TMI Blog2020 (1) TMI 1031X X X X Extracts X X X X X X X X Extracts X X X X ..... gned transaction was an international transaction requiring computation of income having regard to its arm's length price. TPO has erred by making the disallowance on ad hoc basis. Arm length price of the insurance expenses claimed by the assessee has disallowed such expenses by observing that the same is prohibited under the insurance Act - HELD THAT:- There is no power available to the TPO to verify the allowability of any business expense. As such the role of the TPO is limited to the extent of determining the arm length price of the transaction carried out by the assessee with the AE. However in the case on hand, the TPO without determining the arm length price of the insurance expenses claimed by the assessee has disallowed such expenses by observing that the same is prohibited under the insurance that. Admittedly, such expenses are prohibited under the insurance Act. But the controversy arises whether such expenses can be disallowed by the TPO in the given facts and circumstances. In this regard we note that the role of the TPO is to determine the arm length price of the transactions of insurance premium as the impugned payment was prohibited, therefore the TPO ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n of ₹ 2,16,03,797 made by the Assessing Officer ( Assessing Officer ) in relation to the arm s length price of the Appellant s international transaction as follows: 1. On the facts and circumstances of the case and in law, the learned Commissioner of Income Tax (Appeals) [ CIT(A) ] erred in confirming the addition of ₹ 1,91,90,781 in relation to determination of Arm s Length Price relating to the Appellant s international transaction of engineering design services; 2. On the facts and circumstances of the case and in law, the learned CIT(A) erred in confirming the addition of ₹ 17,15,967 in relation to determination f Arm s Length Price relating to the Appellant s international transaction of Reimbursement of Management fee expenses; 3. On the facets and circumstances of the case and in law, the learned CIT(A) erred in confirming the addition of ₹ 6,97,049 in relation to determination of Arm s Length Price relating to the Appellant s international transaction of Reimbursement of Insurance Premium; 4. The learned Assessing Officer be directed to grant (+/-) 5% benefit as available un ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Effective Group shareholding(%) Rolta International Inc. ( RUS ) USA 100 Rolta Saudi Arabia Limited ( RSA ) South Arabia 75 Rolta Middle East (FZ LLC ( RME ) UAE 100 Rolta UK Limited ( RUK ) UK 100 Rolta Beneulx B.V. Nehterlands 100 Rolta Canada Limited Canada 100 Rolta Deutschland GmbH Germany 100 10.3. The financial statement of Rolta India Ltd was for the entire group which was used as comparable of the assessee com ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ican Express (India) Pvt. Ltd. (supra), the TPO had taken consolidated results to nullify the results of AY .07-08 related party transactions but the Tribunal in a similar situation had not allowed the same on the ground that substantial revenue came from other markets which were not comparable. We, therefore, uphold the view taken by the authorities below to adopt standalone results for the purpose of comparison of margins. Consequently we also uphold the order of TPO for rejecting the above mentioned four comparables which have substantial related party transactions because the transactions in these cases could not be considered as fully uncontrolled. 10.5. In view of the above, we hold that the company namely Rolta India Ltd. cannot be considered as comparable. Accordingly, we reverse the finding of the learned DRP and direct the TPO not treat this company as the comparable for the purpose of working out the ALP of the assessee with respect to the transactions carried out with its associated enterprises. As, we have rejected Rolta India Ltd as 1 of the comparable, we do not find any reason to adjudicate the issue for the inclusion of Geomet ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 3.5. The above order of the learned DRP was not challenged by the Revenue. Moreover, the TPO has considered this company as one of the comparable by observing that the same company was considered as comparable in the assessment year 2007-08. Thus, it is transpired that the entire basis for choosing this company as comparable was the order for the assessment year 2007-08. As such, the finding of the learned DRP has reached to its finality. Accordingly, we direct the AO not consider this company as the comparable for determining the ALP. 3. Ace Software to be included 3.6. At the outset, we note that the above comparable has been included in the own case of the assessee in ITA No. 2993/AHD/2011. The relevant extract of the order reproduced as under: 10.1. Regarding the question No. 1, we find that the issue is factual in nature and accordingly we set aside to the file of the TPO to work out the actual margin of Ace software. 3.6. In view of the above, it is clear that the TPO has considered this company as one of the comparable by observing that the same company was considered as comparable i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... does not conform to any of the methods prescribed in section 92C(1) of the Act. On this count itself, the action of the TPO is suspect, even if, it is to be understood that the impugned transaction was an international transaction requiring computation of income having regard to its arm's length price. 