TMI Blog2019 (8) TMI 443X X X X Extracts X X X X X X X X Extracts X X X X ..... mpare the margins of CBUs with margins of spare parts, we deem it fit to restore this issue back to the file of Assessing Officer/TPO who shall compare the margins shown by assessee on aggregate basis with finally selected mean margins of comparables and in case it is to be found to be within +/- 5% range, then no addition is warranted in this regard. Treatment of balance royalty - whether the same is to be allowed as revenue expenditure? - HELD THAT:- Similar issue arose before the Tribunal in assessee s own case in the hands of assessee, wherein the balance royalty was disallowed as capital expenditure. The said issue has been dealt with by Tribunal starting from assessment year 2002-03 onwards and following the same parity of reasoning, we hold that balance royalty payment is to be allowed as revenue expenditure in the hands of assessee. Disallowance of homologation expenditure - allowable revenue expnses - HELD THAT:- In case of any technical variation in any existing vehicle or any of the components that the assessee wants to introduce in the existing vehicles, it was incumbent upon the assessee to get homologation certificate before any change was so introduced. Ano ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reasoning, we direct the exclusion of foreign exchange loss while computing PLI of assessee company. Upholding the order of DRP, we dismiss the ground of appeal No.2 raised by Revenue. - ITA No.514/PUN/2014, ITA No.566/PUN/2014, CO No.24/PUN/2015 out of ITA No.566/PUN/2014, ITA No.380/PUN/2015, ITA No.486/PUN/2015, ITA No.546/PUN/2016, ITA No.534/PUN/2016 - - - Dated:- 31-7-2019 - Ms. Sushma Chowla, JM And Shri D. Karunakara Rao, AM For the Assessee : S/Shri Pramod Achuthan, Rajendra Agiwal and Krishna Jawar For the Revenue : Ms Amrita Misra, CIT ORDER PER SUSHMA CHOWLA, JM: This bunch of cross appeals filed by assessee and Revenue are against respective orders of DCIT ACIT, Circle-9, Pune, relating to assessment years 2009-10 to 2011-12 passed under section 143(3) r.w.s. 144C(13) of the Income-tax Act, 1961 (in short the Act ). The assessee has also filed Cross Objection against appeal of Revenue for assessment year 2009-10. 2. This bunch of cross appeals filed by assessee and Revenue and also Cross Objection filed by assessee on similar issues were heard ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessing Officer has erred on the facts and in circumstances of the case and in law in making adjustment to the purchase price of CBUs by comparing the said transaction with another controlled transaction without evaluating applicability of any other method for benchmarking and without determining availability of any uncontrolled transactions / comparable companies for comparison. The Appellant prays that the applicability of any other method and availability of uncontrolled transactions / comparable companies be evaluated before doing any comparability with a controlled transaction for AY 2009-10 on without prejudice basis. 5. The learned Assessing Officer has erred on the facts and in circumstances of the case and in law in making adjustment to the purchase price of CBUs without making any adjustment on account of differences in functions, risks and assets of the spares segment vis- -vis CBU segment for AY 2009-10. Without prejudice to any of the above grounds raised, the Appellant prays that the arm's length price be determined by applying RPM and gross margin of spares segment after considering adjustment for the diff ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er of Income Tax who has passed the relevant Transfer Pricing Order could not have any legal authority to act as a Transfer Pricing Officer ( TPO ) in view of the clear provisions of section 92CA and consequently the order passed by him is bad in law and illegal. Accordingly the adjustment made by the AO in the Assessment Order in relation to the transfer pricing adjustments/additions/variations is also bad in law and illegal. 10.2 On the facts and the circumstances of the case and in law, learned AO erred in making the reference to the TPO without proper application of mind to the facts on records, without recording his reasons for any necessity or expediency and without legal and valid approval of CIT and hence the same is not in accordance with the provisions of Section 92CA(1) of the Act. The Appellant prays that the proceedings initiated by the TPO under Section 92CA of the Act on the basis of the said reference be held as void ab initio and thus the order passed by the TPO under Section 92CA(3) of the Act be cancelled. 10.3 a) The conditions stipulated in section 92C(3) of the Act are mandatory and the Assessing Officer is expected to rec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le 10B(2), Rule 10B(3) and Rule 10B(1) comparing functions, assets and risks, from the search undertaken by the assessee company; wherein Hindustan Motors was not a comparable and it did not fit in the category of uncontrolled transaction, when Hon'ble DRP in AY 2007-08 and AY 2008-09 had already upheld the rejection on the same ground, wherein Tata Motor's RPT was 26% which was within the range suggested as limit for classification of the associate concerns, as per Actis Advisors judgment of the ITAT New Delhi in ITA No. 5277/Del/2011 and ITA No.958/Del/2012 delivered on 12.12.2012; and wherein M/s.Chongquing Dima Industries Co. Ltd. was one of the company identified by the assessee company which was taken as comparable based on data provided by the assessee company in TP Audit. II) Foreign Exchange Fluctuations Dispute Resolution Panel erred when it directed that - a. Foreign Exchange Fluctuations be considered as Non operating expense as per the 'Draft Safe Harbour Rules', when the assessee company itself has considered FE losses/gains as operating expense, when it took NPM as PLI following the provisions o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ned TNMM method approach but the TPO had segregated the transactions of import of spares and import of CBUs and compared the margins of two transactions and made an upward adjustment in the hands of assessee. 9. The Tribunal in earlier years have held that there is no merit in the approach adopted by TPO, wherein the margins of CBUs were compared with margins of spares imported from associated enterprises. The said issue was first decided by the Tribunal in assessee s own case in assessment year 2005-06 and thereafter, in assessment years 2006-07 to 2008-09 vide consolidated order. The relevant findings of Tribunal are in paras 13 to 17 of order dated 30.04.2019 with lead order in ITA No.1468/PUN/2010, relating to assessment year 2006-07. The Tribunal in turn, relying on its earlier order had held that all the transactions have to be aggregated under the umbrella of manufacturing activity and after applying TNMM method, margins shown by assessee needed to be compared with mean margins of finally selected concerns. 