TMI Blog2022 (5) TMI 1027X X X X Extracts X X X X X X X X Extracts X X X X ..... perating costs in the ALP determination of a preceding year, then obviously, such reversal would not qualify as an item of operating revenue. In view of the fact that the item-wise link between the 19 items reflected with the corresponding expenditure/provision taken as a part of the operating costs in this/earlier year has not been ingrained, we consider it expedient to set-aside the impugned order and remit the matter to the file of AO/TPO for undertaking this exercise in order to determine whether the amounts of reversal and credit to the Profit and loss account of `Provision written back and `Balances written off were earlier included in the operating costs base for the ALP determination of the year of their debit to the Profit and loss account. Needless to say, the assessee will be allowed a reasonable opportunity of hearing in this regard. Miscellaneous income - 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... elled. Excess payment of non-cenvatable import duty - We approve the view of the authorities below on treating excess payment of non-cenvatable import duty as part of operating cost base. 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 [ 2021 (7) TMI 711 - ITAT PUNE] 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 assessee is, therefore, rejected. Exclusion of Subvention receipt from operating revenue base - Though there was Subvention receipt of Rs.5.01 crore but the assessee did not include it in the total income. Once the amount of Rs.5.01 crore is considered as not received for the purposes of taxation, it cannot crop up as a revenue receipt while determining the ALP. A claim dead for computation of total income cannot become alive for the ALP determination. If we ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ER R. S. SYAL , VP : This appeal by the assessee is directed against the final assessment order dated 25-10-2018 passed by the Assessing Officer (AO) u/s 143(3) r.w.s. 144C(13) of the Income-tax Act, 1961 (hereinafter referred to as the Act ) in relation to the assessment year 2014-15. 2. Tersely stated, the facts of the case are that the assessee, an Indian company, is a part of Rieter group of companies having origin in Switzerland. The assessee is engaged in the manufacture of textile machineries, related parts and components. It also carries out installation and commissioning of the machines/equipments sold by the Rieter group companies from outside India and also provides warranty and post warranty support services. The assessee also trades in spare parts required by Indian customers for machines sold by Rieter group companies 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 ref ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... edings before the taxing authorities is to assess correctly the tax liability of an assessee in accordance with law. If, for example, as a result of a judicial decision given while the appeal is pending before the Tribunal, it is found that a non-taxable item is taxed or a permissible deduction is denied, we do not see any reason why the assessee should be prevented from raising that question before the tribunal for the first time, so long as the relevant facts are on record in respect of that item . Answering the question posed before it in affirmative, their Lordships held that on the facts found by the authorities below a question of law arises (though not raised before the authorities) which bears on the tax liability of the assessee and the Tribunal has jurisdiction to examine the same. We are, therefore, admitting the above additional grounds 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 lak ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the operating costs in this/earlier year has not been ingrained, we consider it expedient to set-aside the impugned order and remit the matter to the file of AO/TPO for undertaking this exercise in order to determine whether the amounts of reversal and credit to the Profit and loss account of `Provision written back amounting to Rs.85.46 lakh and `Balances written off amounting to Rs.134.88 lakh were earlier included in the operating costs base for the ALP determination of the year of their debit to the Profit and loss account. Needless to say, the assessee will be allowed a reasonable opportunity of hearing in this regard. 7.1. The next item under challenge is `Miscellaneous income of Rs.15.87 lakh which was taken by the assessee as Operating revenue. The TPO held it non-operating. Detail of such amount has been placed at Page No. 815 of the paper book. 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 c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uarial valuation indicates the liability of the assessee that it will incur for that year. The amount quantified by actuary is nothing but the obligation of the company on this account for the year. It is impermissible to bifurcate such liability into two parts viz., the part relating to year under consideration and another artificial part showing the effect of the provision made in earlier years, which also does not get reflected even in the actuarial report. Since the actuary determined the amount of the provision to be created at the end of the year, the same became an operating cost without any need for reduction. We, therefore, do not find any force in the submission of the ld. AR that a part of the provision for approved gratuity etc. should be treated as non-operating when the full amount of such provision has been claimed as deduction for the year only. This 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). ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mports. Admittedly, the assessee did not reduce the cost of production with this amount. Once the assessee takes a stand that the subvention receipt is not a part of the total income because of its no link with the value of imports for use in production, then, ostensibly, the sum loses the character of operating revenue as well in the determination of ALP. One cannot blow hot and cold in same breath. 11.3. The situation can be compared with certain operating costs not incurred by an assessee but similar costs incurred by comparables. In that case, notional expenditure cannot be added to the operating cost base of the assessee in its ALP determination. The same analogy applies, if an expenditure is incurred but suo motu disallowed by the assessee in the computation of total income. This also has the same effect of reducing the operating cost base accordingly by considering 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 o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... up in India in addition to trading in spare parts. In the ALP determination, the assessee selected three comparables. The TPO introduced two more comparables. During the course of proceedings before the TPO, the asssessee requested for inclusion of two more companies. In the final analysis, the TPO determined the ALP by considering three comparables originally considered by the assessee plus two comparables chosen by him. The assessee is aggrieved by certain inclusions/exclusions. Elgi Electric Industries Ltd. 13.1. The assessee is aggrieved by the inclusion of this company by the TPO in the list of comparables. It was contended before the TPO that the company was functionally different and was not engaged in manufacturing textile machines. The TPO rejected the assessee s version, which came to be affirmed by the DRP. 13.2. We have gone through the Annual report of this company, 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 manufa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ngaged in: Manufacturing, assembling, installing renovating, hiring out or letting out on hire industrial air engineering machinery for textiles and filtration plants for controlling humidity and air pollution, industrial process and comfort air treatment systems . On going through the description of the products manufactured, it can be clearly seen that in addition to manufacturing textile machines it is also manufacturing and selling air pollution and air treatment systems. As the assessee is engaged exclusively in the manufacturing of textile machinery, this company loses it comparability. The position is similar to Elgi Electric Industries Ltd., discussed above, whose incomparability has been accepted because of that company also having dissimilar Motor division in addition to the ex facie similar Textile division. We, therefore, hold that this company has been rightly expelled from the 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 t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tions. Relevant discussion has been made at para 5 of the order. Respectfully following the precedent, we direct the AO/TPO to restrict the transfer pricing adjustment only to the value of international transactions. 17. To sum up, we set-aside the impugned order on the question of transfer pricing adjustment and remit the matter to the file of the AO/TPO for a fresh determination of the ALP in accordance with our above directions. Needless to say, the assessee will be allowed reasonable opportunity of hearing. 18.1. The only other ground which survives in this appeal is against the treatment of subsidy received by the assessee under Package Scheme of Incentives, 2007 introduced by the Government of Maharashtra. 18.2. The assessee received a sum of Rs.2,60,05,628/- as subsidy from Maharashtra Government in the form of Electricity Duty exemption, Stamp duty exemption and Exemption of VAT and CST, which 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 cha ..... 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