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2014 (5) TMI 728
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....sessee are as under:- "On the facts and in the circumstances of the case and in law, the Transfer pricing officer and the Assessing Officer under the directions issued by the Dispute Resolution Panel: 2 Erred in law and facts in disregarding Transfer pricing documentation report prepared based on the segmental approach and the separate books of accounts for the transfer pricing analysis. 3. Erred in law and facts in adopting entity level approach without considering the functional dissimilarity between the business segments of the Appellant. 4. Erred in facts in placing reliance on the erroneous figures / expense percentages on segmental revenue and erred in facts in ignoring the reason for difference in proportion of common expenses allocated between segments while concluding that the segmental accounts has been prepared incorrectly by way of inappropriate allocation of common expenses. 5. Erred in issuing direction by arbitrarily directing the learned AO alone for reconsidering the deduction under section 10B of the Act without issuing any direction to the learned TPO for considering the segmental accounts as recomputed by the learned AO. 6. Erred in confirming ....
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....puting deduction under section 10A of the Act. 5. The Transfer Pricing Officer subsequently passed an order dated 24.02.2011 revising the upward adjustment of purchase price on determination of arm's length price with Associated Enterprise of the assessee at Rs. 7.18 crores as against Rs. 7.52 crores made in the order dated 28.10.2010. 6. The assessee filed its objections before the Dispute Resolution Panel (in short "DRP") in respect of upward adjustment of Rs. 7.52 crores towards international transactions with its Associated Enterprise and the other disallowances i.e. in respect of provision for discount and excluding foreign travel expenses from export turnover and not excluding the same from total turnover while computing deduction under section 10A of the Act. The DRP by its order dated 28.9.2011 passed under section 144C(5) sustained the Transfer Pricing Officer's addition of Rs. 7.18 crores in respect of transfer pricing adjustment. The DRP also sustained disallowance of provision for discount and exclusion of travel expenses incurred in foreign currency from export turnover and not excluding the same from total turnover while computing deduction under section 10A of ....
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....nufacturing segment by following the internal TNMM, the assessee claimed that its contract manufacturing and export sales to be at arm's length price (in short "ALP"). However, the Transfer Pricing Officer rejected the internal TNMM and selected external comparables and arrived at the comparable margin at 8.87% and this margin of 8.87% was compared with the entity level margin of 1.08% of the assessee ignoring the segmental report results where net cost plus margin of the assessee in contract manufacturing segment was 20.89% which is more than 8.87% i.e. margin of external comparables arrived at by the Transfer Pricing Officer and in such circumstances, the Transfer Pricing Officer should not have made any upward adjustment as the net cost plus margin of the contract manufacturing segment is much more than the profit margin of the external comparables adopted by the Transfer Pricing Officer. 10. The counsel submits that the external comparables adopted by the Transfer Pricing Officer has been accepted by the assessee. The counsel submits that the Transfer Pricing Officer has erred in comparing the external comparable's margin of 8.87% with 1.08% margin which is entity level marg....
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....991) 193 ITR 321 submits that in the absence of any material change in facts, a different view than taken in earlier years could not be taken. He further submits that in the current assessment year i.e. 2007-08, the Transfer Pricing Officer and DRP having accepted the segment results for computing relief under section 10A of the Act, the said segmentation approach should not have been rejected in determining the ALP of sales of Associated Enterprise. 13. The counsel for the assessee referring to page 67 of the paper book further submits that DRP has directed the Assessing Officer to examine the segmental results for contract manufacturing segment for computing relief under section 10B of the Act and the Assessing Officer has accepted the segment reports and the submissions of the assessee before him vide letter dated 28.10.2011 in respect of segmentation results claiming deduction under section 10B of the Act. 14. The counsel further submits that TNMM does not permit comparison of margins on any entity-wide basis, only margins from the international transaction or a class of international transaction can be compared. Without prejudice to the above, the counsel submits that if....
