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Asstt. Commissioner of Income Tax, Circle I, Faridabad Versus M/s. Va Tech Esher Wyas Flovel Ltd.

2017 (11) TMI 802 - ITAT DELHI

Addition on account of Project Procurement expenses - addition the same were not incurred for the purpose of - business - Held that:- On perusal of the documents, we find that these are mainly agreements between the assessee and commission agent, correspondence between the assessee and the commission agent, copy of invoices issued by the commission agent, evidence of payment released by the principal, copy of contract awarded to the assessee, letter by the assessee appointing the commission agen .....

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tract awarding activity or any activity provided in the scope of work in the agreement. The documents submitted by the assessee are mostly computer-generated printouts of correspondence between the assessee and the commission agent. No evidence is available in paper book, as how these correspondences exchanged between the assessee and the commission agent, whether it was through post or whether it was through emails. The assessee has not produced any evidences supporting the technical expertise .....

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ined by the Assessing Officer afresh. Accordingly, we feel it appropriate to restore the issue to the file of the Assessing Officer to examine copy all the documents produced by the assessee. Accordingly, the ground of the appeal is allowed for statistical purposes. - Transfer Pricing Adjustment - TPO accepted the most appropriate method and comparables selected by the assessee, however, he has taken PLI data of comparables for current year only as against multiple year data taken by the ass .....

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ncial impact on more than one year. No factual information was brought on record in respect of the comparables other than presenting theoretical or general arguments supporting adoption of multiple year data. - In the year under consideration before us, the Rule 10B(4) of the Income-tax Rules, 1962 (in short ‘the Rules’) has specifically provided for using the data of the relevant financial year and data of the two years prior to the relevant financial year could only be considered, if such .....

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year data for computing PLI of comparables. In view of above discussion, we set aside the finding of the Ld. CIT-(A) on the issue in dispute and restore that of Ld. TPO/AO. The ground of appeal is accordingly allowed. - Disallowance out of telephone and car expenses - Held that:- In the instant case, the Ld. CIT-(A) has not given any finding on the basis of documents produced by the assessee before him whether the expenditure was incurred wholly and exclusively for the purpose of business o .....

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that the expenditures on telephone and car were incurred towards the business purpose only and decide the issue in dispute in accordance with law. The assessee shall be afforded adequate opportunity of being heard. The ground of the appeal is accordingly allowed for statistical purposes. - ITA No. 1675/Del/2010 - Dated:- 13-11-2017 - SH. H.S. SIDHU, JUDICIAL MEMBER AND SH. O.P. KANT, ACCOUNTANT MEMBER For The Assessee : Sh. Ashwani Taneja, Adv. For The Department : Sh. H.K. Choudhary, CIT(DR) OR .....

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not incurred for the purpose of - business. 2. On the facts and in the circumstances of the case, the Ld. CIT(A) has erred on facts and in law in deleting the addition of ₹ 95,47,197/- made by the Assessing Officer on account of Arm s Length Price of International Transaction u/s 92CA(3) of the Income Tax Act. 1961 disregarding the Arm s Length Price of International transaction determined by the Transfer Pricing Officer u/s 92CA(3) 3. On the facts and circumstances of the case, the Ld. v .....

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Ltd. 263 ITR 241. 4. That the appellant craves for the permission to add, delete or amend the grounds of appeal before or at the time of hearing of appeal. 2. Briefly stated facts of the case are that: (1) During relevant year the assessee was engaged in the business of: (a) manufacturing hydro turbines governing equipments, spare parts of all types of turbines and (b) executing hydropower plants on Engineering, Procurement and Construction(EPC) basis. (2) During the relevant year, 99.99% of the .....

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ated enterprises: (5) The Ld. Assessing Officer referred the case to the Ld. Transfer Pricing Officer (TPO) for determination of arm s length price of the international transactions. (6) The ld. TPO accepted the most appropriate method applied by the assessee in its transfer pricing study, however, he disagreed with average of multiple year data of the comparable chosen by the assessee for computing average profit level indicator (PLI). The assessee had shown working capital adjusted margin (ope .....

