INCOME TAX ACT, 1961

--Disallowance under section 14A--Expenditure against exempt income Applicability of rule 8D--Issue under consideration was about the disallowance under section 14A. Held: By following Godrej & Boyce Mfg. Co. Ltd. v. Dy. CIT (2010) 328 ITR 81 (Bom-HC), it was held that since rule 8D was not applicable for relevant assessment year 2007-08, matter was remanded to assessing officer to decide disallowance under section 14A on a reasonable basis.

Income Tax Act, 1961, Section 14A

INCOME TAX ACT, 1961

--Transfer pricing--Computation of ALPTP adjustments on proportionate basis--Assessee-company had purchase transactions with AEs and non-AEs. Based on the PLI determined from the operating results of comparable companies, TPO re-worked the arm's length price of the purchases made by assessee from AEs. He compared ALP with actual purchase cost of assessee for purchases made only from AEs. Assessee submitted that methodology adopted by TPO/AO was not logical as he had excluded the non-AEs cost while working out the ALP of the purchases. Revenue claimed that assessing officer had correctly and logically arrived at the ALP taking operating cost as shown by assessee and operating profit based on the results of assessee. Held: The work out of the ALP of the purchases had been erroneously done as AO/TPO divided the total operating cost between material cost relatable to AEs and cost relatable to non-AEs, which included both raw-material cost as well as other costs. If at all raw material was deducted, other costs also had to be pro rata divided and deducted, which would result in a higher ALP for the purchases made from AEs. Therefore, matter was remanded to assessing officer for consideration afresh as it related to determination of ALP of the purchases made from AEs.

Income Tax Act, 1961, Section 92C