TMI Blog2022 (3) TMI 1133X X X X Extracts X X X X X X X X Extracts X X X X ..... ures as to how there would be impact on profit margin on sale of finished products to AE because of purchases of some components from AE. He has given examples which are imaginary figures. Apart from this, the TPO has accepted that purchase of raw material and components by the assessee from its AE is at arm s length. Therefore, the basis on which the CIT(A) proceeded to apply the ALP test for transactions with non-AE is neither correct on facts nor permissible in law. As rightly contended by the assessee, section 92 of the Act can be applied only in respect of international transactions i.e., transactions with AE. Transfer pricing provisions and various judicial precedents, we hold that the transfer pricing adjustment should be restricted only to the AE related transactions of the assessee. Adoption of PLI - HELD THAT:- We direct the TPO to adopt PLI as OP/Sales. The TPO is directed to compute the ALP in accordance with the directions contained in this order, after affording opportunity of being heard to the assessee. - IT(TP)A Nos.355, 2127/Bang/2016 - - - Dated:- 21-3-2022 - Shri N. V. Vasudevan, Vice President And Shri B. R. Baskaran, Accountant Member For t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the appropriate profit level indicator with respect to the auto components manufacturing segment, in accordance to the order of the Hon'ble ITAT in the Appellant's own case for AY 2010-11, as the facts and circumstances of the Appellant remain the same. 15. On the facts and in the circumstances of the case and in law, the Deputy Commissioner of Income-tax, Circle 4(1)(1), Bangalore ( Learned AO ) / Hon'ble Dispute Resolution Panel (`lIon'ble DRP) erred in not allowing deduction under the provisions of the Income Tax Act, 1961, on account of Education Cess and Secondary and Higher Education Cess paid by the Appellant on the assessed income alongwith income-tax and surcharge for the year under appeal. It is prayed that the deduction of Education Cess and Secondary and Higher Education Cess should be allowed to the Appellant as business expenditure under the provisions of the Act. 4. Besides the aforesaid grounds which are in relation to determination of ALP in respect of an international transaction, the assessee has raised corporate grounds also and these grounds read as follows: Other than Transfer Pricing 11. On the facts and i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... order dated 18.05.2016, accepted the plea of the assessee and directed that the PLI should be adopted as OP/Sales. The following were the relevant observations of the Tribunal in this regard: 5.5.In principle, we ate in agreement with the contentions raised by assessee, as GP over sales can eliminate the difference in claim of depreciation due to age of machinery, rate at which it was claimed and method of claims like straight line or written down value. We accordingly direct the AO/TPO to adopt the comparison of profitability ratios adopting GP over sales. Since the details of capacity utilization of the comparable companies and rate of depreciation could not be analysed as commented by DRP, it would be better if GP analysis was undertaken taking sales less cost of raw material as basis (excluding other cost including Depreciation, interest etc) so that auto components profitability could be analysed so as to consider whether the import of raw material from AE has effected the profitability of assessee under their provisions. Accordingly, we set aside the impugned orders of the Revenue 'authorities on this issue and restore the matter to the file of AO/TPO to carry out ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the following 3 comparables were arrived at 12.64 on cost as against 5.65 computed by the assessee company. Consequently, ALP was determined by the TPO which resulted in an addition to the total income of the assessee. The assessee raised twofold objections in front of the DRP. The first ground of objection was related to the TPO considering OP/TC as the PLI instead of OP/ Sales taken by the assessee without providing any reason for rejecting PLI used by the assessee in the TP documentation. The second objection was with regard to the margin computed by the TPO of the two comparables company being: 1. Hindoostan Mills Ltd 2. Laxmi Machine Works Ltd. 13. The Ld. DRP however erred in adjudicating upon a wrong comparable as opposed to the contention raised by the assessee in the grounds of appeal. The Ld. DRP gave findings in relation to: 1. Laxmi Machine Works Ltd 2. Veejay Lakshmi Engineering Works Ltd. 14. Thus the DRP failed to adjudicate upon Hindoostan Mills Ltd been taken as a comparable company which was the plea raised by the assessee. 15. It is pertinent to mention that the assessee never raised any objection in relation to Veejay Lak ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le on the total income as computed under this Act in respect of any previous year relevant to the assessment year commencing on or after the 1st day of April,2007, is less than ten per cent of its book profit, such book profit shall be deemed to be the total income of the assessee and the tax payable by the assessee on such total income shall be the amount of income-tax at the rate of ten per cent. The assessee being a company the provisions of Sec.115JB of the Act were applicable. It is also not in dispute that the income tax payable on the total income as computed under the Act in respect of the previous year relevant to AY 2007-08 was less than 10% of its book profits and therefore book profit should be deemed to be the total income of the assessee and tax payable by the assessee on such total income shall be 10% of such total income. Every assessee, being a company, shall, for the purposes of this section, prepare its profit and loss account for the relevant previous year in accordance with the provisions of Parts II and III of Schedule VI to the Companies Act, 1956 (1 of 1956). In so preparing its book of accounts including profit and loss account, the company shall adopt the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... parable. However, in the alternate it was submitted that even if the said company is to be considered as a comparable, then the assessee prays to consider the correct margin of the said comparable at 7.27% as against 14.02 taken by the TPO and upheld by the DRP. 23. Similarly with regard to the other comparable company being Laxmi Machine works, the assessee accordingly prays that the margin be taken as 8.35 as against 10.95 taken by the TPO. 24. Thus, even if the comparables selected by the TPO in the fresh