10. The issue arising in the present appeal is squarely covered by the order of Tribunal and following the same parity of reasoning, we ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 16. Now, coming to next issue raised in the present appeal i.e. against treatment of balance royalty and whether the same is to be allowed as revenue expenditure. 17. We find that similar issue arose before the Tribunal in assessee s own case in the hands of assessee, wherein the balance royalty was disallowed as capital expenditure. The said issue has been dealt with by Tribunal starting from assessment year 2002-03 onwards and following the same parity of reasoning, we hold that balance royalty payment is to be allowed as revenue expenditure in the hands of assessee. Consequently, the ground of appeal No.7 raised by assessee stands allowed. 18. That leaves us ground of appeal No.8, which is against disallowance of homologation expenditure of ₹ 1,24,78,000/-. 19. Brief facts relating to the issue are that the assessee has pointed out that the assessee was engaged in the business of manufacturing of passenger vehicles. The assessee pointed out that under the Central Motor Vehicles Act and Central Motor Vehicles Rules, it was mandatory for the assessee to seek approval from an agency designated by the Government, be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ince the said activity had an enduring benefit as the passenger cars were sold over a period of time, then the same needs to be disallowed. In respect of decision in Honda Siel Cars India Limited Vs. ACIT (supra), it was pointed out that expenditure was R D expenditure, which was allowed in the hands of assessee. 22. The learned Authorized Representative for the assessee in this regard placed reliance on the decision of Hon ble Apex Court in Taparia Tools Ltd. Vs. JCIT (2015) 276 CTR 1 (SC) that there is no concept of enduring benefit and the disallowance of expenses. 23. We have heard the rival contentions and perused the record. In the line of business of assessee i.e. manufacture and sale of passenger cars, the automobiles which were manufactured were governed by Central Motor Vehicles Act (CMV Act) and Central Motor Vehicle Rules (CMV Rules). Under the said regulations, it is mandatory to seek approval from the agency of the Government before making any technical changes in the existing model and also before introducing new vehicle / any upgraded version of existing vehicle before its commercial use. The ARAI makes the certification in this reg ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... business of assessee. 24. The Hon'ble Supreme Court in Empire Jute Co. Ltd. Vs. CIT (1980) 124 ITR 1 (SC) had laid down that test of enduring benefit cannot be applied blindly and mechanically, without regard to particular facts and circumstances. Merely because the aforesaid expenditure results in an enduring benefit would not make such expenditure as capital in nature, as while allowing any expenditure in the hands of assessee, the intent and purpose of expenditure is to be kept in mind and whether the same is incurred for smooth running of business, then, such expenditure is revenue in nature. Accordingly, we direct the Assessing Officer to allow homologation expenses of ₹ 1.25 crores (approx.). The ground of appeal No.8 raised by assessee is thus, allowed. 25. Now, coming to Revenue s appeal in assessment year 2009-10, wherein we have already decided the first issue along with transfer pricing issue raised in the appeal of assessee and have remitted the issue of selection of comparables back to the file of Assessing Officer / TPO. 26. The second issue raised is adjustment on account of abnormal foreign exchange moveme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... horized Representative for the assessee pointed out that this ground of appeal raised by Revenue would become academic if grounds of appeal No.7 and 8 raised by assessee in its appeal are allowed. 32. We have already adjudicated grounds of appeal No.7 and 8 raised in assessee s appeal in favour of assessee, hence ground of appeal No.3 raised by Revenue becomes academic and the same is dismissed. 33. Now, we take up the appeal of assessee in assessment year 2010-11, wherein the issues raised by various grounds of appeal are similar to the issue raised in assessment year 2009-10. The ground of appeal No.2 raised in respect of TP adjustment is general in nature and hence, does not need our adjudication. The ground of appeal No.1 raised by assessee is pleaded to be academic once the grounds of appeal No.3 and 5 are allowed in the hands of assessee. The issue raised in ground of appeal No.3 is against rejection of combined TNMM method i.e. adoption of aggregation approach. In ground of appeal No.5, the assessee has raised the issue against order of authorities below in comparing the gross margins of CBUs with margins of spares and applying RPM method as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssue in the case of assessee in assessment year 2009-10 and following the same parity of reasoning, we allow this claim of assessee. The grounds of appeal raised by Revenue are thus, dismissed. 38. Now, coming to appeal of assessee in assessment year 2011-12. The grounds of appeal raised in respect of transfer pricing adjustment under category A are identical to the grounds of appeal raised in assessment year 2010-11 and our directions would apply mutatis mutandis to assessment year 2011-12. In this regard, ground of appeal No.1 would become academic. The ground of appeal No.2 is general in nature and does not need any adjudication. The grounds of appeal No.3 to 5 are in respect of transfer pricing adjustment i.e. adoption of aggregation approach and not comparing gross margins of CBUs with spare parts and applying RPM method vis- -vis selection of comparables. The issue stands decided in paras above and Assessing Officer has to apply the directions of Tribunal in earlier year. The grounds of appeal No.6 to 8 would become academic and the same are dismissed. The ground of appeal No.9 is against orders of authorities below in treating the royalty as ..... X X X X Extracts X X X X X X X X Extracts X X X X
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