TMI Blog2013 (11) TMI 1262X X X X Extracts X X X X X X X X Extracts X X X X ..... - The system of collecting these spools also had to be put in place and stabilized to ensure its supply on a sustained basis - The system adopted by the TPO to allocate indirect expenses on the basis of turnover in initial assessment years was not justified - There was nothing on record to suggest any indirect expenses for determining the ALP of export of spools - However, no such adjustments were made by the TPO in A.Y. 2004-05 - Accordingly, the CIT(A) was not justified in restricting the addition as there was no element of indirect cost involved. Addition on the basis of Report of TPO – Import of Dies – Held that:- The goods being manufactured by the assessee company were an import substitution and therefore, foreign group companies do supply similar products to the Indian consumers - As the spools were reusable and had no utility to the buyers, as a measure to benefit local group companies, wherever possible, were involved in collection of empty spools for free from buyers for the packaging of their own products and its export in case the same are in excess of their requirement - spools have a consierable value and therefore the arrangement by which the assessee company ge ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at ALP requiring no adjustment except for (a) export of spools and (b) import of dies. Out of the total adjustment of Rs. 50,32,752/- suggested by the TPO, Rs. 49,62,075/- was in respect of export of spools to various companies of this group worldwide and Rs. 70,676/- was for import of dies from China Bekaert Steel Cord Co. Both the above two adjustments being objected by the assessee which are being dealt in the following paras. Adjustment in export price of spools: 4. The assessee claimed that spools are packaging material made of either steel or plastic on which the steel tyre cord is wound and packaged. These spools are reusable unless severely damaged. These are therefore, used for the supply of goods made by the assessee as well as other companies of this group engaged in manufacturing of similar products. It has been shown that the goods being manufactured by the assessee company are an import substitution and therefore, foreign group companies do supply similar products to the Indian consumers. During the year under consideration, supplies were made to Indian customers by N.V. Bekaert S.A. and China Bekaert Steel Cord Co. Ltd., China. As the spools are ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re incurred for the export activity considering the overall cost of the whole plant. As per assessee the spools collected do not undergo any process and therefore, all costs which are incurred are recovered from the customer with 10% margin. The overall activity of the company employed for this work is claimed to be minimal and negligible. The assessee subsequently also made their submission vide their letter dated 04.06.2010 wherein without prejudice to their claim of no adjustment, agreed to adoption of principle applied by the TPO in A.Y. 2004-05, claiming the same to be more judicious. In the said method the TPO had taken into consideration the entire economic activity for allocation of indirect expenses. 6. The assessee has given computation on the basis of principle adopted by the TPO in A.Y. 2004-05 without prejudice to their claim raised in the grounds. The said computation given in Annexure-3 of their letter dated 04.06.2010 and same is quoted below: Annexure-3 Bekaert Industries Pvt. Ltd. Assessment Year : 2002-2003 Working of upward adjustment in respect of export of spool on the basis of A.Y. 2004-05 addition. Particulars Asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Total (B) 16,211,060 5% 16,484,578 3% Total (A+B) 329,154,588 100% 629,923,301 100% Other expenses Water charges 542,230 284,229 Communication 1,661,098 1,763,510 Rent 639,333 582,503 Sales commission 132,049 3,191,838 Travelling 2,415,457 3,215,112 Office Exp 87,870 5,138 Conveyance 1,915,175 2,587,172 Printing Stationary 371,611 497,062 Bank charges 198,788 473,167 Others 1,266,400 9,230,011 4,589,594 17,189,325 9,230, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essee to adopt the system used by the TPO in A.Y. 2004-05 were found appropriate. In the said method, every economic activity was captured for allocating the expense and in view of the same, this method will give the most appropriate method for determining ALP, especially in years when the business has not stabilized. The computation given by the assessee is already quoted above and as per this the addition comes to Rs. 5,07,651/-. Accordingly, the addition to that extent be sustained by the CIT(A). However, the Assessing Officer was directed to check the computation while giving the appeal effect and ensure that the computation is made properly as per the principle laid by the TPO in A.Y. 2004-05. Accordingly, the addition to that extent was sustained. Same has been opposed by the Revenue vis-a-vis relief granted to the assessee and assessee has come in appeal vis-a-vis sustenance of the addition to the extent of Rs.5,07,651/-. 8. The Ld. Departmental Representative submitted that the CIT(A) erred in restricting the addition on account of upward adjustment to Arm's Length Price u/s.92CA(3) in respect of export of spools from Rs. 50,32,752/- to Rs. 5,07,651/-. The CIT(A) grossly ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ia itself to meet the market requirement to the extent possible. Accordingly, plant was established at MIDC Ranjangaon Pune. Spools are packaging material made of either steel or plastic on which the steel tyre cord is wound and packaged. These spools are reusable. These were used for the supply of goods made by the assessee as well as other companies of this group engaged in manufacturing of similar products. The goods being manufactured by the assessee company are an import substitution and therefore, foreign group companies do supply similar products to the Indian consumers. As the spools are reusable and has no utility to the buyers, as a measure to benefit local group companies, wherever possible, are involved in collection of empty spools for free from buyers for the packaging of their own products and its export in case the same are in excess of their requirement. The Assessing Officer made the addition on the basis of the order of the TPO u/s.92CA(3) of the Act on export of spools. Spools are reusable and have a consierable value and therefore the arrangement by which the assessee company gets the same free by only making expenses relating to cost of collection, is benefici ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... asoned finding need no interference from our side. We uphold the same. 12. As a result, appeal of Revenue is dismissed and that of the assessee is partly allowed. 13. In ITA.No.1094/PN/2011 and 1059/PN/2011 for A.Y. 2003-04, similar issue of addition on account upward adjustment to ALP u/s.92CA(3) of the Act in respect of export of spools has been raised. The Assessing Officer made addition of Rs. 62,83,591/- which was restricted to Rs. 5,20,372/- by the CIT(A). We have discussed and decided similar issue in A.Y. 2002-03 vide para 10 of this order. Facts being similar, so following same reasoning, we uphold that the CIT(A) was not justified in restricting the addition to Rs. 5,20,372/- from Rs. 62,83,591/-. The Assessing Officer is directed accordingly. 14. As a result, appeal of the Revenue is dismissed and that of the assessee is allowed. 15. In ITA.No.1060/PN/2011, the appeal has been filed by the assessee against the order of the CIT(A). In the year under consideration also additions were made to the tune of Rs.1,04,55,037/- which was restricted by the CIT(A) to Rs. 5,67,248/-. Revenue has not filed any appeal against relief granted to the assessee. However, Ld. Authori ..... X X X X Extracts X X X X X X X X Extracts X X X X
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