TMI Blog2022 (3) TMI 1522X X X X Extracts X X X X X X X X Extracts X X X X ..... e the change in selling price per unit of the products to the customer across years, it was also observed that there was no significant increase in the selling price of the Assessee to its customers in majority of products. From the same it is evident that the Assessee is unable to negotiate for an increase in sale prices to account for the impact of forex fluctuations etc. Impact of forex fluctuations on the Assessee - Both the parties agreed that identical issue was decided by this Tribunal in Assessee s own case for AY 2012-13 [ 2021 (11) TMI 1059 - ITAT BANGALORE] as held it is normal that exchange rate is subject to fluctuation due to economic conditions. While determining the ALP, one has to consider these factors, accordingly, this issue is remitted to the 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. Grant of depreciation adjustment in computing operating cost of the Assessee - We are of the view that the adjustment on account of underutilization of capacity will sufficiently take care of the depreciation adjustment and no sep ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as the contention regarding the dissimilarity in the characteristics of the property and presence of R D activities the conclusions while dealing with Rajsriya will apply to this company also. As far as the difference in own consumption of raw material and different business model, we are of the view that the conclusions while dealing with the comparable TVS will equally apply to this comparable also. Supreme Treon Pvt. Ltd. ( Supreme ) (formerly Supreme Treves Private Limited) - The conclusions while dealing with Rajsriya will apply to this company also. As far as the quantum of RPT is concerned, it would be appropriate to direct the TPO/AO to consider the plea of the Assessee that the RPT percentage is more than 25% for this comparable company. Borgwarner Morse TEC Murugappa Pvt Ltd. - Contention regarding the dissimilarity in the characteristics of the property the conclusions while dealing with Rajsriya will apply to this company also. As far as the difference in own consumption of raw material and different business model, we are of the view that the conclusions while dealing with the comparable TVS will equally apply to this comparable also. We hold and direc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the list of comparable companies. Exclusion of Mintree Ltd - Assessee has limited its analysis only to functions but not to the assets, risks as well as prevailing market conditions in which both the buyer and seller of services located. Hence, the companies in which more than 75% of their export revenues come from onsite operations are to be excluded from the comparability study as they are not functioning in similar economic circumstances to that of the tax payer. Hence, it is held that this filter is appropriately applied by the TPO. We are of the view that it would be just and appropriate to remand the issue of comparability of Mindtree Ltd.,to the TPO/AO afresh in the light of the principles set out above and apply the onsite revenue filter. Functional dissimilarity - Companies functionally dissimilar with that of assessee need to be deselected from final list. Non grant of Working Capital adjustment - A working capital adjustment is one such adjustment which is to be applied in order to adjust for the differences between the working capital positions of the tested party and of the comparable. Reliance is placed by the Assessee on the decision of this Hon ble Tr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the AO for consideration afresh. The issue needs to be examined afresh in the light of the evidence filed before the Tribunal and the submissions made by Assessee as above. The AO will examine the issue afresh in the light of the observations made above and in the light of the evidence and additional evidence and submissions made as above, after affording the Assessee opportunity of being heard. Non-set off of brought forward losses - Assessee submitted that as per its return of income, an amount was brought forward under the head profits and gains from business or profession , which ought to be available for set off in terms of Section 72 - as prayed that the same be allowed to be set off against income under the head profits and gains from business or profession - HELD THAT:- We are of the view that a direction to the AO to consider the claim of the Assessee after affording opportunity of being heard and after due verification, would be sufficient to dispose this ground of appeal. We hold and direct accordingly. - ITA No. 129/Bang/2019 - - - Dated:- 29-3-2022 - Shri N.V. Vasudevan, Vice President And Shri B. R. Baskaran, Accountant Member For the Assessee : S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ure through which it maintains customers relationship with OEMs having global presence which helps the assessee to establish customer relationship with the Indian entities of global OEMs. The assessee sells goods both to independent third parties as well as to its AEs. For sales to third parties the price is driven by market conditions and for sales to AEs, it is based on agreed pricing policy. 5. In the trading segment the assessee imports finished goods from its AE for its trading/distribution activities. The assessee is responsible for undertaking all the logistic management activities including transportation from ports, custom formalities, ensuring proper warehousing of its finished goods etc. The assessee is responsible for sales and marketing and deices on the marketing strategy, sales and pricing, order processing and outbound logistics and distribution network. 6. Services segment: In the services segment, the Assessee renders application / specific services to its Associated Enterprises ( AEs ) with regard to development of software. 7. During the previous year relevant to the assessment year 2014-15, several international transactions took place between the As ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ficer exercises jurisdiction. The TPO, after due enquiry and opportunity of being heard, shall by order in writing determine the ALP in relation to the international transaction in accordance with provisions of section 92CA(3) and send a copy of his order to the Assessing Officer (AO) and to the assessee for finalization of assessment order. Section 92C(2) provides that the variation between the ALP and price at which the international transaction has actually been undertaken does not exceed five per cent of the latter, the price at which the international transaction has actually been under taken shall be deemed to be the ALP. The AO passes a draft order of assessment against which, the Assessee has a right to file objections before the Dispute Resolution Panel (DRP) u/s.144C of the Act. Under section 144C(5), the Dispute Resolution Panel (DRP) shall issue the directions, as it thinks fit, for the guidance of the AO to enable him to complete the assessment after considering report of TPO. The AO passes a final assessment order on the basis of directions of the DRP. 9. The legislative intent in introducing the new transfer pricing legislation, as available in the Memorandum e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t of the assessee s objections insofar as the TP adjustments made by the TPO were concerned. Pursuant to the directions of the DRP, the AO passed the final assessment order dated 30.11.2018 in which the TP adjustment was reworked to Rs. 143,30,70,101/-. 