TMI Blog2019 (4) TMI 2124X X X X Extracts X X X X X X X X Extracts X X X X ..... ot claimed a deduction in computing the profit loss account to the extent of Rs.23.3 Crores, therefore, the disallowance made by AO is not justified. Therefore, we direct to delete the disallowance. We find from the orders of lower authorities that they have not appreciated the facts and circumstances on the other issues raised by the assessee. Therefore, we deem it fit to remit those issues back to the AO /TPO for reexamination / verification on the basis of materials to be furnished by the assessee. The assessee has also pleaded that there is a mistake apparent on record in computing the disallowance for the current year (FY 2011-12), submitting that it has disallowed pertaining to prior years. However, the AO had disallowed u/s 40(a)(ia) on account of non-deduction of TDS which included sum disallowed by the appellant in AY 2012-13. This has resulted in dual disallowance. We remit this issue also back to the file of the AO / TPO for re-examination/ verification Disallowance of Service Tax, Sales Tax VAT u/s. 43B - Since the disallowed sums were not claimed as an expenditure, the assessee pleaded that in accordance with the jurisdictional High Court decision, the AO cann ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of lamps from Aug 2010 and hence, this assessment year i.e AY 2012-13 is the first full year of its manufacturing operations. The primary customer during AY 2012-13 is Nissan India Pvt.Ltd. In its TP study , the assessee has prepared and submitted the segmental analysis of the tooling and manufacturing segment and has demonstrated the arm s length nature of each of these independent segments by adopting the Transactional Net Margin Method (TNMM) as the most appropriate method (MAM) with operating margin (operating profit to sales) as the profit level indicator(PLI). However, the TPO had rejected the segmented profit and loss account and had aggregated the segments to determine the arm s length nature of the transactions on entity level. On the domestic transactions, the A O, inter alia, disallowed tool development charges u/s 40(a), further made disallowances u/s.43B and travelling allowance. Aggrieved, the assessee filed its objections before the DRP, which rejected those objections. On giving effect to the directions, the assessee filed this appeal . 3. The Ld. AR submitted that while determining the ALP of the international transactions with the AEs, the Ld. TPO has aggregate ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 30.45%) Nissan Spain (20.95%) Tools were sold to Renault India, but lighting assembly were not sold to Renault India. This provides evidence that sale of tools and lighting are not directly linked. Assets Fixed Assets (68 Cr.) Current assets(inventory, debtors etc Manufacturing Facility Employee Inventory Significant assets invested in manufacturing business. Almost no assets (except inventory work-in-progress) for trading activity. Functions Manufacturing Quality control, Warranty, Procurement, Localization Trading Sub-contracting Fundamentally different FAR Insignificant functions in tooling segment Risks Entrepreneurial risk Investment risk, Capacity utilization risk, quality risk, credit risk, market risk, manpower risk Minimal risk Negligible Different risk profile Completely opposite profile AE Role Technical and professional support services Full-fledged support substantial, AE transactions A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... justified the transactions in the manufacturing segment on transaction by transaction basis. Relied upon the following judicial pronouncements: Benetton India (P) Ltd. V. ITO [17 taxmann.com 5), Hon ble ITAT of Delhi; JCB India Ltd. vs. DCIT [69 taxmann.com 383], Hon ble ITAT of Delhi; India Pistons Ltd. [75 taxmann.com 99], Hon ble ITAT of Chennai; Tej Diam [37 SOT 341 (Mum.)], Hon ble ITAT of Mumbai; Axa Technologies Shared Services (P) Ltd. [76 taxmann.com 102], Hon ble ITAT of Bangalore; Avineon India (P) Ltd. [41 taxmann.com 334], Hon ble ITAT Hyderabad; and Ankit Diamonds[43 SOT 523], Hon ble ITAT of Mumbai. 3.3 The AR submitted that though the assessee has submitted detailed additional evidences before the Hon. DRP to demonstrate the arm s length nature of the above transactions on transaction-bytransaction basis, the Hon ble DRP did not have sufficient time to accept the additional evidences considering the lack of time (hearing on 8.12.2016 and last date for issuing directions was 31.12.2016) in seeking remand report from the TPO. Therefore, the additional evidences could not be admitted by the Hon. DRP. The documents could not be subm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... her issues as they have become academic at this stage. 5. With regard to the restriction of adjustment to quantum of international transactions, the Ld.AR submitted that while determining the ALP of the international transactions with the AEs, the TPO has aggregated all transactions and has adopted an entity level approach by computing the margins earned by the assessee disregarding the two varied business segments. In doing so, the AO/TPO has not restricted the additions only to the international transactions with the AEs. He relied on the following judicial precedents:- Mobis India Ltd. ITA No.2112/Mds/2011., ITAT., Chennai Demag Cranes Components India P.Ltd (2015) 59 Taxmann.com 184 (ITAT., Pune Bench) New Holland Fiat (I) P.Ltd (2017) 81 taxmann.com 337 ITAT., Mumbai Alstom Projects India Ltd.