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TMI Blog2020 (9) TMI 918X X X X Extracts X X X X X X X X Extracts X X X X ..... under section 143 (3) and notice under section 143 (2) and 142 (1) of the Act were issued and served on the assessee along with questionnaire calling for various details. In response, AR of the assessee filed relevant information as called for. Assessing officer observed that assessee had carried out international transactions with associated enterprises for more than Rs. 15 crores. Accordingly, the case was referred to Transfer Pricing officer. 5. The transfer pricing officer (TPO) observed that assessee is a part of Symantec Group. Assessee is a service provider engaged in providing marketing support services, general and administrative services (reported as technical support services) and software development services to the overseas Symantec Group Entities. The details of international transactions undertaken by the assessee are given below:- Sr. No. Nature of transaction Amount (Rs. Method 1. Provision of marketing support services 54,82,56,061 TNMM using OP/OC as PLI 2. Provision of general and administrative services 4,16,73,240 3. Provision of software development services (R & D fees) 11,38,13,387 TNMM using OP/OC as PLI 4. Reimbursement of expenses to A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ved that the note states that "unallocated expenses are allocated in the ratio of segmental revenue". He observed that the assessee has done an arbitrary reduction in operating cost in the TP study, when the audited financials clearly state that no income or expense is pending allocation. Accordingly he reduced Rs. 46.03 lakhs from the operating cost as not allowed. 10. The assessing officer issued a draft assessment order with the TP adjustment of Rs. 1,65,42,882/- to the assessee. Aggrieved with the above order, assessee filed objections before the DRP. After considering the detailed submissions of the assessee DRP accepted the contention of the assessee relating to objection on inclusion of comparable company M/s E-Zest Solutions Limited and accordingly directed the TPO to not to be taken as comparable. DRP rejected all other objections raised by the assessee. Accordingly, AO passed the final assessment order with the TP adjustment of Rs. 1,43,97,187/-. 11. Aggrieved with the above order, assessee is in appeal before us raising 8 grounds of appeal. At the time of hearing, Ld. AR submitted that assessee is pressing ground No. 3 and ground No. 4. All other grounds are not press ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t to our notice Hon'ble High Court of Delhi in the case of PCIT versus M/s Cadence Design Systems ITA 333/2019 in which Hon'ble High Court rejected the company Infosys as comparable company for the purpose of TP study. The above case was referred to Hon'ble Supreme Court and Hon'ble Supreme Court dismissed the SLP filed by the revenue. The copy of the respective decisions are placed at page 657 and 658 of the paper book. He also brought to our notice decision of the ITAT, Hyderabad bench in the case of AMD Research & Development Centre India Private Limited. The copy of the decision is placed at page 668 of the paper book. He also brought to notice other decisions of ITAT Mumbai benches and prayed that this company should be deleted as a comparable company to the assessee. 14. With regard to ground No. 4, Ld AR submitted that assessee has claimed amortization of goodwill during this year to the extent of Rs. 45,51,139/- (refer page 17 of the paper book) and brought to our notice the fixed assets schedule as per Companies Act and page 192 of the paper book, which is computation statement, in which assessee has disallowed the total depreciation/amortization claimed as per Companies ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... expenditure of Rs. 7,42,20,575/- during the impugned assessment year and has itself disallowed the same while computing its taxable income. Therefore, we agree with the submissions of the learned counsel for the assessee that the provisions of section 92 are not applicable. We also find force in the submission of the learned counsel for the assessee that there cannot be double disallowance/addition of the same amount. We, therefore, are of the opinion that although the transaction between the assessee and its AE falls within the meaning of an international transaction still no adjustment on account of ALP can be made since the assessee has suo moto added the amount while computing its taxable income for the impugned assessment year and no benefit of the same has been taken in either by capitalizing it and claiming depreciation on it or taken benefit in subsequent years. Ld AR submitted that the case before us is similar. Further he brought to our notice page 518 of the paper book, in the case of Pole to Win India Private Limited versus DCIT (IT (TP) A No. 1275/Bang/2010, In the similar situation ITAT Bangalore A bench held that expenses disallowed should be excluded from