1. This is an appeal filed by the assessee against the order of the Dispute Resolution Panel, Ahmedabad dated 27.12.2013 for Assessment Year 2009-10.

2. Ground no. 1 of the appeal as under:

Ld. DRP and Ld AO erred in law and on facts in not allowing depreciation on electric installation at 15% and restricting the same at 10% thereby making addition of Rs 1,05,437/-. This action of both the lower authorities in not accepting the claim of the appellant is totally erroneous, prejudicial, and against the principles of Natural Justice that deserves to be quashed.

3. At the time of hearing, the Authorized Representative of the assessee submitted that he is not pressing this ground of appeal, hence the same is dismissed as not pressed.

4. The sole issue involved in ground no. 2 to 4 of the appeal is that the Dispute Resolution Panel erred in confirming the order of the Transfer Pricing Officer in making transfer pricing adjustment in relation to the sale of MycoMofteil to Associated Enterprise and thereby making addition of Rs 9,84,14,422/-.

5. The return of income was filed by the assessee on 30/09/2009 declaring total income of Rs.15,06,16,920/-. The DCIT(OSD), Range-1, Ahmedabad (AO) referred the case under Section 92CA of the IncomeTax Act 1961 (the Act) to the Transfer Pricing Officer (in short TPO) for determining the Arms Length Price (in short ALP) in relation to the international transactions entered into by the assessee with its Associated Enterprise (in short AE).

6. The TPO, based on the Transfer Pricing study which was made in the case of the assessee, passed the order under Section 92CA of the IncomeTax Act 1961 on 15/01/2013 proposing an upward adjustment of Rs.9,84,14,422/-. The Assessing Officer prepared the draft assessment order on 18.03.2013 incorporating the adjustment suggested by the TPO and served a copy thereof to the assessee on the same day. The assessee filed its objections before the Draft Resolution Panel (DRP) under Section 144C(2)(b) of IncomeTax Act 1961 on 17.04.2013.

7. The facts of the case are that the assessee is engaged in manufacturing of pharmaceutical and biotechnological products. The assessee company has undertaken following international transactions during the year under consideration.

Description	Associated Enterprises	Amount of Transaction in Rs.	Method
Sale of Bulk Drugs	Matrix Laboratories Inc. 76, South Orange Avenue Suite#301 South Orange, NJ-07079	19,99,35,726/-	Cost Plus Method

8. For the purpose of benchmarking the aforesaid international transactions, Cost Plus method (CPM) was adopted as the most appropriate method for all the transactions. The transactions in respect of sale of products have been compared with the external comparables for which the details were provided in annexure-3 of written submission dated 10th January 2011 to the TPO and on this basis the conclusion was arrived at that the inter-company transactions between ConcordBiotech and its associated enterprises (hereinafter also referred as AE) are consistent with the arm's length standard from the Indian Transfer Pricing perspective.

9. The TPO called for invoice-wise details of export sale to AE, non-AE, and calculations of cost and margins earned thereon which formed the basis for cost plus method applied by the assessee. After examining the details submitted, the benchmarking done in some of the international transactions were not found to be acceptable and therefore a show cause notice was issued to the assessee inter alia stating that:

The assessee company had sold following products to its AE (Matrix Labs Inc.)

1. Myco Mofteil

2. Myco Sodium

3. Tacrolimus (Premix)

4. Vancomycin

(i) MycoMofteil:

Myco Mofteil amounting to 7005 kgs was sold to AE at an average rate of Rs.24,809/-. The same product was sold to a non AE in USA at the rate of Rs. 47,880/-. The assessee submitted that the quantity sold to non AE in USA is just 2 kgs and hence the quantities are not comparable at all and hence the price difference. The documents and written submission made by the company revealed that Myco Mofteil sold to AE was not a development quantity and it was a commercial quantity.

Since the quantity of Myco Mofteil sold to Non AE entity in USA is just 2 kgs (sold at Rs. 47,880/- kg, almost twice the rate at which this product was sold to the AE (Rs. 24809/-). Hence, the prices are not comparable.