12. Apart from the Transfer Pricing additions, there are some issues that arise out of determination of total income viz., (i) Disallowance of provision for warranty to the extent of Rs. 3,21,32,433/-. (ii) Disallowance of annual license fees amounting to Rs. 28,00,21,116/-. And (iii) Non-set off of brought forward losses amounting to Rs. 232,54,55,699/- available to the assessee. As regards provision for warranty, the DRP directed allowance of the actual expenditure and as regards expenditure incurred towards annual license fees, the disallowance made by the AO in the draft assessment order was upheld. 13. Aggrieved by the final assessment order dated 30.11.2018, the assessee has filed the present appeal before the Tribunal. In this appeal, the following issues arise for consideration in this appeal: (i) Transfer pricing adjustment ( TP adjustment ) of Rs.117,35,51,190/- made by the Transfer Pricing Officer ( TPO ) in resp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... prise and referred to in sub-clause (i) is established to be the same as the net profit margin referred to in sub-clause (iii); (v) the net profit margin thus established is then taken into account to arrive at an arm s length price in relation to the international transaction. 15. In its TP Study, the Assessee in terms of Rule 10B(1)(e ) (i) of the Rules, net profit realized by the Assessee was chosen with reference to cost i.e., Operating profit on Operating Cost was chosen as the profit level Indicator (PLI) for comparing Assessee s margin with the comparable companies. The TPO to whom a reference was made for determination of ALP in terms of Sec.92CA accepted the PLI chosen for the purpose of comparison. In terms of Rule 10B(1)( e) of the Rules, the Assessee in its TP Study adjusted the net profit margin it earned to take into account the differences, if any, between the international transaction and the comparable uncontrolled transactions, or between the enterprises entering into such transactions, which could materially affect the amount of net profit margin in the open market. In this regard the Assessee reduced from its operating cost three items (i) a sum of Rs.60,80 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Profit Level Indicator (PLI) OP/OR OP/OR Database used PROWESS CAPITALINE PLUS PROWESS Ace-TP Comparables selected 6 11 3. Filters applied by Assessee in its TP study: Step Description 1. Companies for which data available was for a period prior to 31.03.2012 rejected 2. Companies reporting net sales Rs. 1 crore selected 3. Companies reporting average manufacturing income/average net sales 50% - selected 4. Companies with related party transactions less that 10% of sales selected 5. Companies with positive net worth selected 6. Companies which were functionally comparable selected 4. Comparables selected by Assessee and their arithmetic mean: Sl. No. Name of the company ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... D. Arm s length Cost (B-C) Rs. 478,88,17,500 Shortfall being adjustment u/s. 92CA Rs. 125,69,02,500 17. In arriving at the above adjustment, the TPO imposed the adjustment on an entity level, rather than restricting the adjustment to the proportion of international transactions to total cost in the segment. It can be seen from the above that the TPO arrived at Rs.38,82,82,500 that the operating profit that the Assessee should have made by applying 7.5% on cost of Rs.517,71,00,000 and after reducing the same from the operating revenue arriving at cost of Rs.478,88,17,500. Since the Assessee s cost was Rs. has taken the entire cost of Rs.604,57,20,000 incurred in the manufacturing segment and reduced the Arm s Length margin of 7.50% to arrive at the operating cost of Rs.478,88,17,500 that the Assessee ought to have incurred but since revenue that the Assessee s cost was Rs.604,57,20,000, the difference of Rs.125,69,02,500 (Rs.604,57,20,000 Rs.478,88,17,500) was added as adjustment consequent to determination of ALP. 18. It is one of the contention of the Assessee before the TPO that the provisions of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 125,69,02,500 (which was reduced by Rs.27,63,35,693 being the payment of royalty by the Assessee to its AE to avoid double taxation) and the final figure of addition was Rs.8,05,66,807) Total operating cost 6,04,57,20,000 Purchase of raw materials 76,47,58,690 Payment of technical know-how 14,89,99,314 Payment of royalty 27,63,35,693 Payment of services availed 17,07,549 Payment of shared services availed 13,40,30,481 Payment for production support services availed 3,37,97,500 Total value of international transactions in the manufacturing segment 1,35,96,29,227 Percentage of international transactions to total operating cost 22.49% Revised transfer pricing adjustment restricted to percentage of international transactions 26,39,21,336 Relief from original adjustment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cing the cost on account of underutilization of capacity. It was submitted that the Assessee was not able to operate at its optimum capacity and could not recoup its fixed costs due to industry slowdown, leading to lesser demand and high depreciation cost,since the economy had faced global recession and the industry meltdown had hit the automotive industry and affected the opportunity of the Assessee to acquire new customers. This resulted in underutilization of the production capacity in the factory, resulting in low utilization of the available capacity for the FY 2013-14 to manufacture the products. The Assessee operated at 44.76% of its installed capacity whereas the comparable companies chosen by the Assessee operated at an average of 71.94%. It is evident from the capacity utilization of 44.76% that the Assessee had under-utilized its capacity considering low demand for its products. Hence, the Assessee could not manufacture at optimal capacity and recoup the fixed expenses for the year and the adjustment for under-utilization of capacity is warranted. 22. The TPO did not grant an adjustment for capacity underutilisation on the ground that the adjustment would have to be m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the case of the 'tested party' or the comparable companies so that the difference which could materially affect the amount of net profit margin is removed. More so, in practical situations there may be absence of reliable data in the case of the comparable companies for which such material difference is to be analysed or examined. In certain cases there may arise some difficulty when the reliable data for particular cost or profit may not be available, therefore, a reasonable accurate adjustment in the hands of the tested party may throw fruitful result. This view has been upheld by the ITAT in the case of Pangea3 Legal Database Systems Pvt Ltd v. Income-tax Officer reported in[2017] 79 taxmann.com 303 (Mumbai - Trib.). This Hon ble Tribunal has also allowed adjustments in the case of tested party in the following cases: Skoda India Pvt. Ltd. v. ACIT reported in [2009] 30 SOT 319 (Pune) Kirloskar Motors Pvt. Ltd. v. ACIT reported in [2012] 28 taxmann.com 293 (Bangalore) 25. It was submitted that in the case of Haworth India, this Hon ble Tribunal had held that the adjustment, if any, can be made to eliminate the material differences between the Assessee and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... see in its TP study be upheld. In the alternative, as submitted above, since the Respondent revenue is well within its power to call for details from the comparable companies, such course may be adopted and the adjustment be granted. 