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TMI Blog2017 (12) TMI 1520X X X X Extracts X X X X X X X X Extracts X X X X ..... hat:- As in assessee's own case for earlier year Tribunal directed the Assessing Officer to adopt the net profit to sales for determining PLI. Benefit of variation / reduction of 5% from the arithmetic mean - Held that:- The benefit of range of +/-5% is available if the variation does not exceed the said tolerance margin. International transactions of procurement support services provided to associated enterprises are to be aggregated and benchmarked along with international transactions under the manufacturing activities. Disallowance of deduction claimed under section 80IB - Held that:- The said issue is covered against the assessee by the earlier order of Tribunal and wherein, the Tribunal following the same parity of reasoning as in assessment year 2006-07 had upheld the orders of authorities below in allocating head office expenses, Director s salary, etc to Daman unit and upheld the re-computation of deduction under section 80IB of the Act. Following the same parity of reasoning, we dismiss the ground of appeal No.7.1 raised by the assessee. Addition u/s 14A - Held that:- The assessee during the course of hearing has filed the details in respect of disallowanc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and on the facts and in circumstances of the case in rejecting the external comparable companies selected by the Appellant for benchmarking the manufacturing function. 3. Inappropriate comparison of profitability between export to Associated Enterprises (AEs) segment and domestic sales segment ignoring differences in Functions, Assets and Risks (FAR), differences in products sold and comparison of controlled transactions with controlled transactions 3.1 The learned ACIT, pursuant to the directions of the learned DRP, erred in law and on the facts and in circumstances of the case in comparing segmental profitability of the Appellant i.e. between export to AEs segment and domestic sales segment ignoring product differences, differences in markets as well as differences in the functions, assets and risks (FAR). 3.2 The learned ACIT, pursuant to the directions of the learned DRP, erred in law and on facts and in circumstances of the case in comparing segmental profitability of the Appellant exports to AEs segment and domestic sales segment. This is a comparison between controlled transactions, which is against the transfer pricing regulations in India, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lation to exempt income u/s.14A of the Income Tax Act, 1961. 9. Initiation of Penalty Proceedings 9.1 The learned ACIT erred on the facts and in law in initiating penalty proceedings under section 271(1)(c) of the Act. 10. Each one of the above grounds of appeal is without prejudice to the other. 3. The learned Authorized Representative for the assessee at the outset pointed out that the issues raised in the present appeal are squarely covered by the order of Tribunal in assessee s own case relating to assessment year 2007-08 except for the issue raised vide ground of appeal No.8.1 i.e. disallowance of expenses under section 14A of the Act. The learned Authorized Representative for the assessee thereafter, took us through the issues raised ground-wise to point out how the same are covered by the order of Tribunal. 4. The learned Departmental Representative for the Revenue placed reliance on the orders of authorities below but fairly conceded that the said issues were adjudicated by the Tribunal in assessee s own case in preceding years. 5. We have heard the rival contentions and perused the record. Briefly, in the facts of the case, the assessee was enga ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l thus, held that where various activities were so interlinked to the export of manufactured IC engines, then the said international transactions undertaken by the assessee for the year under consideration need to be aggregated for undertaking benchmarking analysis applying TNNM method. The Tribunal in this regard placed reliance on the principles laid down by the Hon‟ble High Court of Delhi in Sony Ericsson Mobile Communications India Pvt. Ltd. Vs. CIT (supra). Following the same principle and where the assessee was engaged in similar activity of manufacturing, we hold that various activities need to be aggregated. Accordingly, we direct so. 9. Following the same parity of reasoning, we hold that while benchmarking the international transactions of assessee, wherein the assessee was engaged in manufacturing activities, then we hold that various activities are to be aggregated for determining the arm's length price of its international transactions. 10. The issue raised vide grounds of appeal No.2.1, 3.1 and 3.3 is against the method to be applied as most appropriate method and whether internal comparability is to be made i.e. comparing the profitability of export ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... grounds of appeal No.1.1, 2 and 3 are decided as indicated above. 11. The issue raised vide grounds of appeal No.2.1, 3.1 and 3.3 is thus, decided in favour of assessee and we hold so. The issue raised in ground of appeal No.3.4, in view thereof, becomes academic in nature and the same is dismissed. 12. The issue in ground of appeal No.4.1 is against determination of PLI, wherein the TPO had applied net profit to cost to work out the PLI. However, the claim of assessee was that PLI of net profit to sales has to be applied. The Tribunal vide order dated 21.08.2017 has decided the issue vide paras 14 and 15 and directed the Assessing Officer to adopt the net profit to sales for determining PLI. The relevant findings of the Tribunal are as under:- 14. The next issue raised vide ground of appeal No.4 is against the approach adopted by the TPO in application of net profit to cost as PLI. The said issue was also decided by the Tribunal in assessment year 2006-07 vide para 22 at page 30 of the order which reads as under:- 22. The next issue raised by way of ground of appeal No.7 is the methodology adopted by the TPO in application of net profit to cost as PLI. The case ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s directed to compute arm's length price of international transactions after aggregating the international transactions undertaken by the assessee under the head manufacturing activity‟. The relevant findings of the Tribunal are in paras 24 and 25 at page 31 of the order and following the same parity of reasoning, we hold so. The grounds of appeal No.6 and 7 are thus, allowed. 17. Following the same parity of reasoning, we hold that international transactions of procurement support services provided to associated enterprises are to be aggregated and benchmarked along with international transactions under the manufacturing activities. 18. The issue raised vide ground of appeal No.7.1 is against the disallowance of deduction claimed under section 80IB of the Act. 19. The learned Authorized Representative for the assessee fairly pointed out that the said issue is covered against the assessee by the earlier order of Tribunal and wherein, the Tribunal following the same parity of reasoning as in assessment year 2006-07 vide order dated 03.03.2017 had upheld the orders of authorities below in allocating head office expenses, Director s salary, etc to Daman unit and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Act, if any, is to be restricted to the extent which is related to the income not forming part of total income. The assessee had worked out the disallowance at ₹ 19,63,021/-. The Assessing Officer accepted the plea of assessee that no disallowance on account of interest cost is to be made. However, submissions of assessee with regard to general and administrative expenses were found to be not acceptable. The Assessing Officer rejected the contention of assessee that no expenses could be attributed to earning of exempt dividend income on the ground that there may not be any direct attributable expenses under Rule 8D(2)(i) of the Rules but the assessee company must have incurred some expenses to earn tax free dividend income. In view thereof, the disallowance was computed as per Rule 8D of the Rules @ 0.5% of average value of investments which works out to ₹ 1,50,26,000/-. The CIT(A) upheld the same. The assessee is in appeal against the same. 24. The first issue which has to be considered is the satisfaction recorded by the Assessing Officer, in view of provisions of section 14A(2) of the Act. As per said sub-section, where the Assessing Officer having regard to the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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