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TMI Blog2024 (1) TMI 794X X X X Extracts X X X X X X X X Extracts X X X X ..... made by the TPO in respect of benchmarking of management services? [ii] On the facts and in the circumstances of the case and in law, the Ld. CIT (A) has erred in ignoring the fact that the assessee had failed to benchmark the transactions properly with its Associate Enterprise (AE) as per the law thereby failing to discharge the primary onus cast upon it by the Act? [iii] On the facts and in the circumstances of the case and in law, the Ld, CIT (A) has erred in deleting the upward adjustment of Rs. 10,89,85,477/- made by the TPO in respect of benchmarking of management fees following the decision of the Hon'ble ITAT, Pune in the assessee's own case for the A.Y, 2011-12, without appreciating the fact that every assessment year is separate assessment year and the doctrine of res judicata does not apply so as to make a decision on a question of fact or law in a proceeding for assessment in one year binding in another year as held by the Hon'ble Apex Court in the case of M.M. Ipoh &Ors. (67 STR 106) and accordingly the decision of A.Y. 2011-12 is not binding for A.Y. 2013-14? [iv] On the facts and in the circumstances of the case and in law, the Ld. CIT (A) has erre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... leting the upward adjustment of arm's length price of Rs. 5,62,11,209/- made by the TPO in respect of benchmarking of management services? [ii] On the facts and in the circumstances of the case and in law, the Ld. CIT (A) has erred in ignoring the fact that the assessee had failed to benchmark the transactions properly with its Associate Enterprise (AE) as per the law thereby failing to discharge the primary onus cast upon it by the Act? [iii] On the facts and in the circumstances of the case and in law, the Ld, CIT (A) has erred in deleting the upward adjustment of Rs. 5,62,11,209/- made by the TPO in respect of benchmarking of management fees following the decision of the Hon'ble ITAT, Pune in the assessee's own case for the A.Y. 2011-12, without appreciating the fact that every assessment year is separate assessment year and the doctrine of res judicata does not apply so as to make a decision on a question of fact or law in a proceeding for assessment in one year binding in another year as held by the Hon'ble Apex Court in the case of M.M. Ipoh & Ors. (67 STR 106) and accordingly the decision of A.Y. 2011-12 is not binding for A.Y. 2014-15? [iv] On the fact ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts Cross Objections:- C.O. No. 02/Ahd/2023(A.Y. 2013-14):- "1. The learned Commissioner of Income Tax (Appeals) - 13, Pune ["CIT(A)"] erred in fact and in law in not adjudicating the following grounds of appeal: a. The learned TPO as well as AO erred in fact and in law in considering the following companies as comparable companies: i. Talbros Automotive Components Ltd ii. Victor Gaskets India Ltd b. Without prejudice to the grounds raised above, the learned TPO as well as the AO erred in fact and in law in not adjusting the operating cost by an amount of Rs. 7,13,82,753 while computing the margins of manufacturing segment despite the fact that the TPO had determined the ALP of the management support services at Nil. 2. Your respondent craves a right to add to or amend, alter, substitute, delete or withdraw all or any of the grounds of cross objections." C.O. No. 03/Ahd/2023(A.Y. 2014-15):- "1. The learned Commissioner of Income Tax (Appeals) - 13, Pune ["CIT(A)"] erred in fact and in law in not adjudicating the following grounds of appeal: a. The learned TPO as well as AO erred in fact and in law in rejecting Bimetal Bearing Ltd. as a comparable company despite ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... CIT(A) decided the issue in favour of the assessee on the ground that the ITAT Pune in assessee's own case for A.Y. 2009-10 has decided this issue in favour of the assessee. Accordingly, Ld. CIT(A) allowed the appeal of the assessee on this issue with the following observations:- "4.3 I have carefully considered the facts of the case and submission filed by appellant, It is seen from previous year proceedings that the appellant has been granted "Depreciation adjustment" in its "Profit Level Indicator"(PLI) computation in AY 2009-10. This hap been accorded as the appellant has followed higher rates of depreciation compared to the rates of depreciation prescribed in the schedule to the Companies Act. This stand has been accepted by the Honourable ITAT, Pune in its order for AY 2009-10 in ITA No. 148/PUN/2017 and ITA No.28l/PUN/2017 dtd 07.06.2019. There is no change in the facts of the charging of higher depreciation rates in this AY 2013-14 as well. This is corroborated in the schedules to the audited financials of the appellant. Respectfully following the Honourable ITAT's decision in this case for AY 2009-10, the AO/TPO is directed to allow depreciation adjustment of Rs 6,9 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . He also directed the AO to apply hourly rate of USD 40 for category 3 and 4 level of employees and of USD 80 for category 1 and 2 level of employees. Both the sides are in appeal against the respective findings of the Id CTF(A) contained in the impugned order. ....... 