29. The learned DR relied on the order of the DRP. 30. Both the parties agreed that identical issue was decided by this Tribunal in Assessee s own case for AY 2012-13 in IT (TP) A No.713/Bang/2017 and this Tribunal by its order dated 24.11.2021 remanded to issue to the TPO with the following observations: 24. We have heard both the parties and perused the material on record. In this case, the exact details of capacity utilisation of comparable companies was not made available to the TPO. It was alleged that the TPO should obtained it by exercising his powers u/s. 133(6) of the Act so as to compare the capacity utilisation of the comparables with the assessee company. In our opinion, it is appropriate to remit the issue relating to adjustment on account of capacity utilisation of the assessee to the file of the AO/TPO for deciding the same afresh keeping in view the OECD guidelines. If the exact details of capacity utilisation of comparable c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rloskar Motors Pvt. Ltd. v. ACIT reported in [2012] 28 taxmann.com 293 (Bangalore) 33. In this connection, the Assessee s import consumption vis- -vis the imports of comparable companies selected by the learned TPO and the Assessee are as below for the FY 2013-14: TPO s comparables Import/Total purchases Import/Sales Rajsriya Automotive Inds. Pvt. Ltd. 0.06% 0.03% TVS Upasana Ltd. 1.24% 0.48% Aspee Springs Ltd. 4.46% 2.23% Supreme Treon Pvt. Ltd 7.47% 3.84% JMT Auto Ltd 6.21% 3.26% Aditya Auto Products Engg. (India) Pvt Ltd. 19.75% 10.25% Varroc Engineering Pvt Ltd. 7.56% 4.80% Leewon Precision Pvt. Ltd. 2.02% 1.05% Borgwarner Morse TEC Murugappa Pvt. Ltd. 0% ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the light of the scope of adjustments discussed above, in our opinion and in principle, the assessee should win on this ground too. One such decision relied upon by the assessee's counsel supports our finding relates to the decision of this bench of the Tribunal in the case of SkodaAuto India p Ltd 122 TT.I 699 (Pune) dated March 2009 wherein, it is held (in para 19 of the order) that,- No doubt , a higher import content of raw material by itself does not warrant an adjustment in operating margins, as was held in Sony India (P) Ltd.'s case (supra), but what is to be really seen is whether this high import content was necessitated by the extraordinary circumstances beyond assessee's control. As was observed by a Co-ordinate Bench of this Tribunal in the case of E-Gain Communication (P) Ltd. (supra) the differences which are likely to materially affect the price, cost charged or paid in, or the profit in the open market are to be taken into consideration with the idea to make reasonable and accurate adjustment to eliminate the differences having material effect . We do not agree with the AO that every time the assessee pays the higher import duty, it must be p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s not available before authorities below and it will indeed be unfair for us to adjudicate on this factual aspect without allowing the TPO to examine all the related relevant facts. We, therefore, deem it fit and proper to remit this matter to the file of the TPO for fresh adjudication in the light of our above observations. 38. The perusal of the impugned orders shows that the above cited guidelines by way of decision of this bench of the Tribunal in the case of Skoda Auto India p Ltd (supra) were not available to the revenue authorities. Therefore, we are of the opinion, the issue should be set aside to the files of the TPO with direction to examine the claim of the assessee relating to the import cost factor and eliminate the difference if any. However, the TPO/AO/DRP see to it that the difference in question is 'likely to materially affect' the price/profit in the open market as envisaged in sub rule (3) of Rule 1013 of the Income tax Rules, 1962. Accordingly, ground 4(b) is allowed pro tanto.' Accordingly, we direct the A.O. to give suitable adjustment against the custom duty component while determining the ALP.' Hence, to bring uniformity, t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts such losses in the case of comparable companies selected by the Assessee. Forex fluctuation computed as per Accounting Standards ( AS ) 11 takes into account the realization loss/gain (fluctuation due to differences between invoice and payment exchange rates) and revaluation loss/gain (translation of closing balances at the year-end exchange rate). Hence such exchange fluctuation does not take into account any adverse exchange fluctuation due to depreciation of Indian currency on a year-on-year basis. The Assessee bears the forex risk and hence it has incurred high forex fluctuation loss which is embedded in the raw material import cost. The fact that forex risk is borne by the Assessee cannot be a valid reason for rejecting the adjustment claimed by it. As the Assessee bears the forex risk, any adverse fluctuation on foreign currency would be borne only by the Assessee. The AE has nothing to do whatsoever with this Indian leg of the transaction. Such fluctuation being due to external factors, there would be no reason for the AE to revise its rate contracts where components have been sold broadly at consistent prices (in some cases even at lower ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 65.45 2.03% 2009-10 67.37 2.94% 2010-11 60.06 (10.85%) 2011-12 66.29 10.37% 2012-13 70.03 5.64% 2013-14 80.66 15.18% 15.18% 2014-15 78.15 (3.11%) (1.68%) 2015-16 71.78 (8.15%) 2016-17 73.77 2.77% 2017-18 75.08 1.77% Financial year USD to INR rate % depreciation/ appreciation Average depreciation/ appreciation 2008-09 46.48 4.11% 2009-10 47.67 2.57% 2010-11 45.51 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Assessee s import consumption vis- -vis the imports of comparable companies selected by the learned TPO and the Assessee are as below for the FY 2013-14: TPO s comparables Import/Total purchases Import/Sales Rajsriya Automotive Inds. Pvt. Ltd. 0.06% 0.03% TVS Upasana Ltd. 1.24% 0.48% Aspee Springs Ltd. 4.46% 2.23% Supreme Treon Pvt. Ltd 7.47% 3.84% JMT Auto Ltd 6.21% 3.26% Aditya Auto Products Engg. (India) Pvt Ltd. 19.75% 10.25% Varroc Engineering Pvt Ltd. 7.56% 4.80% Leewon Precision Pvt. Ltd. 2.02% 1.05% Borgwarner Morse TEC Murugappa Pvt. Ltd. 0% 0% Maco Pvt. Ltd 64.88% 40.02% ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... omers as it operates in the competitive environment of the automobile industry. On an analysis carried out to determine the change in selling price per unit of the products to the customer across years, it was also observed that there was no significant increase in the selling price of the Assessee to its customers in majority of products. From the same it is evident that the Assessee is unable to negotiate for an increase in sale prices to account for the impact of forex fluctuations etc. 3. Impact of forex fluctuations on the Assessee 43. In this regard it was submitted that the imports are made in foreign currency by the Assessee. While accounting, the same is converted to INR based on the foreign exchange rates communicated by the Continental Group. It was submitted that there is no price increase by group affiliates/unrelated foreign suppliers in majority of the components supplied as compared to the previous year. To demonstrate the fact that the increase in material