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2021 (10) TMI 727 - AT - Income TaxTP adjustment - rejection of the benchmarking analysis of the assessee - According to the assessee, the comparables chosen by the learned TPO are engaged in manufacturing of non-core components and, therefore those companies are not functionally comparable with the assessee - Scope of safe harbour rules for International Transaction (Rules 10TA to 10G) - HELD THAT:- CBDT has identified difference in operating profit margin of the companies engaged in manufacturing of the core components vis-à-vis non-core components. In such circumstances, in principle, the companies engaged in manufacturing of core components cannot be compared on FAR analysis with companies engaged in manufacturing of non-core components. As on perusal of order of the lower authorities, we find that few comparable companies are engaged in manufacturing of core components whereas other are engaged in manufacturing of non-core components. The assessee itself has submitted before the Learned DRP that the company “Setco Automotive Ltd” is engaged in production of ‘drive transmission and steering parts’, which is one of the core components. The Learned DRP has noted that assessee is also engaged in manufacturing of ‘power train components’ under engine parts. Regarding ‘JBM Auto Systems Private Limited’ the assessee has claimed before the DRP that it was engaged in manufacturing of sheet metal components and tools and dies for automobiles, which falls in the nature of non-core components. The company “India Nippon Electricals Ltd.” has been retained as comparable on the ground that it is engaged in manufacturing of electronic ignition system for two wheelers, portable engines for three wheelers, flywheel magneto generator, capacitor discharge ignition unit etc. The company “Indo Schottle Auto Parts Private Limited” is engaged in manufacturing of collets, Mechatronic, valves, fuel system, turbocharger etc. The company “Sakthi Auto Components Ltd.” is engaged in manufacturing of iron casting. The company ‘Gajra Gears Private Limited’ is engaged in manufacturing automotive gears. The company “RACL Geartech Ltd.” mainly manufacture automotive gears and components. The company has also diversified in the field of industrial gears for electrical switchgears and circuit breaks, winches and cranes etc. We are of the opinion that the decision of the Tribunal in the case of Nissin Brake (2020 (5) TMI 305 - ITAT DELHI) was not available before the learned TPO and therefore he could not examine the comparability on the basis of function of manufacturing of core or non-core auto components. In the circumstances, we feel it appropriate to restore the issue of examining comparability of the assessee with other 10 companies to the file of AO/TPO with the direction to examine product manufactured by comparable companies and verify whether same falls under core component or non-core component and thereafter decide the comparability on verification of components manufactured by the assessee. The Learned AO/TPO may also examine other objections of the assessee of research and development activities carried out by the comparable companies in accordance with law. Denial of capacity utilization/excess depreciation adjustment - As the assessee in his submission has submitted a chart of adjustment on account of capacity utilization on the basis of that depreciation to sales ratio. We direct the learned TPO to examine the claim of the assessee of capacity utilization in view of the data submitted by the assessee. Incorrect computation of operating margin of the assessee in view of considering profit on sale of the tools as non-operative and depreciation of all those tools as operative - Since sale of asset is not part of regular revenue operation in the case of the assessee and, therefore, profit generated on same cannot be part of revenue operation of the assessee - DRP has correctly held the profit on sale of a set as non-operative item. As far as the depreciation on operative expense is concerned, DRP has held to be operative in view of assets used for the purpose of the business, and thus depreciation is part of expenditure connected with business operation of the assessee. The depreciation is also justified as operating expense, because profit earned on employing the tools in the business is part of profit earned on manufacturing process which is part of operating revenue. We do not find any error in the order of the Learned DRP on the issue and accordingly, we reject this contention of the assessee to refer this matter back to the learned TPO. Disallowance made on the basis of low net profit rate of the assessee during the year under consideration as compared to preceding year - lower authorities have sustained the addition mainly due to non-furnishing of documentary evidence in support of claim of increase in cost of material and employee’s benefit - HELD THAT:- As before us, the assessee has submitted one new reason of the lower not net profit rate as loss on account of foreign currency transaction, which was not incurred in immediately preceding assessment year. Both the parties agreed that issue need to be examined by the Assessing Officer, accordingly, we set aside the finding of the lower authorities and restore the issue to the file of the Learned Assessing Officer for examination and verification of contentions raised by the assessee of foreign currency transaction loss during the year under consideration. The grounds of the appeal are accordingly allowed for statistical purposes. Non-payment of excise duty liability - AO disallowed the claim of payment of the excise duty in view of the comment of the auditor in tax audit report that it was not possible for him to give the date of payment of excise duty - HELD THAT:- Now, before us, the assessee has submitted that actual payment of excise liability under section 43B of the Act also include adjustment of excise duty from the input credit balance available. The learned Counsel submitted that such adjustment was made before the due date of filing of return under section 139(1) of the Act and, therefore, assessee is entitled to deduction under section 43B of the Act. The assessee has submitted a reconciliation chart of Cenvat Credit taken and utilized to support that excise duty was paid in terms of provision of section 43B of the Act and claimed that deduction is justified. In view of the facts and circumstances of the case and interest of substantial justice, we restore this issue back to the file of the Assessing Officer for deciding afresh after verification of reconciliation chart of Cenvat credit taken and utilized along with supporting documentary evidence in the light of the decision of the Hon’ble Supreme Court in the case of Eichers Motors Ltd [1999 (1) TMI 34 - SUPREME COURT]. The grounds of the appeal of the assessee are accordingly allowed for statistical purposes.
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