Contitech India Pvt. Ltd., New Delhi V. DCIT, New Delhi

ITA 5765/DEL/2012

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 81591 (ITAT-DELHI)
• Duration Of Justice: 1 year(s) 9 month(s) 16 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-08-2014
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: I
• Next Hearing Date: 27-08-2014
• Assessment Year: 2008-2009
• Appeal Filed On: 12-11-2012
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Assessee Lawyers: AJAY VOHRA SHRI NEERAJ JAIN
• Keywords: Transfer pricing; Opportunity of being heard; International transaction; Earning of tax free income; Additional evidence; Wholly owned subsidiary; Commercial expediency
• Section: 143(3); 14A; 10B; 144

Judgement Text

ITA NO. 5765/DEL/2012 1 IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH I, NEW DELHI BEFORE SHRI R.S. SYAL ACCOUNTANT MEMBER AND SHRI GEORGE GEORGE K, JUDICIAL MEMBER I.T.A. NO. 5765/DEL/12 A.Y. : 2008-09 CONTITECH INDIA PVT. LTD. 301,HIMLAND HOUSE, NAJAFGARH ROAD, OPP. MILAN CINEMA, NEW DELHI (PAN AABCR6921P) VS. DCIT, CIRCLE-3(1) NEW DELHI. (APPELLANT) (RESPONDENT) ASSESSEE BY : SH. AJAY VOHRA, ADVOCATE, SHRI NEERAJ JAIN, ADVOCATE DEPARTMENT BY : SHRI YOGESH KUMAR VERMA, CIT DR PER GEORGE GEORGE K, JM THIS APPEAL ARISES OUT OF ASSESSMENT ORDER DA TED 12.9.2012 PASSED U/S 143(3) READ WITH SECTION 144 C OF THE ACT, IN RELATION TO ASSESSMENT YEAR 2008-09. 2. THE GROUNDS RAISED READ AS FOLLOWS :- 1. THAT THE ASSESSING OFFICER ERRED ON FACTS AN D IN LAW IN COMPLETING ASSESSMENT UNDER SECTION 144C/143(3) OF THE INCOME- TAX ACT, 1961 (THE ACT) AT AN INCOME OF RS. 12,42,56,100 AS AGAINST T HE INCOME OF RS. 10,95,02,380/- RETURNED BY THE APPELLANT. 2. THAT THE ASSESSING OFFICER ERRED ON FACTS AND IN LAW IN MAKING AN ADJUSTMENT OF RS. 1,42,20,920/- TO THE ARMS LENGTH PRICE OF T HE INTERNATIONAL TRANSACTIONS OF PAYMENT OF CORPORATE EXPENSE (INTR A GROUP CHARGES) ON THE BASIS OF THE ORDER PASSED UNDER SECTION 92CA(3) OF THE ACT BY THE TPO. 2.1. THAT THE ASSESSING OFFICER / TPO ERRED ON FACT S AND IN LAW IN CONSIDERING THE ARMS LENGTH PRICE OF INTERNATIONAL TRANSACTIONS OF PAYMENT OF CORPORATE CHARGES AT RS. 1,580,102 AS AGAINST RS. 1,50,81,012 INCURRED BY THE ITA NO. 5765/DEL/2012 2 APPELLANT, HOLDING THAT (I) NO SUCH SERVICE HAS BEE N RECEIVED BY THE APPELLANT (II) COST ARE CHARGED ON ALLOCATION BASIS AND THERE FORE, SOME OF THE GROUP COST MAY BE LOADED IN APPELLANT SHARE OF CORPORATE CHARG ES. 2.2 THAT THE ASSESSING OFFICER /TPO ERRED ON FAC TS AND IN LAW IN NOT APPRECIATING THAT THE PAYMENT OF CORPORATE CHARGES WAS VALIDLY B ENCHMARKED APPLYING TNMM AS MOST APPROPRIATE METHOD AND THAT NO ADVERSE INFERENCE COULD BE DRAWN ON THIS ACCOUNT. 