TMI Blog2017 (2) TMI 636X X X X Extracts X X X X X X X X Extracts X X X X ..... rises and which is market dominant concern. Accordingly, we hold so. We direct the Assessing Officer to verify the claim of assessee that both the Keltron group companies and Gujarat Poly-Avx Electronics Ltd. are persistent loss making concerns and if so, then both the concerns are to be excluded from the final set of comparables while benchmarking the international transactions in manufacturing segment Non-exclusion of depreciation while calculating PLI - Held that:- We hold that where the assessee is engaged in the business of manufacture of resistors and capacitors which in turn, are used in various electronic applications and products and where the assessee’s manufacturing facilities are established separately for the domestic tariff area and for export oriented unit and the items manufactured by the are used in different products which contained electronic circuits and has wide application in different spheres, there is no merit in the claim of assessee in adopting the cash PLI or PBDIT as the PLI. We dismiss the plea of the assessee in this regard. Non allowance of capacity utilization while computing the margins of assessee company - Held that:- Rule 10B(1)(e)(iii) of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... any, is to be made to the total income of assessee, then the same should only be with reference to international transactions of assessee with its associate enterprises and not with reference to total turnover. The Assessing Officer is thus, directed to determine the arm's length price of international transactions accordingly. Disallowance of stock written off in DTA unit - Held that:- The plea of the assessee for the year under appeal is that all the evidences were before the Assessing Officer. However, we find that the Assessing Officer has not considered the said evidence since the matter was already decided against the assessee in assessment year 2006-07 and following the same, the amount was disallowed. The assessee has also furnished certain additional evidences in this regard i.e. evidence relating to the amount of stock written off in the case of raw materials and manufactured finished goods with monthly returns and in case of finished goods trading with quarterly Excise returns filed by the assessee. The Assessing Officer is directed to consider the said evidences while adjudicating the issue raised. We remit this also back to the file of Assessing Officer, who shall ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Conducting an unjustified fresh search for identifying additional comparable companies at the time of assessment proceedings and proceeded with using non-contemporaneous data Erred on facts and in law by conducting an unjustified fresh search at the time of assessment proceedings for identification of comparable companies and also erred in relying on the information available at the time of assessment for determining arms' length price but not available at the time of complying with the transfer pricing regulations. 3. Use of single year data Erred in considering the operating margins earned by the companies identified as comparable based on the financial data pertaining to the financial year ended 31 March 2007 only and rejecting the financial data of such companies for prior two years for determining the arms length price of international transactions. 4. Consideration of companies as comparable which were not available in public domain at the time of complying with the regulations Erred on facts and in law by considering companies (namely Tibrewala Electronics Limited, which was not available in public domain at the time of complying with ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s not given any directions in this regard for A Y 2007 -08. 8. Non-consideration of asset utilisation adjustment on account of difference relating to proportion of asset utilized (Net Sales / Total Fixed Assets) by the Appellant and companies considered as coma parable Erred in law and in fact by comparing the operating margin earned by the Appellant and the comparable companies without allowing the adjustment undertaken on account of differences relating to proportion of asset utilized (Net Sales/Total Fixed Assets) by the Appellant and the companies considered as companies without appreciating the fact that such information has been called for by the learned Transfer Pricing Officer himself during the course of assessment proceedings. 9. Non-consideration of capacity related adjustment Erred in law and in fact by comparing the operating margin earned by the Appellant and the comparable companies without allowing an adjustment on account of differences in the capacity utilized by the Appellant and the companies considered as companies. 10 Non-consideration of working capital related adjustment Erred in law and in fact by comparing the oper ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and communication expenses from export turnover only and not from total turnover Erred on facts and in law by re-computing the deduction under section 10B of the Act by reducing insurance and communication expenses of the eligible unit only from the export turnover and not from total turnover. 