12.3. In view of the above, we hold that the TPO has erred by making the disallowance on ad hoc basis. Accordingly we delete the addition made by the authorities below. 3.9. In view of the above, we set aside the order of the learned CIT (A) and direct the AO to delete the addition made by him. Hence the ground of appeal of the assessee is allowed. 4. The assessee during the year has reimbursed the Insurance premium of ₹ 6,97,049/- to its AE in violation of the Insurance Act. Accordingly the TPO disallowed the same and added to the total Income of the Assessee. 5. The aggrieved assessee preferred an appeal before the Ld. CIT(A) who confirmed the order of the TPO by observing as under: 8. Vide Ground No.2 of appeal, the appellant had challenged the action of TPO in making an adjustment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e given facts and circumstances. In this regard we note that the role of the TPO is to determine the arm length price of the transactions of insurance premium as the impugned payment was prohibited, therefore the TPO has made the disallowance after considering the fact that there was no benefit derived by the assessee out of such expenses. 8.2. The learned AR also before us has not brought anything on record suggesting that the assessee has derived any benefit against such expenses. Thus, we feel that the assessee fails in the benefit test for such expenses. Hence, we do not find any reason to interfere in the order of the authorities below. Thus the ground of appeal of the assessee is dismissed. 9. The next issue raised by the assessee in ground no 4 is that Ld. CIT (A) erred in denying the benefit of range (+/-5%) to the assessee. 9.1. At the outset, we note that the identical issue has been decided against the assessee in its own case in ITA No. 2993/AHD/ of this order. The relevant extract of the order reproduced as under: We have heard the rival contentions of both the parties and perused th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... w of the above we do not any reason to interfere in the finding of the DRP and accordingly uphold the order of the AO. Hence, the ground of appeal of the assessee is dismissed. 9.2. In view of the above, we respectfully following the order as discussed above, we are inclined to confirm the order of the Ld. CIT(A). Hence, the ground of appeal of the assessee is dismissed. NOW COMING TO REVENUE S APPEAL IN ITA NO 2779/AHD/2012 10. The Revenue has raised the following grounds of appeal: 1. On the facts and in the circumstances of the case and in law, the learned CIT(A) has erred in allowing the deduction of ₹ 14,63,59,948/- claimed u/s.10B of the Act without considering the fact that the assessee did not fulfill the basic conditions for claiming deduction u/s.10B of the Act. 2. On the facts and in the circumstances of the case, the learned CIT(A) ought to have upheld the order of the Assessing Officer. 3. The appellant craves leave to add to, amend or alter the above grounds as may be deemed necessary. Relief claimed in app ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ure that the income of a hundred per cent, export-oriented undertaking shall be exempt from tax for a period of five consecutive assessment year falling within the block of eight assessment years. The exemption provided under the new section is similar to the one provided to industrial undertakings operating in free trade zones. The exemption under the new provisions will be subject to the following conditions:- (i) That the unit manufactures or produces any articles or things. The term manufacture will include any processing or assembling or recording of programmes on disc, tape, perforated, media or other information storage device; (ii) That the unit has not been formed by the splitting up or reconstruction of an existing business; (iii) That it has not been formed by the transfer to a new business of machinery or plant previously used for any purpose. Unlike the provisions of section 10A of the Income-tax Act, even the existing hundred per cent export-oriented undertakings will be eligible to avail of the tax holiday for a full period of five assessment years in a block of eight years. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hmedabad Benches are also consistently subscribing this view as held in the case of Gateway Technolabs Pvt.Ltd., ITAT C Bench Ahmedabad (in ITA No.2473 2519/Ahd/2006 - AY 2003- 04) order dated 4.9.2009. 6.1. As far as the question of alleged purchase of the machinery in question is concerned, there are few facts which indicate that the AO has wrongly held that it was an outright purchase by the Chennai Unit. In this regard, the first appellate authority has given a finding of fact that it was not evident from the records that the transaction relating to the machinery constituted outright sale. Likewise, as also simultaneously in the case of M/s.Sakhi Raimondi the first appellate authority has given a clear-cut finding that lease-rentals were received, relevant order of ld.CIT(A) has already been referred supra. Because of these facts and other evidences, such as the agreement, etc. we hereby hold that the AO has wrongly presumed that the transaction in question was a purchase of machinery by Chennai Unit. Because of this finding on facts a conclusion can be drawn that the rejection of deduction u/s.10B was bad in law. 6.2 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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