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TMI Blog2018 (7) TMI 2327X X X X Extracts X X X X X X X X Extracts X X X X ..... re Hon ble High Courts for a considerable period of time. It is an admitted position that assessee has made payment as per invoice raised by landlord in Assessment Year under consideration for Gurgaon premises whereas insofar as the Bangalore premises are concerned no payment was made as the invoice was not released. We therefore direct Ld.A.O, to verify if service tax liability towards Bangalore premises has been made by assessee as subsequently the law was absolutely clear and the burden was cast upon the landlord to mandatorily collect service tax, to be deposited with Government. Assessee is directed to provide all the bills/invoices raised by the landlord in respect of both the premises and A.O. is directed to verify actual payment made and to allow as per law. This ground raised by assessee stands allowed for statistical purposes. Nature of expenses - disallowance of service tax considering it as prior period expenses - HELD THAT:- . On perusal of order passed by Service Tax Department party has claimed a rebate which is not corresponding with the amount of service tax and cess paid by the party during the material period. As the party has not submitted copies of ST-3 returns ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... NR 17,740,270/- as against the returned loss of INR 17,161,261/-. 2. The learned TPO / DRP erred in making an adjustment of INR 29,255,299 in respect of distribution segment under section 92CA(3) of the Act. Transfer Pricing Grounds: Rejection of economic analysis of the Appellant 3. The learned AO / TPO / DRP have erred in making an adjustment under Section 92CA(3) of the Act without returning a finding about existence of any of the circumstances specified in clauses (a) to (d) of Section 92C(3) of the Act. 4. The learned AO / TPO / DRP have erred by not accepting the economic analysis undertaken by the Appellant in accordance with the provisions of the Act read with the Income-tax Rules, 1962 ("the Rules"). Segregation of closely linked transactions 5. The learned AO / TPO / DRP have erred in rejecting the combined transaction approach, wherein closely linked transactions were benchmarked together by the Appellant and instead adopting an approach of segregating closely linked transactions for the purpose of determination of the arm's length price ("ALP") of the impugned transaction. 6. The learned AO / TPO / DRP have erred in taking inconsistent benchmarking ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ost appropriate method for computation of arm's length price for the impugned transaction. Rejection/Selection of comparable companies 16. The learned AO / TPO/ DRP have erred by rejecting a comparable company (i.e. Ashco Niulab Industries Limited) identified by the appellant for having different accounting year. 17. The learned AO / TPO/ DRP have erred in taking an inconsistent approach by rejecting comparable company (i.e. Ashco Niulab Industries Limited) despite of the same being accepted in previous assessment years. Corporate Tax Grounds: Disallowance of provision made for service tax on rent expenses 18. The learned AO /DRP have erred in disallowing the provision made by the Appellant on account of service tax amounting to INR 436,938 holding it as unascertained liability. 19. Without prejudice to above, in the facts and circumstances of case and in law, the learned AO /DRP have erred in taking cognizance of the fact that out of provision of service tax on rent amounting to INR 436,938, Appellant has already made payment of INR 321,630 in the subsequent year and hence cannot be considered as unascertained liability. 20. Without prejudice to above, in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssioner of Income-tax, Circle-26(1), New Delhi ("AO") has erred in passing the assessment order under Section 143(3) of the Income-tax Act, 1961 ("the Act") after considering the adjustments proposed by the Deputy Commissioner of Income-tax, Transfer Pricing Officer 2(3)(2) ("TPO") in his order passed under Section 92CA(3) of the Act and subsequently confirmed by the Hon'ble Dispute Resolution Panel ("DRP"). That on the facts and circumstances of the case and in law, General Grounds: 1. The learned AO has erred in assessing the income of the Appellant at INR 4,40,51,560/- as against the returned income of INR 64,69,150/-. 2. The learned TPO / DRP erred in making an adjustment of INR 3,63,76,118 in respect of distribution segment under section 92CA(3) of the Act. Transfer Pricing Grounds: Rejection of economic analysis of the Appellant 3. The learned AO / TPO / DRP have erred in making an adjustment under Section 92CA(3) of the Act without returning a finding about existence of any of the circumstances specified in clauses (a) to (d) of Section 92C(3) of the Act. 4. The learned AO / TPO / DRP have erred by not accepting the economic analysis undertaken by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e arm's length margins I prices using data pertaining only to FY 2011-12 which was not available to the Appellant at the time of complying with the Transfer Pricing ("TP") documentation requirements. 