Income Tax Appellate Tribunal - Hyderabad
M/S Tecumseh Products India Private ... vs Assessee on 2 April, 2014
IN THE INCOME TAX APPELLATE TRIBUNAL
HYDERABAD BENCHES "A" : HYDERABAD
BEFORE SHRI B. RAMAKOTAIAH, ACCOUNTANT MEMBER
AND
SMT. ASHA VIJAYARAGHAVAN, JUDICIAL MEMBER
ITA.No.2228/Hyd/2011
Assessment Year 2007-2008
M/s. Tecumseh Products ACIT, Circle 2(3)
India P. Ltd. Hyderabad vs. Hyderabad
PAN AABCT 6893J
(Appellant) (Respondent)
ITA.No.1863/Hyd/2012
Assessment Year 2008-2009
M/s. Tecumseh Products DCIT, Circle 2(3)
India P. Ltd. Hyderabad vs. Hyderabad
PAN AABCT 6893J
(Appellant) (Respondent)
For Assessee : Mr. Kanchun Kaushal
For Revenue : Mr. P. Somasekhar Reddy
Date of Hearing : 02.04.2014
Date of pronouncement: 28.05.2014
ORDER
PER B. RAMAKOTAIAH, A.M.
These two appeals are preferred by Assessee against the order of the Dispute Resolution Plane (DRP), Hyderabad u/s 143(3) read with section 144C(13) of the IT Act, dated 22-09-2011/03.08.12 respectively. The main issue in these appeals is on Transfer Pricing adjustments made by AO.
2ITA.No.2228 & 1863/H/2011 M/s. Tecumseh Products India P. Ltd. Hyderabad.
2. We have heard learned counsel Mr. Kanchan Kaushal and the learned CIT-DR Mr. Somasekhar Reddy.
3. Briefly stated, Assessee company is a wholly owned subsidiary of Tecumseh Products Company, USA (in short 'TPC USA') and collectively with its affiliates referred to as "Tecumseh Group" or "AEs"). Assessee is primarily engaged in the manufacture, marketing, service and repair of hermetically sealed compressors in domestic as well as international market. Assessee has two manufacturing facilities at Balanagar (AP) and Ballabgarh (Haryana). The Balanagar facility predominantly manufactures compressors for air conditioning equipments whereas the Ballabgarh facility makes compressors meant for refrigeration equipments. In addition, Assessee manufactures sub-assembly and components (pump kits, crankshafts etc.) from its Export Oriented Manufacturing Unit (EOU Unit) in Balanagar and exports them to TPC USA. All the compressor sub-assembly & components produced from EOU Unit is exported only to TPC USA, in order to manufacture compressor for sale in USA market. The annual requirements and the specifications of the components are provided by TPC USA. Assessee does not sell similar components to any other customer in India or outside India and therefore acts as a contract manufacturer for TPC USA with respect to sale of compressor sub-assembly and components.
3ITA.No.2228 & 1863/H/2011 M/s. Tecumseh Products India P. Ltd. Hyderabad.
ITA.No.2228/Hyd/2011- AY 2007-08
4. Assessee has raised 6 grounds in ITA.No.2228/Hyd/2011 for the A.Y. 2007-08 out of which, ground No.1 is general in nature and therefore does not require adjudication. Ground No. 2.2, 2.5 and 2.6 are not pressed and accordingly, these grounds are dismissed as not pressed. Assessee also placed on record voluminous paper books in volumes, from pages 1 to 160 and another paper book from pages 161 to
576.
5. Assessee filed its original return of income for the AY 2007-08 on October 25, 2007 declaring the total loss as INR 30,49,68,581. The return of income was subsequently revised u/s 139(5) of the Act by offering suo-moto transfer pricing adjustment of INR 3,21,69,098, thereby reducing the total loss to INR 27,27,99,483. During the Financial Year 2006-07, Assessee has entered into the following international transactions with its AEs:
1. Purchase of hardware
2. Purchase of drawing and design services
3. Purchase of components, tools, spares and accessories
4. Sale of software tools, compressor, parts of compressors, compressor sub-assembly and components
5. Software Engineering services CADEM segment
6. Interest on ECB Loan; and
7. Reimbursement of expenses.4
ITA.No.2228 & 1863/H/2011 M/s. Tecumseh Products India P. Ltd. Hyderabad.
The total value of sale of compressor sub-assembly and components constitute only 5% of total turnover of Assessee. The purchases made from AEs amounted to Rs. 2.09 crores of total purchases. Likewise service to AE was provided at Rs 0.42 crores, just about 13.82% as per TPO. As per the Transfer Pricing (TP) Documentation prepared by Assessee, it was submitted that all the above international transactions have met the arm's length standard as prescribed in the Indian Transfer Pricing Regulations contained in Section 92, 92A through 92F of the IT Act, 1961 read with Rules 10A to 10E of IT Rules, 1962, except the transactions in relation to sale of compressor sub-assembly and components in the EOU Unit at Balanagar. Accordingly, Assessee has offered INR 32,169,098 as a suo-moto transfer pricing adjustment in its return of income for AY 2007-08 to meet the arm's length standard.
6. A reference u/s 92CA of the Act was made to Addl. Commissioner of Income-tax (TPO) in order to determine arm's length price of the international transactions of Assessee. There is no dispute with reference to method accepted being TNMM. The TPO after analyzing the transactions made adjustments u/s 92CA of Rs.5,00,68,125/- to the sale of sub-assembly components to its AE. Further TPO proposed adjustment of RS 1,07,59,077 to the CADEM segment, thus proposing total adjustment of Rs.6,08,27,202. Assessee raised various objections before the DRP and the DRP, however, rejected the objections and accordingly, the AO passed consequential order making 5 ITA.No.2228 & 1863/H/2011 M/s. Tecumseh Products India P. Ltd. Hyderabad.
the adjustments to the income returned, along with other corporate adjustments in computation.
7. The learned counsel referring to the orders of the authorities and the paper books filed submitted that orders of the TPO/DRP suffers certain factual errors as well as the issues on comparability. On Ground 2.1, referring to the adjustments made with reference to sales made to AE of Compressor sub-assembly and components, it was submitted that Assessee operates 100% EOU and exports to TPC USA. Assessee arrived at the cost, which is identifiable from the separate books of account maintained for the EOU at 16,38,68,871/-. However, the AO without any show cause notice to Assessee, re-worked out the proportionate operating cost, ignoring the separate details furnished in this regard, at operating cost at a higher figure of Rs. 20.02 crores. Referring to TPO's order, the learned counsel submitted that on a total cost of Rs. 459.63 crores of Assessee company, the AO arrived at the proportionate cost attributable, on the basis of sales turnover, at Rs. 20.02 crores. It is the submission that when Assessee has maintained segmental information, particularly 100% EOU unit accounts are maintained as such, there is no need to adopt proportionate turnover at a higher figure than what was spent by Assessee as operating cost.
