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2023 (12) TMI 398 - AT - Income TaxTP adjustment - specified domestic transaction covered u/s 40A(2)(b) - AO had noted that the assessee had entered into both International & Specific domestic transactions with Associated Enterprises (AE’s) and therefore made a reference u/s 92CA(1) to the TPO for determination of the Arm’s Length Price (ALP) - As argued presumption ought to be that expenditure covered u/s 40A(2)(b) was never a specified domestic transaction and therefore by virtue of this amendment, the impugned transfer pricing adjustment made u/s 92BA of the Act be deleted on this score alone - also AR submitted that the TPO had erred in holding that the director’s commission paid by the company was excessive and thereby making transfer pricing adjustment by applying TNMM Method - whether the director’s remuneration was required to be benchmarked on aggregate basis or the salary & commission was to be benchmarked separately and independent of each other? HELD THAT:- AR has rightly pointed out that the remuneration policies of companies in same industry may differ i.e. fixed & variable pay may vary depending on each case but the overall remuneration policy shall be in accordance with the provisions of Companies Act, 2013. It is noted that Section 197 of the Companies Act 2013 sets the limits for payment of overall director’s remuneration, by whatever name i.e. salary, fee or commission. Hence, we note that there is no distinction between salary or sitting fees or commission carved out in the Companies Act, 2013. This is indeed relevant in the present context as the said provision sets out the parameters for payment of overall remuneration to Directors in unison. We also note that Section 17(1) of the Act which defines ‘salary’, includes any ‘commission’ paid in addition to salary and therefore the commission is noted to form part of the salary income of the employee / director. For the aforesaid reasons, we find merit in the plea of the appellant that the salary & commission paid to the directors are closely related and forms part of the overall remuneration package and therefore it has to be aggregated and benchmarked as a single transaction. It is noted that applying the aggregate approach, the ratio of aggregate salary & commission i.e. director’s remuneration to the profit before tax of the appellant works out to 4.36% which is well within the permitted range of the six (6) comparables. Hence, the transfer pricing adjustment made by the TPO in relation to director’s commission is held to be unjustified and the TPO is directed to delete the same. Since we have deleted the impugned transfer pricing adjustment on its merits, the alternative legal plea raised by the assessee has become academic and is therefore not being adjudicated upon. Accordingly Ground No. 1 stands allowed. Characterisation of receipt - industrial Promotion Subsidy (IPS) received - Capital or revenue receipt - HELD THAT:- Having regard to the principle as laid down Ponni Sugar & Chemicals Ltd [2008 (9) TMI 14 - SUPREME COURT] it is noted that this Tribunal in assessee’s own case for AYs 2010-11 & 2012-13 [2022 (1) TMI 412 - ITAT MUMBAI] had held the IPS subsidy received by the assessee from the Government of Maharashtra was towards setting up of the new unit at Jalgaon and therefore capital in nature. Similarly, it is noted that Industrial Policy of Assam in terms of which the assessee received IPS subsidy in relation to its Assam Unit, was examined by the coordinate bench of this Tribunal at Guwahati in the case of DCIT Vs Century Plyboards (I) Ltd in [2020 (12) TMI 55 - ITAT KOLKATA] and the subsidies received under this Industrial Scheme for setting up unit in Assam was held to be capital in nature - Thus we hold that the lower authorities had erred in holding the IPS subsidy received by the assessee under the State Industrial Schemes of Maharashtra, Madhya Pradesh & Assam was revenue in nature. Thus the assessee recognizes subsidy on mercantile basis of accounting basis the terms of the initial sanction received from the State Government. The final approval or disbursement comes at a later date and there are instances of excess/ shortfall, which is appropriately accounted for by the assessee. It is noted that that the subsidy was short recognized by the assessee in earlier years and therefore the excess amount i.e. difference between amount recognized and amount finally disbursed was credited in P&L A/c during the year. As rightly pointed out by the Ld. AR, the nature of the subsidy which was short recognized in earlier year/s remains the same i.e. capital in nature. Assessee appeal allowed.
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