TMI Blog2019 (5) TMI 1536X X X X Extracts X X X X X X X X Extracts X X X X ..... s in the direct consumer audio systems whereas the assessee has been dealing with the industrial goods business to business, thus exclude the Bose Corporation from the list of comparables for benchmarking the international transactions. Disallowance u/s 14A - suo moto disallowance by assessee - as contended by the assessee that Section 14A is applicable only when the exempt income is actually received or receivable during the assessment year but not on the notional income and that the value of investment which have yielded exempt income has to be separately carved out from other investment which has not yielded any income - HELD THAT:- It is an admitted fact that the assessee themselves disallowed a sum of ₹ 3,03,958/-. There is no dispute on the contention of the assessee that except BSL Dynamic Bond Retail, all other investments are taxable. Further, it also remains to be an admitted fact that similar additions made in earlier years is deleted by the ld. CIT(A) and no further appeal to the ITAT was preferred by the Department. In these circumstances, we find that the directions of the DRP for deletion of this addition is in consonance with the ratio laid down in the case ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... In its TP study report, the assessee used RPM and MAM to benchmark its international transactions taking GP/Sales as PLI. The assessee worked out its profit margin at 17.75%. TPO rejected economic analysis of the assessee, selected his own following comparables: S. No. Name of the comparables Margin (GP/Sales)(in %) 1 AGC Networks ltd. 17.93 2 B eetel Teletech Ltd. 20.14 3 D - link Ltd. 28.46 4 Ricoh India Ltd. 2 4.64 5 S Mobility Ltd. 23.16 6 Bose Corpropation India Ltd. 44.16 7 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 9. Ld. DRP noticed the ISO 9001 Certificate issued by Det Norske Veritas ( DNV ) a Netherland based certification agency the business profit of Dynalog (India) Ltd. which shows that the Dynalog was into the manufacturing and supply of data acquisition caress, educational trainer kits and industrial communication cards and also assembly and supply of industrial computers and work stations. Learned DRP found that this company is functionally different and cannot be a good comparable. 10. It is argued before us by the learned DR that this company is into the manufacturing also as is evident from the financials of the company and its income comprises of the income from services and both these things are absent in so far as the assessee is concerned. Learned DR submitted that though the financials of the company speak to the possession of the factory premises, no manufacturing activity was being carried out there and even in such a case adjustment can be given to mitigate the effect of factory premises in the P L by appropriately reducing the claim of depreciation that will only lead to the enhancement of the margin of this comparable. He further argued thatt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e manufacturing industrial primarily and in no way connected to the domestic concern. Assessee contended that Bose Corporation India Ltd. should be excluded solely for the difference in the products traded. On this aspect, assessee further contended that the Madura Garments selected by the assessee was rejected by the ld. TPO for the very same reason involved in respect of Bose Corporation. Assessee further contended before the ld. TPO that the balance sheet along was supplied by the TPO without the detail of profit and loss account for the Financial year 2010-11 due to which the assessee was not in a position to calculate the g.p. of the same. Assessee also brought certain discrepancies in the financials shared by the TPO like at page no.33 of the financials trading sales were quantified at ₹ 1,37,57,50,000/- whereas Note A immediately below the table shows the trading sales at ₹ 1,33,36,76,724/-. Lastly, assessee contended that for want of complete financial data calculated for the purposes of application of filters cannot be done and due to that reason Bose Corporation India ltd. cannot be taken to be a good comparable. 14. Learned TPO held that the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cluding on building of the Bose Brand , against the assessee who being a trader of industrial products spends a nominal amount i.e. 1.20% of sales on sales and promotion.Bose, because of the type of goods it deals in i.e. high end consumer products, for the purposes of building its brand and image and to promote its products, has to have and in fact has its show rooms at expensive market places. Bose, during FY 2009-10 spent ₹ 9.43 Crores on rents when the assessee's business does not need any show rooms except for the limited purposes of displaying its machines (which constitute less than 10% of the total sales). In any case, assessee s rental constitutes 1.30% of Turnover compared with 8.66 % in the case of Bose. 18. It is submitted by the Ld. AR that if at all this company has to be taken as a comparable, then its GP Rate needs to be reduced by the expenses on Sales Promotion, Brand Building and Rentals to bring it at par with the assessee on functionality and risk criteria. So, seeing the trend in AY 2010-11, GP Rate of Bose at 42.42% needs to be reduced by 16.77% (Expenses on AMP 8.10% and Rent 8.66%). Thus, the correct GP rate to be included for com ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... which Ld. AO placed reliance in his order, it is brought to our notice that in PCIT vs IL FS Energy Development Co. Ltd. (2017) 399 ITR 483 (Del), the Hon ble jurisdictional High Court quashed the same. In view of the same, we do not find any merit in Ground No.6 which is liable to dismissed and is dismissed as such. 24. Lastly coming to the deletion of the disallowance amounting to ₹ 28,75,000/- u/s 14A of the Act, it is contended by the assessee that Section 14A is applicable only when the exempt income is actually received or receivable during the assessment year but not on the notional income and that the value of investment which have yielded exempt income has to be separately carved out from other investment which has not yielded any income. Learned AR submitted that after applying these principles, the disallowance would not be more than ₹ 3,03,958/- which the assessee disallowed suo moto and, therefore, no further disallowance is justified. 25. Learned DR submitted that Section 14A refers to such expenditure in relation to income which does not form part of the total income and, therefore, it is irrelevant whether the assessee ea ..... X X X X Extracts X X X X X X X X Extracts X X X X
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