Home Case Index All Cases Income Tax Income Tax + AT Income Tax - 2022 (5) TMI AT This
Forgot password New User/ Regiser ⇒ Register to get Live Demo
2022 (5) TMI 1538 - ITAT CHENNAITP Adjustment - treatment of impairment losses as operating in nature - computing assessee’s PLI - computation of correct margins of the assessee - as argued that the expenditure was extra-ordinary in nature since the factory assets were revalued on account of closure of manufacturing operations and the assets were disposed-off in the subsequent years - HELD THAT:- From the facts, it is discernible that the impairment losses arose due to extra-ordinary circumstances. The factory assets were revalued on account of closure of manufacturing operations and the assets were disposed-off in the subsequent years. The assessee customer did not purchase the quantity committed by them prior to setting up of plant and the assessee was unable to utilize the idle capacity. Owing to adverse market conditions, the assessee decided to discontinue manufacturing operations which could not be said to be routine business activities since the same would dent assessee’s financial substantially. This event could be considered as one-off event and not part of routine business activities. This fact has adequately been highlighted by the assessee in its financial statements. Depreciation and amortization (including impairment loss) has jumped from 222.43 Lacs in earlier year to Rs.677.93 Lacs in this year. No such losses have been observed in the summarized financial statements of the comparable entities as extracted by Ld. TPO . Therefore, the impairment losses in our considered opinion, have to be treated as non-operating expenditure and the same are to be excluded while computing assessee’s PLI. The decision of Delhi Tribunal in Insofer Mfg. India Pvt. Ltd. [2020 (8) TMI 928 - ITAT DELHI] also support the view that the impairment losses were not related to normal business operation and therefore, could not be treated as operating expenditure to compute assessee’s PLI. Selection of M/s Jolly Boards Ltd as comparable - We find that this entity is in composite business i.e., manufacturing as well as in realty and property development. However, segment-wise or product-wise performance has not been provided. Its other income includes profit on sale of investments and income (net) from property development. Therefore, in such a case, in the absence of segmental results, it would be very difficult to derive the segment-wise financial results by apportioning indirect expenditure as directed by Ld. DRP. This entity could not be held to be comparable to the assessee. We direct Ld. TPO / AO to exclude this entity from final set of comparable. The grounds raised by the assessee, in this regard, stand allowed. Determination of ALP of management fees paid by the assessee to its AE - The opinion of lower authorities that the services should be need based or the same should bring benefits to the assessee has no logic since the requirement of the services has to be assessed from assessee’s point of view. The assessee had filed email communications etc. in support of receipt of services which has been billed on monthly basis by AE. Therefore, to determine of the ALP of these transactions, merely on the basis of presumptions, could not be held to be sustainable. The decision of Chennai Tribunal in Siemens Gamesa Renewable Power (P.) Ltd. [2017 (11) TMI 1743 - ITAT CHENNAI] held that the ALP of management fees could not be taken as nil in the absence of a valid comparable. The lower authorities could not simply arrive at a conclusion that the quality and volume of services as received by the assessee were not commensurate with the payment made. In this order, the bench has referred to various other decisions taking the same view. We find that ratio of this decision is squarely applicable to the facts of the present case. Accordingly, we direct Ld. TPO / AO to delete this TP adjustment. The grounds thus raised stand allowed.
|