2.3 THAT THE ASSESSING OFFICER / TPO ERRED ON FAC TS AND IN LAW IN COMPUTING ADJUSTMENT ON ACCOUNT OF INTERNATIONAL TRANSACTION OF PAYMENT OF CORPORATE CHARGES WITHOUT REASONABLY APPLYING ANY PRESCRIBED METHODS, THEREBY, VIOLATING THE BASIC PRINCIPLES OF TP REGULATIONS. 2.4 THAT THE ASSESSING OFFICER/TPO ERRED ON FACT S AND IN LAW IN UNDERTAKING COST BENEFIT ANALYSIS TO DETERMINE THE ARMS LENGTH PRICE OF PAYMENT OF CORPORATE CHARGES WITHOUT APPRECIATING THAT COST-BENEFIT ANAL YSIS IS NOT A PRESCRIBED METHOD UNDER RULE 10B OF INCOME TAX RULES, 1963. 2.5 THAT THE ASSESSING OFFICER/TPO ERRED ON FACTS AND IN LAW IN APPLYING CUP METHOD FOR BENCHMARKING THE TRANSACTION OF PAYMENT OF CORPORATE CHARGES WITHOUT PLACING ON RECORD ANY COMPARABLE DATA FOR C OMPARISON. 2.6 THAT THE ASSESSING OFFICER /TPO ERRED ON FAC TS AND IN LAW IN NOT APPRECIATING THAT THE EXPENDITURE ON THE PAYMENT OF CORPORATE CH ARGES WAS WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS OF THE APPE LLANT. 3. THAT THE ASSESSING OFFICER ERRED ON FACTS A ND IN LAW IN DISALLOWING A SUM OF S. 5,32,712/- UNDER SECTION 14A OF THE ACT, WITHOUT AP PRECIATING THAT NO EXPENDITURE, DIRECT OR INDIRECT, WAS INCURRED BY TH E APPELLANT IN EARNING THE EXEMPT DIVIDEND INCOME. 3.1. THAT THE ASSESSING OFFICER/DRP ERRED ON FACT S AND IN LAW IN NOT APPRECIATING THAT ONLY EXPENDITURE HAVING NEXUS TO THE EARNING O F EXEMPT INCOME COULD BE DISALLOWED UNDER SECTION 14A OF THE ACT. 3.2 THE ASSESSING OFFICER ERRED ON FACTS AND IN L AW IN MAKING THE AFORESAID DISALLOWANCE BY SIMPLY APPLYING THE FORMULA GIVEN I N RULE 8D OF THE INCOME TAX RULES, 1962, WITHOUT APPRECIATING THAT THE SAID RULE HAD NO APPLICATION ON THE FACTS OF THE APPELLANTS CASE. 2.1 GROUND NO. 1 IS GENERAL IN NATURE AND NO SPEC IFIC ADJUDICATION IS CALLED FOR, HENCE, THE SAME IS DISMISSED. GROUND NO. 2 TO 2.9 R ELATE TO TRANSFER PRICING ADJUSTMENT ON ACCOUNT OF INTERNATIONAL TRANSACTIONS OF PAYMENT OF CORPORATE CHARGES. GROUND NO. 3 TO 3.2 IS WITH REFERENCE TO D ISALLOWANCE OF A SUM OF RS. ITA NO. 5765/DEL/2012 3 5,32,712/- BY INVOKING THE PROVISIONS OF SECTION 14 A OF THE ACT READ WITH RULE 8D OF THE INCOME TAX RULES 1962. 