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....CIT DR before us with respect to allocation of expenses to manufacturing segment submits that the allocation of expenses were accepted for computing relief under section 10B of the Act. 17. Heard both sides. Perused the orders of lower authorities and the case law relied on. The reason given by the Transfer Pricing Officer and DRP for not accepting the segment results are that the assessee has not shown the same in the audited financial accounts and the segment reporting was done only for transfer pricing purposes. They have also stated that allocation of expenses between the contract manufacturing segment and non AE local/domestic segments are abnormal. In so far as the reason that the assessee has not shown the segmental report/results in audited financial accounts and therefore, such segmental results cannot be accepted for ALP has not been accepted by this Tribunal in the case of 3i Infotec Ltd. Vs. ITO in ITA No.21/Mds/2013 vide order dated 7.5.2013. This Tribunal in the above cited case held that even though segmental reports are not show in audited financial accounts, they have to be accepted. 18. This Tribunal further held, in view of the decision of the Delhi Bench o....
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....facturing segment appropriately. In this regard, we find that the figures adopted by the Transfer Pricing Officer / DRP in their orders in analyzing these facts and coming to the decision/conclusion to reject the segmental results of the assessee is wrong. For example in the above extracted para from DRP order the employee cost was taken at 1.88 crores as against the correct figure of 2.10 crores. Similarly, other expenses and depreciation was taken at 0.59 crores and 18.50 crores as against the correct figures of Rs. 1.88 crores and 0.58 crores respectively. The Transfer Pricing Officer in his order at page 9 has taken the figures of material cost, employee cost and other expenses at Rs. 2.10 crores, Rs.1.88 crores and Rs. 0.59 crores as against the correct figures of Rs. 1.39 crores, Rs. 2.10 crores and Rs. 1.88 crores respectively for analysis. The Transfer Pricing Officer and DRP have taken wrong figures in respect of these expenses in analyzing and rejecting the segmental results. The figures taken by the Transfer Pricing Officer / DRP in respect of material cost, employee cost, other expenses, depreciation are not matching with the figures given by the assessee in segmental r....
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.... delete the addition of Rs. 7.18 crores made towards upward adjustment of purchase price on determination of ALP with Associated Enterprise. 22. Ground no.10 of the grounds of appeal is with regard to disallowance of provision for discount. At the time of hearing, learned counsel for the assessee concedes that this issue is decided against the assessee by the co-ordinate Bench of this Tribunal in the assessee's own case for the assessment year 2005-06 in ITA No.1925/Mds/2010 dated 30.06.2011. The counsel further submits that this Tribunal sustained the disallowance of provision for discount claimed as deduction by the assessee holding that it is unascertained and contingent expenses. However, the counsel submits that an additional ground was placed before the DRP submitting that the assessee during the assessment year 2007-08 had actually passed on Rs. 2,73,03,455/- as discounts to the customers and such discount which was passed on to the customers should be allowed as deduction. The counsel submits that DRP has not given any finding on such additional ground. The counsel places copy of assessment order for the assessment year 2009-10 dated 13.05.2013 passed under section 143(3....
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....ch a provision provides for a known liability of which the amount can be determined with substantial accuracy. It cannot, therefore, be termed a 'reserve'. Therefore, the estimated liability for the year on account of a scheme of gratuity should be allowed to be deducted from the gross profits. The allowance is not restricted to the actual payment of gratuity during the year." 9. In the case of Dy. CIT vs Beardsell Ltd (supra), Hon'ble Jurisdictional High Court has held as under: "Held, that if a debt had become irrecoverable the same could be written off and deducted from the profit of the business. A debt, the recovery of which was doubtful could not be termed to be an ascertained liability as mentioned under section 115J of the Act and could not be excluded from the book profits. Accordingly, the conclusion of the Tribunal in directing the Assessing Officer to rectify the alleged mistake of inclusion of the unascertained liability in the book profit could not be upheld." 10. Thus, it becomes evidentially clear that when the liability is ascertained and not quantifiable during the year and is simply a contingent based on estimates, the same cannot be allowed as deduc....