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2018 (10) TMI 1950 - ITAT PUNETP Adjustment - adjustment to the value of international transactions entered into by the Appellant with its Associated Enterprise with respect to receipt of advisory services - extraordinary expenses during the year - DRP calculating arm's length price of advisory services as NIL - HELD THAT:- As ratio has been laid down by Mumbai Bench of Tribunal in Pangea3 & Legal Database Systems (P.) Ltd. [2017 (3) TMI 267 - ITAT MUMBAI] wherein it was held that where a material difference had arisen in case of assessee due to abnormal feature (abnormal loss on cancellation of forward contract) which admittedly was absent in cases of comparables, a suitable adjustment had to be made to factor in material difference in PLI and thus, loss on account of cancellation of forward contracts out of total forex loss needed to be eliminated from operating cost. Looking at the wastage cost of units scrapped, both the TPO and DRP has commented on the wastage in the months of July and August. 2007 at 49.17% and 23.58%, respectively, though it has gone down in subsequent months but in January, 2008 it was 21.56%, in February, 2008, it was 20.06% and in March, it was 20.47%. Hence, the total wastage of the year is to be taken into consideration for adjudicating the issue in hand. We find no merit in the stand of authorities below in not excluding the cost on account of extraordinary event during the year. Accordingly, we direct the Assessing Officer/TPO to take the margins of assessee after excluding wastage cost, which was extraordinary event of the year. MAM - While applying TNMM method which has been applied by both the Assessing Officer and TPO, percentage of margins of assessee is to be compared with the margins of comparables and the advisory fees paid by assessee cannot be taken at Nil especially ignoring the evidences filed by assessee during the course of proceedings. TPO has failed to come to a finding in this regard as to whether advisory services have been availed by the assessee or not but has gone to take the value of same at Nil. Where an expenditure or payment has been incurred for the purpose of business, the same cannot be disallowed on any extraneous reasoning. TPO cannot determine arm's length price at Nil without going into merits of rendition of services by the assessee to associated enterprises. The TPO in the final analysis has only commented that since unadjusted margins of assessee are (-) 11.56% and that of comparables are at 6.39%, hence TNMM analysis used for benchmarking was not correct and further held the advisory services were not at arm's length price and hence, taken at Nil. We find no merit in the stand of TPO in this regard, which has been upheld by DRP. In any case, we have already allowed the claim of adjustment to be made on account of extraordinary cost to be reduced while arriving at operating margins of assessee and the same would work out to 7.13%. Rejection of three comparables by the TPO - The assessee was engaged in auto ancillary units, wherein the assessee was manufacturing headliners, door panels, parcel trays, etc. The concern K.R. Rubberite Ltd. which was selected by assessee was also engaged in production of auto parts and hence, the same could not be rejected as not being functionally comparable. Similarly, the concern Lifelong India Ltd. was engaged in the manufacture of auto parts i.e. Air cleaner assembly, handle assembly, moulded parts and aluminum die-casting, which get covered under the term ‘auto ancillary’ i.e. segment in which the assessee is operating. Hence, the same is functionally comparable to the assessee. Bright Autoplast Ltd., which is wholly owned subsidiary of Sintex Holdings BV, Netherlands and the related party transactions were very high. In view of comparable not fulfilling RPT filter, the said concern cannot be selected as comparable. Accordingly, we direct the Assessing Officer to re-compute mean margins of comparables after including K.R. Rubberite Ltd. and Lifelong India Ltd. and also to adopt the PLI of assessee after reducing extraordinary cost wastage of Chennai plant and determine the arm's length price of international transactions, if any. However, adjustment is to be restricted to international transactions only. The Assessing Officer/TPO shall afford reasonable opportunity of hearing to the assessee in this regard. Hence, the grounds of appeal No.2 to 4 and additional ground of appeal are allowed and the ground of appeal No.3 is partly allowed.
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