9911796707
TMI Blog2021 (7) TMI 36X X X X Extracts X X X X X X X X Extracts X X X X ..... ssee has raised following grounds of appeal:- 1. The Ld. AO DRP has erred in law and on facts and circumstances of assessee's case in making the additions/disallowances amounting to Rs. 6,65,58,555/- to the total income of the assessee. The additions/disallowances made are wholly illegal, erroneous and untenable in law and on the facts of the case of the assessee and are prayed to be deleted. 2. The order of assessment is bad in law and on the facts of the case. Grounds of Objections against Transfer Pricing Adjustments 3. The Ld. TPO and consequently the Ld. DRP AO has grossly erred in law and on facts and circumstances of the appellant's case in making a transfer pricing adjustment amounting to Rs. 6,23,19,555/- in respect of international transactions of the assessee u/s. 92CA(3) of the Income Tax Act. 1961. The ld. AO/TPO DRP have erred in making such adjustment by: 3.1. not providing opportunity of being heard to the appellant before passing the order u/s. 92CA(3) of the Income Tax Act, 1961 and further the Ld. DRP has erred in law and on facts by accepting such order which is against the principles of natural justice. 3.2. not accepting that only current y ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ns of the assessee company in this regard. " 4. This Ground of appeal was already before Ld. DRP but there is no adjudication on the same. This was not raised in original appeal memo but now raised. 5. Brief facts of the case shows that assessee is a company incorporated on 26th July, 2011 as joint venture of Keihin Corporation, Japan and Keihin Asia Bangkok Company Limited wherein Japan entity holds 70% equity and Bangkok company held 30%. It is engaged in the business of manufacturing of Compressed Natural Gas (CNG) assembly parts for the automotive industry. The Keihin group is engaged in the manufacturing of fuel injection and air-conditioning systems. 6. Assessee filed its return of income on 30.11.2013 declaring a loss of Rs. 16,15,22,376/-. It was revised on 25.11.2014 reducing loss to Rs. 9,83,73,479/-. Assessee has entered into several international transactions with its associated enterprises. Main international transaction was of purchase of raw-material of Rs. 18,19,76,837/-. Together with other transactions, it was bench-marked adopting Transactional Net Margin Method (TNMM) as Most Appropriate Method, adopting profit level indicator of operating profit/net sales, t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g that only finance cost relating to working capital loss is considered as operating expenditure. 8. The ld. Transfer Pricing Officer noted that assessee has reduced 37% of its cost as idle cost without explaining the basis with the reasoning and not submitting the evidence in support of its claim. Thus, he rejected the claim of the assessee and computed the margin of the assessee at (-) 39.65%. He further observed that the assessee company being the tested party has made capacity utilization adjustment in its own account to make it as comparable to the comparable companies. He otherwise held that adjustment, if any, could be made in the accounts of the comparables only and not the tested party. He also held that in TNMM Method, lack of data of the comparable cannot be made as a basis for making an adjustment. Therefore, he considered the operating income of the tested party at Rs. 23,79,94,415/- and applied operating profit @ 4.59% resulting into a profit of Rs. 1,09,23,944/-. This was compared with the loss of the assessee at Rs. 9,43,57,340/- and an adjustment of R. 10,52,81,284/- was proposed as per order dated 20.10.2016. Assessee has also claimed Research & Development Expen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... judicate. In absence of any direction, above addition was also made by the ld. Assessing Officer in the final assessment order passed under Section 143(3) read with Section 144C of the Act dated 26.10.2017 and the income of the assessee was finally assessed at loss of Rs. 3,18,14,920/- against the returned loss of Rs. 9,83,73,479/-. 12. Ground Nos. 1 and 2 of the appeal are general in nature and no further arguments were advanced thereon, hence those are dismissed. 13. Ground No. 3 is challenging the overall transfer pricing addition. 14. Ground No. 3.1 was not pressed and hence the same is dismissed. 