16. Disallowing the claim of deduction under section 10B of the Act Erred on facts and in law by disallowing the claim of deduction under section 10B of the Act, without appreciating that: - The deduction under section 10B is a undertaking specific deduction; and - The deduction should be computed at source level without setting-off brought forward losses or losses from other unit. Without prejudice to the above, even otherwise, erred in disallowing deduction under section 10B of the Act considering that the assessed total income was more than the profits earned by the eligible unit. III. Other Grounds of Objections 17. Initiation of penalty proceedings under section 271(1)(c) of the Act Erred in law and on facts in initiating penalty proceedings under section 271(1)(c) without considering the fact that transfer pricing adjustm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sing Officer thereafter, issued draft assessment order to the assessee proposing the said transfer pricing adjustment along with other additions proposed to be made on account of corporate issues. The assessee filed objections before the Dispute Resolution Panel (in short the DRP ), which were rejected in respect of upward adjustment for manufacturing activity at ₹ 12,90,06,231/-. In the meanwhile, the assessee filed rectification application under section 92CA(5) r.w.s. 154 of the Act against the order passed by the TPO under section 92CA(3) of the Act vis- -vis working of operating profit margins in the case of three comparable companies Cosmic Global Ltd., Informed Technologies India Ltd. and Maple E-solutions Ltd. The said rectification application moved by the assessee was rejected by the TPO. The Assessing Officer points out that the assessee failed to file any appeal against the said order nor it was brought to the knowledge of DRP, hence, adjustment on account of international transactions relating to manufacturing activity was determined at ₹ 12,90,06,231/-. 5. With regard to Back Office Services for which upward adjustment of ₹ 26,82,173/- was propos ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ; the only objection raised by the learned Authorized Representative for the assessee was the selection of said concern on later date by the TPO, especially where the data of the said concern was not available while assessee prepared its TP study report. 12. The assessee is engaged in the business of manufacture of resistors and capacitors, which in turn, were used in various electronic applications and products. The assessee had undertaken several international transactions with its associate enterprises. The assessee in the manufacturing segment had applied TNMM method to benchmark its international transactions, wherein certain comparables were selected by the assessee and it was pleaded that the international transactions undertaken by the assessee were at arm's length price. However, the TPO conducted fresh search and selected certain other companies also; one of which was Tibrewala Electronics Ltd., against the same, the assessee is in appeal. 13. The Tribunal in ITA No.133/PN/2011 relating to assessment year 2006 - 07, vide order dated 25.05.2012 had decided the issues relating to transfer pricing adjustment, but thereafter, the assessee moved Miscellaneous Applica ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 92F(4) of the Act, the specified date is the same as assigned to due date in Explanation (2) sub-section (1) of section 139 of the Act. In other words, the data which is to be used by the assessee in relation to its international transaction vis- -vis transfer pricing provisions should be such which is available by the due date of filing the return of income. First onus is upon the assessee to justify that the international transaction entered into by it with its associate enterprises is at arm's length price, in case it is compared with uncontrolled transactions i.e. transactions entered into by other concerns in similar circumstances. This documentation is to be compiled by the assessee by way of transfer pricing report in order to justify the arm's length price of its international transactions. 16. Under section 92C of the Act, it is provided that arm's length price in relation to international transaction shall be determined by following any of the methods prescribed therein which is the most appropriate method, having regard to the international transaction or class of transactions or class of associated persons or functioned performed by such persons or su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee had entered into international transaction in any previous year and where the Assessing Officer considers it necessary or expedient, he may with previous approval of the Commissioner refer the computation of arm's length price in relation to the said international transaction under section 92C of the Act to the TPO. Under section 92CA(3) of the Act, the TPO is empowered to determine the arm's length price in relation to the international transaction in accordance with subsection (3) of section 92C of the Act. For doing so, the TPO is to serve notice upon the assessee requiring him to produce or cause to be produced, any evidence on which he may rely upon in support of computation made by him of the arm's length price in relation to international transaction. After hearing such evidence including any information or documents referred to in section 92C(3) of the Act and after considering such evidence as the TPO may require on specified date and also taking into account relevant material which he has gathered and confronted to assessee, the TPO has to pass an order in writing. Hence, under the provisions of the Act, the machinery to pass an order for determin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tional transaction, the TPO included two further companies i.e. DEKI Electronics Ltd. and Tibrewala Electronics Ltd., data of which was confronted to the assessee. The objection of assessee to the inclusion of above said concerns was