TMI Blog2021 (11) TMI 1147X X X X Extracts X X X X X X X X Extracts X X X X ..... e assessment year 2012-13 [ 2017 (8) TMI 1700 - ITAT CHENNAI] wherein held as rightly pointed out by the ld. D.R that earlier year the assessee claimed foreign exchange loss as operating expenditure. This year assessee has shifted its stand and claimed it as non-operating expenditure. There is no consistency in its approach and also no reason has been given for such a change. Being so, in our opinion, foreign exchange loss is to be treated as operating nature only - Respectfully following the above decision in assessee s own case for the assessment year 2012-13, the ground raised by the assessee stands dismissed for the assessment year 2013-14. Provision for doubtful debts - With regard to the provision for doubtful debts, recoverability of some receivables may be doubtful although not definitely irrecoverable - HELD THAT:- In consistent with the observations given by the TPO for the assessment year 2014-15 we direct the AO to treat the provision for bad and doubtful debts as non-operating in nature for the assessment year 2013-14 as well. Thus, the ground raised by the assessee is allowed. Hanon Climate System India Pvt. Ltd. as not a comparable - assessee has exclu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tutory notices, the assessee furnished the details. On verification of the details furnished by the assessee, the Assessing Officer noticed that during the previous year relevant to the assessment year under consideration, the assessee has entered into international transactions with its Associated Enterprises to the tune of ₹.241,05,81,264/-. Therefore, the Assessing Officer referred the matter to the Transfer Pricing Officer to determine the Arm s Length Price for the transactions. After examining the details, vide order dated 28.10.2016, the TPO has ordered that a downward adjustment of ₹.11,96,47,101/- is required to be made to the international transaction of the assessee. A draft assessment order under section 144C of the Act dated 26.12.2016 towards TP addition of ₹.11,96,47,101/- was forwarded to the assessee against which, the assessee preferred its objections under section 144C(5) of the Act before the Dispute Resolution Panel. By rejecting the objections of the assessee vide order under section 144C(5) dated 18.09.2017, the ld. DRP confirmed the transfer pricing adjustment as proposed in the draft assessment order. Accordingly, the TP adjustment as conf ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rely on coordinate bench decision of Motonic India Automotive Pvt. Ltd Vs. ACIT, ITA No. 741/Mds/2014 dated 17.08.2016 at page 5 Para 6 which read as under: 6. The ld. AR submitted that in respect of custom duty component suitable adjustment to be made while determining the ALP. In our opinion, the plea of the assessee is justified. The TPO has not considered the custom duty adjustment on the reason that it is equivalent to central excise in commercial market. This is not correct. The Tribunal consistently holding that while determining ALP, there should be suitable adjustment in respect of custom duty, which was considered in the following cases : i) Skoda Auto India (P) Ltd. v. ACIT, Aurangabad (30 SOT 319)[Pune] ii) Toyota Kirloskar Motors Pvt. Ltd. v. ACIT, Bangalore ITA No. 828/Bang/2010 iii) Putzmeister Concrete Machines Pvt. Ltd. v. DCIT, Panaji ITA No. 107/PNJ/2012 iv) Demag Cranes Components (India) Pvt. Ltd. v. DCIT, Pune in ITA No.120/PN/2011 6.1 At this stage, it is pertinent to mention the finding of the Pune Bench in the case of Demag Cranes Components (India) Pvt. Ltd. v. DCIT(supra) dated 4.1.2012 in ITA No.120/PN/2011, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... en are required to be made for functionally differences. The other way of looking at the present situation is to accept that business model of the assessee company and the comparable companies are the same and it is on account of initial stages of business that the unusually high costs are incurred. The adjustments are thus required either way. It is, therefore, permissible in principle to make adjustments in the costs and profits in fit cases. We also do not agree with the authorities below that the onus is on the assessee to get all such details of the comparable concerns so as to make this comparison possible. The assessee cannot be expected to get the details and particulars which are not in public domain. In such a situation, i.e. when information available in public domain is not sufficient to make these comparisons possible, it is inevitable that some approximations are to be made and reasonable assumptions are to be made. The argument before us was that it was first year of assessee s operations and complete facilities ensuring a reasonable indigenous raw material content was not in place. The assessee s claim is that it was in these circumstances that the assessee had to s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lowing the above decision of the Coordinate Benches of the Tribunal, for the assessment year under consideration also, we direct the Assessing Officer to give suitable adjustment against the custom duty component while determining the ALP. 5. The next TP issue raised in the appeal relates to working capital adjustment. Against the submissions of the assessee with regard to working capital adjustment, the TPO has observed that the assessee has provided only a list showing credit range given by Doowon group to Doowon India. However, no evidence was given to substantiate the fact that extraordinary credit period was actually allowed by the AE. Moreover, the assessee has also failed to provide the aging details of its payables and receivables in order to evidence the claim for its working capital adjustment. The TPO has further observed that the assessee has been consistently claiming the adjustment towards working capital, which cannot be accepted year on year. It was not shown specifically, how the working capital position of its company is any different from that of the comparables. Further, considering the sales during the year which is ₹.425 crores, it can be seen that