8. The next objection of the learned counsel (ground no 2.4 and 2.2) is with reference to the addition made after arriving at the PLI taking comparables.
6ITA.No.2228 & 1863/H/2011 M/s. Tecumseh Products India P. Ltd. Hyderabad.
Reserving his submissions on the comparables, it was submitted that Assessee itself has made suo-moto adjustments at the time of filing return along with TP report and this adjustment of Rs. 2,82,69,298/- made by Assessee suo-moto was ignored and made the addition at a higher amount. It was his contention that if suo-moto adjustment is considered, the adjustment so arrived at by the TPO is within the (+) or (-) 5% threshold limit so, no further adjustment was called for. The learned TPO ignoring the fact that reference was made on the same return along with report enclosed to the return, came to the conclusion that Assessee cannot file revised return on the reason that there is no omission or wrong statement, therefore, the revised return was ignored and suo-moto adjustment was also consequentially ignored. Referring to the provisions of the Act of section 92C(4) and provisos along with Rule 10B(e), it was his submission that suo-moto adjustments are to be taken into consideration while determining the ALP. He referred to the orders of ITAT, Delhi Bench in the case of Haworth (India) Pvt. Ltd. (ITA No. 5341/Del/2010 for AY 2006-07, order dated 29-04-
11) to submit that suo-moto adjustments are to be considered.
9. Apart from suo-moto adjustment issue, Assessee also contested the comparables on two filters, viz., i) being the data pertaining to an Assessee, which has different accounting period than that of Assessee. It was submitted that even though no objection was taken in the course of TP proceedings, the TPO himself 7 ITA.No.2228 & 1863/H/2011 M/s. Tecumseh Products India P. Ltd. Hyderabad.
excluded certain companies on the same filter in the later year. The other filter, which the assessee raised is 'functionality' of the companies selected itself. It was submitted that Assessee is not only manufacturing compressors but also components for compressors and the adjustments made are with reference to sale of parts of compressors, therefore, selection of companies, which are in the 'compressor' manufacturing is not correct. Referring to various copies of products placed on record, it was submitted that Assessee is not selling compressors to the AE but only components pertaining to the compressor for which separate 100% EOU is established. Therefore, selecting companies, which are dealing in compressors is not correct. In view of this, Assessee is objecting to inclusion of various comparables by the TPO in the transfer pricing analysis and arriving at the arithmetic mean of PLI at 9.79%. It was fairly admitted that adjudication on the basis of comparables will arise only if the suo-moto adjustment made by Assessee was ignored. If it is taken into consideration the adjustment proposed by the TPO on the basis of PLI at 9.79% is within the (+)/(-) 5% threshold limit provided under the Act.
10. The learned DR, however, referred various facts and submitted that TPO is correct in arriving at the operating cost on proportionate basis and correct in rejecting revised return, which was filed after filing original return and in selection of comparables which were not objected to by Assessee. He supported the orders of TPO/DRP.
8ITA.No.2228 & 1863/H/2011 M/s. Tecumseh Products India P. Ltd. Hyderabad.
11. We have considered rival contentions and examined the record. There are five issues for adjudication in this appeal under the transfer pricing provisions, which are as under:
A) whether Assessee's return filed along with TP report is to be considered or not ?
B) Whether adjustment made by the AO ignoring suo-moto adjustment made by the Assessee is correct or not ?
C) Whether operating cost adopted by TPO is correct or not D) Whether the comparables selected by the TPO is correct E) Whether (+)/(-) 5% threshold limit available under the Act can be invoked in this case.
These issues were similarly considered in A.Y. 2006-07 in assessee's own case in ITA.No.1686/Hyd/2010 dated 13.11.2013. These issues are considered in detail and decided as under:
A) whether Assessee's return filed along with TP report is to be considered or not ?
As briefly stated, Assessee filed return of income on 25 th October, 2007 declaring loss of Rs. 30,49,68,581/- without TP report for the assessment year under consideration. Subsequently after the international transactions were analysed and on the basis of transfer pricing documentation prepared by the consultant, 9 ITA.No.2228 & 1863/H/2011 M/s. Tecumseh Products India P. Ltd. Hyderabad.
Assessee realized that some of the transactions require suo-moto adjustment. Accordingly, Assessee made adjustment of Rs. 3,21,69,098/- thereby revising total loss to Rs. 27,27,99,483/-. This indicates that there is a reduction of loss in the ultimate claim made by Assessee. We were surprised about the finding by the TPO and DRP for ignoring the return filed by Assessee reducing loss. When Assessee files a revised loss return reducing claim of loss, the return can certainly be considered as a revised return under the provisions of section 139(5) of the Act. First of all, the return filed originally on 25-10-2007 cannot be considered as a valid return as it did not include statutorily prescribed TP documentation and Assessee declared the value of international transaction as per its accounts books. Therefore, the other/revised return filed enclosing TP documentation and declaration of higher value of international transaction by making suo-moto adjustment under the provisions of the Act cannot be rejected as the same was a valid return, even though, stated to be filed u/s 139(5) of the Act. In fact, to the extent of declaration of international transaction and adjustments, it can be certainly be stated as omission on the part of Assessee or in a worse situation a wrong statement in the original return, as provided u/s 139(5). The provisions of section 139(5) are as under:
139(5): If any person, having furnished a return under sub-section (1), or in pursuance of a notice issued under sub-section (1) of section 142, discovers any omission or any wrong statement therein, he may furnish a 10 ITA.No.2228 & 1863/H/2011 M/s. Tecumseh Products India P. Ltd. Hyderabad.
revised return at any time before the expiry of one year from the end of the relevant assessment year or before the completion of the assessment, whichever is earlier."
As can be seen from the above provision of the Act, we are of the opinion that the return filed subsequently is a valid return, which is to be considered as correct. Since both the TPO and DRP erred in not considered the same, we direct the AO to consider the revised return as a valid return. In these circumstances, grounds of Assessee on this issue are allowed.
B) Whether adjustment made by the AO ignoring suo-
moto adjustment made by the Assessee is correct or not ?
