Home Case Index All Cases Income Tax Income Tax + AT Income Tax - 2020 (1) TMI AT This
Forgot password New User/ Regiser ⇒ Register to get Live Demo
2020 (1) TMI 618 - AT - Income TaxTP Adjustment in the ‘Manufacturing segment’ - selection of MAM - PLI working - working capital adjustment - comparable selection - HELD THAT:- No dispute on the application of the TNMM as the most appropriate method and aggregation of the four sets of international transactions under the Manufacturing segment, which have been accepted by the TPO. Working out of the assessee’s own PLI - assessee is aggrieved by the adoption of operating profit after depreciation - HELD THAT:- Operating profit of the assessee and that of the comparables should be calculated after depreciation since depreciation is an integral part of the operating cost. It is further held that no adjustment can be allowed if there is difference just on account of the amount of depreciation or percentage of depreciation to a certain base. An adjustment can be allowed in the computation of profit of the comparables only if there is difference in the rates of depreciation as charged by the assessee and comparables on the same assets. Foreign exchange loss - non-operating V/S operating loss - HELD THAT:- We find that the in B.C. MANAGEMENT SERVICES PVT. LTD. [2017 (12) TMI 255 - DELHI HIGH COURT] has held that foreign exchange fluctuation in relation to trading transactions, prior to Safe Harbour Rules from 2013, should be treated as an operating item. In view of the above, it is held that the amount of foreign gain/loss arising out of the revenue transactions should be considered as an item of operating revenue/cost, both for the assessee as well as the comparables. Transfer pricing addition in respect of the whole segment rather than restricting it only to the international transactions - HELD THAT:- This issue is no more res integra in view of several judgments rendered by various higher forums including the Hon’ble jurisdictional High Court holding that the transfer pricing adjustment should be restricted only to the international transactions and not the entity level transactions. The Hon’ble jurisdictional High Court in CIT Vs. Phoenix Mecano (India) Pvt. Ltd. [2017 (6) TMI 1240 - BOMBAY HIGH COURT] has held that the transfer pricing adjustment made at entity level should be restricted to the international transactions only. Also see M/S. THYSSEN KRUPP INDUSTRIES INDIA PVT. LTD. [2015 (12) TMI 1076 - BOMBAY HIGH COURT] - We, therefore, direct to restrict the transfer pricing addition only in respect of transactions with Associated Enterprises. Working capital adjustment - HELD THAT:- As observed from the direction given by the Dispute Resolution Panel (DRP) on page 68 para 2.19.8 that the AO was directed : `to examine the computation of working capital adjustment worked out by the assessee and adopt correct operating margin of the comparable companies after working capital adjustment.’ There is no cross appeal by the Revenue so as to challenge the said finding of the DRP. When the matter came up before the AO/TPO, no effect was given to such direction. We, therefore, direct the AO/TPO to give effect to the direction given by the DRP in this regard and allow working capital adjustment as per its recommendation. Comparable selection - Assessee in the Manufacturing segment is involved in the manufacture of Resistors like high voltage resistors, low voltage resistors, power resistors etc. and Capacitors like film capacitors, trimmer capacitors and power capacitors used in various electronic applications/products, thus companies functionally dissimilar with that of assessee need to be deselected from final list. TP Adjustment of IT Enable services/ back office services - HELD THAT:- AR expressed his inability to produce the relevant agreement in terms of which the I.T. support services were rendered. It goes without saying that unless the true nature of services rendered by the assessee is precisely found out, the comparability of other companies cannot be conclusively decided. In view of the fact that the relevant agreement is not available on record, we deem it fit to set-aside the impugned order on this score and remit the matter to the file of AO/TPO. We order accordingly and direct the AO/TPO to first ascertain the precise nature of services rendered by the assessee under the I.T. support services and then examine the comparability or otherwise of the companies challenged in this segment, namely, Informed Technologies India Ltd., Infosys BPO Ltd., B N R Udyog Ltd. (Medical Transcription segment), Accentia Technologies Ltd., Jeevan Softech and R Systems. The ld. AR fairly agreed to it. Calculation of deduction u/s.10A and 10B - AO recomputed the assessee’s claim of deduction u/s.10A after allowing set off of the brought forward losses - HELD THAT:- We find that this issue is no more res integra in view of the judgment of the Hon’ble Supreme Court in CIT vs. Yokogawa India Ltd. [2016 (12) TMI 881 - SUPREME COURT] in which it has been held that the deduction should be allowed qua the eligible undertaking standing on its own without reference to other eligible or non-eligible units or undertakings. To put it simply, the profits of the eligible units should be considered on standalone basis. Similar view has been reiterated by the Hon’ble Supreme Court in CIT Vs. J.P. Morgan Services India Pvt. Ltd. [2017 (5) TMI 640 - SC ORDER] . In view of the direct precedent, we allow the assessee’s claim on this issue.
|