TMI Blog2018 (5) TMI 2090X X X X Extracts X X X X X X X X Extracts X X X X ..... tom duty and revenue loss - economic adjustment for custom duty adjustment and was not pressing for such adjustment on account of revenue loss - HELD THAT:- For making such adjustment, assessee should be able to demonstrate that higher import content was necessitated by some extraordinary circumstances which was beyond its control. Just because there is a difference in proportion of imports between comparables and the assessee would not by itself, in our opinion, warrant any adjustment on profits unless assessee is able to show some extraordinary circumstances which necessitated higher imports when compared to the selected comparables. Assessee in the case before us, has been unable to demonstrate that raw materials purchased after payment of custom duty was of a similar nature as purchased by the comparable entities and there was a substantial difference in custom duties and excise duties on such material. Thus, in our opinion, assessee was rightly denied the adjustment sought by it for custom duty on raw materials. Grounds Of the assessee stand dismissed. Carry forward losses from earlier assessment years being not allowed a set off while computing the income for the impugne ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed TPO/ AO and Hon'ble DRP have erred in law and in facts by disregarding the pricing policy adopted by AEs to export the raw material/ components to Appellant and the alternate approach adopted by the Appellant to benchmark the international transaction relating to import of goods considering AE as a tested party without providing any cogent reasons Restriction of transfer pricing adjustment to value of international transactions 6.The Hon'ble DRP have erred in law and facts by directing the learned TPO/ AO to effect the transfer pricing adjustment to the total cost without restricting the same to the proportion of international transactions to the total cost. Economic adjustments 7.The learned TPO/ AO and Hon'ble DRP have erred, in law and in facts, in not appreciating the business/economic circumstances faced by the Appellant and consequently not allowing the economic adjustments relating to custom duty adjustment and revenue loss adjustment claimed by the Appellant. 8... The learned TPO/ AO and Hon'ble DRP have erred, in law and in facts in not taking cognizance of market penetration strategy adopted by the Appellant ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t of +/- 5 percent under the proviso to section 92C of the Act. Corporate tax matters 17.The learned AO has erred in law and facts by is regarding brought forward losses pertaining to earlier assessment years while computing the gross total income of the Appellant. In this regard, the learned AO has also failed to consider the rectification petition filed by the Appellant. 18. The learned AO has erred in levying interest amounting to INR 4,01,04,801 under section 234B of the Act despite the fact that additions to income were unanticipated and there would be consequential reduction in the interest if the issues under appeal are allowed . Ld. Counsel for the assessee, at the outset submitted that ground Nos. 1 to 5 could be considered as general in nature. Accordingly these grounds do not merit specific adjudication. 3. Adverting to ground No.6, ld. Authorised Representative submitted that assessee was a subsidiary of Mitsuba Corporation, Japan, manufacturing DC motors for both four wheelers and two wheelers, catering to requirement of original equipment manufacturers (OEM). As per the ld. Authorised Representative, assessee had following international tra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nuing his submissions, ld. Authorised Representative stated that assessee had assailed the draft assessment before the ld. DRP taking a pleading that computing Arms Length Price as done by the ld. TPO was incorrect. As per the ld. Authorised Representative, ld. DRP, while rejecting the grounds raised by the assessee took a view that the Arms Length Pricing adjustment had to be carried out on a global basis, not for the international transactions alone. Contention of the ld. Authorised Representative was that this view taken by the ld. DRP was incorrect. According to him, upward adjustment that could be made, if it all any, should be only with regard to the international transactions with the Associated Enterprises. As per the ld. Authorised Representative, uncontrolled transactions of the assessee was always on Arms Length Prices and hence if a global adjustment was carried out, it would result in upward revision of the cost relating to uncontrolled transactions also. Thus, according to the ld. Authorised Representative, ld. DRP fell in error in directing the ld. Assessing Officer to effect adjustment without restricting it to proportion of the international transactions to the tot ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ption that reduction in margins of the assessee on account of inflated purchases from Associated Enterprises would get considered when Transactional Net Margin Method (hereinafter referred to as TNMM ). Both these presumptions, in our opinion, had no factual or legal basis. In our opinion the directions of the ld. DRP to calculate the upward adjustment considering all the transactions of the assessee without restricting it to the transactions undertaken by the assessee with its Associated Enterprises is not in accordance with law. Hon ble Bombay High Court in the case of Alstom Projects India Ltd (supra) had held as under at paragraphs 11 and 12 of its judgment:- 11 We also note that the Delhi High Court in Commissioner of Income Tax Vs. Keihin Panalfa Ltd. (ITA No.11 of 2015) decided on 9th September, 2015 has while dealing with transfer pricing adjustment in the absence of segmental accounts held that adjustments have to be restricted only to transactions with Associated Enterprises. It further held that where separate accounts are not available, then proportionate adjustments to be made only in respect of the international transactions with Associated Enterprises. 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and not just the international transactions alone. Since the international transactions only constituted 23.38 per cent., a transfer pricing adjustment proportionate to that extent could be made in respect of such international transactions. Thus, only an adjustment of ₹ 30,33,593 could be attributed to the international transactions in question. The same was accepted by the Commissioner of Income-tax (Appeals) as well as the Tribunal. We do not find any infirmity with their decision . No doubt, Hon ble Apex Court has admitted an appeal filed by Revenue in the case of CIT vs. Firestone International P. Ltd (2016) 96 CCH 271 against a judgment of Hon ble Bombay High Court in (2015) 378 ITR 558 affirming the view taken by the Tribunal that adjustments on arms length transactions had to be restricted to the value of international transactions with Associated Enterprises. However no stay was granted by Hon ble Apex Court. Hence as on date the judgment of Hon ble Bombay High Court, is operative. We are therefore of the opinion that ld. DRP fell in error in giving a direction to do an upward adjustment on aggregate of international transactions of the assessee without restric ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the authorities below. No doubt in the case of Skoda Auto India (P) Ltd (supra) it was held by the Pune Bench that higher import content in raw material was a factor to be considered while arriving at the Profit Level Indicator (PLI). However, it is also mentioned in the said case that higher import raw materials by itself did not warrant an adjustment for operating margins. For making such adjustment, assessee should be able to demonstrate that higher import content was necessitated by some extraordinary circumstances which was beyond its control. Just because there is a difference in proportion of imports between comparables and the assessee would not by itself, in our opinion, warrant any adjustment on profits unless assessee is able to show some extraordinary circumstances which necessitated higher imports when compared to the selected comparables. Assessee in the case before us, has been unable to demonstrate that raw materials purchased after payment of custom duty was of a similar nature as purchased by the comparable entities and there was a substantial difference in custom duties and excise duties on such material. Thus, in our opinion, assessee was rightly denied the ..... 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