2017 (12) TMI 1520

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....o the directions of the learned DRP, erred in law and on the facts and in circumstances of the case in disregarding the benchmarking of manufacturing activity done by the Appellant following "aggregation of transactions" approach using third party comparable companies whilst following "aggregation of transactions" approach himself using internal "comparables". B. International Transaction relating to export of IC Engines 2. Rejection of benchmarking done by the Appellant: 2.1 The learned ACIT, pursuant to the directions of the learned DRP, erred in law and on the facts and in circumstances of the case in rejecting the external comparable companies selected by the Appellant for benchmarking the manufacturing function. 3. Inappropriate comparison of profitability between "export to Associated Enterprises (AEs)" segment and "domestic sales" segment ignoring differences in Functions, Assets and Risks (FAR), differences in products sold and comparison of controlled transactions with controlled transactions 3.1 The learned ACIT, pursuant to the directions of the learned DRP, erred in law and on the facts and in circumstances of the case in com....

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....of the learned DRP erred in facts and circumstances of the case in rejecting external comparable companies selected by the Appellant. 7. Disallowance of Deduction u/s. 80IB by the AO 7.1 The learned ACIT, pursuant to the directions of the learned DRP erred in disallowing Rs. 3,79,144/- out of the deduction u/s. 80IB by allocating a portion of Director's Expenses to the profits of eligible Daman Unit. 8. Disallowance of expenses under section 14A 8.1 The learned ACIT, pursuant to the directions of the learned DRP, erred in disallowing an amount of Rs. 1,50,26,000/- as incurred in relation to exempt income u/s.14A of the Income Tax Act, 1961. 9. Initiation of Penalty Proceedings 9.1 The learned ACIT erred on the facts and in law in initiating penalty proceedings under section 271(1)(c) of the Act. 10. Each one of the above grounds of appeal is without prejudice to the other. 3. The learned Authorized Representative for the assessee at the outset pointed out that the issues raised in the present appeal are squarely covered by the order of Tribunal in assessee's own case relating to assessment year 2007-08 except for the issu....

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.... general in nature and the same merits to be dismissed. 8. The issue raised vide ground of appeal No.1.2 is against rejection of aggregation approach adopted by the assessee for benchmarking its manufacturing activities. We find that similar issue arose before the Tribunal in assessee's own case relating to assessment year 2007-08 in ITA No.1681/PUN/2011 and vide order dated 21.08.2017, the Tribunal vide para 9 at page 9 of the order has applied the ratio laid down in earlier years and held that aggregation approach is to be applied. The relevant findings of the Tribunal are as under:- "9. The Tribunal thus, held that where various activities were so interlinked to the export of manufactured IC engines, then the said international transactions undertaken by the assessee for the year under consideration need to be aggregated for undertaking benchmarking analysis applying TNNM method. The Tribunal in this regard placed reliance on the principles laid down by the Hon‟ble High Court of Delhi in Sony Ericsson Mobile Communications India Pvt. Ltd. Vs. CIT (supra). Following the same principle and where the assessee was engaged in similar activity of manufacturing, we ho....

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....turing activity, we hold that while applying TNNM method, the margins of assessee company are to be compared with the margins of external comparables. However, since the TPO had not verified this factum of comparison with external comparables, we direct the Assessing Officer / TPO to consider the case of assessee and determine the arm's length price and re-compute adjustment, if any, in the hands of assessee on account of international transactions. It may be pointed herein itself that the adjustments were made in the hands of assessee in HHP division and no adjustment was made in LHP division. Consequently, the grounds of appeal No.1.1, 2 and 3 are decided as indicated above." 11. The issue raised vide grounds of appeal No.2.1, 3.1 and 3.3 is thus, decided in favour of assessee and we hold so. The issue raised in ground of appeal No.3.4, in view thereof, becomes academic in nature and the same is dismissed. 12. The issue in ground of appeal No.4.1 is against determination of PLI, wherein the TPO had applied net profit to cost to work out the PLI. However, the claim of assessee was that PLI of net profit to sales has to be applied. The Tribunal vide order dated 21.08.2017....

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....vide para 17 holding as under:- "17. The next issue raised vide ground of appeal No.6 is against benchmarking of payment of technical know-how fees to associated enterprises and vide ground of appeal No.7 against benchmarking of procurement support services provided to associated enterprises. Similar issue also arose before the Tribunal in assessment year 2006-07 and vide order dated 03.03.2017, the Tribunal held that technical know-how and procurement support services have to be aggregated along with other international transactions under the head „manufacturing activity‟ and consequently, the Assessing Officer was directed to compute arm's length price of international transactions after aggregating the international transactions undertaken by the assessee under the head „manufacturing activity‟. The relevant findings of the Tribunal are in paras 24 and 25 at page 31 of the order and following the same parity of reasoning, we hold so. The grounds of appeal No.6 and 7 are thus, allowed." 17. Following the same parity of reasoning, we hold that international transactions of procurement support services provided to associated enterprises are t....

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....10(15), 10(34) and 10(35) of the Act. The assessee claimed before the Assessing Officer that it was cash rich company and had reserves and surplus as on 31.03.2008 at Rs. 1103.69 crores as against secured and unsecured loans at Rs. 28.87 crores only. The assessee thus, claimed that investments were made out of own funds of the company. Further contention of the assessee was that general administrative expenses could not be attributed to earning of tax free dividend income and the expression in relation to section 14A of the Act would mean dominant and immediate connection. Hence, the disallowance under section 14A of the Act, if any, is to be restricted to the extent which is related to the income not forming part of total income. The assessee had worked out the disallowance at Rs. 19,63,021/-. The Assessing Officer accepted the plea of assessee that no disallowance on account of interest cost is to be made. However, submissions of assessee with regard to general and administrative expenses were found to be not acceptable. The Assessing Officer rejected the contention of assessee that no expenses could be attributed to earning of exempt dividend income on the ground that there may ....