3. THE ASSESSEE IS A WHOLLY OWNED SUBSIDIARY OF R OULANDS RUBBER, DENMARK. IT IS ENGAGED IN THE BUSINESS OF MANUFACTURING OF AUTOMOT IVE POWER TRANSMISSION V-BELTS AND INDUSTRIAL POWER TRANSMISSION V-BELTS. FOR THE ASSESSMENT YEAR UNDER DISPUTE THE ASSESSEE FILED RETURN OF INCOME, DECLARING INCO ME OF RS. 10,93,11,580/-. THE ASSESSMENT WAS COMPLETED VIDE ORDER DATED 12.9.2012 UNDER SECTION 143(3) READ WITH SECTION 144C OF THE ACT, ASSESSING THE INCOME OF THE ASSESSEE AT RS. 12,42,56,100/- AFTER MAKING THE FOLLOWING ADDITION : I) TRANSFER PRICING ADJUSTMENT ON IN TERNATIONAL TRANSACTION OF PAYMENT OF CORPORATE CHARGES RS. 1,42,20, 920/- ON ACCOUNT OF INTERNATIONAL TRANSACTION OF PAYMENT OF CORPOR ATE CHARGES II) DISALLOWANCE U/S 14A RS. 5,32, 712/- 3.1. THE ASSESSEE BEING AGGRIEVED IS IN APPEAL BEFORE US. WE SHALL FIRST ADJUDICATE THE TRANSFER PRICING DISPUTE AND THEN TH E DISALLOWANCE MADE U/S 14A OF THE ACT. TRANSFER PRICING ADJUSTMENT OF RS. 1,42,20,920/- ON ACCOUNT OF INTERNATIONAL TRANSACTION OF PAYMENT OF CORPORAT E CHARGES (GROUNDS 2 TO 2.6) 4. DURING THE RELEVANT YEAR, THE ASSESSEE IN TERMS OF AGREEMENT DATED 20 TH OCTOBER, 2006 FOR AVAILING THE TECHNICAL, MARKETING AND ADMINISTRATIVE SUPPORT SERVICES HAS ENTERED INTO, INTER ALIA, INTERNATIONA L TRANSACTION OF PAYMENT OF CORPORATE CHARGES OF RS. 1,58,01,022/- WITH ITS ASS OCIATED ENTERPRISES. IN THE TRANSFER PRICING STUDY OF THE ASSESSEE, THE SAID TR ANSACTION WAS, FOR THE PURPOSE OF BENCHMARKING, AGGREGATED WITH OTHER INTERNATIONAL T RANSACTIONS AND BENCHMARKED ITA NO. 5765/DEL/2012 4 APPLYING TNMM AS THE MOST APPROPRIATE METHOD WITH O P/OC AS THE PROFIT LEVEL INDICATOR (PLI). THE OPERATING PROFIT MARGIN TO C OST (OP/OC%) OF THE ASSESSEE WAS SHOWN AT 19% WHICH BEING HIGHER THAN THE WEIGHTED A VERAGE PROFIT MARGIN OF 20 COMPARABLE COMPANIES AT 12.48%, THE INTERNATIONAL T RANSACTIONS UNDERTAKEN BY THE ASSESSEE WITH ASSOCIATED ENTERPRISE WAS SOUGHT TO B E JUSTIFIED AT ARMS LENGTH PRICE. 4.1 THE TPO, HOWEVER, REJECTED THE TNMM APPLIED B Y THE ASSESSEE AND BENCHMARKED THE TRANSACTION OF PAYMENT OF CORPORATE CHARGES AMOUNTING TO RS. 1,58,01,022/- APPLYING CUP METHOD. THE TPO HAS MADE THE TRANSFER PRICING ADJUSTMENT IN RESPECT OF THE SAID SERVICES BY OBSER VING AS UNDER :- THE ASSESSEE HAS NOT BEEN ABLE TO SHOW THAT ANY SER VICE HAS ACTUALLY PASSED TO IT, EXCEPT PARTLY IN THE CASE OF OPERATIO NS AND SUPPLY CHAIN MANAGEMENT WHERE IT PURCHASES ITS RAW MATERIALS AND TRADED GOODS FROM THE AES AND DUE CREDIT HAS BEEN GIVEN FOR THIS. NO INDEPENDENT PARTY WOULD HAVE MADE A PAYMENT IN UNCONTROLLED CIRCUMSTA NCES FOR THE EVIDENT LACK OF SERVICES. THEREFORE, BY THE APPLICA TION OF CUP, THE ARMS LENGTH OF THIS TRANSACTION OF PAYMENT OF SERVICE FE E IS DETERMINED AT RS. 7,20,010/- AS AGAINST RS. 1,58,01,022 DETERMINED BY THE ASSESSEE. 