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2017 (4) TMI 1275 - AT - Income TaxTPA - Comparability - TNMM method - Held that - We are of the opinion that the Non CAT category is not comparable with the CAT category and hence cannot be used for comparison, as an internal TNMM. The assessee s contention that the TNMM does not mandate strict comparability is of no consequence. There is not even broad comparability between these two categories. Comparability is a sine quo non for any method. Therefore, we agrees with the findings of DRP as well as TPO that these two categories are not comparable. Hence, this objection of the assessee is rejected. BMSS charges received are a part of the Manufacturing segment - contention of the assessee is that BMSS is part of manufacturing activity because it was performed by employees deployed in the manufacturing segment and the costs incurred are booked in the manufacturing segment - Held that - TPO s view is that the nature of the activity is services and merely because the services were rendered by the personnel of manufacturing segment, the nature of the activity cannot change from services to manufacturing . Also, it is difficult to accept the contention that people in the manufacturing segment are equipped to render general managerial and administrative support services to group companies. Merely because the assessee had booked these under manufacturing segment does not render it a character of manufacturing activity. Hence, we are of opinion that BMSS service income is certainly not derived from the manufacturing activity of the assessee s and hence should not be considered as a part of the operating income of the manufacturing segment, for computation of PLI. Therefore, the ground raised by the assessee is rejected. Operating expenses allowability - Held that - Liability no longer required written back is a part of the operating activity of the assessee, if it is relating to the operating expenses of the assessee. According the issue is remitted to AO/TPO for fresh consideration. Regarding others of ₹ 0.12 crores, if the assessee proves that it is an operational income, then AO shall not exclude it while computing the PLI. Not excluding 424 Model from manufacturing segment as the model was in its start-up phase - Held that - As rightly pointed out by the ld. D.R., Model 424 cannot be excluded treating the same as a different segment to calculate the PLI of the manufacturing division without corresponding financial of the model 424. The CAT category is a homogenous category in which most of the functions are same and they cannot be segregated in terms of various products. In our opinion, if functions are same, any artificial division, even if based on some scientific basis, would distort the exercise of finding the arm s length price. It would also take away the advantage accruing due to synergic effect of same functions performed on a homogenous unit. Being so, in our opinion, the lower authorities are justified in not excluding the 424 Model from manufacturing segment and also find no merit in the legal argument on this issue. This ground of appeal of the assessee is rejected. Transfer Pricing (TP) adjustment should be restricted only to international transaction and not to the entire turnover - Held that - While determining the ALP, comparison is made between the PLI of the assessee and the arithmetic mean of uncontrollable comparables. While doing so, it is presumed that every other factor is constant and difference has arisen only because of international transactions. If this presumption is not made, no adjustment in any case may be made and the assessee can always make an argument that difference in PLI is not due to international transactions; it is due non-international transactions, therefore we are not in a position to apply the judgmenet of Bombay High Court in the case of CIT v. Thyssen Krupp Industries India (P.) Ltd. 2015 (12) TMI 1076 - BOMBAY HIGH COURT accordingly this ground raised by the assessee is rejected. Nature of reimbursement of expenses received to be income arising out of rendering agency services to its Group Companies by the assessee - considered a mark-up of 2% to be charged on the said receipts - Held that - The claim of the assessee is that it is only reimbursement towards the services provided to the A.E and it does not include any element of profit so as to mark up of 2%. In our opinion, no unrelated parties would provide such services on regular basis so someone, unless a reasonable profit is involved in it. Being so, the services rendered by the assessee to its A.E cannot be free of charge and there should be element of profit, to that extent to add 2% towards profit. Being so, we do not find any infirmity in the order of lower authorities and the same is confirmed. Hence, this ground is rejected. Addition of wealth-tax provision and incremental depreciation added to book profit - MAT - Held that - In our considered opinion, provision for Wealth Tax cannot be considered diminution in the value of asset and it is to be added to the book profit of the assessee. Incremental depreciation is nothing but depreciation on revaluation of assets under clause (iia) of the Explanation-1 sub -section (2) of section 115JB of the Act. This ground of assessee is rejected. Setting off brought forward of business losses and unabsorbed depreciation of earlier years before allowing deduction u/s. 10A - Held that - This issue is squarely covered by the judgement of Supreme Court in the case of CIT v. Yokogawa India Ltd. 2016 (12) TMI 881 - SUPREME COURT holding that though Section 1OA, as amended, is a provision for deduction, the stage of deduction would be while computing the gross total income of the eligible undertaking under Chapter IV of the Act and not at the stage of computation of the total income under Chapter VI. - Allow assessee s ground Exclusion of internet (Telecommunication) expenses towards charges for delivery of computer software outside India from Export turnover u/s. 10A - Held that - The decision of the Chennai Special Bench in the case of ITO v. Sak Soft Ltd. 2009 (3) TMI 243 - ITAT MADRAS-D is squarely covered this issue wherein held that parity needs to be maintained between export turnover and total turnover , directed the AO to reduce the expenses which have been excluded from export turnover, the same to be excluded from the total turnover also for purpose of computing deduction u/s. 10B of the Act. Held the issue in favour of the assessee. Treating the cost of mobile phones as capital expenditure - Held that - In our opinion, the cost of these devices needs to be capitalized under the block of assets Electrical and Electronic equipments as per section 32 of the Act read with Depreciation Schedule of the Income Tax Rules, 1962 with applicable depreciation allowance. Accordingly, this ground raised by the assessee stands dismissed. Disallowance of interest on delayed payment of TDS - Held that - This interest paid for delay in remittance of TDS cannot be construed as penalty for violation of any provisions of law. Being so, the interest paid for delay in remittance of TDS which is a compensatory nature to be allowed as a deduction while computing the income of assessee. This ground of assessee is allowed.