This issue was decided in earlier year in assessee own case in ITA No 1686/Hyd/2010 dt 13-11-2013. It was decided as under:
There is no dispute with reference to arriving at the arm's length price under the provisions of the Act as prescribed under the Rules and making adjustment with reference to the International transactions undertaken by Assessee. Rule 10B(e) pertaining to TNMM method, is as under:
10B(e) transactional net margin method, by which,--
(i) the net profit margin realised by the enterprise from [an international transaction or a specified domestic transaction] entered into with an associated enterprise is computed in relation to costs incurred or sales effected or assets employed or to be employed by the enterprise or having regard to any other relevant base;
(ii) the net profit margin realised by the enterprise or by an unrelated enterprise from a comparable uncontrolled 11 ITA.No.2228 & 1863/H/2011 M/s. Tecumseh Products India P. Ltd. Hyderabad.
transaction or a number of such transactions is computed having regard to the same base;
(iii) the net profit margin referred to in sub-clause (ii) arising in comparable uncontrolled transactions is adjusted to take into account the differences, if any, between [the international transaction or the specified domestic transaction] and the comparable uncontrolled transactions, or between the enterprises entering into such transactions, which could materially affect the amount of net profit margin in the open market;
(iv) the net profit margin realised by the enterprise and referred to in sub-clause (i) is established to be the same as the net profit margin referred to in sub-clause (iii);
(v) the net profit margin thus established is then taken into account to arrive at an arm's length price in relation to [the international transaction or the specified domestic transaction].
As can be seen under 10B(e)(i), the 'net profit margin realized' by the enterprise from an international transaction is to be computed in relation to cost incurred or sales effected or assets employed or to be employed by the enterprise or having regard to any other relevant base. Here it is not prescribed that the value of 'international transaction' should be considered as such. What is required to be done is 'net profit margin realized' by the enterprise from an international transaction, if Assessee makes suo- moto adjustments to the net profit margin as realized by the enterprise, the same has to be considered under (e)(i) of section 10B. In this connection, we refer to the findings of the coordinate 12 ITA.No.2228 & 1863/H/2011 M/s. Tecumseh Products India P. Ltd. Hyderabad.
bench of ITAT, Delhi in the case of Haworth (India) Pvt. Ltd. (supra), which are as under:
"66. It can be seen from the above table that the major component of receipt of International transaction of the assessee is commission income as it constitute Rs. 15,39,33,769/- of the total operating income of Rs. 17,73,98,197/-. Therefore, it cannot be said that commission expenses which have been suomoto disallowed by the assessee were not claimed as operating expenses while computing the arm length price. If they are subsequently disallowed suomoto by the assessee in the revise return, they are required to be excluded from the operating cost and the calculation of the assessee should have been accepted that its profit margin should have been taken according to the income computed in the revise return for which the assessee has also paid the due taxes. In this manner, finding force in the contentions of ld. AR, we are of the opinion that ground no. 2 of the assessee is to be allowed and accordingly allowed. Ground no. 3 is the alternative argument and as the main argument of the assessee is accepted we need not required to go in the alternative claim made by the assessee."
Therefore, the TPO/DRP are not correct in not considering suo-moto adjustments made by Assessee. For arriving at the profit margins realized by the enterprise, suo-moto adjustment has to be taken into account in arriving at the difference to be added so as to make the 'net profit realised' to arrive at the arm's length price in relation to the international transaction as provided under 10B(e)(v). The AO is directed to consider suo-moto adjustment made by Assessee accordingly.
13ITA.No.2228 & 1863/H/2011 M/s. Tecumseh Products India P. Ltd. Hyderabad.
C) Whether operating cost adopted by TPO is correct or not While calculating the net profit margin from the international transaction on sub-assembly and components supplied to the TPC USA, the AO has considered the operating cost at Rs. 20.02 crores. This he has arrived at on the basis of the proportionate turnover ignoring the segmental reports prepared by Assessee. In fact, the sale of sub-assembly and components are only 5% of the turnover of Assessee and these sub-assembly and components are manufactured at 100% EOU established for this purposes at Balanagar. As per the provisions of the Act, this 100% EOU is maintaining separate books of account as Assessee is also eligible for deduction u/s 10A/10B. Assessee reported Rs.16,38,68,871 as the cost in this unit, but resulted in a loss as per the books of account. Consequent to the TP documentation undertaken by Assessee, arm's length price of the sale price was shown at Rs. 19,60,37,969/- as against Rs. 16,38,68,871/-, which were actual sales. Since actual sales in the books resulted in OP/TC at (-) 13.07%, Assessee made adjustment on the basis of TP documentation where OP/TC was at 4%. This has resulted in addition of the above amount of Rs. 3,21,69,698/- u/s 92 su-moto adjustment made by Assessee. Without considering the objections of Assessee, TPO, surprisingly, determined the operating cost at Rs. 20.02 crores based on the proportionate cost on the ratio of sales in various segments. This action of the TPO was not justified at all 14 ITA.No.2228 & 1863/H/2011 M/s. Tecumseh Products India P. Ltd. Hyderabad.
when Assessee has maintained separate books of account, which was also accepted under the provisions of the Act and, therefore, there is no reason for rejecting the same and estimating the operating cost on the basis of the proportionate turnover. In fact, Assessee has incurred loss in these transactions, where as there was profit in other activity, which constitute 95% of Assessee's turnover. Taking sales as basis and arriving at the OP cost does not result in correct appreciation of Assessee's transactions. Therefore, since segmental working is available on the basis of separate books of account maintained for EOU unit, we are of the opinion that operating cost has to be taken at Rs. 16,38,68,871/- and the TPO/AO is directed to take operating cost with the above figure. Accordingly, this contention of Assessee is allowed.
D) Whether the comparables selected by the TPO is correct ?
There are two sets of objections on the comparables selected by TPO; one being data pertaining to companies which have different accounting period than that of Assessee and the second one being the functional comparability of selected companies, being in business of compressor manufacturing whereas adjustments were done in the segmented results of supply of components (to the compressors). As selection of comparables by TPO suffers from these basic deficiencies, we are of the opinion that this issue requires re-examination by TPO by selecting proper comparables and then determine the ALP. In the 15 ITA.No.2228 & 1863/H/2011 M/s. Tecumseh Products India P. Ltd. Hyderabad.
interest of justice, we restore this issue of arriving at ALP to the file of TPO/AO for fresh consideration by taking objections from Assessee and also on the basis of TP proceedings of earlier year. Therefore, for determination of ALP, the issue is set aside to the file of the TPO/AO to do the same afresh as per the provisions of the Act.
E) Whether (+)/(-) 5% threshold limit available under the Act can be invoked in this case.
This issue was decided in earlier year in assessee own case in ITA No 1686/Hyd/2010 dt 13-11-2013. It was decided as under:
i)Before adverting to the comparables and arriving at the ALP under the Transaction Net Margin Method, it is necessary to consider the arguments of assessee vis-a-vis the provisions of the Act with reference to (+)/(-) 5% of threshold limit available in the impugned assessment year. For this, one has to consider the provisions of section 92(1), which is as under:
"92. (1) Any income arising from an international transaction shall be computed having regard to the arm's length price.
