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2021 (5) TMI 792
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.... order of the Commissioner of Income Tax (Appeals) is erroneous and bad in law. 2. Whether on the facts and circumstances of the case the ld CIT(A) was correct in directing to exclude the comparables namely M/s. Aptico and M/s TSR Darshaw Limited from the set of final comparables used by the TPO." 3. For AY 2010-11 , Assessee in ITA No 6558/Del/2016 has raised following grounds of appeal. "On the facts and circumstances of the case and in law, the Appellant respectfully craves to prefer an appeal against the order passed under section 250 of the Income-tax Act, 1961 ("the Act") by Commissioner of Income-tax (Appeal) - 37, New Delhi ("Ld. CIT(A)") on the following grounds: Corporate Tax Grounds 1. The Ld. CIT(A) has erred in, inter-alia, upholding Ld. AO's conclusions purely on presumptions and irrelevant considerations. 2. That on facts and in law, the Ld. AO and Ld. CIT(A) erred in allocating an excess expenditure of INR 31,798,275 over and above expenditure of INR 3,595,995 already allocated by Appellant to the eligible unit under section 10A of the Act, thereby reducing the deduction claimed under section 10A of the Act. 2....
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....(A) was correct in rejecting the comparable namely M/s Media Research Users Council from the set of final comparables used by the TPO. 3. Whether on the facts and circumstances of the case the Ld. CIT(A) was correct in rejecting the comparable namely M/s Aptico Limited from the set of final comparables used by the TPO stating that segmented data is unavailable when that is not a case as income from various operations of company is available and the same is on record. 4. Whether on the facts and circumstances of the case the Ld. CIT(A) was correct in directing the AO to allocate total corporate expenses of Rs. 2,09,42,886/- instead Of Rs. 49,15,81,559/-" 5. For AY 2011-12 ITA NO No. 5770/Del/2017, Assessee has raised following grounds of appeal. :- "Transfer Pricing Matter - Provision of IT Enabled Services 1. On facts and in law, the Learned Additional Commissioner of Income Tax, Transfer Pricing Officer-1 (2) ('Ld. TPO') and Learned Deputy Commissioner of Income Tax, Circle 11(1), New Delhi ('Ld. AO') have erred in violating, and the Learned Commissioner of Income Tax (Appeals)-19, New Delhi ('Ld. CIT(A)') has erred in confirming the action o....
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....d as defined in Companies Act, even though there is no such requirement under the Companies Act. 5.2 That the Ld. CIT(A) and Ld. AO has grossly erred on facts and in law holding that corporate / business expenses of the corporate division are incurred in respect of the entire Company including all its divisions (including 10A unit as well) 6. That on the facts and circumstances of the case, the Ld. CIT(A) has erred in assuming that the cost allocation with respect to the corporate division done by the appellant appears to be in-correct and inflated without analysing the reasons for the same. 7. That, on the facts and circumstances of the case, the Ld. CIT(A) has erred on facts in holding that the appellant cannot incur losses while rendering services to the Indian group 8. That on the facts and circumstances of the case and in law, the Ld. CIT(A) has erred in assuming that the appellant should have earned a profit margin of 16% for the transactions with its Indian group entities, which similar to the profit margin agreed by the appellant in the Advance Pricing Agreement ('APA'). Common Grounds 9. On facts and in law, the Ld. AO ....
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....orate division. He noted that net revenue of the corporate division is shown at Rs. 3.90 crores, which is nothing but the services fee received of for business support services. He further noted that expenditure of Rs. 23.74 crores of employee cost Rs. 12.15 crore of administrative and other expenses are included in this, which are liable to be allocated between the eligible and non eligible units. Therefore, he noted that 9.86% of the turnover is of eligible units and 90.14% is non 10A unit. He allocated total corporate expenditure of business support services of Rs. 35,89,68,263/- based on turnover. He reduced allocation already made by the assessee and held that there is a shortage of allocation of corporate expenses to 10A units of Rs. 3,17,8,275/- He held that by this sum the deduction claimed by the assessee of Rs. 49157260/- is higher therefore, he reduced the above deduction of Rs. 3,17,98,275/- and restricted it to Rs. 1,73,58,985/-. There are certain other disallowances of depreciation etc of Rs. 2,23,568/-. Based on this the assessment u/s 143(3) of the Act read with section 144C was passed on 22.04.2014 determining total income of the assessee at Rs. 32,01,41,190/- agai....
