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2016 (4) TMI 1125 - AT - Income TaxNon exclusion of non-operating expenses i.e. interest and finance cost while calculating the profit level indicator (“PLI”) i.e. Operating Margin to Operating Expenses of the Appellant - Held that:- The TPO noted that the Dispute Resolution Panel (DRP), Pune vide order passed under section 144C(5) of the Act relating to assessment year 2007-08, dated 20.05.2011 had directed to exclude the import licence fees of ₹ 4.54 crores from the segmental profit and proportionate unallocated expenses shown for working out PLI of comparables. However, the figure of segmental revenue of ₹ 86.97 crores was taken from Annual Report of ADF Foods Ltd., which did not include the income from import of licence. After looking at the figures of M/s. ADF Foods Ltd., the TPO observed that the income from import of licence was not at all taken into account for working out the PLI and as such the assessee’s request to calculate PLI was found to be not accepted. Further, the claim of the assessee to exclude derivative losses from operating losses was also held to be not correct because the same was part of business and hence, could not be excluded from the expenses. Even in the case of comparable companies i.e. M/s. ADF Foods Ltd., there was derivative loss of ₹ 18.28 lakhs and the same was considered as part of operating expenses, while working out the PLI on segmental profit. Exclusion of bad debts as sundry balances written off from the operating expenses on the ground that the same relates to domestic sales was also refused as the assessee had not furnished complete details in support of its claim. Direction to Assessing Officer / TPO to exclude derivative losses from the operating expenses of tested party i.e. the assessee before us and also from the operating expenses of comparable M/s. ADF Foods Ltd. while working out the PLI of both the concerns. Computation of PLI - Held that:- While computing the PLI of concern of costs, which are relatable to carrying on of the business are to be considered as part of operating margins / operating expenses. Only such items which are not relatable to carrying on of business are to be excluded while computing the operating margins / operating expenses of the assessee, in turn, working out the PLI of the company. The assessee before us has claimed that the non-operating expenses of interest on finance cost needs to be excluded while calculating PLI of the assessee company. The perusal of Profit & Loss Account of the assessee company shows that the major revenue is from business carried on by the assessee and some part of the income is shown as other income. We find no merit in the claim of the assessee that the interest on finance cost is to be excluded while calculating PLI of the assessee company being non-operating expenses. The assessee has failed to furnish the complete details in this regard and in the absence of the same, we reject the claim of the assessee.
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