Explanation.--For the removal of doubts, it is hereby clarified that the allowance for any expense or interest arising from an international transaction shall also be determined having regard to the arm's length price."16
ITA.No.2228 & 1863/H/2011 M/s. Tecumseh Products India P. Ltd. Hyderabad.
ii) International transaction referred to above were defined in section 92B(1) is as under:
"92B (1) For the purposes of this section and sections 92, 92C, 92D and 92E, "international transaction" means a transaction between two or more associated enterprises, either or both of whom are non-residents, in the nature of purchase, sale or lease of tangible or intangible property, or provision of services, or lending or borrowing money, or any other transaction having a bearing on the profits, income, losses or assets of such enterprises, and shall include a mutual agreement or arrangement between two or more associated enterprises for the allocation or apportionment of, or any contribution to, any cost or expense incurred or to be incurred in connection with a benefit, service or facility provided or to be provided to any one or more of such enterprises."
Explanation provided retrospectively there in also clarifies the expression 'international transaction'. International Transaction means a transaction between two or more AEs. This does not take into consideration adjustments made to ALP at this stage at all.
iii) Section 92C, which is computation of arm's length price is as under:
"92C. (1) The arm's length price in relation to an international transaction shall be determined by any of the following methods, being the most appropriate method, having regard to the nature of transaction or class of transaction or class of associated persons or functions performed by such persons or such other relevant factors as the Board may prescribe, namely :--
(a) comparable uncontrolled price method;
(b) resale price method;17
ITA.No.2228 & 1863/H/2011 M/s. Tecumseh Products India P. Ltd. Hyderabad.
(c)cost plus method;
(d) profit split method;
(e)transactional net margin method;
(f)such other method as may be prescribed by the Board.
(2) The most appropriate method referred to in sub-section (1) shall be applied, for determination of arm's length price, in the manner as may be prescribed :
[Provided that where more than one price is determined by the most appropriate method, the arm's length price shall be taken to be the arithmetical mean of such prices, or, at the option of the assessee, a price which may vary from the arithmetical mean by an amount not exceeding five per cent of such arithmetical mean.] (3) .....
(4) ......."
iv) The next step is to determine the ALP in one of the methods. As can be seen from the provisions, international transaction refers to a transaction actually been undertaken between two or more AEs.
Short of other details, it refers only to transactions actually undertaken by Assessee with AE. After determining the arm's length price in any one of the methods prescribed, what is required to be compared under proviso is the variation between arm's length price so determined and the price at which the international transaction has been undertaken. Therefore, if the variation between the arm's length price so determined and the transaction actually undertaken does not exceed (+)/(-) 5% as 18 ITA.No.2228 & 1863/H/2011 M/s. Tecumseh Products India P. Ltd. Hyderabad.
provided, this difference has to be considered in arriving at ALP. In this case, what Assessee contended is that if the suo-moto adjustment made by Assessee is also considered, then, the ultimate ALP determined will be within the threshold limit as provided above. We are afraid that this contention of Assessee is not correct for the reason that what the Act provides is that if the variation between ALP so determined and value at which the international transaction has been undertaken does not exceed such percentage then the price at which the International Transaction has actually been undertaken shall be deemed to be the arm's length price.
v) The subsequent amendment to proviso makes this issue very clear. The present Section 92C is as under:
"92C. (1) The arm's length price in relation to an international transaction [or specified domestic transaction] shall be determined by any of the following methods, being the most appropriate method, having regard to the nature of transaction or class of transaction or class of associated persons or functions performed by such persons or such other relevant factors as the Board may prescribe, namely :--
(a) comparable uncontrolled price method;
(b) resale price method;
(c) cost plus method;
(d) profit split method;
(e) transactional net margin method;
(f) such other method as may be prescribed by the Board.19
ITA.No.2228 & 1863/H/2011 M/s. Tecumseh Products India P. Ltd. Hyderabad.
(2) The most appropriate method referred to in sub-section (1) shall be applied, for determination of arm's length price, in the manner as may be prescribed :
[Provided that where more than one price is determined by the most appropriate method, the arm's length price shall be taken to be the arithmetical mean of such prices:
Provided further that if the variation between the arm's length price so determined and price at which the international transaction [or specified domestic transaction] has actually been undertaken does not exceed [such percentage [not exceeding three per cent] of the latter, as may be notified by the Central Government in the Official Gazette in this behalf], the price at which the international transaction [or specified domestic transaction] has actually been undertaken shall be deemed to be the arm's length price.] [Explanation.--For the removal of doubts, it is hereby clarified that the provisions of the second proviso shall also be applicable to all assessment or reassessment proceedings pending before an Assessing Officer as on the 1st day of October, 2009.]"
The intention of the legislature is clear. The present proviso makes it absolute that comparison is with actual transaction only and no adjustment need be required if the variation as compared to the actual transaction undertaken by Assessee is with in the thresh hold provided. In this case, the actual transaction undertaken by Assessee as reported is the sale at Rs. 17,17,79,149/-. if the ALP determined by the AO/TPO is (+)/(-) 5% of this transaction on actual sales reported, then no adjustment is required. While making any adjustment, first step is to verify whether this (+)/(-) 5% threshold has exceeded when compared to actual transaction undertaken by Assessee, if yes, 20 ITA.No.2228 & 1863/H/2011 M/s. Tecumseh Products India P. Ltd. Hyderabad.
adjustment is required under the provisions of the Act. The next step is the quantification of adjustment which is to be made under Rule 10B(e). While doing so, suo-moto adjustment made by Assessee cannot be ignored and if any adjustment is required over and above suo-moto adjustment made by Assessee, difference only can be considered and, therefore, in our view there are two sorts of checks provided in the Act., i.e., i) no adjustment is required if the variation between ALP determined and the actual transaction is within threshold limit and, if not, ii) the adjustment is required provided suo-moto adjustment made by Assessee is also considered while arriving at the further adjustment, if any, required. Therefore, while examining the threshold limit of (+)/(-) 5%, we are of the opinion that the actual transaction undertaken by Assessee should be the base and not revised transaction reported by making suo-moto adjustment.
vi) There is one more aspect to the contention made. As briefly stated, Assessee incurred loss in International transaction and suo-moto adjustment of Rs.2,82,69,298 on the basis of transfer pricing documentation. This indicates that the Assessee exercised option provided u/s 92C particularly of proviso of (+) or (-) 5% threshold and did not treat the actual sale transaction as ALP. Having exercised the option and treating the different (enhanced) amount as ALP, in our view, Assessee cannot contend that the threshold of (-) or (+) 5% is 21 ITA.No.2228 & 1863/H/2011 M/s. Tecumseh Products India P. Ltd. Hyderabad.
available again, if TPO action results in further addition. On this reason also the claim fails. This contention of Assessee is considered as rejected.