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.... the order of the ld CIT(A) the ld TPO deleted the above addition as the margin of the assessee vis-à-vis margin of the comparable was within the range of +- 5% thus in the appeal of the revenue only 2 comparables which are directed to be excluded by the ld CIT(A) are challenged. 11. The assessee has also raised an additional ground of appeal as per application dated 9 October 2019 wherein it has claimed the deduction u/s 37 (1) of the act in relation to the liability of education cess on income tax for the year. The assessee filed an application wherein the assessee has raised in this additional ground stating that it is purely legal in nature, does not require any further investigation of facts, and therefore should be admitted. Assessee further submitted that issue is squarely covered in favour of the assessee by the decision of the Honourable Rajasthan High Court in case of CIT versus Chambal fertilizers and chemicals Ltd and Honourable Bombay High Court in Sesa Goa Ltd. It is therefore submitted that the additional ground should be admitted. 12. The learned departmental representative vehemently objected to the additional ground raised by the assessee and stated t....
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....uently changing the allocation of the expenses. He referred to the order for AY. 2009-10 wherein, allocation of common expenses was made based on turnover. He further stated that there is no requirement under the companies Act for maintaining separate books of account for different business divisions. He submitted that assessee has given complete details of the expenses and revenue of all eligible and non eligible units, which are in dispute, but only the allocation key has been disputed. In fact from the specific accounts, expenditure wise allocation made by the assessee the ld AO was shown however the learned assessing officer is trying to impute the general key of turnover for allocation of expenditure. He in fact submitted that the turnover cannot be the key for allocation of expenditure when identified expenditure can be allocated for the purposes of the earning of the income of eligible as well as non eligible units. He further submitted that the ld AO has not found any infirmity in the expenditure wise allocation made by the assessee. He therefore, submitted that the ld AO merely applies thumb rule of turnover for allocation of expenditure for the purpose of computing eligib....
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.... its expenditure is Rs. 2 69,38,893/-. Out of this expenditure of Rs. 269,38,893/- assessee itself has allocated a sum of Rs. 257,90,957 to various units. The noneligible unit of the assessee has a net sales of Rs. 2,101,616,685 whereas the eligible unit of the assessee has a turnover of Rs. 23,35,75,346/-. Thus roughly it can be seen that the turnover of the noneligible unit is approximately 10 times higher than the eligible units on turnover basis. The total expenditure of Rs. 257,90,957 was allocated to noneligible unit to the extent of Rs. 22,194,962/- and to the eligible unit Rs. 3,595,995/-. The main reason for not believing the allocation of expenditure of the assessee by the learned assessing officer was for the allegation that assessee company has smartly created a corporate division and disclosed the receipt on this account being receipt of corporate division and the expenses related to these services. In fact assessee is rendering services to the other parties also from this division which has been recorded by the learned CIT - A also. Further the learned assessing officer held that there is no separate books of accounts maintained by the assessee with respect to the eli....
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.... services rendered by the assessee to its foreign associated enterprises. APA held that the services rendered by assessee to its foreign AE need to be at cost +16% margin / markup. The learned CIT - A based on the same rational that when similar services are rendered to domestic associated enterprise the assessee would need to earn similar markup i.e. 16% on services rendered to overseas associated enterprise. Therefore as stated in paragraph number 17.6 of the order of the learned CIT - A for assessment year 2011 - 12 he imputed the margin of 16% and thereafter the directed the learned assessing officer to compute the eligible profit for deduction u/s 10 A of the act. The assessee has submitted before us that if such a margin is also imputed for this year the common expenditure allocation would be Rs. 2,301,768 as placed at page book number 2320 of the paper book. This would be over and above the allocation made by the assessee of Rs. 3,595,995. As we find that order of the ld CIT (A) for subsequent year has reached at correct methodology of allocation of expenditure same can also be applied for the current year. The dl DR did not raise any serious objection to this proposition. T....
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....resentative submitted that Aptico limited has been excluded in case of the assessee itself for assessment year 2008 - 09 in ITA number 3901/del/2015 dated 20 November 2019. Further the above company was also excluded by the learned CIT - A for assessment year 2011 - 12 however which has been challenged by the learned AO in the appeal before us. With respect to the second comparable TSR Darshaw Limited it is also submitted that in assessee's own case for assessment year 2007 - 08 in ITA number 2385/del/2014 dated 30 June 2017 the above comparable was excluded. Therefore, the transfer pricing issue in the appeal of the learned assessing officer is squarely covered in favour of assessee. 23. We have carefully considered the rival contention and find that with respect to the exclusion of the above two comparables, in assessee's own case the above two comparables have been excluded by the coordinate bench in different years. No reason has been shown to us to deviate from the same. No change in the functional analysis of the comparable vis-a-vis the assessee was shown with respect to those years. In view of this we respectfully following the decision of the coordinate bench in asse....
