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2019 (5) TMI 533 - AT - Income Tax
TP adjustments in respect of sale of finished goods and AMP activity - selection of MAM - assessee selected TNMM as the MAM for determination of the ALP of the international transactions with its AEs - issued a show cause notice to the assessee proposing to substitute CPM as the MAM in place of TNMM adopted by the assessee - HELD THAT:- TPO has accepted the fact that in respect of sale of products in India, the assessee has undertaken marketing, selling and administrative functions and the assessee has not performed any such functions in respect of sales to AEs.
The number of differences and adjustments to be carried out for comparability purposes are many in number and therefore, where differences are many, CPM cannot be considered as the MAM. In this view of the matter and following the decision of the Co-ordinate Bench of this Tribunal in the assessee’s own case for Assessment Year 2011-12 [2018 (7) TMI 1964 - ITAT BANGALORE] we hold that TNMM is the MAM.
Under the said method, the assessee has earned net margin of 13.39% from exports to its AEs whereas the net loss suffered by the assessee in respect of the personal care division in the domestic segment is (-) 10.16%. As the net margins from the assessee’s exports to its AEs is higher when compared to the result of its margins in respect of transactions in the personal care division in the domestic segment, the price of the sale of finished goods are at arms length. In this factual view of the matter, the TP Adjustment made by the TPO by adopting CPM as the MAM is accordingly deleted
TP Adjustment on AMP Expenditure - HELD THAT:- Findings of the Co-ordinate Bench in the assessee’s own case for Assessment Year 2011-12 [2018 (7) TMI 1964 - ITAT BANGALORE] are squarely applicable for the year under consideration as the facts, basis and reasons for the TPO making the ‘AMP’ adjustment is identical to that of the earlier year, and, therefore, respectfully following the same, we delete the TP Adjustment of ₹ 26,61,11,989/- made on account of AMP expenditure. Further, as the net margin from the assessee’s exports to AEs at 13.39% is higher as compared the net loss of (-)10.16% from the personal care division in the domestic segment, the assessee’s international transactions with its AEs are at arms length and therefore no separate adjustment for ‘AMP’ expenditure is warranted. Consequently, ground No.9 of the assessee’s appeal is allowed.
Disallowance of interest expenditure - revenue or capital expenditure - AO disallowed the said expenditure claimed by the assessee for the reason that the same relates to the period prior to the date on which the fixed assets / installations were put to use - The AO, however, allowed depreciation on the interest capitalized - DRP uphold on the grounds that it was capital in nature - HELD THAT:- The assessee is engaged in the business of manufacture and sale of ayurvedic medicaments and preparations, consumer or personal care products and animal health care products. As per the material on record, no other business is carried on by the assessee. The addition to the building is a part of the already existing factory building located at Makali, Bangalore which included the following viz., (i) new raw material stores (ii) new finished goods stores and (iii) new quality assurance block. This is in addition to the already existing building and ostensibly the same products manufactured at the existing facility were produced at the new facility. Therefore, in our considered view this was an ‘expansion’ of the existing business - Disallowance of interest expenditure by the AO u/s 36(1)(iii) is untenable and is accordingly deleted. - Decided in favour of assessee.
Charging of interest under section 234B - HELD THAT:- The charging of interest is consequential and mandatory and the AO has no discretion in the matter. This proposition has been upheld by the Hon’ble Apex Court in the case of Anjum H. Ghaswala [2001 (10) TMI 4 - SUPREME COURT] therefore, uphold the action of the AO in charging the assessee the aforesaid interest u/s 234B