14. Without prejudice to above, in the facts and circumstances of case and in law, the learned AO /TPO / DRP have erred in not using Resale Price Method as the most appropriate method for computation of arm's length price for the impugned transaction. Rejection/Selection of comparable companies 15. The learned AO / TPO/ DRP have erred by rejecting a comparable company (i.e. Ashco Niulab Industries Limited) identified by the appellant for having different accounting year. Levy of Interest 16. The learned AO has erred in charging interest under Sections 234A and 234B of the Act. Initiation of Penalty proceedings 17. The learned AO has erred in initiating penalty proceedings under Section 271(1)(c) of the Act against the Appellant for concealing the income through submission of inaccurate particulars in the tax return. Each of the ground is referred to separately, which may kindly be considered independent of each other and without prejudice to each other. The A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... come from AE and treated it to be different transaction and benchmarked separately. The Ld.AO thus proposed to make an adjustment of Rs. 6,94,89,129/-. Another change that was made by Ld.TPO was in rejecting most appropriate method adopted by assessee. Ld.TPO rejected TNMM applied by assessee on entity level by holding that assessee is engaged in separate transactions of trading and provision of services to its AE, in nature of market support. Ld.TPO excluded Niulab Industries Ltd., from final set of comparables selected by assessee on account of having different financial year. While computing the operating margin of assessee Ld.TPO excluded certain operating incomes like recharge income, bad debts recovered, excess provision written back and liabilities no longer required to be written back and included extraordinary expenses and value of inventory obsolescence in the cost base. 3. Aggrieved by the draft assessment order, assessee preferred Objections before DRP. DRP directed Ld. AO to grant working capital adjustment in each segment so as to facilitate the comparability. Other adjustments made by Ld.TPO were upheld by DRP. 4. Ld. AO then passed the final assessment order on th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... far as transfer pricing adjustment is concerned, no document is placed on record to controvert the findings of the Id. DRP vide paragraph no.7.2 of their order. However, Order u/s 92CA(3) of the Income-tax Act for AY 2007-08, order u/s 92CA{3) of the Act for AY 2008-09 and order u/s 92CA(3) of the Act for AY 2009-10 in assessee's own case clearly establish that the same international transactions are bench marked and the business model of the assessee is identical and there is no change in the FAR analysis for AY 2010-11 and in the previous assessment years. The very same comparable companies were chosen to benchmark the international transactions. Nothing is placed on record to discredit the observations of the Id. DRP that for AY 2009-10 the Id. DRP upheld the view of the AO of determining the arm's length price of the international transaction by treating the TNMM as the most appropriate method to benchmark the international transaction. 16. It could be seen from the order of the Id. TPO, he segregated the financials of the assessee into trading and commission segments in proportion to sales by the assessee in distribution business and commission income. Assessee ser ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the preceding paragraphs, no compelling reasons are forthcoming even before us as to why the Ld. TPO should discard the method of TNMM which has been consistently and continuously adopted in the last three preceding years. From the order of the Id. TPO for the Asstt. Year 2008-09, we find that there is commission income during that year also. Ld. TPO observed that rule of consistency cannot be applied forever when facts were not considered and discussed in the earlier years. He further stated that the higher appellate authorities have not decided on the issue at all and, therefore, there is no question of accepting the stand of the assessee that the aggregation approach was accepted in the earlier years. 20. A bald statement that in the earlier years the facts were not considered or discussed cannot be a ground to disturb a consistent view taken by the Revenue. In this matter, the support services like installation, warranty and maintenance to the customers is the responsibility of the assessee not only for the so called trading segment, but it is also there where the assessee provides indenting services to facilitate sale of its overseas companies' products in India to tho ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on account of provision for service tax on rent expenses in the books of accounts. 12. Ld.AR submitted that during the year, assessee made provision for service tax on rent, amounting to Rs.4,36,938/-, out of which an amount of Rs.3,21,360/- pertained to Gurgaon premises and Rs,1,15,578/-pertains to Bangalore premises. It was submitted that landlord of Gurgaon premises raised a consolidated invoice for recovery of service tax during the year 2012 for the period 2009-2012. And in respect of the Bangalore premises it was submitted that the amount has not been paid by assessee as the same was not claimed by the landlords. 