that the data relating to the said concerns was not available at the time of complying with the documentation requirements and had come into public domain much later. We find no merit in the claim of the assessee that the data of companies which were not available in public domain at the time of complying with documentation requirements cannot be considered. The companies which are picked up by the TPO are functionally comparable to the assessee and the data which has been compiled by the TPO relates to assessment year 2006- 07, and was confronted to the assessee and merely because the data came into public domain at a later date, the same cannot be ignored. The TPO has power to use any data which comes into his possession and Section has not provided any fetters to the collections of data on a particular date or otherwise and use of such data; in the absence of which, there could not be curtailment of powers to be exercised by the TPO for determining ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... determine the same and make suitable adjustment. In such case, the responsibility of determination of arm's length price is shifted to the Revenue authorities who are to determine the same in accordance with statutory regulations. The Tribunal further while concluding the issue had considered the burden of proof on the taxpayer and the Revenue authorities and had observed as under:- 132. A dispassionate study of provisions of various countries on Burden of Proof, would show, the following fundamental features: (i) That the burden to establish that international transaction is carried at ALP, is on the taxpayer who is to disclose all the relevant information and documents relating to prices charged and profit earned with related and unrelated customer. (ii) If the Assessing Officer has determined an ALP, other than the price declared by the assessee, Assessing Officer has to prove that the price determined by him is reliable and reasonable and confirms the statutory requirement unless the case is covered by situation No. (iii) below. (iii) In case of failure on the part of the taxpayer to comply with the statutory provisions, the tax authorities would h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of similar enactment world over, it must further be held that adjustments made on account of ALP by tax authorities can be deleted in appeal only if the appellate authorities are satisfied and records a finding that ALP submitted by the assessee is fair and reasonable. Merely by finding faults with the transfer price determined by the revenue authorities (AO/TPO), addition on account of adjustments cannot be deleted. This is because the mandate of section 92(1) is that in every case of international transaction, income has to be determined having regard to ALP. Therefore, unless ALP furnished by the taxpayer is specifically accepted, the appellate authorities on the basis of material available on record has to determine ALP itself. Subject to statutory provisions, Appellate authorities can direct lower revenue authorities to carry this exercise in accordance with law. The matter cannot be left hanging in between. ALP of international transaction has to be determined in every case. 22. The above said proposition has been laid down by the Special Bench of Bangalore Tribunal while interpreting the transfer pricing provisions and the principle laid down by the Special Bench o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ta and applying the said data to determine the arithmetic mean of margins of comparables. 16. Similar issue also arose before the Tribunal in assessment year 2006-07 in the remanded proceedings and vide order dated 16.05.2016, the Tribunal held as under:- 10. We may first take up the last issue raised by the assessee with regard to adoption of single year s data. The learned Departmental Representative for the Revenue in this regard has filed written submissions and has pointed out that under Rule 10B(4) of the Rules, there is mandate to use only current year s data. In this regard, he further placed reliance on series of decision by different Benches of Tribunal. He further stated that the assessee while commenting on the filter of excluding companies, which have declining revenue or were making persistent losses, the assessee had argued that it had used multiple years data for his comparability study, which was denied to the assessee while computing arm's length price of comparables. He pointed out that there was no merit in the contention of assessee in this regard and though the Act ordinarily prohibits use of multiple years data for comparability, the multiple year ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... single year s data as against the claim of assessee to compute the PLI of comparables on the basis of multiple years data i.e. inclusive of preceding two years. The Tribunal in this regard observed as under:- 7. Another aspect which has been canvassed by the assessee is to the effect that the TPO has bench-marked the international transactions of the assessee after computing the PLI of the comparable companies based on financial data of the relevant financial year 2006-07 alone, as against assessee s claim to compute PLI of the comparable cases on the basis of multiple year s data inclusive of preceding two years. On this aspect, the assessee contended that use of a single year data i.e. for F.Y. 2006 -07 for determining the PLI of the comparable cases is not justified and that it would be more appropriate to consider the financial data available of the comparable companies for a period of earlier two years i.e. 2004-05 and 2005-06 