TaxTMI 
TaxTMI 
2018 (9) TMI 1691
X X X X Extracts X X X X
X X X X Extracts X X X X
....overed by the orders of Tribunal in assessee's own case in earlier years. He also pointed out that the issues raised in appeals filed by Revenue for both the years would become academic in nature once the grounds of appeal raised by the assessee are allowed. 4. The learned Departmental Representative for the Revenue on the other hand, placed reliance on the orders of authorities below but fairly conceded that the issues raised in the present appeals are squarely covered by the orders of Tribunal in assessee's own case in preceding years. 5. We proceed to decide the present set of appeals by making reference to the facts and issues in assessment year 2010-11. 6. The assessee in ITA No.556/PUN/2015, relating to assessment year 2010-11 has raised the following grounds of appeal:- 1. Transfer Pricing Adjustment: 1.1 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 making an adjustment amounting to Rs,31,28,00,000/- to the value of international transactions entered into by the Appellant with its Associated Enterprises in respect of export of 1C engines and components. 1.2....
X X X X Extracts X X X X
X X X X Extracts X X X X
....t on account of the difference between the intensity of the "marketing functions" of the two segments of "export to AEs" and "domestic sales". 3.5 Without prejudice to above, the learned DCIT erred in law and on facts and in circumstances of the case in computing the operating margins of the manufacturing activity while comparing the segmental profitability of the Appellant's "exports to AEs" segment and "domestic sales" segment. 4. Erroneous exclusion of export incentive while computing the operating margin of the Appellant's "exports to AEs" segment. 4.1 The learned DCIT pursuant to the directions of the learned DRP erred on the facts and in circumstances of the case in excluding export incentive while computing the operating margin of the Appellant's "exports to AEs" segment. 5. Inappropriate approach adopted by TPO in application of net profit to total cost as Profit Level Indicator (PLI) 5.1 The learned DCIT pursuant to the directions of the learned DRP erred in law and on facts and in circumstances of the case and without providing cogent reasons in considering PLI as "operating profit to total cost" as against "operati....
X X X X Extracts X X X X
X X X X Extracts X X X X
....nterprises, which aggregated to Rs. 722.27 crores. The details of international transactions are tabulated at page 2 of the order of Transfer Pricing Officer (TPO). The Assessing Officer made reference to the TPO under section 92CA(1) of the Act for determining arm's length price of international transactions undertaken by the assessee. The TPO did not accept the benchmarking done by the assessee of international transactions with its associated enterprises and proposed an upward adjustment of Rs. 32.32 crores on international transactions of export of manufactured IC engines to associated enterprises and TP adjustment of Rs. 0.69 crores on international transactions of receipt of procurement support services to associated enterprises. The Assessing Officer confronted the order of TPO to assessee, who filed objections before the Dispute Resolution Panel (DRP). The DRP gave certain directions, under which the TPO proposed an adjustment of Rs. 31.28 crores. The Assessing Officer passed the order under section 143(3) r.w.s. 144C(13) of the Act and made aforesaid additions. 9. The assessee is aggrieved by the orders of Assessing Officer/DRP/TPO and is in appeal before us. 10.....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e ground of appeal No.1.2 is against rejection of aggregation approach adopted by the assessee for benchmarking its manufacturing activities. 15. We find that similar issue arose before the Tribunal in assessee's own case in earlier years and the Tribunal in assessment year 2009-10 vide paras 8 to 10 has decided the said issue in favour of assessee holding that various activities undertaken by the assessee are to be aggregated for determining arm's length price of international transactions. We are making reference to the findings of Tribunal in paras 8 to 10 vide order dated 15.05.2018. However, the same is not being reproduced for the sake of brevity. The ground of appeal No.1.2 raised by the assessee is thus, allowed. 16. The next issue raised vide grounds of appeal No.2.1, 3.1 and 3.2 is against most appropriate method to be applied and whether internal comparability was to be made i.e. profitability of export to associated enterprises was to be compared with domestic sales made by the assessee. The said issue has been adjudicated by the Tribunal in earlier years and it has been held that TNMM method has to be applied and the margins of assessee are to be compared wit....
X X X X Extracts X X X X
X X X X Extracts X X X X
....igh Court has been applied by the Pune Bench of Tribunal in Carraro India Pvt. Ltd. Vs. ACIT (supra) and it has been held that export incentives and scrap sales are to be included as operating income. Accordingly, we hold that export incentives are to be considered as operating income of assessee, while benchmarking international transactions of assessee. The ground of appeal No.4.1 raised by assessee is thus, allowed. 22. Now, coming to ground of appeal No.5.1, wherein the issue which has been raised is against approach of Assessing Officer/TPO in application of net profit to cost as PLI as against claim of assessee of net profit to sales while computing PLI. 23. We find that this issue also stands covered in favour of assessee by the orders of Tribunal in assessee's own case in earlier years and the relevant findings are in paras 13 and 14 of the order dated 15.05.2018, which are being referred to but not being reproduced for the sake of brevity. Hence, the ground of appeal No.5.1 raised by assessee is allowed. 24. The next issue vide ground of appeal No.6.1 is against the benefit of variation / reduction of 5% from the arithmetic mean. The said issue has also been decid....
X X X X Extracts X X X X
X X X X Extracts X X X X
....expenditure needs to be allowed in the hands of assessee after considering the issue and various judicial decisions on the same. 32. The learned Departmental Representative for the Revenue on the other hand, placed reliance on the orders of authorities below. 33. We find that the similar issue of claim of weighted deduction under section 35(2AB) of the Act arose before the Tribunal in assessment year 2009-10, wherein the issue has been decided by the Tribunal by deliberating upon the same in paras 33 to 46 and concluded as under:- "45. The issue which is raised in the present appeal is that whether where the facility has been recognized and necessary certification is issued by the prescribed authority, the assessee can avail the deduction in respect of expenditure incurred on in-house R&D facility, for which the adjudicating authority is the Assessing Officer and whether the prescribed authority is to approve expenditure in form No.3CL from year to year. Looking into the provisions of rules, it stipulates the filing of audit report before the prescribed authority by the persons availing the deduction under section 35(2AB) of the Act but the provisions of the Act do n....
X X X X Extracts X X X X
X X X X Extracts X X X X
....nature once it is held that aggregation approach adopted by the assessee is to be accepted. Accordingly, we dismiss the grounds of appeal No.1 and 2 raised by the Revenue. 37. The learned Authorized Representative for the assessee pointed out that in assessment year 2011-12 also, the issues raised by assessee and the Revenue are same, however, the grounds of appeal differ. So, we proceed to decide the grounds of appeal raised in assessment year 2011-12 on the premise that the issues raised are same to the issues raised in earlier year and our decision in assessment year 2010-11 would apply mutatis mutandis. 38. The ground of appeal No.1.1 raised by assessee is general and the same is dismissed. 39. The ground of appeal No.2.1 raised by assessee is similar to ground of appeal No.1.2 raised in earlier year i.e. against aggregation approach to be adopted. We have already decided the issue in favour of assessee, hence ground of appeal No.2.1 is allowed. 40. The issue raised in ground of appeal No.3.1 is against rejection of TNMM method applied by the assessee and comparison of profitability of export to associated enterprises and domestic sales, by the Assessing Officer. Th....