TaxTMI 
TaxTMI 
2018 (5) TMI 1314
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..... 1.2 The learned DCIT, pursuant to 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 under Manufacturing Activity 2. Rejection of benchmarking done by the Appellant: 2.1 The learned DCIT, 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 DCIT, pursuant to the directions of the learned DR....
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....RP erred in facts and circumstances of the case in rejecting without giving any cogent reasons the following comparable companies - * Kirloskar Consultants Limited * Mahindra Consulting Engineers Limited * HSCC (India) Limited 6.2 The learned DCIT pursuant to the direction of the learned DRP erred in facts and circumstances of the case in considering without giving any cogent reasons the following companies as comparable - * NTPC Electric Supply Co. Limited * L&T Ramboll Consulting Engineers Limited 7. Disallowance of Deduction u/s. 80IB of the Act 7.1 The learned DCIT, pursuant to the directions of the learned DRP erred in disallowing the deduction u/s. 80IB by allocating a portion of common expenses to the profits of eligible unit. 7.2 The learned DCIT pursuant to the directions of the learned DRP erred in not appreciating that the eligible unit of the Appellant was an independent unit managed independently without any interference by other divisions of the Appellant and therefore no part of the common expenses could be attributed to the said unit of the Appellant. 8. Disallowance of expense....
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....aced reliance on the orders of authorities below but fairly conceded that the said issues were adjudicated by the Tribunal in assessee's own case in preceding years. 5. We have heard the rival contentions and perused the record. Briefly, in the facts of the case, the assessee was engaged in the business of manufacturing and sale of IC engines. For the year under consideration, the assessee had filed the return of income declaring total income of Rs. 478.77 crores. Thereafter, the assessee filed revised return of income declaring total income of Rs. 478.77 crores due less TDS claim in original return. The assessee had entered into international transactions with its associated enterprises, for which the Assessing Officer made reference to the Transfer Pricing Officer (TPO) under section 92CA(1) of the Act to determine the arm's length price of international transactions. The TPO in order passed under section 92CA(3) of the Act proposed an upward adjustment of Rs. 61,19,00,000/- in respect of international transactions with associated enterprises after considering the contentions raised by the assessee on account of sale of IC Engines to the associated enterprises and receipt ....
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....ct so." 9. Similar proposition has been laid down by the Tribunal in assessee's own case relating to assessment year 2008-09 in ITA No.2417/PUN/2012, order dated 30.10.2017. 10. Following the same parity of reasoning, we hold that while benchmarking the international transactions of assessee, wherein the assessee was engaged in manufacturing activities, then we hold that various activities are to be aggregated for determining the arm's length price of its international transactions. The ground of appeal No.1.2 is thus, allowed. 11. The issue raised vide grounds of appeal No.2.1, 3.1 to 3.4 is against the method to be applied as most appropriate method and whether internal comparability is to be made i.e. comparing the profitability of export to associated enterprises with domestic sales. The said issue was also adjudicated by the Tribunal in earlier years and vide order dated 21.08.2017, the Tribunal held that while applying TNMM method, margins of assessee are to be compared with average margins of external comparable companies as per para 12, which read as under:- "12. We have perused the order of Tribunal in assessment year 2005-06 and noted the fact that t....
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....e same is dismissed. 13. 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 has decided the issue vide paras 14 and 15 and directed the Assessing Officer to adopt the net profit to sales for determining PLI. The relevant findings of the Tribunal are as under:- "14. The next issue raised vide ground of appeal No.4 is against the approach adopted by the TPO in application of net profit to cost as PLI. The said issue was also decided by the Tribunal in assessment year 2006-07 vide para 22 at page 30 of the order which reads as under:- "22. The next issue raised by way of ground of appeal No.7 is the methodology adopted by the TPO in application of net profit to cost as PLI. The case of assessee is that where selling price of component manufactured by it derives the profitability and not the cost of components utilized for manufacturing activity, the PLI should be adopted as net profit to sales and not net profit to cost. We find merit in the plea of asse....
