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2014 (7) TMI 639 - AT - Income TaxValidity of revised return - Whether Assessee's return filed along with TP report is to be considered or not Held that:- with the original return, assessee failed to include statutorily prescribed TP documentation and Assessee declared the value of international transaction as per its accounts books. Therefore, the other/revised return filed on 29-11-2006 enclosing TP documentation and declaration of higher value of international transaction by making suo-moto adjustment under the provisions of the Act cannot be rejected as the same was a valid return, even though, stated to be filed u/s 139(5) of the Act. - AO directed to consider the revised return as a valid return The decision in M/s Tecumseh Products India Pvt. Ltd. Versus Asst. Commissioner of Income tax [2014 (4) TMI 816 - ITAT HYDERABAD] followed - Decided in favour of Assessee. Validity of AOs adjustment Suo-moto adjustment ignored - Whether adjustment made by the AO ignoring suo-moto adjustment made by the Assessee is correct or not Held that:- The decision in M/s Tecumseh Products India Pvt. Ltd. Versus Asst. Commissioner of Income tax [2014 (4) TMI 816 - ITAT HYDERABAD] followed - the TPO/DRP are not correct in not considering suo-moto adjustments made by Assessee - For arriving at the profit margins realized by the enterprise, suo-moto adjustment has to be taken into account in arriving at the difference to be added so as to make the 'net profit realised' to arrive at the arm's length price in relation to the international transaction as provided under 10B(e)(v) - The AO is directed to consider suo-moto adjustment made by Assessee accordingly Decided in favour of Assessee. Adoption of operating cost - Whether operating cost adopted by TPO is correct or not Held that:- Without considering the objections of Assessee, TPO determined the operating cost based on the proportionate cost on the ratio of sales in various segments - The action of the TPO was not justified at all when Assessee has maintained separate books of account, which was also accepted under the provisions of the Act - The decision in M/s Tecumseh Products India Pvt. Ltd. Versus Asst. Commissioner of Income tax [2014 (4) TMI 816 - ITAT HYDERABAD] followed - Decided in favour of Assessee. Selection of comparables Held that:- The decision in M/s Tecumseh Products India Pvt. Ltd. Versus Asst. Commissioner of Income tax [2014 (4) TMI 816 - ITAT HYDERABAD] followed - There are two sets of objections on the comparables selected by TPO; one being data pertaining to companies which have different accounting period than that of Assessee and the second one being the functional comparability of selected companies, being in business of compressor manufacturing whereas adjustments were done in the segmented results of supply of components (to the compressors) - selection of comparables by TPO suffers from these basic deficiencies, the matter required re-examination thus, the matter is remitted back to the AO for fresh adjudication Decided in favour of Assessee. Invocation of threshold limit - Whether (+)/(-) 5% threshold limit available under the Act can be invoked Held that:- the actual transaction undertaken by Assessee should be the base and not revised transaction reported by making suo-moto adjustment - the Assessee exercised option provided u/s 92C particularly of proviso of (+) or (-) 5% threshold and did not treat the actual sale transaction as ALP no assessee cannot contend that the threshold of (-) or (+) 5% is available again, if TPO action results in further addition The decision in M/s Tecumseh Products India Pvt. Ltd. Versus Asst. Commissioner of Income tax [2014 (4) TMI 816 - ITAT HYDERABAD] followed - Decided against Assessee. Determination of ALP - Addition to CADEM segment Software engineering services Held that:- The comparables companies should be excluded from the computation of PLI - the mean PLI of the rest of the comparables selected by the TPO would come to 18.19% and this is within the margin as arrived at by the assessee, after making adjustments to the working of the TPO - these aspects require examination by the TPO the TPO is directed to consider exclusion of the comparables and to restrict the addition to the AE transactions only - AO/TPO is free to consider whether proportionate cost of Marketing Director salary is to be included in operating cost or not, depending on the nature of his employment and also to examine whether assessee's contention that he was employed at the end of the year has any bearing on issue so the cost should not be included for the working of this year - to the extent of addition made on CADEM segment, the orders of the TPO and DRP are set aside thus, the matter is remitted back to the TPO/AO Decided in favour of Assessee. Expenses on Daughter's Marriage Benefit fund Held that:- The amount is an allowable deduction u/s 37(1) of the Act - assessee is adding back the provision and claiming only the actual amount - Industrial Dispute Act permits this sort of benefit for the employees and assessee has been making matching contribution, allowability of this amount does not attract the provisions of section 40A(9) - both AO and DRP are wrongly disallowed the amount Decided in favour of Assessee. Bonus, Leave Pay and Service Rewards Held that:- AO did not allow the amount on the reason that third party evidences were not furnished it could not be understood as to what sort of third party evidences are required to allow the amounts the AO is directed to examine the vouchers furnished by the assessee and allow the amounts - With reference to service rewards also, it seems to be a gift in kind like fridge - This also requires to be examined by the AO the AO is directed to give opportunity to the assessee and allow the amounts after due examination. Provision of commission Held that:- The commission liability has accrued to the assessee based on sales income booked and was in consistence with accounting Standard-I u/s 145 of IT Act 1961 wherein accrual concept is required to be followed the issue was not examined in detail by the AO the AO is directed to examine the sales made outside India on which provision was made and the amounts paid considering the adjustments made in the computation of income Decided in favour of Assessee.
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