TMI Blog2019 (7) TMI 1827X X X X Extracts X X X X X X X X Extracts X X X X ..... m this Tribunal for the assessment year 2007-08 in favour of upholding the AEs segment results and the same is not in favour of the entity level results of the assessee. It is a fact that the TPO himself rejected the entity level margins and computed the PLI for the assessment years 2010-11 and 2011-12. On hearing the assessee on one side and the arguments of the ld. DR for the Revenue, who relied on the order of the Assessing Officer/TPO/DRP, we are of the opinion, the violation caused to the principle of consistency is not proper. Therefore, we are of the opinion the same should be allowed in favour of the assessee. Segmental profits relates to the PLI of the export sales of RTS food - correctness of the segmental profits and the PLI of the export sales of RTS food - HELD THAT:- As assessee maintained books of account for both the segments separately. The apportionment of expenses is an integral part of the said limb. While allocating the certain common expenses, the assessee relied on profit to sale basis, which is an approved method of allocation of the common expenses between the segments. No sustainable reason is mentioned as to why such a basis is unsustainable. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the calculation of PLI qua the operating income and operating expenses - HELD THAT:- AO is directed to consider the bad debts claim is an operational cost and calculate the PLI of the assessee as per the procedure. Regarding the operating expenses it is our finding that the claim of the assessee is not allowable considering the failure of the assessee in discharging the onus by furnishing the evidences and the criteria for quantifying such amount. The effect of the said decision is going to increase the income of the assessee. Thereby, the operating income stands increased by the said sum - Assessing Officer is directed to consider the same as operating income while calculating the PLI of the assessee. Treatment to be given to the export incentives - case of the assessee is that the same constitutes an operational income and the same claim was accepted by the authorities in many assessment years in the past - HELD THAT:- Considering the principle of consistency, we are of the opinion the assessee s claim should be allowed in his favour.Accordingly, the export incentive needs to be included in the operational income for PLI computation. Thus, the said issue raised in ground n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pellant incorrectly by not considering export incentive as part of operating income though the same was considered as Operating Income in the order of TPO u/s 92CA of the Act. Ground 4 - +/-5 percent benefit not granted On the facts and circumstances of the case and in law, the learned AO, based on the directions of the Hon'ble DRP, has erred in not granting the benefit of +/-5 percent variation specified in the proviso to section 92C(2) of the Income-tax Act, 1961. Corporate Tax Grounds: Ground 5 -Disallowance of provision of ₹ 10,00,000/- and bad debts written off of' ₹ 10,14,691 On the facts and in the circumstances of the case and in law the AO has erred in disallowing: 5.1 A provision of ₹ 10,00,000; 5.2 A bad debts written off of ₹ 10,14,691; 5.3 Without prejudice to the above, and in the alternative, the AO has erred in disallowing the provision that the same is without any basis without any liability and bad debts stating that the same is with respect to parties with which the Assessee has ongoing transactions, while continuing to treat these items as operating for computing the PLI of the Appellant for transfe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ₹ 9,75,84,476/- vide his order dated 29.11.2015 u/s 92CA(3) of the Act. Considering the aforesaid adjustments, the Assessing Officer prepared draft assessment order dated 20.03.2015 u/s 144C(1) of the Act. Assessing Officer made two other Non-TP additions on account of (i) Sundry balances written off amounting to ₹ 10,00,000/- and (ii) Bad debts amounting to ₹ 10,14,691/-. Other issues for adjudication includes (i) the issue of consideration of the said two items of claim as part of the operational expenses; (ii) consideration of finance cost/bank interest as the non operational expenses; and, (iii) consideration of Export incentive as part of the operational income. The matter travelled to the DRP. 7. Before the DRP, assessee raised issues relating to the issue of entity level, segmental PLIs, inclusion of operating income/cost etc. The DRP dealt with the issues relating to the need for going for entity level margins of the assessee and analyzed the dispute on the allocation of expenses between the RTS and the FFP segments of the assessee. DRP considered the fact that the assessee followed the (PLI) segmental data for the assessment years 2007-08 to 2011-12 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s is relevant. In this regard, the assessee mentioned that the said expenditure was incurred towards the payment of loans taken from bank and others and the same is non-specific in the profits of the year. Further, referring to the treatment given to such expenses in the past assessment years i.e. assessment year 2011-12, assessee informed the Revenue that same was considered by the TPO and accepted the claim of assessee i.e. non-operating expenditure only. Mentioning the said expenditure was erroneously considered for inclusion in the operational cost by the TPO for the year under consideration, the assessee submitted for treating the same as non-operating expenses. The orders of the Tribunal in assessee s own case in the previous assessment years 2007-08 to 2010-11 was also submitted supporting to the above proposition. The claim of the assessee is allowed. Rule 10TA of the Safe Harbour Rules of the Act was also submitted in support of the claim of non-operating cost. The fact that such expenditure was considered as non-operating expenses by the TPO himself for the later assessment year 2014-15 