costs are as a result of depreciation in currency and not because of price increase, the Assessee applied the following methodology: Step 1: Identify the total component wise invoice value in fore ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2-13 5. Invoice listing for FY 2013-14 6. Invoice listing for FY 2012-13 7. Invoices submitted for FY2013-14 and FY2012-13 46. It was submitted that the Assessee bears the forex risk, any adverse fluctuation on foreign currency would be borne only by the Assessee. The AE has nothing to do whatsoever with the Indian leg of the transaction. Such fluctuation being due to external factors, there would be no reason for the AE to revise its rate contracts where components have been sold at consistent prices. Further the proportion of imports from AEs as against total imports is only approximately 24% and the majority of imports (76%) pertains to unrelated suppliers. It is evident from the above that the Assessee has incurred substantial cost due to fluctuation in foreign exchange rates and the Assessee has huge amount of imports when compared to the comparable companies. Therefore, the Assessee s claim for an adjustment of INR 23.44 crores on account of adverse fluctuation in foreign exchange during the year in order to arrive at the appropriate comparability ought to be allowed. 47. The learned counsel for Assessee placed reliance on the judgment of this Hon ble Tribunal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... remand the issue to the TPO/AO for consideration afresh on the lines indicated in the decision of the Tribunal for AY 2012-13, after affording the Assessee opportunity of being heard. 51. As far as Grd.No.12 raised by the Assessee is concerned, the same is in relation to the plea of the Assessee for grant of depreciation adjustment in computing operating cost of the Assessee. In this regard it was submitted that the Assessee has invested huge capital in purchasing fixed assets which are an integral part of the manufacturing operations. The Assessee incurred high depreciation cost to sales of 11.55%. As it did not manufacture the products as estimated, the Assessee could not recover its fixed costs and incurred losses. TheAssessee, without prejudice to the above arguments, has claimed adjustment to neutralize the difference between its depreciation cost and the significantly lower depreciation costs of the comparable companies. The DRP in its directions held that depreciation adjustment is related to the capacity adjustment and can be granted only in the initial years and that such high investments are observed not only for the Assessee but in the entire industry. It was further ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le. We shall deal with comparability of each of these companies. a) Rajsriya Automotive Industries. Pvt Ltd: ( Rajsriya ) 56. It is the claim of the Assessee that this company is functionally dissimilar to the Assessee. It is the contention of the Assessee that though Rajsriya is primarily involved in the manufacture of part and accessories for two-wheelers, the components manufactured by Rajsriya can be categorised as mechanical in nature whereas the Assessee is engaged in the manufacture of electrical components like instruments clusters, engine systems, speed sensors, airbag controllers, anti-lock braking system etc. It was also the contention of the Assessee that this company possesses/owns intangibles and therefore cannot be compared with the Assessee who does not own such intangibles. It was contended that the DRP has erred in holding presence of intangibles is not a determinative factor in selecting comparables. It is submitted that the presence of intangibles evidences that Rajsriya preforms product design and development function which makes the company incomparable to that of the Assessee as in the Assessee s case, the AE is responsible for the product design a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... teria. It may be true that broadly the Assessee and the comparable Rajsriya can be said to be in automotive component manufacturing. However, the specific characteristics of the property manufactured by the Assessee is electrical/electronics parts whereas the comparable company Rajsriya is manufacture of automotive components. Therefore there is a difference in the specific characterics of the property manufactured. So also in terms of Rule 10B(2)( b) of the Rules, presence of intangible as an Asset employed would be a relevant criteria to choose comparable. That being the case, we are of the view that if on a narrower search, if sufficient number of comparable companies are available in the automobile electrical/electronics component, then it would be just and proper to disregard companies who manufacture automotive components. We hold and direct accordingly. b) TVS Upasana Ltd: ( TVS ) 59. The plea of the Assessee for exclusion of TVS is almost identical to the plea for rejection of Rajsriya as a comparable. It is the plea of the Assessee that TVS is functionally not comparable to the Assessee as it is engaged in the business of manufacturing spokes and nipples for all ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion is more in the case of the Assessee does not seem to fit into any of the criteria for deciding comparability in terms of Rule 10B(2) of the Rules. c) Aspee Springs Ltd: (Aspee) 62. The plea of the Assessee for exclusion of this company is on the ground that this company is functionally dissimilar to the Assessee. Aspee is engaged in the business of manufacturing Washers, Circlips, Bushes, Retaining Rings, Clips and other similar automotive parts. These auto components are less complex and are mechanical in nature as compared to that of the Assessee which manufactures electrical components. Also, Aspee performs research and development activities and therefore, this company is not functionally comparable to the Assessee. It was submitted that the DRP has erred in holding that R D activities are not relevant in selection of comparables as the same will exist is many companies. The DRP has failed to consider that Aspee has spent an amount of Rs. 40,00,000 towards development of a product which will have a material impact on the financials of the company. Aspee can be characterized as a full-fledged manufacturer while the Assessee is only a licensed manufacturer assumin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was further submitted that the company fails the RPT filter of 25% applied by the TPO. The RPT workings as extracted from the annual report are provided below: Particulars Amt (Rs.) Related party transactions 119,35,66,404 Sales 424,62,83,702 RPT/Sales 28.11% It was submitted that while the DRP directed the RPT filter to be reapplied by the TPO, the same was inappropriately applied by the latter and the company was included in the final list of comparable companies. The learned DR relied on the order of the DRP. 66. In so far as the contention regarding the dissimilarity in the characterics of the property is concerned, the conclusions while dealing with Rajsriya will apply to this company also. As far as the quantum of RPT is concerned, it would be appropriate to direct the TPO/AO to consider the plea of the Assessee that the RPT percentage is more than 25% for this comparable company. e) Borgwarner Morse TEC Murugappa Pvt Ltd. ( Borgwarner ) 67. As far as exclusion of this company is concerned, th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... propriate to direct the TPO/AO to consider the plea of the Assessee that the RPT percentage is more than 25% for this comparable company. We hold direct accordingly. f) Munjal Showa Ltd: (Munjal) 69. As far as comparability of this company is concerned, it was submitted that the said company is functionally similar to the Assessee and is engaged in the in the same industry and manufactures similar auto components as that of the Assessee. Therefore, the said company ought to be included in the final list of comparables. The learned DR relied on the order of the DRP. 70. After considering the rival submissions, we find that the DRP has not gone into the comparability of this company but has proceeded under the mistaken belief that this company was not part of the search matrix before the TPO. This was a comparable chosen by the Assessee and rejected by the TPO and it was the plea of the Assessee that this company is comparable functionally. We are therefore of the view that interest of justice would be met, if the TPO/AO is directed to consider comparability of this company afresh. 