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2019 (5) TMI 679 - AT - Income TaxTP adjustment - Payment of commission @ 6% on its sales arose - HELD THAT - Tribunal vide order 2019 (2) TMI 351 - ITAT PUNE has noted the rendering of services by TTPL and has held that Commission Agreement dated 01.12.2007 existed between the assessee and TTPL and as per clauses of the said agreement, it was clear that TTPL was facilitating purchases in respect of assessee from Dassault, UK. It was responsibility of TTPL to undertake marketing efforts to telemarketing and inbound enquiries through its dedicated support. The assessee had further furnished evidences demonstrating that the purchase of software license was done by the assessee from Dassault, UK and TTPL was facilitating the entire process in ensuring smoothing selling of transactions. In view of tangible evidence filed by assessee, the Tribunal held that payment of commission was justified. Following the same parity of reasoning, we hold that no upward adjustment merits to be made in the hands of assessee, where the commission rate of 6% has been found by the Tribunal to be appropriate and the learned Departmental Representative for the Revenue has failed to bring on record any evidence to the contrary - delete the addition made on account of arm's length price of international transactions undertaken by the assessee. Disallowance of amortization of premium paid on leasehold land - HELD THAT - The said issue raised of disallowance of amortization of premium paid on leasehold has been decided by the Tribunal with lead order relating to assessment year 2001-02 2015 (8) TMI 557 - ITAT PUNE we hold that the said expenditure is not allowable in the hands of assessee. - Decided against assessee Disallowance of provision made for expenditure in respect of Bhavishya Kalyan Yojana - HELD THAT - Said issue has been decided against the assessee as relying on assessee's own case 2015 (8) TMI 557 - ITAT PUNE Disallowance made u/s 14A read with Rule 8D - HELD THAT - The first plea of assessee is that it had own funds which were more than its investments and hence, no disallowance under Rule 8D(2)(ii) of the Rules. This argument of assessee needs verification at the end of Assessing Officer.Accordingly, we direct the Assessing Officer to verify the claim of assessee in this regard and in case own funds of assessee are more than investments, then no disallowance is warranted under Rule 8D(2)(ii) of the Rules on account of dictate of the Hon ble Bombay High Court in CIT Vs. HDFC Bank Ltd. 2014 (8) TMI 119 - BOMBAY HIGH COURT Disallowance made i.e. under Rule 8D(2)(iii) of the Rules - AO is again directed to work out the disallowance by considering investments which have yielded dividend income. The Assessing Officer shall afford reasonable opportunity of hearing to the assessee in this regard. The ground of appeal No.8 is thus, allowed for statistical purposes. Enhanced deduction under section 10A - HELD THAT - We find that the issue raised vide ground of appeal No.9 is squarely covered by the ratio laid down by the Hon ble Bombay High Court in CIT Vs. Gem Plus Jewellery India Ltd. 2010 (6) TMI 65 - BOMBAY HIGH COURT . Accordingly, we hold that the assessee is entitled to enhanced deduction under section 10A of the Act on account of corporate tax additions made in its hands. We direct the Assessing Officer to re-compute the aforesaid deduction under section 10A of the Act. TP Adjustment - Design Engineering Services - application of segmental profitability while benchmarking its international transactions with AEs. - the assessee has shown PLI at 27.99%. - in TP report benchmarking applied on entity level but before TPO/DRP it applied based on segmental profitability - HELD THAT - Where the assessee has provided segmental information which is also audited in the case of assessee, though filed during TP proceedings / DRP proceedings but the same cannot be brushed aside on the ground that the assessee in the TP study report has worked out the margins at entity level. In this developing scenario of transfer pricing, it is necessary to implement and apply the law as it develops. Merely because the assessee had in the TP study report applied margins at the entity level, it cannot be precluded from furnishing segmental details during TP proceedings or DRP proceedings in order to benchmark the margins of its international transactions on the basis of segmental profitability of AE segment. The fact which needs to