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2019 (7) TMI 1827 - AT - Income TaxTP Adjustment - value of international transaction of export of finished goods and not considering the comparability analysis - HELD THAT:- The set ‘principle of consistency’ was ignored by the authorities. After rejecting the said segmental results, the Assessing Officer/TPO/DRP was adopted the entity level PLI which means inclusion of the domestic sales also for the purpose of PLI workings. This approach of the AO/TPO/DRP was contested before us and various arguments were made to substantiate the claim of the assessee. The assessee filed a written note on this issue. In the said note, the assessee submitted that the revenue consistently accepted the export segment results since the assessment years 2007-08 to 2010-11. Before the TPO/ AO, the assessee furnished details of Profit and Loss Account based on the books of account maintained by the assessee. Relying on the DRP’s direction given in favour of the Revenue, assessee argued that the same constitutes violation of the principle of consistency. Highlighting this principle, ld. Counsel submitted that there is a finding of fact from this Tribunal for the assessment year 2007-08 in favour of upholding the AEs segment results and the same is not in favour of the entity level results of the assessee. It is a fact that the TPO himself rejected the entity level margins and computed the PLI for the assessment years 2010-11 and 2011-12. On hearing the assessee on one side and the arguments of the ld. DR for the Revenue, who relied on the order of the Assessing Officer/TPO/DRP, we are of the opinion, the violation caused to the “principle of consistency” is not proper. Therefore, we are of the opinion the same should be allowed in favour of the assessee. Segmental profits relates to the PLI of the export sales of RTS food - correctness of the segmental profits and the PLI of the export sales of RTS food - HELD THAT:- As assessee maintained books of account for both the segments separately. The apportionment of expenses is an integral part of the said limb. While allocating the certain common expenses, the assessee relied on profit to sale basis, which is an approved method of allocation of the common expenses between the segments. No sustainable reason is mentioned as to why such a basis is unsustainable. The certificate issued by the Cost Accountant and the basis adopted for allocation of expenses is not an unusual basis. The ld. DR could not file any evidence or case law to defend his stand. We find the segmental results supplied by the assessee deserve to be accepted. The assessee relied on various decisions in support of the apportionment of common expenses. Provision for operational expenses - Treatment to these additions in matters of PLI calculations - HELD THAT:- Disallowance is confirmed, the income of the assessee stands increased to that extent and such increased income constitutes an operating profit of the assessee and the same should be considered for the purpose of calculating the PLI of the assessee. In case, the same is allowed, the same constitutes operating cost. We shall now take up the merits of disallowance and the same is justified on merits. Disallowance of Bad Debts - assessee continues to have considered in transactions with the said debtor - HELD THAT:- There is no dispute on the fact the amounts were written off in the books of the assessee. The assessee relied heavily on the judgement in the case of TRF Ltd. [2010 (2) TMI 211 - SUPREME COURT]. DRP confirmed the said disallowance. On hearing both the sides on this issue, we find that the claim of the assessee is proper. We find no violation by the assessee in claiming the said bad debts. The assessee has strength of the said Apex Court’s judgement in the case of TRF Ltd. (supra). We accordingly allow the claim of bad debts in favour of the assessee. Provision for operating expenses - assessee failed to establish the correctness of the said provision and the criteria for arriving at such sum as a provision towards the operating expenses - HELD THAT:- For want of evidences, DRP confirmed the decision of the Assessing Officer in making such disallowances. Before us, assessee relied heavily on the claim in the books of account. However, ld. Counsel could not demonstrate the criteria for arriving at such an amount as a provision and utilization of the same in the year under consideration. On hearing both the sides and considering the assessee’s failure to discharge the onus, we proceed to confirm the disallowance made by the Assessing Officer. Accordingly, on merits, the addition on account of provision is confirmed. Effect of such disallowances in matters relating to the calculation of PLI qua the operating income and operating expenses - HELD THAT:- AO is directed to consider the bad debts claim is an operational cost and calculate the PLI of the assessee as per the procedure. Regarding the operating expenses it is our finding that the claim of the assessee is not allowable considering the failure of the assessee in discharging the onus by furnishing the evidences and the criteria for quantifying such amount. The effect of the said decision is going to increase the income of the assessee. Thereby, the operating income stands increased by the said sum - Assessing Officer is directed to consider the same as operating income while calculating the PLI of the assessee. Treatment to be given to the export incentives - case of the assessee is that the same constitutes an operational income and the same claim was accepted by the authorities in many assessment years in the past - HELD THAT:- Considering the principle of consistency, we are of the opinion the assessee’s claim should be allowed in his favour.Accordingly, the export incentive needs to be included in the operational income for PLI computation. Thus, the said issue raised in ground no.3 is allowed in favour of the assessee.
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