The assessee has sold Myco Mofteil to third parties located in other than USA (252 kgs at rate of Rs 22,636/-) and to the third party domestic (3651.33 kgs at average rate of Rs. 22,239/-). The rate at which this product was sold to these third parties is lesser than the rate at which it was sold to AE, but yet it could not be treated as comparables since USA is a regulated market where the price realization are higher compared to sates in domestic and other non regulated market, where product could be sold without any regulatory hurdle to the formulation company. Hence in the non regulated markets like Mexico and India, the prices were lower than that offered in the USA.

The other products sold to Non associated companies in USA can be treated as quite comparable with the sale of Myco Mofteil in USA to the Associated Party (Matrix Labs Inc.)

The comparative details of sales made to Matrix Labs and other non AE's in USA in respect of these two products is reproduced below (based on the assessee's submissions/documents accepting the cost plus method).

Sale	To Matrix Lab Inc. (USA) [Myco Mofteil]	To Non AEs (in USA) (Other products)
Quantity (kgs)	7005	4002
Amount	17,37,87,525/-	4,96,16,100/-
Avg. rate	24,809/-	12,398/-
Cost/ per kg.	18,840/-	6,011/-
Total cost	13,19,76,702/-	2,40,56,913/-
Profit	4,18,10,823/-	2,55,59,187/-
Profit/ kg.	5,969/-	6,386/-
% Profit of Total cost	31.68%	106.25%

The products sold to AE and Non AEs in USA are comparables on following grounds.

1. The Myco Mofteil (sold to AE) and other products (Pencil/n G Amidase Enzyme and Lovastatin) are generic drugs manufactured by the assessee company.

2. The sale is in the USA that is a regulated market posing equal regulations for the drugs sold in the states.

3. The comparable sales are in the same geographical area representing same demographic statistics.

4. The drugs compared here are in comparable quantities (7005 kgs and 4002 kgs respectively).

5. The drugs compared here are commercial quantities and not for development quantity.

On the basis of above discussion, it is seen that in the sale of other products in Non AEs in USA, the company is earning 106.25% profit over cost in comparison to sale of Myco Mofteil (31.68%) profit over total cost), then why not a profit/total cost ratio of 106.25% be adopted for the sale of Myco Mofteil.

The sale of other products (Lovastatin) in Non AEs in USA, the company is earning 106.25% profit over cost in comparison to sale of Mycophenolate Mofteil (31.68%) profit over total cost, therefore a profit /total cost ratio of 106.25% treating the margin of other products (Lovastatin) sold to Non AE as arm's length price is adopted for the sale of Mycophenolate Myco Mofteil. (It is worthwhile to mention here that 106% margin on cost on ANDA drugs manufactured in India is reasonable profit margin when one considers that these drugs being sold in USA at 1000% to 2000% margin on cost normally.)

Product	Quantity (kg)	Sold to	Price (Rs per kg)
Mycophenolate Mofteil	7005	AE(US)	24,800
Mycophenolate Mofteil	2	Other than AE (US)	47,800
Mycophenolate Mofteil	252	Other than AE (Non US)	22,630
Mycophenolate Mofteil	3651	Cadila Health Care Ltd. (India)	22,200

Accordingly, an upward adjustment amounting to Rs. 9,84,14,422/- has been proposed in the case.

