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2019 (5) TMI 679

ssion Agreement dated 01.12.2007 existed between the assessee and TTPL and as per clauses of the said agreement, it was clear that TTPL was facilitating purchases in respect of assessee from Dassault, UK. It was responsibility of TTPL to undertake marketing efforts to telemarketing and inbound enquiries through its dedicated support. The assessee had further furnished evidences demonstrating that the purchase of software license was done by the assessee from Dassault, UK and TTPL was facilitating the entire process in ensuring smoothing selling of transactions. In view of tangible evidence filed by assessee, the Tribunal held that payment of commission was justified. Following the same parity of reasoning, we hold that no upward adjustment merits to be made in the hands of assessee, where the commission rate of 6% has been found by the Tribunal to be appropriate and the learned Departmental Representative for the Revenue has failed to bring on record any evidence to the contrary - delete the addition made on account of arm's length price of international transactions undertaken by the assessee. Disallowance of amortization of premium paid on leasehold land - HELD THAT: .....

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l information which is also audited in the case of assessee, though filed during TP proceedings / DRP proceedings but the same cannot be brushed aside on the ground that the assessee in the TP study report has worked out the margins at entity level. In this developing scenario of transfer pricing, it is necessary to implement and apply the law as it develops. Merely because the assessee had in the TP study report applied margins at the entity level, it cannot be precluded from furnishing segmental details during TP proceedings or DRP proceedings in order to benchmark the margins of its international transactions on the basis of segmental profitability of AE segment. The fact which needs to be kept in mind is the turnover of assessee, which in the AE segment was ₹ 295 crores and in non AE segment was ₹ 467 crores i.e. out of total revenue of ₹ 764 crores, only ₹ 295 crores was attributable to AE segment. We find no merit in the orders of authorities below in benchmarking international transactions on entity level. Accordingly, we accept the plea of assessee that segmental details are to be adopted and margins of segment of AE transactions are to be comp .....

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he Appellant for demonstrating the arm's length nature of the commission paid to Associated Enterprises ('AEs'). The Appellant prays that the economic analysis conducted by the Appellant ought to be upheld. Ground No.3 3. On the facts and in the circumstances of the case, and in law, the Hon'ble DRP / Ld. AO, erred in re-computing the Arm's Length Price ('ALP') of the Appellant's international transaction pertaining to payment of commission to AE at 'Nil'. The Appellant prays that the said re-computation ought to be deleted. Ground No.4 4. On the facts and in the circumstances of the case, and in law, the Hon'ble DRP / Ld. AO, erred in contravening the principle of consistency in connection with determining the ALP of the Appellant's international transaction pertaining to payment of commission to AE. The Appellant prays that the principle of consistency be upheld and the adjustment made by the Hon'ble DRP / Ld, AO ought to be deleted. Ground No.5 5. On the facts and in the circumstances of the case, and in law, the Hon'ble DRP / Ld. AO, erred in rejecting the comparable uncontrolled data submitted by the Appellant to demonstr .....

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llant prays that the penalty proceedings ought to be dropped. 4. The ground of appeal Nos.1 to 5 raised by assessee are against transfer pricing adjustment made on account of payment of commission. The learned Authorized Representative for the assessee pointed out that the issue is squarely covered by the order of Tribunal in assessee s own case in assessment year 2012-13. 5. Briefly, in the facts of the case, the assessee was engaged in providing services of CAD/CAM engineering and design consultancy, SAP implementation and maintenance, IT consultancy and providing networking solutions. The Transfer Pricing Officer (TPO) noted that the assessee was responding to its customers needs through its subsidiary in three continents and through its offshore development centre in India. The assessee s customers were world premium automotive aerospace and consumer durable manufacturers. The assessee had entered into various international transactions with its associate enterprises including payment of commission to its associate enterprises. The TPO notes the nature of payments on commission of ₹ 4.65 crores to associate enterprise Tata Technologies Pte. Ltd. (in short TTPL ). The case .....