32. To sum up, it is held that the assessee entered into an agreement with Schaeffler Holding (China) Co., Ltd for receipt of "Management support. Services", for which separate benchmarking was required to be done. Such services were actually rendered. These services are not in the nature of stewardship or shareholder activity. The payment to Schaeffler Holding (China) Co. Ltd. at the actual costs incurred in providing such services plus 5% mark-up is at ALP, which does not require any transfer pricing addition. We, therefore, set aside the impugned order by holding that the international transaction of payment of Fees for Management, services at Rs. 5,65,53,971/- is at ALP, which does not require any transfer pricing addition. The addition so sustained in part by the ld. CIT(A), is directed to be deleted in full. 33. In the result, appeal of the assessee is partly allowed and that of the Revenue is dismissed. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... appellant. By doing so, the PLI of the appellant is restored to 2.38%. As per the final set of comparables in the TP order, the mean margin of the PLI is 4.01%. As this is within +/-3%, the TP adjustment in the manufacturing segment does not survive. Accordingly the adjustment of Rs. 13,15,10,788 is deleted. As the adjustment is deleted by restoring depreciation adjustment, the grounds of appeal on the addition / deletion of comparables and removal of management fees from the PLI computations are not adjudicated." 12. The Department is in appeal before us against the aforesaid order passed by Ld. CIT(A). 13. Before us, the Department submitted that the principle of res judicata do not apply in assessment proceedings and submitted that Ld. CIT(A) erred in placing reliance on the observation made by Pune ITAT in assessee's own case for A.Y. 2009-10. 14. In response, the Counsel for the assessee placed reliance on the observations made by Pune ITAT in assessee's own case for A.Y. 2009-10 and submitted that since the Ld. CIT(A) order follows the direction given by Pune ITAT in assessee's own case, there is no infirmity in the order passed by Ld. CIT(A) so as to call for any interfe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f its operating cost. When we consider the operating profit of the first enterprise which is paying rent and then compare it with that of the second enterprise which is not paying any rent but is claiming depreciation on its own premises, the overall effect of rent in one case gets counterbalanced with depreciation on premises of the-other. 11. In the like manner, a company may have purchased new assets charging higher amount of depreciation allowance in its books of accounts vis-a-vis another comparable company using old assets with lower amount of depreciation. No adjustment on account of difference in the amount of depreciation of two companies is called for when the operating profits are determined because in the case of a company having purchased new asset, there will be higher depreciation and simultaneously lower repair cost and vice versa. The effect of all the individual items of operating expenses and incomes culminates into the overall operating profit margin. That is why, the legislature has provided for comparing the ratio of 'operating profit margin' to a similar base of the assessee with that of its comparables, thereby dispensing with the need for making a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e impugned order in sofaras the numerator of PBIT in the TNMM is concerned, that is, inclusion of depreciation in the operating costs; and also in not allowing any further adjustment on account of higher amount of depreciation (other than higher rates for which suitable adjustment was granted by the TPO). The grounds taken by the assessee in this regard, therefore, fail." 17. Accordingly, in the interest of justice, the TPO is directed to re-compute the adjustment in accordance with the direction given by Hon'ble Pune ITAT in assessee's own case for A.Y. 2009-10 in ITA No. 148/Pun/2017 and ITA No. 281/Pun/2017. 18. In the result, Ground Nos. v to viii of the Department's appeal are allowed for statistical purposes. 19. Before us, the Counsel for the assessee submitted that the Cross Objection is merely supporting the finding given by the Ld. CIT(A) in the appellate order. Accordingly, the Cross Objection filed by the assessee is also disposed of accordingly. Now we shall come up to the Department's appeal for A.Y. 2014-15 20. We observe that Ground Nos. i to iv of the Department's appeal are similar to Department's Grounds i to iv for A.Y. 2013-14. Accordingly, in light of our ..... X X X X Extracts X X X X X X X X Extracts X X X X
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