71. In ground No.16, the Assessee has contended that the adjustment, if any should be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uld be at 22.49%, as demonstrated below and therefore, the adjustment if any should be restricted to such percentage alone. We have already given these figures in the earlier part of this order but for the sake of ready reference, we give below the details of percentage of international transaction in the manufacturing segment, which is as follows: Particulars As per TP order Transfer pricing Adjustment 11,73,55,1190 Total operating cost 6,04,57,20,000 Purchase of raw materials 76,47,58,690 Payment of technical know-how 14,89,99,314 Payment of royalty 27,63,35,693 Payment of services availed 17,07,549 Payment of shared services availed 13,40,30,481 Payment for production support services availed 3,37,97,500 Total value of international transactions in the manufacturing segment 1,35,96,29,227 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... goods segment of Rs.39,19,74,355 (vide para 8.3 of the TPO s order). 49. The Hon'ble Bombay High Court in the case of Phoenix Mecano (India) Private Limited [ITA No. 1182 of 2014], had to deal with the following question of law suggested by the revenue:- 6.1 Whether on the facts and in the circumstances of the case, the Hon'ble Tribunal was correct in directing the AO to restrict the determination of the ALP to transactions with the AE rather than on the entire turnover of the Company. 6.2 Whether on the facts and in the circumstances of the case and in law, the Hon'ble Tribunal was correct while issuing the above directions without appreciating the observations of the DRP that there was no segmental audit of the transactions of AE and non AE and therefore there was no method whereby the AO could come to a fair determination of ALP by only restricting to transactions with AE. 50. The Hon ble Bombay High Court on the above questions of law held as follows:- 5. With the assistance of the learned counsel for respective parties, we have considered the submissions and the judgment of the Tribunal. The Tribunal in para 7 of its order has obser ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Act, redetermination of the consideration is to be done only with regard to income arising from International Transactions on determination of ALP. The adjustment which is mandated is only in respect of International Transaction and not transactions entered into by assessee with independent unrelated third parties . This is particularly so as there is no issue of avoidance of tax requiring adjustment in the valuation in respect of transactions entered into with independent third parties. The adjustment as proposed by the Revenue if allowed would result in increasing the profit in respect of transactions entered to with non-AE. This adjustment is beyond the scope and ambit of Chapter X of the Act. 5. In the above view, as the provisions of the Act in respect of transfer pricing are self evidence, Question No.(a) as proposed does not give rise to any substantial question of law. Thus not entertained. 52. The ITAT Bangalore in the case of Kirloskar Toyota Textile Machinery Pvt. Ltd. v. ACIT [IT(TP)A No.1401/Bang/2010 held as under:- Taking into consideration of these factors, we accept the first fold of submission made by the learned counsel for the assessee and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as profit margin on costs related to non-AE transactions but ultimately overall certain profits are being shown. Further, the transactions with non-AEs can be presumed to be at arm's length as there is no reason to earn lesser profit. But in case of transactions with AEs, there is always a likelihood of earning lesser profits as transactions are controlled and decisions are influenced by AE. Thus the overall profits on account of transactions with AE as well as non-AE gets suppressed. 54. We have heard the rival submissions. The ld. counsel for the assessee reiterated submissions made before the CIT(A) that transaction with nonAE cannot be subject matter of determination of ALP because section 92 clearly speaks of determination of ALP only in respect of transactions with AE. He also referred to certain decisions of the Tribunal for the proposition that section 92 of the Act is not applicable to non-AE transactions. These decisions have already been extracted in the earlier paragraphs. The ld. DR relied on the order of the CIT(Appeals). 55. We have considered the rival submissions. The reasoning of the CIT(A) for considering the entire sales in manufactured finishe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt of license fee/royalty as a part of the operating cost, the adjustment comes to more than the amount of royalty and therefore, no separate adjustment is called for royalty. Further, the DRP held that in the event, the margin of the manufacturing segment is at arm s length or the adjustment under TNMM works out to be less than the payment for license fee/royalty, then the adjustment made towards royalty would be revived. It was submitted that as no adjustment with respect to royalty has been made in view of the adjustment in the manufacturing segment being more than the amount of royalty, the said ground may not be adjudicated at this stage. However, the Assessee reserves liberty to urge this ground at a later stage in the event the adjustment made towards royalty is revived. 76. We are of the view that the prayer so made is acceptable and the liberty prayed for is granted. We hold and direct accordingly. 77. The AO is directed to compute the ALP of the international transaction in the manufacturing segment as per the directions given in this order, after affording opportunity of being heard. 78. SWD SERVICES SEGMENT OF THE ASSESSE It is not in dispute that the tra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 6. Tata Elxsi Ltd 14.49 7. Expert Global Solutions Pvt Ltd 13.36 8. Hepatica Technologies Pvt Ltd -1.43 9. Hinode Technologies Pvt Ltd -3.60 Arithmetical Mean 5.71% The TPO selected 3 comparables from the TP study of the Assessee and rejected 6 comparables selected by the Assessee in its TP study. Filters applied by the TPO: Step Description 1. Companies whose data is not available for FY 2013-14- excluded. 2. Companies which are functionally comparable - selected 3. Companies having different financial year ending (i.e. not March 31, 2014) or data of the company does not fall within 12 month period i.e., 01-04-2013 to 31-03-2014- rejected. 