Issues Involved:
1. Dismissal of repeated appeal. 2. Transfer pricing adjustments. 3. Re-computation of margin by excluding certain items. 4. Exclusion of "424 Model" from manufacturing segment. 5. Transfer pricing adjustment restricted to international transactions. 6. Reimbursement of expenses received and mark-up. 7. Additional comparables not considered. 8. Addition of wealth-tax provision and incremental depreciation to book profit. 9. Set-off of brought forward business losses and unabsorbed depreciation before Section 10A deduction. 10. Exclusion of internet expenses from export turnover. 11. Treatment of mobile phone costs as capital expenditure. 12. Disallowance of interest on delayed TDS payment. Detailed Analysis: 1. Dismissal of Repeated Appeal: - The appeal in ITA No. 204/Mds./12 was dismissed as it was a repeated appeal for the same assessment year. 2. Transfer Pricing Adjustments: - The assessee, a subsidiary of Caterpillar Inc., USA, engaged in various international transactions, faced adjustments by the TPO in respect of manufacturing, EDC, APSS segments, and reimbursement of expenses. - The TPO rejected the internal TNMM method proposed by the assessee, citing significant differences between CAT and Non-CAT segments in terms of technology, marketing efforts, brand image, and risk profiles. - The Tribunal upheld the TPO's rejection of internal TNMM, agreeing that the segments were not comparable. 3. Re-computation of Margin by Excluding Certain Items: - The TPO excluded BMSS service income, interest on customers overdue deposit, market promotion fees, liabilities no longer required, and other items from the manufacturing segment's operating income. - The Tribunal agreed with the exclusion of BMSS service income and liabilities no longer required but remitted the issue of interest on customers overdue deposit and other items to the AO for fresh consideration. 4. Exclusion of "424 Model" from Manufacturing Segment: - The assessee argued for the exclusion of the "424 Model" from the manufacturing segment, citing its start-up phase. - The Tribunal rejected this argument, stating that the CAT category is homogenous and should not be artificially divided. 5. Transfer Pricing Adjustment Restricted to International Transactions: - The assessee contended that the adjustment should be restricted to international transactions only. - The Tribunal rejected this argument, stating that the comparison is made between the PLI of the assessee and the arithmetic mean of uncontrolled comparables, assuming all other factors constant. 6. Reimbursement of Expenses Received and Mark-up: - The TPO added a 2% mark-up on the recovery of expenses, considering it a service provided to AEs. - The Tribunal upheld the TPO's decision, stating that services rendered to AEs should include a profit element. 7. Additional Comparables Not Considered: - The assessee raised an additional ground regarding the non-consideration of certain comparables. - The Tribunal admitted the additional ground and remitted the issue to the AO for fresh consideration. 8. Addition of Wealth-Tax Provision and Incremental Depreciation to Book Profit: - The Tribunal rejected the assessee's argument, stating that provision for wealth tax and incremental depreciation on revaluation of assets should be added to the book profit. 9. Set-off of Brought Forward Business Losses and Unabsorbed Depreciation Before Section 10A Deduction: - The Tribunal allowed the ground, following the Supreme Court's judgment in CIT v. Yokogawa India Ltd., which held that deduction under Section 10A should be computed on the income of the undertaking only. 10. Exclusion of Internet Expenses from Export Turnover: - The Tribunal directed the AO to exclude internet expenses from both export turnover and total turnover, following the decision in ITO v. Sak Soft Ltd. 11. Treatment of Mobile Phone Costs as Capital Expenditure: - The Tribunal held that the cost of mobile phones should be capitalized under the block of assets "Electrical and Electronic equipments." 12. Disallowance of Interest on Delayed TDS Payment: - The Tribunal allowed the deduction of interest on delayed TDS payment, considering it compensatory in nature. Conclusion: - The appeal in ITA No. 204/Mds./12 was dismissed. - The appeal in ITA No. 365/Mds./12 was partly allowed for statistical purposes, with several issues remitted to the AO for fresh consideration.
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