TMI Blog2016 (8) TMI 644X X X X Extracts X X X X X X X X Extracts X X X X ..... riteria, it is necessary that the working capital employed by comparables vis a vis working capital employed by tested party has to be examined and necessary working capital adjustment has to be made in order to arrive at level playing field. We, therefore, restore this matter to the file of ld. TPO to consider the working capital adjustment as claimed by assessee as per pages 313 to 315 of appeal set and allow the capital working adjustment, if so required. In the result, this ground is allowed for statistical purposes. Disallowance of service charges paid to AE - Held that:- We are of the opinion that entire service charges paid to AE by assessee could not be disallowed. It is true that assessee is required to maintain the information and documents as per Rule 10D requirements but once assessee has furnished the information and documents as maintained by it, then ld. TPO has to consider the same and if he finds that same cannot be relied upon for determining the ALP, then he can resort to his own search process in order to find out the ALP of the transactions. We, therefore, restore this matter to the file of ld. TPO to find out local comparables which had undertaken similar s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... espite the fact that the same was not available with the Appellant at the time of preparing its TP documentation; 3.3 by including certain companies in the final set of comparables which are not comparable to the Appellant in terms of functions performed, assets employed and risks assumed; 3.4 rejecting Operating Profit/Value Added Expenses ('OP/VAE') as a valid Profit Level Indicator ('PLI') selected by Appellant in its TP documentation and erred in selecting OP /Sales as a Profit Level Indicator ('PLI') to determine arm's length nature of transactions; 3.5. Not appreciating the mechanism adopted by the Appellant to provide for suitable capacity utilization adjustment considering the fixed costs incurred by the Appellant to vitiate the fact that there are significant differences in the levels of capacity utilized by the comparables vis-a- vis that of the Assessee. In doing so the Ld. DRP / Ld. TPO has erred: 3.5.1 by not excluding the operating costs pertaining to one of the units (Chennai) of the Appellant which had not commenced commercial production and was engaged in only trial runs during AY 2010-11, while computing the oper ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Calsonic Kansel Corp., Japan Purchase of raw material 83830475 Calsonic Kansel Thailand Co. Ltd. Purchase of raw material 336715771 Calsonic Kansel Corp., Japan Sale of finished goods 754032 Calsonic Kansel Corp. Purchase of fixed assets 30064627 Calsonic Kansel Corp. Technical Assistance fees 1609452 Calsonic Kansel Corp. Interest paid on external commercial borrowing 1790092 Calsonic Kansel Corp. Reimbursement of expenses 1076276 4. Accordingly, reference was made to TPO to determine the ALP u/s 92CA(3) in respect of aforementioned transactions. Ld. TPO has noticed the business profile of assessee as under: 2. Calsonic Kansei Motherson Auto Products Limited was incorporated in September 2007 to manufacture/ assemble Heating Ventilation and Air-Conditioning ( HVAC ) and Compressors. The company was set up as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ate issued by the company in this regard is contained. He further referred to the TP report, contained at page 326 of paper book, wherein this fact is mentioned. 8. As regards Manesar plant, ld. counsel pointed out that this plant started on 1.4.2009, which is evident from the certificate of company, contained at page 296 of appeal set. He submitted that it worked only 18.93% of its actual capacity during the year. 9. Ld. counsel pointed out that all these facts are not disputed. He referred to page 17 of ld. DRP s order, wherein ld. DRP has noted these aspects, but did not dispute the same. He also pointed out that ld. DRP has restricted the adjustments only to depreciation, which is not correct because assessee had incurred fixed cost on various items for which adjustment has to be provided. 10. Ld. CIT(DR) submitted that assessee had not provided details of expenses and did not demonstrate the impact of installed capacity clearly of each and every expenses itemwise as noted by ld. DRP. 11. We have considered the submissions of both the parties and have perused the record of the case. Ld. DRP in principle has accepted that adjustment on account of capacity utilization ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rom third parties as per the specification provided by assessee/ CKM India. The assessee in its submissions made before ld. TPO pointed out that the complete process of procuring the specified capital goods involved a detailed examination of specifications, supplier identification, quality management and thereupon the dispatch procedure etc. In connection with all the functions undertaken, CKC Japan had charged a nominal mark up of 4% approximately for the procurement of capital goods. This mark up of 4% was charged by CKC Japan against the overheads and time cost of engineers incurred for the procurement and supply of capital goods. 16. Ld. TPO pointed out that assessee had used foreign comparables to justify the mark up on capital goods. He pointed out that the use of foreign comparable was not accepted. In this regard reliance was placed on the decision of ITAT Delhi Bench in the case of Ranbaxy Laboratories Ltd. Vs. DCIT (2008) 299 ITR (AT) 175 (Del.). 17. Ld. TPO after referring to various submissions of assessee, finally concluded that since tax payer failed to provide any of the documents mentioned under Rule 10D, therefore, the mark up of 4% charged by the AE on sale ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to purchase of raw material, sale of finished goods and purchase of fixed assets do not satisfy the arm's length principle envisaged under the Act and in doing so have grossly erred in: 3.11 by making the addition to the entire value of transactions entered into by the Appellant and not only to the value of international transactions entered into by the Appellant (i.e. proportionate adjustment) and ignoring established jurisprudence in this regard. 23. Ld. counsel submitted that the additional ground sought to be admitted being purely a legal ground, may be admitted and the matter may be restored back to the file of ld. TPO. 24. Ld. CIT(DR) submitted that the assessee has not given any reasons as to why this ground could not be raised earlier. 25. We have considered the submissions of both the parties and have perused the record of the case. We find that the issue raised in the additional ground is purely legal in nature viz. whether the adjustment in regard to purchase of raw material and sale of goods is to be restricted to international transaction or to be made at entity level. This issue has not at all been considered by lower revenue authorities. We, th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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