Respectfully following the above, we reject this contention of assessee.
12. Ground no 2 is accordingly considered partly allowed for statistical purposes.
13. Ground No.3 pertains to the addition of amount of Rs.1,07,59,077/- to the CADEM segment in the transfer pricing report of the A.O. The TPO/DRP determined the arms length mark-up for provision of software engineering services to be at 24.35%. It was the contention that TPO rejected the comparability analysis carried in the T.P. documentation and also obtained information selectively from various companies under section 133(c) and adopted various filters. The TPOs/A.O. draft order is however approved by the DRP rejecting the assessee's objections on various filters comparability of the cases, risk adjustments, working capital adjustments etc., Hence, assessee has raised detailed grounds before us vide ground No.3.
14. It was informed that after the DRP order there are about 26 comparables which are finally selected to arrive at the margin of profit at 24.35%. Apart from objecting to some of the comparables, it was the submission of the Ld. Counsel that TPO has considered the operating cost of both AE segment and non-AE segment and accordingly made the addition on 22 ITA.No.2228 & 1863/H/2011 M/s. Tecumseh Products India P. Ltd. Hyderabad.
the entire turnover of the assessee without restricting to the AE segment. It was the submission that if the cost pertaining to only AE segment is considered then the addition would be less. Even if all the comparables were accepted at the adjustment would be only Rs.27,70,699/- as against Rs.1.07 crores added by the TPO. Ld. Counsel placed on record a chart indicating the proportionate operating cost for A.E segment and non-AE segment based on the sales ratio to determine the operating cost at Rs.84,77,135/- as against Rs.3,29,12,391/- adopted by the TPO for the entire segment. It was further contended that Managing Marketing Director was appointed at the end of the year and his services were not utilized for operations in India. Therefore, if his salary is excluded, then the operating cost would be only Rs.63,82,004/- and if the adjustment is calculated on this cost, it would be within the plus or minus 5% range. Since, these factual aspects are not examined by the TPO/DRP in spite of making specific objections, it was the contention of the learned Counsel that the working of the addition itself is not correct.
15. Apart from that, assessee is also objecting to the comparables which are as under :
(1) Accel Transmatic Ltd. (seg.) (2) Avani Cimcon Technologies Ltd., (3) Flextronics Software Systems Ltd., (4) Infosys Technologies Ltd., (5) KALS Information Systems Ltd.23
ITA.No.2228 & 1863/H/2011 M/s. Tecumseh Products India P. Ltd. Hyderabad.
(6) Lucid Software Ltd.,
(7) Megasoft Ltd.,
(8) Tata Elxsi Ltd.,
(9) Thirdware Software Solutions Ltd.,
(10) Wipro Ltd.,
16. In all the cases above, Ld. Counsel relied on the Coordinate Bench decision in the case of Intoto Software P. Ltd. in ITA.No.2102/Hyd/2011 for exclusion of the above comparables, except one in case of Tata Elxsi Lmited which was objected relying on the Co- ordiante Bench decision in the case of N/s. Conexant Systems India Private Limited ITA.No.1429/Hyd/2010 and ITA.No.1978/Hyd/2011 dated 22.03.2013.
17. After hearing rival contentions, we agree that the following comparables were excluded by the Coordinate Bench considering the similar facts in the case of Intoto Software India Ltd. in ITA.No. 1196/Hyd/2010, 1197/Hyd/2010 & 2102/Hyd/2011 dated 24.05.2013. The findings in Intoto and also in the case of M/s. Conexant Systems India Private Limited in ITA.No.1429/Hyd/2010 and ITA.No. 1978/Hyd/2011 dated 22.03.2013 Software India with reference to each of the comparables and are as under :
"Avani Cincom Technologies Ltd. ('Avani Cincom'):
Here in this case also the segmental details of operating income of IT services and sale of software products have not been provided so as to see whether the profit ratio of this company can be taken into consideration for comparing the case that of assessee. In absence of any kind of details provided by the TPO, we are unable to 24 ITA.No.2228 & 1863/H/2011 M/s. Tecumseh Products India P. Ltd. Hyderabad.
persuade ourselves to include it as comparable party. Learned CIT DR has provided a copy of profit loss account which shows that mainly its earning is from software exports, however, the details of percentage of export of products or services have not been given. We, therefore, reject this company also from taking into consideration for comparability analysis."
Accel Transmatic Ltd.
On careful perusal of the business activities of Accel Transmatic Ltd. DRP agreed with the assessee that the company was functionally different from the assessee company as it was engaged in the services in the form of ACCEL IT and ACCEL animation services for 2D and 3D animation and therefore assessee's claim that this company was functionally different was accepted. DRP therefore directed the Assessing Officer to exclude ACCEL Transmatic Ltd. from the final list of comparables for the purpose of determining TNMM margin."
FLEXITRONICS SOFTWARE LIMITED :
" As far as Flexitronics Software Limited is concerned, we find that at page 90 of his Order, the TPO has also observed that the said company has incurred expenditure for selling of products and has incurred R & D expenditure for development of the products. The above facts clearly demonstrate that there is functional dissimilarity between the assessee and these companies and without making adjustment for the dissimilarities brought out by the TPO himself, these companies cannot be taken as comparable companies. The method adopted by the TPO to allocate expenditure proportionately to the software development services and software product activity cannot be said to be correct and reasonable. Wherever, the Assessing Officer/TPO cannot make suitable adjustment to the financial results of the comparable companies with the assessee-company to bring them on par with the assessee, these companies are to be excluded from the list of comparables. Therefore, we direct the Assessing 25 ITA.No.2228 & 1863/H/2011 M/s. Tecumseh Products India P. Ltd. Hyderabad.
Officer/TPO to exclude these three companies from the list of comparables."
INFOSYS TECHNOLOGIES Ltd. :
" We have heard both the parties. We find that Infosys Technologies Ltd., though, is into the similar business of the assessee as software development, cannot be considered as a comparable to any other companies which are also involved in similar activities. It is not only a giant company but is also engaged in development of various niche products. It cannot be compared to the assessee in any manner. Similar directions have been given by the Tribunal at Delhi and Hyderabad Benches in the cases cited (supra)".
KALS INFORMATION SYSTEMS LTD:
". We have given a careful consideration to the submission made on behalf of the Assessee. We find that the TPO has drawn conclusions on the basis of information obtained by issue of notice u/s.133(6) of the Act. This information which was not available in public domain could not have been used by the TPO, when the same is contrary to the annual report of this company as highlighted by the Assessee in its letter dated 21.6.2010 to the TPO. We also find that in the decision referred to by the learned counsel for the Assessee, the Mumbai Bench of ITAT has held that this company was developing software products and not purely or mainly software development service provider. We therefore accept the plea of the Assessee that this company is not comparable".
