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TMI Blog2022 (12) TMI 865X X X X Extracts X X X X X X X X Extracts X X X X ..... ") 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 the Incometax Rules, 1962 ("Rules"); 4.2. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er 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 that all the requisite conditions mentioned under section 35DDA of the Act for claiming the I/5th por ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ture 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. The Company also provides after sale support and warranty support services along with the UPS products sold to its customers. 2.2 A brief summary o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urse of TP assessment proceedings, the Ld. TPO adopted the following approach for benchmarking Appellant's international transactions with respect to contract manufacturing segment: 1. Fresh search for comparables based on application of additional/ modified filters: The Ld. TPO rejected the economic analysis undertaken by the assessee in its TP documentation and undertook a fresh search based on additional /modified filters. Thus, the Ld. TPO selected a set of 6 companies with a percentile range of OP/TC of 7.75% to 9.19% and median of 8.47% for benchmarking contract manufacturing segment of the assessee. 2. Fresh search undertaken by the assessee: The Ld. TPO didn't appreciate the fresh search undertaken by the assessee during the assessment proceedings and rejected the same by stating that the comparable proposed by the assessee are not available in the search matrix applied by the Ld. TPO. 3. Working capital adjustment and margin correction: The Ld. TPO did not allow working capital adjustment to the assessee in arriving at the arm's length margin. The Ld. TPO also didn't consider the correct computation of margin of certain companies for determining the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... see as detailed in the TP documentation. 3. Ground Nos.1 to 3 are general in nature, which do not require any adjudication. 4. Ground Nos.4.1, 4.2 & 4.7 are not pressed. Accordingly, dismissed as not pressed. 5. Ground No.4.3 is reproduced below:- "4.3 erroneously rejecting the audited segmental accounts furnished by the Appellant by arbitrary allocating operating specific expenses on the basis of revenue earned by the Appellant in each segment which were originally allocated by the Appellant on sound allocation keys. Thus, the Ld. AO/ Ld. TPO/ Ld. DRP erred in considering the margin of the Appellant in contract manufacturing segment as 1.79% as against the actual margin of 7.70%:" 5.1 The Ld. A.R. submitted that assessee had prepared and maintained segmental financials on the basis of Transfer Pricing principle, wherein revenue and costs are allocated in each of the segment on the basis of sound allocation keys. According to the Ld. A.R., basis of allocating the revenue and costs in segmental financials is as follows:- 1. Revenue from operation is identified on the basis of actual sales recorded under each sub-segment 2. Direct cost of sales/installation and commission ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... selected by the Appellant and accepted by the Ld. TPO; 4.6. erroneously excluding certain functionally similar companies on arbitrary/ frivolous grounds; 4.6.1.Inadvertently excluding Genus Innovation Limited, a functionally similar comparable accepted by the Ld. TPO, and including Genus Power Infrastructure Limited in the final set; IT(TP)A No.185/Bang/2022 Schneider Electric IT Business India Pvt. Ltd., Bangalore Page 12 of 17 7.1 The crux of the above grounds is with regard to the inclusion and exclusion of certain comparables. 8. We have heard the rival submissions and perused the materials available on record. We have perused the grounds before Ld. DRP. There was no specific ground with regard to the inclusion and exclusion of specific comparables. The grounds before Ld. DRP were very general, which are as follows:- "d. Erroneously including certain functionally dissimilar companies on arbitrary/frivolous grounds; e. Erroneously excluding certain functionally similar companies on arbitrary/frivolous grounds; f. Erroneously rejecting the fresh search furnished by the assessee on a without prejudice basis." 8.1 In view of this, we remit this issue to the file o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t America (India) Pvt. Ltd. in ITA No.1762/Bang/2019, 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. 12. Next ground No.6 is with regard to expenditure incurred on Voluntary Retirement Scheme. This ground of appeal is reproduced as under:- 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 that all the requisite c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... no expenditure has been incurred, AO has to presume that there was incurring of expenditure u/s 14A read with Rule 80D(2) of the Income Tax Rules and for that purpose he relied on the order of the Tribunal in the case of Technopark Advisors Ltd. Vs. ACIT reported in 50 SOT 31 (Del.) 13.3 We have heard the rival submissions and perused the materials available on record. In our opinion, if there is no exempted income, there cannot be any disallowance u/s 14A read with Rule 8D of the I.T. Rules. Accordingly, we remit this issue to the file of Ld. DRP to examine the file of financials of the assessee and if there is no exempted income, there cannot be any disallowance u/s 14A read with Rule 8D of the I.T. Rules or if there is no exempted income, there cannot be any disallowance. 14. Ground No.8 is with regard to disallowance in respect of Indian Accounting Standard adjustment of preference shares. The relevant ground is reproduced as under:- 8. Additional claim- Ind AS adjustment on Preference share - Omission in tax return 8.1. On the facts and circumstances of the case and the law, the Ld. AO/ Ld. DRP erred in not allowing the Appellant an additional claim on account of Ind AS ..... X X X X Extracts X X X X X X X X Extracts X X X X
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