1.  ACIT Vs. M/s. Bharat Hotels Ltd., I.T.A. No. 4959/Del/2012 and 5401/Del/2013, Date of Decision: 29.12.2014, ITAT - New Delhi

Whether disallowance under section 14A can be made where there is no receipt of dividend?    Held, No.

In brief, the Assessing Officer (AO) disallowed, under section 14A, investment in subsidiary companies for strategic purposes made by the assessee – hoteliers, and also disallowed certain depreciation for the assessment years 2009-10 and 2010-11. On appeal, CIT (A) deleted the said disallowance and also allowed depreciation. 

The ITAT, on appeal before it by the Department, noting, inter alia, that ‘the assessee had made strategic investments in subsidiary companies and the purpose was to run hotels and the investments were not made for the purpose of earning dividend’, held that under such circumstances disallowance u/s 14A cannot be made.  As for the deletion by the CIT (A) of depreciation disallowed by the AO, the ITAT, noting that it had, in the case of present assessee itself, decided the issue for the assessment year 2008-09, following earlier year order, in favour of the assessee, held that ‘we do not find any infirmity in the order of Led. CIT (A)’.  In effect, both the appeals filed by the revenue dismissed.

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2. Wrigley India Pvt Ltd. Vs. ACIT, I.T.A. No.  5650/Del/12, Date of Pronouncement:  31.12.2014, ITAT - New Delhi

Transfer pricing: To apply the "Cost Plus Method", there must be a “comparable uncontrolled transaction”. The fact that the same product is sold by the assessee to its AEs as well as to third parties does not mean that the two sets of transactions are comparable if the business model, marketing, sales promotion etc is different.

The assessee, an Indian company, manufactured chewing gum etc which were sold to the associated enterprises (AEs) and also to independent enterprises (non AEs).The distinction in respect of these transactions with AEs and non AEs is that while the transactions with the AEs are in the capacity as limited risk contract manufacturer, its transactions with the domestic independent enterprises is a business transaction with regular entrepreneurship risks. The assessee applied TNMM to claim that the transactions with the AEs are at arms’ length. The TPO rejected TNMM and adopted the “Cost Plus Method” with gross mark up on costs as the profit level indicator, and adopted the internal comparable as gross mark up realized on the domestic sales. In other words, the TPO held that the arm’s length price of the products exported to the AEs can be arrived at by adopting the same mark up on costs of such products as was achieved on the domestic sales. This was upheld by the CIT(A).

Hon’ble ITAT upheld the decision of Ld. CIT(A) and allowed the alleged expenses incurred for laboratory testing of products.

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