search it conducted is still to be taken as the final set of comparables, the assessee submitted that the margin be recomputed in the light of assessee s submissions. The final outcome of the said recomputation would result in: Comparable Company Recomputed Margins Hindoostan Mills Ltd. 7.27 Lakshmi Machine Works 8.35 Veejay Laxmi Engineering Works Ltd. 8.51 Mean 8.04 25. Thus the arithmetic mean operating profit margin of comparable com ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Income Tax Officer is not correct. Clause 40(a)(ii) of the Income Tax Bill, 1961 as introduced in the Parliament stood as under:- (ii) any sum paid on account of any cess, rate or tax levied on the profits or gains of any business or profession or assessed at a proportion ot, or otherwise on the basis of, any such profits or gains . When the matter came up before the Select Committee, it was decided to omit the word cess from the clause. The effect of the omission of the word cess is that only taxes paid are to be disallowed in the assessments for the years 1962-63 and onwards. 3. The Board desire that the changed position may please be brought to the notice of all the Income Tax Officers so that further litigation on this account may be avoided.{Board s F . No.91/5B/66-ITJ(19), dated 18-5-1967. 18. The Learned Counsel for the assessee in this respect has further relied upon the decision of the Hon ble Bombay High Court in the case of Sesa Goa Limited Vs. JCIT (2020) 117 taxmann.com 96 and further on the decision of the Hon ble Rajasthan High Court in the case of Chambal Fertilizers Chemicals Ltd Vs. JCIT : D.B Income-tax Appeal No. 52/2018 decided on 31-07-2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... charge calculated in the manner provided in the Schedule. Read in this way the additional charges form a part of the income tax and super tax . 21. The Hon ble Supreme Court, therefore, has decided the issue in favour of the revenue and held that surcharge and additional surcharge are part of the income-tax. At this stage, it is pertinent to mention here that education cess was brought in for the first time by the Finance Act, 2004, wherein it was mentioned as under:- An additional surcharge, to be called the Education Cess to finance the Government s commitment to universalise quality basic education, is proposed to be levied at the rate of two per cent on the amount of tax deducted or advance tax paid, inclusive of surcharge. 22. The provisions of the Finance Act 2011 relevant to the Assessment Year under consideration i.e. 2012-13 are also relevant. For the sake of ready reference, the same is reproduced hereunder:- 2(11) The amount of income-tax as specified in sub-sections (1) to (10) and as increased by a surcharge for purposes of the Union calculated in the manner provided therein, shall be further increased by an additional surcharge for purposes of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le certainty thereby making it ascertained and not unascertained: The following judicial pronouncements support the plea of the assessee wherein it was held that provisions estimated as per the Payment of Bonus Act, 1965 is an ascertained liability and cannot be added for the purpose of computing book profit u/s.115JB of the Act. (i) Stanley Black Decker India Limited Vs DCIT-3(1) Mumbai (2017 (11) TMI (1147)-ITAT Mumbai (ii) DOT -11, Bangalore Vs M/s L T Valdel Engineering P Ltd 2015 (6) TMI 934- ITAT Bangalore. 29. As far as provision for long services award of ₹ 5,22,921/- is concerned, the CIT(A) has not adjudicated on this ground. The provision for Long Service Award is computed on a scientific basis based on actuarial valuation conducted by an actuary and amounts computed as per actuarial valuation of does not make it provision for an unascertained or contingent liability. The assessee has submitted copies of actuarial valuation reports pertaining to Long Services Award it the submissions to the TPO as well as CIT(A). The said provision is capable of being estimated with reasonable certainty thereby making it ascertained and not unascertained. The following jud ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntal sales in the textile machinery segment and auto components segments without restricting the addition only in respect of the international transaction viz., that component of the raw material and components that were imported from the AE and used in the manufacture of textile machinery and auto components. On this issue, in Assessment Year 2011-12, the DRP has specifically given the following directions accepting the plea of the assessee that the adjustment should only be restricted to transaction with AE, with the following observations: 4.1 On the above issue, detailed submissions have been made by the assessee and the same have duly been considered. Similar objection was raised by the assessee for AY 2010-11 before DRP and after examining the same DRP had directed that the adjustments need to be restricted to the cost relating to the imports of material from the AE. Similar issue arose in the case of assessee itself for AY 2006-2007 before ITAT. In its decision dated 14/11/2014 in IT(TP)A No. 1401/Bang/2007, ITAT directed the assessing officer to confine the adjustments qua the purchases made by the assessee from AE. In the year under consideration also the calculatio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... deration is to be done only with regard to income arising from International Transactions on determination of ALP. The adjustment which is mandated is only in respect of International Transaction and not transactions entered into by assessee with independent unrelated third parties. This is particularly so as there is no issue of avoidance of tax requiring adjustment in the valuation in respect of transactions entered into with independent third parties. The adjustment as proposed by the Revenue if allowed would result in increasing the profit in respect of transactions entered to with non-AE. This adjustment is beyond the scope and ambit of Chapter X of the Act. 5. In the above view, as the provisions of the Act in respect of transfer pricing are self evidence, Question No.(a) as proposed does not give rise to any substantial question of law. Thus not entertained. 36. The ITAT Bangalore in the case of Kirloskar Toyota Textile Machinery Pvt. Ltd. v. ACIT [IT(TP)A No.1401/Bang/2010 held as that the determination of ALP has to be restricted qua the purchases made by the assessee from the AE. To be more specific, the adjustment is to be made only to the purchases made fr ..... X X X X Extracts X X X X X X X X Extracts X X X X
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