also. It is canvassed that at the time of conducting transfer pricing study by the assessee, the financial information of the comparable companies for the earlier two years was available and therefore, in terms of Rule 10B(4) of the Income Tax Rul ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d in the present case shows difference in average PLI of the four comparable cases. So however, the same does not meet with the requirements of invoking the proviso to Rule 10B(4). Pertinently, the proviso can be invoked in a situation where data reveals facts which could have an influence on the determination of transfer prices in relation to the transactions being compared . The variation in PLI by itself is not a fact to justify invoking of the said proviso, rather what is required is to show that the data reveals certain facts which could possibly have an influence on determination of the transfer price. Quite clearly, the assessee has not demonstrated any qualitative peculiarities in the data which reveal facts that are potent to justify invoking of the proviso to Rule 10B(4) of the Rules in the present case. We therefore, find that in the present case, the TPO made no mistake in considering single year s data pertaining to F.Y. 2006 -07 to arrive at PLI of the comparable cases in order to determine the transfer price of the impugned international transactions of the assessee. Thus, on this aspect, the assessee has to fail. 12. Several Benches of Tribunal have also held ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... said concerns were referred to BIFR because of persistent loss making and hence, were to be rejected. The other concerns i.e. Gujarat Poly-Avx Electronics Ltd. was selected by the assessee to be functionally comparable for the past four years. The DRP in their directions have also pointed out that Keltron Component Complex Ltd. being government company has other than profit motive operations and the company was not comparable on FAR basis. It was also the observations of DRP that out of four concerns of Keltron Group of companies, two companies were filtered out by the assessee based on FAR analysis in TP report and now the assessee cannot argue that the same may be included. Further, there was eroding of net worth of said concerns because of persistent loss making. The learned Authorized Representative for the assessee pointed out that rejection of said concern was before the Tribunal in assessment year 2006-07, wherein vide order dated 25.05.2012, the Tribunal had considered the issue. He then, referred to the financial profile of the said concern and pointed out that employee / sales costs ration of the two concerns need to be looked into, wherein the average was 13.97% which w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... year under appeal as it was persistent loss making concern. The issue which needs to be adjudicated is whether even if the assessee has selected one concern as comparable in the earlier years, irrespective of change in factual aspects of the said concern, can the same be excluded. The case of the assessee before us is that the basis for excluding Keltron Group companies is that the said concerns were government concerns which had negative net worth and were persistent loss making, even Gujarat Poly-Avx Electronics Ltd. was loss making concern and was referred to BIFR. In case, there is change in circumstances, then the changed circumstances have to be taken into account while selecting the companies especially in case where one of the filters adopted by the assessee was not to take into consideration the persistent loss making concerns. Accordingly, we find merit in the plea of assessee in this regard. However, we direct the Assessing Officer to verify the claim of assessee that the said concern is persistent loss making and has been referred to BIFR. 22. Another aspect which also needs to be considered is that in assessee s own case for assessment year 2006-07, the Tribunal vi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... luded from the operating expenses while computing PLI of assessee. The assessee in the TP study report pointed out that the said claim was formulated as the assessee was making loss and was unable to operate to its full capacities and in order to retrench the excess labour, the scheme was implemented. This was claimed to be extraordinary / non-recurring expenditure which ought to be excluded while computing the margins of assessee. Another aspect pointed out by the assessee was that the said expenditure was added back in the computation of income and the deduction was claimed in phased manner. The TPO was of the view that since the cost was incurred during normal business operations and were incidental to the operations of assessee company, the same were to be considered as part of operating expenses. Another point raised by the TPO was that the assessee has failed to demonstrate as to whether the other comparables have incurred such expenses. 25. Another expenditure incurred by the assessee being start-up cost relating to new project i.e. Romeo Project was also claimed to be excluded from operating expenses while determining the PLI of assessee. The assessee in this regard expl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2 directed the Assessing Officer / TPO to exclude the said cost following the directions contained in the order of Tribunal in Demag Cranes Components (India) Pvt. Ltd. Vs. DCIT in ITA No.120/PN/2011 for assessment year 2006-07, order dated 04.01.2012. 