4.2 THE DISPUTE RESOLUTION PANEL (DRP) SUSTAIN ED TRANSFER PRICING ADJUSTMENT MADE BY THE TPO. HOWEVER THE DRP ON AN AD-HOC BASIS INCREASED DEDUCTION FROM 5% AS ALLOWED BY THE TPO TO 10% OF THE TOTAL EXPEN DITURE. THE RELEVANT FINDING OF THE DRP NEED AS FOLLOWS :- ASSESSEES SUBMISSION FILED ON 22.8.2012 GIVING T HE ALLOCATION KEY HAVE BEEN CONSIDERED EXPENSE ALLOCATED TO INDIA ARE PRODUCT, PLANT ADMINISTRATION, SELLING INCLUDING PE SELLING AND F.G. & A. INVOICES, TRAVEL DETAILS HAVE BEEN SUBMITTED. HOWEVER, DPR FINDS THAT THESE COSTS ARE CHARGED TO THE ASSESSEE NOT ON ACTUAL BUT ON ALLOCATION BASIS. IN THE CIRCUMSTANCES, IT C ANNOT BE DENIED THAT SOME OF THE GROUP COSTS MAY BE LOADED ON THIS CHARGE OUT. THE TPO HAS ALLOWED 5% ADHOC DEDUCTION ON THIS ACCO UNT. BUT AFTER EXAMINING ALL THE SUBMISSIONS AND THE ECONOMIC FACTORS INCLUD ING INCREASE IN SALES AND THAT AS OEM ASSESSEE IS SUPPLYING TO LARGE NUMBERS OF COMPANIES WHICH IS NOT POSSIBLE UNLESS THE PRODUCT IS OF HIGH QUALITY AND THAT THERE IS A MARK UP ITA NO. 5765/DEL/2012 5 PERSONNEL COSTS OF 3%. DRP IS OF THE VIEW THAT ADHO C ALLOWANCE OF 10% INSTEAD OF 5% ALLOWED BY TPO WOULD BE FAIR AS BEING ACTUALL Y HAVING BEEN INCURRED WHOLLY FOR PURPOSE OF BUSINESS. 4.3 THE ASSESSEE BEING AGGRIEVED IS IN APPEAL BEF ORE US. THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT ROULANDS DENMARK (ASSESSEE S PARENT COMPANY) WAS TAKEN OVER BY CONTINENTAL AG, GERMANY. AFTER THE TAKE OVE R, IT WAS SUBMITTED THAT THERE WAS A NEED FOR CHANGE IN THE BUSINESS MODEL AND ACC ORDINGLY THE ASSESEE AND CONTITECH AG GERMANY (AE) ENTERED INTO AN AGREEMENT DATED 20 TH OCTOBER, 2006, FOR AVAILING VARIOUS TECHNICAL, MARKETING AND ADMINISTR ATIVE SUPPORT SERVICES. IT WAS SUBMITTED IN TERMS OF AGREEMENT BETWEEN THE ASSESSE E AND ITS AE, THE CORPORATE CHARGES WERE ONLY ON ACTUAL BASIS AND ON PERSONNEL RELATED EXPENSES THE AE HAD CHARGED A MARK UP OF 3% ON COST. ACCORDINGLY , DURI NG THE RELEVANT PREVIOUS YEAR, THE ASSESSEE HAD MADE A PAYMENT OF A SUM OF RS. 1,5 8,01,022/- TO CONTINENTAL AG GERMANY FOR THE VARIOUS SERVICES IN TERMS OF THE AG REEMENT DATED 20 TH OCTOBER, 2006. IT WAS FURTHER SUBMITTED THAT THE ABOVE SAID EXPENSES WERE IN THE INTEREST OF ASSESSEES BUSINESS AND COMMERCIAL EXPEDIENCY AND T HE SAME IS TO BE ALLOWED. 