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2018 (6) TMI 164 - ITAT DELHITransfer pricing addition - comparable selection criteria - functional similarity - Held that:- The assessee is a public company engaged in the business of manufacture and sale of electrical automobile components such as starters, alternators, wiper motors, fan motors, magnetos etc. for four wheelers and two wheelers, thus companies functionally dissimilar with that of assessee need to be deselected from final list. We find that the comparables have not been analysed by the Ld. TPO in light of the submissions of the assessee which have been simply disregarded without analysing the claim of the assessee and without passing a reasoned order. Accordingly, in such a situation, we have no other option but to restore the entire issue of the selection of the comparables to the file of the TPO for making a fresh comparability analysis after duly considering the evidences and submissions of the assessee in this regard. The assessee shall be given due opportunity to present its case by the TPO. We, however, also direct that the assessee will not be at liberty to pray for inclusion of any other new comparables except the 6 comparables which it has already requested for inclusion before the TPO. Working capital adjustment - Held that:- As seen that the TPO has not allowed working capital adjustment to be made to the results of the companies selected by him on account of differences between the working capital requirements of the assessee vis-à-vis these companies. The TPO is directed to allow working capital adjustments to the assessee as per law while carrying out the fresh comparability analysis which has been restored to him Allow the assessee the benefit of proportionate adjustment to the assessee as per law and restrict the adjustment only in respect of international transaction. Calculation of operating margins of the assessee vis-a-vis the comparables selected by the TPO. These grounds are also restored to the file of the TPO for being adjudicated a fresh after duly considering the submissions of the assessee as well as the evidences being filed in support of the same. Disallowance of royalty and disallowance pertaining to provision for bad and doubtful debts - Held that:- This issue is covered in favour of assessee in assessee’s own case by the judgment of the Hon’ble Delhi High Court in CIT vs. Denso India Ltd.(2015 (1) TMI 824 - DELHI HIGH COURT) wherein it was held that the royalty paid by the assessee to its parent company was revenue expenditure and could not be treated as capital expenditure. The TPO has disallowed the impugned amount being 25% of royalty payment by observing the same as being capital in nature. However, the issue is clearly covered in favour of the assessee in assessee’s own case by the judgment of Hon’ble Delhi High Court as aforesaid and accordingly we direct that this disallowance to be deleted. As far as the issue of disallowance pertaining to provision for bad and doubtful debts is concerned, it is seen that the assessee had filed an application for additional objections vide letter dated 01.07.2010 before the Ld. DRP. However, the Ld. DRP has not considered/ adjudicated this issue. Therefore, it would be in interest of justice if this issue is restored to the office of the Ld. DRP for considering the objections of the assessee and passing speaking order on the same.
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