(2017) 88 taxmann.com 465 (High Court of Bombay) Cornell Overseas P.Ltd (2017) 78 Taxmann.com 76(ITAT., Delhi ) 5.1 We have considered the rival submissions. We do not have any hesitation in holding that the transfer pricing adjustment should be restricted to the international transactions only and it cannot be applied to uncontrolled transactions. While determinin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... including as in FY 2011-12 (AY 2012-13) Total disallowance as per Tax Audit Report for FY 2011-12 ((AY 2012-13) 11,53,65,746 48,25,24,315 and submitted that the amount lying in WIP is not claimed as an expenditure during the year. As per section 40(a)(i), the two important conditions to be satisfied are (a) whether deduction is claimed as expenditure in computing profit and loss account, and if answer to (a) is yes,(b) whether the Appellant has remitted the TDS deductible on such payments, within the prescribed time limit. Since, the assessee has not claimed a deduction in computing the profit loss account to the extent of Rs. 23.3 Crores, the disallowance made by AO is not justified and placed reliance on the following judicial pronouncements: ITO vs. P.C. Developers Private Limited (ITA No 4167/Del/lO) Hon ble ITAT of New Delhi; DCIT vs. M/s S.P Real Estate (ITA No. 866/Hyd/2010) Hon ble ITAT of Hyderabad; Aditya Housing Infrastructure Development vs. DCIT (1 366/Hyd/2014), Hon ble ITAT of Hyderabad; DCIT vs. Aditya Housing Infrastructure Development vs. DCIT (959/Hyd/2013) Hon ble ITAT of Hyderabad ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2007] Hon. ITAT of Delhi decision in case of lncent Tours Pvt. Ltd. 125 taxmann.com 222 (Delhi) has held the validity and application of non-discrimination clause in the context of section 40(a)(i) disallowance under India USA and India-France DTAA respectively, and Hon. ITAT of Delhi decision in case of Mitsubishi Corporation India Pvt. Ltd. [41 taxmann.com 162 (Delhi - Trib.)J in context of India-Japan DTAA, the decision of Hon ble ITAT of Chennai in the case of Cooper Standard Automotive India Pvt. Ltd. [84 taxmann.com 200 (Chennai - Trib)]etc. Thus, the Ld. AR submitted that the DRP failed to provide the benefit of nondiscrimination under Article 26 of India France DTAA and Article 24 of India Japan DTAA. Pleaded that in accordance with the respective non -discrimination Articles, the disbursements of an Indian assessee to a resident of(France/Japan) shall, for the purpose of determining the taxable profits of such Indian assessee, be deductible under the same conditions, as if they had been paid to a resident of India. 6.4 Further, the Ld AR submitted that there is mistake apparent on record in computing the disallowance for the current year (FY 2011-12). The asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed in the first place. 6.6 We heard the rival submissions and gone through relevant material. The assessee has clearly made out its case, supra, that section 40(a) (ia) is not applicable in its case, as it has not claimed a deduction in computing the profit loss account to the extent of Rs.23.3 Crores, therefore, the disallowance made by AO is not justified. Therefore, we direct to delete the disallowance. We find from the orders of lower authorities that they have not appreciated the facts and circumstances on the other issues raised by the assessee. Therefore, we deem it fit to remit those issues back to the AO /TPO for reexamination / verification on the basis of materials to be furnished by the assessee. The assessee has also pleaded that there is a mistake apparent on record in computing the disallowance for the current year (FY 2011-12), submitting that it has disallowed INR 11,53,65,746/-, pertaining to prior years. However, the AO had disallowed INR 19,86,01,478/- u/s 40(a)(ia) on account of non-deduction of TDS which included INR 11,53,65,746/- disallowed by the appellant in AY 2012-13. This has resulted in dual disallowance. Therefore, it prayed that directions may b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... collected by it. The Gauhati High Court in the case of India Carbon Ltd. vs. IAC (200 ITR 759) considered a similar issue and held as follows:- . the amount of sales tax appeared on the liabilities side of the balance sheet of the petitioner company. The petitioner did not claim the added amount as deduction nor did he charge it to the profit and loss account. The amount of sales tax could not be added back to the income of the assessee u/s.43B. In the present case, the question was whether section 43B applied and not whether sales tax collected formed part of the trading receipts. In the instant case, the amount had been added by the AO u/s.43B of the Act. All the authorities below had given a factual finding that the assessee never claimed deduction u/s.43B of the Act and therefore section 43B of the Act is not applicable. 7.2 Since the disallowed sums were not claimed as an expenditure, the assessee pleaded that in accordance with the jurisdictional High Court decision, the AO cannot make the disallowance. In order to appreciate the issue, we have gone through the assessment order. The relevant portion is extracted as under:- 6.Disallowance u/s.43B: O ..... X X X X Extracts X X X X X X X X Extracts X X X X
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