4.3.1 IN ORDER TO REBUT THE CONCLUSION ARRIVED AT BY THE TPO/DRP, THE ASSESSEE BY WAY OF ADDITIONAL EVIDENCE IN TERMS OF APPLICATION DATED 4.7.2014 UNDER RULE 29 OF THE ITAT RULES, HAS PLACED ON RECORD, THE FOLLOWING : DETAILS SUMMARY OF INVOICES RAISED ON THE ASSESSEE DURING T HE FINANCIAL YEAR 2007-08 DETAILED BREAK UP OF INVOICES ON THE BASIS OF NATUR E OF SERVICES SUMMARY OF MAN HOURS SPENT BY VARIOUS DIVISION OF T HE ASSOCIATED ENTERPRISE IN RENDERING TECHNICAL, MARKETING AND ADMINISTRATIVE S ERVICES TO CONTITECH GROUP COMPANIES ITA NO. 5765/DEL/2012 6 COPY OF INVOICES RAISED BY THE ASSOCIATED ENTERPRIS E NATURE OF SERVICES AMOUNT (EUROS) EVIDENCES ATTAC HED QUALITY MANAGEMENT 56,000 DETAILS OF MAN HOURS SPENT BY EMPLOYEES IN RENDERING QUALITY MANAGEMENT SERVICES TO CONTITECH GROUP ENTITIES AND BASIS OF ALLOCATION TO INDIA ENTITY. DETAILS OF QUALITY MANAGEMENT SERVICES RENDERED BY MRS. RUDOLPH TO CONTITECH INDIA PRIVATE LIMITED DETAILS OF QUALITY VISIT REPORTS CARRIED BY MRS. RUDOLPH ALONG WITH EMAIL CORRESPONDENCES BLUE PRINT DETAILING QUALITY TRAINING AND INSPECTION PLAN TO BE UNDERTAKEN IN INDIA SAMPLE COPY OF QUALITY ASSURANCE AND SCRAP AUDIT SUPERVISED BY MRS. RUDOLPH INDUSTRIAL ENGINEERING DESIGNS 40,000 12,0000 DETAILS OF MAN HOURS SPENT BY EMPLOYEES IN RENDERING INDUSTRIAL ENGINEERING DESIGN SERVICES TO CONTITECH GROUP ENTITIES AND BASIS OF ALLOCATION TO INDIA ENTITY SAMPLE INSTANCES OF ACTIVITIES CARRIED OUT BY THE PROJECT TEAM CARRYING OUT INDUSTRIAL DESIGNS ALONG WITH EMAIL CORRESPONDENCES AND DRAWINGS AND DESIGNS DETAILS OF MAN HOURS SPENT BY EMPLOYEES IN RENDERING SALES DEVELOPMENT SERVICES TO CONTITECH GROUP ENTITIES AND BASIS OF ALLOCATION TO INDIA ENTITY. DETAIL OF ACTIVITIES CARRIED OUT BY SALES DEVELOPMENT TEAM EMAIL CORRESPONDENCES SUBSTANTIATING THE TECHNICAL TRAININGS CONDUCTED IN INDIA DETAIL OF AAM STRATEGY PREPARED BY SALES DEVELOPMENT TEAM EMAIL CORRESPONDENCES SUBSTANTIATING THAT THE AE IS ASSISTING CONTITECH INDIA IN DESIGNING THE ITA NO. 5765/DEL/2012 7 PACKAGING OF THE PRODUCTS MEETING REPORTS FOR MEETING HELD BETWEEN THE APPELLANT AND ASSOCIATED ENTERPRISES ALONG WITH EMAIL CORRESPONDENCES AND BACK UP DOCUMENTS INDUSTRIAL SALES SERVICES 18,000 DETAILS OF MAN HOURS SPENT BY EMPLOYEES IN RENDERING INDUSTRIAL SALES SERVICES TO CONTITECH GROUP ENTITIES AND BASIS OF ALLOCATION TO INDIA ENTITY DETAILED STRATEGIC ACTION PLAN RECOMMENDED TO BOOS THE SALES IN INDIA ALONG WITH DOCUMENTARY CORRESPONDENCES GENERAL MANAGEMENT 9000 DETAILS OF MAN HOURS SPENT BY EMPLOYEES IN RENDERING GENERAL MANAGEMENT SERVICES