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2021 (11) TMI 1178 - AT - Income TaxTP Adjustment - “Provision for estimated loss on construction contracts” debited by the assessee in its profit & loss account and reversal of such provision credited to the Profit and Loss account should be treated as Non-operating in nature - HELD THAT:- We notice that the assessee is raising this plea for the first time before us. The assessee has taken the plea before us on the reasoning that the provision for estimated loss from construction contracts and reversal of said provision was treated as non-operating in nature in assessment year 2015-16 and hence the same treatment should be given in this year also. First of all, it is not clear as to whether the treatment given by Ld DRP in AY 2015-16 has been accepted by the assessee or not, since such kind of provisions was made as per the mandate of Accounting Standards year after year. Hence it is required to be examined as to whether it is appropriate to treat the provision for expected loss as “non-operating” in nature when such provisions are created as per accounting principles and in compliance of accounting standards. Secondly, it is not clear as to whether such kind of provision made by the comparable companies was also considered as non-operating in nature in AY 2015-16 in their hands, since it is quite possible that the comparable companies would also be debiting the profit and loss account with such kind of provisions as mandated by the Accounting standards. There should not be any dispute that identical treatment for an item of expenditure should be given both in the hands of the assessee as well as in the hands of the comparable companies. Accordingly, this claim of the assessee requires examination. In any case, this claim has been raised first time before us, meaning thereby, there was no occasion for the authorities below to examine this claim of the assessee in the year under consideration. Accordingly, we restore this claim of the assessee to the file of AO/TPO for examining it in accordance with law. Manufacturing segment is regarding consideration of leverage of 5% - AO/TPO shall examine this claim of the assessee in accordance with law. Manufacturing segment relates to computation of margin in the case of comparable company named M/s. Gansons Ltd - It is the contention of Ld. A.R. that the TPO has computed margin of this comparable company erroneously - HELD THAT:- Since the claim of the assessee requires examination, we restore this issue also to the file of the AO/TPO. TP Adjustment of trading segment - TPO has adopted operating profit/operating cost as PLI in the case of trading segment - It is the contention of the assessee that the correct PLI should be taken as “Operating profit/Operating revenue” - HELD THAT: - We direct the AO/TPO to adopt “operating profit/operating revenue” as PLI and determine the ALP of trading segment accordingly. TP adjustment made in respect of payments of Global Sales & Marketing activity fee and Management fee - assessee did not benchmark these payments made to its AE separately, since it adopted TNM method at entity level. However, the TPO bench marked the same separately and accordingly proposed TP adjustment - HELD THAT:- Following the decision rendered in the assessee’s own case in AY 2010-11[2017 (6) TMI 1392 - ITAT BANGALORE] wherein held that the assessee is having multiple and diversified international transactions involving receipt as well as payment, we are of the considered view that the payment in respect of management fees as well as Global Sale and Marketing Activity Fees shall be considered as operating cost and has to allocated in the ratio of turnover of the other international transactions and then the ALP of the other international transactions has to be determined under TNMM analysis. Hence we set aside the entire issue of determination of ALP and TP Adjustment to the record of the TPO/A.O. for carrying out fresh exercise of determination of ALP in respect of international transactions by considering the payment in respect of management fees and Global Sale and Marketing Activity Fees as part of the operating cost and allocating the same in the ratio of the turnover of the other international transactions. Disallowance u/s 14A r.w.r. 8D - A.R. submitted that the A.O. has not recorded dis-satisfaction on the disallowance made by the assessee. Hence, the A.O. could not be resorted to provisions of Rule 8D - HELD THAT:- We noticed earlier that the assessee has made investments during the course of the year and has sold the same before the end of the year. Accordingly, the value of investments as on beginning of the year and as on end of the year were Nil. In this fact situation, the provisions of Rule 8D cannot be applied since computations prescribed in those rules are not possible in the absence of opening and closing value of investments, i.e., computational provisions of rule 8D would fail in this case. We noticed earlier that against exempted dividend income of Rs.24,86,000/-, the assessee has disallowed a sum of Rs.48,573/- only u/s 14A of the Act. The said disallowance does not appear to be correct when compared with the peak value of investments of Rs.72.09 crores - Thus disallowance may be estimated to meet the requirements of section 14A of the Act. Accordingly, we are of the view that an estimated disallowance of 10% of the dividend income would meet the requirements of provisions of Section 14A of the Act and the same will put this issue at rest. Accordingly, we direct the A.O. to restrict the disallowance u/s 14A of the Act to 10% of exempt dividend income. He may work out the addition accordingly. Non-granting of proper TDS credit - Since this issue requires examination at the end of the A.O., we restore to his file with the direction to allow credit for correct amount of TDS. Deduction of education cess and secondary & higher education cess paid during the year as expenditure - A.R. took support of the decision of Sesagoa Ltd [2020 (3) TMI 347 - BOMBAY HIGH COURT] and certain other decisions to contend that the education cess does not fall under the category of Income tax and hence the same should be allowed as deduction against the profits of the assessee - HELD THAT:- Since the claim of the assessee gets support from the decision rendered by Hon’ble Bombay High Court in the case of Sesagoa Ltd. (supra) and since this issue is urged for the first time before us, we restore this issue to the file of AO for examining the claim of the assessee. Dividend distribution tax rate - to be confined to the rate as per DTAA for the dividend distributed to non-resident assessees - AR submitted that the assessee has raised the above said ground on the basis of decision rendered by Delhi bench of Tribunal and this issue has been referred to a special bench and accordingly pleaded that this claim of the assessee may be restored to the file of the A.O - HELD THAT:- Having regard to the submissions made by the Ld. AR., we restore this issue to the file of the A.O. with the direction to follow the decision that may be rendered by special bench of Tribunal on this issue in due course.
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