TaxTMI 
TaxTMI 
2017 (4) TMI 463
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....r the provisions of section 143(1) of the Income-tax Act, 1961 [hereinafter referred to as 'the Act' for short] the case was selected for scrutiny by issuing requisite notice u/s 143(2) of the Act. During the course of scrutiny proceedings, the Assessing Officer (AO) noticed that the assessee-company shown international transactions with its Associated Enterprises (AEs). Therefore, he referred the matter to the Transfer Pricing Officer [TPO] for purpose of determining Arms Length Price [ALP] in respect of such international transactions. The TPO has passed order u/s 92CA of the Act on 08/01/2013 by determining the ALP rate at 17.22% in respect of outstanding receivables exceeding six months from its AEs and suggested adjustment of Rs. 12,57,185/- under the provisions of section 92CA of the Act. The final assessment order u/s 143(3) r.w.s. 144C of the Act was passed by the AO on 26/05/2013. 3. Aggrieved by the above disallowances, the assesseecompany preferred an appeal before the CIT(A) who, vide impugned order allowed the appeal in respect of issues on apportionment of interest on working capital, factory overheads and director's remuneration between EOU i.e. 10B unit a....
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....e books of account maintained, the AO was not justified in apportioning the above expenditure to 10B unit. 7. After hearing rival submissions and perusing material, we find that the AO had not found any defects in the books of account nor had he rejected the books of account. It is neither the case of the AO that any of the expenses was not properly allocated to 10B units nor was the case of the AO that the expenditure, which is incurred exclusively for 10B unit was not claimed as a deduction. The AO merely proceeded on surmises and conjecture to make addition which is not permissible under law and therefore, we do not find any reason to interfere with the finding of the CIT(A). Hence, the appeal of the revenue is dismissed. 8. The assessee has filed cross objections objecting the order of the CIT(A) confirming the addition in respect of apportionment of salary expenditure of Rs. 17,03,108/- to 10B unit and addition in respect of ALP in respect of receivables due from AEs and not adjudicating the ground of allowance of on credit for TDS of Rs. 67,87,989/-. 9. The assessee raised the following grounds of cross objections: 1. The Order {to the extent it is against the Ass....
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.... (3) Without prejudice to the above, the Learned Commissioner (Appeals) is not justified in upholding the action of apportionment of expenditure under section 10B (7) r.w.s 80-IA (8) of IT Act or under section 10B (7) r.w.s 80-IA (10) of IT Act. (4) The Learned Commissioner (Appeals) is not justified in failing to appreciate that section 10B (1) of IT Act extends tax holiday in respect of profit derived by a 100% EOU and therefore, any income and expenditure should have first degree nexus with the undertaking. He has failed to appreciate that there is no scope for allocation of any common expenditure as the same would not have first degree nexus. (5) Without prejudice to earlier grounds, as regards apportionment of estimated salary cost of Rs. 1.908 crores between EOU and Non-EOU in the ratio of 47.22: 52.78, the Learned Commissioner (Appeals) has failed to appreciate that (a) the Learned DCIT is not justified in estimating salary cost of Rs. 1.908 Crores on ad hoc basis and the same is based on surmise and conjectures, (b) there was no requirement for the Learned DCIT to estimate the salary expenses as against the actual expenditure incurred by the Assessee w....
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....ther engineers or managers and the rest are production operators / helpers, etc. Since the assessee has not furnished the details of salaries paid to manufacturing staff the only alternative is to estimate at Rs. 30,000/- per month for executives and Rs. 15000/- per month for production staff So, the total factory salary hill is around Rs. 1.908 crs. Apportioned in the ratio of EOU turnover vis - a - vis total manufacturing turnover, the EOU salaries works out to Rs. 90,09,576/-. Since the assessee has allready debited Rs. 73,06.468- the short debit works out to Rs. 17.03.108/- which is considered as expenditure incurred on 101) unit and to that extent its profit reduced and correspondingly non 10B profits increase. " 5.1. From these observations, it is clear that the AO has a strong basis to infer that there has been overlapping of functions of the employees between the two units. Thus. I see no reason to interfere in his action in reallocating expenses within the meaning of section 145(3) of the Act. 13. The assessee-company had placed no material before us or before the CIT(A) controverting above finding of the AO and the reasoning of the AO cannot be found fault with. The....
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....iod extended by the assessee to the AE cannot be examined independently but has to be considered along with the main international transaction being sale to the AE. As per Rule 10A(d) if a number of transactions are closely linked or continuous in nature and arising from a continuous transactions of supply of amenity or services the transactions is treated as closely linked transactions for the purpose of transfer pricing and, therefore, the aggregate and clubbing of closely linked transaction are permitted under said rule. This concept of aggregation of the transaction which is closely liked is also supported by OCED transfer pricing guidelines. In order to examine whether the number of transactions are closely linked or continuous so as to aggregate for the purpose of evaluation what is to be considered is that one transaction is follow-on of the earlier transaction and then the subsequent transaction is carried out and dependent wholly or substantially on the earlier transaction. In other words, if two transactions are so closely liked that determination of price of one transaction is dependent on the other transaction then for the purpose of determining the ALP, the closely lin....