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....d an appeal against exclusion of the comparable E Clerx services Ltd, Media Research Users Council and Aptico Ltd from the transfer pricing comparability study and with respect to the total allocation of expenses reduced by the learned CIT - A. 30. The assessee has raised in fact 10 grounds of appeal. It is aggrieved by the confirmation of exclusion of four comparables in ITeS services and inclusion of three comparables. The assessee is also aggrieved by the order of the learned CIT - A with respect to the allocation of expenditure to the extent of Rs. 20,942,886/-. 31. We first come to the appeal of the learned AO. The ground number [1] is with respect to the exclusion of E Clrex services Ltd from the comparability analysis in the ITeS segment. On this issue we have heard the rival parties where they have confirmed that there is no dispute on the functions performed by the assessed in the ITeS services. Assessee rendered its IT enabled services to its overseas associated enterprise of Rs. 21.02 crores Under the global customer support service centre. The assessee has stated that it is a low risk bearing entity support centre for Honeywell group of entities. It performs the f....
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....ve transaction applying the transactional net margin method and profit level indicator of net cost plus markup. The assessee selected six comparable companies having the profit level indicator of 12.76% whereas the assessee's margin was 10% and thus it was stated that the transaction is at arm's-length. However the learned transfer pricing officer rejected 4 out of 6 comparable companies and further introduced 2 companies. One of them is Media Research Users Council [ MRUC] whose margin is 14.53% and Aptico limited who is margin is 25.17%. On appeal before the learned CIT - A the assessee contended for exclusion of both these comparable companies which CIT (A) accede to . Therefore the revenue is challenges this before us as per ground number 2 and 3. The learned CIT - A has excluded the Media Research Users Council for the reason that same is not functionally comparable since it is a non-profit organization which undertakes advertising and publishing of newspaper and periodicals and also acts as an independent advertising agency which is completely different from the functions performed by the assessee. The learned CIT - A further held that the comparable company derives its reven....
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....81,559/-. To reach at this conclusion the learned CIT - A has asked the assessee to reconcile corporate results along with the transfer pricing transaction shown in form number 3CEB. He also verified the details of the breakup of the receipts of the corporate division which renders the business support services to international associated enterprise. The learned CIT - A in para Number 17.6 has further noted that when the assessee is charging a substantial markup for its international transactions there is no reason that why similar margin should not have been charged from its associated enterprise in India for the working out of deduction u/s 10 A of the act. Thus it takes care of the real profit of eligible and non eligible units. On careful perusal of order of the learned CIT - A we find that if the allocation of expenditure is made on the basis of the markup charged between the domestic associated enterprises as well as the foreign associated enterprise, in absence of any infirmity in the allocation of the expenditure made by the assessee and application of thumb rule of applying allocation key of turnover by the learned assessing officer, it will meet the end of the justice. In....
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....ew of this we hold that above comparable company i.e. Accentia technologies Ltd be excluded from the set of comparables. 39. With respect to the Infosys BPO Ltd which has a turnover of Rs. 1129 crores In addition, TCS E serve which is a turnover of Rs. 1442 crores, both these comparable companies have significantly higher turnover compared to the turnover of the assessee which is just Rs. 30.81 crores and both are enjoying the brand value of respective group companies. The decision of the honourable Bombay High Court in case of CIT V Pentair Water Limited in [2016] 69 taxmann.com 180 (Bombay)/[2016] 381 ITR 216 (Bom) as well as the decision of the honourable Delhi High Court in case of CIT v. Agnity India Technologies (P.) Ltd. [2013] 219 Taxman 26/36 taxmann.com 289 (Delhi) also supports the view In view of this we direct the learned AO/TPO to exclude the above two comparable companies. Accordingly, ground number 2 of the appeal of assessee is allowed. 40. Assessee did not press ground number 1, 3 and 4 and therefore those are dismissed. 41. Assessee has also raised an additional ground of appeal on 5 December 2024 claim of deduction of education cess paid on income tax f....