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TMI Blog2023 (4) TMI 59X X X X Extracts X X X X X X X X Extracts X X X X ..... d is therefore deleted. Disallowance in respect of employee s contribution to PF - HELD THAT:- We notice that the Hon ble Supreme Court in the case of Checkmate Services [ 2022 (10) TMI 617 - SUPREME COURT] has considered the issue of whether the employees contribution paid before due date for filing the return of income u/s.139(1) whether otherwise allowable u/s.43B, putting to rest the contradicting decisions of various High Court. Thus employees contribution to PF and ESI should be remitted before the due date as per explanation to section 36(1)(va) i.e. on or before the due date under the relevant employee welfare legislation like PF Act, ESI Act etc., for the same to be otherwise allowable u/s.43B. The grounds taken by the assessee on this issue is dismissed. - IT(TP)A No. 879/Bang/2022 - - - Dated:- 17-11-2022 - Shri N.V. Vasudevan, Vice President and Ms. Padmavathy S., Accountant Member For the Assessee : Shri Padam Chand Khincha, CA For the Revenue : Ms. Neera Malhoatra, CIT-DR ORDER Per: Padmavathy, A.M. This is an appeal filed by the assessee against the final order of the assessment passed by the DCIT, Circle 4(1)(1), Bengaluru da ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Operating Revenue ( OR ) 1,04,02,94,428 Operating Expenses ( OC ) 90,70,90,372 Prifit Before Tax ( PBT ) 13,32,04,056 Operating Profit ( OP ) 13,32,04,056 OP/OC 15.22% 6. The assessee chose 13 comparables as listed below: Sl. No Name of the Company Weighted Average in (%) 1 CG-VAK Software Exports Ltd 9.76 2 DCIS DOT Corn Solutions India Pvt Ltd 3 90 3 EC Info Systems India Pvt Ltd 40.97 4 Evoke Technologies Pvt Ltd 4.79 5 Harbinger Systems Pvt Ltd 6.70 6 Isummation Technologies Pvt Ltd 3.69 7 OFS Technologies Ltd (now known as Acewinagritek ltd) 25.86 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 16) with regard to TP adjustment of software development segment if ground No. 7 with regard to application of turnover filter is adjudicated then the rest of the grounds will not be pressed. The learned A.R. further submitted that the turnover of the assessee for the relevant assessment year stands at Rs.104 crores. The TPO while applying the turnover filter of Rs.1 crore to 200 crores has applied only the lower turnover of 1 crore but failed to consider the upper turnover filter of 200 crores. The learned A.R. in this regard relied on the decision of the coordinate bench of the Tribunal in the case of Autodesk India Pvt. Ltd. (2018) 96 taxmann.com 363. The learned A.R. further submitted that out of the final list of 26 comparable if 11 comparable are eliminated by applying upper turnover filter the assessee s margin will fall within the the margin range between 35th percentile (11.65%) and the 65th percentile (20.62%) and therefore not TP adjustment would be warranted. 10. The learned DR supported the order of the lower authorities. 11. We have heard the rival contentions and perused the material on record. We notice that the issue of applying the upper turnover filter of 2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tegrating (supra) was the earliest decision rendered on the issue of comparability of companies on the basis of turnover in Transfer Pricing cases. The decision was rendered as early as 5.8.2011. The decisions rendered by the ITAT Mumbai Benches cited by the learned DR before us in the case of Willis Processing Services (supra) and Capegemini India Pvt.Ltd. (supra) are to be regarded as per incurium as these decisions ignore a binding co-ordinate bench decision. In this regard the decisions referred to by the learned counsel for the Assessee supports the plea of the learned counsel for the Assessee. The decisions rendered in the case of M/S.NTT Data (supra), Societe Generale Global Solutions (supra) and LSI Technologies (supra) were rendered later in point of time. Those decisions follow the ratio laid down in Willis Processing Services (supra) and have to be regarded as per incurium. These three decisions also place reliance on the decision of the Hon ble Delhi High Court in the case of Chriscapital Investment (supra). We have already held that the decision rendered in the case of Chriscapital Investment (supra) is obiter dicta and that the ratio decidendi laid down by the Hon ble ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... irect selling expenses as brand promotion expenses, consideration of Residual Profit Split Method (RPSM) as the most appropriate method and bench marking the transaction by application of Bright Line test method. 16. During the course of hearing the learned A.R. submitted a detailed written submission contending the TP adjustment made towards the AMP expenses and the same has been taken on record for consideration. The ld AR also submitted that the TPO did not make any adjustment towards the margins of trading segment which included the AMP cost and therefore he cannot consider the AMP expenses as a separate international transaction and make an adjustment towards the same. The learned A.R. further submitted that the assessee is covered by the decision of the coordinate bench in assessee s own case where the Tribunal has held that no separate adjustment is warranted where the AMP expenses have been part of the operating cost of trading segment. 