15. With respect to ground No. 3.2, the assessee submitted that the current year's data is only required to be considered for making any transfer pricing adjustment. The claim of the assessee is that for considering the adjustment of the transfer pricing the assessee as well as the ld. TPO both have proceeded based on the multiple year data. It was stated that due to practical difficulty for availability of current year's data relating to the comparables at the time of preparation of the TP study the assessee has adopted the current year's data as well as the data of p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er three years. It was stated that the matter contention of the assessee was significantly higher than the comparables as it has incurred much higher duty cost and other imported related costs such as clearing and forwarding charges, delivery order charges, Demat charges etc. Because of severe competition in the market, assessee could not pass the import duty and other related cost to the end customer and was forced to bear the entire impact. Therefore, to improve the reliability of the results, assessee has adjusted the reported financial debt of assessee to eliminate the effect of high import duty and other related cost incurred by assessee. The learned authorised representative reiterated the same argument as was placed before the learned transfer-pricing officer and the learned dispute resolution panel. 20. The learned DR submitted that raw material consumption cannot be adjusted in such a manner as suggested by the assessee as whatever amount of goods have been sold, appropriate proportionate raw material consumption have been booked. Therefore, it cannot be said that assessee has borne higher imported material cost then its comparables. 21. Assessee also considered proporti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erefore, it is apparent that assessee has not paid any ad hoc adjustment with respect to the salary payments being higher than the comparable but has given a listing of the employees, the designation, there are dictation qualification, nature of services performed by them, experience of the employees along with the details of the remuneration paid to them. Therefore, the lower authorities' observation that the same is claimed by the assessee on ad hoc basis is not correct. It is also a matter of record that the learned dispute resolution panel has categorically granted adjustment on account of the higher depreciation being the first year of the operation of the assessee, naturally therefore at least the claim of the assessee deserves to be examined that whether it has incurred higher cost of employee remuneration for development of the business or for the purpose of running operations and whether such remuneration paid to the employee should be considered as an operating expenses are not. This would also be evident when such expenditure of the assessee is dis-proportionate to the expenses incurred in the case of the comparable companies, which are averaged out for three years; ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n that the duty structure of the material imported by the assessee and the sale price of the assessee takes into consideration all these commercial aspects of the trading or operation of the business of the assessee. Naturally, if the import duty factor (rate) is higher when raw materials imported by the assessee naturally the sale price will reflect the recovery of those import duty also from the buyers. 27. In the result, ground number 3 of the appeal is partly allowed with above directions. 28. Ground number 4 is the claim of the assessee that adjustment on account of transfer pricing if any be made only proportionate to the value of control transactions in case of the assessee. We find that identical issue arose in the case of the assessee's own case for assessment year 2004 - 05 and 2005 - 06 wherein in para number 12 this issue has been dealt with and decided in favour of the assessee that transfer pricing adjustment if any should be made only proportionate to the value of controlled transaction in case of the assessee. In view of the identical issue decided in favour of the assessee in assessee's own case for earlier years, we direct the learned assessing officer a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h Court in case of CIT versus Vodafone Essar Gujarat Ltd. (TS-330-HC-2017-GUJ] was wherein it has been held that if the assessee debits an amount of doubtful debt to the profit and loss account and credits the asset account like sundry debtors account it would constitute a write off of an actual debt. Thus, the claim of the assessee is that the above sum is a bad debt only and not provision for doubtful debts. The learned authorised representative reiterated these arguments whereas the learned departmental representative stated that no such arguments are dealt with by the learned dispute resolution panel and therefore the same should go back to the file of the learned assessing officer. 30. We have carefully considered the rival contention and perused the orders of the learned dispute resolution panel, we find that assessee did raise such an objection before the learned dispute resolution panel however; same was not at all dealt with in its direction. In view of this, we set-aside this issue back to the file of the learned assessing officer with a direction to the assessee to furnish the requisite information, the learned assessing officer after considering the claim of the assess ..... X X X X Extracts X X X X X X X X Extracts X X X X
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