TO CONTITECH GROUP ENTITIES AND BASIS OF ALLOCATION TO INDIA ENTITY. DETAILS OF SERVICES RENDERED BY MR. CLAUS PETER SPILE DETAIL OF CULTURAL TRAINING RECEIVED BY CONTINENTAL INDIA DETAIL OF RECOMMENDED CHANGES SUGGESTED BY THE AE SO AS TO INITIATE CHANGE IN MANAGEMENT ALONG WITH STUDY REPORT AND EMAIL CORRESPONDENCES. DETAIL OF VISIT REPORTS PREPARED BY MR. CLAUSE PETER SPILE HIGHLIGHTING HR RELATES ISSUES. SALES RELATED ISSUES, PRODUCTION RELATED ISSUES TO INITIATE THE CHANGE MANAGEMENT. CONTROL MANAGEMENT SERVICES 16,000 DETAILS OF MAN HOURS SPENT BY EMPLOYE ES IN RENDERING CONTROL SERVICES TO CONTITECH GROUP ENTITIES AND BASIS OF ALLOCATION TO INDIA ENTITY. DETAIL OF SERVICES RENDERED BY MR. ANDREAS QUAL ALONG WITH AGENDA OF VISIT HARDWARE AND SOFTWARE INSTALLATION 5,899 THIRD PARTY INVOICE EVIDENCING THE PRICE OF HARDWARE AND SOFTWARE INSTALLATIONS MADE FOR CONTINENTAL INDIA ITA NO. 5765/DEL/2012 8 4.3.2) IT IS SUBMITTED ON PERUSAL OF THE ABOVE EVIDENCE IT CAN BE APPRECIATED THAT I) THE ACTUAL EXPENDITURE/COST INCURRED BY THE ASSO CIATED ENTERPRISES IN PROVIDING TECHNICAL, MARKETING AND ADMINISTRATIVE SUPPORT SER VICES TO ITS GROUP COMPANIES (INCLUDING ASSESSEE) IS IDENTIFIABLE UNDER VARIOUS SERVICE HEADS, (II) THE ALLOCATION OF EXPENSES TO THE ASSESSEE AND GROUP COMPANIES IS ON THE BASIS OF ACTUAL MAN HOUR WORKED BY EACH EMPLOYEE FOR EACH ENTITY AND III) THE SERVICES RENDERED BY THE EMPLOYEES OF ASS OCIATED ENTERPRISE TO THE ASSESSEE IS CLEARLY EVIDENCED. 4.3.3. IT WAS PRAYED THAT THE AFORESAID ADDITIONAL EVIDENCE SOUGHT TO BE PLACED ON RECORD IS VERY IMPORTANT AND HAS A DIRECT BEARING O N THE TRANSFER PRICING DISPUTE INVOLVED IN THE APPEAL. IT WAS SUBMITTED BROAD DETA ILS WITH REFERENCE TO THE SERVICES RENDERED BY THE AE TO ASSESEE WAS GIVEN TO THE TPO/ DRP. HOWEVER, THE COMPLETE BREAK UP OF COST ALLOCATED COULD BE OBTAINED FROM ASSESSEES AE IN GERMANY ONLY SUBSEQUENT TO THE PROCEEDINGS BEFORE THE TPO AND T HE DRP. THEREFORE, IT WAS SUBMITTED THAT IN THE INTEREST OF SUBSTANTIAL JUSTI CE AND FOR A PROPER ADJUDICATION OF THE TRANSFER PRICING DISPUTE INVOLVED IN THE APPEAL , THE ADDITIONAL EVIDENCE IN QUESTION NEED TO BE ADMITTED IN TERMS OF RULE 29 OF THE INCOME TAX APPELLATE RULES. 4.4. LD. DR OPPOSED THE ADMISSION OF THE ADDITIONA L EVIDENCE. ALTERNATIVELY, IT WAS SUBMITTED BY THE LD. DR, IN THE EVENT ADDITIONAL EV IDENCE IS ADMITTED ON RECORD, THE TRANSFER PRICING DISPUTE NEED TO BE RESTORED TO THE LD. TPO FOR DENOVO CONSIDERATION. ITA NO. 5765/DEL/2012 9 4.5. