TMI Blog2023 (11) TMI 935X X X X Extracts X X X X X X X X Extracts X X X X ..... than gross profit margins. Therefore, we are of the considered view that, there is no error in the reasons recorded by the ld. DRP to uphold inclusion of Victor Gaskets India Ltd as comparable and thus, we reject grounds taken by the assessee. Exclusion of Banco Gaskets (India) Ltd - It is very clear that the appellant could not give any valid reasons to exclude Banco Gaskets (India) Ltd, except for the reason of higher margin. It is well established principle of law that for higher margin, the company cannot be excluded. Further, TNMM method is resisted the product line/functional difference and this fact has been reiterated in OECD guideline. Therefore, we are of the considered view that there is no merit in arguments of the Ld. Counsel for the assessee for exclusion of Banco Gaskets (India) Ltd and thus, we reject grounds taken by the assessee. Comparability of Minda Corporation with appellant company - On comparison appellant company and Minda Corporation Ltd are similar. Further, in the TNMM method net profit indicators are less affected by transactional difference as compared with other methods. Further, TNMM is resistant to product profile/functional difference. Theref ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... margin of the assessee by considering foreign exchange loss as operating in nature - HELD THAT:- Relevant reasons given by the TPO/DRP to reject arguments of the assessee for treating foreign exchange loss as non-operating in nature. Generally foreign exchange loss/gains incurred on trading account is operating in nature, which is directly linked to business operations of the assessee and also operating margin of any company. Coordinate bench of ITAT, Chennai in the case of GE Healthcare Bio-Sciences Ltd [ 2016 (5) TMI 252 - ITAT CHENNAI] has held that, foreign exchange loss is operating in nature. Therefore, we are of the considered view, that there is no merit in arguments of the Ld. Counsel for the assessee, to treat foreign exchange loss as non-operating in nature and thus, we reject ground taken by the assessee. Working capital adjustment - These opening and closing figures are the balances, as they existed on the opening and closing day of the year respectively. They do not show the movements in their accounts during the year. Working capital requirements are not uniform during the entire period of the year. The disclosure of the figures of Debtors and Creditors whi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wards disallowance of warranty expenses and reject ground taken by the assessee. Disallowance of Pooja expenses - assessee submitted that AO erred in not considering the evidence submitted by the assessee to prove expenditure incurred towards Pooja expenses is for the benefit of employees - HELD THAT:- We find that out of total expenditure, a sum claims to have been paid towards gift coupons issued to staff and workers as bonus. If the argument of the assessee is correct, then said payment needs to be examined in light of payment of the Bonus Act and provisions of section 36(1)(va) r.w.s. 43B of the Act. In so far as balance amount although the assessee claims that said expenditure was incurred for Ayudha Pooja, but no evidence has been filed to substantiate the claim. Therefore, we are of the considered view that the issue needs to go back to the file of the AO for further verification. Thus, we set aside the issue to the file of the Assessing Officer and direct the AO to reexamine the claim in light of our discussion given herein above and also any evidence that may be filed by the assessee to justify its claim. Admission of additional grounds filed by the assessee - Th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... national transactions of the Appellant and while doing so: 2.1 The DRP / TPO erred in rejecting the Transfer Pricing ('TP') documentation maintained by the Appellant contending that the information or data used in the computation of the arm's length price is not reliable or correct and conducting a fresh economic analysis. 2.2 The DRP/ TPO erred in not applying multiple year data for comparable companies while determining arm's length price. 2.3 The DRP / TPO erred in treating the foreign exchange loss as operating in nature and thereby erred in not excluding the same from the cost base of the Appellant as wel as the comparable companies for comparison under Transactional Net Margin Method (TNMM). 2.4 The DRP erred in confirming the action of the TPO in not granting the economic adjustments claimed by the Appellant. 2.5 The DRP / TPO has erred in not granting working capital adjustment eliminate the differences in the working capital of the Appellant vis- -vis comparable companies. 2.6 The DRP / TPO has erred in not granting customs duty adjustment while computing the margins of the Appellant. 2.7 The DRP/ TPO ought to have appreci ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... during the previous year relevant to the subject assessment year. Disallowance of Pooja Expenses 4.1 The DRP / AO erred in confirming the disallowance of pooja expenses made by AO amounting to INR 7,50,195. 4.2 The DRP / AO erred in not considering the evidences submitted before the Panel and erred in concluding that the Appellant has made contradicting claims before the AO and the DRP. 4.3 The DRP / AO failed to appreciate the fact that the payment of INR 3,57,000 debited under Pooja expenses was towards the gift coupons issued to staffs and workers towards bonus and the payment of INR 3,93,195 was towards the Ayudha Pooja expenses incurred on the day of Pooja for the welfare of the employees. 