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worked out at 8.77%. In view of the findings, the ld. TPO in his order dated 05/09/2008 under section 92CA(3) of the Act, computed the adjustment to the international transaction as under: Operating revenue Rs.121,62,17,344 Operating expenditure Rs.114,11,76,625 Operating profit Rs.750,40,719 OP/OR(%) 6.17 OP/OR of the comparables 8.77 Adjusted operating profit Rs.10,66,62,261 5% of adjusted OP Rs.53,33,113 Difference between adjusted OP & OP shown by assessee = Rs.3,16,21,542 (7) Further, .....

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ssee ₹ 95,47,197/- (8,45,87,916 - 7,50,40,719). (8) The Ld. Assessing Officer in the assessment order passed on 20/11/2008 under section 143(3) of the Act made transfer pricing addition of ₹ 95,47,197/- as proposed by the Ld. TPO. In addition to the transfer pricing addition, the Ld. Assessing Officer also made another disallowances/additions to the returned income, including procurement (commission) expenses, vehicle expenses, telephone expenses etc. (9) On further appeal, the Ld. C .....

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l of project-wise commission paid to commission agents towards project procurement. The Assessing Officer followed finding of his predecessor in assessment year 2004-05, keeping in view the identical facts and circumstances. In assessment year 2004-05, the Assessing Officer disallowed the entire expenses towards commission for project procurement in absence of documentary evidences of services rendered by the commission agents. Alternatively, he also concluded that assessee claimed entire commis .....

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project procurement expenses (commission) and alternatively, without prejudice to entire disallowance, on the basis of percentage completion method, held the expenses of ₹ 2,76,08,085/- as allowable only. 3.2 Before the Ld. CIT-(A), the assessee submitted that Assessing Officer has not provided sufficient opportunity of hearing and therefore, filed application for admitting additional evidences under Rule 46A(1)(d) of Income-tax Rules, 1962 (in short the Rules ). The Ld. CIT-(A) forwarded .....

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vidences on merit. The Assessing Officer examined the additional evidences and provided the opportunity to the assessee for verification of the claim of services rendered. The Assessing Officer submitted her verification report on 28/01/2010. The ld. CIT-(A) in the impugned order has expressed annoyance on delay in furnishing the remand report to him. The ld. CIT-(A) provided copy of the remand report to the assessee for rejoinder. The learned CIT-(A) has reproduced entire rejoinder of the asses .....

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eleting the disallowance of commission expenses. Therefore, he submitted that the issue in dispute is covered in favour of the assessee. The learned counsel also filed paper book in three volumes containing pages 1 to 893. In a brief synopsis filed, the learned counsel referred different pages in support of his contention of rendering services by the commission agents. 3.4 The Ld. Sr. DR, on the other hand, submitted that in assessment year 2004-05 addition was made relying on the statement of S .....

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correspondence between the assessee and the commission agent. He submitted that no documentary evidence have been filed to establish the role played by the commission agent in procuring the contract order from the government authorities or other principle parties including any evidence of representation by the commission agent before government authorities etc. The Ld. CIT(DR) submitted that correspondence between the assessee and agent are only internal documents and no independent evidence fr .....

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particularly keeping in view the finding of the Assessing Officer in assessment year 2003-04 that Sh. S. K. Kaul, Managing Director of the company failed to provide documentary evidence in support of specific services rendered by the commission agent and he only repeated the particulars of the services provided in the scope of work in the agreement with the commission agents. The finding of the Assessing Officer on the issue in dispute is reproduced as under: 1.5 There are many important factor .....

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relevant field to help the assessee in obtaining the orders and the documentary evidences of actually rendering of services for which commission expenses were incurred In the statement, Sh. 8.K. Kaul, M.D. has also simply repeated the particulars of services rendered by the commission agents, as shown in the Scope of Work in the agreement, But he also could not furnish any documentary evidences nor could give particulars of any specific service rendered by them to justify the commission expense .....

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n work for the different projects. Despite various opportunities granted from time to time, the assessee could not furnish evidences of any service in respect of various scope of works shown in the commission agreements. The assessee has undertaken execution of various Hydel Power Projects and a number of projects / contracts, are the Government contracts which are awarded by the competent authorities after following the prescribed procedures of calling up the tenders, opening of bids, study of .....