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PER USED THE MATERIAL ON RECORD. THE ASSESSEE, IN ACCORDANCE WITH THE TERMS OF SERVICE A GREEMENT DATED 20.10.2006 RECEIVED VARIOUS TECHNICAL, MARKETING AND ADMINISTR ATIVE SUPPORT SERVICE FROM ITS AE. THE TPO HAD RESTRICTED THE PAYMENT OF SERVICE FEE T O AN AMOUNT OF RS. 7,20,010/- (5% OF THE TOTAL PAYMENT) AS AGAINST 1,58,01,22/- D ETERMINED BY THE ASSESEE. THE DRP ON ITS PART HAS MADE AN INCREASE OF DEDUCTION FROM 5% ALLOWED BY THE TPO TO 10% OF THE TOTAL EXPENDITURE. BROAD DETAILS OF VARI OUS TECHNICAL, MARKETING AND ADMINISTRATIVE SUPPORT SERVICE WERE FURNISHED TO TH E TPO / DRP. IN TERMS OF APPLICATION DATED 4.7.2014 UNDER RULE 29 OF THE ITA T RULES, THE ASSESSEE HAD SOUGHT TO PLACE ON RECORD THE SUMMARY OF INVOICES R AISED ON THE ASSESSEE BY ITS AE DURING THE FINANCIAL YEAR 2007-08. THE DETAILED BRE AK UP OF INVOICES ON THE BASIS OF NATURE OF SERVICES AND THE SUMMARY OF THE MAN HOURS SPENT BY THE VARIOUS DIVISIONS OF THE AE IN RENDERING TECHNICAL, MARKETING AND ADM INISTRATIVE SERVICE TO CONTITECH GROUP OF COMPANIES. IT IS A CASE OF THE ASSESEE THA T THE ABOVE SAID SPECIFIC DETAILS OR COMPLETE BREAK UP OF HOW THE COST HAS BEEN ALLOCATED COULD NOT BE FURNISHED BEFORE THE COMPLETION OF THE PROCEEDINGS BEFORE THE TPO/D RP, SINCE THESE DETAILS WERE TO BE OBTAINED FORM ITS AE GERMANY. WE FIND THAT THE DETAILS NOW PRODUCED HAVE AN IMPORTANT BEARING FOR RESOLVING THE TRANSFER PRICI NG DISPUTE AND THEREFORE IN THE INTEREST SUBSTANTIAL JUSTICE AND EQUITY, WE ADMIT THE SAME ON RECORD. SINCE THE ADDITIONAL EVIDENCE IS ADMITTED ON RECORD THE SAME NEEDS TO VERIFIED BY THE TPO/AO. HENCE, THE TRANSFER PRICING DISPUTE OF PAYMENT OF C ORPORATE CHARGES IS RESTORED TO THE TPO FOR DENOVO CONSIDERATION. NEEDLESS TO STATE THE ASSESSEE SHALL BE AFFORDED REASONABLE OPPORTUNITY OF BEING HEARD BEFORE THE MA TTER IS DECIDED. IT IS ORDERED ACCORDINGLY. ITA NO. 5765/DEL/2012 10 4.6 IN THE RESULT, GROUND NO. 2 TO 2.9 ARE ALLOW ED FOR STATISTICAL PURPOSES. DISALLOWANCE OF RS. 5,32,712/- AS PER SECTION 14A O F THE ACT READ WITH RULE 8D OF THE INCOME TAX RULE 1961. (GROUND NO. 3 TO 3. 