer by invoking the provisions of section 14A r.w. Rule 8D(2)(ii) and Rule 8D(2)(iii) made an additional disallowance of Rs.47,69,154. 8.1 The objections raised by the assessee before the DRP was rejected. 8.2 Aggrieved, the assessee has raised this issue before the Tribunal. The learned AR submitted that the Assessing Officer has not recorded his dissatisfaction as regards the correctness of the claim made by the assessee. Therefore, the addition made by the A.O. u/s 14A of the I.T.Act ought to be deleted. In this context, the learned AR relied on the judgment of the Hon'ble Apex Court in the case of Maxopp Investments Ltd. v. CIT reported in (2018) 91 taxmann.com 154 (SC). Further,....
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....sment order, it is clear that the Assessing Officer has not recorded his dissatisfaction as regards the correctness of the claim made by the assessee. The working of suo moto disallowance of Rs.15,48,462 is on record. The A.O. has not pointed out any specific reasons having regard to the accounts of the assessee for rejecting the suo moto disallowance by the assessee. Moreover, the assessee has sufficient own funds and borrowed funds were not used for the purpose of making investment. In fact, as per the statutory Auditors report (clause No.16 and 17), all the borrowed funds have been utilized for the purpose for which it has been borrowed. Further, on perusal of the financials, it is clear that the assessee has sufficient own funds which exceeds the investments. Therefore, by placing reliance on the judgment of the Hon'ble Apex Court in the case of CIT v. Reliance Industries Ltd. (supra) and the judgment of the Hon'ble jurisdictional High Court in the case of CIT v. Microlabs Ltd. (supra), we hold that disallowance u/s 14A r.w.Rule 8D(2)(ii) is not warranted in the facts of the instant given case. It is ordered accordingly. 8.8 In the result, disallowance made u/s 14A is delete....
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....nufacturing pharmaceutical products. Those products have been branded with their distinctive trademarks. By the registration of the product the assessee has safeguard against infringement of its patent. By the registration of trademark and patent the assessee has exclusive right of use. By incurring the said expenditure the assessee has protection of its running business, It is argued that patent is a set of exclusive rights granted by a state to an inventor for a limited period of time for a public disclosure of an invention. The exclusive right granted to a patentee in most countries is the right to prevent others from making or using the patented invention without permission. The expenses incurred by us for carrying out various patent registration formalities including statutory fees prescribed in different countries are duly reflected in the copy of accounts, as above. All that the registration of patents did was to enable the Assessee Company to obtain a speedy and less expensive remedy against the infringement of the patent rights. It gives benefit of exclusive right to use its patents. It is incurred for protection of the business of the company. It is thus, incurred wholly ....
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....the assessee was already in the business of manufacturing of pharmaceutical products, and that the assessee also carries on scientific research work. For the protection of the result of the research the assessee has to get the patent registered. Enduring benefit is not the only criteria. An enduring benefit has to be coupled with the acquisition of an asset. There is nothing on record placed by the revenue to establish that there was a new product that was patented or in respect of which trade mark was registered by assessee during the years under consideration. 9. On perusal of ledger accounts placed at page 110 to 242 revels that payments have been made to statutory bodies either for approval or as statutory maintenance in foreign nations. Assessee has also made payments being annual fees to the Medical agencies in foreign nations. All these are recurring in nature. We are thus of the opinion that these payments are inextricably linked to the business of the assessee. Hon'ble Supreme Court in the case of Finlay Mills Ltd. (supra) opined as under: The contention of the revenue was fallacious. The machinery which acquires a greater productive capacity by reaso....
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....sis that the sum would ultimately be exhausted when the object for which it was paid was attained. The House of Lords held that this payment was in the nature of capital expenditure and was therefore not an admissible deduction. Although in the opinions expressed by the different members of the House of Lords the line of approach is not completely the same, the principle stated by Lord Cave in his speech has been accepted as a safe test to distinguish capital expenditure from revenue expenditure. It was recognised that a sum of money expended, not of necessity and with a view to a direct and immediate benefit to the trade, but voluntarily and on the grounds of commercial expediency, and in order indirectly to facilitate the carrying on of business, may yet be expended wholly and exclusively for the purposes of the trade. The Lord Chancellor observed that the question appeared to be a question of fact which was proper to be decided by the Commissioners upon the evidence brought before them in each case. The test that capital expenditure is a thing that is going to be spent once and for all and income expenditure is a thing that is going to recur every year was considered an useful e....