TMI Blog2018 (3) TMI 1824X X X X Extracts X X X X X X X X Extracts X X X X ..... covered, in favour of the assessee, by the Tribunal s order dated 31st October 2013 in assessee s own case for the assessment year 2006-07. We see no reasons to take any other view of the matter than the view so taken by the coordinate bench. In the assessment order and DRP s order also, the stand taken in the earlier years is reiterated. Respectfully following views of the coordinate bench on this issue in respect of an earlier assessment year, we delete the impugned addition. Ad-hoc disallowance of business expenses - HELD THAT:- neither the AO nor the ld. DRP had not given any cogent reason and the basis while making ad-hoc disallowance. We, therefore, considering the totality of the facts, deem it appropriate to remand this issue back to the file of the AO to be decided afresh after proper verification from the documents furnished by the assessee before the ld. DRP, in accordance with law after providing due and reasonable opportunity of being heard to the assessee. Charging of interest u/s 234B - HELD THAT:- The point worth noting in this regard is that the Finance Act, 2012 has inserted this proviso prospectively w.e.f. 1.4.2012. Even the Memorandum explaining the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eging that such accounts are not reliable and audited. 2.3 That on the facts and in the circumstances of the case and in law, the AO / TPO / DRP have erred in arbitrarily rejecting the internal Transactional Net Margin Method ( TNMM ) as the most appropriate method used by the Appellant to benchmark the international transaction and further erred in applying external TNMM using external comparable companies. 2.4 That on the facts and circumstances of the case and in law, the AO / TPO / DRP have erred in arbitrarily selecting comparable companies based on incorrect appreciation of functional, asset and risk ( FAR ) profile. 2.5 That on the facts and circumstances of the case and in law, the AO/TPO/DRP have erred in arbitrarily rejecting certain comparable companies based on incorrect appreciation of FAR profile. 2.6 That on facts and circumstances of the case and in law, the AO / TPO / DRP have erred in ignoring the provisions of rule 10B(4) of the Rules and judicial pronouncements, which advocate use of multiple year data of comparable companies for the purpose of determination of the arm's length price. 2.7 That on the facts and circumstances of the case and in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 4.1 That on the facts and in the circumstances of the case and in law, the AO / DRP have erred in making an arbitrary and ad-hoc disallowance of business expenditure amounting to INR 2,605,000, incurred on repair and maintenance, communication and miscellaneous expenses. 4.2 That on the facts and in the circumstances of the case and in law, the DRP has erred in not admitting the details of the expenditure, placed before the DRP as additional evidence, by the Appellant during the course of hearing, without appreciating the fact that the proceedings before the DRP are but a continuation of the assessment proceedings. 5. That on the facts and in the circumstances of the case and in law, the AO has erred in charging interest under sections 234B of the Act. Each of the above grounds is independent and without prejudice to the other grounds of appeal preferred by the Appellant. The Appellant prays for leave to add, alter, vary, omit, substitute or amend the above grounds of appeal, at any time before or at, the time of hearing, of the appeal. 3. Ground No. 1 is general in nature, so do not require any comments on our part. 4. Ground Nos. 2 to 2.3 2.9 relate to the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Rules, which deals with the Transactional Net Margin Method, provides requires that the net profit margin realized by the enterprise (i.e. the assessee) from an international transaction entered into with an associated enterprise is computed in relation to costs incurred or sales effected or assets employed or to be employed by the enterprise or having regard to any other relevant base is compared with the net profit margin realized by the enterprise ( i.e. the assessee) or by an unrelated enterprise from a comparable uncontrolled transaction or a number of such transactions is computed having regard to the same base of course, subject to comparability adjustments which could affect the amount of net profit margin in uncontrolled conditions. It is not at all necessary, as the authorities below seem to suggest, that such net profit computations, in the case of internal comparables (i.e. assessee s transactions with independent enterprise), are based on the audited books of accounts or the books of accounts regularly maintained by the assessee. In our considered