LUCID SOFTWARE LIMITED:
The objections raised by the assessee for inclusion of Lucid Software Ltd. as a comparable is placed at pages 244 to 248 of the paper book filed by the assessee. We find identical objection has been raised against the inclusion of Lucid Software in case of Telcordia Technologies. Since the facts and the assessment year are 26 ITA.No.2228 & 1863/H/2011 M/s. Tecumseh Products India P. Ltd. Hyderabad.
identical, following the order of the Tribunal in the case of Telcordia Technologies Pvt. Ltd. v. ACIT (supra), we direct the Assessing Officer/TPO not to include Lucid Software Limited as a comparable."
MEGA SOFT :
"As far as Mega-Soft is concerned, the learned Counsel for the assessee has drawn our attention to the fact that the segmental margin of this company's software development services is only 23.11%. Whereas, the Assessing Officer/TPO has taken the combined result of 60.23%. He submitted that the Tribunal at Bangalore in the case of M/s. Trilogy E-Business Software India Private Limited has directed the Assessing Officer/TPO to take only the segmental margin into consideration while computing the ALP of that company i.e., M/s. Trilogy E- Business Software India Private Limited. The learned Counsel for the assessee has sought similar direction in this case also. Having gone through the decision of the Tribunal at Bangalore Bench in the case of M/s. Trilogy E- Business Software India Private Limited vs. DCIT in ITA.No.1054/Bang/2011 at paras 24 to 26, we direct the Assessing Officer/TPO to take only the segmental margin of this company for the relevant previous year into consideration for computing the ALP of the assessee".
TATA ELXSI LIMITED :
" As regards this company, the learned Counsel appearing on behalf of the assessee, filed before us the reply of Tata Elxsi Limited to the Addl. CIT (Transfer Pricing), Hyderabad, wherein the concerned Officer has been informed that Tata Elxsi Limited is specialised Embedded Software Development Service Provider and that it cannot be compared with any other software development company. It was submitted that because of the specialisation and also becauseof diverse nature of its business, it is very difficult to scale-up the operations of Tata Elxsi Limited. In view of this, Tata Elxsi Limited has informed that it is not fair to use its financial numbers to 27 ITA.No.2228 & 1863/H/2011 M/s. Tecumseh Products India P. Ltd. Hyderabad.
compare it with any other company. The communication dated 25th August, 2009 to the TPO is placed before us. As this communication was not before the TPO at the time of transfer pricing adjustment we deem it fit and proper to remand this issue also to the file of the TPO to reconsider adopting this company as the comparable in the light of observations of this company to the TPO in the case of another assessee. In the result, the Assessing Officer/TPO is directed to reconsider the issue in accordance with law, after affording a reasonable opportunity of being heard to the assessee".
THIRDWARE SOFTRWARE SOLUTION LIMITED :
As far as Thirdware Software Solution Limited is concerned, we find from the information furnished by the said company that though the said company is also into product development, there are no softrware products that the company invoiced during the relevant financial year and the financial results are in respect of services only. Thus, it is clear that there is no sale of software products during the year but the said company might have incurred expenditure towards the development of the software products.
WIPRO LIMITED :
" . As far as (Infosys Technologies Limited and) Wipro Limited are concerned, we find that both are giant companies and are into diversified activities and for the detailed reasons given by us in assessee's own case for the A.Y. 2005-06 even dated, we direct that these two companies are to be excluded from the list of comparables."
Respectfully following the decision of the Coordinate Bench of the Tribunal, we direct that these companies should be excluded from the list of comparables.
28ITA.No.2228 & 1863/H/2011 M/s. Tecumseh Products India P. Ltd. Hyderabad.
18. Respectfully following the Coordinate Bench decision in the above cases, we direct that these comparables companies should be excluded from the computation of PLI. It was submitted that the mean PLI of the rest of the comparables selected by the TPO would come to 18.19% and this is within the margin as arrived at by the assessee, after making adjustments to the working of the TPO as suggested above. However, these aspects require examination by the TPO. Therefore, we direct the TPO to consider exclusion of the above 10 comparables and to restrict the addition to the AE transactions only. AO/TPO is free to consider whether proportionate cost of Marketing Director salary is to be included in operating cost or not, depending on the nature of his employment and also to examine whether assessee's contention that he was employed at the end of the year has any bearing on issue so the cost should not be included for the working of this year. Therefore, to the extent of addition made on CADEM segment, the orders of the TPO and DRP are set aside. The issue is restored to the file of the TPO/A.O. to do the needful. Assessee should be given due opportunity and his objections should be considered in detail and should not be rejected without consideration. Accordingly, Ground No.3 of the assessee is considered as allowed for statistical purposes.
19. Ground Nos. 4 and 5 pertain to disallowance of the provisions of section 40(a)(ia) on the reason that assessee has not furnished evidence of deduction claimed under section 40(a)(ia). The A.O. vide para 6 of his order, disallowed an amount of Rs.13,27,123/-. Assessee submitted before the DRP that an amount of Rs.7.67 lakhs was deducted and paid during the year and amount of Rs.5,50,000/- was reversed, 29 ITA.No.2228 & 1863/H/2011 M/s. Tecumseh Products India P. Ltd. Hyderabad.
therefore, A.O. should not have disallowed the amount. The DRP however, relied on the orders of the A.O. but directed that assessee can furnish challan and A.O. may consider the same in accordance with law. It was the contention that A.O. did not give any opportunity in order to reduce the amount.
20. We are of the opinion that this issue is to be restored to the file of A.O. for examination of the facts and if assessee has already paid the amount or amount was disallowed in earlier year, the disallowance to that extent should not be made. In case, assessee reversed the amounts provided in earlier year also and to that extent, A.O. is directed to examine the facts and decide the issue accordingly. Assessee should be given due opportunity before deciding the issue. With these directions, ground Nos. 4 and 5 of the assessee are considered as allowed for statistical purposes.