27. The learned Departmental Representative for the Revenue on the other hand, stressed that where the start-up cost incurred by the comparables was not criteria of search filters and where business was progressing, then such cost had to be incurred. He further pointed out that TNMM method adopted would take care of such cost. Reference was made to the order of TPO in this regard and it was pointed out that the TPO has come to conclusion that this expenditure on start-up cost was neither abnormal nor non-operating expenditure. In respect of VRS expenditure, the learned Departmental Representative for the Revenue pointed out that the expenditure is part of salary expenditure and when TNMM method is applied, it takes care of the same and hence, no merit in its exclusion from operating expenses. 28. We have heard the rival contentions and perused the record. The assessee is in appeal against the orders of Assessing Officer / DRP ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ons of the Tribunal are in 12 to 14, which are being referred but not reproduced for the sake of brevity. 31. The matter has been remitted back to the file of Assessing Officer / TPO to examine the claim of assessee in the light of directions contained in the order of Tribunal in the case of Demag Cranes Components (India) Pvt. Ltd. Vs. DCIT (supra). The issue which arises in the present appeal by the assessee is to be tested on the basis of principles laid down by the Tribunal in Demag Cranes Components (India) Pvt. Ltd. Vs. DCIT (supra) and in case it is found to be extraordinary cost, then the same is to be excluded from the operating expenses. The second aspect which has to be kept in mind is that where the comparable companies have not incurred any start-up activity cost or VRS expenses, then the said expenses are to be excluded being extraordinary cost incurred by the assessee during the year. Following the directions of Tribunal in preceding year, we direct the Assessing Officer / TPO to examine the claim of assessee in line with the directions of Tribunal and decide the issue accordingly. The ground of appeal No.6 is thus, allowed as indicated above. 32. The issue ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ction OPBDIT should be benchmarked against OPBDIT earned by the comparable company because of difference in depreciation policies. The assessee had made the plea that an adjusted PLI i.e. OPBDIT / Operating Cost could provide better comparison. The assessee pleads that it was charging higher depreciation because of its internal policies which in turn, affect the net profits in the open market and hence, the economic adjustment should be made for difference in accounting policies. The assessee before us is engaged in asset intensive industry, wherein the gross value of plant machinery is to the tune of ₹ 93 crores and the cost of total assets is ₹ 117 crores (gross value). 34. Another aspect to be noted is that in addition to the depreciation, the assessee has also claimed heavy repairs and maintenance expenditure i.e. on building of ₹ 77.66 lakhs, on plant machinery of ₹ 3.28 crores and others of ₹ 1.41 crores. In such an incident, where depreciation is significant cost, then a prudent businessman would not ignore the same while benchmarking its cost. 35. Further, in the initial years when the asset is new then, the depreciation to be allowed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fit is to be computed. 19.4.2 In the case of Schefenacker Motherson Ltd (supra) of the ITAT, Delhi, the issue of whether depreciation can be excluded for comparison has been discussed at length and it was held in para 22 thereof that .. The basic issue involved was whether the cost paid or charged for international transactions was at arm s length or not. The factors which go to influence price, cost or profits are / were relevant for computing profit and not depreciation having no direct connection with price or profit but responsible for wide differences. The case of revenue is not clear. If depreciation is not leading to any difference, its exclusion is immaterial. If it is leading to differences, then differences are required to be adjusted, as required by the IT regulations. There is no way to dislodge the claim of the tax payer. The context and purpose of legislation and facts of the case overwhelmingly approve adoption of cash profit only. This case was relied upon by the assessee in support of its proposition that cash PLI or PBDIT is the appropriate PLI. 19.4.3 We find that the above finding of the Tribunal was given as the case of revenue was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ompany as well as that of comparable companies. The Tribunal in such circumstances had held that the depreciation has impact on the profit margins of the assessee and hence, adjustment had to be made. The Hon ble High Court of Andhra Pradesh had upheld the said order of Tribunal. However, the said issue does not arise in the present case and hence, the same is not applicable being factually different. Accordingly, where the fixed assets drives revenues of manufacturing enterprise and where depreciation is significant cost component to be accounted for, then such depreciation could not be disregard for transfer pricing purposes while benchmarking international transaction under TNMM method. The exclusion of depreciation would distort the comparability analysis, therefore, cash profit or PBDIT could not be adopted as the PLI. 38. The Delhi Bench of Tribunal in a later decision in DCIT Vs. Sumi Motherson Innovative Engineering Ltd. (2014) 150 ITD 195 (Delhi), where the company manufactured models, dyes, molted components and provided consultancy services to associate enterprises, held that under TNMM method, net profit margin was the starting point for determining arm's length ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... determination of the operating profit margin. 