GST Helpdesk   Subscription   Demo   New User   Login      
Tax Management India .com
TMI - Tax Management India. Com
Extracts
Home List
← Previous Next →

2016 (8) TMI 856 - ITAT PUNE

2016 (8) TMI 856 - ITAT PUNE - TMI - Transfer pricing adjustment - upward adjustment of the international transactions in respect of valuation of capital asset purchased from AE - Held that:- TPO has made upward adjustment of the international transactions in respect of valuation of capital asset purchased by the assessee from its AEs. The said adjustment has been made by the TPO without making reference to the DVO and rejecting the valuation report from an independent Chartered Engineer furnish .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ct to variation in the book value of capital asset and the price at which assessee has purchased the capital asset is concerned, it is not necessary that book value and market value of the capital asset are at par. As observed that the DRP while dealing with the objections of the assessee in respect of valuation of capital asst has not properly appreciated the facts and circumstances. The DRP has merely examined one aspect of the transaction relating to pricing of capital asset i.e. the price .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

he Revenue : Shri Avadesh Kumar ORDER PER VIKAS AWASTHY, JM : This appeal by the assessee is directed against the assessment order dated 12-10-2012 passed u/s. 143(3) r.w.s. 144C(13) of the Income Tax Act, 1961 (hereinafter referred to as the Act ) for the assessment year 2008-09. 2. The brief facts of the case as emanating from records are: The assessee company is engaged in the business of manufacturing of power metal components mainly for the automotive industry. The assessee company is a who .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

year 2008-09, the assessee had entered into international transactions with its Associated Enterprises (AEs). The international transactions entered into by the assessee with AEs were referred to the Transfer Pricing Officer (TPO) for determining the Arm s Length Price (ALP). Apart from import of raw materials from its AEs, the assessee had also purchased capital asset comprising of second hand machines from its AE GKN Sinter Metals Lichfield, UK. The claim of the assessee is that machine was pu .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

respect of adjustments made by TPO in all the international transactions. The assessee filed objections before the Dispute Resolution Panel (DRP) against the adjustments made by the TPO with regard to international transactions. The DRP rejected the objections raised by the assessee in toto. The Assessing Officer, accordingly, passed the impugned assessment order. Now, the assessee is in appeal before the Tribunal against the findings of authorities below. 3. The assessee has raised four issues .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

in ground no. 3 which reads as under: 3. Transfer Pricing - Purchase of Capital Assets [INR 16,952,440] 3.1 On the facts and in law, the Ld. TPO, the Ld. AO and the Hon. DRP erred in disregarding the transfer pricing documentation maintained by the Appellant and erroneously and inappropriately applied the CUP Method by using the written down value ( WDV ) of the assets in the books of the AE and adding an adhoc mark-up to the WDV to determine the arm s length price as INR 15,343,891 instead of I .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

o India. The manufacturing unit at Lichfield had one compacting presses which was purchased by the assessee. The value of said machine was ascertained by an independent Chartered Engineer. The value of machine as given in the valuation certificate was accepted by the Customs Department for valuation purpose at the time of import of the said machine. The assessee paid customs duty, accordingly. The amount paid by the assessee to GKN Sinter Metals Lichfield, UK for second hand assets was based on .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

nt of the downtime for repairs and maintenance which is also not significantly different. The ld. AR submitted that even today these presses are working absolutely in perfect manner. If the prices of the old machine purchased by the assessee is compared to price of the new machine there is a substantial difference in the price, whereas, there is absolutely no difference in the speed and quality of output. The ld. AR contended that the TPO has erred in holding that the assessee has paid excessive .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ment of ₹ 1,69,52,440/-. 4.1 The ld. AR further submitted that machine was valued by independent Chartered Engineer in UK at GBP 201800 (approx ₹ 3 crores). The assessee has made sale of approximately ₹ 26 crores worth of products manufactured from the said machine. The capital goods cannot be sold or purchased at written down value. The actual sale price of the capital goods can either be higher or lower than the written down value. If the TPO had any doubt over the pricing of .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ld. AR placed reliance on the following decisions : i. Asstt. Commissioner of Income Tax Vs. M/s. Koch Chemical Technology Group (India) Limited in ITA No. 8091/Mum/2011 for the assessment year 2007-08 decided on 30-09-2015. ii. Tecumseh Products India (P.) Ltd. Vs. Assistant Commissioner of Income Tax, 41 taxmann.com 385 (Hyderabad - Trib.); iii. DCIT Vs. C-Dot Alcatel-Lucent Research Centre Pvt. Ltd. in ITA No. 3071/Del/2013 for the assessment year 2007-08 decided on 19-01-2016. 5. Per contra .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

nual accounts for the calendar year ended on 31-12-2007 of M/s. GKN Sinter Metals Ltd., UK would show that the company incurred losses of GBP 242,000 without accounting for profit on disposal of company assets. The company had reported profit of GBP 678,000 from intra group disposal of fixed assets. The books show the value after depreciation is only GBP 485000 at the beginning of the year and as Nil on disposal of these assets. Thus, it is clear that the depreciated machinery as per the books o .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

