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2015 (7) TMI 246 - ITAT DELHI

2015 (7) TMI 246 - ITAT DELHI - TMI - Transfer pricing adjustment - adjustment in armís length price on account of export of motor cycle - Held that:- The assessee is a loss making unit suffering continuously loss for more than 10 years. On having making such a submission the Bench queried whether any purpose would be served if the above appeals are adjudicated subsequently when the admitted position is that the TPO has not made similar adjustment in any of the subsequent assessment years. The l .....

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s, requests for adjudication of the appeals. The ld Departmental representative on the other than, though not leave his ground, but agreed with the bench that adjudicating these contention would be academic exercise.

After hearing the rival contention we deem it fit to dismiss all these cases as no useful purpose would be served by adjudicating the same. Similar adjustment has been made in any other assessment years even if it is made, when the matter is not adjudicated by us, it cann .....

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up to year 2008. So the decision in either way is not going to affect the assessee. We find that the adjudication will be mere academic and thus dismissal of the appeals will not be treated as a precedent by either side in case any issues regarding the assessee is concerned. - Decided against assessee and revenue. - ITA No. 668/Del/2010,ITA No. 4882/Del/2009,ITA No. 1790/Del/2010 - Dated:- 30-6-2015 - Shri J.S.Reddy and Shri A. T. Varkey, JJ. For the Petitioner : Sh.Ved Jain, Adv Sh.Ashish Goel, .....

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es of the case, Ld. CIT(A) has erred in restricting the adjustment of ₹ 1,32,22,520/- to ₹ 64,39,600/-in ALP in respect of exports of motorcycles made by the assessee company to it Associated Enterprises by applying the gross profit margin on aggregate basis instead of applying the profit markup worked out by the TPO on the basis of individual transactions. 2. On the facts and in the circumstances of the case, Ld. CIT(A) has erred in deleting the disallowance of depreciation amountin .....

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ed for the purpose of business during the financial year relevant to assessment year under reference. 4. On the facts and in the circumstances of the case , Ld. CIT(A) has erred in deleting the disallowance of ₹ 18,90,458/- on account scholarship given to children of employees of assessee company ignoring the fact that the said expenditure was not wholly and exclusively for the purpose of business. 5. On the facts and in the circumstances of the case , Ld. CIT(A) has erred deleting the dis .....

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acts and in the circumstances of the case and in law, Ld. CIT(A) has erred in deleting the disallowance of ₹ 3,40,46,541/- ignoring the provision of section 4 of Income Tax Act 1961 mandating that income tax shall be charged for any assessment year in respect of total income of the previous year. 7. On the facts and in the circumstances of the case and in law, Ld. CIT(A)has a erred in deleting the disallowance made on account of royalty and fee technical know-how amounting to ₹ 3,40, .....

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(Appeals) has erred on facts and in law in upholding the following adjustments in the arm's length price for international transactions carried out between the appellant and the associated enterprises: - i. Adjustment in arm's length price amounting to ₹ 1,89,38,516/- for spare parts imported by the appellant; ii. Adjustment in arm's length price amounting to ₹ 1,33,10,887/- for spare parts exported by the appellant; and iii. Adjustment in arm's length price amountin .....

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year 2003-04 reads as under:- I. The learned Commissioner of Income Tax [Appeals) has erred on facts and in law in upholding the following disallowances made by the learned Assessing officer: - i. Adjustment in arm's length price amounting to ₹ 3,73,70,533/- for spare parts imported by the Appellant; ii. Adjustment in arm's length price amounting to ₹ 2,07,62,701/- for spare parts exported by the Appellant; III. Disallowance of scholarship fee amounting to ₹ 13,52,650/ .....

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any incorporated under the provisions of the Companies Act,1956. The Company was incorporated in November 1935. Initially, the Company was promoted by Escorts Limited and Yamaha Motor Co. Ltd., Japan as a joint venture company in the name of Escorts Yamaha Motor Limited". Both Yamaha Motor Co. Ltd., Japan and Escorts Limited subscribed 50% of the issued share capital of the Company. Subsequently, in June 2001 Escorts Limited exited from the joint venture company, when Yamaha Motor Co., Ltd. .....

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31, 2001 the total revenue of the company were ₹ 806.98 Crores including exports of ₹ 54.32 Crores. During the financial year ended March 31, 2002, the Company entered into certain international transactions with related parties. Majority of these international transactions were carried out on the basis of agreements entered into with the parent company i.e. Yamaha Motor Co., Ltd., Japan, at the time when Escorts Limited was one of the joint venture partners. The terms and conditions .....

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assessee company to its associated enterprises by applying the gross profit margin on aggregate basis instead of applying the profit markup worked out by the TPO on the basis of individual transaction. Whereas the assessee is aggrieved against the partial relief given by the ld CIT(A). The ld AR submits that the assessee has come before this tribunal against the addition confirmed by the ld CIT(A) in respect of adjustment in arms length price given partial relief to the assessee. He took our at .....

