IN INCOME TAX APPELLATE TRIBUNAL D BENCH : CHENNAI BEFORE SHRI N.R.S. GANESAN, JUDICIAL MEMBER AND SHRI S.JAYARAMAN, ACCOUNTANT MEMBER I.T.A.No.959/Mds./2015 Assessment year : 2010-11 Deputy Commissioner of Vs. M/s. Redington India Ltd., Income Tax, 95, Mount Road, Corporate Circle-5(1), SPL Guindy House, Chennai-34. Guindy, Chennai 600 032. PAN AABCR0347P [PAN AABCR0347P] (Appellant) (Respondent) I.T.A.No.535/Mds./2015 Assessment year : 2010-11 M/s. Redington India Ltd., Vs. Deputy Commissioner of 95, Mount Road, Income Tax, SPL Guindy House, Corporate Circle-5(1), Guindy, Chennai 600 032. Chennai-34. [PAN AABCR0347P ] (Appellant) (Respondent) Appellant by : Shri Vikram Vijayaraghavan, Advocate Respondent by : Shri Anurag Sahay, CIT DR Date of Hearing : 22-08-2016 Date of Pronouncement : 23-09-2016 :- 2 -: ITA Nos.959 & 535/Mds./15 ORDER PER S.JAYARAMAN, ACCOUNTANT MEMBER These cross appeals are against order of ld. Assessing Officer consequent to directions of Dispute Resolution Panel (DRP) issued u/s. 144C(5) of Act dated 24.12.2014 for assessment year 2010-11. First, let us take up Revenue s appeal in ITA No.959/Mds./2015 as under : 2. first issue for our consideration is that TPO made upward adjustment of Rs.8,53,54,900/- on account of Corporate and Bank Guarantee charges issued by assessee company to its AE. In this regard, assessee contended before DRP that this issue was considered by Co-ordinate Bench of Chennai Tribunal in its own case in ITA No.513/Mds./2014 in ay 2009- 10. Following decision of Delhi Tribunal in case of Bharti Airtel Ltd. Vs. ACIT reported in 43 Taxmann.com 150, it held that since there is no cost involved in accepting Corporate guarantee, it will not constitute international transaction. DRP directed AO/TPO to follow above decision of Tribunal for this assessment year also. :- 3 -: ITA Nos.959 & 535/Mds./15 2.1 next issue for consideration is that assessee is exploiting trade mark REDINGTON for purpose of carrying on its business towards which it made payments to M/s.Redington Distribution Pte. Ltd., Singapore. TPO made downward adjustment of Rs 1,93,29,120/- in respect of trademark , license fee paid by assessee to that singapore company . assessee pleaded before DRP that Tribunal in its own case for assessment year 2009-10 held that it is allowable expenditure for purpose of taxation and what is commercial expediency is matter to be decided by assessee etc., DRP directed AO to follow above decision of Tribunal for this assessment year also . Aggrieved against above decisions , Revenue is in appeal before us. 3 Before us, Ld.D.R pleaded that Hon ble DRP have given direction in deleting additions made by way of ALP adjustment made in case of Trademark/license Fees and Corporate/Bank Guarantee stands at Nil to TPO by following Chennai Tribunal s decision in assessee's own case for assessment year 2009-10. Further, Ld.D.R submitted that same issue raised by Revenue pertaining to assessment year 2009-10 in assessee's own case is pending before Juriscitional High Court. Hence, Ld.D.R pleaded that decision of Chennai Tribunal is not :- 4 -: ITA Nos.959 & 535/Mds./15 final. Per contra, Ld.A.R relied on decisions of Tribunal of earlier years. 4. We have heard both parties and perused material on record. It is not case of Ld. DR that impugned tribunal decisions are stayed by Hon ble High Court. Since DRP has followed decisions of Tribunal in ITA No.1743/Mds./2011 dated 26.06.15 for assessment year 2007-08 & in ITA No.221/Mds./2013 dated 07.08.2015 for assessment year 2009-10 in assessee's own case, we do not find any infirmity in order of DRP on above issues and accordingly, grounds raised by Revenue are dismissed. Now, Let us take up assessee s appeal ITA No.535/Mds./2015 as under: 5. main issue for consideration is disallowance of Rs 4,09,23,978/- u/s.14A of Act r.w Rule-8D clauses (i) (ii) & (iii) . 