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2016 (4) TMI 1349 - ITAT DELHIAddition u/s 14A - sufficiency of own funds - HELD THAT:- On perusal of the balance sheet of the appellant company it is apparent that assessee has its own interest free funds of ₹ 135.15 crore against investment made of only ₹ 482 crores, therefore the presumption should be available with the assessee that as funds invested in this investment is out of its interest free funds. See RELIANCE UTILITIES & POWER LTD. [2009 (1) TMI 4 - BOMBAY HIGH COURT] - We also get support from Hon’ble Bombay High Court’s decision in case of CIT v HDFC bank limited [2014 (8) TMI 119 - BOMBAY HIGH COURT] where identical view has been taken. In view of this, we reverse the decision of the ld. CIT (A) in confirming the disallowance. - Decided in favour of assessee. TP Adjustment - Comparable selection - comparability of international transactions with an uncontrolled transaction - HELD THAT:- Merely because the company is having negative net worth but when the FAR is comparable, it cannot be said to be non comparable unless it is shown that how the negative net worth of the company has impacted the profitability of the comparable company. The issue decided by Special bench in the case of DCIT V Quark Systems Limited [2009 (10) TMI 591 - ITAT, CHANDIGARH] where in the negative net worth company was considered and it was held that business organization with negative net worth cannot be treated at par with a normal business organization. However while considering that issue the comparable was also functionally not comparable in that case. Therefore there was no view expressed in that decision that though comparable has similar FAR still negative net worth company is required to be excluded without showing the impact of negative net worth on the profitability of the company. In view of this we direct the inclusion of this Company i.e. Muller & Phipp India Limited as comparable for the purpose of determining arms length price. Other sales exclusion while working out PLI - HELD THAT:- No reason that the ld TPO to exclude the other sales of ₹ 1214675/- to be excluded while working out PLI. Against this no argument have been advanced by the ld DR that how the order of the ld CIT(A) is incorrect. In view of this we direct that other sales shall be included as operating income for working out PLI. Corporate support service exclusion - CIT(A) has held that Corporate Support Services are aggregated with the distribution function of the assessee and are insignificant in volume therefore included as operating income of the assessee - HELD THAT:- DR has fairly agreed that if that income is to included as operating income then proportionate expenses are also required to be included as operating expenses. In our view there is no expenditure has been excluded pertaining to corporate support services. While working out the entity level PLO in case of TNMM method we are of the view that the Corporate Support service income should be included as operating income and therefore we do not find any infirmity in the order of the ld CIT(A). Liabilities No Longer required written back - This amount has been excluded by the ld TPO without assigning any reason - CIT(A) has confirmed his view as it is an extraordinary item - Argument of the ld DR that safe harbour rules also provides for not considering it as operating income. HELD THAT:- We are of the view that safe harbour rules is optional and if the assessee has opted then only he has covered by it otherwise not. Therefore in the present case the assessee cannot precluded from stating that provision returned back written form part of the operating revenue. - Provisions no longer required written back is to be excluded if the assessee makes the provision and also reverses it as a normal business activity. Further if it is on account of revenue nature it should be included. However if the liabilities originally created are on account of capital items then their write back cannot be a normal instances of the business and hence to be excluded as operating income. As the fact for such write back are not available on record we set aside this issue to the file of the Ld. AO/ TPO to examine as per above direction and decide the issue afresh. Needless to say that the assessee may be provided reasonable opportunity for providing these details. Profit on account of foreign exchange / Repairs and maintenance expense - HELD THAT:- We are of the view that foreign exchange gain if it is arising out of sales of goods that it should form part of the operating income of the assessee. It was submitted that Forex gain has arisen on account of export of goods. Ld. TPO as well as CIT (A) has not considered this issue and therefore we set aside it to the file of ld. TPO to deal with this issue on merit after giving proper opportunity of hearing to the assessee.
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