40. However, the Tribunal acknowledged that the differences in amounts of depreciation in case of tested party vis- -vis comparables due to different depreciation rates called for appropriate adjustment. 41. We further find support from the ratio laid down in recent decision by the Hon ble Bombay High Court in CIT Vs. M/s. Welspun Zucchi Text iles Ltd. in Income Tax Appeal No.1286 of 2014, judgment dated 06.01.2017 , where the question raised before the Hon ble High Court was as under:- (ii) Whether on the facts and in the circumstances of the case and despite the prescription of parameters of comparability by Rule 10B(2) of the Income Tax Rules, 1962, the Tribunal was correct in law, in directing the inclusion of DEPB in turnover and depreciation in net profit for the purpose of profit margin of comparables and assessee? 42. The Hon ble High Court held that the depreciation is to be included as operating expenses to determine the operating cost of the assessee and the comparables. The question before the Hon ble High Court was the comparability between profit margins of assessee and the comparables in view of the pa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... T as the PLI. We dismiss the plea of the assessee in this regard. 44. In the written note filed, the assessee had made submissions for differential depreciation adjustment which was without prejudice to his claim. The assessee claims that the rate of depreciation i.e. depreciation / average written down value charged by the assessee at 17.97% was higher than average rate of depreciation charged by the comparable companies i.e. 12.07%. The assessee submits that excess depreciation should be excluded while computing operating margins of the assessee. We find no merit in the said plea of the assessee under Rule 10B(1)(e)(iii) of the Rules, adjustment if any, has to be made in the hands of comparables and not in the hands of tested party. We dismiss the plea of the assessee in this regard. However, in case the assessee is able to establish that there is material difference in the claim of depreciation by the assessee vis- -vis comparables, then suitable adjustment may be allowed in the hands of comparables after due verification by the Assessing Officer / TPO. 45. Another related aspect of the issue is that the assessee has mentioned that no comments were offered by the DRP again ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y is not fully utilized and on the other hand, it retrenches its staff during the year by offering VRS scheme. 51. The first aspect to be noted is that under Rule 10B(1)(e)(iii) of the Act, adjustments for variations is to be provided which could materially affect the amount of net profit margin in the open market in Comparable Uncontrolled Transactions, then adjustments are to be made in respect of net profits realized by the comparable transactions or enterprises. In other words, adjustment, if any, on account of capacity under-utilization is not to be made in the profits earned by the tested party i.e. assessee but in the hands of comparables. So, we find no merit in the claim of assessee that capacity utilization adjustment should be allowed in the hands of assessee. 52. The second aspect of the issue is that whether such capacity underutilization adjustment could be provided in the hands of comparables. The Delhi Bench of Tribunal in DCIT Vs. EDAG Engineers and Design India (P.) Ltd. (2014) 50 Taxmann.com 322 while considering the case of captive service unit had denied the claim of adjustment on account of under-utilization of capacity observing as under:- 5 Tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ands of comparables as per law. The ground of appeal No.10 raised by the assessee is thus, allowed for statistical purposes. 57. The next issue raised by way of ground of appeal No.11 is against the non-allowance of benefit of provision available to the assessee under the proviso to section 92C(2) of the Act. 58. The learned Authorized Representative for the assessee pointed out that the issue is covered in favour of assessee, wherein the Tribunal vide order dated 25.05.2013 in para 16 had restored the matter back to the file of Assessing Officer. However, we find that the issue of computing adjustment without giving benefit of provision available to the assessee under the proviso to section 92C(2) of the Act for +/- 5% stands decided against the assessee and following various decisions on this issue, this ground of appeal raised by the assessee is thus, dismissed. 59. The issue raised by way of ground of appeal No.12 under transfer pricing provisions is against computation of transfer pricing adjustment with reference to total turnover of exports, computing and restricting the same with reference to the value of international transactions. This issue also has been adjudic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing policy of providing for obsolete stock and subsequent write off when the stock was actually written off in the books of account was practice which was consistently followed on year to year basis. The internal control procedure was applied by the assessee for write off of obsolete stock which in turn, is approved by internal management teams in respect of write off of major items of stock along with corresponding copies of tax invoices evidencing the payment of Excise duty on the stock along with CENVAT credit registers corresponding to the above write off. The Assessing Officer on the other hand, did not accept the contention of assessee since the issue was decided in favour of the Revenue in assessee s own case in assessment year 2006-07. The DRP observed that the assessee had not provided evidence that the stock had actually become obsolete and non-movable and also the assessee did not produce Excise registers and other certificates which were requisitioned to justify the claim. The internal correspondence filed by the assessee was held to be insufficient by the DRP and hence, the contention of assessee against the write off of old stock was disallowed. 