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....ted 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." 18. Similar proposition has been laid down by the Tribunal in assessee's own case relating to assessment year 2008-09 in ITA No.2417/PUN/2012, order dated 30.10.2017. 19. Following the same parity of reasoning, we hold that international transactions of procurement support services provided to associated enterprises are to be aggregated and benchmarked along with international transactions under the manufacturing activities. The grounds of appeal No.6.1 and 6.2 are thus, allowed. 20. The issue raised vide grounds of appeal No.7.1 and 7.2 is against the disallowance of deduction claimed under section 80IB of the Act. 21. The learned Authorized Representative for the assessee fairly pointed out that the said issue is covered against the assessee by the earlier order of Tribunal and wherein, the Tribu....
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....und 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 not be any direct attributable expenses under Rule 8D(2)(i) of the Rules but the assessee company must have incurred some expenses to earn tax free dividend income. In view thereof, the disallowance was computed as per Rule 8D of the Rules @ 0.5% of average value of investments which works out to Rs. 1,50,26,000/-. The CIT(A) upheld the same. The assessee is in appeal against the same. 24. The first issue which has to be considered is the satisfaction recorded by the Assessing Officer, in view of provisions of section 14A(2) of the Act. As per said sub-section, where the Assessing Officer having regard to the accounts of assessee, is not satisfied with the correctness of the claim of assessee in respect of such expenditure, in relation to income, which does not form part of total income, then the Assessing Officer has to determine the amount of expenditure incurred in relation to such exempt income, in accordance with such method as may be prescribed. The first step is the satisfaction of ....
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....fficer did not allow the said claim of assessee, in view of the decision of the Hon'ble Supreme Court in Goetze (India) Ltd. Vs. CIT (2006) 284 ITR 323 (SC). 29. The CIT(A) upheld the order of Assessing Officer in denying the aforesaid claim, against which the assessee is in appeal. 30. The learned Authorized Representative for the assessee before us pointed out that claim of bad debts written off was made before the Assessing Officer during the course of assessment proceedings, which was not allowed by the Assessing Officer and also by the CIT(A). However, the Hon'ble Bombay High Court in CIT Vs. Pruthvi Brokers & Shareholders (2012) 349 ITR 336 (Bom) have held that additional ground of appeal in respect of additional claims not made in the return of income can be raised before appellate authorities. 31. The learned Departmental Representative for the Revenue on the other hand, strongly objected to the claim of assessee. 32. We have heard the rival contentions and perused the record. The issue which is raised by way of ground of appeal No.9.1 is against the claim which was not initially made in the return of income but was raised by way of letter before the Assessi....
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....icer vide draft assessment order had short granted deduction under section 35(2AB) of the Act by Rs. 6,75,000/- on the ground that the Department of Industrial and Scientific Research i.e. DSIR had approved expenditure only to the extent of Rs. 2.594 crores in form No.3CL. The DRP upheld the draft assessment order and accordingly, the Assessing Officer passed final assessment order granting deduction under section 35(2AB) of the Act short by Rs. 6,75,000/-. 35. The grievance of assessee is against the order of Assessing Officer in allowing the deduction only to the extent the expenditure is approved in form No.3CL issued by DSIR. The assessee claims that under the provisions of said sub-section, the DSIR is empowered to approve only R&D facility and not the expenditure and it is further contended by the assessee that once R&D facility was approved by the prescribed authority i.e. DSIR in form No.3CM, then the expenses incurred by the assessee have to be allowed under section 35(2AB) of the Act. The learned Authorized Representative for the assessee drew our attention to different clauses of section 35 of the Act to demonstrate that various types of approvals were to be taken und....
