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TMI Blog2021 (12) TMI 1352X X X X Extracts X X X X X X X X Extracts X X X X ..... eclaring total income of Rs. Nil. It reported certain international transactions in Form No. 3CEB, which were divided mainly into Manufacturing segment and Trading segment. The AO made a reference to the Transfer Pricing Officer (TPO) for determining the Arm's Length Price (ALP) of international transactions. In the instant appeal, we are concerned only with the Manufacturing segment which comprises of Import of raw material amounting to Rs.256.29 crore; Sale of manufactured goods at Rs.69.95 crore; Payment of technical license fees/Royalty at Rs.5.81 crore; and Payment of one time technology transfer fees amounting to Rs.1.24 crore. The assessee computed its Profit Level Indicator (PLI) under the Transactional Net Marginal Method (TNMM) from this segment at 8.87% by treating, inter alia, the subsidy amounting to Rs.89,73,01,000/- as part of operating revenue, which was also offered for taxation. The TPO opined that the subsidy was in the nature of extraordinary item of income which required exclusion from the operating revenue. By doing so, he computed assessee's PLI at (-) 4.01%. After making certain inclusions in and exclusions from the list of comparables drawn by the asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nce Industries Ltd. (2003) 88 ITD 273 (Mum) (SB) -Income Tax Officer Vs. The Thermodors Pvt. Ltd. (Unreported) -CIT Vs. P.J. Chemicals Ltd. (1994) 210 ITR 830 (SC) -CIT Vs. Elys Plastics Pvt. Ltd. (1991) 188 ITR 11 (Bom.) -CIT Vs. Tirumala Bricks and Tiles Factory (1996) 217 ITR 547 (AP) -CBDT Circular No.142 dated 1 August 1974 However, the Company for the purpose of its tax computation has offered the same to tax as a revenue receipt. The Company reserves its right to claim the above amount as capital receipt and hence not subject to tax, inter alia, in the event of any further clarifications from the CBDT, Supreme Court or any further judicial pronouncements in this regard." 5. We have verified the financial statements of the assessee from which it is apparent that the subsidy has been clubbed with other operating revenues included in the Statement of Profit and loss account. The resultant figure of loss has been taken as the opening point for the computation of total income, which means that the subsidy has been offered for taxation. The assessee also treated it as an item of operating revenue for the purposes of computing the PLI under the Manufacturing segment. Though ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sanction and disbursement of IPS 2007 have been given by the Govt. of Maharashtra which state that the Industrial Promotion Subsidy in respect of Mega projects under PSI 2001 and 2007 means an amount equal to the percentage of "Eligible Investments" which has been agreed to as a part of the customised Package, or the amount of tax payable under Maharashtra VAT 2002 and CST Act 1956 by the eligible Mega Projects in respect of sale of finished products eligible for incentives before adjusting of set off or other credit available for such period as may be sanctioned by the State Government, less the amount of benefits by way of Electricity Duty exemption, exemption from payment of Stamp Duty, refund of royalty and any other benefits availed by the eligible Mega Projects under PSI 2001/2007, whichever is lower. A careful perusal of the PSI, 2007 emphatically manifests that the subsidy has been granted to encourage industrial growth in less developed areas of the State. The quantification of subsidy is linked with the amount of investment made in setting up of the eligible units. However, the disbursal of the subsidy is in the form of refund of VAT and CST paid on sale of excavators. T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... subsidy or grant of cash incentives etc., other than the subsidy which has been taken into consideration in determining the actual cost of the asset in terms of Explanation 10 to section 43(1), shall be considered as an item of income chargeable to tax. Since the amended provision of section 2(24)(xviii) is not applicable to the year under consideration, the sequitur is that the subsidy received by the assessee would not form part of its total income. We, therefore, overturn the impugned order and direct to treat the subsidy as an item of capital receipt not chargeable to tax. 8. In view of the fact that the subsidy of Rs.89.73 crore has been held to be a capital receipt, obviously, it cannot form part of operating revenue of the Manufacturing segment of the assessee company for the purpose of determining the ALP under the TNMM. 9. The ld. AR contended that in the hue of the amendment to section 2(24) of the Act, the assessee offered the subsidy as a revenue receipt chargeable to tax for the A.Y. 2016-17 and also claimed it as operating revenue for the purpose of the ALP determination, which issue is sub judice before the Tribunal. We desist from commenting on the treatment of s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... immediately preceding assessment year as well but the Tribunal has upheld the decision of the authorities below in this regard. We have perused the order passed by the Tribunal on this issue for the immediately preceding assessment year. Relevant discussion has been made in para 8 of the order. After elaborate analysis of the factual and legal position, the Tribunal has finally held that JCB India Limited was rightly included in the list of comparables. Following the same view, we countenance the inclusion of this company in the list of comparables. This part of the ground is, therefore, dismissed. 14. The last ground raised in this appeal is against the making of the transfer pricing adjustment on entity level as against the proportionate adjustment. Here again, the ld. AR submitted that similar issue was raised in the assessee's appeal for the immediately preceding assessment year and the Tribunal was pleased to direct the AO/TPO to restrict the transfer pricing adjustment to the extent of international transactions under the Manufacturing segment. The ld. DR also fairly admitted the position. Respectfully following the precedent, we direct the AO/TPO to restrict the transfer p ..... X X X X Extracts X X X X X X X X Extracts X X X X
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