TaxTMI 
TaxTMI 
2018 (5) TMI 1314
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.... 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 DRP, erred in law and on the facts and in circumstances of the case in comparing segmental profitability of the Appellant i.e. between "expo....
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.... * 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 expenses under section 14A 8.1 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 disallowing the expenses allegedly incurred in relation to exempt income earned by the Appellant. 9. Bad debts inadvert....
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.... 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 of the procurement support services. The Assessing Officer in order passed under section 143(3) r.w.s. 144C(13) of the Act made the addition, after the objections filed by the assessee were rejected by the Dispute Resolution Panel (DRP). 6. The assessee is aggrieved by the order of Assessing Officer / TPO. The first issue which was adjudicated by the TP....
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....d 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 the assessee had not pressed the said ground of appeal being academic in nature and hence, no adjudication was made on the said ground of appeal. However, in assessment year 2005-06, the assessee is not aggrieved by the findings of Tribunal in dismissing the plea of assessee since the issue has also become academic in nature. However, in the present appeal, after aggregation appro....
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....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 assessee in this regard that where the assessee is engaged in the manufacture of components and the main aim of undertaking was to sell the said components, then it is the sales which derive the profitability and not the cost of components. Accordingly, while determining the PLI, the TPO is directed to adopt net profit to sales in order to benchmark the international transactions. Hence, the ground of a....
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....y 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 Tribunal following the same parity of reasoning as in assessment years 2007-08 and 2008-09 had upheld the orders of authorities below in allocating head office expenses, Director's salary, etc to Daman unit and upheld the re-computation of deduction under section 80IB of the Act. Following the same parity of reasoning, we dismiss the grounds of appeal No.7.1 and 7.2 raised by the assessee. 22. The next issue raised by the assessee v....
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....lue 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 the Assessing Officer to be recorded vis-à-vis the correctness of the claim made by the assessee. The assessee had furnished the working of disallowance under Rule 8D of the Rules at Rs. 19,63,021/-. The said working was in respect of disallowance to be made under Rule 8D(iii) of the Rules. The Assessing Officer having not recorded any satisfaction as to the correctness or otherwise of the aforesaid disallowance worked out by the assessee has ....
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....se 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 Assessing Officer and even before the CIT(A) and also before us. The Assessing Officer held the said claim as not allowable relying on the ratio laid down by the Hon'ble Supreme Court in Goetze (India) Ltd. Vs. CIT (supra). The Hon'ble High Court of Gujarat in CIT Vs. Arvind Mills Ltd. referring to the decision of Goetze (India) Ltd. Vs. CIT (supra) held that the Hon'ble Supreme Court while dismissing the appeal clarified that its decision was restricted to the p....
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....rievance 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 under different sub-sections and what was envisaged under each of the section, then the same has to be read and applied for. Where the law wanted the expenditure to be approved by prescribed authority, then the same was expressly provided as in section 35(1)(i) of the Act and in section 35(2B) of the Act. However, for the purpose of section 35(2AB) of the Act, it is provided that facility is to be approved and not the expenditure. Our attention was also drawn to the Memora....
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....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 eligible to claim the deduction under section 35(2AB) of the Act. 36. The learned Departmental Representative for the Revenue relying on the orders of authorities below, placed reliance on the ratio laid down by the Hon'ble High Court of Karnataka in Tejas Networks Ltd. Vs. DCIT (supra). He further pointed out that the decision in Sun Pharmaceutical Industries Ltd. Vs. Pr.CIT (supra) was vis-à-vis power of the Commissioner under section 263 of the Act and hence....
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....lopment 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 allowed in respect of expenditure mentioned in clause (1) under any provisions of the Act. Clause (3) further lays down that no company shall be entitled for deduction under clause (1) unless it enters into agreement with prescribed authority for co-operation in such R & D facility. The Finance Act, 2015 w.e.f. 01.04.2016 has substituted and provided that facility has to fulfill such condition with regard to maintenance of accounts and audit thereof and for audit of accounts mai....
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....g 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 into the nature of expenditure to be allowed as weighted deduction under section 35(2AB) of the Act. The first issue which arises is the recognition of facility by the prescribed authority as provided in section 35(2AB) of the Act. 43. The Hon'ble High Court of Gujarat in CIT Vs. Claris Lifesciences Ltd. (2010) 326 ITR 251 (Guj) have held that weighted deduction is to be allowed under section 35(2AB) of the Act after the establishment of facility. However, section does not mention a....
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....val 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 the Hon'ble High Court of Delhi, the assessee had approached DSIR vide application dated 10.01.2015. The DSIR vide letter dated 23.02.2006 granted recognition to in-house research and development facility of assessee. Further, vide letter dated 18.09.2006, DSIR granted approval for the expenses incurred by the company on in-house research and development facility in the prescribed form No.3CM. The Assessing Officer in that case refused to accord the benefit of aforesaid provision on the ground that recognition and approval was given by D....