tr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... adjustment. Thus, respectfully following the above decision of the Coordinate Benches of the Tribunal, for the assessment year under consideration also, we direct the Assessing Officer to give suitable adjustment against the working capital component while determining the ALP. 6. The next TP issue raised in the appeal of the assessee relates to foreign exchange loss as non-operative expense. The assessee has claimed foreign exchange loss as non-operative expenses. Foreign exchange gain/losses arise due to uncertainties such as fluctuations in the currency market rate. Before the TPO, it was the submission of the assessee that the foreign exchange loss is not dependent upon the operations carried out by Doowon India and that it is a result of various economic factors determined by the markets, RBI, macro-economic condition, world market etc. After considering the submissions of the assessee, the TPO has observed that the holding period with respect to payments made to creditors (AE s) arising out of the international transactions is within the control of the management. Since the assessee had made delayed payments to its AE taking advantage of the leisurely credit period given by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2-13, the ground raised by the assessee stands dismissed for the assessment year 2013-14. 7. The next TP issue raised in the appeal of the assessee relates to provision for doubtful debts. With regard to the provision for doubtful debts, recoverability of some receivables may be doubtful although not definitely irrecoverable. Such provisions are only estimation and are created by a business organization on a conservative basis. Further the assessee has provided the extract of Rule 10TA as follows: (j) Operating expenses means the cost incurred in the previous year by the assessee in relation to the international transactions during the course of its normal operations including depreciation and amortization, but not including the following, namely: Interest expenses Provision for unascertained liabilities Pre-operating expenses Extraordinary expenses Loss on transfer of assets Expense on account of income tax Other expenses not relating to normal operations of the assessee. Hence, the assessee has considered the same as non-operating in nature and has been excluded for the purpose of margin computation. 7.1 After cons ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sment year is separate and supported the TPO order for the assessment year under consideration. 7.3 We have considered the rival submissions. In the assessment year 2013-14, the TPO has rejected the submissions of the assessee and treated the provision for doubtful debts as operating in nature, which was confirmed by the ld. DRP. Whereas, in the assessment year 2014-15 vide his TP order dated 31.10.2017, the TPO has accepted the contention of the assessee and treated the provision for bad and doubtful debts as non-operating in nature. The relevant portion of the TP order for the assessment year 2014- 15 is extracted as under: 6.5 Assessee s submission regarding Treatment of Provision for doubtful debts as operating item: With regard to the provision for doubtful debts, recoverability of some receivable may be doubtful although not definitely irrecoverable. Prudence requires that a provision be created to recognize the potential loss arising from the possibility of incurring bad debts. A business organization regularly reviews its debtors at the end of every accounting period and makes a provision for debts considered not recoverable. Such Provisions are only e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... System India Pvt. Ltd. as not a comparable. The TPO has erred in concluding that Hanon Climate Systems India Pvt. Ltd. is a comparable company. The TPO has found that certain filters identified by the assessee are not proper. The proper comparability can be achieved only after making proper FAR analysis of the tested party and based on this analysis significant economic functions are identified and thereafter the relevant filters are adopted based on significant economic functions performed by the tested party. Once proper filters are chosen and applied on the public data base the proper comparables can be identified. After considering the objections and submissions of the assessee, TPO has rejected the TP study of the assessee on the ground that the ALP determined by the assessee has been use of data by the assessee which is not reliable or correct, because, the assessee had adopted data for comparables on three year average basis. In the assessment year 2013-14, as per Rule 10B(4) the data to be used in analyzing the comparability of an uncontrolled transaction with an international transaction shall be the data relating to the financial year in which the international transactio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ials at the time of preparation of TP report, the same was dropped. Hence, contention of the assessee stating functional dissimilarity as an objection is rejected. Considering the above, the ld. DRP found that the action of the TPO was justified and the claim and objection of the assessee in respect of Hanon Climate Systems India Pvt. Ltd. is not correct. 8.2 On being aggrieved, the assessee is in appeal before the Tribunal. It was the submissions before the TPO that the Hanon Climate Systems India Pvt. Ltd. reports significant related party transactions during the financial year 2013. However, given that the values mentioned in RPT schedule was not clear for the financial year 2013, the assessee computed RPT based on the financial year 2012 prowess data arriving the RPT at 96.85%. The ld. Counsel for the assessee has submitted that the RPT of the comparable was in excess of 25% filter applied by the TPO, the said comparable Hanon Climate Systems India Pvt. Ltd. should be excluded. On the other hand, the ld. DR has supported the orders TPO/DRP. 8.3 We have heard the rival contentions. The assessee has excluded the comparable since the RPT was in excess of 25% ..... X X X X Extracts X X X X X X X X Extracts X X X X
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