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....le High Court of Gujarat in CIT Vs. Sun Pharmaceutical Industries Ltd. (2017) 250 Taxman 270 (Guj). In respect of decision of the Hon'ble High Court of Karnataka in Tejas Networks Ltd. Vs. DCIT (2015) 233 Taxman 426 (Kar), the learned Authorized Representative for the assessee pointed out that the said decision was clearly distinguishable on facts. The issue under consideration in the said decision was whether the activity carried on by the assessee and the expenditure incurred in relation to scientific research, is allowable in terms of section 35(3) r.w.s. 43(4) of the Act. The Hon'ble High Court further held that where the DSIR has certified the expenditure in form No.3CL and if the Assessing Officer had any dispute in respect thereof with respect to expenditure or the approval of the facility, such question will have to be referred by the Board to the prescribed authority. He thus, stressed that for claiming weighted deduction under section 35(2AB) of the Act, it is the facility and not the expenditure in form No.3CL which has to be approved by the prescribed authority. The facility in the case of assessee has been approved by the DSIR in form No.3CM and hence, the assessee was....
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....plication in the prescribed form and manner is to be made to the Central Government for the purpose of grant of approval or continuation thereto. Before granting the approval, the prescribed authority has to satisfy itself about the genuineness of activities and make enquiries in this regard. Under sub-section (2B) to section 35 of the Act, a company engaged in the specified business as laid there on, if it incurs expenditure on scientific research or in-house Research & Development facility also needs to be approved by the prescribed authority, is entitled to deduction, provided the same is approved by the prescribed authority. 39. Now, coming to sub-section (2AA) to section 35 of the Act, it talks about granting of approval by the prescribed authority but the approval to the expenditure being incurred is missing under the said section. Similar is the position in sub-section (2A). Further in sub-section (2AB), it is provided that facility has to be approved by the prescribed authority, then there shall be allowed deduction of expenditure incurred whether 100%, 150% or 200% as prescribed from time to time. Clause (2) to section 35 of the Act provides that no deduction shall be a....
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....d (ii) quantifying the expenditure incurred on in-house R & D facility by the company during the previous year and eligible for weighted deduction under sub-section 2AB of section 35 of the Act in part B of form No.3CL. In other words the quantification of expenditure has been prescribed vide IT (Tenth Amendment) Rules, 2016 w.e.f. 01.07.2016. Prior to this amendment, no such power was with DSIR i.e. after approval of facility. 41. Under the amended provisions, beside maintaining separate accounts of R & D facility, copy of audited accounts have to be submitted to the prescribed authority. These amendments to rules 6 and 7a are w.e.f. 01.07.2016 i.e. under the amended rules, the prescribed authority as in part A give approval of the facility and in part B quantify the expenditure eligible for deduction under section 35(2AB) of the Act. 42. The issue which is raised before us relates to pre-amended provisions and question is where the facility has been approved by the prescribed authority, can the deduction be denied to the assessee under section 35(2AB) of the Act for non issue of form No.3CL by the said prescribed authority or the power is with the Assessing Officer to look ....
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.... the development of the facility by providing deduction of weighted expenditure. Since what is stated to be promoted was development of facility, intention of the legislature by making above amendment is very clear that the entire expenditure incurred by the assessee on development of facility, if approved, has to be allowed for the purpose of weighted deduction. 10. We are in full agreement with the reasoning given by the Tribunal and we are of the view that there is no scope for any other interpretation and since the approval is granted during the previous year relevant to the assessment year in question, we are of the view that the assessee is entitled to claim weighted deduction in respect of the entire expenditure incurred under s. 35(2AB) of the Act by the assessee." 44. The Hon'ble High Court of Delhi in CIT Vs. Sandan Vikas (India) Ltd. (2011) 335 ITR 117 (Del) on similar issue of weighted deduction under section 35(2AB) of the Act held that the condition precedent was the certificate from DSIR, but the date of certificate was not important, where the objective was to encourage research and development by the business enterprises in India. In the facts before th....