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see, the Tribunal held that payment of commission was justified. Following the same parity of reasoning, we hold that no upward adjustment merits to be made in the hands of assessee, where the commission rate of 6% has been found by the Tribunal to be appropriate and the learned Departmental Representative for the Revenue has failed to bring on record any evidence to the contrary. Applying the said parity of reasoning to the facts of present case, we direct the Assessing Officer to delete the addition made on account of arm's length price of international transactions undertaken by the assessee. 7. Now, coming to the next issue which is raised vide ground of appeal No.6 i.e. disallowance of amortization of premium paid on leasehold land. 8. The learned Authorized Representative for the assessee pointed out that the said issue stands covered by the order of Tribunal in assessment years 2001-02 and 2003-04, which has been applied in assessment year 2012-13. The said issue raised of disallowance of amortization of premium paid on leasehold has been decided by the Tribunal with lead order in ITA No.1345/PN/2011, relating to assessment year 2001-02 vide paras 43 to 46 at pages 14 an .....

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77; 14,34,29,601/- and also ₹ 16,81,61,491/- on account of claim of exemption of 10AA of the Act. The Assessing Officer further notes the assessee to have claimed interest expenditure of ₹ 1.61 crores and he further noted that the assessee s average investments in exempt earning instruments were ₹ 230 crores. The Assessing Officer further notes the assessee to have disallowed only ₹ 39,32,077/- under section 14A of the Act. The Assessing Officer thus, recorded satisfaction that Looking at the financials of the assessee, the disallowance u/s 14A made by the assessee suo-moto is inadequate. Therefore, vide order sheet entry, show cause notice was issued to the assessee Why the disallowance of interest expenses relatable to exempt investment should not be made u/s 14A read with Rule 8D. In reply, the assessee explained its case. However, the same were found to be not acceptable. The submission of assessee was that it had huge interest funds for investments and it also earned interest, so no disallowance was warranted. The Assessing Officer notes that it was undeniable that the assessee had claimed interest cost on borrowed funds and the disallowance made by it .....

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d vide ground of appeal No.9 is the claim of enhanced deduction under section 10A of the Act. 19. The plea of assessee in this regard is that enhanced deduction should be granted in case any corporate tax addition is made in the hands of assessee excluding transfer pricing additions. In this regard, reliance was placed on the ratio laid down by the Hon ble Bombay High Court in CIT Vs. Gem Plus Jewellery India Ltd. reported in 330 ITR 175 (Bom). 20. The learned Departmental Representative for the Revenue fairly admitted that the said computation of deduction under section 10A of the Act was covered. 21. We find that the issue raised vide ground of appeal No.9 is squarely covered by the ratio laid down by the Hon ble Bombay High Court in CIT Vs. Gem Plus Jewellery India Ltd. (supra). Accordingly, we hold that the assessee is entitled to enhanced deduction under section 10A of the Act on account of corporate tax additions made in its hands. We direct the Assessing Officer to re-compute the aforesaid deduction under section 10A of the Act. Accordingly, ground of appeal No.9 is allowed. 22. Now, coming to appeal of assessee in ITA No.1708/PUN/2018, relating to assessment year 2014-15, w .....

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by rejecting functionally comparable companies selected by the Appellant in the TP study report. The Appellant prays that the filter of export sales to total sales less than 75% ought to be rejected since the Appellant's export sales to total sales is only 28.93%. 6. On the facts and in the circumstances of the case, and in law, the Ld. AO/ Ld. DRP/ Ld. TPO erred in considering Eclerx Services Limited as a comparable company by - not appreciating the functional differences of the said company vis-a-vis the Appellant; and - not appreciating that the said company has earned an abnormal / volatile margin during the current financial year. The Appellant prays that Eclerx Services Limited ought to be rejected as a comparable company from the benchmarking set. 7. On the facts and in the circumstances of the case, and in law, the Ld. AO/ Ld. DRP/Ld. TPO erred in considering operating profit / operating cost ('OP/OC') as the profit level indicator ('PLI') as against operating profit/operating income ('OP/Sales') considered by the Appellant in its TP study report. The Appellant prays that OP/Sales considered by the Appellant in its TP Study ought to be considered .....

