TMI Blog2013 (5) TMI 498X X X X Extracts X X X X X X X X Extracts X X X X ..... ctions of the company, operating margins, etc. There is no discussion, whatsoever, in TPO's order as to why the comparables of the assessee are rejected or why other comparables are accepted. Thus, the approach of the TPO cannot be verified by any data available on record. DRP did not address this issue except rejecting the objections on the reason that the assessee did not furnish any details. The assessee is opposing selection of comparables by the TPO. Therefore it is the responsibility of the TPO to furnish necessary details. The onus cannot be shifted to the assessee when it is contending that proper data is not available in public domain in this regard. Therefore, the issue is to be set aside to the file of the AO for obtaining fresh TP report after doing proper analysis and verifying the rules and guidelines in this regard. Treatment of software expenditure as capital expenditure - Held that:- AO examined the nature of software and determined that purchase of software, whose life is more than two years, is considered as capital and disallowed only an amount of ₹ 5,67,500/-. Thus there is no need to disturb the findings of the AO who examined the same conseq ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e nature of an exemption but after the substitution it now stands provides for a deduction consequently, it is evident that the basis on which the assessment has sought to be reopened is belied by a plain reading of the provision. AO was plainly in error in proceeding on the basis that because the income is exempted, the loss was not allowable. All the four units of the assessee were eligible under section 10B. Three units had returned a profit during the course of the assessment year, while the Crab Stick unit had returned a loss. The assessee was entitled to a deduction in respect of the profits of the three eligible units while the loss sustained by the fourth unit could be set off against the normal business income. In these circumstances, the basis on which the assessment is sought to be reopened is contrary to the plain language of section 10B.Thus provisions of section 14A are not attracted in the case of the unit suffering losses eligible for deduction under section 10B and further the assessee is entitled to set off of loss of STP unit under section 10B against other business income - in favour of the assessee. - ITA No. 6922/Mum/2012 - - - Dated:- 5-4-2013 - Shr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is adopted by the Appellant and by using an aggregated approach at an entity level, to determine the ALP of diverse international transactions undertaken by the Appellant with its Associated Enterprises (hereinafter referred to as 'AE'). *4a. erred in not considering the audited segmental accounts submitted by the Appellant and instead using aggregated approach at an entity level, while computing Appellant's margins from international transaction with comparables Making adjustments to transactions with non-AEs 5. making a transfer pricing adjustment even in respect of transactions undertaken by the Appellant with non-AEs including domestic transactions. *5a. erred in rejecting the segmental margin analysis adopted by the appellant, merely on the ground that losses incurred by the appellant in respect of non-AE/third party sales; without considering the justification of the same Aggregating the international transaction of provision of services with other international transactions (relating to goods) 6. aggregating the international transaction of provision of contract development support services entered into by the Appellant with other international transactions relat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Act 15. making an addition of Rs.7,49,31,715/- under section 145A of the Act on account of excise duty element (CENVAT credit) on raw material forming part of closing stock. 16. without prejudice to the above, the AO ought to increase the value of opening stock of the subsequent assessment year (hereinafter referred to as 'AY") by Rs.7,49,31,715/- on account of addition made to the closing stock for the AY 2008-09. Invoking the provisions of section 14A of the Act 17. disallowing Rs.26,55,50,308/- by invoking the provisions of section 14A of the Act in respect of the net loss incurred by the Kalwe unit of the Appellant, which is eligible for deduction under section 10B of the Act. Disallowing the deduction claimed under section 10B of the Act 18. disallowing deduction of Rs.10,33,40,093/- from the profits and gains of business as claimed by the Appellant under section 10B of the Act in respect of its Turbhe unit, thereby reducing carry forward of loss to that extent. Levy of interest under section 234B and section 234D of the Act 19. charging interest under section 234B and section 234D of the Act. Initiation of penalty proceedings under section 271(1)(c) of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ment it was assessee's contention that the international transactions with the AEs are at arm's length. The TPO did not agree with assessee's contention of segment-wise TNMM analysis for each of the international transactions on the reason that the segment-wise accounts are not audited. The TPO adopted an entity method approach for the purpose of determining ALP. However, while rejecting the segmental analysis undertaken by the assessee, the TPO accepted the 4 segments of assessee's operations and identified comparables. He arrived at different arithmetical means of appropriate profit level indicators by taking operating profit by cost of various identified comparables in each segment. He thereafter gave weighted average to assessee's percentage of turnover out of the total turnover and accordingly determined the weighted average of the arithmetic mean in each segments and arrived at the operating profit at 18.09% at entity level. This is taken as the arm's length profit margin and as assessee's operating margin of 4.78% operating cost was less than the ALP so determined, the TPO made an adjustment of Rs.82,76,36,000/- to assessee's income. After making the adjustment on account of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rather than restricting to the transactions with AEs. 5.3 Fourth objection is with reference to various comparables and arriving at the profit margins, which was not considered elaborately by the TPO in his order or by the DRP in their directions. 5.4 It was further contended that the AO, after making adjustments at the entity level, considering all the areas of operations of the assessee again made adjustments on the reimbursements of expenditure which itself is part of segments already considered, thereby making double addition. It was submitted that neither the TPO nor the DRP examined the objections of the assessee in detail and have not provided segmental data of comparables for arriving at different profit margins and the detailed objections filed by the assessee are not even considered. Therefore, it was prayed that the issue may be restored to the file of the AO for considering the objections in detail. 