TMI Blog2017 (1) TMI 1690X X X X Extracts X X X X X X X X Extracts X X X X ..... sue to the file of the AO for fresh consideration. Working capital adjustment while determining net profit margin of the assessee - Considering the facts and material on record the financial statements and the paper book, there is necessity for working capital adjustment and accordingly we remit the issue to the file of AO to consider the material for fresh consideration. Disallowance of fee for technical services incurred during the previous year under provisions of section 40(a)(i) - Interest paid on delayed payment of TDS - HELD THAT:- We found the assessee company has incurred this expenditure towards the fee for technical services and we are of the opinion that the Assessing Officer should verify and grant the deduction in the year in which assessee company makes the TDS payment and Accordingly, we remit this issue to the file of the Assessing Officer. Disallowance being interest paid on delay payment of TDS - AR argued that the same cannot be disallowed u/s. 40(a)(ii) - HELD THAT:- We perused the Assessment Order and found that there are no proper clarifications available. The Assessing Officer observed that the interest paid for delay in filing Return and paym ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , Ld. AR of the assessee appeared from time to time and the Ld. AO found that the International Transactions with Associate Enterprise are more than ₹ 15 crores and made reference u/s. 92CA of the Act to the Transfer Pricing Officer, Chennai and relied on the Form No. 3CEB filed by the assessee whereas, the Ld. TPO vide order F. No. D-106/TPO-I/AY 2011-12 dated 30.01.2015 has made the downward adjustment of ₹ 12,75,48,826/- to the value of international transactions. Further, the Assessing Officer find that the assessee has made payment on technical fee to its foreign company and not complied provisions of section 9(1)(vii) r.w.s. 195 of the Act and the explanations were filed by the assessee by letter dated 03.03.2015. As the assessee has not complied provisions of TDS in respect of fees for technical services ₹ 93,48,121/- and interest on delayed remittance of TDS ₹ 1,77,300/- is not allowable, the Ld. AO made addition of TP adjustment ₹ 10,50,34,698/- and passed order dated 25.03.2015, against the Draft Assessment Order assessee filed objection with the DRP. The DRP verified the facts and the net profit margin and directed the Ld. TPO for rectificat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... djustment cannot be granted as the assessee has not substantiated with supporting evidence and the comparables have paid custom duty on imports. The Ld. TPO has selected comparables with an Average Arithmetic Mean of 8.45%. Whereas, the assessee's PLI is 5.42% and calculated the margin of comparables at 6.49% on international transaction and made an downward adjustment at ₹ 12,75,48,826/-. Whereas, the DRP on the basis of the objections of the assessee has directed the TPO to make the rectification of adjustment and the Ld. AO has restricted the Transfer Pricing Adjustment to ₹ 10,50,34,698/. The DRP relied on the earlier order passed in the assessment year 2009-10 and was set aside by the Tribunal and Ld. AR prayed for adjustment of custom duty and contra Ld. DR relied on the lower authorities order. 5. We heard the rival submissions, perused the material on record and judicial decisions. The Ld. AR explained that the company was incorporated in the year 2006 and in the second year of operation. The raw material component include import cost which constitute a major cost and claim adjustment of custom duty (non-cenvatable) before TPO. We rely on coordinat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent of raw material by itself does not warrant an adjustment in operating margins, as was held in Sony India (P) Ltd. s case (supra), but what is to be really seen is whether this high import content was necessitated by the extraordinary circumstances beyond assessee s control. As was observed by a Co-ordinate Bench of this Tribunal in the case of EGain Communication (P) Ltd. (supra) the differences which are likely to materially affect the price, cost charged or paid in, or the profit in the pen market are to be taken into consideration with the idea to make reasonable and accurate adjustment to eliminate the differences having material effect . We do not agree with the AO that every time the assessee pays the higher import duty, it must be passed on to the customers or it must be adjusted for in negotiating the purchasing price. All these things could be relevant only when higher import content is a part of the business model which the assessee has consciously chosen but then if it is a business model to import the SKD kits of the cars, assemble it and sell it in the market, that is certainly not the business models of the comparables that the TPO has adopted in this case. The a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Tribunal in the case of Skoda Auto India p Ltd (supra) were not available to the revenue authorities. Therefore, we are of the opinion, the issue should be set aside to the files of the TPO with direction to examine the claim of the assessee relating to the import cost factor and eliminate the difference if any. However, the TPO/AO/DRP shall see to it that the difference in question is likely to materially affect the price/profit in the open market as envisaged in sub rule (3) of Rule 10B of the Income tax Rules, 1962. Accordingly, ground 4(b) is allowed pro tanto. Accordingly, we direct the A.O. to give suitable adjustment against the custom duty component while determining the ALP. Considering the custom duty adjustment and co-ordinate bench decision, we remit the disputed issue to the file of AO for custom duty adjustment. 6. The Ld. AR argued on the Adjustment of warranty cost, whereas, the DRP and AO has confirmed action of the TPO in not excluding the extraordinary cost incurred by the assessee relating to warranty because of initial period of operations and we find that the warranty issue is not discussed by the TPO in his order. Accordi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g Officer should verify and grant the deduction in the year in which assessee company makes the TDS payment and Accordingly, we remit this issue to the file of the Assessing Officer. Further, the Assessing Officer has disallowed ₹ 1,77,300/- being interest paid on delay payment of TDS and the Ld. AR argued that the same cannot be disallowed u/s. 40(a)(ii) of the Act. We perused the Assessment Order and found that there are no proper clarifications available. The Assessing Officer observed that the interest paid for delay in filing Return and payment of advance tax is not allowed as Business expenditure while applying the same analogy, we are of the opinion that the interest paid on delayed payment of TDS cannot be allowed Accordingly we upheld the action of the Assessing Officer in disallowing the interest on delay payment of TDS ₹ 1,77,300/- and dismiss the assessee's ground. 9. The Assessing Officer has not allowed the claim of fees for technical service ₹ 1,73,38,207/- on payment of TDS without appreciating that the entire amount was disallowed in the previous assessment year 2010-11 for non-deduction of TDS and the Assessing Officer should have c ..... X X X X Extracts X X X X X X X X Extracts X X X X
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