2018 (5) TMI 1101

X X   X X   Extracts   X X   X X

Full Text of the Document

X X   X X   Extracts   X X   X X

....add two more questions, for which, amendment is sought. Draft amendment granted. 2. All these appeals are admitted for consideration of the following substantial questions of law; (A) Whether on the facts and circumstances of the case and in law, the ITAT was correct in excluding Alphageo India Ltd. from the list of comparable companies for calculating Arm's Length Price ? (B) Whether on the facts and circumstances of the case and in law, the ITAT was justified in law and facts in directing the AO to exclude the depreciation from the operating cost for the purpose of calculating profit level indicator (PLI) for undertaking the transfer pricing analysis or alternatively, to provide depreciation adjustment to compute oper....

X X   X X   Extracts   X X   X X

Full Text of the Document

X X   X X   Extracts   X X   X X

....t, the assessee would undertake certain research work for and on behalf of the associate enterprise and would be remunerated in terms of Para4 of the Agreement pertaining to compensation for research projects. Clause( a) thereof provided that M/s. SABIC Research Technology Pvt. Ltd., i.e. the associate enterprise, will reimburse the assessee the actual costs of each research project, which would include reimbursement of operational costs. Clause( c) of Para4 provided that in addition to the reimbursement of costs, a Fee of 05% of the total costs shall be billed by the assessee to the associate enterprise. 3. During the course of assessment proceedings, it was noticed that the assessee had claimed preoperative expenditure of Rs. 3.54 Cror....

X X   X X   Extracts   X X   X X

Full Text of the Document

X X   X X   Extracts   X X   X X

....en off over a period of five years in equal installments of Rs. 70.98 lakhs. Since the said expenditure was nonoperating in nature and related to the period prior to the commencement of commercial operations, the same has been disallowed suo moto by the assessee while computing the total income and the same has also not been considered by the assessee in the operating costs while recovering markup of 5% from the AE. However, ld. TPO, while computing the operating margin in the transfer pricing proceedings, applying TNMM Method, considered the deferred revenue expenditure as operating expenses and included the same as a part of operating cost for computing the operating market of the assessee by taking a view that his expenditure was incurre....

X X   X X   Extracts   X X   X X

Full Text of the Document

X X   X X   Extracts   X X   X X

.... this view from the decision of coordinate Bench in the case of Pole to Win India (P) Ltd. v. DCIT reported in [2015] 60 taxmann.com 311 (BangaloreTrib.), wherein it has been held that the expenses which have been disallowed while computing the taxable income are excludable from the computation of operating margin. 8.18 In view of our above discussion and in the given facts and circumstances of the case, we are of the view that the deferred revenue expenditure written off at Rs. 70.98 lakhs for all the five years should be excluded from the computation of operating cost in order to calculate Arms Length Price as per TNMM Method." 5. From the other materials on record and the discussion of the Tribunal on the issue, we can gather....