Contact us   Feedback   Subscription   New User   Login      
Tax Management India .com
TMI - Tax Management India. Com
Extracts
Home List
← Previous Next →

2016 (8) TMI 1081 - ITAT DELHI

2016 (8) TMI 1081 - ITAT DELHI - TMI - Transfer pricing adjustment - ALP in respect of royalty and management fees - Held that:- The issue is covered, in favour of the assessee in assessee’s own case for the assessment year 2010-11. There is no occasion to take a different view of the matter for this year. In any event, one can discard the TNMM and proceed to adopt CUP only when a comparable product or service is available. When no such comparable is available, as in this case, there cannot be a .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ar ORDER Per Pramod Kumar, AM: 1. By way of this appeal, the assessee appellant has challenged correctness of the order dated 30th January 2016 passed by the Assistant Commissioner of Income Tax Circle 9(2) New Delhi, under section 143(3) r.w.s 144C of the Income Tax Act, 1961, for the assessment year 2011-12/ 2. Grievances raised by the appellant, so far as transfer pricing issues are concerned, are as follows: 1. General 1.1 The learned Assistant Commissioner of Income Tax, Circle-9(2), New De .....

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')/Hon'ble DRP has grossly erred in making/upholding an adjustment of ₹ 5,41,00.671 in respect of disallowance of capacity adjustment and payment of royalty and markup in respect of management charges to AE. 2. Rejection of the economic analysis of the Appellant 2 1 That on the facts and circumstances of the case and in law, Ld. TPO/ Hon'ble DRP have erred in not accepting the economic analysis of the Appellant, for determination of the arm's length price ('ALP') 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

the determination of the ALP of the international transaction using Comparable Uncontrolled Price ('CUP') method without following the manner of applying the CUP method prescribed under Rule 10B(1)(a) of the Rules. 3.3. The Ld. TPO/ Hon'ble DRP have erred in upholding the adoption of CUP method as the most appropriate method for determining the arm's length price in respect of the impugned international transaction without identifying any comparable uncontrolled transaction(s) f .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

h value of the transaction pertaining to payment of royalty should be Nil. 4.2 The Ld, TPO/ Hon'ble DRP erred in rejecting the adjustment for difference in the capacity utilization of the Assessee vis-a-vis the comparable companies. 4.3. The learned AO/Hon'ble DRP erred, on facts and circumstances of the case and in law, in arbitrarily rejecting one of the comparable companies on the basis of insufficient related party transactions information. 4.4 The Ld. TPO/ Hon'ble DRP erred in 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

total income of the Assessee. 3. As the hearing progressed and as we narrowed down to the precise issues requiring our adjudication, learned representatives fairly agreed that the short issues that we are required to decide, however, is (a) whether or not the Assessing Officer was justified in declining capacity utilization adjustment, in respect of computation of arm s length price on sale of finished goods, components and spares; and (b) whether or not the Assessing Officer was justified in ma .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

to the domestic market as also to exports to neighbouring Asian countries. During the course of proceedings before the Transfer Pricing Officer, one of the issues which came up for scrutiny was capacity underutilization adjustment. The TPO noted that the assessee was informed by his key customer, i.e. Coca Cola, of likely performance failure in some of the visicoolers sold and installed by it. Subsequently, because of the fault of the products already sold, the assessee s sale dwindled. As agai .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

eers & Designs India Pvt Ltd [(2014) 67 SOT 81 (Del)] and referred to its observations to the effect that …. the very concept of capacity underutilization may not really make any sense unless the assessee has not been able to offer, for reasons beyond its control, the underutilized capacity to its AE. There is no finding on this aspect of the matter. As the assessee does not have the liberty to work for any other customer, and is wholly dependent on its AE for productive use of its ca .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

revenue (authorities) should not be expected to subsidize determination of ALP . The TPO the observed that in any case what could be relevant in making capacity underutilization adjustment is when ALP is being determined for the raw material rather than sales. It is only when purchases are being made from the AEs and the revenues are being generated from the unrelated parties that such an adjustment, even theoretically, can come into play. In view of these discussions, and noting that AE should .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ther than the tested party. The ALP adjustments, accordingly, were made in respect of sale of finished goods for ₹ 1,51,68,845 and in respect of sale of components and spares for ₹ 87,90,105 Aggrieved by the stand so taken by the DRP, the assessee is in appeal before us. 5. Having heard the rival contentions and having perused the material on record, we are of the considered view that the assessee s grievance does deserve to be upheld in principle, even though the computations of the .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

nderutilization may not really make any sense unless the assessee has not been able to offer, for reasons beyond its control, the underutilized capacity to its AE , he misses out the opening words of this sentence to the effect That apart, in the case of a one hundred percent captive service unit, as is the assessee before us . The correct and complete sentence was That apart, in the case of a one hundred percent captive service unit, as is the assessee before us, the very concept of capacity un .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

a fall in production by over 64%. In these circumstances, there was clearly a substantial underutilization of capacity. The stand of the TPO that any fall in utilization of capacity should have been subsidized by the AE is devoid of any basis in the present circumstances. The lapses leading to issues with the quality related issues, as set out in TPO order itself at page 9, are purely production and operational reasons and for these reasons the assessee, as a commercial unit, is responsible. 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

ed to the assessment stage, with the above observations. 6. As for the second issue, that was a matter taken up at the DRP only inasmuch as an enhancement was made by the DRP in this regard. During the course of the proceedings before DRP, it was noticed that in the immediately preceding assessment year, i.e. 2010-11, the TPO had made an ALP adjustment of ₹ 29,65,700 in respect of management fees and of ₹ 8,47,65,448 in respect of royalty and licence fees, and these ALPs were confirm .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

Officer, he made an ALP adjustment of ₹ 5,41,00,671 as against ALP adjustment of ₹ 2,39,58,750 as originally proposed by the TPO. The assessee is aggrieved and is in appeal before us. 7. Having heard the rival submissions and having perused the material on record, we find that the issue is covered, in favour of the assessee,the order dated 8th April 2016 passed by a coordinate bench, in assessee s own case for the assessment year 2010-11. There is no occasion to take a different vie .....

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