63. The assessee is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ade provision for obsolete stock to the extent of ₹ 1.10 crores but had written off only an amount of ₹ 27,35,991/- and the same was claimed as deduction in the return of income. The provision made of ₹ 1.10 crore was added back in the computation of total income. The assessee claims that it is maintaining systematic manner of recognizing obsolete stock and its write off subsequently, which system has been followed from year to year. The assessee further claims that it had Internal Control Procedure which enables for such write off of such obsolete stock. The assessee has furnished certain information before the Assessing Officer but the authorities below disallowed the claim in the hands of assessee since similar claim was disallowed in assessment year 2006-07. The Tribunal in remanded proceedings in ITA No.133/PN/2011, relating to assessment year 2006 -07 vide order dated 16.05.2016 had remanded back the issue to the file of Assessing Officer vide paras 23 to 26 since the additional evidence was filed before the Tribunal in respect thereof. The plea of the assessee for the year under appeal is that all the evidences were before the Assessing Officer. However, we ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... insurance and the said amount was included both in import and export transactions. Thus, only small portion was to be excluded from the export / total turnover, in case expenses were incurred in foreign currency. Since none of the amounts were incurred in foreign currency, no amount was to be allowed. The DRP directed the Assessing Officer to re-examine the claim of assessee and re-work the expenses to be reduced from export turnover as per clause (iii) of Explanation 2 to section 10B of the Act. The plea of the assessee that only the expenditure incurred in foreign exchange should be reduced from the export turnover / total turnover was brushed aside by the DRP. The Assessing Officer consequently, in the final assessment order re-computed the deduction claimed under section 10B of the Act and disallowed the same, against which the assessee is in appeal. 70. The learned Authorized Representative for the assessee contented before us that in case the expenses under consideration were to be reduced from export turnover, then the same are also to be reduced from total turnover. In this regard, reliance was placed on the definition of term total turnover provided under section 80HH ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... issue had arisen before the Tribunal in earlier years also i.e. in the remand proceedings and the issue has been decided by holding that the deduction claimed is unit specific and the same is computed before adjusting brought forward losses, depreciation from eligible unit or other unit. The relevant observations of the Tribunal are in paras 29 and 30 which read as under:- 29. We find that similar issue of computation of deduction under section 10B of the Act vis- -vis brought forward unabsorbed depreciation arose before the Tribunal in assessment year 2005-06 and the Tribunal vide paras 27 to 29 observed as under:- 27. We have heard the rival contentions and perused the record. The issue arising vide ground of appeal No.3 is in relation to the computation of deduction under section 10B of the Act after the amendment to section w.e.f. 01.04.2001. The persons invoking the said provisions are entitled to a deduction under the Act, as compared to the pre-amended provisions of the section, under which the income comprising under the said section was exempt from the total income. The issue arising before us is whether while computing deduction under section 10B of the Act, in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... proach cannot be accepted. Thus ITAT was correct in holding that the brought forward unabsorbed depreciation and losses of the unit the Income which is not eligible for deduction under s.10A of the Act cannot be set off against the current profit of the eligible unit for computing the deduction under s.10A of the IT Act. 28. The said proposition of law has further been applied by the Hon ble Bombay High Court in CIT Vs. M/s. Ganesh Polychem Ltd. in Income Tax Appeal No.2083 of 2012, order dated 25.02.2013 and in CIT Vs. Schmetz India Pvt. Ltd. (2012) 79 DTR (Bom) 356 and also by the Hon ble High Court of Gujarat in CIT Vs. Ace Software Exports Ltd. in Tax Appeal No.687 of 2012, order dated 18.02.2013. The Mumbai Bench of Tribunal has also applied the said proposition in various cases. 29. The learned Departmental Representative for the Revenue on the other hand, placed reliance on the ratio laid down by the Hon ble Supreme Court in Synco Industries Ltd. Vs. AO, (2008) 299 ITR 444 (SC), wherein the issue was whether while computing the quantum of deduction under section 80I(6) of the Act, the Assessing Officer has to treat the profits derived from an industrial undertak ..... X X X X Extracts X X X X X X X X Extracts X X X X
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