by assessee in the books of AE at UK was 84155 GBP. The TPO in order to determine the actual value of machine has taken the arithmetic mean of operating profit of the company manufacturing similar machine and after comparing the same with that of the assessee has made adjustment of 107,765 GBP i.e. ₹ 1,69,52,440/-. The order of the TPO is well reasoned and thus requires no interference. The DRP has also upheld the findings of TPO. The ld. DR prayed for dismissing the appeal of the assesse .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ngineer at UK whereas the Revenue has placed reliance on the valuation made by TPO by extrapolating the arithmetic mean of operating margin of the companies manufacturing similar machine in India and applying CUP method to markup the import price at ALP. 7. The contention of the ld. AR is that the authorities below have disbelieved the valuation certificate issued by an independent Chartered Engineer, whereas the same has been accepted by the customs authorities and even in the subsequent assess .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

imilar machines in India. 8. The Chennai Bench of the Tribunal in the case of M/s. Coastal Energy Pvt. Ltd. Vs. The Assistant Commissioner of Income Tax in ITA No. 2099/Mds/2010 for the assessment year 2006-07 decided on 13-07-2011 has occasion to deal with the issue, where the TPO refused to accept the value adopted by the Customs Authority. The Tribunal has held that the value adopted by the customs authorities should be accepted as the customs authorities assign value to the imported goods on .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

eed not necessarily be realistic as that department is more interested in collecting import duties. We should state without fear of contradiction that the customs authorities are assigning values to the imported goods on the basis of scientifically formulated methods and they are responsible for making a fair assessment value of the imported goods. The valuation made by the customs authorities is not an arbitrary exercise. But on the other hand, it depends upon large volume of international data .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

e Tax (supra) in a similar case where the value of imported machine was not accepted by the TPO, the Tribunal held that to determine the value of machinery the best way is to refer the machinery to valuation officer. Without doing so, the TPO or DRP cannot determine value at Nil and consequently deny depreciation claim to the assessee. The relevant extract of the findings of the Tribunal are as under : (F) (i) As briefly stated above, Assessee has imported certain machinery (old as well as new m .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

iling duty and the valuation was accepted by the authorities at the time of import. Though TPO as well as DRP were of the opinion that the machinery does not have any value, we do not understand on what basis they have come to this opinion. There is no dispute with the fact that the machinery was imported and used in Assessee s business for manufacturing of its compressors / parts, so, there is no dispute with reference to usage of second hand machinery. It is also not the case of the revenue th .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

d countervailing duty are considered as value of cost. Not only that, as submitted by Assessee and as seen from the Table furnished, new machinery worth US$ 500,965 was also treated as old machinery and valuation was determined at Nil. This shows non-application of mind by TPO as well as by DRP. 10. The Mumbai Bench of the Tribunal in the case of Asstt. Commissioner of Income Tax Vs. M/s. Koch Chemical Technology Group (India) Limited (supra) the Tribunal has held that before rejecting the valua .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ee. It is also to be noted that the purchase price paid by the assessee is supported by report of approved valuer from the U.S.A. Therefore, it is very much evident that to substantiate the price paid for purchase of certain second hand machineries from the A.E., the assessee has produced documentary evidences including the valuation report. Whereas, the Transfer Pricing Officer, apart from making some general observations to the effect that the details of date of purchase by the A.E., depreciat .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

s to the DVO as per the procedure laid down under the statute. The Transfer Pricing Officer not being an expert to determine the value of machineries and there being no other material brought on record by him to demonstrate that he made enquiry of any kind to ascertain the fair market value of machineries, he could not have quantified the value of the machineries at 50% of the value shown by the assessee. The DRP, in our view, has also sustained the disallowance without proper application of min .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ge also, the matter can be remitted back to the file of the Transfer Pricing Officer for making a reference to the DVO for valuation of assets. However, we are unable to accept such contention of the learned Departmental Representative for the simple reason that when the Transfer Pricing Officer has failed to refer the valuation to the DVO and on the contrary has proceeded to quantify the value of the machineries at 50% by adopting a method which is not in conformity with the statutory provision .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

e observe that the TPO has made upward adjustment of the international transactions in respect of valuation of capital asset purchased by the assessee from its AEs. The said adjustment has been made by the TPO without making reference to the DVO and rejecting the valuation report from an independent Chartered Engineer furnished by the assessee. Undisputedly the valuation report was accepted by the Customs Authorities for the purpose of levy of import duty. We do not concur with the action of TPO .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

 

 

 

 

 



|| Home || Acts and Rules || Notifications || Circulars || Schedules || Tariff || Forms || Case Laws || Manuals ||

|| About us || Contact us || Disclaimer || Terms of Use || Privacy Policy || TMI Database || Members || Site Map ||

© Taxmanagementindia.com [A unit of MS Knowledge Processing Pvt. Ltd.] All rights reserved.

Go to Mobile Version