4. Companies whose service income Rs. 1 Cr- excluded. 5. Companie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ologies Ltd.; and (ii)SQS India Ltd. The DRP also directed the inclusion of CG-Vak Software and Exports Ltd. The TPO was directed to examine the RPT of Expert Global Solutions Pvt. Ltd. and include the same if it satisfied the RPT filter, which the TPO accepted and included in the OGE. However the other contentions of the Assessee seeking the exclusion of incomparable companies and inclusion of comparable companies came to be rejected. Working capital adjustment: The DRP upheld the action of the TPO in not granting any adjustment towards the differences in working capital ( WC Adjustment ) of the Assessee and the comparable companies. 80. List of Comparables post the DRP s Directions: On giving effect to the above directions issued by the DRP, the final list of comparables is as follows: Sl. No. Name of the Company 1. Infosys Ltd. 2. Larsen Toubro Infotech Ltd. 3. Mindtree Ltd. 4. Persistent Systems Ltd. 5. R S Software (I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Ltd (ITA No.1054/Bang/2011) was followed and it was held that M/s Infosys Technologies Ltd is not functionally comparable since it owns significant intangible and has huge revenues from software products. It was further observed that the break-up of revenue from software services and software product is not available. 6.1 It was stated that there is no change in facts. Accordingly, following the decision rendered in the assessee s own case in AY 2008-09, we direct exclusion of M/s Infosys Ltd. 7. In AY 2008-09, the co-ordinate bench has excluded M/s Persistent Systems Ltd also by following the decision rendered in the case of 3DPLM Software Solutions Ltd (supra), where in it was held that M/s Persistent Systems Ltd is engaged in product development and product design services while the assessee is a software development service provider. Further, the segmental details were not available. 7.1 It was stated that there is no change in facts. Accordingly, following the decision rendered in the assessee s own case in AY 2008-09, we direct exclusion of M/s Persistent Systems Ltd. 8. We also notice that in AY 2008-09, the co-ordinate bench has excluded M/s Thirdwar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... activities. During the FY 2013-14, Mindtree has incurred sub-contracting expenses of Rs. 1406 million. Also, the Assessee submits that the growth of Mindtree has been driven by the onsite revenue. The onsite revenue had an extraordinary growth of 27.4% compared to a growth of 7.2% in offshore services during the year. It has incurred foreign branch expenditure of Rs. 1120.3 Cr. Against the total expenditure of Rs. 1177.0 Cr. during the year. Hence, the business model of Mindtree is different from that of the Assessee. The significant presence of intangibles worth Rs. 3,26,60,000/-, makes it incomparable to the Assessee. Therefore, it was submitted that Mindtree is incomparable to the Assessee and ought to be excluded from the list of comparables for the above reasons. The learned DR relied on the order of the DRP. 87. Having considered the rival submissions, we find that this company was sought to be excluded from the list of comparable companies before the DRP on the ground of functionally dissimilar- diversified operations, revenue from Subcontracting charges, Onsite revenue, Segmental data unavailable, presence of R D activity, Presence of intangibles, existence of IP led so ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ly applied by the TPO. We are of the view that it would be just and appropriate to remand the issue of comparability of Mindtree Ltd.,to the TPO/AO afresh in the light of the principles set out above and apply the onsite revenue filter. We hold and direct accordingly. 89. As far as Grd.No.24 is concerned, Vide this ground, the Assessee is seeking inclusion of Akshay Software Technologies Ltd., Sasken Communication Technologies Ltd., Maveric Systems Ltd., I2T2 India Ltd., KALS information Systems Ltd. and Daffodil Software Ltd., and Hepatica Technologies Pvt Ltd. 90. As far as inclusion of Akshay Software Technologies Ltd. is concerned, it was selected by the assessee as a comparable company in its TP study, but was rejected by the TPO for the reason that this company was engaged in providing professional services, procurement, installation, implementation, support maintenance of ERP products and services and incurrent significant foreign branch expenses indicating a different operating model from that of assessee. It is the plea of assessee that assessee s function is comparable with this company and that the TPO had chosen companies with significant foreign branch expenses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ded on the ground that the company was engaged in R D activity and expenditure is 6% of total turnover. Similarly, the DRP has upheld the exclusion of the company. The learned Authorised Representative submitted that company s functional profile is comparable and applied the TPO filters. Whereas the DRP has observed that the company has incurred substantial expenses to the tune of 6% of turnover towards R D and the tolerable limit is 3%. We found the observations of the DRP are without any basis. Accordingly we restore this issue to the file of TPO to give a logical conclusion and findings. 94. Following the aforesaid decision, we remand the issue of inclusion of this company i.e., Maveric Systems Ltd. to the TPO for fresh consideration on the lines directed in the order of the Tribunal referred to above. 95. As far as inclusion of I2T2 India Ltd. is concerned, we find that in the case of LG Soft India Pvt. Ltd. (supra) this company was directed to be included. The Tribunal in para 11 of its order held that the TPO excluded this company for the reason that the Related Party Transaction (RPT) had not been disclosed in the annual report. The Tribunal held that if there is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ct on the profitability of the company s SWD services segment. It was contended that the DRP erred in upholding the exclusion of the company on altogether different grounds than what was held by the TPO, without first putting the Assessee on notice of the same. Without prejudice, it is submitted that the DRP erred in taking into account only the revenues earned from services rendered to customers in North America, Europe and Asia Pacific region while determining whether the company passes the export revenue filter applied by the TPO. It was submitted that if the entire foreign exchange earned by the company during the year is taken into consideration, it would pass the export revenue filter applied by the TPO. It was submitted that Sasken has incurred research and development expenditure only to the tune of 0.50 percent of the software services revenue amounting to INR 35,083.49 lakhs. Therefore, it was submitted that the company ought to be included in the final list of comparables. We have considered the submissions and are of the view that it would be appropriate to remit the issue and direct the TPO/AO to consider the claim in this regard afresh as the DRP has drawn conclusions ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ble. Reliance is placed by the Assessee on the decision of this Hon ble Tribunal in the cases of Bearing Point Business Consulting (P.) Ltd. vs. DCIT [(2013) 33 taxmann.com 92]. Therefore, it is submitted that since it is now a settled proposition