TMI Blog2018 (11) TMI 1782X X X X Extracts X X X X X X X X Extracts X X X X ..... - HELD THAT:- TPO retained this comparable on the ground that it is engaged into manufacturing of auto parts - it is admitted fact on the file that the taxpayer has not contested this comparable before TPO by filing TP study. When we examine the order passed by DRP though it is discussed that the assessee is in initial year of production so its base and scale of operation is quite low whereas the comparable companies selected in the transfer pricing study in relation to the manufacturing segment are into manufacturing of auto components for years ranging from 31 years to 51 years and discussed the same in tabulated form but retained the Munjal Showa Ltd. as a valid comparable. Even during the course of arguments before the Tribunal, the taxpayer has not come up with financials of Munjal Showa Ltd. In the given circumstances, we deem it fit to remand this issue to ld. TPO to decide afresh. Bosch Chasis Systems India - It is the settled principle of law laid down by Hon ble Delhi High Court in Mckinsey Knowledge Centre case [ 2015 (3) TMI 1226 - DELHI HIGH COURT] that a comparable cannot be rejected merely on the ground of having different financial year in case annual resul ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erry picking and erred in including inappropriate comparable which is functionally not comparable to the Appellant 4. That on the facts and circumstances of the case and in law, the DRP / AO / TPO have erred in arbitrarily rejecting certain functionally comparable companies identified by the Appellant. 5. That on the facts and circumstances of the case and in law, the DRP / AO / TPO have erred in rejecting without providing any reason, the capacity utilization adjustment conducted by the Appellant in its transfer pricing documentation without taking cognizance of the fact that the Appellant was operating at different level of capacity, i.e. unabsorbed fixed cost to sales as compared to comparables and hence, erred in denying the economic adjustment for the difference in capacity levels of the Appellant vis-a-vis comparables and disregarding their own approach for AY 2009-10 and AY 2010-11 where capacity utilization adjustment has been granted to the Appellant. 6. The learned DRP/AO/TPO erred on facts and in law in: 6.1. determining that the Appellant is not getting any benefit from the payment of royalty and product development services fees and deter ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 417,712,581 0.65% -3.16% Purchase of capital goods 113,015,356* Payment of royalty 16,931,154 Receipt of technical services 13,718,595 Sale of goods 725,136 Receipt of product development services 50,755,791 Reimbursement of expenses paid/ payable 26,943,379 Trade Payables 217,576,553 Trade receivables 326,575 Credit guarantee Other Method Nil NA *The fees paid for technical services includes INR 8,846,900 which has been capitalized during the FY 2012-13. 3. During the year under assessment, the taxpayer was engaged in trading, sales and manufactur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Nissin Kogyo on the payment of royalty @ 3% of the value added. It is also not in dispute that the TPO has rejected TNMM as the Most Appropriate Method (MAM) to benchmark its international transactions qua payment of royalty and applied CUP method. It is also not in dispute that fee for technical services has been allowed but payment of royalty and product development fee has been disallowed. 9. Ld. TPO declining the contentions raised by the taxpayer that similar royalty payment has been made by the other group entities to Nissin Kogyo and brought on record evidence by way of supplementary analysis, available at pages 327 to 333 of the paper book, termed the royalty payment as common/duplicate in nature on the grounds inter alia that :- (a) The assessee has not answered whether similarly royalty is being paid by other worldwide entities to the same AE with evidence thereof; (b) The assessee has not explained the benefits that the assessee has availed on account of this royalty pay out with evidence; and (c) The assessee has not explained how royalty payment has helped the assessee in improving its manufacturing process with evidence. 10. However, we ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ble at pages 963 to 966 of the paper book, invoice issued by Nissin Kogyo to the taxpayer, available at pages 1216 to 1217 of the paper book, evidence for product development fee by other AE to Nissin Kogyo, available at page 967 of the paper book, product-wise working explaining the impact of the product development services provided by the AE on the sales of product manufactured by the assessee, available at pages 969 of the paper book and request received from customers via email to modify the products. 