TMI Blog2019 (12) TMI 32X X X X Extracts X X X X X X X X Extracts X X X X ..... hallenging the same before the Tribunal. This ground, being not maintainable, is dismissed. Granting of custom duty adjustment in the computation of the assessee s PLI rather than that of the comparables - This issue arose for the first time before the DRP. The assessee contended that because of higher volume of imports, it paid additional import duty vis- -vis the comparables paying only the basic custom duty. The assessee furnished calculation of such excess custom duty before the DRP and requested that such excess should be adjusted in the computation of its own PLI. DRP sent such calculation to the TPO for verification and comments. After considering the remand report, the DRP directed to make such adjustment in the assessee s PLI. In sofaras the legal position on this issue is concerned, subclause (i) of rule 10B(1)(e) eloquently provides for computing the net profit margin as realized by the enterprise from the international transaction. Sub-clause (ii) deals with the computation of net operating profit margin from a comparable uncontrolled transaction, may be internal or external. Sub-clause (iii) provides that the net profit margin realized by a comparable company, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... DER PER R.S.SYAL, VP : The appeal by the Revenue and the Cross objection by the assessee arise out of the final assessment order dated 25-02-2016 passed by the Assessing Officer u/s.143(3) r.w.s. 144C(13) of the Income-tax Act, 1961 (hereinafter called the Act ) in relation to the assessment year 2011-12. 2. The Revenue has filed the following two effective amended grounds, which read as under : 1. Whether the Hon ble DRP was right in law and on facts in directing to allow cash PLI to the assessee and ignoring the fact that cash profit ratio is not a valid PLI as per the Indian Transfer Pricing Regulations. 2. Whether the DRP was right in law and on facts in accepting the contention of assessee to grant custom duty adjustment, when the assessee has worked out the adjustment in its own hands while as per Rule 10B(1)(e)(iii), if any adjustment is to be made it should be made in the hands of comparable companies only. 3. Briefly stated, the facts of the case are that the assessee is a company engaged in the business of manufacturing of components for automation of industri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ), in which it has been held that the : `TNMM apportions the total operating profit arising from the transaction on the basis of sales, costs, assets, etc. . Hence, it is evident that the term Net Profit or the Operating net Profit as used in Rule 10B(1)(e) is to be read as Operating Profit , which means profit from business operations, that is, after adjustment of all the items of operating costs, which predominantly include Depreciation allowance on account of wear and tear of the assets used. Thus, depreciation is an inseparable and an integral part of the Operating costs. The Hon ble Bombay High Court in CIT Vs. Welspun Zucchi Textiles Ltd. (2017) 292 CTR 1 (Bom.) had an occasion to deal with the nature of depreciation. Question no. (ii) as urged before the Hon ble High Court reads: (ii) Whether on the facts and in the circumstances of the case and despite the prescription of parameters of comparability by Rule 10 B (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? The Tribunal in that case held that depreciati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... affecting the price, or cost charged/paid or profit arising therefrom. I agree with the contention of the assessee. However, the decision may be taken on merit. 7. Thus, it is seen that though the TPO did not originally agree with the assessee on adoption of Cash profit margin during the course of the transfer pricing proceedings but when the assessee raised the issue of espousing cash profit margin issue before the DRP, he agreed with the contention of the assessee. 8. At this stage, it is relevant to note the command of sub-section (2A) of section 253 of the Act, which, prior to its omission w.e.f. 1.6.2016, was inserted by the Finance Act, 2012 w.e.f. 1.7.2012 and later on amended by the Finance (No.2) Act, 2014 w.r.e.f. 1.6.2013 providing that: `The Principal Commissioner or Commissioner may, if he objects to any direction issued by the Dispute Resolution Panel under sub-section (5) of section 144C in respect of any objection filed on or after the 1st day of July, 2012, by the assessee under sub-section (2) of section 144C in pursuance of which the Assessing Officer has passed an order completing the assessment or reassessment, direct th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... /TPO directly before the appellate forums. Extantly, we are confronted with the second situation, in which though the acceptance of Cash margin in the determination of the PLI is legally incorrect, but its acceptance by the TPO in the remand proceedings has denuded the Revenue from challenging the same before the Tribunal. This ground, being not maintainable, is dismissed. 9. Now we turn to the second ground raised by the Revenue about the granting of custom duty adjustment in the computation of the assessee s PLI rather than that of the comparables. This issue arose for the first time before the DRP. The assessee contended that because of higher volume of imports, it paid additional import duty vis- -vis the comparables paying only the basic custom duty. The assessee furnished calculation of such excess custom duty before the DRP and requested that such excess should be adjusted in the computation of its own PLI. The DRP sent such calculation to the TPO for verification and comments. After considering the remand report, the DRP directed to make such adjustment in the assessee s PLI. 10. In sofaras the legal position on this issue is concerned, s ..... X X X X Extracts X X X X X X X X Extracts X X X X
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