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s are opened in presence of all the bidders and the tender is awarded to any one of the bidder on the basis of rates quoted by him and his technical expertise in the relevant field then what is the role of the commission agent in preparation of comparative statements. Similarly there does not appear any role of the commission agent on submission of reports in regard to development on the tender process and collection of letter of intent etc. The assessee has also not filed any evidence in regard .....

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ion was made through cheque and that TDS was also deducted from the commission expenses. It was also stated that payment of commission expenses were made to the commission agents as per the terms and conditions of the commission contract and upon receiving the corresponding payments from the customer. This plea of the assesses also cannot be said as genuine ground to justify its claim. The execution of any agreement between the two parties and payments through cheques in terms of said agreements .....

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ervices required from the commission agents for procurement of contract orders. At the most, the payments made by the assessee company can be said to have been made to influence the process of award of tender in its favour. Any payment made by the assessee which is not made for getting any genuine services required in carrying on the business-but is made to influence the decision making process will be the payment made against the public policy. Such expenditure is not allowable u/s 37(1} of the .....

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cision of the Tribunal is extracted as under: 11. It is a matter of record that Assessing Officer has not placed any evidence on record that the assessee has not incurred the expenditure for business purposes. Whereas the assessee has filed all the copies of the agreement with the commission agents where the type of services to be rendered by the agents are stated. The assessee has also submitted the copies of the invoices raised by the agents along with correspondences with the agents as mentio .....

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mission and tax deducted at source also prove the commission paid to the agents on completion of their work. In our view all possible evidences which could be possible to be placed on record during the execution of work by the agents were placed on record by the assessee. In this way, the assessee has discharged its primary burden cast upon it. The Revenue cannot brush aside these positive evidences. The Assessing Officer has nowhere pointed out or recorded any finding against the assessee with .....

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3. The assessee has claimed the expenses on the basis of accrual on the provisions of the accounting standard and the accounts of the company are duly audited and no defect in the same has been pointed out. 14. Assessee produced sufficient evidence and material before the authorities below to establish the nature and genuineness of the transaction. There is no challenge to the finding of learned CIT(A) in admitting additional evidence at appellate stage. The agreement and material produced on re .....

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ent evidence and material before the authorities below to prove that commission agents did render services for the assessee s business. The Assessing Officer did not bring any evidence on record that commission payments were made to influence the other parties for procurement of the contact. The Assessing Officer himself in his alternate contention allowed the deduction of part of the commission paid in a sum of ₹ 54,41,905/- which itself proved that the commission agents did render servic .....

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d could not be referred in statement of Shri S.K. Kaul in preceding Assessment Year 2003-04. It is also not clarified whether before relying upon the same statement the assessee was confronted of this fact or not. It is admitted fact that the matter in Assessment Year 2003-04 has not yet reached finality, therefore, how the statement recorded in Assessment Year 2003-04 was relevant in assessment year under appeal has not been explained. 15. Learned counsel for the assessee also produced on recor .....

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d to the commission agents. This fact itself supports the claim of assessee that the commission agents rendered services for the business and profession of the assesses right from the beginning which continued even in subsequent years, therefore, the Income Tax Authorities should also follow the rule of consistency and the Id, CIT(A) on proper application of material facts rightly deleted the addition. Learned counsel for the assessee relied upon the order of ITAT Delhi Bench in the case of ACIT .....

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cs Pvt. Ltd. vs. JOT; J 04 TTJ 113 in which it was held: Commission to agent for procuring Government contract - Assesseecompany having procured a Government supply contract only through guidance and assistance of an agent who rendered effective services to the assessee in securing the tenders, making negotiations with the. concerned officers, ensuring timely supplies and also obtaining the release of payment, the payment of commission made to said agent was fully justified and same is allowable .....

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r did not bring any evidence on record for payment of any illegal gratification etc. 16. Considering the totality of the facts and circumstances of the case, we do not find any justification to interfere with, the order of the learned CIT(A). 3.7 In the above decision, the Tribunal has noted that each assessment year is separate and no material was produced on record as how the statement recorded in preceding year was relevant to the assessment year under appeal. Further, the Tribunal held that .....

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ucceeding assessment years. In the brief synopsis, the Ld. counsel has referred following documents as evidence in support of the claim of rendering services: 1. PB 675 is detail of project procurement expenses for the period 01.04.2004 to 31.03.2005. 2. PB 671-673 is assessee s letter dated 06.01.2010 filed before Ld. CIT(A) regarding furnishing of additional evidences.. 3. PB 667-670 is assessee s letter dated 03.02.2010 filed before Ld. CIT(A) to counter comments of Ld. AO. 4. PB 658-661 is a .....

