TMI Blog2021 (11) TMI 1178X X X X Extracts X X X X X X X X Extracts X X X X ..... ture when such provisions are created as per accounting principles and in compliance of accounting standards. Secondly, it is not clear as to whether such kind of provision made by the comparable companies was also considered as non-operating in nature in AY 2015-16 in their hands, since it is quite possible that the comparable companies would also be debiting the profit and loss account with such kind of provisions as mandated by the Accounting standards. There should not be any dispute that identical treatment for an item of expenditure should be given both in the hands of the assessee as well as in the hands of the comparable companies. Accordingly, this claim of the assessee requires examination. In any case, this claim has been raised first time before us, meaning thereby, there was no occasion for the authorities below to examine this claim of the assessee in the year under consideration. Accordingly, we restore this claim of the assessee to the file of AO/TPO for examining it in accordance with law. Manufacturing segment is regarding consideration of leverage of 5% - AO/TPO shall examine this claim of the assessee in accordance with law. Manufacturing segment rel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he year. Accordingly, the value of investments as on beginning of the year and as on end of the year were Nil. In this fact situation, the provisions of Rule 8D cannot be applied since computations prescribed in those rules are not possible in the absence of opening and closing value of investments, i.e., computational provisions of rule 8D would fail in this case. We noticed earlier that against exempted dividend income of Rs.24,86,000/-, the assessee has disallowed a sum of Rs.48,573/- only u/s 14A of the Act. The said disallowance does not appear to be correct when compared with the peak value of investments of Rs.72.09 crores - Thus disallowance may be estimated to meet the requirements of section 14A of the Act. Accordingly, we are of the view that an estimated disallowance of 10% of the dividend income would meet the requirements of provisions of Section 14A of the Act and the same will put this issue at rest. Accordingly, we direct the A.O. to restrict the disallowance u/s 14A of the Act to 10% of exempt dividend income. He may work out the addition accordingly. Non-granting of proper TDS credit - Since this issue requires examination at the end of the A.O., we resto ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... margin in the case of M/s. Gansons Ltd. (iii) Granting of leverage of 5%. (b) Trading segment. (i) Adopting of PLI as OP/OC instead of OP/OR. (ii) Incorrect computation of margin in the case of M/s. Telecommunication Consultants India Ltd. (c) Global sales and marketing activity fee/Management fee Not appreciating that TNMM adopted at entity level would subsume payment of global sales and marketing activity fee and Management. Hence no separate TP adjustment is required. (d) Disallowance made u/s 14A of the Act. (e) Short credit of TDS. (f) Deduction of education cess and secondary higher education cess. (g) Dividend distribution tax rate should be confined to the rate as per DTAA. Hence we confine ourselves to the above said issues. Accordingly all other grounds are dismissed as Not Pressed. 3. The business of the assessee consists of manufacturing, trading, installation and servicing of process control systems, industrial automation instruments/equipments and electrical measuring equipments. The activities carried on by the assessee has been categorized into three segments namely systems, trading of products and engineering services. The TPO pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... andards year after year. Hence it is required to be examined as to whether it is appropriate to treat the provision for expected loss as non-operating in nature when such provisions are created as per accounting principles and in compliance of accounting standards. Secondly, it is not clear as to whether such kind of provision made by the comparable companies was also considered as non-operating in nature in AY 2015-16 in their hands, since it is quite possible that the comparable companies would also be debiting the profit and loss account with such kind of provisions as mandated by the Accounting standards. There should not be any dispute that identical treatment for an item of expenditure should be given both in the hands of the assessee as well as in the hands of the comparable companies. Accordingly, this claim of the assessee requires examination. In any case, this claim has been raised first time before us, meaning thereby, there was no occasion for the authorities below to examine this claim of the assessee in the year under consideration. Accordingly, we restore this claim of the assessee to the file of AO/TPO for examining it in accordance with law. 9. The next issue ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g a transaction consisting in the purchase of goods by a distributor from an associated enterprise for resale to independent customers, one should not weight the net profit indicator against the cost of goods sold because these costs are the controlled costs for which consistency with the arm s length principle is being tested. Similarly, for a controlled transaction consisting in the provision of services to an associated enterprise, one should not weight the net profit indicator against the revenue from the sale of series because these are the controlled sales for which consistency with the arm s length principle is being tested. Where the denominator is materially affected by controlled transaction costs that are not the object of the testing (such as head office charges, rental fees or royalties paid to an associated enterprise, caution should be exercised to ensure that said controlled transaction costs do not materially distort the analysis and in particular that they are in accordance with the arm s length principle. 2.89 The denominator should be one that is capable of being measured in a reliable and consistent manner at the level of the tax-payer s controlled transa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not been able to raise any material contention to dispute or controvert this position. We, therefore, uphold the impugned order of the learned CIT(A) on this issue and dismiss the appeal of the Revenue. Following the above said decision, we direct the AO/TPO to adopt operating profit/operating revenue as PLI and determine the ALP of trading segment accordingly. 13. The next issue contested in the trading segment is that the TPO has computed margin of comparable company named M/s. Telecommunication Consultant India Ltd. incorrectly. Since the claim of the assessee requires verification, we restore this issue to the file of AO/TPO. 14. We shall now take up the issue relating to TP adjustment made in respect of payments of Global Sales Marketing activity fee and Management fee. The assessee did not benchmark these payments made to its AE separately, since it adopted TNM method at entity level. However, the TPO bench marked the same separately and accordingly proposed TP adjustment of Rs.2.16 crores in respect of payment of Global Sales and Marketing activity fee and Rs.26.52 lakhs in respect of payment of management fee. The Ld DRP also upheld the above said adjustmen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s of the DRP however having regard to the peculiar facts and circumstances of the case wherein the assessee is having multiple and diversified international transactions involving receipt as well as payment, we are of the considered view that the payment in respect of management fees as well as Global Sale and Marketing Activity Fees shall be considered as operating cost and has to allocated in the ratio of turnover of the other international transactions and then the ALP of the other international transactions has to be determined under TNMM analysis. Hence we set aside the entire issue of determination of ALP and TP Adjustment to the record of the TPO/A.O. for carrying out fresh exercise of determination of ALP in respect of international transactions by considering the payment in respect of management fees and Global Sale and Marketing Activity Fees as part of the operating cost and allocating the same in the ratio of the turnover of the other international transactions. Following the decision rendered in the assessee s own case in AY 2010-11, we restore these two issues to the file of AO/TPO with similar directions. 17. The next issue urged by the assessee relates to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... exempted dividend income of Rs.24,86,000/-, the assessee has disallowed a sum of Rs.48,573/- only u/s 14A of the Act. The said disallowance does not appear to be correct when compared with the peak value of investments of Rs.72.09 crores. In these facts, we are of the view the disallowance may be estimated to meet the requirements of section 14A of the Act. Accordingly, we are of the view that an estimated disallowance of 10% of the dividend income would meet the requirements of provisions of Section 14A of the Act and the same will put this issue at rest. Accordingly, we direct the A.O. to restrict the disallowance u/s 14A of the Act to 10% of exempt dividend income. He may work out the addition accordingly. 21. The next issue relates to non-granting of proper TDS credit. Since this issue requires examination at the end of the A.O., we restore to his file with the direction to allow credit for correct amount of TDS. 22. The next issue relates to claim of deduction of education cess and secondary higher education cess paid during the year as expenditure. The Ld. A.R. took support of the decision rendered by Hon ble Bombay High Court in the case of Sesagoa Ltd. Vs. JCIT 423 ..... 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