TMI Blog2018 (5) TMI 2069X X X X Extracts X X X X X X X X Extracts X X X X ..... available on account of non-availability of variable data, liberty is granted to the assessee to obtain the variable data and prove the claim before the TPO, who has to consider the same and grant the assessee the benefit of the adjustments towards capacity utilization. Consequently, grounds No.6 7 of the assessee s appeal stands allowed. Adjustments on account of depreciation so as to determine the aggregate cash profit margins - The same is to be determined by adopting pre-depreciation figures in respect of comparables in line with the decision of Co-ordinate Bench of this Tribunal in the case of M/s.ICON Clinical Research India Pvt. Ltd. Vs. The DCIT referred to supra. Consequently, ground No.8 of the assessee stands allowed. Payments for Corporate Services availed by the assessee from its A.Es - HELD THAT:- Admittedly the business of the assessee is a consolidated one. The services referred under Corporate Services are intrinsically linked to its manufacturing and sales activity. These two services cannot be separately demarcated. Corporate services are the services rendered, which has helped the assessee in generating the business in respect of marketing and tra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... egal defects such as being passed in violation of principles of natural justice and the provisions of the Act and is devoid of merits and are contrary to facts on record and applicable law, and has been completed without adequate inquiries and as such is liable to be quashed. 2. The lower authorities have finalized their order with improper adjustments to the reported taxable profits of the Appellant, as a result of misapplying the provisions of the Act and by adopting faulty assessment procedure to finalize the adjustment, such as but not limited to, application of filters, analysis of the functions carried out by the Appellant and those of the comparable companies, analysis of the economic circumstances experienced by the Appellant, selection of comparable companies, computation of profit margins of the Appellant and comparable companies, usage of appropriate adjustments, and consideration of the information, arguments and evidence provided by the Appellant. II. Application of TNMM 3. The lower authorities have, in the facts and circumstances of the case and in law, erred in incorrectly computing the operating margin of the Appellant and those of the comparable compan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Group) and have erred in not considering the aggregation approach adopted by the Appellant in its TP documentation.. 12. The lower authorities have, in the facts and circumstances of the case and in law, erred in considering the value of corporate services availed as Nil purportedly under the CUP method, without bringing on record any benchmarking exercise using comparable companies and has as such exceeded their jurisdiction. 13. The lower authorities have, in the facts and circumstances of the case and in law, erred in disregarding the evidence provided by the Appellant for availing corporate services and has erred in concluding that no tangible / direct benefits accrued to the Appellant from such services. IV. Disallowance of sales commission expense 14. The lower authorities have, in the facts and circumstances of the case and in law, erred in disallowing sales commission expense under section 37 of the Act, by disregarding the evidence and information submitted and have erred in holding that Appellant had not actually received such services. V. Disallowance of employees provident fund 15. The lower authorities have, in the facts and circumstances of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion also fell to 47% as against the national average of 75%. Ld.A.R drew our attention to pages 195 to 198 of Paper book, which was the copy of the Amendments to the Income Tax Rule. In respect of depreciation, the Press information bureau clarification in respect of renewable energy generation and the copy of the Economic Times of 13th May 2013 wherein it has been mentioned that wind energy has dropped by 1,500 megawatts due to withdrawal of incentive. It was submitted that show-cause notice was issued to the assessee on 10.10.2016 wherein the assessee s transfer pricing study was rejected. The assessee had prayed for Idle Capacity Adjustments as also adjustment on account of the variable in respect of depreciation computation in respect of comparables. It was a submission that both were rejected on the ground that in respect of idle capacity adjustments, there was non-availability of variable data for verification. It was submitted that after 2011, on account of change in the method of reporting, the capacity utilization data was admittedly not available. It was further submitted that the assessee had no objection if the TPO s exercises his power u/s.133(6) of the Act and obtain ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... order of the Bombay Bench of this Tribunal in the case of DCIT vs. Reuters India 24 ITR (Trib) 231 (Mum) as has been relied on by the ld. AR. We noted that the Tribunal in this case has adopted the cash profit/operating cost as the correct profit level indicator under the TNMM method. 