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2019 (8) TMI 443 - ITAT PUNETP Adjustment - MAM - TNMM OR RPM - Royalty payment made by assessee - HELD THAT:- in the present year also the transactions undertaken by assessee are to be benchmarked under the umbrella of manufacturing activity on aggregate basis and TNMM method has to be applied and margins shown by assessee have to be compared with mean margins of finally selected concerns. The royalty payment made by assessee is also to be aggregated as part of transaction. In earlier years, the matter of selection of comparables and adoption of their mean margins was remitted back to the file of Assessing Officer. Following the same parity of reasoning, though in the present case, the TPO had selected some concerns as comparables but since it had applied RPM method to compare the margins of CBUs with margins of spare parts, we deem it fit to restore this issue back to the file of Assessing Officer/TPO who shall compare the margins shown by assessee on aggregate basis with finally selected mean margins of comparables and in case it is to be found to be within +/- 5% range, then no addition is warranted in this regard. Treatment of balance royalty - whether the same is to be allowed as revenue expenditure? - HELD THAT:- Similar issue arose before the Tribunal in assessee’s own case in the hands of assessee, wherein the balance royalty was disallowed as capital expenditure. The said issue has been dealt with by Tribunal starting from assessment year 2002-03 onwards and following the same parity of reasoning, we hold that balance royalty payment is to be allowed as revenue expenditure in the hands of assessee. Disallowance of homologation expenditure - allowable revenue expnses - HELD THAT:- In case of any technical variation in any existing vehicle or any of the components that the assessee wants to introduce in the existing vehicles, it was incumbent upon the assessee to get homologation certificate before any change was so introduced. Another expenditure which was incurred was that ARAI may in random, choose any car (as produced) for conducting conformity of production. Hence, it were not only the initial stage for which specifications need to be approved from ARAI but even for the existing vehicles, random checks were made that the assessee was manufacturing the same in conformity with the procedure laid down. The expenditure thus, laid out was for the purpose of smooth running of business and the revenue expenditure merits to be allowed in the hands of assessee. The assessee had also filed breakup of homologation expenses incurred during the year under consideration and we have perused the same. Hence, there is no merit in the stand of authorities below in disallowing the same on the ground that the said expenditure may have enduring benefit to the business of assessee. The Hon'ble Supreme Court in Empire Jute Co. Ltd. Vs. CIT [1980 (5) TMI 1 - SUPREME COURT] had laid down that test of enduring benefit cannot be applied blindly and mechanically, without regard to particular facts and circumstances. Merely because the aforesaid expenditure results in an enduring benefit would not make such expenditure as capital in nature, as while allowing any expenditure in the hands of assessee, the intent and purpose of expenditure is to be kept in mind and whether the same is incurred for smooth running of business, then, such expenditure is revenue in nature. Accordingly, we direct the Assessing Officer to allow homologation expenses as revenue expenditure. Abnormal foreign exchange movement - TPO while computing PLI of assessee had treated the foreign exchange loss as operating in nature - HELD THAT:- We find merit in the claim of assessee in treating foreign exchange loss as non-operating in nature. There was fluctuation in the rate of Euro / INR rates when compared to the previous year and the market witnessed around 14.10% increase in Euro / INR rates. In such facts and circumstances, where the phenomenon was unique, then the same is to be excluded while computing PLI of assessee. We find that same ratio has been laid down by the Tribunal in Demag Cranes & Components (India) Pvt. Ltd. Vs. DCIT [2017 (10) TMI 1471 - ITAT PUNE] . The year under appeal in the case of Demag Cranes & Components (India) Pvt. Ltd. Vs. DCIT (supra) and the assessee is same. Following the same parity of reasoning, we direct the exclusion of foreign exchange loss while computing PLI of assessee company. Upholding the order of DRP, we dismiss the ground of appeal No.2 raised by Revenue.
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