21. Ground No.6 pertains to disallowance of an amount of expenditure paid on account of Daughter's Marriage Benefit fund. Assessee claimed an amount of Rs.4,10,000/- on payment basis while disallowing the amount of Rs.5,76,000/- in the computation as per the constant accounting policy adopted by the assessee. A.O. has disallowed the amount of Rs.4,10,000/- while admitting that this amount was paid out of earlier year's disallowances. It was the contention of the assessee before the TPO as well as DRP that this amount is made for the benefit of employees as part of Memorandum of Settlement with the employees and the amount is to be considered as a deduction under section 37(1) relying on various principles laid down on this issue. However, both the A.O. and DRP rejected and made the disallowance. It was the 30 ITA.No.2228 & 1863/H/2011 M/s. Tecumseh Products India P. Ltd. Hyderabad.
contention that the assessee was making provision of fund as per the settlement reached with the employees by mediation of Deputy Labour Commissioner, Faridabad and original settlement under Industrial Disputes Act was from the period September 2001 to 31st August, 2004 which was further extended by another three years from 1st September, 2004 to 31st August, 2007 and this settlement was still in force. Subsequently also, as per the settlement vide para-G in page 9 Daughter's Marriage Benefit Fund has been increased from Rs.20,000/- to Rs.30,000/- and the provision of amount is from management and employees will be 50% each. Accordingly, it was the submission that assessee made the provision to the Daughter's Marriage Benefit Fund as per the requirements and since it is a provision, assessee was consistently disallowing, following the accounting principles. It claimed only the actual amount paid out of the fund during the year. Since the amount was paid for the benefit of the employees, this does not get attracted under section 40A(9) of the Act and the same is allowable under section 37(1). Assessee also relied on the decision of ITAT Bench in the case of Bata India Ltd. vs. DCIT 85 ITD 257 and decision of India Pistons Repco Ltd. 26 ITD 413 and Rasi Cements Ltd. 45 ITD
233.
22. Considering the facts of the case and the submissions made on this behalf, we are of the opinion that the amount is an allowable deduction under section 37(1) of the I.T. Act. In fact, assessee is adding back the provision and claiming only the actual amount. Since, Industrial Dispute Act permits this sort of benefit for the employees and assessee has been making matching contribution, allowability of this 31 ITA.No.2228 & 1863/H/2011 M/s. Tecumseh Products India P. Ltd. Hyderabad.
amount does not attract the provisions of section 40A(9). Therefore, we are of the opinion that both A.O. and DRP are wrongly disallowed the amount. We direct the A.O. to allow the amount, as claimed.
23. In the result, appeal of the assessee is partly allowed for statistical purposes.
ITA.No.1863/Hyd/2012 - A.Y. 2008-2009 :
24. In this appeal the assessee has raised 12 grounds which are as under :
"1. That on the facts and circumstances of the case, the assessment order ('Order') passed by the Learned Assessing Officer ("A.O".) / Ld. Transfer Pricing Officer ("TPO") and Hon'ble Disputes Resolution Panel ('DRP') under section 143(3) read with section 144C of the Income Tax Act, 1961 ('Act') is bad in law.
2. That on the facts and circumstances of the case, the Ld. A.O. /Ld. TPO and the Hon'ble DRP have erred in making an adjustment to the arm's length price of the appellant's international transactions in the nature of sale of compressor sub-assembly and components with Associated Enterprises by Rs.4,62,00,000.
3. That on the facts and circumstances of the case, the Ld. A.O. /Ld. TPO erred in rejecting the Transfer Pricing documentation ("TP documentation") maintained by the appellant by invoking provisions of sub-section 3 of 92C of the Act and contending that the information or data used in the computation of the arm's length price is not reliable or correct.
4. That the Ld. A.O./Ld. TPO and the Hon'ble DRP have erred in disregarding the (audited) financial statements of the Export Oriented Manufacturing Unit used by the appellant in the 32 ITA.No.2228 & 1863/H/2011 M/s. Tecumseh Products India P. Ltd. Hyderabad.
transfer pricing documentation and arbitrarily determining the 'Operating Cost' for the purpose of computing the adjustment under section 92CA of the Act.
5. Pursuant to ground 4 above, the Ld. A.O./Ld. TPO have erred in not considering the suo moto addition made by the appellant on account of the difference between the disputed international transaction and the arms length price in the income tax return and thereby subjecting the appellant to double taxation.
6. That the Ld. A.O. and the Hon'ble DRP have grossly erred in rejecting the comparability analysis carried in the TP documentation and in carrying out a fresh comparability analysis without share the search process and the methodology with the appellant, thereby arriving at revised arm's length margin of 8.8% on incorrect operating cost.
7. That the Ld. TPO/Ld. DRP erred in law and facts by making an adjustment to the arm's length price of the appellant whereby the appellant transfer price post suo-moto adjustment in the Income Tax Return is within the range of +/-5% as contemplated in proviso to section 92C(2) of the Act.
8. That the Ld. A.O./Ld. TPO and the Hon'ble DRP have erred, while determining the arm's length price, in using data available only at the time of assessment proceedings, instead of using data available as on the date of preparing the TP documentation for comparable companies.
9. That the Ld. A.O. and the Hon'ble DRP erred, on the facts and circumstances of the case, in not allowing the claim for deduction for the following payments.33
ITA.No.2228 & 1863/H/2011 M/s. Tecumseh Products India P. Ltd. Hyderabad.
S.No. Particulars of Amount (Rs.)
disallowances
1. Gratuity 27,64,234
2. Bonus 36,26,552
3. Leave pay 21,75,463
4. Service rewards 7,14,326
Total 92,80,575
10. That the Ld. A.O. and the Hon'ble DRP have erred, on the facts and circumstances of the case, in disallowing the payment of Rs.4,80,000/- made on account of daughter's marriage benefit.
11. That the Ld. A.O. and the Hon'ble DRP have erred, on the facts and circumstances of the case, in not allowing the claim for deduction of provision for commission of Rs.3,09,033/- made during the year.
12. That the Ld. A.O. and the Hon'ble DRP have erred, in including the interest income of Rs.5,37,000/- twice in computing the total income".
25. In this year, Return of income was filed originally on September 30, 2008 declaring total income of Rs.37,15,14,613/- and subsequently revised return was filed declaring income of Rs.30,26,79,341/- after setting off earlier year losses thereby, arriving at total income at INR NIL. In the T.P. documentation, assessee made suo motu adjustment of an amount of Rs.2,32,09,835/- in order to made the arms length standard. In the T.P. study, A.O. considered amongst various international transactions, the transactions in the nature of sale of processor and sub-assembly of components for A.Es by making addition of Rs.4,62,00,000/-. Assessee raised various objections before the DRP and the DRP, however, rejected the objections and accordingly, the AO passed consequential order making the adjustments 34 ITA.No.2228 & 1863/H/2011 M/s. Tecumseh Products India P. Ltd. Hyderabad.
to the income returned, along with other corporate adjustments in computation.
26. Ground no 1 is general in nature. Ground no 2 to 7 are on the issue of Transfer pricing adjustment of Rs. 4,62,00,000/ made by TPO ignoring the suo-motto adjustment made by assessee and adopting different cost and comparables. The issues raised are similar to the issues considered earlier in assessment years 2006-07 and A.Y. 2007-08. These were elaborately discussed in Para 11 of this order earlier in ITA.No.2228/2011. Since these issues are covered by the Orders of ITAT in earlier years, A.O. is directed to follow the same and rework out the same in this year as well. Accordingly, grounds 2 to 7 are partly allowed for statistical purposes.