12.1. Ld.AO treated the entire amount as an unascertained liability and disallowed it. 12.2. It was submitted by Ld.AR that assessee had only paid rent during the relevant period and as the landlord had raised the bills to recover service tax during the financial year relevant to the assessment year under consideration the same was paid upon receipt of the bill. It was submitted by the Ld.AR that as the applicability of service tax on rental income was in dispute the landlords of the premises did not charge service tax on their rent invoice. It was submitted that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... partment (copy of order placed at page 455 of paper book), a categorical observation of the authority is as under: "12. On the issue (d) the party has submitted copies T R-6 challan, evidencing payment of service tax and says amounting to Rs.83,58,030/- as detailed below: ............................. However, the party has claimed a rebate of Rs.51,72,191/- which is not corresponding with the amount of service tax and cess paid by the party during the material period. As the party has not submitted copies of ST-3 returns of the relevant period, it is not a certain double how the duty element, rebate of which is claimed has been discharged by the party." 20. We therefore direct Ld.AO to verify the actual amount paid by assessee and accordingly allow the claim. 21. Accordingly this ground raised by assessee stands allowed for statistical purposes. 22. Ground No. 22 is in respect of the TDS credit disallowed amounting to Rs.7,12 544/-. 23. Ld.AO observed from reconciliation submitted by assessee that TDS credit of Rs.7,12,544/-has been made in the return of income for year under consideration, corresponding to income of Rs.1,20,01,006/-. Ld.AO was of the opinion that sin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd Philips software (26 SOT 226 Bangalore-ITAT). 23. In view of the impact of the trade receivables, trade payables and inventory on the interest cost and depending upon the interest cost the margins change their volumes; we do not find any illegality or irregularity in the directions given by the Ld. DRP in respect of the working capital adjustment. We see no reason to interfere with such a direction. This ground of appeal is, accordingly, dismissed. 34. As there is no difference in the FAR analysis as well as the factual matrix for year under consideration vis-a-vis Assessment Year 2009-10, we do not find any infirmity in granting working capital adjustment of tested party and comparables, provided the necessary details/data have been provided by assessee. 35. Respectfully following the same we do not find any reason to interfere with the directions. 36. Accordingly this ground raised by revenue stands dismissed. 37. In the result appeal filed by the revenue stands dismissed. 38. Assessment Year :2012-13 ITA No. 231/Del/2017 It has been submitted by both the parties that there is no change in the functions, assets and risk profile (FAR) of the assessee for the year ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d on record to discredit the observations of the Ld. DRP that for AY 2009-10 the Ld. DRP upheld the view of the AO of determining the arm's length price of the international transaction by treating the TNMM as the most appropriate method to benchmark the international transaction. 16. It could be seen from the order of the Ld. TPO, he segregated the financials of the assessee into trading and commission segments in proportion to sales by the assessee in distribution business and commission income. Assessee seriously objects to this approach and submitted that the approach of the Id. TPO is against the established principle of law. According to him, bringing the commission from indenting segment and the turnover in the trading segment on one platform for comparison is bad. 17. On the other hand, it is submitted on behalf of the assessee that if at all, the Id. TPO thinks it necessary to bifurcate the same, he should have taken the gross profit from the distribution business minus the cost related to the maintenance of the inventory, risk and other related cost to be compared with the gross commission from the indenting activities as has been approved in the case of M/s Bay ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... approach was accepted in the earlier years. 20. A bald statement that in the earlier years the facts were not considered or discussed cannot be a ground to disturb a consistent view taken by the Revenue. In this matter, the support services like installation, warranty and maintenance to the customers is the responsibility of the assessee not only for the so called trading segment, but it is also there where the assessee provides indenting services to facilitate sale of its overseas companies' products in India to those customers who wish to import these products directly from the overseas group companies. Basing on this, the assessee submits that in telecom industry like most of the contracts, the transactions of the assessee are composite in nature with the business profile of the assessee being closely integrated and services are performed for both the activities with common management strategies, employees and facilities." 21. We are in agreement with the ld. DRP and the ld. AR to hold that in this situation segregation of accounts solely basing on the income but without reference to either gross profit or sales is most unreliable and the adoption of TNMM method at en ..... 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