be kept in mind is the turnover of assessee, which in the AE segment was ₹ 295 crores and in non AE segment was ₹ 467 crores i.e. out of total revenue of ₹ 764 crores, only ₹ 295 crores was attributable to AE segment. We find no merit in the orders of authorities below in benchmarking international transactions on entity level. Accordingly, we accept the plea of assessee that segmental details are to be adopted and margins of segment of AE transactions are to be compared with margins of comparables selected. In this regard, the assessee has explained that even if the margins of Eclerx Services are applied, which though he claims to be not functionally comparable, but still margins shown by the assessee would be within /- 5% range and no adjustment needs to be made in the hands of assessee on account of said segment of Design Engineering Services. The Pune Bench of Tribunal in Tieto IT Services India (P.) Ltd. Vs. DCIT 2018 (3) TMI 940 - ITAT PUNE had also in similar circumstances directed the application of segmental profitability while benchmarking its international transactions with AEs. Accordingly, the ground of appeal No.2 raised by assessee
Issues Involved:
1. Transfer Pricing Adjustment for Payment of Commission 2. Disallowance of Amortization of Premium on Leasehold Land 3. Disallowance of Provision for Expenditure under Bhavishya Kalyan Yojana (BKY) 4. Disallowance under Section 14A read with Rule 8D 5. Enhanced Deduction under Section 10A 6. Initiation of Penalty Proceedings under Section 271(1)(c) 7. Transfer Pricing Adjustment in Design Engineering Segment (DES) 8. Disallowance of Provision for Medicare Expenses Detailed Analysis: 1. Transfer Pricing Adjustment for Payment of Commission: The primary issue was the TP adjustment of ?4,65,17,750 for the payment of commission to the AE. The Tribunal noted that the issue was covered by its previous order for AY 2012-13, where it was held that the commission payment at 6% was justified based on the services rendered by TTPL. The Tribunal directed the AO to delete the addition made on account of the arm's length price of international transactions undertaken by the assessee. 2. Disallowance of Amortization of Premium on Leasehold Land: The Tribunal referred to its earlier orders for AYs 2001-02 and 2003-04, which were applied in AY 2012-13, and held that the expenditure on amortization of premium on leasehold land is not allowable. Consequently, the ground raised by the assessee was dismissed. 3. Disallowance of Provision for Expenditure under Bhavishya Kalyan Yojana (BKY): The Tribunal noted that this issue was also decided against the assessee in earlier years (AY 2003-04). Following the same reasoning, the ground raised by the assessee was dismissed. 4. Disallowance under Section 14A read with Rule 8D: The Tribunal observed that the AO had recorded satisfaction before invoking Section 14A, and thus, the disallowance was justified. However, the AO was directed to verify the assessee's claim regarding the availability of own funds exceeding investments and to re-compute the disallowance under Rule 8D(2)(ii) and (iii) accordingly. 5. Enhanced Deduction under Section 10A: The Tribunal held that the assessee is entitled to enhanced deduction under Section 10A based on corporate tax additions, following the ratio laid down by the Hon’ble Bombay High Court in CIT vs. Gem Plus Jewellery India Ltd. The AO was directed to re-compute the deduction accordingly. 6. Initiation of Penalty Proceedings under Section 271(1)(c): The Tribunal deemed the initiation of penalty proceedings under Section 271(1)(c) as premature and dismissed the ground. 7. Transfer Pricing Adjustment in Design Engineering Segment (DES): The Tribunal accepted the assessee's plea for applying audited segmental details for benchmarking international transactions. It was directed that segmental details should be adopted, and margins of the AE segment should be compared with those of the comparables. Consequently, other related grounds became academic and were dismissed. 8. Disallowance of Provision for Medicare Expenses: The Tribunal noted that this issue was decided against the assessee in AY 2003-04. Following the same reasoning, the ground was dismissed. Conclusion: The appeals were partly allowed, with specific directions given to the AO for re-computation and verification on certain issues, while other grounds were dismissed based on precedent and established reasoning.
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