TMI Blog2022 (12) TMI 865X X X X Extracts X X X X X X X X Extracts X X X X ..... ns of comparable companies submitted by the Appellant - HELD THAT:- We have remitted the issue relating to the rejection of segmental financials and selection of comparables to the file of Ld. DRP for fresh consideration. This issue is also remitted to Ld. DRP to consider the correct margin of the comparables. Disallowance of expenditure towards Corporate Social Responsibility ( CSR ) u/s 80G - HELD THAT:- After hearing both the parties, we are of the opinion that the claim of the assessee has to be examined by the Ld. DRP on production of the requisite details by the assessee. DRP also directed to consider the order of the Tribunal in the case of First America (India) Pvt. Ltd. [ 2020 (5) TMI 187 - ITAT BANGALORE ] wherein held that assessee cannot be denied benefit of claim of deduction under Chapter VIA of the Act in relation to payments, which form part of CSR expenses since that would lead to double disallowance, which is not the intention of legislature. Accordingly, this issue is remitted to the file of Ld. DRP for fresh consideration. Expenditure incurred on Voluntary Retirement Scheme - HELD THAT:- The assessee has not furnished the full details other than n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pute Resolution Panel ( Ld. DRP ) ignored the judicial pronouncements and erred in dismissing the grounds of objections raised by the Appellant and upholding the adjustment proposed by the Ld. AO/ Learned Transfer Pricing Officer ( Ld. TPO ) without providing any cogent reasons for the same. 3. That the Ld. AO erred in computation of the demand against the order passed u/s 143(3) r.w.s 144C(13) of the Act. The Ld. AO erred in considering the amount of Tax deducted at source/ Tax collected at source credit ( TDS/TCS credit ) to be INR 42,392,755 instead of INR 96,255,133 and INR 43,851 respectively as mentioned in the income tax return of the Appellant. Transfer Pricing 4. That the Ld. AO/ Ld. TPO/ Ld. DRP erred in enhancing the income of the Appellant by INR 1,153,540,461/- pertaining to the contract manufacturing segment that do not satisfy the arm's length principle envisaged under the Income-tax Act, 1961 ( the Act ) and in doing so, have grossly erred in: 4.1. erroneously rejecting the economic analysis undertaken by the Appellant in the Transfer Pricing ( TP ) documentation maintained by it in terms of section 92D of the Act read with Rule IOD of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Ld. AO/ Ld. DRP erred in proposing disallowance of INR 24,733,027/- towards claim under section 80G of the Act during the subject year, and holding that the contributions towards Corporate Social Responsibility ( CSR ) of the Appellant were not eligible for the said deduction under section 80G of the Act. 5.2. That the Ld. AO/ Ld. DRP failed to appreciate that CSR expenditure is disallowed only under section 37 of the Act and which does not restrict the Appellant from claiming deduction under any other provisions of the Act. 6. Disallowance of Voluntary Retirement Scheme Claim 6.1. On the facts and circumstances of the case and the law, the Ld. AO/ Ld. DRP erred in disallowing the deduction claimed by the Appellant under 35DDA of the Act and enhancing the income of the Appellant by INR 22,04,576/- 6.2. That the Ld. AO/ Ld. DRP failed to appreciate that, the Appellant had disallowed the entire amount paid under the VRS scheme paid during the year in the Income tax computation of Af 2017-18 and claimed only 1/5th portion of the expense as deduction, in accordance with section 35DDA of the Act. 6.3. That the Ld. AO/ Ld. DRP failed to appreciate the fact ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... owned subsidiary of Schneider Electric IT Corporation USA ( Schneider US or SEITC ). SEITB India is primarily engaged in the manufacture of power protection equipment and undertakes trading of uninterrupted power supply ( UPS ) and related accessories. 2.1 The activities undertaken by SEITB are summarized as follows: Contract Manufacturing - The assessee procures certain raw materials and components from AEs and third parties which is used in manufacturing of UPS products and accessories and exports them as finished products to its AEs. Solution Business segment - The Company manufactures UPS products locally as per the requirements of the domestic market. For such UPS products, the Company procures battery and other ancillary components domestically and sells the UPS products within the domestic market as an overall package which includes associated sales and warranty support to its customers. It is imperative to note that solution business segment is a third party business segment with no involvement of AEs. Distribution segment - SEITB India imports finished products i.e. UPS from its AEs and third party suppliers for resale/ distribution in domestic market. