TMI Blog2017 (7) TMI 1263X X X X Extracts X X X X X X X X Extracts X X X X ..... export market segment were distinct and not comparable? - plea of assessee before us is that TNNM method should be applied as the most appropriate method after aggregation approach applied by the assessee in the equipment division - HELD THAT:- Tribunal in assessee’s own case in assessment year 2008-09 held that CPM method should not be applied and TNNM method is to be applied as most appropriate method. We apply the parity of reasoning as in assessment year 2009-10 to decide the issue in favour of the assessee. The TPO is thus, directed to exclude five concerns i.e. Axtel Industries Ltd., Anup Engineering Ltd., Thermax Ltd., Walchandnagar Industries Ltd. and GMM Pfaudler Ltd. and after excluding the said comparables, the average margin of balance comparables work to 14.01% against which, the assessee has shown the margins of 25.27%. Hence, no adjustment is to be made on account of arm's length price of international transactions. The ground of appeal No.1 raised by the Revenue is thus, dismissed. Addition u/s 14A - CIT(A) deleted the said addition accepting the plea of assessee that no satisfaction was recorded by the Assessing Officer before making the aforesaid addition - HE ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and profitable in carrying out its main business activity of manufacturing and it did not add to the profit earning apparatus of the Appellant Company. 1.4 The learned Commissioner of Income Tax (Appeals)-13 erred in not relying on the following decisions: i. Amway India Enterprises vs. DCIT (2008) 114 TTJ (Del) (SB) 476 ii. CIT vs. G E Capital Services Ltd. (2008) 300 ITR 420 (Del.) iii. CIT vs. Asahi India Safety Glass Ltd (2011) 245 CTR 529 (Del.) iv. CIT vs. Raychem RPG Ltd (2011) 245 CTR 515 (Bom.) 4. The Revenue in ITA No.1351/PUN/2015 has raised the following grounds of appeal:- 1. Whether on the facts and circumstances of the case the Ld. CIT(A) erred in holding that the domestic market segment and the export market segment were distinct and not comparable and thereby, the application of the cost plus method adopted by the TPO was incorrect? 2. Whether on the facts and circumstances of the case the Ld. CIT(A) erred in deleting the disallowance of IT service charges of ₹ 3.76 Crs by holding that the above expenditure was in the nature of revenue expenditure? 3. Whether on the facts and circumstances of the case the Ld. CIT(A) was justified in d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fficer to verify the claim of assessee in this regard that the expenditure has been incurred on upgradation of ERP system and allow the same in accordance with the ratio laid down by the jurisdictional High Court. Thus, the grounds of appeal raised by the assessee are thus, allowed as indicated above. 8. Now, coming to the appeal filed by the Revenue. The Revenue vide ground of appeal No.1 is aggrieved by the finding of CIT(A) that the domestic market segment and the export market segment were distinct and not comparable and thereby the application of CPM method adopted by the TPO was incorrect. 9. Briefly, in the facts relating to the issue, the assessee in the equipment division was manufacturing the items in India and the same were sold both in the domestic market and were also exported to associated enterprises. The TPO applied CUP method in view of the internal comparables available. The assessee on the other hand, had in its TP study report, had applied TNNM method as the most appropriate method. The TPO in the TP proceedings analyzed the functional comparability and other aspects of the concerns, which were selected by the assessee as comparable. The list of comparable ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Name of the Company Data Source OM 1 Axtel Industries Ltd. Prowess 9.09% 2 G E I Industrial Systems Ltd Prowess 13.56% 3 Gansons Ltd. Prowess 8.30% 4 Kilburn Engineering Ltd. Prowess 4.66% 5 Thermax Ltd. Prowess 13.92% 6 Walchandnagar Industries Ltd. Prowess 9.60% 7 Anup Engineering Ltd. Capitaline 17.34% 8 GMM Pfaudler Ltd (Chemical Process Equipment Segment) Prowess Seg 12.15% 9 BGR Energy Systems Ltd (Capital Goods Segment) Capitaline Seg 8.02% Average 10.74% ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and TNNM method is to be applied as most appropriate method. Applying the said ratio to the facts of the present case, where the TPO himself had applied TNNM method in all the earlier years starting from assessment years 2002-03 to 2007-08 and the Tribunal had directed the application of TNNM method in assessment year 2008-09, we hold that for benchmarking the international transactions in the equipment division, TNNM method is to be applied. The TPO has already considered the list of comparables selected by the assessee. In respect of comparables at serial Nos.1 and 7 being rejected for non-matching on turnover, we uphold the order of TPO. Similarly, Walchandnagar Industries Ltd. cannot be selected as comparable for different accounting period. In respect of Thermax Ltd. and GMM Pfaudler Ltd., the two concerns are not functionally comparable. Now, looking at the margins of balance four concerns which were selected by the assessee and as pointed out by the learned Authorized Representative for the assessee that the margins of said concerns are much below the margins shown by the assessee at 19.48% and consequently, no adjustment is to be made in the hands of assessee on this accoun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s. 20. The ground of appeal No.4 raised by the Revenue is against the order of CIT(A) in deleting the addition under section 14A of the Act. 21. Briefly, in the facts of the case, the assessee for the year under consideration had received dividend income of ₹ 3.46 crores, against which the assessee had computed the disallowance under section 14A of the Act at ₹ 3 lakhs. However, the Assessing Officer in turn, worked out the disallowance as per section 14A of the Act read with Rule 8D of the Income Tax Rules, 1962 (in short the Rules ) on account of both interest and expenditure expenses at ₹ 36.65 lakhs. 22. The CIT(A) deleted the said addition accepting the plea of assessee that no satisfaction was recorded by the Assessing Officer before making the aforesaid addition, as per paras 2.6.3 and 2.6.4 at page 38 of the appellate order. The relevant paras read as under:- 2.6.3 I have considered the facts and relevant provisions of the law. I find that the learned AO has invoked the provisions of the Rule 8D without discussing as to why he is not satisfied on the correctness of the claim of the deduction of ₹ 36,65,594/-. It is settled that invoking ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e aforesaid background, now, we may examine the facts of the present case. In this case, assessee has earned by way of dividends a sum of ₹ 5,45,58,685/-, which is exempt u/s 10(38) of the Act and thus the same does not form part of the total income under the Act. In the computation of income, assessee having regard to section 14A of the Act, determined the amount of expenditure incurred in relation to such income at ₹ 5,00,000/-. The Assessing Officer has not found it acceptable and has instead determined the amount of expenditure in relation to such income by applying rule 8D of the Rules. Ostensibly, the action of the Assessing Officer cannot be upheld unless he has complied with the pre-requisite of invoking rule 8D of the Rules, namely, recording of an objective satisfaction with regard to the claim of the assessee that an expenditure of ₹ 5,00,000/- has been incurred in relation to the exempt income, is incorrect. In order to examine the aforesaid compliance with the pre-condition, we have perused the para 4 to 4.2 of the assessment order and find that no reasons have been advanced as to why the disallowance determined by the assessee was found to be incorre ..... X X X X Extracts X X X X X X X X Extracts X X X X
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