TaxTMI 
TaxTMI 
TaxTMI 
2021 (5) TMI 792
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....s 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. 2.1. That on the facts and circumstances of the case and in law, the Ld. AO and Ld. CIT(A) while ....
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.... 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 of Ld. AO /Ld. TPO in violating the provisions of Rule 10B(2) of the Income Tax Rules, 1962 ('the Rules') by rejecting following comparable companies (refer below) as identified by the ....
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....ire 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 has erred in initiating penalty proceedings under section 271(l)(c) of the Act. 10. On facts and in law, the Ld. AO has erred in levying the interest under section 234B and of the Act." 6. Brief facts of the case for Ay 2010-11 shows that the assessee is a company engaged in the business of manufacturing and trad....
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....e 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/- against the return income of Rs. 26,18,68,287/-. 8. The assessee preferred appeal against the above order before the ld CIT(A). In the corporate tax matter, the assessee challenged that the allocation of expenditure made by the AO between the eligible and non eligible units is not correct. The learned CIT - A upheld the action of th....
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.... 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 that it is a fresh claim made by the assessee wherein in the return of income the assessee has already paid the tax and not claimed this expenditure as deductible. Therefore, it was stated that it should not be admitted. 13. We have carefully considered the rival contention and perused relevant arguments on this issue. We find that the issue i....
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.... 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 eligible deduction. In the end he submitted that for Assessment Year 2011-12 the ld CIT(A) after considering 16% marked up as agreed in the advance pricing agreement has reworked the cost to be allocated between 10A and non 10A units. He therefore, submitted that even if the same methodology applied in the year considering the revised allocation is only Rs. 23....
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....e 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 eligible units and noneligible units as well as with respect to the business support service group, and other units. For this reason only, the learned AO applied the thumb rule of turnover for allocation of expenditure. The learned AO in fact has not found any expenditure which is pertaining to another division of eligible units which has been shown by the asse....
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....ervices 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. Therefore, we direct the learned assessing officer to recompute the allocation of expenditure to the eligible and noneligible unit for this year also by applying the margin of 16%. The AO may verify the working as placed by the assessee at page number 2320 and then recalculate the addition on that basis. Thus the orders of lower authorities on this issue are se....
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....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 assessee's own case for exclusion of the about two comparables, we uphold the order of the learned CIT - A and dismiss the solitary ground in the appeal of the learned assessing officer. 24. Accordingly, the appeal of the learned AO for assessment year 2010 - 11 is dismissed. A Y 2011-12 25. Now we take up the appeals of the parties for assessment year 2011 - 12. 26. Coming t....
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....clusion 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 function of ITeS and back-office activities such as order management and data management activities, aftermarket support activities, sales and market support activities and business process improvement, project management and data management activities. The learned transfer pricing officer included the above comparable as it is functionally according. Before us the assessee has submitted that the t....
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....roduced 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 revenue from business of publishing newspapers and periodicals and the source of its revenue is basically the periodicals and the subscription by the members. The financial results of the comparable company also revealed that there are certain passthrough costs which have not been booked into the profit and loss account of the comparable company. For this reason is the same was excluded. The learned departme....
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.... 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 view of this ground number 4 of the appeal of the learned AO is dismissed. 35. In the result ITA number 5801/del/2017 for assessment year 2011 - 12 preferred by the learned assessing officer is dismissed. 36. Now we come to the appeal of the assessee wherein as per ground number 5 - 8 is against the order of the learned CIT - A respect to the allocation of expenditure for working out deduction u/s 10 A o....