10. The Dispute Resolution Panel, after considering the submissions of the assessee, upheld the order of the Transfer Pricing Officer by observing as under:

'6. We have gone through the records and have considered the facts of the case. We find that the main issue in this case revolves around determination of arms length price of Mycophenolate Mofteil sold to the AE. The AO has adopted an approach by which he compared the gross profit earned by the assessee from sale of Mycophenolate Mofteil with the gross profit earned by the assessee from sale of other drugs to the non AE. The assessee has argued that the products are different and hence the profit margins are different. The assessee has produced direct CUP in the form of Mycophenolate Mofteil sold to non AE in India. This fact is accepted by the TPO but he has refused to accept the CUP for the reasons as under appearing in the TP order:

"The assessee has sold Myco Mofteil to third parties located in other than USA (252 kgs at rate of 22,636/-) and to the third party domestic (3651.33 kgs at average rate of Rs. 22,239/-). The rate at which this product was sold to these third parties is lesser than the rate at which it was sold to AE, but yet it could not be treated as comparables since USA is a regulated market where the price realization are higher compared to sates in domestic and other non regulated market, where product could be sold without any regulatory hurdle to the formulation company. Hence in the non regulated markets like Mexico and India, the prices were lower than that offered in the USA. The other products sold to non-associated companies in USA can be treated as quite comparable with the sale of Myco Mofteil in USA to the Associated Party (Matrix. Labs lnc.)(page 5 of the order)

7. Thus the assessee is arguing that product similarity is more important for comparability, whereas the TPO has held that geography and the market conditions are more important. The TPO therefore has compared two different products but sold in the same market whereas the assessee is asking for comparing the same product but sold in different markets.

8. The assessee has relied heavily on the decision of jurisdictional Tribunal in the case of Mission Pharma. We have gone through this decision and we find that the decision does not support the assessee's case. The assessee in that case was a limited risk bearer trader of goods. The facts are discussed on page 74 of the Tribunal's order. The Tribunal actually in that order accepted that in normal circumstances geography does make a difference and an exporter's profits can not be compared with profit from domestic sales. The Tribunal however held that in the case of Mission Pharma there were exceptional circumstances which denied the assessee the benefits of a normal exporter. In the present case there are no such exceptional circumstances prevailing and hence as per the ITAT we must hold that profitability in domestic market would be significantly different from the same in export market. This impliedly means that prices in domestic markets would be much lower than in the export market particularly US market. The TPO has also brought out relevant fact in this regard and therefore we reject the assessee's contention that geographies do not make any difference and hence CUP should be accepted across the borders.

9. We also hold that for applying CUP a very high degree of comparability is required because the prices are influenced by the terms and conditions of each transaction. The assessee has produced sample invoices of sale of the drug in India to CHL. The assessee has argued that CHL uses the API as a raw material and sells the final product in USA, therefore sale of API to CHL should be considered as good as exports. We are not impressed by this argument. CHL buys from the assessee in India, and therefore pays a price which is prevalent in India. Now if CHL sells the final product in US, the profits from exports are pocketed by CHL. We do not think that for this reason CHL would pay to the assessee a price which is prevalent in India.

10. The assessee has referred to various US regulations etc, but we do not think these regulations in any way affect the price of API sold in India. The assessee has at least not produced any evidence that the PDA in any way monitors pricing of drugs also and such monitoring has affected the price charged by the assessee to its AE.

11. As regards assessee's objections against the CPM applied by the TPO, we must mention that the assessee himself had selected profit based methods to justify its international transactions. The assessee had taken external comparables and compared its margins with their margins. In such a situation, it does not behove the assessee to argue that margin earned from one product can not be compared with the margin earned from another product. The assessee himself had carried out comparability analysis across the products at entity level. Therefore we do not subscribe to the assessee's view that margin earned from one product should not be compared with margins earned from another product. If there are factors which might have affected the margins of different products the assessee has failed to point them out. No case has been made out that there were any differences between Myco Mofteil and other drugs as to patent period, brand value etc. In the absence of these facts we uphold the action of the TPO."'

11. Before us, the assessee has submitted as follows:

"In the above captioned appeal, assessee challenged order of DRP erred in upholding the Action of TPO/AO in making transfer pricing adjustment of Rs 9,84,12,422/-. The assessee makes two primary submissions.