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he nature of services rendered by the commission agents in regard to the project procurement. 8. PB-70 is the details of commission expenses showing the amount of commission / project procurement expenses, name of the project and name of the commission agents. 9. PB-2 is P&L A/c showing contract revenue to the tune of ₹ 1,1,68 Crores. 10. PB 102A- 102B is letter dated 02-06-2008 filed to Ld. A.O. through which copy of agreement was also furnished. 11. PB 102G-102H is appointment of M/s .....

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assessee regarding Brindavan Mini Hydel Project. 16. PB 213-214 is the copy of agreement between assessee and M/s Artria regarding Brindavan Mini Hydel Project. 17. PB 215-230 is the copy of detailed order issued to the assessee regarding Brindavan Mini Hydel Project. 18. PB 1021-102J is appointment of M/s C.T. Cotton Yam Ltd. appointing them as representative in relation to Rani Awanti by Sagar Project. 19. PB-112 is letter from the assessee to M/s C.T. Cotton Yam Ltd. requesting the agent to s .....

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. in relation to Rani Awanti by sagar project offering the modified the term. 23. PB-116 is letter dated 08.10.2002 from M/s C.T. Cotton Yam Ltd. to the assessee in respect of Rani Awanti by Sagar Project informing the extension to date for submissions of tender. 24. PB-117 is letter dated 14.10.2002 from M/s C.T. Cotton Yam Ltd. to the assessee giving valuable information in respect of Rani Awanti by Sagar Project. 25. PB 118 is assessee s letter dated 11.12.2002 to M/s C.T. Cotton Yam Ltd. req .....

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rn Ltd. to the assessee giving information in respect of Rani Awanti by Sagar Project. 29. PB 122 is letter dated 03.03.2003 from M/s C.T. Cotton Yam Ltd. to the assessee giving valuable information regarding Rani Awanti by Sagar project. 30. PB 123 appointing them as representative in relation to is letter dated 03.03.2003 from M/s C.T. Cotton Yam Ltd. to the assessee giving valuable information regarding Rani Awanti by Sagar Project. 31. PB 125 is invoice raised by M/s C.T. Cotton Yam Ltd. in .....

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am Ltd. appointing them as representative in relation to Samal Project. 37. PB 165 is copy of bill raised by M/s C.T. Cotton Yam Ltd. regarding Samal project 38. PB 166-168 is the copy of no TDS certificate in respect of M/s C.T. Cotton Yam Ltd. 39. PB 169-173, 194,195, 196, 197, 198, 199, 200 & 201 are the copies of correspondence between M/s C.T. Cotton Yam Ltd. and the assessee in respect of Samal Project. 40. PB 174-193 are the copies of correspondence between the assessee and M/s Orrisa .....

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ion to Malana Power Project. 45. PB 129-134 are the correspondence between M/s C.T. Cotton Yam Ltd. with the assessee regarding Malana Power Project. 46. PB 135 is the copy of bill of M/s C.T. Cotton Yam Ltd. regarding Malana Power Project. 47. PB 136-137 are the release of advance payment in respect of Malana Power Project. 48. PB 138-145 is the copy of agreement between assessee and Malana Power Project. 49. PB 1020-102P is appointment of M/s C.T. Cotton Yam Ltd. appointing them as representat .....

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rvices P. Ltd. regarding Varahi Under ground Power Project. 54. PB 102S-102T is appointment of M/s Vishal Pipes Ltd. appointing them as representative in relation to Shiva Samudram Project. 55. PB 208-209 is the copy of bill from M/s Vishal Pipes Ltd. regarding Shiva Samudram Project. 56. PB 105-106 is appointment of M/s Aravali Aluminum P. Ltd. appointing them as representative in relation to Sabarigari Project. 57. PB 107 is copy of debit note raised by M/s Aravali Aluminum P. Ltd towards comm .....