was also informed. C. Further, referring to the export incentives as an operating ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pressed before DRP. Thus, the Assessing Officer made the final assessment order on 29.01.2016 quantifying the total income at ₹ 6,68,75,491/- against the returned income of ₹ 2,03,16,825/-. The relevant computation as given in para 13 of the final assessment order is extracted hereunder :- 13. Subject to the above remarks, the total income of the Assessee Company is computed as under :- COMPUTATION OF TOTAL INCOME Total income as per return of income ₹ 2,03,16,825/- Add: Disallowance/additions i) Transfer Pricing adjustment ₹ 4,45,43,975/- ii) Disallowance of provision ₹ 10,00,000/- iii) Bad Debts written off ₹ 10,14,691/- Total Income ₹ 6,68,75,491/- 8. Thus, the assessee aggrieved with the order of the TPO/DRP so far as rejection of (i) segmental data of the RTS segment and adopting of the entity level PLI computation; (ii) treatment of the export incentives as nonoperation income; (iii) t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fore, on hearing ld. Counsel for the assessee on one side and the arguments of the ld. DR for the Revenue, who relied on the order of the Assessing Officer/TPO/DRP, we are of the opinion, the violation caused to the principle of consistency is not proper. Therefore, we are of the opinion the same should be allowed in favour of the assessee. Accordingly, relevant grounds no.1, 2 2.1 are allowed. (B) Segmental profits relates to the PLI of the export sales of RTS food 10. Regarding another limb relating to the correctness of the segmental profits and the PLI of the export sales of RTS food, we are of the opinion the assessee maintained books of account for both the segments separately. The apportionment of expenses is an integral part of the said limb. While allocating the certain common expenses, the assessee relied on profit to sale basis, which is an approved method of allocation of the common expenses between the segments. No sustainable reason is mentioned as to why such a basis is unsustainable. The certificate issued by the Cost Accountant and the basis adopted for allocation of expenses is not an unusual basis. The ld. DR could not file any evidence or case l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ee continues to have considered in transactions with the said debtor. However, there is no dispute on the fact the amounts were written off in the books of the assessee. The assessee relied heavily on the judgement in the case of TRF Ltd. vs. CIT 323 ITR 397. The DRP confirmed the said disallowance. On hearing both the sides on this issue, we find that the claim of the assessee is proper. We find no violation by the assessee in claiming the said bad debts. The assessee has strength of the said Apex Court s judgement in the case of TRF Ltd. (supra). We accordingly allow the claim of bad debts in favour of the assessee. B. Provision for operating expenses 14. The assessee created an amount of ₹ 10,00,000/- as provision for making the operating cost in the year under consideration. The Assessing Officer disallowed the same when the assessee failed to establish the correctness of the said provision and the criteria for arriving at such sum as a provision towards the operating expenses. For want of evidences, DRP confirmed the decision of the Assessing Officer in making such disallowances. Before us, ld. Counsel for the assessee relied heavily on the claim in the books of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... needs to be included in the operational income for PLI computation. Thus, the said issue raised in ground no.3 is allowed in favour of the assessee. 17. In the result, the appeal of the assessee is partly allowed as above. ITA No.626/PUN/2016 (By Revenue) 18. Now, we take up the appeal of the Revenue in ITA No.626/PUN/2016 for adjudication. Preliminary Issue - Condonation of Delay 19. Before us, at the outset, ld. DR for the Revenue submitted that the appeal of the Revenue in ITA No.626/PUN/2016 for the assessment year 2011-12 could not be filed in time and the said appeal of the Revenue is filed with the delay of 09 days. In this regard, ld. DR for the Revenue filed an affidavit explaining the reasons for non-filing the appeal of the Revenue in time. For the sake of completeness, the relevant paras of the said affidavit are extracted hereunder :- ......... In this case the last date of filing was 29/03/2016, the appeal could not be filed on time and the same is being filed on 07/04/2016. There has been delay of 9 days in filing of appeal. This is to request that the delay in filing the appeal may be kindly condoned. The reason for the delay are as under: ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 12) was also relied. As per the said precedents in assessee s own case such matter stands remitted back to the file of the Assessing Officer for re-computation. For the sake of completeness, para 12 of the order of the Tribunal in ITA No.337/PUN/2014 for the assessment year 2009-10 dated 11.06.2018 is extracted as under :- 12. The ground Nos. 2 3 of the appeal are against considering the entire RTS segment for calculation of PLI. The assessee has prayed for restricting the adjustment on the basis of value of international transactions only. It has been brought to our notice that identical grounds were raised in the appeal for assessment year 2008-09. The Co-ordinate Bench of Tribunal in assessee s own appeal in ITA No.335/PN/2013 (supra.) remitted the issue back to the file of Assessing Officer for recomputation. The Tribunal in principle accepted that transfer pricing adjustment has to be made with respect to international transaction only and not on the entire sale of RTS segment. The relevant extract of the order of Tribunal reads as under: 21. The issue arising vide grounds of appeal No.2 and 3 is identical to the issue before the Tribunal in assessment year 2007-08 v ..... X X X X Extracts X X X X X X X X Extracts X X X X
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