1. The TPO has erroneously rejected internal comparable used by the assessee.

During the year under consideration, the assessee has sold bulk drug being Mycophenolate Mofetil in following particulars:

Product	Quantity (kg)	Sold to	Price (Rs per kg)
Mycophenolate Mofteil	7005	AE(US)	24,800
Mycophenolate Mofteil	2	Other than AE (US)	47,800
Mycophenolate Mofteil	252	Other than AE (Non US)	22,630
Mycophenolate Mofteil	3651	Cadila Health Care Ltd. (India)	22,200

As per assessee as the product sold to associated enterprise (AE) is at a price higher than the one sold in India to Non AE (Cadila Health Care Ltd. hereinafter referred to as 'Cadila'), the international transaction is at Arm's Length Price. However Ld. TPO/AO/DRP held that the price at which the said drug was sold in USA to the A.E. is not comparable with the price at which the said drug is sold in India.

At the outset the Appellant submits that in as much as the TPO did not find any error in the TP records or the TP working of the Appellant, no adjustment is permissible as per the 2 CBDT circulars referred to in the judgment of Hon'ble Delhi High Court in the case of Li & Fung India (P) Ltd. v. CIT [2014] 223 Taxman 368/[2013] 40 taxmann.com 300. More so when on the same facts no adjustments are made in an earlier or later years.

That apart, now, the Appellant deals with 2 issues arising out the controversy.

A. Indian prices are not comparable with USA price since both are for different markets having different regulatory environment.

The assessee submits that the whole approach of the TPO is fundamentally erroneous especially the facts of the case because

1. Though Cadila buys the said drug from Assessee in India, it is being used by it for the purpose of manufacturing, and subsequently exporting the finished dosage to USA only. Therefore, the transaction that the Assessee has with Cadila is cogitatively identical to its transaction with A.E.

2. In order for the formulation company to sell the product to US, they need to file an ANDA and their site needs to be USFDA approved. Also they need to ensure that the API Company supplying them with the API which would be part of their formulation is coming from a USFDA approved facility and that they have all the documentation like an approved DMF. Therefore, whether a company is in US or in India, if their target market is US, they have to follow the same regulations as discussed above. In this case, both formulation companies AE & Cadila are USFDA approved and are procuring API from ConcordBiotech (The assessee). Hence the assessee has to ensure absolutely identical rules regarding quality and standards irrespective of that being sold to AE or Cadila. (Pg 454 - 472 of paperbook II)

3. Alternatively, Assessee also submits an external comparable transaction in form of that Biocon Limited sells the identical drug (Mycophenolate Mofetil) to its third party i.e. INTAS Pharmaceutical Limited at the average rate of 18,250Rs/kg.(as against the assessee selling at 24,809Rs/kg to its AE) INTAS Pharmaceutical then supplies the same to its sister concern to sell in the US Market. The same transaction can also be taken as comparable where the assessee has sold the same to its AE at a price being higher, is at Arm's Length. Therefore it is submitted that even considering the external comparable prices of the transaction between Biocon Limited and INTAS Pharmaceuticals also, the transaction of the assessee is at Arm's Length Price (Pg 473 - 474 of paperbook II)

The assessee relies on following case laws for the argument that in geographical two transactions can be very much comparable in certain conditions irrespective of geographical differences.

1. Wrigley India (P) Ltd. (Relevant Para 19-20, page: 63-65 of compilation of orders)

2. Bharti Airtel Limited (Relevant para 48-51 page: 121-122 of compilation of orders)

3. Mission Pharma Logistics India (P) Ltd (Relevant para: 26 page 563-566 of paperbook-II)

B. The TPO has compared the profitability of the assessee's sale transaction (Mycophenolate Mofetil) with the sale of a completely different product (Pencilin G Amidase Enzyme and Lovastatin)

Having held that the sale of the said drug to Cadila would not be a comparable transaction, the TPO then proceeded to compare the profitability of the sales between two completely different products sold by assessee; one (Mycophenolate Mofetil) to AE and second (Pencilin G Amidase Enzyme and Lovastatin) to non AEs in US. TPO held that as the assessee has earned 106.25% profit in Pencilin G Amidase Enzyme and Lovastatin, it ought to have earned same percentage profit while selling Mycophenolate Mofetil as well. This approach of the TPO is fundamentally erroneous for following reasons.