operating ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s reported at schedule No. 28 of schedules to the financial statements. In the above schedule assessee has reported the total revenue and segmental expenses to both the segments and kept the unallocable expenses/income as nil. As far as the segment relevant for TP study that is R&D segment, it has reported total operating revenue of Rs. 11,38,13,387/- and total operating expenses of Rs. 10,62,22,514/- and declared operating profit of Rs. 75,90,873/-. However, while doing the analysis of segmental margin, which is placed at page 165 of the paper book. The assessee has reworked the segmental margin and arrived at the operating profit at 12%. In this study assessee has reported segmental profits as per the schedule 28 reported above that segmental profit at Rs. 75,90,873/- for the software developments services and it has reduced the unallocated expenses from profit and loss account to segmental expenses to the extent of Rs. 46,03,418/- (it includes amortisation of goodwill of Rs. 45,51,139/-). As per the note 1 given in the analysis sheet, it states that "unallocated expenses are allocated in the ratio of segmental revenue". We noticed that assessee has allocated the unallocated expe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nses in the operating revenue basis, we will know the exact operating profit from the segment and then the TP analysis can be carried out based on the updated segment results. Accordingly, we are directing AO/TPO to calculate the updated segment results and do TP adjustment. Accordingly, the ground raised by the assessee is partly allowed. ITA No. 1906/mum/2017 for AY 2012-13 22. At the time of hearing, learned AR submitted that assessee is pressing the ground No. 4 and 5 only and rest of the grounds are not pressed. Accordingly, the ground No. is 1, 2, 3, 6 to 11 are dismissed as not pressed. 23. With regard to ground No. 4, we noticed that the ground No. 4 is similar to the ground No. 4 argued by Ld. AR for the assessment year 2011 - 12. The facts and issue are similar except during this assessment year the assessee has reported amortisation of goodwill of Rs. 68.27 lakhs and achieved segmental revenue to total operating revenue of 25.96% compared to previous year ratio of 14.85%. Since the facts and issues are similar to the previous year, we direct TPO/AO to follow the direction as per para no 21 above. Accordingly, the grounds raised by the assessee is partly allowed. 24. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ve reversal of losses. Since the assessee offered the above in income voluntarily, AO accepted the same and added the above into the taxable income of the assessee and issued the draft assessment order. After DRP order, while passing the final order under section 143 (3) r.w.s 144C (13) of the Act, AO has not considered the above said addition. The assessee filed application under section 154 of the Act, brought to the notice of assessing officer, the above defect, accordingly the assessing officer passed the order under section 154 rectifying the above mistake. 25. The assessee filed objection before the DRP that assessee has voluntarily offered the foreign-exchange loss while filing revised return of income, therefore the segmental result originally filed by the assessee has to be modified since assessee has offered this loss of foreign exchange during assessment proceedings and it requested that the operating expense has to be reduced to the extent of foreign exchange loss declared in segmental results. The DRP rejected the contention of the assessee and retained the transfer pricing adjustment made by the TPO. Aggrieved with the above order, assessee is in appeal before us ris ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eliminated from the operating expenses. we are in agreement with the submission of the Ld. AR that this reversal of expenditure will have a direct impact on operating expenses declared by the assessee. When the AO accepts the segment reporting reported by the assessee and forex loss as part of operating expenses, the same expenses were surrendered by the assessee as non-deductible expenses then, this expenses should also be removed from the operating expenses in the segment statement. Accordingly, we direct TPO to eliminate the forex loss declared by the assessee as operating expenses and rework the operating profit of the R&D segment. Since the assessee has declared Rs. 71.18 lakhs as Forex loss for this segment and we noticed that assessee has declared the loss voluntarily, we direct TPO to remove the forex loss from the calculation and then rework the operating profit of the segment and do the TP adjustment accordingly. Considering the above discussion, we allow the ground No. 5 raised by the assessee.
29. In the net result, both the appeals filed by the assessee are partly allowed.
Order pronounced in the open court on 15.09.2020. X X X X Extracts X X X X X X X X Extracts X X X X
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