Issue raised against the treatment of export incentives as non-operating

This case concerns whether export incentives should be classified as operating or non-operating income for tax purposes. The assessee, a food manufacturer, reported export sales and used a specific method to justify its segmental profit levels. The Assessing Officer referred the matter to the Transfer Pricing Officer to determine the Arm's Length Price of these international transactions.

IN THE INCOME TAX APPELLATE TRIBUNAL
PUNE BENCH “C”, PUNE – VIRTUAL COURT

BEFORE SHRI R.S. SYAL, VICE PRESIDENT AND
SHRI S.S. VISWANETHRA RAVI, JUDICIAL MEMBER

ITA No.1823/PUN/2018
Assessment Year : 2014-15

M/s. Tasty Bite Eatables Limited,
201/202, Mayfair Towers,
Wakdewadi, Shivajinagar,
Pune – 411005
PAN : AAACT2317A

Vs. 

ACIT,
Circle-7, Pune
Appellant Respondent

ORDER

PER R.S.SYAL, VP :

This appeal by the assessee is directed against the final assessment order dated 19.9.2018 passed by the Assessing Officer (AO) u/s.143(3) read with section 144C(13) of the Income-tax Act, 1961 (hereinafter also called „the Act‟) in relation to the assessment year 2014-15.

2. Succinctly, the factual matrix of the case is that the assessee, who is engaged in the manufacture and sale of ready to eat foods, filed its return declaring total income of Rs.1,88,570, which was subsequently revised to the total income of Rs.9,38,410. The assessee reported certain international transactions in Form No.3CEB. The AO made a reference to the Transfer Pricing Officer (TPO) for determining the Arm's Length Price (ALP) of international transactions. Instantly, we are concerned with the Ready to Serve Food (RTSF) segment, albeit the assessee has two other segments also, namely, Frozen Foods and Sauces. The assessee reported export of finished goods to its Associated Enterprises (AEs) in the USA and Australia amounting to Rs.71.04 crore and Rs.8.20 crore respectively under this segment. The Transactional Net Marginal Method (TNMM) was applied for demonstrating the international transaction of exports under RTSF segment at ALP. For doing so, the assessee selected six comparable companies with an average Profit Level Indicator (PLI) of Operating profits to Operating Costs at 6.33% with the data of the F.Ys. 2012-13 and 2013-14 as against its own segmental PLI at 14.58%. Though the books of accounts were maintained on a consolidated basis for all the three segments and there was a combined Profit and loss account, the assessee tried to justify RTSF segmental claim by submitting a separate income statement allocating costs and income on a certain basis as mentioned on page 4 of the TPO‟s order. 

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