27. Ground No. 8 also pertaining to transfer pricing issue is about the objection in using data available at the time of assessment proceedings. This objection was not pressed. Accordingly, the same was rejected.
28. Ground No. 9 is with reference to disallowance of various claims of payments to the extent of Rs. 92,80,575/-. The details of payments disallowed are as under :
S.No. Particulars of disallowances Amount (Rs.)
1. Gratuity 27,64,234
2. Bonus 36,26,552
3. Leave pay 21,75,463
4. Service Rewards 7,14,326 28.1. Gratuity amount of Rs.27,64,234/-: Assessee claimed the above amount on the reason that the amount was 35 ITA.No.2228 & 1863/H/2011 M/s. Tecumseh Products India P. Ltd. Hyderabad.
paid to LIC towards premium of gratuity paid for its employees of Balladhar unit. A.O. on the reason that even though the same was mentioned in the tax audit report, opined that assessee could not bring anything on record for substantiating the claim of payment and accordingly amount of Rs.27,64,534/- was decided to be disallowed. However, he made an addition of Rs.32,87,949/- in the computation of income. It was the submission before the DRP that A.O. wrongly added amount of Rs.32,87,949/- whereas the disallowance proposed was only Rs.27,64,234/-, thus making excess disallowance of Rs.5,23,715/-. With reference to evidence for payment of gratuity assessee submitted that the said evidence was already furnished and also enclosed as attachment-7 to Annexure-1 to Form 3CD. DRP was requested to admit additional evidence which was filed along with the application. Unfortunately, DRP did not decide either of the issues. It only directed the A.O. to allow the same as per the provisions of the Act. A.O. did not make any verification.
28.2 On perusing the facts on record, we are of the opinion that both A.O. and DRP wrongly considered the above amounts. As far as disallowance of Rs.5,23,715/- is concerned, it is simply in higher disallowance than required which should be excluded. As regards amount of Rs.27,64,234/- it is also a direction by DRP to examine and allow the amount. It is the duty of the A.O. to examine and allow the amount. Since he has not complied with the directions of the DRP, we direct the A.O. to again verify the payment and allow the same. Ground No.9 is accordingly allowed for statistical purposes.
36ITA.No.2228 & 1863/H/2011 M/s. Tecumseh Products India P. Ltd. Hyderabad.
28.3 Bonus, Leave Pay and Service Rewards : Similar disallowance with reference to bonus, leave pay and service rewards was made. Even though, the DRP directed the A.O. to verify and allow the amounts, A.O. did not allow the amount on the reason that third party evidences were not furnished. We are unable to understand what sort of third party evidences are required to allow the amounts. Therefore, we direct the A.O. to examine the vouchers furnished by the assessee and allow the amounts. Even though A.O. mentions the evidences furnished, we are unable to examine how the amount of disallowance for leave pay was arrived at as there seems to be some calculation mistakes as well. With reference to service rewards also, it seems to be a gift in kind like fridge. This also requires to be examined by the A.O. Therefore, we direct the A.O. to give opportunity to the assessee and allow the amounts after due examination.
29. Ground No.10 pertains to the issue of payment of Rs.4,80,000/- made on account of Daughter's Marriage Benifit Fund. For the reasons stated in A.Y. 2007-08 vide para No. 21 and 22 the issue being similar, we direct the A.O. to allow the amount.
30. Ground No.11 pertains to the claim of deduction for provision of commission of Rs.3,09,033/- made during the year. Assessee claimed an amount of Rs.3,09,033/- being provision made towards commission whereas, A.O. on the reason that it was a provision, disallowed the amount of Rs.3,09,033/-. It was submitted that the commission liability has accrued to the assessee based on sales income booked and was in consistence with accounting Standard-I under section 37 ITA.No.2228 & 1863/H/2011 M/s. Tecumseh Products India P. Ltd. Hyderabad.
145 of IT Act 1961 wherein accrual concept is required to be followed. Without verifying the factual position, it was submitted that A.O. disallowed the expenditure claimed as a provision. Assessee requested DRP to allow the commission. DRP directed the A.O. to examine and allow the same as per the provisions of the I.T. Act. It was submitted that assessee has paid a total amount of Rs. 22 lakhs and sometimes provisions are reversed in later year and claimed on actual basis. DRP did not consider. Since this issue was not examined in detail by the A.O. we direct the A.O. to examine the sales made outside India on which provision was made and the amounts paid considering the adjustments made in the computation of income. A.O. is directed to examine the amount on factual position and consider allowing the amount accrued during the year. With this direction, Ground No.11 is restored to the file of A.O. and considered as allowed for statistical purposes.
31. Ground No.12 pertains to the issue of interest income of Rs.5,37,000/- added twice in the computation. It was the submission that interest was accrued and shown in the income account and also in the balance sheet vide Schedule-9 in page 5 of the balance sheet. It was submitted that relevant voucher was also furnished to the A.O. / DRP, but this double addition was not deleted. It was the submission that assessee has already accounted the income and addition again does not require. Considering the submissions of the assessee, we direct the A.O. to examine this aspect factually and allow the amount. With this direction, ground No.12 is allowed for statistical purposes.
38ITA.No.2228 & 1863/H/2011 M/s. Tecumseh Products India P. Ltd. Hyderabad.
32. In the result, appeal of the assessee is partly allowed for statistical purposes.
33. Before parting with this order, we would like to place on record that A.O. did not examine many of the aspects factually, may be because of voluminous documentation given by the assessee without presenting the facts in verifiable manner. Even we have difficulty in finding out the actual amounts in the voluminous papers filed before us, without specifying/crystallizing the issues. Many a time the contentions on corporate issues could not be verified by us so as to give findings. We advise the assessee to furnish the relevant data in a simple and concise manner so that officer can examine these issues. With these observations, appeals are considered as partly allowed for statistical purposes.
34. To sum-up, ITA.No.2228/Hyd/2011 and ITA.No.1863/Hyd/2012 of the assessee are partly allowed for statistical purposes.
Order pronounced in the open Court on 28.05.2014.
Sd/- Sd/-
(ASHA VIJAYARAGHAVAN) (B. RAMAKOTAIAH)
JUDICIAL MEMBER ACOUNTANT MEMBER
th
Hyderabad, Dated 28 May, 2014
VBP/-
Copy to :
1.M/s. Tecumseh Products India P. Ltd. 9-40, Balanagar Township, Hyderabad - 500 003.
2. ACIT, Circle 2(3), Hyderabad
3. Disputes Resolution Panel, Hyderabad
4. Addl. CIT (Transfer Pricing), Hyderabad
5. D.R. ITAT, 'A' Bench, Hyderabad.