5.1 ld. Assessing Officer found that assessee s investment as on 01.04.2010 was Rs.5 lakhs and as on 31.03.2011, it was Rs.2,05,00,000/-. AO disallowed Rs 4,09,23,978/- u/s.14A read with Rule-8D(2) (i), (ii) & (iii) by placing reliance on decision of Special Bench of Delhi Tribunal in case of Cheminvest Ltd., Vs. ITO reported in (2009) 121 ITD 318(Delhi)(SB) and CBDT s Circular No.5 dt 11.2.2004 . :- 5 -: ITA Nos.959 & 535/Mds./15 5.2 Before DRP, assessee contended that since no exempt income is earned , disallowance u/s.14A would not arise. DRP, after considering decision of Cheminvest Ltd., Vs. ITO (supra), found, inter alia, that for purpose of disallowance of expenditure u/s.14A r.w.rules 8D what is to be seen that amount of investments made and efforts taken by assessee in said process. Therefore, amount of disallowance is to be worked out proportionate to investments made and expenses (either direct or indirect) involved in process, even if there are no such exempt income earned during year. For purpose of making investments etc., same management, manpower, machinery and infrastructural facilities of assessee are being used. Hence, there is element of expenditure involved in process. This expenditure may not be direct. Therefore, there is need to identify and apportion reasonable amount of expenses as attributable for earning exempted income. For this purpose, DRP placed reliance in case of DCIT Vs.SREI International Finance Ltd. reported in [2006] 10 SOT 722(Delhi)(Tib.) and Marezban Bharucha V.ACIT reported in (2007) 12 SOT 133(Mum.)(Trib.). Further, DRP observed that ld. Assessing Officer has correctly noted in assessment order that there was some element of expenses incurred by assessee in :- 6 -: ITA Nos.959 & 535/Mds./15 relation to investments and earning exempt income, which needs to be quantified and disallowed u/s.14A of Act and AO has rightly quantified said expenses at Rs.4,09,23,978/- by using Rule 8D and hence DRP held that such action is justified and confirmed such disallowance. 6. Ld.A.R mainly pleaded that entire investment is made in its subsidiary companies, such investments had been made by assessee to promote their business through subsidiary companies, they were on account of business expediency and earning dividend therefrom is purely incidental . Therefore , investment made by it in its subsidiary is not to be reckoned for disallowance u/s 14A r w rule 8D, relied on decision reported in EIH Associated Hotels Ltd Vs CIT in 2013- TIOL-796-ITAT-MAD for ay 2008-09 dt 17.7.2013 , furnished copy schedule 6 of its balance sheet from its annual report and also relied on following case laws. a) Alliance infrastructure Project P Ltd. V. DCIT in ITA Nos.220 & 1043/Bang./2013 dated 12.09.2014 b) ACIT Vs. M.Baskaran, reported in 28 Taxman.com 138 c) REO Agro Ltd. V. DCIT lin 144 ITR 141(Kol). Per contra, Ld. D. R relied on decision of DRP. :- 7 -: ITA Nos.959 & 535/Mds./15 7. We have considered rival submissions and perused relevant material on record. assessee has not taken plea that impugned investment is made in its subsidiary and hence it would not fall under section 14A r. w rule 8D , as per ratio reported in EIH Associated Hotels Ltd Vs CIT in 2013- TIOL-796-ITAT-MAD for ay 2008-09 dt 17.7.2013, before lower authorities. Thus, factual matrix stand unverified. In facts and circumstances, this issue is remitted back to AO for due verification and application. If assessee satisfies A O with relevant material that impugned issue falls within ratio laid in case of EIH Associated Hotels Ltd Vs CIT in 2013- TIOL-796-ITAT-MAD for ay 2008-09 dt 17.7.2013, AO shall apply it accordingly . 8. In result, appeal of Revenue is dismissed and assessee s appeal is treated as allowed for statistical purpose Order pronounced on 23.09.2016, at Chennai. Sd/- Sd/- (N.R.S. GANESAN) (S.JAYARAMAN) JUDICIAL MEMBER ACCOUNTANT MEMBER Chennai Dated: 23.09.2016 K S Sundaram Copy to: 1. Appellant 3. CIT(A) 5. DR 2. Respondent 4. CIT 6. GF Deputy Commissioner of Income-tax, Corporate Circle-5(1), Chennai v. M/s. Redington India Ltd