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ct of amortization of premium on leasehold land amounting to INR 4,30,886. The Appellant prays that the addition of amortization of premium on leasehold land ought to be deleted and the same ought to be allowed as revenue expenditure. 13. On the facts and in the circumstances of the case, and in law, the Ld. AO/Ld. DRP erred in disallowing the provision for expenditure in respect of Bhavishya Kalyan Yojana ('BKY'), an employee welfare scheme amounting to INR 41,27,000. The Appellant prays that deduction in respect of the provision made for BKY expenses should be allowed as an ascertained liability. 14. On the facts and in the circumstances of the case, and in law, the Ld. AO/Ld. DRP erred in invoking section 14A and computing a disallowance of INR 2,44,42,331 by applying Rule 8D of the Income tax Rules, 1962 ignoring the suo-moto disallowance offered by the Appellant amounting to INR 41,51,114 directly attributable to the exempt income. The Appellant prays that the disallowance made under Section 14A of the Act by applying Rule 8D ought to be deleted. 15. On the facts and in the circumstances of the case, and in law, the Ld. AO/Ld. DRP erred in disallowing the provision deb .....

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ty of hearing to the assessee. 27. The ground of appeal No.15 is against disallowance of provision made for expenditure in respect of medical insurance scheme for employees at ₹ 86,48,000/-. The learned Authorized Representative for the assessee fairly pointed out that the issue stands covered against assessee by the order of Tribunal in assessee s own case for assessment year 2003-04 (supra). 28. We find that the Tribunal vide paras 70 to 87 at pages 24 to 34 of order had decided the said issue in assessment year 2003-04 against the assessee. Following the same parity of reasoning, we uphold the order of Assessing Officer / DRP and dismiss ground of appeal No.15. 29. The issue raised vide ground of appeal No.16 is against enhanced deduction under section 10AA of the Act. We have already adjudicated this issue in assessment year 2013-14 vide ground of appeal No.9 and following the same parity of reasoning, we direct the Assessing Officer to apply the ratio laid down by the Hon ble Bombay High Court in CIT Vs. Gem Plus Jewellery India Ltd. (supra). 30. The issue raised vide ground of appeal No.17 is against initiation of penalty proceedings under section 271(1)(c) of the Act i .....

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ed the issue that Eclerx Services Ltd. is engaged in diversified fields and the said concern should be excluded but since the issue would be academic if issue of segmental details are considered, then this issue does not need adjudication. 35. The learned Departmental Representative for the Revenue on the other hand, relied on the orders of Assessing Officer / DRP. 36. We have heard the rival contentions and perused the record. Briefly, in the facts of the case the assessee had segregated its operations into two segments i.e. Design Engineering and Software Distribution. The assessee had submitted segmental financial information for the two segments. The Software Distribution Segment included the commission payment to associate enterprise, which we have already decided in the paras hereinabove. 37. Now, coming to second segment of Design Engineering Services, the assessee has shown PLI at 27.99%. The assessee had applied data of three years of comparables and had declared that its international transactions were at arm's length. The TPO however, asked the assessee to apply data of contemporaneous period. However, the TPO also came to the conclusion that none of concerns selecte .....

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ransactions by adopting data at the entity level. However, segmental information in this regard were filed before the Assessing Officer and audited segmental information was filed before the DRP and both the authorities have not accepted the same. 38. The question which arises is whether where the assessee is carrying on its business activities with AEs and non AEs, in order to benchmark its international transactions with AEs, the information is to be applied on entity level or where segmental information is available, whether the same is to be applied to work out the margins in the hands of assessee. 39. Under the provisions of section 92C of the Act for computation of arm's length price, benchmarking has to be done of all the international transactions of assessee with its AEs and consequently, segmental details of AE segment is to be applied and not results at entity level. Where the assessee has provided segmental information which is also audited in the case of assessee, though filed during TP proceedings / DRP proceedings but the same cannot be brushed aside on the ground that the assessee in the TP study report has worked out the margins at entity level. In this develop .....

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