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TMI Blog2015 (5) TMI 398X X X X Extracts X X X X X X X X Extracts X X X X ..... the Act. 2.1 That the Dispute Resolution Panel ('DRP')/TPO erred on facts and in law in disregarding the internal benchmarking undertaken by the appellant for determining the arm's length price of the international transactions applying TNMM on the ground that- (i) the appellant did not maintain segmental accounts for the related and non related transactions and there was no segregation of these activities in the audited financials. (ii) In the segmental accounts prepared by the appellant, expenses which cannot be directly allocated are apportioned on the basis of respective turnover and is not reliable at all. (iii) The segmental account prepared and certified by the independent firm of Chartered Accountants are not reliable. (iv) That the auditor while auditing the segment analysis has relied on the segments drawn by the management. (v) That the appellant has failed to provide the details of employees functioning under the AE and non-AE segments. 2.2 That the assessing officer/DRP erred on facts and in law in holding that the internal comparability does not provide meaningful benchmarking, even after accepting that, FAR of the segments are identical and concur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sing officer/TPO erred on facts and in law in considering reimbursement received from associated enterprise as operating income and expenditure of the appellant allegedly holding that: i) The reimbursement is directly linked to the services that the appellant has provided to it's AE. ii) The appellant has deployed its own personnel and there is cost involved in deploying such personnel by way of salary and other expenses. iii) The appellant has deployed huge amount of money. iv) The amount falls within the category of 'total cost' as it is directly linked to primary business activity of the appellant. v) The appellant has taken up itself certain duties of the associated enterprise for which the appellant needs to be compensated adequately. 3. That the assessing officer/DRP erred on facts and in law in treating miscellaneous income as "income from other sources" as against business income considered by the appellant. 3.1 That the assessing officer/DRP erred on facts and in law in not appreciating that miscellaneous income of Rs. 30,76,102, represented amount received on account of notice pay, which is incidental to software export business and is to be considered ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 18 of the order dated 28.07.2014 which read as under: "17. The ld counsel pointed out that a co-ordinate Bench of this Tribunal in appellant's own case for the assessment year 2006-07 reported in 136 TTJ 505, had allowed the appeal of the assessee, and held as under:- "17. In the light of the discussions made above, we therefore, hold that the assessee was justified in undertaking internal bench marking analysis on standalone basis by placing on record working of operating profit margin from international transactions with AEs and transactions with unrelated parties undertaken in similar functional and economic scenario, and the same should be the basis for determination of arm's length price in respect of international transactions undertaken with the associated enterprise. In the light of the facts of the present case as discussed above, we therefore, hold that the Transfer Pricing Officer had the present case as discussed above, we therefore, hold that the Transfer Pricing Officer had to mandate to have recourse to external comparables when, the present case, internal comparables were available, which could be applied for determining the arm's length price of international tr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n; and for the purpose of determining the arm's length price in respect of the international transactions undertaken with the associated enterprise by making internal comparison of profitability from the international transactions with associated enterprise and profitability from the international transactions with unrelated parties after allocating respective revenues and expenses to both the segments. We find that in Assessment Year 2007-08 and 2008- 09, too, the Tribunal has relied on its own previous order and upheld the benchmarking analysis undertaken by the appellant considering internal comparable for determining arm's length price. Similarly, we also find that vide order dated 06.05.2014, the a co-ordinate Bench of this Tribunal in appellant's own case for Assessment Year 2005-06(ITA NO. 4713/Del/2011), upheld the internal benchmarking undertaken by the appellant, considering the ratio laid down in the decision of Tehnimont (supra) and the decision of this Tribunal in the appellant's own case for Assessment Year 2006-07. Therefore in the light of the decision of the co-ordinate bench of this Tribunal we respectfully follow it and set-aside the order of the AO/TPO on this i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... parties and carefully gone through the material available on the record. It is noticed that an identical issue having similar facts has been decided in favour of the assessee vide aforesaid referred to order dated 28.07.2014 and relevant findings have been given in paras 25 to 27 which read as under: "25. According to the ld counsel, Shri Ajay Vohra the Assessing Officer has wrongly held that miscellaneous income of Rs. 43,77,370/- is assessable as income from other sources and, accordingly, disallowed deduction in respect of the same income u/s 10A of the Act and it was contended by the ld counsel that the amount of Rs. 44,77,370/- was actually received towards notice pay receivable from employees working in the software units. According to Shri Ajay Vohra, the said amount was received towards reduction of salary cost debited to the eligible undertaking. In the light of these facts, the assessee claimed the miscellaneous income as income derived from the eligible undertaking for the purpose of sec. 10A of the Act. The assessee's claim has been rejected by the Assessing Officer by treating the miscellaneous income as income from other sources and not income derived from eligible u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 8.07.2014 in ITA No. 1572/Del/2014 for the assessment year 2009-10 this issue is decided in favour of the assessee. 14. The issue agitated by the assessee vide Ground No. 4 to 4.3 relates to the adhoc disallowance of interest expenses amounting to Rs. 1,58,70,000/- made by the AO by holding that the interest paid on short term loans which were invested in acquisition of fixed assets shall be capitalized alongwith the fixed assets. The facts related to this issue in brief are that the AO noticed that the assessee had taken short term loans of Rs. 46.36 crores which were utilized for investment purposes. He therefore, asked the assessee to show cause as to why the interest be not capitalized in terms of proviso to section 36(1)(iii) of the Act. The AO was of the view that the interest deserves to be capitalized on that portion which was on capital expenditure. He computed the investment on capital items at Rs. 10.58 crores and worked out the interest @ 15% amounting to Rs. 1,58,70,000/-. The said amount was disallowed from the interest expenses. The proposal of the TPO/AO was upheld by the DRP, accordingly the AO made the disallowance. 15. Now the assessee is in appeal. The ld. Cou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... disallowed interest amounting to Rs. 1,75,50,000@ 15% on the said sum of Rs. 11.7 crores. The said finding of the Assessing Officer was upheld by the DRP, which has also observed that the appellant has not explained, how the acquisition of asset is sourced from the profit earned by it and as to why the appellant has raised loan of Rs. 60.365 crores for long term purpose. 36. It may be taken note that Interest on capital borrowed even for acquisition of assets is eligible for deduction as per Sect 36(i)(iii) of the Act. Subsequently a proviso has been inserted by the Finance Act 2003. April1, 2004 relating to Assessment Year 2004-05 and subsequent years. Hence the said proviso will apply to the present Assessment Year provided the assessee's case falls under it. In terms of section 36(1)(iii) of the Act, deduction is allowed in respect of interest on capital borrowed for the purpose of business or profession. In terms of the proviso to said section, no deduction, however, is allowed in respect of capital borrowed for acquisition of an asset for extension of existing business or profession for the period beginning from the date on which the capital was borrowed for acquisition of th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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