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TMI Blog2019 (4) TMI 2124X X X X Extracts X X X X X X X X Extracts X X X X ..... t claimed a deduction in computing the profit loss account to the extent of Rs.23.3 Crores, therefore, the disallowance made by AO is not justified. Therefore, we direct to delete the disallowance. We find from the orders of lower authorities that they have not appreciated the facts and circumstances on the other issues raised by the assessee. Therefore, we deem it fit to remit those issues back to the AO /TPO for reexamination / verification on the basis of materials to be furnished by the assessee. The assessee has also pleaded that there is a mistake apparent on record in computing the disallowance for the current year (FY 2011-12), submitting that it has disallowed pertaining to prior years. However, the AO had disallowed u/s 40(a)(ia) on account of non-deduction of TDS which included sum disallowed by the appellant in AY 2012-13. This has resulted in dual disallowance. We remit this issue also back to the file of the AO / TPO for re-examination/ verification Disallowance of Service Tax, Sales Tax VAT u/s. 43B - Since the disallowed sums were not claimed as an expenditure, the assessee pleaded that in accordance with the jurisdictional High Court decision, the AO cannot make th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ment year i.e AY 2012-13 is the first full year of its manufacturing operations. The primary customer during AY 2012-13 is Nissan India Pvt.Ltd. In its TP study , the assessee has prepared and submitted the segmental analysis of the tooling and manufacturing segment and has demonstrated the arm's length nature of each of these independent segments by adopting the Transactional Net Margin Method (TNMM) as the most appropriate method (MAM) with operating margin (operating profit to sales) as the profit level indicator(PLI). However, the TPO had rejected the segmented profit and loss account and had aggregated the segments to determine the arm's length nature of the transactions on entity level. On the domestic transactions, the A O, inter alia, disallowed tool development charges u/s 40(a), further made disallowances u/s.43B and travelling allowance. Aggrieved, the assessee filed its objections before the DRP, which rejected those objections. On giving effect to the directions, the assessee filed this appeal . 3. The Ld. AR submitted that while determining the ALP of the international transactions with the AEs, the Ld. TPO has aggregated all transactions and has adopted an entity le ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... acting Fundamentally different FAR Insignificant functions in tooling segment Risks Entrepreneurial risk Investment risk, Capacity utilization risk, quality risk, credit risk, market risk, manpower risk Minimal risk Negligible Different risk profile Completely opposite profile AE Role Technical and professional support services Full-fledged support substantial, AE transactions AE's role is reflected inquantum of transactions in each segment. Lower role, lower transactions. Characterisation Entrepreneur Low risk trading Exactly opposite Characterizations and pleaded that given the above several and significant differences on various parameters, it is imperative that the two segments, should be analyzed separately, from an Indian transfer pricing perspective, and as such, the transactions in the two segments should not be aggregated. The assessee maintained separate financials records for each of these segments viz Cost audit rules under the Companies Act, 1956 were applicable to VLSIPL, and cost audit compliance certificate was filed with ROC, for FY 2011-12. Without prejudice to the fact that separate audited segmented financials are not required, the revenue and cost ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Hon'ble DRP did not have sufficient time to accept the additional evidences considering the lack of time (hearing on 8.12.2016 and last date for issuing directions was 31.12.2016) in seeking remand report from the TPO. Therefore, the additional evidences could not be admitted by the Hon. DRP. The documents could not be submitted to AO/TPO due to floods in Chennai during the month of November and December, 2015. Relied upon the following judicial pronouncements in support of its contention that if there are sufficient cause which prevented the appellant from submitting the documents forming part of additional evidences, the same should be accepted. CIT vs. Games Renewables Pvt.Ltd (78 Taxmann.com 24 )Hon.HC of Madras CIT vs. Text Hundred India Pvt.Ltd. (239 CTR 263) Hon. HC of Delhi CIT vs. Virgin Securities & Credits P.Ltd (332 ITR 396) Hon .HC of Delhi Mindtree Ltd Vs.CIT (73 taxmann.com 142) Hon'ble ITAT of Bangalore etc. 3.4 Hence, the Ld AR requested that additional evidences be admitted. Under these circumstances, it prayed that the matter be remanded back to lower authorities for review and verification of documents submitted by the assessee. Further, it was plea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... verseas P.Ltd (2017) 78 Taxmann.com 76(ITAT., Delhi ) 5.1 We have considered the rival submissions. We do not have any hesitation in holding that the transfer pricing adjustment should be restricted to the international transactions only and it cannot be applied to uncontrolled transactions. While determining ALP of international transactions, benchmarking has to be done only on AE transactions and not for entire turnover. Therefore, we direct the AO/TPO to restrict the adjustment on account of ALP to the extent of the transaction with AE only. 6. The next issue is the disallowance made u/s 40(a) (i) on the domestic transaction. 