TMI Blog2019 (5) TMI 679X X X X Extracts X X X X X X X X Extracts X X X X ..... te 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:- The said issue raised of disallowance of amortization of premium paid on leasehold has been decided by the Tribunal with lead order relating to assessment year 2001-02 [ 2015 (8) TMI 557 - ITAT PUNE] we hold that the said expenditure is not allowable in the hands of assessee. - Decided against assessee Disallowance of provision made for expenditure in respect of Bhavishya Kalyan Yojana - HELD THAT:- Said issue has been decided against the assessee as relying on assessee's own case [ 2015 (8) TMI 557 - ITAT PUNE] Disallowance made u/s 14A read with Rule 8D - HELD THAT:- The first plea of assessee is that it had own funds which were more than its investments and hence, no disallowance under Rule 8D(2)(ii) of the Rules. This argument of assessee needs verification at the end of Assessing Officer.Accordingly, we direct the Assessing Officer to verify t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rores, 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 compared with margins of comparables selected. In this regard, the assessee has explained that even if the margins of Eclerx Services are applied, which though he claims to be not functionally comparable, but still margins shown by the assessee would be within +/- 5% range and no adjustment needs to be made in the hands of assessee on account of said segment of Design Engineering Services. The Pune Bench of Tribunal in Tieto IT Services India (P.) Ltd. Vs. DCIT [ 2018 (3) TMI 940 - ITAT PUNE] had also in similar circumstances directed the application of segmental profitability while benchmarking its international transactions with AEs. Accordingly, the ground of appeal No.2 raised by assessee - ITA Nos.168 And 1708/PUN/2018 - - - Dated:- 3-5-2019 - Ms. Sushma Chowla, JM And Shri Anil Chaturvedi, AM For the Assessee : Shri Dhanesh Bafna ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n 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 demonstrate the ALP of international transaction pertaining to payment of commission to AE. The Appellant prays that the comparable data submitted by the Appellant ought to be accepted and consequently the transfer pricing adjustment made be deleted. Corporate Tax Grounds Ground No.6 6. On the facts and in the circumstances of the case, and in law, the Hon'ble DRP / Ld. AO, has erred in d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he 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 of assessee was that it was paying said commissio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hile passing draft assessment order notes that the assessee had shown dividend income of ₹ 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ich have yielded dividend income. The Assessing Officer shall afford reasonable opportunity of hearing to the assessee in this regard. The ground of appeal No.8 is thus, allowed for statistical purposes. 18. The last issue raised 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 cor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... segment and thereby rejecting functionally comparable companies selected by the Appellant in the TP study report. The Appellant prays that the turnover filter applied at 1/10th to 10 times of the Appellant's turnover in DES segment ought to be rejected. 5. On the facts and in the circumstances of the case, and in law, the DRP/ Ld. AO/Ld. TPO erred in applying export sales to total sales less than 75% as a filter in the benchmarking analysis and thereby 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 finan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Appellant; c) ignoring that the Appellant is not required to establish the benefit arising out of the said services; d) rejecting the comparability analysis carried out by the Appellant to demonstrate Arm's Length Price ('ALP') without giving any finding on the comparable companies adopted; and e) not applying any of the prescribed methods for benchmarking the transaction and not providing any valid comparable uncontrolled transaction to determine the ALP. The Appellant prays that the TP analysis conducted by the Appellant ought to be accepted and consequently the TP adjustment ought to be deleted. Corporate Tax Grounds 12. On the facts and in the circumstances of the case, and in law, the Ld. AO/Ld. DRP erred in disallowing the claim of the Appellant in respect 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 circumstanc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pricing adjustment made for payment to commission to associate enterprise. We have already adjudicated this issue while deciding ground of appeal Nos.1 to 5 in assessment year 2013-14 and following the same parity of reasoning, the issue is allowed in the hands of assessee. 25. The issue raised in ground of appeal Nos.12 and 13 is on account of claim of amortization of premium paid on leasehold land and allowance of provision made for expenditure in respect of Bhavishya Kalyan Yojana has also been addressed while deciding ground of appeal Nos.6 and 7 in assessment year 2013-14. Both these issues stand decided against assessee. Hence, ground of appeal Nos.12 and 13 are dismissed. 26. The issue in ground of appeal No.14 is disallowance made under section 14A of the Act read with Rule 8D of the Rules. We have already adjudicated this issue raised vide ground of appeal No.8 in assessment year 2013-14. Following the same parity of reasoning, we direct the Assessing Officer to follow our directions and re-compute disallowance under section 14A of the Act, if any, after affording reasonable opportunity of hearing to the assessee. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he TPO filed segmental details of AE segment. However, the TPO rejects the same since the accounts were not audited. The DRP also rejected the same as the assessee himself in the TP study report had taken entity level results. 34. The learned Authorized Representative for the assessee pointed out that though before the DRP, audited segmental accounts were filed but DRP rejects the claim of assessee. In this regard, he stated that the law does not require data of segmental details to be audited, however, before the DRP, it filed segmental details and as per the segmental details, the margins of assessee for AE segment worked out to 44.44%. Our attention was drawn to page 287 of Paper Book, under which segmental details are provided. The learned Authorized Representative for the assessee stressed that DRP / TPO should have accepted segmental details. He then, referred to provisions of section 92 of the Act and pointed out that requirement is to benchmark international transactions with associated enterprise and then may make or delete addition. He stressed that segmental accounts are to be adopted and margins of segmental to be compared with margins of c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... P noted that the assessee had furnished additional evidence in the form of certificate for segmental breakup, from which it was clear that services to associated enterprise were at ₹ 295 crores vis-a-vis third party at ₹ 467 crores. The assessee thus, proposed that operating margins using segmental details should be adopted. The DRP did not find any merit in accepting any additional evidence contrary to the basic study conducted in the statutory requirement under Form No.3CEB audit report. The claim of assessee of proportionate adjustment for computing arm's length price was also rejected. The Assessing Officer passed final assessment order, against which the assessee is in appeal. The assessee has raised several issues against transfer pricing in its hands, but at the outset, it has been pointed out by the learned Authorized Representative for the assessee that in case ground of appeal No.2 is allowed i.e. audited segmental information is applied for benchmarking international transactions, then no adjustment remains to be made in the case of assessee. But as pointed out earlier, the assessee in this segment had transactions with AE to the extent of ₹ 295 cro ..... X X X X Extracts X X X X X X X X Extracts X X X X
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