2) 5. DURING THE PREVIOUS YEAR RELEVANT TO THE CO NCERNED ASSESSMENT YEAR, ASSESSEE WAS IN RECEIPT OF DIVIDEND INCOME AMOUNTING TO RS. 56,83,646/-. THE DIVIDEND INCOME BEING EXEMPT U/S 10(34) OF THE ACT, THE AO S HOW CAUSED THE ASSESSEE AS TO WHY DISALLOWANCE U/S 14A OF THE ACT READ WITH RULE 8D OF THE INCOME TAX RULES SHOULD NOT BE MADE. THE ASSESSEE OBJECTED TO THE PR OPOSED DISALLOWANCE VIDE ITS LETTER DATED 29.11.2011. THE AO HOWEVER OVERRULED T HE OBJECTIONS AND DISALLOWED A SUM OF RS. 5,32,712/- BY INVOKING SECTION 14A OF TH E ACT READ WITH RULE 8D (2)(III) OF THE INCOME TAX RULE 1962. THE RELEVANT FINDING OF T HE AO READS AS FOLLOWS :- THE ASSESSE HAS NOT TAKEN INTO ACCOUNT THE INDIRECT EXPENSES INCURRED TO EARN THE EXEMPT INCOME. THE ASSESEE COULD NOT EXPLA IN SATISFACTORILY THE BASIS OF NIL DISALLOWANCE OF EXPENSE RELATED TO EXEMPTED INCOME. THE METHOD OF CALCULATING EXPENDITURE IN RELATION OF INCOME NON INCLUDIBLE IN TOTAL INCOME THAT HAS BEEN ADOPTED BY THE ASSESEE IS NOT SATISFACTORY . IN VIEW OF THE ABOVE, I AM NOT SATISFIED WITH THE C ORRECTNESS OF THE CLAIM OF THE ASSESSEE IN RESPECT OF SUCH EXPENDITURE IN RELA TION TO INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THIS ACT. AND I HEREBY HELD THAT THIS IS A FIT CASE FOR INVOKING THE PROVISIONS OF S.14A (2) OF TH E I.T. ACT 1961 AND TO COMPUTE THE EXPENSES RELATED TO EXEMPTED INCOME IN ACCORDANCE WITH THE RULE 8D OF THE INCOME TAX RULES 1962. 5.1 DRP AFFIRMED THE VIEW TAKEN BY THE AO. HENCE THE ASSESSEE IS IN APPEAL BEFORE US ON THIS ISSUE. 5.2. THE LD. AR REITERATED THE SUBMISSIONS MADE B EFORE THE INCOME TAX AUTHORITIES. THE DR PRESENT WAS DULY HEARD. ITA NO. 5765/DEL/2012 11 5.3. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERU SED THE MATERIAL ON RECORD. THE ASSSSEE IS IN RECEIPT OF DIVIDEND INCOME TO THE TUN E OF RS. 56,83,646/-. FOR MAKING INVESTMENT IN SHARES AND FOR EARNING SUCH HUGE DIVI DEND INCOME OF RS. 56,83,646/-, IT CANNOT BE SAID, THAT THE ASSESEE HAS NOT INCURRE D ANY INDIRECT EXPENSES SUCH AS MANAGEMENT ESTABLISHMENT EXPENSES AND OTHER OFFICE OVERHEADS. THE AO HAS GIVEN A CATEGORICAL FINDING THAT THE ASSESSEES METHOD OF CALCULATING EXPENDITURE IN RELATION OF INCOME NOT INCLUDED IN THE TOTAL INCOME IS NOT S ATISFACTORY. THEREFORE, THE AOS DISALLOWANCE OF A SUM OF RS. 5,32,712/- BY INVOKIN G PROVISIONS OF SECTION 14A READ WITH 8D (2) (III) IS JUSTIFIED AND IS IN ACCORDANCE WITH LAW AND NO INTERFERENCE IS WARRANTED. IT IS ORDERED ACCORDINGLY. 5.4) HENCE, GROUND NOS. 3 TO 3.2 ARE REJEC TED. 6. THEREFORE, THE APPEAL OF THE ASSESSEE IS PARTL Y ALLOWED FOR STATISTICAL PURPOSE AS INDICATED ABOVE. SD/- SD/- [R. S. SYAL] [GEORGE GEORGE K] ACCOUNTANT MEMBER JUDICIAL MEMBER DATE 29 TH .AUGUST, 2014 VEENA COPY FORWARDED TO: - 1. APPELLANT - 2. RESPONDENT - 3. CIT 4. CIT (A) 5. DR, ITAT TRUE COPY BY ORDER, ASSISTANT REGISTRAR, ITAT, DELHI BENCHES