4.4 The DRP / A0 failed to appreciate that the above expenditure is incurred for the purpose of the business of the Appellant and therefore it is allowable as business expenditure u/s 37 of the Act. 3. The assessee had also filed a petition for admission of additional grounds vide application dated 05.09.2018 raising certain additional grounds, challenging method adopted by the Assessing Officer to benchmark international transactions of the assessee with its ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ustries (224 ITR 560 (SC) CIT VS M. K. Yashwant Singh (231 ITR 145 (Del) National Thermal Power Co Ltd (229 ITR 383 (SC) 3. Prayer In these circumstances, the Appellant hereby humbly prays that your Honours may kindly be pleased to admit the additional grounds of appeal by exercising the power vested in Your Honours under Rule 11 of the Income-Tax Appellate Tribunal Rules, 1963 ( Rules ) and allow Petitioner to argue the aforesaid additional grounds of appeal. 4. The brief facts of the case are that, the appellant M/s. NVH India Auto Parts Private Limited, is engaged in the business of manufacturing of interior parts for Hyundai Motors India Ltd s passenger cars. The appellant company has filed its return of income for the assessment year 2013-14 on 30.11.2014, admitting a total income of Rs. 1,85,25,830/-. During the financial year relevant to assessment year 2013- 14, the assessee has entered into the following international transactions with its AE for manufacturing segment: S.No Details of International Transactions Quantum of International Transactions (Rs.) 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that provision for warranty claim is unascertained liability and there is no scientific basis for provision for warranty expenses. Similarly, the Assessing Officer had also proposed additions towards Ayudha Pooja expenses at Rs. 7,50,195/-, on the ground that said expenditure are in the nature of personal expenses, and cannot be allowed as deduction. 8. The assessee has filed objection against draft assessment order before the Dispute Resolution Panel-2, Bangalore and raised various contentions including method adopted by the Assessing Officer for selecting comparables, inclusion of certain additional comparables, computation of operating margin of the assessee and denial of certain economic adjustments like custom duty adjustment for import of raw materials, working capital adjustment and adjustment made by the Assessing Officer for entire value of international transactions of the assessee. The DRP, vide their order dated 23.08.2017 rejected arguments of the assessee and sustained additions made by the Assessing Officer towards downward adjustment on account of international transactions, disallowance of provision for warranty expenses and disallowance of Ayudha Pooja expense ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ions and considered arguments of both the sides in light of facts brought on record by the TPO on comparable company and approval of the DRP. The appellant company is mainly manufacturing internal parts for Hyundai Motor Cars. The products manufactured by Victor Gasket India Limited are also similar to products manufactured by the appellant. Further, there is a similarity between goods manufactured by Victor Gasket India Limited and Talbros Automative Components. The major product line of Victor Gaskets is gaskets only. Since, the appellant has itself shortlisted Talbros Automative Component and the products manufactured by Victor Gasket India Limited are similar to Talbros Automative Component, in our considered view, the TPO has rightly included Victor Gasket India Limited, in the list of final set of comparables. Further, TNMM is resistant to product profile/functional difference. Even, in OECD guidelines it has stated that net profit indicators are less affected by transactional difference as compared with other methods. Further, net profit indicators also may be more tolerant to some functional difference between the control and uncontrolled transactions than gross profit marg ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be upheld. 11.2 We have heard both the parties and considered relevant material available on record in light of discussion of the TPO on comparability of Minda Corporation with appellant company. We find that the assessee has chosen a comparable M/s. Jay Ushin Ltd, and said company has been accepted by the TPO. M/s. Jay Ushin Ltd manufactures door latches, locks sets of switches and it is on the same line that of Minda Corporation Ltd. The product line of Minda Corporation Ltd is interior plastic, lock and switches. Therefore, on comparison appellant company and Minda Corporation Ltd are similar. Further, in the TNMM method net profit indicators are less affected by transactional difference as compared with other methods. Further, TNMM is resistant to product profile/functional difference. Therefore, we are of the considered view that there is no merit in arguments taken by the Ld. Counsel for the assessee for exclusion of Minda Corporation Ltd and thus, we reject ground taken by the assessee. 12. The Ld. Counsel for the assessee submits that although, the appellant has considered Talbros Automotive Components, but said company needs to be excluded because products manufactur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t applied certain filters while selecting comparable companies. Similarly, Rule 10B(4) of I.T. Rules, 1962 makes them compulsory to use only the current financial year data. Therefore, the TPO has rightly rejected the objections of the assessee with regard to rejection of TP study and multiple year data and their order should be upheld. 