view, all that is necessary for the purpose of computing arm s length price, under TNMM on the basis of internal co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ze of uncontrolled transaction is too big, it may call for an adjustment for volume business. If the size of the uncontrolled transaction is too small, it may provoke an inquiry by the TPO to ensure that it is not a contrived transaction outside the normal course of business or with regard to other significant factors surrounding smallness of such transaction. However, in our considered view, in none of these cases, a comparable can be rejected on the basis of its size per se. In this view of the matter, the authorities below were clearly in error in rejecting the internal comparable, i.e. profitability of assessee s transactions with non AEs, on the ground that the volume of business with non AEs was too small vis- -vis business with AEs. In view of these discussions, as also bearing in mind entirety of the case, the assessee was quite justified in adopting internal TNMM and comparing the profit earned on its transactions with AEs with profit earned with non- AEs. Accordingly, the ALP adjustment of ₹ 2,72,42,940 deserves to be deleted. We order so. The assessee gets the relief accordingly. 9. So, respectfully following the aforesaid referred to order dated 21.02.2014 for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ic of the AO in drawing inferences, one after me other and the conclusions reached in this regard. There is no material worth the name to suggest, even remotely, that the assessee was rendering services to its head office or the Indian clients in respect of direct transactions between them. There is absolutely no bedrock for such presumption. The learned DR was required to invite our attention towards any material indicating the assessee's involvement in the direct transactions between the head office and Indian customers. In the name of reply, he took us through certain portions of the draft assessment order in which there is a reference to certain invoices of the HO indicating the role of the assessee in such direct transactions. On a careful scrutiny of the dates of such invoices, it can be seen that they relate to the financial year 2004-05 relevant to the preceding assessment year 2005-06. A copy of the assessment order for the A.Y. 2005-06 has been placid on record. It can be seen from such order dated 17.12.2007, that no addition was made in respect of such presumptions of the Assessing Officer. It is further relevant to note that the assessee's accounts were examine ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ount disallowed (RS) 1. Repaid and Maintenance 82,05,734.00 8,20,000.00 2. Communications 18,52,991.00 1,85,000.00 (including personal use of employees) 3. Miscellaneous Expenses 32,45,989.00 16,00,000.00 (breakup/summary has not been submitted) Total ₹ 26,05,000.00 18. The AO also mentioned that the objections of the assessee were addressed by the ld. DRP vide para 9. He, therefore, made the disallowance of ₹ 26,05,000/-. 19. Being aggrieved the assessee is in appeal. The ld. Counsel for the assessee submitted that the objections raised by the assessee on this issue were not adjudicated by the ld. DRP who simply stated that the various judicial pronouncements submitted by the assessee were distinguishable from the factual matrix. A reference was made to para 9 of the order passed by the ld. DRP. He further submitted that the asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d the rival submissions and perused the relevant material on record in respect of this additional ground, we find that the issue of charging interest u/s 234B in the present case is ho more res integra in view of the judgment of the Hon'ble Bombay High Court in DIT (International Taxation) v. NGC NetworkAsia LLC [2009] 313 ITR 187, in which it has been held that when the duty is cast on the payer to deduct tax at source, on failure of the payer to do no interest can be charged from the payee assessee u/s 234B. The same view has been reiterated in DIT (IT) v. Krupp UDHE GmbH [2013] 40 taxmann.com 38 (Bom.). As the assessee before us is a non-resident, naturally any amount payable to it which is chargeable to tax under the Act, is otherwise liable for deduction of tax at source. 5.3 At this juncture, it is relevant to note that the Finance Act, 2012 has inserted a proviso, at the end of section 209(1) w.e.f. 1.4.2012 which provides that for computing liability for advance tax, income-tax calculated under clause (a) or (b) or (c) shall not, in each case, be reduced by the aforesaid amount of incometax which would be deductible or collectible at source during the said financial ..... X X X X Extracts X X X X X X X X Extracts X X X X
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