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TMI Blog2022 (5) TMI 1027X X X X Extracts X X X X X X X X Extracts X X X X ..... es in India. A return of income was filed declaring loss of Rs.62.53 crore and odd which was later on revised with the same figure of loss. Certain international transactions were reported by the assessee in Form No.3CEB including `Purchase of raw materials/components/parts' at Rs.400.12 crore and `Sale of goods' at Rs.312.12 crore. The AO made a reference to the Transfer Pricing Officer (TPO) for determining the Arm's Length Price (ALP) of the international transaction. The TPO noted that the assessee processed the above two transactions under the Transactional Net Margin Method (TNMM). Initially, internal TNMM was applied as the most appropriate method, which, later on during the course of proceedings before the TPO, was switched over by the assessee to external TNMM. The assessee had computed its PLI of Operating profit (OP)/Operating Revenue (OR) at (-) 4.48%. The TPO carried out some alterations in the Profit level indicator (PLI) of the assessee after adopting the external TNMM as the most appropriate method and recalculated the assessee's PLI at (-) 5.13%. He also made some changes in the list of comparables. On the above basis, the TPO proposed transfer pricing adjustment o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to be espoused for disposal on merits. I. P.L.I. COMPUTATION OF ASSESSEE 6.1. The first issue raised is against the computation of the assessee's PLI of OP/OR. The first item which the assessee is pressing is the treatment of `Provision written back' amounting to Rs.85.46 lakh and `Balances written off' amounting to Rs.134.88 lakh as non-operating. While determining the ALP, the assessee treated the above two items as Operating revenue, which the TPO did not agree with. A copy of the assessee's Profit and loss account has been placed at page 8 of the paper book, which gives detail of the amount of 'Other income' at Rs.22.14 crore. Break-up of such an amount is given in Note No.21, which includes Miscellaneous income of Rs.5.74 crore. The further break-up of this amount has been given at page 657 of the paper book which, inter alia, contains the above two items of Provision written back and Balance written off. The TPO has discussed this aspect at page 15 of his order and gave the reasons for treating them as non-operating as the provisions are non-operating and no details were submitted to prove that the balances written off pertained to current year. The DRP countenanced this v ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ook. The first amount is `Recovery of Telephone deposit' amounting to Rs.8,702. A deposit, when made, goes to the balance sheet under the head Current assets, loans and advances. Subsequently, when the deposit is received back, the asset earlier created is squared up. Recovery of a deposit, in our considered opinion, cannot be considered as a part of operating revenue. Though a feeble attempt was made by the ld. AR to claim that the payment of Telephone deposit was initially considered as part of Operating costs, but no evidence was placed on record in this regard. Going by the nature of the item, being, Recovery of deposit, we hold that the authorities below rightly took it as a part of non-operating revenue. 7.2. The other item is `Recovery of contribution to Provident Fund on behalf of employees' amounting to Rs.15,79,187/-. On being called upon to explain the nature of this item, the ld. AR submitted that the assessee paid the employees' share of Provident Fund and later on recovered it from them. However, no detail of such payments or document showing them as a part of operating costs in the year of the payment, was brought on record. Such payment, when made on behalf of empl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is contention is, therefore, repelled. 9. The next item in dispute is excess payment of non-cenvatable import duty. The ld. AR fairly admitted that the Tribunal has decided similar issue against the assessee in Hyundai Construction Equipment India Private Ltd. vs. ACIT vide order dated 29.6.2021 (ITA No. 2453/Pn/2017). This case was argued by the ld. AR, whose copy has also been placed on record. He, however, urged to keep the issue alive for consideration by the Hon'ble High Court. We, therefore, approve the view of the authorities below on treating excess payment of non-cenvatable import duty as part of operating cost base. 10. The next point raised by the assessee is to treat additional effect of foreign exchange fluctuation as non-operating. Here again, the ld. AR fairly submitted that the Tribunal in Hyundai Construction Equipment India Private Ltd. (supra) has decided this issue against the assessee by holding foreign exchange fluctuation as part of operating cost. This issue was also intended to be kept alive to be taken up before the Hon'ble High Court. Following the view taken in Hyundai (supra), we approve the view point of the authorities. This contention of the assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g as if such expenditure was not at all incurred. The Pune Bench of the Tribunal in Bilcare Limited Vs. ACIT (2021) 211 TTJ 0429 (Pune) considered a situation in which the assessee in the revised return made a suo motu disallowance of depreciation. The revised return was accepted by the AO. However, at the time of computation of ALP, the TPO considered them as operating costs. The Pune Bench held that when the AO accepted the revised return by taking the resultant income/loss for the purposes of computation of total income, there was no rationale in going backwards and adopt the figure of depreciation as per the original return for the ALP determination, which had ceased to exist after the filing of the revised return. The Tribunal observed that there was no qualitative difference between one situation in which expenditure is not incurred and not claimed as deduction and the second in which the expenditure is incurred but suo motu disallowed by the assessee in the computation of total income. In both the situations, such expenditure actually unincurred or incurred cannot form part of the operating cost base in the ALP determination. Similar is the position prevailing in the instant ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ny, whose copy has been provided at page 287 of the paper book. There is no precise reference to the nature of work done by this company in the entire Annual report. The assessee, with reference to the Annual report of this company for the succeeding year, submitted before the TPO that it was manufacturing a) Bobbin Transport System; b) Yarn Conditioning System; and c) Overhead Travelling Cleaner, which indicated the nature of its business as that of textile and not of manufacturing textile machines. We have gone through the segmental information of this company for the year under consideration, given at page 321 of the paper book, which divulges that it has two divisions, namely, `Motor Division' and `Textile Division'. The details from the next year's Annual report show that this company was not in the textile machine manufacturing but in the textile business. Even if it is considered as not decisive for the current year, still, this company in the instant year has two divisions, namely, Textile and Motor, which make it distinguishable from the assessee, which admittedly is not in any Motor business. Primary onus to prove the comparability of a company is on the party who include ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he list of comparables. Yamuna Machine Works Ltd. 15.1. The assessee offered this company for inclusion in the list of comparables during the course of proceedings before the TPO. He rejected its inclusion on the ground that the Annual report did not properly divulge the related party transactions. This view was countenanced by the DRP. 15.2. Having heard the rival submissions and gone through the relevant material on record, it is seen from the Annual report of this company, copy placed at page 154 onwards of the paper book, that its revenue from operations is to the tune of Rs.75,78,37,518/-. Detail of such revenue is given in Note No.10 as 'Textile processing machines'. There is no other product manufactured by this company. The TPO rejected this company only on the ground that it had not filled up the details of the Related party transactions properly, as such information was given at Nil, whereas the company has actually paid Directors' remuneration at Rs.28.68 lakh. We do not find any force in the view point of the TPO on this score. In Form No. 23ACA, copy at page 148 onwards of the paper book, this company has reported a figure of Rs.28.68 lakh under Point 8 with the re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h was claimed as a capital receipt. The AO observed that the assessee was granted subsidy under the Package Scheme of Incentives, 2007 by the Government of Maharashtra vide Eligibility Certificate of 2013 for its manufacturing unit. He opined that the amount in question was chargeable to tax being of revenue nature. The DRP accorded its imprimatur. 18.3. Having heard the rival submissions and gone through the relevant material on record, we find that the assessee received subsidy under Package Scheme of Incentives, 2007 from the Maharashtra Government. Preamble of the Scheme states that: `State has declared the new Industrial, Investment, Infrastructure Policy 2006 to ensure sustained Industrial growth through innovative initiatives for development of key potential sectors and further improving the conducive industrial climate in the State'. It further provides that "new projects, which are set up in these categories in different parts of the State, will be eligible for Industrial Promotion Subsidy". The quantum of subsidy has been linked to the Fixed Capital Investment and the payment of incentive equal to 25% of the relevant taxes paid by the eligible unit to the State. On going ..... X X X X Extracts X X X X X X X X Extracts X X X X
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