19. We are, therefore, of the opinion that the profit level indicator considering the margins prior to depreciation would give better results in the comparable analysis and benchmarking of the transactions of the assessee in the given facts and circumstances. We direct the Assessing Officer/TPO to rework the PLI of the comparables after excluding the depreciation cost and benchmark the PLI of the assessee also excluding the depreciation cost. Ordered accordingly. Ground Nos. 6 and 7 of the assessee are allowed for statistical purposes. 6. In reply, ld.D.R vehemently supported the order of DRP. It was a submission that idle capacity adjustments could not be laid at the door of the TPO and it was the duty of the assessee to substantiate its claim, if it wanted to make a claim of the idle capacity adjustments. In respect of pre-depreciation adoption of profit level indicator for considering t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 8. In respect of Ground Nos.11 to 13, it was submitted by the ld.A.R that the assessee had made payments for Corporate Services availed by the assessee from its A.Es. Ld.A.R drew our attention to the agreement entered into by the assessee with it s A.Es at page No.393 of the paper book. It was submitted that the agreement was between the parent company, Bonfiglioli Riduttori Spa (BRI), Italy and 20 subsidiaries. The assessee was shown at party No.16 in the said agreement. It was submitted that there were four types of services provided i.e. Information Technology services, Accounting Finance, Quality control system Marketing services. It was submitted that ld. Assessing Officer allowed the claim of information technology fees, but held that there was no necessity for the assessee to make any payments towards the marketing fees, Financial controlling fees as also quality controlling fees. It was a submission that these were aggregated amounts payable by the assessee in respect of expenditure incurred by the parent company. The ld.A.R drew our attention to the decision of Hon ble Delhi High Court in the case of CIT vs. EKL Appliances Ltd., (345 ITR 241) wherein the Hon ble Delh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... levant figures have been given before the Commissioner of Income-tax (Appeals) and they are referred to in a tabular form in his order in paragraph 5.5.1. In fact there are four tabular statements furnished by the assessee before the Commissioner of Income-tax (Appeals) in support of the reasons for the continuous losses. There is no material brought by the Revenue either before the Commissioner of Income-tax (Appeals) or before the Tribunal or even before us to show that these are incorrect figures or that even on the merits the reasons for the losses are not genuine. It was a submission that similar expenses have not been claimed separately in the accounts of the assessee. It was submitted that assessee was entitled to its claim of expenditure. 9. In reply, ld.D.R submitted that corporate services expenditure cannot be aggregated. It was a submission that the order of TPO/A.O and direction of the DRP is liable to be sustained on this issue. 10. We have considered the rival submissions and perused the materials available on record. Admittedly the business of the assessee is a consolidated one. The services referred under Corporate Services are intrinsically linked to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion and the ld. Assessing Officer is directed to allow the assessee s claim in respect of the sales commission paid to BD. In these circumstances, ground No.14 of the assessee s appeal stands allowed. 13. In respect to Ground No.15, it was submitted by ld.A.R that the issue was against the action of the DRP in not allowing assessee s claim in respect of employees contribution to Provident Fund (PF) in time. It was a submission that employees contribution to PF had been paid within the grace period and before the due date of filing of the return. Ld.A.R drew our attention to page 38 of the paper book, which was the copy of return filed wherein clause-16(b) shows the details of the sum received from employees towards contribution to PF, due date for payment and the actual date of payment to the concerned authorities. It was submitted by the ld.A.R that in view of the decision of the jurisdictional High Court in the case of C.I.T v. Salem CoOperative Spinning Mills Ltd., reported in [2002] 258 ITR 360 (Mad) wherein held that the amounts had been paid within the grace period provided under the relevant statutes, Ground No.15 may be allowed in favour of the assessee. 14. In repl ..... X X X X Extracts X X X X X X X X Extracts X X X X
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