1. The two products are entirely different products operating in different fields having different methods of manufacturing and having different medical use. As the said products are entirely different, the question of giving price comparison is irrelevant. Obviously the products which are completely different would have different margin of profit and one cannot substitute one for another. The Assessee herewith places on record an Article from www.wikipedia.org (Pg 481 -489 of paperbook II)

2. As per IncomeTax Rule 10B (1)(c)(ii) under cost plus method the profitability of "same or similar property or services" are to be compared. In the fact of the case the TPO has directly violated the rule by comparing the profitability of two absolutely different products.

3. If all pharmaceutical products are taken to be similar, then there has to be identical margin of profit of all Pharma companies irrespective of nature of drugs manufactured. (Pg 490 of paperbook II)

The assessee relies on following case laws for the argument that under cost plus method two transactions to be compared must be same or similar. Two completely different products cannot be compared under cost plus method:

1. Merck Ltd (Relevant Para 20, page: 18-20 of compilation of orders)

2. Qual Core Logic Ltd (Relevant Para 39-45, page: 41-42 of compilation of orders)

3. GE BE (P) Ltd (Relevant Para 33,37,50 page :86-87,96 of compilation of orders)

4. Atul Ltd (Relevant Para 5.18, page: 147-149 of compilation of orders)

Hence the order passed by the TPO, as confirmed by the DRP, is ex facie erroneous and the adjustments/made by them to the income of the Appellant needs to be deleted."

12. We have heard the rival submissions and perused the orders of the lower authorities and the materials available on record. In the instant case, the assessee is engaged in the business of manufacturing and Consultancy of Biotechnology based products and bulk drugs. During the year under consideration, the assessee sold 7005 kgs. of Mycophenolate Mofetil to its associated enterprise situated in USA for Rs. 17,37,87,525.00 i.e. at an average rate of Rs. 24,809.00 per kg. According to the assessee, the above transaction was at arms length price determined by applying cost plus method [C.P.M.]. The TPO observed that though the same products were sold to non-associate enterprises situated in India and in Mexico at a price lesser then the price at which it was sold to associated enterprise but those prices cannot be compared because those sales were in an uncontrolled market whereas sale to associated enterprise was in USA which is controlled market. According to the TPO, in USA which is a controlled market, the sale price of drugs are higher and naturally, profit percentage in sale to such market is higher than the profit percentage earned in sale to uncontrolled markets like India and Mexico. The TPO observed that the assessee sold Pencillin G Amidase Enzyme and Lovastatin in US market which are also generic drugs and earned profit margin of 106.25%. Thus, the TPO took this 106.25% margin as percentage of margin in respect of Mycophenolate Mofetil for sale in US Market and benchmarked the arms length price on that basis consequently addition of Rs. 9,84,14,422.00 was made to the income of the assessee.

13. On appeal, the Dispute Resolution Panel confirmed the action of the lower authorities for the similar reason.

14. Before us, the AR of the assessee submitted that both the products [1] Mycophenolate Mofetil and [2] Pencillin G Amidase Enzyme and Lovastatin are not comparable. Both are used for making different medicines which are used for different purposes. Therefore, he argued that the profit margin earned in Pencillin G Amidase Enzyme and Lovastatin cannot be taken as margin of profit of Mycophenolate Mofetil also for benchmarking arms length price.

15. He also argued that similar transactions were accepted by the revenue in earlier years as well as in succeeding years also in the case of the assessee and therefore, revenue was not justified in making addition only in the year under consideration. In support of this argument, he relied upon the decision of the Hon. Delhi High court in the case of Li & Fung India (P) Ltd. v. CIT [2014] 223 Taxman 368/[2013] 40 taxmann.com 300 (Delhi).

