Home Case Index All Cases Income Tax Income Tax + AT Income Tax - 2017 (4) TMI AT This
Forgot password New User/ Regiser ⇒ Register to get Live Demo
2017 (4) TMI 1497 - AT - Income TaxTP Adjustment - Transfer pricing provisions to the manufacturing division of the assessee - capacity under-utilization - assessee was manufacturing specialized high precision products - manufacturing unit was established in the assessment year 2008-09 and operated for three months - HELD THAT:- We find merit in the claim of assessee as this was the first complete year of operation. Accordingly, the assessee is entitled to the adjustment on account of capacity under-utilization. The Pune Bench of Tribunal in Tasty Bite Eatables Ltd. [2015 (8) TMI 981 - ITAT PUNE] has already allowed similar adjustment and accordingly, we hold that the same is to be allowed in the hands of assessee. Accordingly, we delete the proposed addition on account of non-allowable adjustment for capacity under-utilization at ₹ 1.44 crores. We also delete the TP adjustment made on account of non-receipt of support payments at ₹ 1.65 crores. We may also mention that the TPO has limited power to exercise i.e. determination of arm's length price of such international transactions which are referred under section 92C of the Act by the Assessing Officer. The perusal of para 4 of the TPO’s order shows the international transactions which were referred by the Assessing Officer to the TPO under section 92C of the Act and the above said transactions of support payments is not part of reference. The ground of appeal No.2.1 is thus, allowed. TP adjustment under market support services - assessee had provided marketing support services to its various groups in favour of OPW-FC division and corporate division - HELD THAT:- We agree with the contention of assessee that the approach of TPO should be consistent, in case, he wants to apply the margins of concerns selected in the preceding year as comparable, then such concerns should be picked up and their margins by applied. This selective approach of the TPO is not correct approach. Assessee has fairly made alternate plea before us that either the margins of all the concerns except Agrima International should be applied to benchmark the international transactions of the assessee or at best, the margins of three concerns which are showing profits should be applied and the concerns which are showing losses should be ignored. Three concerns should be selected as comparable to the assessee and the margins should be applied as all the three concerns have shown positive profits, the loss making concerns be ignored for the TP analysis. Agrima International Consultancy Ltd. was also excluded from the final set of comparables in assessment year 2008-09 in assessee’s own case [2015 (5) TMI 1095 - ITAT PUNE]. Accordingly, Agrima International Consultancy Ltd. is to be excluded. After allowing working capital adjustment @ 10% BPLR, the Assessing Officer is directed to re-compute the mean margins of comparables. As per the learned Authorized Representative for the assessee, in case this plea of the assessee is allowed, no further TP adjustment is to be made in the hands of assessee. TP adjustment was made in Design Engineering Services - TPA made in the design engineering services division, wherein the assessee had provided the said services in relation to designing of products manufactured by the respective associate enterprise companies - HELD THAT:- The Hon’ble Bombay High Court in CIT Vs. PTC Software (I) Pvt. Ltd. . [2016 (9) TMI 1282 - BOMBAY HIGH COURT] have held that where the concern has different accounting period, then the same cannot be compared as comparable. The Hon’ble Bombay High Court held that as per provisions of section 10B(4) of the Income Tax Rules, 1962 clearly mandates that the data to be used for comparability analysis should be of the same financial year in which the international transactions were entered into by the tested party. In view thereof, it held that where a concern has different accounting period, then the margins of said concerns are not comparable. Following the same parity of reasoning, we hold that Rolta India Ltd. having different year closing than the assessee before us cannot be selected as comparable and consequently, direct the Assessing Officer to exclude the margins of the said concern from the mean margins of comparables. Design engineering services division is that while selecting the KLG Systel Ltd., the TPO has erred in not applying the segmental profits of the said concern while benchmarking the international transactions. We find merit in the plea of the assessee that the margins of the said concerns which are functionally comparable are to be selected and applied and in case any concern is engaged in various activities, then the segmental details of the activity, which is functionally comparable to the assessee are to be applied in order to work out the margins of the said concern. Accordingly, we hold so and direct the Assessing Officer to re-compute the margins of KLG Systel Ltd. The ground of appeal No.2.3 is thus, allowed. Disallowance under section 10A on the portion of export proceeds received in Indian Rupees - HELD THAT:- Amount due against four of the bills raised by the assessee during the year was received in Indian rupees but from the foreign entity through a foreign bank establishes the case of assessee that it has received the said consideration in foreign exchange through the foreign bank against export of goods. Where the assessee had fulfilled the first condition of exporting the goods to a concern outside India and had also received the money from the said concern from outside India, merely because the amount was received in Indian currency, does not establish the case of the Revenue that the amount has not been received in foreign exchange. We find no merit in the order of Assessing Officer in this regard. We hold that even though the amount is received in Indian currency but the same is in the nature of foreign exchange and hence, the assessee is entitled to the claim of deduction under section 10A of the Act. The old FERA Act defines foreign exchange to mean foreign currency and including various modes i.e. drafts, travellers’ cheques, etc. payable in any foreign currency and also payable in Indian currency. So, the word ‘foreign exchange’ cannot be restricted to only foreign currency but covers larger meaning of foreign exchange, wherein the money is received from foreign sources but in Indian rupees. Accordingly, we direct the Assessing Officer to re-compute the deduction allowable under section 10A. Disallowance of provision of obsolesce stock - assessee had not written off stock but had made only provision - HELD THAT:- Assessee before us pointed out that the same stock were obsolete stock and non-living stock, which was claimed as expenditure. He further stated that the same may be sent back for verification. We restore this issue back to the file of Assessing Officer to decide the same after considering the facts of the case and allowing reasonable opportunity of hearing to the assessee. - Appeal of the assessee is allowed.
|