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2016 (5) TMI 1387 - ITAT DELHITPA - comparability - selection procedures - determining the arm’s length price of international transactions between associated enterprises if the comparable selected are operating since long and the assessee is in the initial stages of operation - Held that:- The losses incurred by the assessee cannot be the basis for finding out the arm’s length price without making due adjustments to the operating expenses so as to bring it at the level playing field with the comparables. In the course of hearing the ld. Counsel pointed out that break even was arrived at in next year and ld. TPO has accepted the transactions being at arm’s length price in next year. One of the contentions of the ld. CIT DR was that this plea was not taken before ld. TPO but, as reproduced earlier, before ld. DRP, specific objection to this effect had been taken. Therefore, merely on the ground that this plea was not taken, assessee’s claim cannot be denied more particularly because not allowing for this adjustment would go against the very principle of comparability criteria contemplated under Rule 10B of the I.T. Rules. We further find that though ld. DRP had given direction for inclusion of commission income as part of the operating income but except PAE Ltd. all other comparables were not having any commission income. As rightly suggested by the assessee, the proper course would be to restore the matter to the file of ld. TPO to find out fresh comparables having trading and commission income both and include the same after making adjustments as mandated by the law. Ld. TPO will also examine the details as per annexure 3 and any further details as may be necessary to consider and will make adjustments to salary and rental income and other adjustments so as to bring the profitability of assessee inconformity with the profitability of the comparable after providing due opportunity of hearing to the assessee. Addition of ROC expenses incurred in connection with increase in authorized share capital - Held that:- Hon’ble SC in the case of Brook Bond India Ltd. (1997 (2) TMI 11 - SUPREME Court) had considered the expenditure in connection with additional issue of shares and had held that expenditure directly related to expansion of capital base and was therefore, capital in nature. This decision is subsequent to the decision relied upon by the assessee in the case of Multi Metals Ltd. [1990 (10) TMI 55 - RAJASTHAN High Court ] and, therefore, we are not inclined to accept the additional plea raised by ld. Counsel for the assessee. Allowability of recruitment expenses, training expenses and entertainment expenses - this was the first year of assessee’s business and the assessee had incurred all these expenses to start its business - Held that:- The relevant date for deciding whether an expenditure is pre operative or post operative is the date of setting up of business and not the date of commencement of business. Both the lower revenue authorities have not examined this aspect and, therefore, we restore this issue to the file of AO to examine the issue afresh with the light of aforementioned decisions. Claim of provision for gratuity - assessee had made this provision as 6% of the sales - Held that:- AO correctly disallowed the assessee’s claim, inter alia, observing that estimation was not based on any statistical analysis or any historical data base. He further pointed out that this was the first year operation of the assessee and, therefore, assessee was not having any prior experience.
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