16. On the other hand the DR supported the orders of the lower authorities.

17. We find that the facts in the above case are not in dispute. It is also not in dispute that the assessee earned profit margin @ 106.25% on sale of Pencillin G Amidase Enzyme and Lovastatin in US market to non associated enterprise. It is also not in dispute that the profit disclosed by the assessee in respect of sale of Mycophenolate Mofetil in US market to its associated enterprise is 31.68%.

18. Further, it is also not in dispute that the sale of Mycophenolate Mofetil to associated enterprise is at a price which is more than the price at which the same product was sold to non associated enterprise situated in India and Mexico.

19. At the same time, it is observed that the assessee has not disputed before us that US market is a controlled market in respect of products in question and India and Mexico are uncontrolled markets. The assessee has also not disputed before us, that the observation of the lower authorities that prices in controlled markets of the products in question are higher than the prices in uncontrolled markets.

20. The cost price method has been defined in rule-10B, the relevant portion of which is abstracted as under:—

"10B(1)(c):- cost plus method, by which—

(i) The direct and indirect costs of production incurred by the enterprise in respect of property transferred or services provided to an associated enterprise, are determined.

(ii) The amount of a normal gross profit mark up to such costs [computed according to the same accounting norms] arising from the transfer or provision of the same or similar property or services by the enterprise, or by an unrelated enterprise, in a comparable uncontrolled transaction, or a number of such transactions, is determined.

(iii) The normal gross profit mark up referred to in sub clause (ii) is adjusted to take into account the functional and other differences, if any, between the international transaction and the comparable uncontrolled transactions, or between the enterprises entering into such transactions, which could materially affect such profit mark up in the open market.

(iv) The costs referred to in sub clause (i) are increased by the adjusted profit mark up arrived at under sub clause (iii)

(v) The sum so arrived at is taken to be an arm's length price in relation to the supply of the property or provision of services by the enterprise."

21. In the instant case, the main argument of the AR of the assessee is that both the products [1] Mycophenolate Mofetil and [2] Pencillin G Amidase Enzyme and Lovastatin are not similar and therefore, profit earned in one cannot be applied for determining arm's length price of the other product.

22. On the other hand, as per the department, both the products are generic drugs and therefore, they are similar products.

23. We find that as per the assessment order, the cost of Mycophenolate Mofetil is Rs. 18,840.00 per kg whereas the cost of Pencillin G Amidase Enzyme and Lovastatin is Rs. 6,011.00 per kg. According to the assessee, as because the latter product is of lesser value and therefore, more profit in terms of percentage is earned on the latter product. We find that the lower authorities have not examined the issue from this angle. No material has been brought before us by both the parties to show what was the profit earned in Pencillin G Amidase Enzyme and Lovastatin in its sale in India or other uncontrolled markets. In absence of the relevant details, we are not in a position to adjudicate whether the normal gross profit in Mycophenolate Mofetil should be same as gross profit in sale of Pencillin G Amidase Enzyme and Lovastatin.

24. Further, though the assessee contended before us that no transfer pricing adjustment was made in respect of sale to associated enterprise in earlier years and in succeeding years and therefore, the department was not justified in making adjustment during the year under consideration, we find that though res-judicata is not applicable in incometax proceedings, however, rule of consistency should be followed. At the same time, we observe that no material has been brought before us by both the parties to show that sale of same products to associated enterprises situated in USA at the same profit margin at which disclosed during the year was accepted by the department in earlier years or succeeding years. In the above circumstances, in our considered view, it shall be fair and in the interest of the justice to restore this issue back to the file of the TPO for adjudication afresh in light of the discussions made hereinabove after allowing proper opportunity of hearing to the assessee. Thus, this ground of appeal of the assessee is allowed for the statistical purposes.

25. Ground no. 5 of the appeal reads as under:

"The Ld. DRP and Ld. AO has erred in not allowing late payment of employee's contribution to the provident fund and making addition of Rs 15,514/-. This action of both the lower authorities in not accepting the claim of the appellant is totally erroneous, prejudicial, and against the principles of Natural Justice that deserves to be quashed."

