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TMI Blog2021 (6) TMI 136X X X X Extracts X X X X X X X X Extracts X X X X ..... functional similarity is established. We overturn the impugned order on the exclusion of this company and direct the AO/TPO to re-decide the issue afresh. As it is a comparable chosen by the assessee, the onus is upon it to prove the functional comparability of this company in addition to other filters. If the assessee succeeds in doing so, the TPO will include it in the list of comparables and vice-versa. Needless to say, the assessee will be allowed a reasonable opportunity of hearing. Treatment of export incentives as non-operating - assessee treated export incentive under RTSF segment as operating revenue - TPO abrogated the assessee s contention and treated the same as non-operating - HELD THAT:- DRP went on to discuss some subsidy issue for setting up of industry in backward area and held that such subsidy was definitely not related to operations of the assessee, as the same was a type of financial assistance to tide over the crisis during initial period of operations in the industry and eventually agreed with the analysis made by the TPO and came to hold it to be in the nature of an extraordinary income. Firstly, the issue before the DRP was export incentive and not any ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... llowable expenditure u/s.40(a)(ii) of the Act. Similar view was earlier taken by the Hon ble Rajasthan High Court in Chambal Fertilisers and Chemicals Ltd. and Another [ 2018 (10) TMI 589 - RAJASTHAN HIGH COURT] . We, therefore, direct the AO to ascertain the correct amount of education cess and then allow a deduction for it, after allowing opportunity of hearing to the assessee. - ITA No. 1823/PUN/2018 - - - Dated:- 3-6-2021 - SHRI R.S. SYAL, VICE PRESIDENT AND SHRI S.S. VISWANETHRA RAVI, JUDICIAL MEMBER Assessee by : S/Shri Ajit Jain and Siddhesh Chaugule Revenue by : Shri Avadesh Kumar ORDER PER R.S.SYAL, VP : This appeal by the assessee is directed against the final assessment order dated 19.9.2018 passed by the Assessing Officer (AO) u/s.143(3) read with section 144C(13) of the Income-tax Act, 1961 (hereinafter also called the Act ) in relation to the assessment year 2014-15. 2. Succinctly, the factual matrix of the case is that the assessee, who is engaged in the manufacture and sale of ready to eat foods, filed its return declaring total income of ₹ 1,88,570, which was subsequently revised to the total income of ₹ 9,38,410. The asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... certain direct expenses to the RTSF segment and allocated remaining expenses on the basis of certain allocation keys. Page 4 of the TPO s order records that the assessee made RTSF segmental Income statement by using the three principles: i) Direct cost objective which are in economically feasible manner; ii) Traceability to cost drivers; iii) `Cause and effect or `benefits received manner. Before proceeding further, it is pertinent to mention that the international transaction requiring the ALP determination is only the RTSF segment and not the others. Thus, it becomes more important to ensure that all the relevant costs relating to the RTSF segment are properly accounted for in the segmental Income statement. Any attempt to allocate more costs to this segment at the cost of the other segments needs to be eschewed. On our examination of the relevant material on record, it transpired that some of the important raw material costs were common to RTFS and Frozen Foods segments. The ld. AR could not substantiate that such common material costs were properly allocated segment-wise. In other words, the ld. AR could not demonstrate a rational allocation of costs to RTSF segment. Fac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... inclusion or otherwise in the list of comparables. It is just elementary that a company must be functionally similar in order to qualify for inclusion. All other filters come afterwards only when the functional similarity is established. We have also gone through the Annual report of this company from which its business profile cannot be deduced. The ld. AR submitted that the assessee be given one more chance to establish the functional comparability of this company before the TPO in the light of other attending evidence. Considering the totality of the facts and circumstances of the case, we overturn the impugned order on the exclusion of this company and direct the AO/TPO to re-decide the issue afresh. As it is a comparable chosen by the assessee, the onus is upon it to prove the functional comparability of this company in addition to other filters. If the assessee succeeds in doing so, the TPO will include it in the list of comparables and vice-versa. Needless to say, the assessee will be allowed a reasonable opportunity of hearing. 7. The next issue raised in this appeal is against the treatment of export incentives as non-operating. The facts apropos this issue are that th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat such subsidy was definitely not related to operations of the assessee, as the same was a type of financial assistance to tide over the crisis during initial period of operations in the industry and eventually agreed with the analysis made by the TPO and came to hold it to be in the nature of an extraordinary income. Firstly, the issue before the DRP was export incentive and not any subsidy. Secondly, it is not any initial period of operations of the assessee as taken note of by the DRP. It appears that the DRP mixed up the facts of some other case, which eventually resulted in miscarriage of justice. It has been brought to our notice that for the A.Y. 2011-12, the TPO took similar view by treating export incentive as non-operating. When the matter came up before the Tribunal, it directed to consider the export incentives as part of operating income. A copy of the Tribunal order dated 24-07-2019 passed in ITA No.449/PUN/2016 at pages 762 onwards of paper book has been placed on record. Relevant discussion has been made at para 7.C of the Tribunal order. In view of the foregoing discussion, we are of the considered opinion that the amount of export incentives is liable to be cons ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... given by the DRP is binding on the AO who has to necessarily pass the assessment order in conformity with the directions. This is amply clear from the language of section 144C(13) of the Act, which provides in unambiguous terms that: Upon receipt of the directions issued under sub-section (5), the Assessing Officer shall, in conformity with the directions, complete, . the assessment. The AO has not only failed to follow the direction given by the DRP in this regard but is still sitting over the rectification application filed by the assessee for over two and half years. Such an approach needs to be corrected. In such circumstances, we direct the AO/TPO to grant working capital adjustment to the assessee as per the methodology suggested by the DRP, against which the assessee is not aggrieved, in principle. 13. To sum up, we set-aside the impugned order and remit the matter to the file of AO/TPO for re-determining the Arm s Length Price of the international transactions of RTSF segment in accordance with the discussion made herein above. 14. The assessee has raised the following additional ground: That the education cess paid during the relevant Assessment Year ..... X X X X Extracts X X X X X X X X Extracts X X X X
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