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TMI Blog2017 (7) TMI 355X X X X Extracts X X X X X X X X Extracts X X X X ..... rt turnover, freight, telecommunication charges and expenses incurred in foreign exchange, we are of the opinion that such amounts will have to be excluded from total turnover also as held by the Special Bench of the Tribunal in the case of Sak Soft Ltd.,(2009 (3) TMI 243 - ITAT MADRAS-D ). Assessing Officer is directed to rework the deduction Disallowance u/s. 14A r.w.r. 8D - Held that:- We found that the Assessing Officer has applied the provisions of section 14A r.w.r. 8D and the DRP has considered these facts and directed the Assessing Officer to re-work the computation of disallowance and Accordingly remitted to Assessing Officer. We find the provisions of section 14A r.w.s. 8D are mandatorily applicable w.e.f. 24.03.2008 and accordingly, we are not inclined to interfere with the order of DRP and upheld the action of DRP and dismiss the assessee ground. Further, direct the AO to adopt correct profit for assessing the income and levy of interest u/s. 234B & C is consequential and shall be calculated on assessed income. Accordingly, the assessee appeal is partly allowed for statistical purpose. - I.T.A. No. 1163/Mds/2014, And I.T.A. No. 1016/Mds/2014 - - - Dated:- 10-4-2017 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 3CEB found that the assessee has international transactions with the AE's situated outside India and the value of the transactions are more than ₹ 15 crores and made reference to the TPO for determining the ALP of international transactions. The Ld. TPO vide order dated 23.01.2013 made downward adjustment of ₹ 29,46,518/- as excess payment made by the assessee in procuring raw material from its AE's and the commission of ₹ 7,73,77,422/- paid by the assessee company to its AE's for services received are treated as Rs. Nil. The Ld. TPO found that the assessee company has international transactions in the financial year 2008-09 with its 12 AE s having aggregated value of ₹ 159,79,40,290/-. The assessee company is in the designing and developing various styles of garments and gets approval from the companies. The Ld. AR submitted and filed written submissions in response to the show cause notice, the Ld. TPO on verification found that the assessee company has followed the CUP method to Benchmark its transactions of purchase of raw material from its AE's and the assessee has considered international CUP method for comparing prices paid to the AE ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mpany. The Ld. TPO perused the assessment and article 5.1.4 in respect of transactions with MAST Industries Inc. and find the AE's are sending Mails received from MAST Industries Inc. to the assessee, and the assessee company could not demonstrate the efforts of the M/s. Triumph International Overseas Limited obtaining the orders. With these findings and observations, the Ld. TPO is of the opinion that the ALP of services obtained by the assessee company from its AE Triumph International Overseas will be Nil and made the downward adjustment of international transactions of commission to the extent of ₹ 7,73,77,422/- and passed order u/s. 92CA(3) of the Act dated 23.01.2013. 3.3 The Ld. AO observed that the assessee company has received dividend income of ₹ 50,59,412/- and claimed exemption u/s. 10(34) of the Act and sumoto made a disallowance of expenditure of ₹ 33,333/- an adhoc basis. But the Ld. AO calculated the disallowance u/s. 14A r.w.r. 8D(ii) ₹ 3,10,519/- as the assessee has not considered the expenses of management involving in decision making. Further, the Ld. AO excluded the telecommunication expenses incurred in foreign currency for compu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee and AE's and the joint venture, selling agents and confirmed the disallowance of the Ld. TPO and rejected the assessee objections. 3.6 The Ld. DRP dealt on disputed issue of exclusion of foreign currency expenditure and 30% telecommunication expenses from the export turnover for claim of deduction u/s. 10B of the Act. The Ld. DRP found the issue is covered in favour of the assessee by the decision of special bench of Tribunal in ITO vs Sak Soft Ltd, 121 TTJ 865 and assessee's own case for the earlier assessment years 2006-07 2007-08 in ITA Nos. 2116/Mds/2010 2108/Mds/2011 and directed the Ld. AO to exclude the expenses from the export turnover and total turnover. Further, the DRP directed the Ld. AO to record his satisfaction in computation of disallowance for applying sec. 14A r.w.r. 8D and the assessee shall be provided an opportunity and on other issues of TDS credits the DRP directed the AO to verify and allow the tax credit claimed by the assessee and in respect of levy of interest u/s. 234B C of the Act and the DRP considered it as consequential and passed order u/s. 144C(5) of the Act dated 20.12.2013 4. Aggrieved by the order of the Assessing O ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nce produced and only statements were provided on availing services through E-mail correspondence and the sales commission is paid based on the agreement and the Ld. TPO has accepted these facts and has not doubted the documents but only the nature of services availed. We find strength in the arguments of Ld. AR and the commission is paid for the purpose of business wholly and exclusively based on the turnover. We found similar disputed issue was considered in assessee own case by the co-ordinate bench of this Tribunal in ITA No. 2427/Mds/2005 for the assessment year 2001-02 dated 27.03.2007, where the Tribunal has remitted the disputed issue to be re-examined by the Assessing Officer as held at Para 9 of the order as under: 9. Last issue related to the maintenance of disallowance of commission of ₹ 1,82,06,482/-. 