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s regard. 63. PB 676 is debit note raised by M/s V A Tech Hydro India P. Ltd towards commission charges. 64. PB 208-209 is the copy of bill from M/s Vishal Pipes Ltd. regarding Shiva Samudram Project. 65. PB 278 - 284 is the copy of contract agreement (second contract) between M/s National Hydro Electric Power Corporation Ltd. and M/s Va Tech Hydro India Pvt. Ltd. 66. PB 285 - PB 293 is the copy of contract agreement (first contract) between M/s National Hydro Electric Power Corporation Ltd. and .....

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efore Ld. CIT(A) praying for admission of additional evidences under Rule 46A(l)(d). 71. PB 658 - 661 is assessee s letter dated 30-11-2009 replying to counter comments filed to Ld. CIT(A). 72. PB 667 - 670 is assessee s letter dated 03-02-2010 replying to counter comments dated 28-01-2010. 73. PB 671 - 673 is assessee s letter dated 06-01-2010 filed to Ld. CIT(A) furnishing additional documents. 74. PB 674 - 675, 727 is the detailed chart showing project procurement expenses from the period 01- .....

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vt. Ltd.) before M/s D. D. Agrovet Pvt. Ltd. 78. PB - 685 is the invoice dated 08-12-2004 raised by M/s Sharika Enterprises Pvt. Ltd. amounting to ₹ 20,00,000/- addressed to M/s VA Tech Hydro India Pvt. Ltd. for consultancy charges for the services offered. 79. PB 686 - 690 is the copy of purchase order dated 21-12-2004 placed by Andritz Hydro Pvt. Ltd. (M/s VA Tech Hydro India Pvt. Ltd.) before M/s Sharika Enterprises Pvt. Ltd. 80. PB 691 - 693, 719 is the copy of ledger account of M/s Va .....

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mmission agent etc. 3.10 In our opinion, these documents are not sufficient to demonstrate the actual services rendered by the commission agents. The assessee was required to explain the role of the commission agent in procuring contracts from the government agencies and other principle parties. The assessee was required to furnish documentary evidence, whether the commission agent represented before the parties, who awarded contract to the assessee and whether those commission agent participate .....

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l expertise and experience of the commission agents in the field of services rendered. The assessee has not produced any certificate from the parties who awarded contract that said commission agents played the role as per the scope of work in the agreement between the assessee and the commission agent, alongwith documentary evidence of interacting with those parties. 3.11 On being asked by the bench to both parties the status of the assessment before the Assessing Officer in assessment year 2003 .....

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2004-05. The documentary evidences in the year under consideration for establishing the services rendered need to be produced by the assessee and examined by the Assessing Officer afresh. Accordingly, we feel it appropriate to restore the issue to the file of the Assessing Officer to examine copy all the documents produced by the assessee or any other evidences to discharge the onus of services rendered by those commission agents, and after carrying out the necessary enquiries as required in the .....

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95,47,197/- made by the Assessing Officer. 4.1 The Ld. TPO accepted the most appropriate method and comparables selected by the assessee, however, he has taken PLI data of comparables for current year only as against multiple year data taken by the assessee. The Ld. CIT-(A) after taking into consideration the submission of the assessee justifying multiple year data, deleted the transfer pricing adjustment with following findings: 15. The AO in her remand report has not commented anything on this .....

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08, in accordance with the provisions of section 92D(3) of the I.T. Act, 1961, this office is quite a competent authority to adjudicate the issue on the computation of the ALP shown by the appellant. After going through all the documentary evidences produced by the appellant company in support of the ALP shown as desired u/s 920(3) which are found to be quite specific and rational material, and considering also the well-reasoned rebuttal offered by the Ld. A.R. to the A.O's method of establi .....

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with the transfer price determined through such adjustments that don't stand the tests of comparables chosen, data employed, and the methodology adopted by the appellant company which are found to be adequate u/s 920 and 92E. In this connection, it is not out of place to mention that the ALP methods and modalities u/s 92C of the appellant company have been accepted by the Department (the same TPO, New Delhi) for the next assessment year 2006-07 or the identical facts and issue under referenc .....

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nsaction in the case is of ₹ 9,75,96,756/- and therefore, the PLI (OP/OR) of 6.95% should be applied only on the amount of international transaction and not on the gross revenue of the enterprise. 4.3 On the other hand, Ld. CIT(DR) on the issue of applying PLI over the amount of international transaction only, submitted that the assessee is not in appeal and therefore cannot be allowed to raise any new grounds while arguing the appeal filed by the Revenue. 4.4 On the issue of single year d .....

