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2014 (5) TMI 728 - AT - Income TaxTransfer pricing adjustment - International transactions with the Associated Enterprise – Held that:- The reason given by the Transfer Pricing Officer and DRP for not accepting the segment results are that the assessee has not shown the same in the audited financial accounts and the segment reporting was done only for transfer pricing purposes - They have also stated that allocation of expenses between the contract manufacturing segment and non AE local/domestic segments are abnormal – Relying upon DCIT Vs. Stratex Net Works (India) Pvt. Ltd. [2010 (4) TMI 840 - ITAT, DELHI] - rate of profit achieved in other comparable cases are to be compared with profit level declared by the assessee in respect of its AE transactions after excluding domestic transactions - the net cost plus margin reported by the assessee in respect of its contract manufacturing segment stood at 20.89% and whereas the net margin of the external comparables selected by the Transfer Pricing Officer stood at 8.87%. The Transfer Pricing Officer / DRP’s approach in comparing external comparables margin of 8.87% with entity level margin of the assessee i.e. 1.08% is wrong, since segmental results are available and as per this the margin in contract manufacturing segment is 20.89% and this margin should have been compared with the comparable margin of 8.87% in determining the upward adjustment in AE sales - the net cost plus margin of the assessee in contract manufacturing segment is 20.89% which is more than the operating profit of 8.87% on the external comparables of the Transfer Pricing Officer, there is no need for any upward adjustment to be made on the AE sales of the assessee – the AO is directed to delete the addition made towards upward adjustment of purchase price on determination of ALP with Associated Enterprise – Decided in favour of Assessee. Disallowance of Provision for discount – Held that:- when the liability is ascertained and not quantifiable during the year and is simply a contingent based on estimates, the same cannot be allowed as deduction - the assessee’s version clearly states that the only reason for creating a provision and not charging the same as an expenses is because of the fact that the exact quantification could not be undertaken for the various reasons - the basis for the provision is simply adhoc and arbitrary - It depends on the facts of each and every case to come to a conclusion as to whether the liability is ascertained or unascertained one and it cannot be generalized – Assessee contended that they had reversed excess provision which was disallowed in earlier year - as the provision was disallowed in earlier year, reversal made during this assessment year ought to be allowed as deduction while computing total income of the year – the AO is directed to verify the claim of the assessee. Computation of deduction u/s 10A of the Act - Exclusion of expenses – Expenses incurred in foreign currency from export turnover – Inclusion in turnover – Held that:- Following Income-Tax Officer. Versus Sak Soft Limited [2009 (3) TMI 243 - ITAT MADRAS-D] - travel expenses incurred in foreign currency have to be excluded both from export turnover as well as from total turnover for the purpose of computing relief u/s 10A of the Act – the AO is directed to exclude the travel expenses incurred in foreign exchange from export turnover as well as total turnover for the purpose of computing relief u/s 10A of the Act – Decided in favour of Assessee.
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