TMI Blog2016 (10) TMI 423X X X X Extracts X X X X X X X X Extracts X X X X ..... n the computation of book profit u/s 115JB, therefore, we remit this issue of adjustment u/s 115JB to the record of AO for decision the same as per law. Addition to the income of the assessee in respect of purchase of fixed assets - Held that:- We find that the machine purchased by the assessee was included in the WIP. In the case of Ciena India (P. )Ltd. (2015 (5) TMI 352 - ITAT DELHI) it has been clearly held that in case of purchase of fixed assets from AE it is amount of depreciation on purchase of fixed assets which will be considered for making addition and not difference between the transacted valued the ALP determined at Nil (Paragraphs 15. 1-15. 6). We hold that the FAA was not justified in making the addition of ₹ 17. 06 lakhs. He should have added only the depreciation-amont. It will affect the computation of depreciation for subsequent years. Therefore,we are of the opinion that matter should be restored back to the file of the AO for determine the depreciation and restrict the disallowance to that extent only. Effective ground of appeal, raised by the assessee,is decided in its favour, in part - ITA No. 4851/Mum/2013, ITA No. 4898/Mum/2013 - - - Dated:- 5-10 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y, that in similar circumstances, no third party would pay any amount for alleged technical know-how which had not resulted into any economic benefit to it. Accordingly, the arms-length price (ALP) of the transaction in question was taken at Nil as against payment of ₹ 63. 64 lakhs. The AO made an addition of ₹ 63, 64, 620/- as advised by the TPO. 2. 1. Aggrieved by the order of the AO, the assessee preferred an appeal before the First Appellate Authority (FAA). Before him, the assessee made elaborate submissions about technical know-how, on-going technical support new technological development, upgrade for the machine design and software and technical assistance provided by the AE. It was further argued that the TPO had ignored the fact that the net profit of the company had increased over a period of time, that the finding of the TPO that there was no incremental benefit from payment of royalty was factually incorrect, that assessee s operating margin was higher than all the comparables, that the assessee had incurred an expenditure of 1. 29% of the total turnover under the head penalty, that the TPO had accepted the same comparables for earlier years, that TPO had ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s, but they have to pass a reasoned order for deviating from the stand taken from the earlier years. We find that the TPO has not brought on record the differences, if any, of the facts of the earlier AY. and the year under appeal. Secondly, the Tribunal has already decided the issue in favour of the assessee in following manner:- 7. In view of the above submissions we first take up the issue of benefit as per the proviso to section 92C(2) of the Income Tax Act. The assessee company is engaged in the business of manufacturing and dealing in textile machinery and it s spare. The assessee is a joint venture between M/s ATE Enterprises Pvt. Ltd. and M/s Saurer Gmbh. M/s Saurer Gmbh Com. KG holds 70% shares in assessee s company. During the year under consideration, the assessee has under taken international transaction relating to purchase and sale of components, payment of royalty and reimbursement (payment) with its AE. The assessee bench marked the International transaction relating to purchase of components valuing ₹ 22. 93 crores by using Cost Plus Method (CPM) as most appropriate method. For the international transaction relating to sale of components and payment of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tity level of the assessee. The Commissioner of Income Tax(Appeals) has arrived at the arithmetic mean of the comparables operating profit at 8. 33% against the operating profit at the entity level of the assessee at 4. 71%. Though we do not approve the approach of the Commissioner of Income Tax(Appeals) for bench marking the purchase of component by taking the entity level results of the assessee instead of considering the data of international transactions only. Even otherwise as per the transfer pricing provisions/regulation each and every international transaction has to be bench marked by comparing Independent Uncontrolled Transaction. Since, the revenue has not challenged finding of Commissioner of Income Tax(Appeals) on the issue of transfer pricing adjustment, therefore, we do not propose to go into the issue which has not been raised before us. At the outset we note that the sale price of the assessee is within the tolerance limit of 5% as per the proviso to section 92C(2) of the Income Tax Act, which is clear from the working of the Commissioner of Income Tax(Appeals) at page no. 22 of the impugned order as under: Sl.No. Particulars ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y previous data. On appeal, though the assessee has furnished concerned details and claim that the provision for warranty is based on the actual expense incurred in the earlier years, however the Commissioner of Income Tax(Appeals) has not discussed the fact and aspect whether the provision is based on reliable estimates or not. The decision of Hon ble Supreme Court in case of Rotork Controls India Pvt. Ltd. Vs CIT (supra) has been considered by the Hon ble Madras High Court in the recent decision in case of Renowned Auto Products Mfrs. Ltd. Vs ITO, 354 ITR 127 in para 12 13 as under: No doubt, the learned counsel for the assessee relied on the decision of the Apex court reported in Rotork Controls India P. Ltd. v. CIT [2009] 314 1TR 62 (SC) to substantiate his contention that the estimated provision for warranty cost is allowable. The very same decision was considered by the Division Bench of this court in CIT v. Forbes Campbell Finance Ltd. Cf. C. (A. ) Nos. 148 to 155 of 2005, dated July 9, 2012) since reported in [2013] 352 ITR 602 (Mad) wherein it was observed at paragraphs 14 and 16 as follows (pages 607 and 608): We reject the claim of the assessee on both coun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ave bearing on the computation of book profit u/s 115JB, therefore, we remit this issue of adjustment u/s 115JB to the record of AO for decision the same as per law. Respectfully following the same, we restore back the matter to the file of the AO for fresh adjudication and decide the second effective ground in favour of the AO, in part. ITA No. 4898/Mum/2013 4. Effective Ground of appeal is about confirming the addition of ₹ 17. 06 lakhs to the income of the assessee in respect of purchase of fixed assets. During the assessment proceedings, the AO found that the assessee had purchased one used machining centre and accessories, amounting to ₹ 45. 06lakhs from own group entities. During the TP proceedings the assessee was asked to provide cost of assets recorded in the books of the AE in respect of the asset. The TPO observed that inspite of sufficient time provided the assessee failed to provide requisite information, that it contended that before acquiring the machine it had obtained a certificate from independent chartered engineer, that the valuation report revealed that the machine was constructed in 1986, that its purchase price was 2. 29 lakhs Euro, tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e had not claimed any depreciation on the machinery for the year under appeal, that in TP adjustment only depreciation can be disallowed, that the Chartered Engineer had issued a certificate about the value of the machine, that there was no justification for disbelieving the certificate. He referred to the cases of Ciena India (P. )Ltd. (59taxmann. com92)and Vodafone(368ITR1). The DR supported the order of the FAA. 4. 3. We have heard the rival submissions and perused the material before us. We find that the machine purchased by the assessee was included in the WIP. In the case of Ciena India (P. )Ltd. (supra)it has been clearly held that in case of purchase of fixed assets from AE it is amount of depreciation on purchase of fixed assets which will be considered for making addition and not difference between the transacted valued the ALP determined at Nil (Paragraphs 15. 1-15. 6). We hold that the FAA was not justified in making the addition of ₹ 17. 06 lakhs. He should have added only the depreciation-amont. It will affect the computation of depreciation for subsequent years. Therefore,we are of the opinion that matter should be restored back to the file of the AO for det ..... X X X X Extracts X X X X X X X X Extracts X X X X
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