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Apex court and took our attention to PB pg 446. Ground No. 4 relates to scholarship given to children of employees of ₹ 18,19.458/-. He pointed out to us that this issue is also covered in favour of the assessee by the ITAT order in ITA No. 3073/Del/2004 dated 10.10.2006 in assessee's own case. Ground No.5 & 6 are regarding disallowance of ₹ 3,40,46,541/- regarding prior period expenses. The issue has been discussed by the CIT(A) in para 11.2 on page 30. According to the ld A .....

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naging agents accrued. The position here is not that the liability had arisen earlier and its quantification only depended on the approval of the Central Government. It is true that the liability became effective from April 1, 1956, a date anterior to the relevant previous year, but that is because the Central Government chose to give its approval retrospective operation. The liability in these circumstances cannot be said to have arisen from any date prior to September 2, 1957 when the approval .....

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ength price of ₹ 3.73,70.533/-. The ld AR pointed out that this issue is the same as in the preceding year. According to him the TPO has applied gross profit margin of 14.17% on import of spare parts by the assessee company from its Associated Enterprises (AE) i.e. Yamaha Motor Co. Ltd., Japan (YMC, Japan) on the ground that the YMC, Japan has also made sales to unrelated parties i.e. North East Trading Co. as against 24.17% charged on the assessee company. According to him the contention .....

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les by YMC, Japan to Norkis Trading Co., Philippines is trading sale, not manufacturing sale which does not require deputation of its personnel as against the assessee company which is a manufacturing company requiring deputation of personnel from YMC, Japan for which YMC, Japan has to incur substantial expenditure. iv) In the alternative and without prejudice to the above, the margin charged by the YMC, Japan of 21.4% is much less as compared to the margin charged by the assessee company on exp .....

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t of spare parts. Motor cycle being a complete product, it is a hundred per cent complete product and if the same is split into CKD the margin will increase and the margin will further increase if the CKD goes on getting reduced. Ground No.1(ii) is regarding adjustment of ₹ 2,07,62 ,701/- for export of spare parts According to the ld AR this adjustment has been proposed by the TPO on account of exports to Iran. In this regard it may be relevant to refer to Paper book page 20 of the TP stud .....

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67%. According to the ld AR the TPO ignoring the above facts has applied the gross profit margin of 30% in respect of spare parts. The only basis given by the TPO is that the assessee having declared the sale as CKD spare parts it cannot apply the margin on sale of motor cycles. This has been confirmed by the CIT(A) on the same reasoning. The action of the TPO and CIT(A) is against the facts. There is no dispute to the fact that the assessee has exported 3150 units of motor cycles to Iran and th .....

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e by the TPO is factually incorrect and needs to be deleted. Ground No.1(iii) is regarding scholarship to children of the employees of ₹ 13,52,650/-. The ld AR pointed out that this issue is covered in favour of the assessee by the order of the ITAT in assessee's own case in ITA no. 3073/D/2004 dated 10-10-2006 (PB pg 270). Ground No.1(iv) - Disallowance of depreciation - ₹ 8,167/- Not pressed. ITA No. 4882/Del-2009 (assessment year 2002-03 This is an appeal filed by the assessee .....

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ssociated Enterprise (AE) i.e. Yamaha Motor Co. Ltd., Japan on sales of spare parts is 21.4% as against 16.32% margin charged in respect of spare parts sold by the Yamaha Motor Co. Ltd., Japan (YMC, Japan) to unrelated party i.e. Norkis Trading Co., Philippines. On this basis he computed the arm's length price at ₹ 20,19,83,738/- in respect of import of spare parts as against ₹ 22,09,22,254/- actually charged by the YMC, Japan from the assessee company. The difference amount of & .....

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to independently sale of spare parts. The YMC, Japan is making sale to Norkis, Philippines whereby the ratio of CKD is more than 90% as against ratio of CKD in the case of assessee company being 10%. Margin is less because the amount of margin per unit in CKD will be more than as compared to margin per unit in the case of assessee company as explained by the following example given in the synopsis: Assumptions: Amount of total components parts; JPY 100,000. Ratio of CKD: YMl10% / NTC 90% Profit .....

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olume discount of 2.3% is taken into consideration, the difference between the margins charged by YMC, Japan to Norkis, Philippines and the assessee company will be within the range of 5% (±). 1.4 The TPO has rejected this in Para 4.5 (Paper book page 348) by giving following reasons:- I) Assessee company is posting huge losses in its books during the current year and earlier years and under these circumstances charging of higher margin by YMC, Japan from assessee company as compared to t .....

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s fact of huge losses itself confirms that there is no overcharging of the prices by the YMC, Japan to assessee company. 1.6 The other reasoning given by the TPO to reject the contention of the assessee company about the volume discount in para 4.3 reads as under- "The difference in the volumes is not very significant." This is factually incorrect as is evident from the fact that the sale to Norkins, Philippines by YMC, Japan was JPY 378,80,40,612 as against sale to assessee company of .....

