9911796707
TMI Blog2022 (12) TMI 835X X X X Extracts X X X X X X X X Extracts X X X X ..... ed in the business of manufacturing products such as light fittings, switch gears and explosion control equipment (including those made from aluminum alloys used in oil & gas and pharmaceuticals sectors). 3. The Appellant filed return of income on 30.11.2013 declaring 'Nil' income under normal provisions of the Act (after setting off brought forward losses and unabsorbed depreciation), and 'Nil' Book Profits under Section 115JB of the Act. The case of the Appellant was selected for scrutiny and a reference was made under Section 92CA of the Act was to the Transfer Pricing Officer, Chennai (TPO) for determination of Arm's Length Price (ALP) in respect of International Transactions undertaken by the Appellant with its Associated Enterprises (AEs) during the relevant previous year. 4. The TPO noted that during the Assessment Year 2013-14 the Appellant operated in two business segments namely Manufacturing Segment and Contract R&D Segment with disclosed profit margins of 3.03% and 22.93%, respectively. 5. The TPO only disputed the ALP determined in respect of the international transactions pertaining to the Manufacturing Segment and related activities. The TPO accepted the Transacti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t the Appellant had selected following comparables: Sr. No. Name of the Comparables 1. Thakaral Services (India) Limited 2. Amtech Power Limited 3. Chemtrols Industries Ltd. 4. NFPIL 5. Integra India Group Co. Ltd. Further, during the course of assessment proceedings the Appellant sought inclusion of the following two comparables: Sr. No. Name of the Comparables 1. Stelmec Ltd. 2. SGN Telecom Ltd. The Appellant also sought exclusion of NFPIL on the ground that same lacked functional comparability. 9.1. However, the TPO rejected 4 of the above comparables selected by the Appellant for the reasons specified herein under: Sr. No. Name of the Comparables Reasons for Rejection 1. Integra India Group Co. Ltd. Fails Sales Filter 2. Impact Fire & Safety Appliances Private Limited Unavailability of Data 3. Stelmec Ltd. Fails RPT Filter as per SCN dated 13.1.02016 4. SGN Telecom Ltd. Consistently Loss Making 9.2. After giving the above factual background, the Learned Authorised Representative for the Appellant submitted that the findings returned by the TPO are factually incorrect. Referring to the financial statements of M/s SGN Telecom Ltd., ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Appellant submitted that the issue stands decided in the favour of the Assessee by the judgement of the Hon'ble Madras Jurisdictional High Court in the case of SPEL Semi Conductor Limited [Tax Case Appeal No.2490 of 2006 / (2012) 27 Taxmann.com 242 (Madras)] 10. In response, the Learned Departmental Representative relied upon the order passed by the TPO and DRP. In addition, he submitted that the appellant had on its own selected NFPIL as a comparable and therefore, the Appellant cannot contend that the same is not functionally comparable. He further submitted that since no data was provided by the Appellant, the TPO was justified in rejecting the Working Capital Adjustment. As regards, adjustments for capacity underutilization, foreign exchange fluctuation and exclusion of extra-ordinary items, he submitted that the same was not claimed either in the Transfer Pricing Study and therefore, TPO was justified in not allowing the adjustments claimed by the Appellant. 11. We have heard the rival submission and perused the material on record. The Appellant has raised 10 grounds of appeal some of which are connected and also, in some cases, overlapping. Therefore, to the extent poss ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eal Capacity Adjustment & Exclusion of Extra-Ordinary Expenses 14. The DRP had rejected claim for Idle Capacity Adjustment, and Exclusion of Extraordinary Expenses made by the Appellant on the ground that no such adjustments were made in the Transfer Pricing Study, however, the same were claimed by the Appellant only during the course of assessment proceedings. We note that the Appellant had shifted the manufacturing facility during the relevant previous year and to substantiate this the Appellant has placed on record Letter of Intent, dated 21.08.2012, issued by the Appellant to Echo Care Engineering Pvt. Ltd. and the invoices raised by Echo Care Engineering Pvt. Ltd. on the Appellant for providing consultancy services in relation to the shifting of the manufacturing facility (placed at page 306 to 310 of the paper book), and the invoices raised by Vruksha Marine Company Limited dated, 31.01.2013 and 07.02.2013 upon the Appellant (placed on page 311 and 312 of the paper book). On perusal of the aforesaid, documentary evidence, it is clear that the Appellant had shifted the manufacturing facility which resulted in incurring one-time extra ordinary expenditure and capacity under-u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... file of the TPO for determining the ALP after considering the above three components i.e. customs duty adjustment, air freight adjustment and foreign exchange fluctuation adjustment." In view of the above order of the Tribunal, this issue is remitted to the file of AO for considering the same afresh in the light of above Order of Tribunal." 16. Respectfully following the above decision of the Tribunal, we direct the Assessing Officer/TPO to provide suitable foreign exchange fluctuation adjustment after verification and after providing the Appellant opportunity of being heard. 17. In view of paragraphs 13 to 16 above, Ground No. 1 to 5 are partly allowed. Ground No. 6 to 8 18. In Ground No. 6 the Appellant has challenged the computation of operating margins made by the TPO. Ground No. 7 is directed against the selection of incorrect comparables which were not functionally similar. Ground No. 8 is directed against rejection of comparable selected by the Appellant. Exclusion of Nitin Fiber Protection Industries Limited (NFPIL) from list of Comparables 19. DRP had confirmed to order of Assessing Officer rejecting the claim of the Appellant that NFPIL should be excluded from ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 23. According to the Assessing Officer, the unabsorbed depreciation of INR 2,09,40,303/- should have been set off with the income of the relevant previous year before setting off brought forward business losses of INR 22,16,22,341/-. Since the income of the relevant previous year was sufficient to set off entire unabsorbed depreciation, the question of carry forward of unabsorbed depreciation to the subsequent year did not arise and therefore, the Assessing Officer disallowed the claim of the Appellant to carry forward unabsorbed depreciation of INR 2,09,40,303/. The DRP rejected the objections of the Appellant and therefore in the final assessment order the claim of the Appellant regarding carry forward of unabsorbed depreciation was rejected. 24. We note that the issue stands decided in the favour of the assessee by the judgment of the Hon'ble Madras High Court in the case of SPEL Semi Conductors Ltd (supra) wherein it has been held as under: "5. A combined reading of the above said sections shows that while carried forward of loss could be adjusted as against the profits and gains of business or profession of the year, the set off of unabsorbed depreciation allowance as per ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the income from profits and gains of business or profession and if there is loss as well as unabsorbed depreciation, the set off shall be first on the business loss as against the business income and then on unabsorbed depreciation. What is spoken to under Section 32(2) is as regards set off of unabsorbed depreciation as per clause (ii) of sub-section (1) and when the unabsorbed depreciation could not be set off as against the income from business or profession by reason of there being no income available under the said heads and where there is income from other sources, effect must be given to Section 32(2) of the Act for that assessment year."
(Emphasis Supplied)
In view of the above, we direct the Assessing Officer to allow the set off of the brought forward business loss with current year business income as claimed by the Appellant and allow carry forward of the unabsorbed depreciation of INR 2,09,40,303/-. Accordingly, Ground No. 9 is allowed.
Ground No. 10
25. Ground No. 10 is general in nature and does not require adjudication.
26. In result present appeal is partly allowed.
Order pronounced in the court on 26.08.2022 at Chennai. X X X X Extracts X X X X X X X X Extracts X X X X
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