of law that necessary adjustments are to be made to the margins of comparables to give effect to the differences in the working capital positions of the tested party and of the comparables, the TPO ought to have given the Assessee the benefit of the same. We are of the view prayer in this regard deserve to be accepted. This tribunal has been consistently taking a view that working capital adjustment has to be allowed. Hence, we direct the TPO/AO to allow working capital adjustment, in accordance with law. 101. The other grounds raised in its appeal in relation to its international transaction of provision of SWD services are not pressed at this stage. However, the Assessee seeks liberty to urge the said grounds in any future proceeding, appellate or otherwise, and in these proceedings at a future point in time. The liberty prayed for is allowed. The TPO/AO is directed to compute the ALP in the SWD services segment, after due opportunit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Add: Provision created during the year (debited to P L A/c) 3,21,32,433 0 3,21,32,433 Less : Actual warranty claims (2,60,13,380) (2,27,52,798) (4,87,66,178) Closing balance 3,21,32,433 53,79,999 3,75,12,432 Amount directly debited to profit and loss account 2,61,30,796 0 2,61,30,796 It was pointed out that it can be seen from the movement of provision for warranty tabulated above, the actual utilization (Rs. 4,87,66,178) during the year under consideration is more than the provision created (Rs. 3,21,32,433). As such the net impact that has been considered in the profit and loss results in negative amount (Rs. -1,66,33,745). To this amount, certain warranty expense which is not in the nature of provision and directly incurred by the Assessee (Rs. 2,61,30,796) has been added. Therefore, the net warranty expense of Rs. 94,97,051 is reflected in the profit and loss account. Accordingly, the learned co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... It was reiterated that the Assessee follows the specific methodology of creating provision for warranty consistently over the years. The said methodology has been submitted before the AO during the course of assessment proceedings. It was submitted that the Assessee creates provision for warranty on a scientific basis. 104. Reliance was placed on the following decisions in support of the contentions of the Assessee: Rotork Controls India Private Limited [2009] 180 Taxman 422 (SC) Nokia Siemens Networks India Private Limited Vs. CIT[2011] 14 Taxmann.com 84 (Karnataka High Court); Micro Land Ltd [2012] 18 taxmann.com 80 (Karnataka High Court); Toyota Kirloskar Motors (P.) Ltd. v CIT [2013] 30 taxmann.com 294 (Karnataka High Court); Hewlett Packard India Sales (P.) Ltd. v CIT [2014] 49 taxmann.com 166 (Karnataka High Court); Motor Industries Co. Ltd. v CIT [2015] 55 taxmann.com 377 (Karnataka High Court); Denso Kirloskar [2013] 34 taxmann.com 238 (Karnataka High Court); Ericsson Communications Pvt. Ltd v CIT [2009] 318 ITR 340 (Delhi High Court). Further, in Assessee s own case for AY 2009-10 and AY 2010-11, the DRP dire ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and loss account under the head R D . The break-up of the total R D expenses is as under: Sl. No. Nature of expenses Amount in INR 1 License fees to group companies 21,36,97,972 2 Project Research and Development expenses 6,59,74,419 3 Third party and others 3,48,724 Total 28,00,21,116 The Assessee submitted that it had entered into two license agreements with Continental Automotive GmBH, Germany and Continental Teves AG Co., Germany dated 1.1.2009 and 11.3.2019 respectively, whereby it was given nonexclusive, non-transferable licence to use intellectual property for manufacturing and sale of automotive products; and payment of compensation as an annual royalty on net sales for use of intellectual property. The Assessee claimed the above expense as one incurred for the purpose of business and revenue in nature and therefore claimed as deduction by the Assessee under section 37 of the Act. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iled on 11 March 2019): The Assessee has entered into a License and Technical Assistance Agreement dated 1 January 2009 with Continental Teves AG Co. OHG, Germany ( CT AG ). Under this agreement, CT AG grants license to use technical information for development, manufacture and sale of sensors and supply information relating to commercial manufacture, sale and distribution. Compensation for the aforementioned license has been agreed to be paid by the Assessee as an annual royalty fees of 6% of net sales of sensorics products per year. 112. It was submitted that the usage of the term R D was just a nomenclature used by the Assessee for the purpose of accounting such expenditure and the nature of expense as clearly laid out in the aforesaid agreements was royalty. It was submitted that the annual license fee incurred by was for the use of technology of the Continental Group for manufacturing and sales of the products. Such expenditure should be allowed under section 37(1) of the Act based on following submission: i. Section 37 of the Act is a residual clause for claiming deduction for any expenditure incurred for the purposes of the business. ii. For the purpose of cla ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assignment The licensee has restricted rights to create further rights/ assign the license in favor of third parties Confidentiality The arrangement prohibits parting with confidential information Degree of transfer The license does not transfer all the fruits of research of the licensor, once for all Nature of royalty Royalty paid as a percentage of sales is linked to sales achieved by the assessee and hence, is considered as cost in earning the same 115. It was submitted that the agreements under which the annual license fees was paid, satisfies the aforementioned conditions as under: Factors under consideration Whether the conditions are satisfied? Clause reference in the Agreements A and B License period and termination Yes. Both the licenses are granted for a limited period. The agreements can be terminated at the discretion of both parties. Agreement A - 6.1.2 Agreement B - 7.1 and 7.2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rt to the Assessee includes timely business planning, optimum resource utilization, and meeting customer s requirements where the expectation is always to deliver as per global standards, gaining competitive advantage, and running the business smoothly and efficiently. d) Corporate Project Management Manuals and Standards CPMMs and CPMS provided by Continental global aid in project management. Further, the Assessee refers to the standard document provided by Continental global in planning introduction of a new product, which provides basic guideline for innovation introduction. Continental group provides the latest updates relating to development of key manufacturing technologies. This helps the Assessee to upgrade its business including the manufacturing process to the latest available technology. 