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y. That cost is to be taken into account while comparing the margin with Norkis Trading Co., Philippines as similar facility is not provided by YMC, Japan to Norkis Trading Co. 1.8 Further the assessee company has submitted that it has been exporting spare parts to unrelated parties and whereby it has earned a margin of 53.18%. Thus the margin charged by YMC, Japan of 21.4% is much less than the margin charged by the assessee company on sale of spare parts. 1.9 All the above issues have been tot .....

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t per unit as stated hereinabove in the example. ii) Volume discount has not been considered as sales to Norkis Trading Co. was 7 times than the sale to assessee company. iii) Sales by YMC, Japan to Norkis Trading Co., Philippines is trading sale, not manufacturing sale which does not require deputation of its personnel as against the assessee company which is a manufacturing company requiring deputation of personnel from YMC, Japan for which YMC, Japan has to incur substantial expenditure. iv) .....

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the TPO order itself whereby he has applied a margin of 8% in respect of motor cycles as against much higher margin ranging between 30% to 50% in respect of spare parts. Motor cycle being a complete product, it is a hundred per cent complete product and if the same is split into CKD the margin will increase and the margin will further increase if the CKD goes on getting reduced. 2.0 Export of Spare Parts - ₹ 1,33,10,887/- 2.1 This comprises three parts - (a) Export or spare parts to AEs a .....

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is 46.04% which turns out to be 85.32% on cost. The difference on account of this has been added as adjustment on account of arm's length price. During the course of the hearing before the TPO the assessee was asked to submit the margin earned by it in respect of sale of spare parts to related parties as well as unrelated parties. The complete list was submitted which is placed at Paper book page 295 to page 323. The TPO has quoted this in para 5.1.1 on page 350. As per this list the margin .....

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rom product to product and aggregate margin cannot be a basis for making the adjustment. This has been done despite the TPO giving a categorical finding in para 5.1.1 which reads as under- "Margin appears to vary depending the type of component and no other factors appears to be relevant." The above finding has been given by the TPO on review of the list of export of various spare parts to related parties as well as unrelated parties submitted to him. Despite giving the above finding t .....

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65% on cost being the same margin as applied for export of normal spare parts. On this basis, he has computed the arm's length price on the miscellaneous export of spare parts at ₹ 90,32,127/- and made an adjustment of ₹ 42,60,776/-. The TPO has arbitrarily rejected the contention that these are the miscellaneous items lying with the assessee which has been sold to YMC, Japan and still assessee has been able to make a profit margin of 13.87%. These are not the sale in the normal .....

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ssessee. The above reasoning was based on the books of account and the records. There is no finding that the contention of the assessee that there is no demand in the Indian market of these spare parts was not correct explanation. Thus the adjustment proposed by the TPO which has been confirmed by the CIT(A) is unsustainable. (c) Addition of ₹ 55.18.448/- in respect of Camshaft: The assessee has exported camshafts, which it has earlier imported, to YMC, Japan for a total value of ₹ 7 .....

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incur additional cost towards additional surface treatment, inspection for rust and damaged parts, special transportation boxes, etc. due to difference in technical specification of the camshafts required in India and those used in Brazil and Japan. It was further submitted that YMC, Japan is purchasing these camshafts at JPY 670 per unit and assessee has sold the same at JPY 666 and thus there is a comparable uncontrolled price and hence no adjustment is required. The TPO has arbitrarily rejec .....

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is account has made an adjustment of ₹ 1,32,22,520/-. The CIT(A) has reduced the same to ₹ 64,39,600. The assessee during the year has exported motor cycles to AEs as well as unrelated parties. The average gross profit mark-up earned by the assessee on export to unrelated parties is 6.756% as against 8.102% margin earned from the sales to AEs. Despite the margin in the case of related parties being better than the sales to unrelated parties, the TPO carried out a bifurcation of each .....

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ld be same and on that basis he gave a relief of ₹ 67,82,9207- in para 8.9, page 25 to 27. The action of the TPO in making the addition and the action of the CIT(A) in confirming the partial addition on this account is unjustified. The margin earned by the assessee company in respect of the sales to AEs is better than the margin earned by the sale to unrelated parties. Thus there was no reason that the TPO to tinker with the results and make an adjustment on account of the arm's length .....

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negative 0.428%. In this regard the adjusted cost worked out by the TPO in respect of the YB125 model on paper book page 357 is absolutely incorrect and against all principles of transfer pricing. Secondly, the overall margin needs to be taken into consideration and in any case if model to model comparison is to be made it has to be done on a scientific basis and not on adhoc basis to suit and support the adjustment which otherwise are not justified. Thus the action of the TPO and CIT(A) in con .....

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e assessee is a loss making unit suffering continuously loss for more than 10 years. On having making such a submission the Bench queried whether any purpose would be served if the above appeals are adjudicated subsequently when the admitted position is that the TPO has not made similar adjustment in any of the subsequent assessment years. The ld counsel for the assessee fairly admitted that the loss claimed and allowed to the assessee could not be carried forward as the period of 8 years elapse .....

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