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2018 (9) TMI 1691 - AT - Income TaxTPA - rejection of aggregation approach adopted by the assessee while benchmarking its manufacturing activity - comparable analysis - Held that:- We find that similar issue arose before the Tribunal in assessee’s own case in earlier years and the Tribunal in assessment year 2009-10 has decided the said issue in favour of assessee holding that various activities undertaken by the assessee are to be aggregated for determining arm's length price of international transactions. Most appropriate method to be applied - whether internal comparability was to be made i.e. profitability of export to associated enterprises was to be compared with domestic sales made by the assessee - Held that:- The said issue has been adjudicated by the Tribunal in earlier years and it has been held that TNMM method has to be applied and the margins of assessee are to be compared with average margins of external comparable companies. Treatment of export incentives while computing operating margins of assessee - AO/TPO held the same to be non-operating in nature, hence the same were excluded while computing operating margins of assessee - The case of Revenue was that the same are non-operating income and hence, the same are to be excluded from operating margins of assessee - held that:- We find that similar issue has been decided by the Hon’ble Bombay High Court in CIT Vs. Welspun Zucchi Textiles Ltd. [2017 (1) TMI 1037 - BOMBAY HIGH COURT] and it has been laid down that DEPB benefit arising to the assessee therein was operating revenue includable in arriving at operating profit. Export incentives and scrap sales are to be included as operating income. Accordingly, we hold that export incentives are to be considered as operating income of assessee, while benchmarking international transactions of assessee. Benefit of range of +/-5% is available if the variation does not exceed the said tolerance margin. Disallowance made under section 14A - formula adopted by the assessee of allocating the cost to earning of exempt income has been adopted for working out disallowance - Held that:- Disallowance under section 14A of the Act is to be restricted to ₹ 17,63,981/-. Hence, the ground of appeal partly allowed. Disallowance made under section 35(2AB) - Held that:- The assessee during the year under consideration has also claimed weighted deduction claim under section 35(2AB) of the Act and the issue raised stands squarely covered by the orders of Tribunal in earlier years in the hands of assessee. Applying the same parity of reasoning, we direct the Assessing Officer to allow weighed deduction under section 35(2AB) of the Act to the assessee.
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