117. Relevant Snapshots of the manuals, emails and standard documents demonstrating the rendering of these services are produced before this Hon ble Tribunal under cover of an application for additional evidence. The additional evidence sought to be filed by the Assessee are the following. Sl. No. Particulars Page Nos ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... -672 23 Annexure 23 - Training on application of new methodology 673-674 24 Annexure 24 - Library sharing 675-676 25 Annexure 25 Screenshot of a project 677-678 26 Annexure 26 - Verification procedures 679-690 27 Annexure 27 - Webinars for testing 691-692 28 Annexure 28 - Software source code 693-694 29 Annexure 29 - Technical support email communication 695-696 30 Annexure 30 - Manufacturing technology support from experts 697-700 31 Annexure 31 - Faulty part detection communication 701-704 32 Annexure 32 - Support from Germany 705-706 33 Annexure 33 - Quality ranking 707-708 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and applies/ implements the same for its manufacturing process, testing process, etc. As mentioned earlier, this information and support is a catalyst for the Assessee s business . 2 Collaborative robots ( Cobot ) Cobot is an advanced version of robots which focuses on safety and cost reduction. This is easy and simple to program as per the user requirement. Cobot helps the Assessee in reducing dependency on man power, suppliers of raw material. This enhances overall performance with possible savings in terms of lead time and increase in efficiencies. 3 Camline Camline is an internal customized software for monitoring and tracking of the line performance of the machinery/ equipment in the plant during the process of manufacturing. Camline analyses performance of the machineries over a period and provides quality rates, performance rates. It also records the equipment status and provides report of the unplanned errors occurred. 4 Space planning tool LFPT tool is another tailor-made tool fr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... esigns, layouts and drawings to the Assessee which are best suited for the Indian market. - Training a) Continental global conducts online courses, training through video conferencing, live training workshops etc. to equip its people with updated technologies, products and solutions, and specifically focus on measures and guidelines for implementation of standards, new technology etc. These trainings are facilitated from the global experts of the Continental group. This contributes to enhanced productivity. - Validation a) Continental global validates the complete product layout/ design as submitted to it by local teams for its feasibility and then provides a goahead to the local team for its implementation. This is prepared and submitted in the form of a project matrix. b) Continental global, due to their expertise could uncover any issues at an initial stage itself. Therefore, the above process aids Continental India to prevent any issues, avoid duplication of efforts and ensures timely response to the issues beforehand. - Testing a) A crucial aspect of any manufacturing process is testing. The Assessee undertakes testing of the products/ component ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e to avail technical knowhow from its group companies. The research and development work is performed by the group companies to support the other group companies in their manufacturing and sales business. The technical knowhow payment is towards the product application works and development projects ( Application projects ) based on specific requirement of the Assessee as per its customer orders. As mentioned above, the development activities for such projects may be performed by several R D centers of the Continental Group worldwide based on the availability of suitable skilled resources for the project. All the costs associated with such projects are charged to the benefiting manufacturing companies. Continental Automotive GmbH acts as a central administrator for this intercompany service. For all Application projects to be performed for any manufacturing company, Continental Automotive GmbH will either use its own facilities, or use its group affiliates to perform the developmental work. All technical knowhow costs are charged as far as feasible, project by project to the companies which plan to manufacture the projectrelevant product for the outside customer. All Application Pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tomers), it was charged off to the profit and loss account. In this regard, list of projects for which amount was charged off during the year was provided before the AO during the course of assessment proceedings. It was submitted that the project R D expenses mentioned above are actual R D expense incurred by the Assessee. The aforesaid R D was undertaken by the Assessee in the course of its business activities which did not lead to any fructuous result. As this involved an outflow of resources i.e., amount has been spent by the Assessee in carrying out the aforesaid activity, the same should be allowed as revenue expense. This being an expense of revenue in nature, the same is claimed by the Assessee under section 37 of the Act. 124. The learned counsel for the Assessee has also filed the following chart to show how the conclusions drawn by the AO on disallowance of expenses on licencee fee and Project R D were incorrect. Sl. No. Learned AO s contention Assessee s submission Reference 1 No proper evidences furnished The Assessee had submitted the foll ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... entering into agreements for use of intellectual property of the group companies has benefited the Assessee. Reliance in this regard is placed on below judicial decisions, where it has been observed that AO cannot take managerial decision and conclude what expense needs to be incurred by the business and what not . DCIT vs. International Institute of Planning Management (P.) Ltd. [2015] 41 ITR(T) 733 (Delhi - Trib.) CIT vs. Dalmia Cement (P.) Ltd. [2002] 254 ITR 377 (Delhi) this was affirmed by the Hon ble Supreme Court [2007] 288 ITR 1 (SC) 5 Sundry creditors are increasing This is a mere remark made by the learned AO without any basis/ conclusion towards the same. However, the Assessee submits that sundry creditors account is a running account and represents payables to third parties/ group entities for goods/ services availed from them. - 6 Evidence for deducting the taxes at source not furnished The Assessee had submitted details of tax deducted at source before the learned AO pursuant on directions issued b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... if the said expenses are to be disallowed, the AO failed to appreciate that out of the total amount of Rs. 28,00,21,116, an amount of Rs. 27,63,35,693 has already been included in the adjustment made under section 92CA of the Act thereby leading to double disallowance of the same amount.In this regard, reliance is placed on the decision of DCIT v. Honda SIEL Power Products Ltd. (supra) wherein the Delhi Bench of Hon ble Tribunal accepted the contention of the assessee in the said case that royalty has been already considered while arriving at the TP adjustment and hence, disallowance under section 37 of the Act has led to double disallowance .Further, the DRP in Assessee s own case for AY 2012-13, had directed the AO to remove the disallowance of R D expense made under section 37 of the Income-tax Act, 1961.In view of the above, the learned counsel for the Assessee prayed that the claim of deduction for R D expenses be allowed. 127. The learned DR relied on the order of the DRP. We have carefully considered the rival submissions. The discussion in the order of the DRP on this issue is at paragraph 2.47.2 to 2.47.9. The DRP in upholding the order of the AO has followed a decision ..... X X X X Extracts X X X X X X X X Extracts X X X X
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