6.1 The assessee has incurred design and development fee as charge from AEs. Out of the total fees, Rs. 23.3 Crores was lying in closing work-in-progress. Since the assesse has not claimed any deduction of this expense in its profit and loss account, in computing the disallowance u/s 40(a)(i), this amount was excluded by the assesse in its tax return. While making the assessment , the AO held that since this amount passed through the profit and loss account and also since the tax auditor has certified that tax has been deducted but not paid within the du ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of Hyderabad. 6.3 Without prejudice to the above, the Ld DR submitted that TDS was deducted and paid on an amount of Rs. 223,852,872/ on or before the due date u/s 139(1), out of Rs. 134,540,647/- consumed and charged as expenditure during the year, as in the above table, TDS on a sum of Rs. 104,762,579 was remitted before the due date u/s 139(1) for AY 2012-13. Further, it is submitted that the disallowance in the above table is arising out of non-deduction of TDS to non-residents as provided u/s 40(a)(i). As per Section 40(a)(i), as it stood prior to the amendment by Finance Act (No. 2) of 2014, in case, the TDS is not deducted and remitted before the due date specified in Section 200(1) on payments made to non-residents, then the expenditure is disallowed in that year, however, it would be allowed as an expenditure in the year in which TDS is paid. Section 40(a)(ia) contains similar provision for the payments made to residents. As the payments to residents are eligible for deduction u/s 40(a)(ia), if TDS is paid within 139(1) due date, similar provisions should apply to the payments made to non- residents, who are residents of treaty country having non-discrimination agreements ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , prayed that directions may be issued to the Ld. AO that the sum of INR 11.53 Cr, which is a mistake apparent on record, details of which are separately provided in the paper book etc, should be rectified in the computation of income. The Hon'ble DRP has held that, it cannot entertain any claim made by the appellant during assessment proceedings which was not claimed initially while fling the return of income. However, since the Hon'ble ITAT is vested with wider powers and can entertain fresh claims during the appellate proceedings even though the same was not claimed in the return of income as per the Jurisdictional High Court decision in the case of Abhinita Foundations [83 taxmann.com 100] , the Ld AR pleaded to allow the claim. 6.5 Lastly, the Ld AR submitted that non-applicability of disallowance under section 40(a)(i) in its case as under : It was submitted that Clause 7 of the protocol to the India - France DTAA states that if a lower rate of tax or a restricted scope is provided for in any other treaty that India enters into with any other OECD Member country, then that lower - France DTAA rate or restricted scope will be applicable for the purposes of the India ("Most Fa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... O./TPO, on all the above issues and comply to the requirements of A.O./TPO in accordance with law. The A.O/TPO shall after affording effective opportunity to the assessee shall decide them in accordance with law. 7. The next issue is the disallowance of Service Tax, Sales Tax & VAT u/s. 43 B: In this regard, the Ld. AR submitted that Service Tax at Rs. 28,13,873/- and Sales Tax & VAT at Rs. 92,88,085/- (totalling to Rs. 1,21,01,958) were are not debited to profit & loss account and accordingly no expenditure is claimed with respect to such taxes. These payments as and when collected are retained in Service tax payable and sales tax / VAT payable account in trade payable ledger, without claiming as expenditure in the profit and loss account. However, the AO invoking the provisions of S 43B disallowed it and the DRP erred in sustaining the disallowance. 7.1 We heard the rival submissions and gone through relevant material. Though the DRP upheld the disallowance based on the decision of the Hon'ble High Court of Calcutta in the case of commissioner of Income-tax vs. Associated Figments Lid. [1993] 71 TAXMAN 244 (CAL) read with section 145, the Ld AR relied upon various judicial pre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of Income Tax Act, 1961, statutory due is allowed on actual payment basis. In view of the above legal fact the amount of statutory due of Rs.1,21,01,958/- are disallowed and added back to the income of the assessee company." 7.3 Since the facts are not clear from the above portion, we deem it fit to remit this issue back to the AO/TPO for verification. In case, the impugned amounts were not claimed as an expenditure in the profit & loss account, the AO/TPO shall apply the law laid by the jurisdictional High Court in the above decision. 8. The next issue is ad-hoc disallowance of travelling expenditure: The Ld AR submitted that during the assessment proceedings, the appellant on 31st March, 2016 has submitted the requested information vide submission dated 8th March, 2016 (Page No. DT -- 35 of the paper book) to substantiate the claim. The Ld. AO has made an ad-hoc disallowance of INR 500,000 towards travelling expenditure. Since the assessee has filed the relevant particulars, ad-hoc disallowance may be deleted. 8.1 We have considered the rival submissions. Since the substantial issues are remitted back to the AO/TPO, supra, we deem it fit to remit this issue also to the file ..... X X X X Extracts X X X X X X X X Extracts X X X X
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