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nt of international transaction carried out by the assessee is concerned, the assessee is neither in appeal nor filed any cross objection before the Tribunal. The assessee has not filed any application under Rule 27 of the ITAT Rules and not taken additional grounds on the issue also. No such plea was taken before the Ld. CIT-(A), which shows that the assessee was not aggrieved with finding of the Ld. CIT(A) or the Ld. Transfer Pricing Officer, therefore, this plea of the assessee cannot be cons .....

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the profit are linked to the cyclic nature of business transactions, having financial impact on more than one year. No factual information was brought on record in respect of the comparables other than presenting theoretical or general arguments supporting adoption of multiple year data. 4.6 In the year under consideration before us, the Rule 10B(4) of the Income-tax Rules, 1962 (in short the Rules ) has specifically provided for using the data of the relevant financial year and data of the two .....

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leting the transfer pricing addition without giving reasons for taking average of multiple year data for computing PLI of comparables. In view of above discussion, we set aside the finding of the Ld. CIT-(A) on the issue in dispute and restore that of Ld. TPO/AO. The ground of appeal is accordingly allowed. 5. In ground No. 3, Revenue has challenged deletion of the addition of ₹ 2,52,406/- and ₹ 2,45,572/- made by the Assessing Officer on account of disallowance out of telephone and .....

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o 5% of the total expenses, which amounted to ₹ 2,52,406/-. Before the Ld. CIT-(A), the assessee filed submission that disallowance was made without any opportunity to the assessee and claimed that detail of telephone expenses was filed before the CIT-(A) to show that same were incurred for the purpose of business of the assessee. The assessee further submitted that no ad-hoc disallowance can be made in the hands of the assessee for personal nature of the expenses. 5.2 As far as disallowan .....

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of Ledger of car hiring expenses and other hiring expenses before the Ld. CIT-(A). 5.3 The learned CIT-(A) relying on the decision of the Tribunal in the case of DCIT Vs. Haryana Oxygen Ltd. (1999) 76 ITD 32 (Del.), held that assessee company is a juristic entity and the disallowance, if any could be made only in the hands of the directors as perquisite. The finding of the learned CIT-(A) on the issue in dispute is reproduced as under: 22 I have carefully considered the contentions of the learne .....

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Directors as a 'perquisite", as held by the Ld. Jurisdictional Tribunal in the case of DCIT Vs. Haryana Oxygen Ltd. (1999) 76 ITD 32 (Del). Therefore, both the disallowances stand deleted. 5.4 Before us, the Ld. counsel of the assessee relied on the order of the learned CIT-(A) . 5.5 On the other hand, Ld. CIT(DR) submitted that the Ld. CIT-(A) has not provided any opportunity to the Assessing Officer to examine the call register maintained for telephone and logbook of vehicles maintain .....

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263 ITR 241. 5.6 We have heard the rival submission and perused the relevant material on record. In the case of CIT Vs. Chitram & Co. Company Private Limited (supra), it was not disputed before the Assessing Officer that the cars had been used for business and non-business purposes as well. Even in the course of the appeals preferred by the assessee before the AAC (First Appellate Authority), the only plea taken was that the disallowance was on the higher side. The issue before the Hon ble H .....

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0) 39 ITR 299 (Pat), Waterfall Estates Ltd. vs. CIT (supra) and CIT vs. K. L. Bhasin and Co. (supra), we hold that the Tribunal was in error in holding that the assessee would be entitled to full depreciation in respect of the cars used by it. We, therefore, answer the third question referred to us in the negative and in favour of the Revenue. In view of the partial success of the Revenue and the assessee in these references, we do not make any order as to costs. 5.7 The Tribunal in the case of .....

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ards current repairs, insurance premium against risk of damage or destruction and depreciation will be restricted to a fair proportionate part thereof as the AO may determine. It is obvious that expenses on running of cars, such as petrol, etc., do not fall within the ambit of this sub-s. (2). It is only the amount of current repairs, which are the subject-matter of disallowance in the instant case and repairs are certainly distinct from running expenses, inasmuch as the repair presupposes damag .....

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