6. The learned D.R., however, submitted that the assessee has not submitted the segmental accounts before the TPO and could only furnish before the DRP. Therefore the question of analysing the segmental data by the TPO does not arise. He also referred to a certificate ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... weighted average method of arriving at entity based profit margin. After arriving at the margin, instead of restricting it to the AEs transactions the TPO undertook to make the adjustment on the entire turnover of the assessee including transactions with non-AEs, which is also not supported by the transfer pricing provisions. Further, in arriving at the segment-wise profit margin, the AO included Annexures 1 to 3 to the order, which, on perusal, does not give any information except the percentage of profit in two columns against the company's names. There is no analysis of each company's business activity, why they are selected as comparable and what are the functions of the company, operating margins, etc. It was one of assessee's contentions that the data was not available in public domain and the AO's selection of comparables is not according to the parameters/filters in respect of each of the segment. There is no discussion, whatsoever, in TPO's order as to why the comparables of the assessee are rejected or why other comparables are accepted. In fact, except the percentage in two columns, out of which the percentage in the last column is taken as operating profit by operating ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n of the DRP the AO examined the nature of software and determined that purchase of software, whose life is more than two years, is considered as capital and disallowed only an amount of Rs.5,67,500/-. After considering the rival submissions, we are of the view that there is no need to disturb the findings of the AO who examined the same consequent to the direction of the DRP and restricted the disallowance to the above amount. Therefore, the ground is rejected. The AO is, however, directed to allow the depreciation as applicable, if not allowed. 11. Ground No. 14 pertains to non-granting of depreciation on the written down value (WDV) of software expenses disallowed in earlier years. The DRP has already directed the AO on this issue, who is bound to allow depreciation consequent to capitalization of software purchases in earlier years. It seems that the AO has not given effect to this direction of the DRP against objection No. 5C in page No. 21. Since there is already a direction from the DRP, the AO is directed to allow the depreciation on software expenditure disallowed as capital expenditure in earlier years by working out the WDV. This ground is considered allowed. 12. Gro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d modvat credit, the corresponding opening stock of that year should also be increased. Ground No.3 is allowed." 10 Following the earlier order of this Tribunal in assessee's own case we decide this issue accordingly direct the Assessing Officer to make the necessary adjustment in the opening stock by the relevant amount of unutilised Modvat credit of last year." Following the orders of the Tribunal in earlier years in assessee's own case we set decide the issue accordingly and direct the AO to make necessary adjustments in the opening stock by the relevant amount of unutilised Modvat credit of last year. With these directions, the grounds are considered allowed. 13. Ground No. 17 18 pertain to the issue of disallowing the entire loss incurred by Kalwe unit, which is eligible for deduction under section 10B under section 14A and not allowing carry forward of loss. It was fairly admitted that this issue also stands covered by the orders of the ITAT in earlier years. In the above referred ITAT order, the ITAT considered the issue in detail as under: - "29 Having considered the rival submissions as well as the relevant material on record, we note that this issue is settled b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... basis that because the income is exempted, the loss was not allowable. All the four units of the assessee were eligible under section 10B. Three units had returned a profit during the course of the assessment year, while the Crab Stick unit had returned a loss. The assessee was entitled to a deduction in respect of the profits of the three eligible units while the loss sustained by the fourth unit could be set off against the normal business income. In these circumstances, the basis on which the assessment is sought to be reopened is contrary to the plain language of section 10B. 29.1 We further note that in the case of Galaxy Surfactants Ltd (supra), the Hon'ble High Court has again decided the identical issue in para 5 6 as under: "5. At the outset, while dealing with the submission which has been urged on behalf of the Revenue, it must be noted that Section 10B when it was originally introduced by the Finance Act, 1988, with effect from 1 April 1989, provided for an exemption of the profits and gains derived by the assessee from a hundred percent export oriented undertaking. The earlier provision specifically stipulated that profits and gains derived by an assessee from a h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the basis on which the assessment has sought to be reopened 'is belied by a plain reading of the provision. The Assessing Officer was plainly in error in proceeding on the basis that because the income is exempted, the loss was not allowable. All the four units of the assessee were eligible under Section l0B. Three units had returned a profit during the course of the assessment year, while the Crab Stick unit had returned a loss. The assessee was entitled to a deduction in respect of the profits of the three eligible units while the loss sustained by the fourth unit could be set off against the normal business income. In these circumstances, the basis on which the assessment is sought to be reopened is contrary to the plain language of Section l0B." This decision of the Division Bench has been followed by another Division Bench of this Court itt the case of CIT v. Patni Computers Systems Ltd. [IT Appeal 2177 of 2010, dated on 1-7-2011]. 6. Quite apart from the fact that the issue stands covered against the Revenue by the view taken by the Division Benches in the aforesaid two cases, even as a matter of first principle, we find no justification in the submission which has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ear up to and including the assessment year for which the determination is to be made." A similar provision corresponding to sub-section (5) of Section 80-IA is to be found in sub-section (6) of Section 80-I. Under sub-section (5) of Section 80-IA which begins with overriding non-obtante provisions, profits and gains of an eligible business to which sub-section (1) applies are for the purposes of determining the quantum of deduction to be computed as if such eligible business were the only source of income of the assessee during the previous year relevant to the initial assessment year and to every subsequent assessment year. A provision akin to sub-section (5) of Section 80-IA or for that matter akin to sub-section (6) of Section 80-I has not been introduced by the Legislature when it enacted Section l0B. The fact that unabsorbed depreciation can be carried forward to a subsequent year does not militate against the entitlement of the assessee to set off a loss which is sustained by an eligible unit against the income arising from other units under the same head of profits and gains of business or profession. The Legislature not having introduced a statutory prohibition, there is ..... X X X X Extracts X X X X X X X X Extracts X X X X
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