26. At the time of hearing, the Authorized Representative of the assessee submitted that he is not pressing this ground of appeal, hence the same is dismissed as not pressed.

27. Ground no. 6 of the appeal reads as under:

"The Ld. DRP and Ld. AO has erred in making disallowance of Rs 8,86,820/- under section 14A read with rule 8D. This action of both the lower authorities in not accepting the claim of the appellant is totally erroneous, prejudicial, and against the principles of Natural Justice that deserves to be quashed."

28. The brief facts of the case are that the Assessing Officer observed that the assessee has claimed exempt dividend income of Rs 17,28,619/-. No expenses have been offered for disallowance u/s. 14A in the return of income filed by the assessee. Further, the Assessing Officer observed that the assessee has debited interest expenditure on cash credit account of Rs 67,98,753/-. According to Assessing Officer, had the assessee not made investments then the assessee would not have been required to borrow from bank and incur interest expenditure. Therefore, he made a disallowance to proportionate interest expenditure of Rs 5,85,981/- u/s. 14A of the Act. Further, he also made a disallowance at the rate of 0.5% of average value of investment on account of administrative charges of Rs 3,00,839/- u/s. 14A of the Act. Thus, the total disallowance made u/s. 14A was Rs 8,86,820/-.

29. On appeal, the DRP confirmed the action of Assessing Officer observing that the Assessing Officer has given a finding that interest bearing fund have been used for earning dividend income.

30. The Authorized Representative of the assessee submitted that the assessee was having interest free own funds of Rs 6,44,02,630/- for which the assessee enclosed cash flow statement and the assessee made investments of Rs 1,14,36,151/- during the year. It was submitted that as the assessee had interest free own funds of Rs 6,44,02,630/- for making such investments, no disallowance for interest expenditure was warranted. He placed reliance for his submission on the decision of Hon'ble Gujarat High Court in the case of CIT v. Hitachi Home & Life Solutions (I) Ltd. [2014] 41 taxmann.com 540/221 Taxman 109 (Mag.) and the decision of Hon'ble Gujarat High Court in the case of CIT v. UTI Bank Ltd. [2013] 32 taxmann.com 370 wherein it was held that where the assessee's interest free funds exceed the investment made for earning dividend income, disallowance u/s. 14A was not justified.

31. The Departmental Representative, on the other hand, supported the orders of lower authorities.

32. After considering the rival submissions and perusing the orders of lower authorities and materials available on record, we find that the Assessing Officer made disallowance of interest expenditure of Rs 5,85,981/-and administrative expenses of Rs 3,00,839/- for earning interest free dividend income of assessee of Rs 17,28,619/- by invoking the provisions of section 14A of the Act which was confirmed in appeal by the DRP. The argument of the Authorized Representative of the assessee that the assessee had interest free own funds of Rs 6,44,02,630/- and therefore, investment made during the year of Rs 1,14,36,151/- was out of assessee's interest free own funds and no disallowance for interest expenditure was called for u/s. 14A of the Act. He has relied on the decisions of Hon'ble Gujarat High Court in the case of Hitachi Home & Life Solutions (I) Ltd. (supra) and in the UTI Bank Ltd. (supra) wherein it was held that where the assessee's interest free funds exceed investment made for earning dividend income, disallowance u/s. 14A was not justified.

33. The Departmental Representative could not controvert the submissions of Authorized Representative of the assessee. Therefore, respectfully following the decisions of Hon'ble Gujarat High Court cited above, we delete the disallowance of interest expenditure of Rs 5,85,981/-u/s. 14A of the Act. As regards administrative expenses of Rs 3,00,839/-made u/s. 14A of the Act, no submissions were made by the Authorized Representative of the assessee during the course of hearing. Therefore, this disallowance made u/s. 14A of the Act is confirmed. Thus, this ground of appeal is partly allowed.

34. In the result, the appeal of the assessee is partly allowed.