13.2 We have heard both the parties, perused materials available on record and gone through orders of the authorities below. During TP proceedings, the TPO has issued show cause notice proposing single year data as prescribed in the Income Tax Rules, 1962, as against multiple year data used by the assessee to include certain additional filters and modify certain filters used by the assessee in its TP study, for the purpose of proper selection of comparable companies. From the above, it is very clear that, the TPO was not satisfied with ALP determined by the assessee in the TP study based on the comparables selected by using certain filters and computing three years weighted average margin of comparable companies. In our considered view, the TP documentation maintained by the assessee is not in accordance with section 92C(1) (2) and Rule 10B and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ents. The Ld. Counsel for the assessee submits that, for any business in the event there exists difference between the tested party and an uncontrolled comparable that would materially affect the profits determined under the relevant profit level indicator. The need for working capital adjustment arises by allowing customers to defer payment for a certain period, any company foregoes the right to receive its revenues immediately and to earn additional income by re-investing these revenue over the deferral period. The primary logic underlying a working capital adjustment is to ensure that returns derived from a set of comparable companies can accurately be applied to the assessee having controlled transactions. The assessee has filed all details to prove that there is a necessity of providing working capital adjustment when compared to working capital level of comparable companies. But, the TPO/DRP rejected arguments of the assessee without any reason. 15.1 The ld. DR, on the other hand supporting the order of the TPO submitted that, Rule 10B of I.T. Rules, 1962 provided for making reasonable accurate adjustment to the uncontrolled comparable transactions to eliminate material af ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ide the breakup of trade and non-trade nature of such balances. Further, the appellant has failed to provide such data and also resistant to provide working capital adjustment when compared to working capital levels of the assessee and working capital levels of the comparables. In absence of necessary details and also resistant for providing working capital adjustment, a general and vague argument of the assessee for providing working capital adjustment cannot be acceded. Therefore, we are of the considered view that, there is no merit in arguments of the assessee for providing working capital adjustment, and thus, we are inclined to uphold the findings of the ld. DRP and reject ground taken by the assessee. 16. The next issue that came up for our consideration is economic adjustment like differential adjustment like basic customs duty. The Ld. Counsel for the assessee submitted that the ld. DRP/TPO has erred in not granting custom duty adjustment while computing the margin of the appellant. He further submits that the TPO/DRP ought to have appreciated that the appellant has substantially higher imports as against the comparable companies and as such it has incurred additional e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e as deductible expenditure. The Ld. Counsel for the assessee, further submits that the provision for warranty is made on scientific basis, i.e., fixed percentage on the sales as per agreement with the original equipment manufacturer. Since, the provision for warranty is provided on scientific basis and is also ascertained liability, the Assessing Officer ought to have allow deduction for said provision. 17.1 The ld. DR, on the other hand supporting the order of the DRP submitted that, in order to allow deduction for warranty expenses, the assessee should prove that said liability is not contingent in nature and ascertained during the relevant period. Further, there should be a scientific basis for providing warranty. But in the present case, the assessee has provided for warranty on estimate basis without any scientific basis. Therefore, the Assessing Officer and DRP has rightly rejected arguments of the assessee and their order should be upheld. 17.2 We have heard both the parties, perused materials available on record and gone through orders of the authorities below. The sole basis for the assessee to seek deduction towards provision for warranty expenses is the decision o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ha Pooja expenses. 18.1 The ld. DR, on the other hand supporting the order of the Assessing Officer and DRP submitted that, assessee could not explain how Pooja expenses is eligible for deduction. The Assessing Officer and DRP, after considering relevant facts has rightly rejected arguments of the assessee and their order should be upheld. 18.2 We have heard both the parties, perused materials available on record and gone through orders of the authorities below. The assessee has debited a sum of Rs. 7,50,195/- under the head Pooja expenses and claimed that said expenditure has been wholly and exclusively incurred for the purpose of business of the assessee. We find that out of total expenditure, a sum of Rs. 3,57,000/- claims to have been paid towards gift coupons issued to staff and workers as bonus. If the argument of the assessee is correct, then said payment needs to be examined in light of payment of the Bonus Act and provisions of section 36(1)(va) r.w.s. 43B of the Act. In so far as balance amount of Rs. 3,93,165/-, although the assessee claims that said expenditure was incurred for Ayudha Pooja, but no evidence has been filed to substantiate the claim. Therefore, we a ..... X X X X Extracts X X X X X X X X Extracts X X X X
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