TMI Blog2016 (8) TMI 1157X X X X Extracts X X X X X X X X Extracts X X X X ..... CIT (A) in determining the cost base by considering those expenses which could be directly linked with the production and distribution activity of the assessee for its AE. Selection of comparable - Held that:- Regarding the submissions advanced by both the parties relating to the inclusion/exclusion of the 2 comparables being Goldiam International Ltd. and Punit Commercials Ltd, is it is observed that the annual report submitted by the assessee, was not available on the database at the time of TP proceedings. The plea advanced by the Ld. AR is that, in the event these companies are included then the correct margin as per the annual accounts must be considered. We accordingly set aside these to the Ld. TPO for verification of the data provided in the annual accounts of these 2 companies and to calculate the gross margin by using the correct figures. - I.T.A. No. 100/Del/2011 - - - Dated:- 26-8-2016 - N. K. Saini (Accountant Member) And Beena A. Pillai (Judicial Member) For the Appellant : Manoj Pandwani, CA For the Respondent : N. C. Swain, CIT DR ORDER Beena A. Pillai (Judicial Member) The present appeal has been preferred by the revenue against the or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l advances amounting to ₹ 44,52,550/-. These alleged debts and advances were doubtful of recovery and therefore it was written off as irrecoverable, in the accounts of the assessee. Ld. AO disallowed the said provision by holding that section 36 (1) (vii) mandates that the amount of any debt or part thereof, which is written off as irrecoverable in the accounts of the assessee for the previous year could only be deducted while computing the income of the assessee company and the assessee has no where mentioned that it has written of the said amount in the books of account during the year under consideration. 3. Aggrieved by the order of the Ld. A.O., the assessee preferred an appeal before the Ld. CIT (A). The Ld. CIT (A) deleted the disallowance by relying upon the decision of Hon ble Supreme Court in the case of Vijay bank versus CIT and Anr., reported in (2010) 323 ITR 166. 4. Aggrieved by the order of the Ld. CIT (A) the revenue is in appeal before us now. 5. Ld. D.R. submitted that the assessee has not squared up the individual creditors account though the amount has been provided for in the balance sheet for the year under consideration. The Ld. DR submitted th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... TIFIED-PROVISIONS APPLY TO BANKING AS WELL AS NON-BANKING ASSESSE.ES- INCOME-TAX ACT, 1961, SS. 36(1)(vii), 41(4). BUSINESS INCOME-DEEMED PROFITS-DEDUCTION ALLOWED - PART RECOVERY LATER OF DEDUCTION ALLOWED-INCOME-TAX ACT, 1961, s. 41(4). Section 36(1)(vii) of the Income-tax Act, 1961, dealing with allowance of bad debts written off by the assessee, covers banking as well as non-banking assessees. After April 1, 1989, a mere provision for bad debt will not be entitled to deduction under section 36(1)(vii). If an assessee debits an amount of doubtful debt to the profit and loss account and credits the assets account like sundry debtors account that would constitute a write off of an actual debt. However, if an assessee debits provision for doubtful debts to the profit and loss account and makes a corresponding credit to the current liabilities and provisions on the liabilities side of the balance-sheet, then it would constitute a provision for doubtful debt. In the latter case, the assessee would no) be entitled to deduction after April 1, 1989. SOUTHERN TECHNOLOGIES LTD. v. JOINT (IT [2010] 320 ITR 577 (SC) followed. Though a mere debit to the profit and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er the provision as provided for by the assessee is debited to the profit and loss account should be allowed as deduction under section 36 (1) (vii) in spite of the fact that the individual debtors account has not been written off as settled by the Hon ble Supreme Court in the case of Vijaya bank versus CIT and Anr. (supra). We therefore, do not find any infirmity in the order of the Ld. CIT (A) in deleting the disallowance made by the Ld. AO. 8.1 Accordingly ground No. 1 raised by the revenue stands dismissed. 9. As regarding the transfer pricing adjustments the facts are as under: 9.1 Assessee is a globally famous brand for Crystal and Crystal related products. It is a wholly owned subsidiary of Swarovski international Holdings AG (F I H) during the year under consideration assessee was 100% EOU in Pune and was engaged in job work coating raw beads and polishing the sale to its AE s amounting to ₹ 57,598,485/-. The assessee had country sales office with Crystal component division and consumer goods division in New Delhi. The sales activity commenced from November 2000. The domestic units at New Delhi was carrying out the activity of import and sale of Crystal and C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nder: Costs incurred in proving job work services Rs.4,39,99,036/- Arm s Length Price (costs plus 65.17%) Rs.7,26,73,207/- Amount received Rs.5,75,98,485/- Difference with ALP in Rs. And in % Rs.1,50,74,722/- (26%) 9.4 In the transfer pricing documentation filed by the assessee the assessee had listed 19 comparable companies engaged in similar business as that of the assessee. The ld.TPO excluded 2 comparable companies being M/s. Punit commercial Ltd. and M/s. Goldiam International Ltd. for the reason that these were having high margin as compared to that of the assessee, which could not be verified by the Ld. TPO due to in availability of the data. 9.5 Aggrieved by the order of the ld. TPO the assessee preferred an appeal before the Ld. CIT (A). The Ld. CIT (A) agreed with the contentions of the assessee and deleted the adjustments made in respect of the cost base and excluded the expenses like repair and maintenance, electricity, insurance and depreciation, which was not directly connected with the international t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o data mine as to whether material differences between the assessee and the said entity can be eliminated and unless such differences cannot be eliminated, entity has to be included as a comparable. 9.9 On the contrary the Ld. AR referred to and relied upon the findings given by the Ld. CIT (A). He submitted that as per rule 10 B, the cost base should include the direct and indirect cost of production of goods and services which the assessee has duly considered while working out the cost base. The ld.AR further submitted that in respect of the overheads at Pune, assessee has allocated part of the overhead expenses to the quoting activity, and cost base has been calculated. Ld. AR submitted that the Ld. TPO on the other hand added 100% of the amount of some of the overheads in the cost base which is not in accordance with the said rules. 9.10 Regarding abnormal gross profit markups the ld.AR submitted that the Ld. TPO has not followed rule 10 B. He submitted that gross profit markup over cost of 19 comparable showing average gross markup 15.71% was submitted before the Ld. TPO and the Ld. TPO has taken gross profit markup of 17 companies for FY 2002-03 which includes abnorma ..... X X X X Extracts X X X X X X X X Extracts X X X X
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