17. The learned D.R. supported the orders of the lower authorities. The learned DR drew our attention to the findings of the DRP in para 22.4 of the order which is extracted below: - 22.4 Thus, if the Indian subsidiary is dischargi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... riate method (MAM) for arriving at ALP. The assessee has chosen 7 comparables based on various filters applied and the median of weighted average of adjusted gross profit on sales % of these comparables was 4.44% (page 189 to 190 of paper book). The gross profit margin of the assessee from undertaking distribution activities during the year under consideration resulted in gross profit of 17.87% on sales (Page 254 of the paper book). Since the assessee's margin is more than the arm's length range, the margin of the assessee from its distribution activities is considered to be at arm's length from TP perspective. In a corroborative analysis done under Transaction Net Margin Method (TNMM) the assessee's margin is taken to be at arm's length as the median of the comparables was 1.08% whereas the operating profit of the assessee from undertaking the distribution activities was 3.12% (Page 255 of the paper book). We notice that the while arriving at the operating profit of the assessee the 'Selling and Marketing expenses' to the tune of Rs.68,16,40,898 has been included. The TPO in the order (Page 13 of TPO order para 4.7.5) has mentioned that TP analysis with ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the AMP expenses would fall under the category of international transactions . For that purpose, the revenue has to show that there existed an agreement between the assessee and its AE in the matter of incurring of AMP expenses. Admittedly, it is not shown in the instant case that there existed any agreement relating to incurring of AMP expenses. Thus, we notice that there is no change in facts relating to this issue between the current year and the AY 2010- 11/2011-12. It was also held that when TNMM method is applied to benchmark the entire international transactions, then there is no requirement of making separate TP adjustment on account of AMP expenditure. In the earlier paragraphs, we have also held that TNMM as most appropriate method and has also held that the international transaction of Exports to AEs is at arms length. Hence, no separate adjustment is required to be made in respect of AMP expenses on this account also. 10. We have considered the Ld DR's submission that the coordinate bench of the Tribunal in assessee's own case (supra) has remanded the case back to the TPO. In the said assessment years, the case was remanded back mainly for the purpo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... treated as a separate international transaction when the TPO has not otherwise rejected the margins of the assessee in the trading segment. Therefore, the adjustments made in this regard is deleted and the appeal is allowed in favour of the assessee. 19. For the year under consideration the margins of the trading segment has been computed as under: - Particulars Amount Rs. Operating Revenue (OR) 67,61,10,33,378 Operating Expenses (OC) 66,93,03,59,491 Profit Before Tax (PBT) 67,95,47,729 Operating Profit (OP) 68,06,73,887 OP/OR 1.05% 20. On perusal of the records it is the noticed that the operating cost of Rs. 66,93,03,59,491/- which is considered for arriving at the above margins includes the AMP expenses. The breakup of the operating cost is as given below: - (Amount in INR) Particulars SWD Segment Trading Total EXPENSES ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 81,060 4,91,32,993 As auditor: Audit fee - 87,86,000 87,86,000 Tax audit fee 3,00,000 3 00,000 Reimbursement of expenses - 1,96,440 1,96,440 Expenditure towards Corporate Social 1,52,59,828 1,52,59,828 Professional fees 7,35,28,006 3,86,08,680 11,21,36,686 Provision for warranty 1,90,36,76,503 1,90,36,76,503 Freight, clearing and warehousing charges 10,06,55,693 10,06,55,693 Communication Expenses 93,77,462 21,57,465 1,15,34,927 Advertisement and Business Promotion - 2,82,58,72,100 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nsaction relating to Import of goods for sale to be at Arm's Length. 22. Considering the above facts and respectfully following the decision of the coordinate bench in assessee s own case for AY 2017-18 we hold that no adjustment is required to be made towards AMP expenses and the same cannot be treated as a separate international transaction when TPO has not otherwise rejected the margins of the assessee in the trading segment. The TP adjustment made in this regard is therefore deleted. Disallowance in respect of employee s contribution to PF 23. During the course of hearing the learned A.R. fairly submitted that the issue related to the employee s contribution of PF is settled by the Hon'ble Supreme Court against the assessee in the case of Checkmate Services (P.) Ltd. Vs CIT-1, [2022] 143 taxmann.com 178 (SC). 24. We have heard both the parties and perused the material on record. We notice that the Hon ble Supreme Court in the case of Checkmate Services (supra) has considered the issue of whether the employees contribution paid before due date for filing the return of income u/s.139(1) whether otherwise allowable u/s.43B, putting to rest the contradic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the terms of the contract. Thus, timely payment of these alone entitle an assessee to the benefit of deduction from the total income. The essential objective of Section 43B is to ensure that if assessees are following the mercantile method of accounting, nevertheless, the deduction of such liabilities, based only on book entries, would not be given. To pass muster, actual payments were a necessary pre-condition for allowing the expenditure. 53. The distinction between an employer s contribution which is its primary liability under law in terms of Section 36(1)(iv), and its liability to deposit amounts received by it or deducted by it (Section 36(1)(va)) is, thus crucial. The former forms part of the employers income, and the later retains its character as an income (albeit deemed), by virtue of Section 2(24)(x) - unless the conditions spelt by Explanation to Section 36(1)(va) are satisfied i.e., depositing such amount received or deducted from the employee on or before the due date. In other words, there is a marked distinction between the nature and character of the two amounts the employer s liability is to be paid out of its income whereas the second is deemed an inc ..... X X X X Extracts X X X X X X X X Extracts X X X X
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