TaxTMI 
TaxTMI 
2021 (11) TMI 1178
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....Inappropriate computation of operating profit margin in the case of M/s. Gansons Ltd. (iii) Granting of leverage of 5%. (b) Trading segment. (i) Adopting of PLI as OP/OC instead of OP/OR. (ii) Incorrect computation of margin in the case of M/s. Telecommunication Consultants India Ltd. (c) Global sales and marketing activity fee/Management fee Not appreciating that TNMM adopted at entity level would subsume payment of global sales and marketing activity fee and Management. Hence no separate TP adjustment is required. (d) Disallowance made u/s 14A of the Act. (e) Short credit of TDS. (f) Deduction of education cess and secondary & higher education cess. (g) Dividend distribution tax rate should be confined to the rate as per DTAA. Hence we confine ourselves to the above said issues. Accordingly all other grounds are dismissed as Not Pressed. 3. The business of the assessee consists of manufacturing, trading, installation and servicing of process control systems, industrial automation instruments/equipments and electrical measuring equipments. The activities carried on by the assessee has been categ....
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....ns are created as per accounting principles and in compliance of accounting standards. Secondly, it is not clear as to whether such kind of provision made by the comparable companies was also considered as non-operating in nature in AY 2015-16 in their hands, since it is quite possible that the comparable companies would also be debiting the profit and loss account with such kind of provisions as mandated by the Accounting standards. There should not be any dispute that identical treatment for an item of expenditure should be given both in the hands of the assessee as well as in the hands of the comparable companies. Accordingly, this claim of the assessee requires examination. In any case, this claim has been raised first time before us, meaning thereby, there was no occasion for the authorities below to examine this claim of the assessee in the year under consideration. Accordingly, we restore this claim of the assessee to the file of AO/TPO for examining it in accordance with law. 9. The next issue urged in the manufacturing segment is regarding consideration of leverage of 5%. The AO/TPO shall examine this claim of the assessee in accordance with law. 10. The third issue ....
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....it indicator against the cost of goods sold because these costs are the controlled costs for which consistency with the arm's length principle is being tested. Similarly, for a controlled transaction consisting in the provision of services to an associated enterprise, one should not weight the net profit indicator against the revenue from the sale of series because these are the controlled sales for which consistency with the arm's length principle is being tested. Where the denominator is materially affected by controlled transaction costs that are not the object of the testing (such as head office charges, rental fees or royalties paid to an associated enterprise, caution should be exercised to ensure that said controlled transaction costs do not materially distort the analysis and in particular that they are in accordance with the arm's length principle. 2.89 The denominator should be one that is capable of being measured in a reliable and consistent manner at the level of the tax-payer's controlled transactions. In addition, the appropriate base should be one that is capable of being measured in a reliable and consistent manner at the level of the comparable uncontroll....
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.... issue and dismiss the appeal of the Revenue." Following the above said decision, we direct the AO/TPO to adopt "operating profit/operating revenue" as PLI and determine the ALP of trading segment accordingly. 13. The next issue contested in the trading segment is that the TPO has computed margin of comparable company named M/s. Telecommunication Consultant India Ltd. incorrectly. Since the claim of the assessee requires verification, we restore this issue to the file of AO/TPO. 14. We shall now take up the issue relating to TP adjustment made in respect of payments of Global Sales & Marketing activity fee and Management fee. The assessee did not benchmark these payments made to its AE separately, since it adopted TNM method at entity level. However, the TPO bench marked the same separately and accordingly proposed TP adjustment of Rs.2.16 crores in respect of payment of Global Sales and Marketing activity fee and Rs.26.52 lakhs in respect of payment of management fee. The Ld DRP also upheld the above said adjustments. 15. The Ld A.R submitted that identical TP adjustments were made in AY 2010-11 and the Tribunal, vide its order dated 09-06- 2017 passed in IT(TP)A No,34....
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....ansactions involving receipt as well as payment, we are of the considered view that the payment in respect of management fees as well as Global Sale and Marketing Activity Fees shall be considered as operating cost and has to allocated in the ratio of turnover of the other international transactions and then the ALP of the other international transactions has to be determined under TNMM analysis. Hence we set aside the entire issue of determination of ALP and TP Adjustment to the record of the TPO/A.O. for carrying out fresh exercise of determination of ALP in respect of international transactions by considering the payment in respect of management fees and Global Sale and Marketing Activity Fees as part of the operating cost and allocating the same in the ratio of the turnover of the other international transactions. Following the decision rendered in the assessee's own case in AY 2010-11, we restore these two issues to the file of AO/TPO with similar directions. 17. The next issue urged by the assessee relates to disallowance made u/s 14A of the Act. The assessee had received exempted dividend income of Rs.24,86,000/- and has disallowed a sum of Rs.48,573/- u/s 14A of the A....
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....orrect when compared with the peak value of investments of Rs.72.09 crores. In these facts, we are of the view the disallowance may be estimated to meet the requirements of section 14A of the Act. Accordingly, we are of the view that an estimated disallowance of 10% of the dividend income would meet the requirements of provisions of Section 14A of the Act and the same will put this issue at rest. Accordingly, we direct the A.O. to restrict the disallowance u/s 14A of the Act to 10% of exempt dividend income. He may work out the addition accordingly. 21. The next issue relates to non-granting of proper TDS credit. Since this issue requires examination at the end of the A.O., we restore to his file with the direction to allow credit for correct amount of TDS. 22. The next issue relates to claim of deduction of education cess and secondary & higher education cess paid during the year as expenditure. The Ld. A.R. took support of the decision rendered by Hon'ble Bombay High Court in the case of Sesagoa Ltd. Vs. JCIT 423 ITR 426 and certain other decisions to contend that the education cess does not fall under the category of Income tax and hence the same should be allowed as deduc....