14. The ld. AR for the taxpayer in support of his contentions relied upon the decision of Hon ble Delhi High Court in CIT vs. EKL Appliances Ltd. 341 ITR 241 (Del.) and also relied upon the decisions of DCIT vs. Air Liquid Engineering India Pvt. Ltd. ITA No.1040/Hyd/211, Thyseenkrupp Industries India Pvt. Ltd. ITA No.7032/Mum/2011 and Toyota Kirloskar Auto Parts Pvt. Ltd. vs. ACIT IT(TP)A.No.1642/Bang/2012. 15. However, on the other hand, ld. DR for the Revenue contended that for determining the ALP of royalty and product development fee, best method is the CUP and not TNMM and relied upon the orders passed by the ld. TPO/DRP/AO. 16. Hon ble Delhi High ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . The question whether an expenditure can be allowed as a deduction only if it has resulted in any income or profits came to be considered by the Supreme Court again in CIT v. Rajendra Prasad Moody, (1978) 115 ITR 519, and it was observed as under: - We fail to appreciate how expenditure which is otherwise a proper expenditure can cease to be such merely because there is no receipt of income. Whatever is a proper outgoing by way of expenditure must be debited irrespective of whether there is receipt of income or not. That is the plain requirement of proper accounting and the interpretation of Section 57(iii) cannot be different. The deduction of the expenditure cannot, in the circumstances, be held to be conditional upon the making or earning of the income. It is noteworthy that the above observations were made in the context of Section 57(iii) of the Act where the language is somewhat narrower than the language employed in Section 37(1) of the Act. This fact is recognised in the judgment itself. The fact that the language employed in Section 37(1) of the Act is broader than Section 57(iii) of the Act makes the position stronger. 20. In the case of Sassoon ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the TPO to disallow the same on any extraneous reasoning. As provided in the OECD guidelines, he is expected to examine the international transaction as he actually finds the same and then make suitable adjustment but a wholesale disallowance of the expenditure, particularly on the grounds which have been given by the TPO is not contemplated or authorised. 17. So, applying the law laid down by the Hon ble Delhi High Court in CIT vs. EKL Appliances Ltd. (supra) and the fact that the Revenue has been applying TNMM approach on year to year basis in case of the taxpayer but, during the year under assessment, the TPO has abruptly applied the CUP method without assigning any reason, and the TPO has decided the issue by sitting on the armchair of the businessman/taxpayer by applying the benefit test which is not permissible, and the fact that payment of royalty and product development fee are intrinsically interlinked with the productions and sales and can only be decided under TNMM, this issue is required to be set aside to the TPO to decide afresh after providing an opportunity of being heard to the taxpayer. So Grounds No.2 6 are allowed for statistical purposes. G ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cted by the ld. TPO on the sole ground that it is having different financial year. There is no dispute as to the functional similarity of Bosch Chasis Systems India Ltd. vis- -vis the taxpayer. It is the settled principle of law laid down by Hon ble Delhi High Court in Mckinsey Knowledge Centre case that a comparable cannot be rejected merely on the ground of having different financial year in case annual result can be reasonably extrapolated. Moreover, the ld. TPO was empowered enough to call for the complete data u/s 133 of the Act to reach at the logical conclusion. So, in these circumstances, we remand this issue to the TPO directing him to decide afresh to determine the suitability of Bosch Chasis Systems India Ltd. as a comparable after providing an opportunity of being heard to the taxpayer. Grounds No.3 4 are allowed for statistical purposes. GROUND NO.5 24. TPO/DRP/AO have denied the capacity utilization adjustment claimed by the taxpayer in its transfer pricing study. The taxpayer claimed transfer pricing adjustment on the grounds inter alia that the taxpayer is operating at different level of capacity i.e. unabsorbed fixed costs to sales as comp ..... X X X X Extracts X X X X X X X X Extracts X X X X
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