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of <h1>Tribunal adjusts ALP, directs verification of warranty cost recovery in Manufacturing Segment</h1> <h3>M/s. Dell International Services India Private Limited Versus. The Additional Commissioner of Income-tax (LTU) Bangalore.</h3> M/s. Dell International Services India Private Limited Versus. The Additional Commissioner of Income-tax (LTU) Bangalore. - TMI Issues Involved:1. Determination of Arm's Length Price (ALP) in the Manufacturing Segment.2. Adjustment towards Warranty Cost.3. Disallowance under Section 40(a)(ia) for Short Deduction of Tax.4. Disallowance of Rebate and Volume Discount under Section 40(a)(ia).5. Disallowance of Deferred Revenue.6. Disallowance of Claim under Section 40(a)(i) / 40(a)(ia).7. Classification of Fixtures and Stores Interiors Expenses.8. Disallowance of Interest on Delayed Payment of TDS.9. Disallowance of Unpaid Central Sales Tax (CST).10. Short Credit of TDS.Detailed Analysis:1. Determination of Arm's Length Price (ALP) in the Manufacturing Segment:The assessee, engaged in manufacturing activities, used the Transactional Net Margin Method (TNMM) to determine the ALP of international transactions with its Associated Enterprises (AEs). The TPO, however, rejected the assessee's TP study and made adjustments totaling Rs.307,69,14,132. The TPO selected eleven comparables and rejected the adjustment for under-utilized capacity. The Tribunal found the TPO's rejection of the under-utilized capacity adjustment justified due to lack of detailed analysis on fixed, variable, and semi-variable costs. However, it directed the TPO to restrict the TP adjustment to transactions with AEs, following the precedent set by the Bombay High Court in CIT v. Phoenix Mecano (India) Pvt. Ltd.2. Adjustment towards Warranty Cost:The TPO made an adjustment on the basis that the assessee had not recovered warranty service costs from its AEs. The Tribunal, referencing its earlier decisions in the assessee's own case, restored the issue to the AO/TPO to verify if the assessee had indeed recovered the costs with a 5% markup.3. Disallowance under Section 40(a)(ia) for Short Deduction of Tax:The AO disallowed Rs.4,18,320 for short deduction of tax under Section 194J. The Tribunal, citing the Karnataka High Court's decision in CIT v. Kishore Rao & Others (HUF), held that short deduction does not attract disallowance under Section 40(a)(ia) and deleted the disallowance.4. Disallowance of Rebate and Volume Discount under Section 40(a)(ia):The AO disallowed Rs.52,42,23,354, treating the payments as commission requiring TDS under Section 194H. The Tribunal, following its decision in the assessee's case for AY 2010-2011, restored the issue to the AO to determine if the transactions were on a principal-to-principal basis, which would not attract Section 194H.5. Disallowance of Deferred Revenue:The AO added Rs.100,30,45,893 as deferred revenue, stating the Income-tax Act does not recognize deferred revenue. The Tribunal, following its earlier decisions in the assessee's own case, deleted the addition, recognizing the matching principle of accounting.6. Disallowance of Claim under Section 40(a)(i) / 40(a)(ia):The AO disallowed Rs.21,51,09,398 due to non-furnishing of TDS details and treating rebates as commission. The Tribunal, following its decision for AY 2010-2011, restored the matter to the AO to verify the details and allow the deduction if TDS was correctly deducted.7. Classification of Fixtures and Stores Interiors Expenses:The AO classified Rs.2,67,16,286 as capital expenditure. The Tribunal, following its decision in the assessee's own case for AY 2012-2013, held the expenditure as revenue in nature and directed the AO to allow it as such.8. Disallowance of Interest on Delayed Payment of TDS:The AO disallowed Rs.26,349 paid as interest under Section 201(1A). The Tribunal, following the Madras High Court's decision in CIT v. Chennai Properties & Investment Ltd., upheld the disallowance, stating interest on delayed TDS payment is not allowable.9. Disallowance of Unpaid Central Sales Tax (CST):The AO disallowed Rs.2,006 of unpaid CST. The Tribunal, following the Supreme Court's decision in Chowringhee Sales Bureau (P.) Ltd. v. CIT, upheld the disallowance, stating unpaid CST is disallowable under Section 43B.10. Short Credit of TDS:The AO granted TDS credit less than claimed. The Tribunal restored the issue to the AO to verify the Form 26AS and grant the correct TDS credit as per the DRP's directions.Conclusion:The Tribunal provided detailed directions for each issue, emphasizing the need for proper verification and adherence to judicial precedents. The appeal was partly allowed, with several issues remanded for re-examination.
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