2018 (3) TMI 1814 - AT - Income Tax

Prior period expenses rightly excluded from PLI calculation for 2010-11 assessment year

The Dy. Commissioner of Income Tax, Circle 1 (1), Pune Versus Aam Services India Pvt. Ltd.

The Tribunal dismissed the Revenue's appeal and upheld the decision to exclude prior period expenses from the PLI calculation for the assessment year ... Determination of PLI - Dispute Resolution Panel directing AO to exclude the expenses pertaining to earlier year for computation of the PLI of the year under consideration as the same pertains to earlier year and not forming expenditure of this year - whether prior period expenses were operating cost and the same had to be included or excluded while computing PLI for the year under consideration? - HELD THAT:- We find no merit in the issue raised by the Revenue in this regard. DRP has directed vide para 2.4.1 to exclude earlier year expenses for determining PLI of the year under appeal. We find similar issue arose before the Tribunal in ACIT Vs. Dana India Technical Centre Pvt. Ltd. [2016 (5) TMI 631 - ITAT PUNE] hold that while computing PLI for the year under consideration, the loss arising on account of foreign exchange fluctuation is to be excluded. However, the loss arising on account of export proceeds realized from exports of relevant year are to be considered while computing PLI of the assessee. In view thereof, we modify the order of CIT(A) and direct the Assessing Officer to re-compute the PLI in the hands of assessee and foreign exchange fluctuation losses of the earlier years are to be kept out of calculation of PLI for the year under consideration. - Decided against revenue Issues:- Determination of PLI for the year under consideration based on the inclusion or exclusion of prior period expenses.Analysis:The appeal before the Appellate Tribunal ITAT Pune involved a dispute regarding the determination of Profit Level Indicator (PLI) for the assessment year 2010-11. The Revenue challenged the order of the Dispute Resolution Panel (DRP) directing the Assessing Officer to exclude expenses from an earlier year for computing the PLI of the current year. The Transfer Pricing Officer (TPO) had proposed a transfer pricing adjustment of Rs. 2.69 crores, which was later confirmed in the final assessment order. The key issue was whether prior period expenses should be considered as operating costs and included in the PLI calculation for the current year.The Authorized Representative for the assessee argued that the prior period expenses were not claimed as deductions for the current year and were added back to the profit while determining the gross total income. Referring to a precedent set by the Pune Bench of Tribunal, the representative contended that the expenses from earlier years should be excluded from the PLI calculation. The Tribunal examined the details provided by the assessee and concluded that since the expenses were not claimed as deductions for the current year, they should not be considered in determining the PLI.Citing a similar case, the Tribunal referred to a previous judgment where it was held that losses from earlier years should be excluded while computing the PLI for the current year. Following this precedent, the Tribunal dismissed the Revenue's appeal, upholding the direction to exclude earlier year expenses from the PLI calculation. The Tribunal emphasized that expenses not claimed as deductions should not be factored into the PLI determination for the current year.In conclusion, the Tribunal dismissed the Revenue's appeal and upheld the decision to exclude prior period expenses from the PLI calculation for the assessment year 2010-11. The judgment highlighted the principle that expenses not claimed as deductions should not be considered in determining the Profit Level Indicator for the relevant year.