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TMI Blog2015 (12) TMI 33X X X X Extracts X X X X X X X X Extracts X X X X ..... s product group. This, inter-alia, includes penicillins, high potency drugs and general injectables. The sterile injectables / parental products are typically administered through intravenous and intramuscular routes. 3. During the Financial Year 2009-10, the manufacturing activity was carried out through the four facilities which are Cephalosporins division, Sterile Products Division I, Beta Lactum Division and Sterile Product Division II (i.e., Specialty Formulation Facility). The assessee earned revenue from the 3 segments as follows:- Particulars Amount (Rs.) Manufacture & sale of formulations 654,449,709 R & D 30,761,952 Trading 720,946 Total 685,932,607 4. For the AY 2010-11 the assessee filed its return of income on 14.10.2010 declaring a loss of Rs. 376,181,078, claiming a refund of Rs. 1,025,499. During the course of assessment proceedings, the international transactions entered into by the Assessee were referred by the Assessing Officer to the Transfer Pricing Officer [TPO] for determination of arm's length price [ALP] under section 92CA of the Income-tax Act, 1961 ["the Act"]. Simultaneously, the assessment proceedings were initiated under section 143 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 100 Operating Margin percentage 5.40 4.86 * Net of export commission of Rs. 30,610. 7. The ld. counsel for the assessee relied on the Third Member decision in the case of M/s. Technimont ICB Pvt. Ltd. v. Addl. CIT in ITA No.4608/Mum/2010. 8. The ld. counsel for the assessee also brought to our notice that in the subsequent year i.e., AY 2011-12 the TPO has accepted internal comparability. 9. We have heard both the parties. Ground No.3 of the concise grounds of appeal reads as follows. The other grounds are not being considered by us as the same were not pressed. "3. The Honorable DRP has erred in law and on facts in upholding the TPO's/AO's act of rejecting the segmental data/allocation keys pertaining to the transactions related to AE and non-AE treating it as unreliable, thereby rejecting internal TNMM applied by Appellant. This was done by the TPO merely on the ground that there was a huge variation in the operating margin for AE and non-AE segment without providing opportunity to the Appellant of being heard to submit its case." 10. The TPO had applied external TNMM on entity level and on this issue, the Third Member decision of the Mumbai Bench of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng object behind computing ALP of an international transaction is to find out the profits which such enterprise would have earned if the transaction had been with some third party instead of related party. When the data is available showing profit margin of that enterprise itself from a third party, it is always safe and advisable to have recourse to such internal comparable case. The reason is patent that the various factors having bearing on the quality of output. assets employed, input cost etc. continue to remain by and large same in case of an internal comparable. The effect of difference due to such inherent factors on comparison made with the third parties, gets neutralized when comparison is made with internal comparable. Ex consequenti, it follows that an internal comparable uncontrolled transaction is more noteworthy vis-â-vis its counterpart i.e. external comparable." 11. It has also been brought to our notice that in the subsequent year i.e. AY 2011-12, the TPO has accepted the internal comparability. 12. The ld. DR relied on the order of DRP. 13. We are in conformity and are inclined to follow the decision of the Third Member, ITAT Mumbai Bench in the case of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee has not remitted the employees contribution towards the provident fund & ESI within the due date and as such these sums are an income in the hands of the assessee in terms of Section 2(24)(x) r.w.s. 36(1)(va). 6. The DRP failed to appreciate the fact that the employees' contribution to PF/ESI is to be allowed u/s 36(1)(va), if such contributions are remitted within the due dates prescribed under the relevant Acts and the due date referred in Section 43B(b) are not applicable to the employees' contribution. 7. For these and such other grounds that may be urged at the time of hearing, it is humbly prayed that the order of the DRP be reversed and that of the Assessing Officer be restored. 8. The appellate craves leave to add, to alter, to amend or delete any of the grounds that may be urged at the time of hearing of the appeal." 17. Ground Nos. 1, 7 & 8 are general in nature. 18. The second ground becomes infructuous, as we have already decided the same issue in ground No.3 of the assessee's appeal in IT(TP)A No.214/Bang/2015. 19. Ground Nos. 3 & 4 merely state that the DRP erred in deleting the disallowance of Rs. 1,50,64,297 u/s. 40(a)(i) relating to the payments ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... employees. It is further stated that on combined reading of provisions of section 36(1)(va) of the Act and section 43B of the Act, it can be concluded that: - There should be a contribution to the fund; - The contribution should be in the capacity of the employer - And such contribution should be on or before the due date under the Act In the instant case, the Company, in respect of employee's contribution to ESI, has paid such sum after the due date prescribed under the ESI Act however, before the due date for filing of the return of income as provided under section 139(1) of the Act. Even in cases where the contribution has been made after the due date prescribed under section 36(1)(va) of the Act, such sum is still entitled for deduction, if the same has been contributed to the fund on or before due date for filing of the return of income as provided under section 139(1) of the Act. To support the objection, the assessee relied on the following judicial pronouncements * The Supreme Court in the case of CIT Vs Alom Extrusions Ltd (2010) (319 ITR 306) has held that payment of employees contribution to the respective account by the employer would be allowed as deduction on a ..... X X X X Extracts X X X X X X X X Extracts X X X X
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