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 35,40,461 Corporate Tax adjustment 2 Addition on account of deduction u/s 80G of the Act 2,47,33,027 3 Addition on account of deduction claimed u/s 35DDA of the Act 22,04,576 4 Disallowance u/s 14A of the Act 6,25,00,000 Total adjustment in assessment order 124,29,78,064 11. Transfer Pricing Adjustment of INR 115,35 40 461/- Ground No. 4 Summary of Transfer Pricing assessment proceedings 2.4 In the contract manufacturing segment, the Appellant is engaged in the business of manufacturing of UPS products and accessories for which certain raw material and components are imported from its AEs and certain raw materials are sourced locally from third parties in India. SEITB India exports the manufactured UPS products and accessories to its AEs 2.5 During the course of TP assessment proceedings, the Ld. TPO adopted the following approach for benchmarking Appellant's international transactions with respect to contract manufacturing se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 9;s plea of inclusion/exclusion of certain comparable companies. 2.8 The Ld. DRP, after hearing the matter, dismissed all the objections raised by the Assessee and proceeded to uphold the adjustments proposed by the Ld. TPO/ Ld. AO without providing any cogent reasoning for the same. 2.7 Pursuant to the directions passed by the Ld. DRP, the Ld. AO issued the final assessment order and the accompanying notice of demand confirming the additions proposed in the order on February 25, 2022. 2.8 Aggrieved by the final order, the Assessee has filed an appeal before the Hon'ble Tribunal vide application dated March 23, 2022. The Assessee also filed an application for keeping the demand recovery proceedings in abeyance vide application filed before the Ld. Assessing Officer on March 23, 2022, and the Hon'ble ITAT on March 24, 2022. 2.9 The Assessee does not agree with the approach adopted by the Ld. TPO/ Ld. DR' Ld. AO and submits that the Ld. TPO/ Ld. DRP/ Ld. AO have erred in rejecting the arm's length computation of the assessee as detailed in the TP documentation. 3. Ground Nos.1 to 3 are general in nature, which do not require any adjudication. 4. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... turing segment as 1.79% as against the actual margin of 7.70%. 6.1 However, there was no specific finding by Ld. DRP on this issue. Hence, in the interest of justice, it is appropriate to remit this issue to the file of Ld. DRP to give specific direction on the above issue raised by the assessee before Ld. DRP as well as before us. 7. Ground Nos. 4.4, 4.5 4.6 of the appeal of the assessee are reproduced below:- 4.4. Inappropriate acceptance and rejection of companies for benchmarking the contract manufacturing segment; 4.5. erroneously including certain functionally dissimilar companies/ companies failing quantitative filters on arbitrary/ frivolous grounds; 4.5.1.ehneously including a functionally dissimilar comparable, Amara Raja Power Systems Private Limited, that fails related party filter less than 25% and manufacturing income/sales greater than 75% filter, on arbitrary / frivolous grounds; 4.5.2.Inadvertently including Genus Power Infrastructure Limited, a functionally dissimilar comparable in the final set in place of Genus Innovation Limited, a comparable selected by the Appellant and accepted by the Ld. TPO; 4.6. erroneously excluding ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... u/s 80G of the Act. 5.1. On the facts and circumstances of the case and the law, the Ld. AO/ Ld. DRP erred in proposing disallowance of INR 24,733,027/- towards claim under section 80G of the Act during the subject year, and holding that the contributions towards Corporate Social Responsibility ( CSR ) of the Appellant were not eligible for the said deduction under section 80G of the Act. 5.2. That the Ld. AO/ Ld. DRP failed to appreciate that CSR expenditure is disallowed only under section 37 of the Act and which does not restrict the Appellant from claiming deduction under any other provisions of the Act. 11.1 The contention of the Ld. A.R. is that the assessee has disallowed the CSR expenditure u/s 37 of the Act and requested that the same may be considered for deduction u/s 80G of the Act. 11.2 We have heard the rival submissions and perused the materials available on record. After hearing both the parties, we are of the opinion that the claim of the assessee has to be examined by the Ld. DRP on production of the requisite details by the assessee. The Ld. DRP also directed to consider the order of the Tribunal in the case of First America (India) Pvt. Ltd. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wances under section 14A(2) of the Act read with and rule 8D of the Rules. 7.3. That the Ld. AO/ Ld. DRP failed to appreciate that no expenditure directly or either indirectly was incurred by the Appellant for earning any income which does not form part of the total income. Accordingly, the provisions of section 14A of the Act read with Rule 8D are not applicable in the instant case. 7.4. That the Ld. AO/ Ld. DRP failed to appreciate that for the purpose of disallowing any expenditure under section 14A of the Act, there should be an actual receipt of income which is not includible in the total income during the relevant previous year. 7.5.That the Ld. AO/ Ld. DRP erred in holding that Section 14A is automatic and it comes into operation as soon as the dividend income is claimed exempt, without taking into cognizance that no dividend income has been earned during the year. As no income has been claimed as exempt, the provisions of Section 14A are not applicable in the instant case. 13.1 The argument of the Ld. A.R. is that assessee has no exempted income as such there cannot be any disallowance u/s 14A of the Act. 13.2 The Ld. D.R. submitted that even thoug ..... X X X X Extracts X X X X X X X X Extracts X X X X
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