2019 (5) TMI 1971 - AT - Income Tax

TP Adjustment - selection of MAM - assessee had applied TNMM method for benchmarking its international transactions and had declared that its margins were higher than with mean margins of comparables - HELD THAT - Where the issue stands covered by the order of jurisdictional High Court in the case of assessee itself there is no merit in the orders of authorities below in making aforesaid transfer pricing adjustment in the hands of assessee both with respect to exports to associated enterprises and with respect to imports from associated enterprises. It may be pointed out that majority of transactions have been accepted to be at arm s length price by the TPO by applying TNMM method only in respect of few transactions the TPO had applied CUP method. There is no merit in the order of TPO in this regard and reversing the final order passed by Assessing Officer we allow the claim of assessee and direct the Assessing Officer to delete the transfer pricing adjustment made in the hands of assessee. The grounds of appeal No.2 and 3 are thus allowed. Non allowance of additional depreciation on tools purchased by the assessee - case of assessee is that the assessee had claimed additional depreciation on plant machinery u/s 32(1)(iia) which has been allowed in the hands of assessee - HELD THAT - The aim under the Finance Act 2005 while allowing the additional depreciation under section 32(1)(iia) of the Act was extended to new industrial undertaking on additional investments. Once the earlier basis of allowing additional depreciation for the units where the capacity had to be increased for about 25% is no more and now additional depreciation is to be allowed on additional investments and where the plant includes tools the assessee is entitled to the claim of additional depreciation under section 32(1)(iia) of the Act on the aforesaid tools purchased by assessee. Consequently we direct the AO to allow the claim of assessee of additional depreciation under section 32(1)(iia) - Appeal of assessee is allowed.

Issues Involved:

1. Re-computation of transfer price of international transactions.
2. Adjustment using Comparable Uncontrolled Price (CUP) Method for exports of finished goods.
3. Adjustment using CUP Method for imports of goods.
4. Higher price charged to AE for certain exports.
5. Lesser price paid to AE for certain imports.
6. Previous ITAT decisions rejecting CUP method.
7. Disallowance of additional depreciation on tooling under Section 32(1)(iia) of the Act.

Issue-wise Detailed Analysis:

1. Re-computation of Transfer Price:
The assessee contested the re-computation of the transfer price of international transactions related to exports and imports, arguing that none of the conditions prescribed in Section 92C(3) of the Income Tax Act, 1961, were violated. The Transfer Pricing Officer (TPO) had made an addition of Rs. 2,31,88,191/- under Section 92C based on the order dated 18.01.2016.

2. Adjustment Using CUP Method for Exports:
The AO/DRP adopted the CUP method for determining the Arm's Length Price (ALP) for some international transactions related to the export of finished goods, resulting in an adjustment of Rs. 2,18,82,379/-. The assessee argued that the CUP method was inappropriate due to differences in functional, transactional, geographical, volume, timing, and business risks. The assessee preferred the Transactional Net Margin Method (TNMM), which they claimed was more appropriate and had been accepted in previous years.

3. Adjustment Using CUP Method for Imports:
A similar adjustment of Rs. 13,05,812/- was made for imports of goods using the CUP method. The assessee contended that the CUP method was unsuitable for the same reasons cited for exports and that the TNMM method should be used instead.

4. Higher Price Charged to AE for Exports:
The assessee argued that for certain products exported, they had charged a higher price to the AE compared to non-AE transactions, and this should have been adjusted, resulting in a net addition.

5. Lesser Price Paid to AE for Imports:
Similarly, the assessee claimed that for certain products imported, they had paid a lesser price to the AE compared to non-AE transactions, which should also have been adjusted for a net addition.

6. Previous ITAT Decisions Rejecting CUP Method:
The assessee highlighted that in earlier years, the ITAT had rejected the CUP method as the most appropriate method for determining the ALP of international transactions of exports and imports. Given that the facts were similar in the current year, there was no reason to adopt the CUP method.

7. Disallowance of Additional Depreciation on Tooling:
The AO/DRP disallowed an additional depreciation claim of Rs. 30,12,942/- under Section 32(1)(iia) on tooling, arguing that tooling was not an integral part of 'Plant & Machinery.' The assessee contended that tooling should be considered part of 'Plant & Machinery' and thus eligible for additional depreciation.

Judgment Summary:

Transfer Pricing Adjustments:
The Tribunal noted that similar issues had been decided in favor of the assessee in previous years, including by the Hon'ble Bombay High Court, which had held that the TNMM method was the most appropriate method for determining the ALP. The Tribunal found no merit in the TPO's application of the CUP method for certain transactions and directed the AO to delete the transfer pricing adjustments for both exports and imports. Consequently, grounds of appeal No. 2 and 3 were allowed, and grounds No. 4 to 6 were deemed academic and dismissed.

Additional Depreciation on Tooling:
The Tribunal agreed with the assessee that tooling should be considered part of 'Plant & Machinery' and thus eligible for additional depreciation under Section 32(1)(iia). The Tribunal directed the AO to allow the claim for additional depreciation, thereby allowing grounds of appeal No. 7 and 7.1.

Conclusion:
The appeal of the assessee was allowed in its entirety, with the Tribunal directing the deletion of transfer pricing adjustments and allowing the claim for additional depreciation on tooling. The judgment emphasized consistency with previous decisions and the appropriate application of the TNMM method over the CUP method.

← Previous Next →