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TMI Blog2015 (9) TMI 1170X X X X Extracts X X X X X X X X Extracts X X X X ..... ’s length price (ALP) of the international transaction. Similar is the position regarding working of OP/TC of M/s Agricultural Finance Corporation Ltd. The TPO computed PLI of this company at 7.43%. The ld. AR contends that this figure is incorrect. No relevant details leading to the computation of this profit rate are available in the TPO’s order, which position has been admitted by the ld. DR as well. Following the view taken hereinabove, we set aside the impugned order to this extent also and remit the matter to the file of AO/TPO for incorporation of correct OP/TC of this company in the profit rates of comparables, after allowing a reasonable opportunity of being heard to the assessee. Consideration by the TPO of deferred revenue expenditure as operating expense in the computation of the assessee’s own operating profit rate - Held that:- Neither the dates of incurring such revenue expenses, though capitalized as deferred revenue expenditure, are available on record nor there is any record to link these expenses with the earning of revenue from the AE. In the absence of the necessary details of these two factors relevant for deciding the question as to whether or not these ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ITA No. 4986/Del/2010 - - - Dated:- 11-9-2015 - Shri R. S. Syal, AM And Shri A. T. Varkey, JM, JJ. For the Petitioner : Shri Ankit Arora Ms Soumya Seth, CAs For the Department : Shri Amrendra Kumar, CIR, DR ORDER Per R. S. Syal, AM: This appeal by the assessee is directed against the final assessment order passed by the Assessing Officer (AO) under section 143 (3) read with section 144C of the Income-tax Act, 1961 (hereinafter also called the Act ) in relation to the assessment year 2006-07. 2. Concise grounds have been filed by the assessee in supersession of the grounds taken in appeal memo. Apart from that, the assessee has also filed certain additional grounds. Some of the grounds were not pressed. We will deal with the surviving issues one by one. 3. The first issue pressed by the ld. AR is against the alleged calculation mistake committed by the Transfer Pricing Officer (TPO) in computing the profit margin of two comparable companies, namely, M/s Educational Consultants (India) Ltd. (Technical Assistance segment) and M/s Agricultural Finance Corporation Ltd. 4. Briefly stated, the facts of the case are that the assessee, a wholly owne ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the ld. AR. Under such circumstances, we are of the considered opinion that the ends of justice would meet adequately if the impugned order on this score is set aside and the matter is sent back to the file of AO/TPO. We order accordingly and direct the TPO to incorporate in his order the relevant figures leading to the determination of the computation of OP/TC at 26.45%. Needless to say, the assessee will be allowed a reasonable opportunity of being heard. If, after considering the objections of the assessee, the TPO finds that this calculation of profit rate of 26.45% is incorrect as has been contended before us, then the TPO/AO should consider the correct percentage and, consequently re-determine the arm s length price (ALP) of the international transaction. 6. Similar is the position regarding working of OP/TC of M/s Agricultural Finance Corporation Ltd. The TPO computed PLI of this company at 7.43%. The ld. AR contends that this figure is incorrect. No relevant details leading to the computation of this profit rate are available in the TPO s order, which position has been admitted by the ld. DR as well. Following the view taken hereinabove, we set aside the impugned orde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h the detail of expenses with the heads given before us which, inter alia, includes Salary of ₹ 24.76 lac, Rent of ₹ 10.78 lac, Depreciation of ₹ 2.41 lac. All the expenses in this list are otherwise of operating nature, except Preliminary expenses amounting to ₹ 25,498/-, which full amount has been treated by the TPO himself as non-operating. The ld. AR argued that such expenses were incurred prior to the rendering of services to the AE and hence should not have been considered as operating expenses in the computation of operating profit margin of the current year. On a specific query from the Bench, it was admitted that the assessee was engaged in rendering services only to its AE and none else. It is also an admitted position that the assessee started rendering services to its AE from 1st January, 2005. The relevant criteria in this regard is the nature of expenses incurred by the assessee after setting up of business, whether or not capitalized and even if capitalized, then the nomenclature is also irrelevant. Turning to the facts of the case, we find that such expenses capitalized by the assessee as deferred revenue expenses, except preliminary expenses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cts and then decide the issue in conformity with our above discussion. 10. It is further noticed that the assessee incurred total preliminary expenses amounting to ₹ 25,498/- in the preceding year and only 20% of such expenses was written off in this year. However, the TPO instead of adding back such 20% to the overall net profit by treating it as nonoperating, by mistake added back the full amount of ₹ 25,498. The effect of this exercise done by the TPO is that 80% of ₹ 25,498 which was not debited to the Profit and loss account also got treated as nonoperating expense, which position is not correct. In the fresh exercise of finding out the amount to be treated as operating or non-operating out of total deferred revenue expenses, the TPO will also take the aspect of Preliminary expenses into consideration. 11. Ex consequenti, the impugned order is set aside on this score and the matter is sent back to the file of the AO/TPO for a fresh determination in accordance with our above observations. 12. The only other issue which survives in this appeal is against the treatment of M/s Artefacts Software and Finance Ltd. as a comparable company. The facts of this ..... X X X X Extracts X X X X X X X X Extracts X X X X
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