10. We have heard the rival submissions. The assessee is a manufacturer of ladies lingerie and foundation garments. The shares of the assessee company are held 1/3rdl each by M/s. Mast Industries, USA. M/s. Triumph International. Germany and M/s. Mas International Pvt Ltd., Sri Lanka. Assessee entered into an agreement with M/s. Triumph International. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ear whereas the commission paid was ₹ 2,27,06,482/-. It was also alleged before the AO that if a marketing office is maintained by the assessee in New York, the cost would be more than the commission paid by the assessee. AO negatived this nrgul11cllt on the ground that products are sold to a shareholder only. The benefits listed by the assessee accrued only to the' shareholders and not to outsiders. Therefore, there was no need for having a marketing office abroad. 13. It appears that the AO did not examine the documents. It is necessary to see with exactitude what services were rendered by M/s. Triumph International to the assessee and in the context of those services whether the commission was reasonable or not. If it is not reasonable adequate grounds must be given for treating it unreasonable. It appears that the documents produced before us were not considered by the AO. We therefore in the interest of justice set aside the impugned order oh this count and restore to the file of the AO with direction to decide it de novo in accordance with law after providing it de novo in accordance with law after providing adequate opportunity to the assessee of being heard. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stantive grounds in respect of deleting the downward adjustment by the DRP ₹ 29,46,518/- on account of purchases with AE. We find DRP relied on the orders of the assessee's own case for the assessment year 2006-07 and 2007-08 in ITA No. 2116/Mds/2010 and 2108/Mds/2011 and deleted the addition. Contra, the Ld. AR relied on the order of DRP and assessee's own case. We find the disputed issue was decided by the co-ordinate bench of Tribunal at Para 18 which read as under: 18. We are therefore of the opinion that fact situation is such that version of the assessee that in the case of items under six codes, it was forced to pay more amount than comparable prices of supplies from non- AEs, due to minimum order quantity restrictions could not be brushed aside. Rule 10B(1)(a)(ii) clearly mandates adjustment of prices for difference that could materially affect the market prices. Even otherwise, if the other materials falling under 29 item codes purchased from the very same AEs, were also considered in all probability, it would have wiped out the advantage that assessee derived from any possible over pricing on materials falling in 6 item codes purchased by it. To take ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erential i.e. the assessee purchases at a lower price from its AE than the non-AE and when its sales to the AE, its selling price is lower than the selling price as compared with the non-AE. There is no question that the assessee is generating profits from the transaction. There is no dispute that the assessee is also paying taxes on the profits that it has generated from its transaction of purchase and sale with its AE. The assessee, thus it is noticed, is doing the business of trading when it purchased from its AE from one country and sells to another AE in another country. This margin could be on account of both foreign exchange fluctuations as also the mark up done by the assessee. These transactions clearly show that what is done by the assessee is one of purchase and sale. With this in mind reading of the provisions of Sec.92C shows that the word used is nature of transaction . nature of transaction would be a particular set of transaction, which are to be seen together. When the assessee is buying from one place and selling at another that would be a class of transaction . When the assessee is doing the business of trading, it would not be a right to hold that the purcha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s AE, as also the non-AE transactions and then compute the adjustment of ALP, if any. In the circumstances, the grounds Nos.5, 6, 8 9 of the assessee stand partly allowed for statistical purposes. It was clearly held by the coordinate Bench that a global view had to be taken with reference to international transactions. No doubt, in the said decision the Bench elected to remit the matter back to the Assessing Officer for finding out net profit and margins due to various transactions with AE. Here since number of items on which revision of ALP has been done is insignificant when compared to the total number of purchases and total volume of international transactions, such a remission back to Assessing Officer will not serve any purpose. We are therefore, of the opinion that addition on account of revision in ALP was not called for. Such addition for both the years stand deleted. We respectfully follow the co-ordinate bench decision in deleting the downward adjustment and we are not inclined to interfere with the order of the DRP and upheld the same and dismiss the Revenue ground. 9. On the disputed issue of deduction of expenses from export turnover and total turnover fo ..... X X X X Extracts X X X X X X X X Extracts X X X X
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