2015 (7) TMI 246 - AT - Income Tax

Transfer pricing adjustment - adjustment in arm s length price on account of export of motor cycle - Held that - The assessee is a loss making unit suffering continuously loss for more than 10 years. On having making such a submission the Bench queried whether any purpose would be served if the above appeals are adjudicated subsequently when the admitted position is that the TPO has not made similar adjustment in any of the subsequent assessment years. The ld counsel for the assessee fairly admitted that the loss claimed and allowed to the assessee could not be carried forward as the period of 8 years elapsed and under those circumstances the adjudication of the issues listed in these appeals would be academic in nature. Nevertheless, he submitted that on principle, the assessee company cannot be concede such additions and on merits the assessee company has a very strong case as both the TPO as well as AO and the ld CIT(A) had misdirected themselves, requests for adjudication of the appeals. The ld Departmental representative on the other than, though not leave his ground, but agreed with the bench that adjudicating these contention would be academic exercise. After hearing the rival contention we deem it fit to dismiss all these cases as no useful purpose would be served by adjudicating the same. Similar adjustment has been made in any other assessment years even if it is made, when the matter is not adjudicated by us, it cannot be abinding precedent. We are also informed that no penalty proceedings have been initiated in these cases. Even otherwise penalty proceedings are independent and the issues can be contested on merit. Under this circumstance we dismiss all the appeals filed both by the assessee and the revenue as academic in nature.On a query from the Bench, it transpired that in subsequent years, the TPO has accepted the Transfer Pricing study made by the assessee and the assessee is running in heaving loss up to year 2008. So the decision in either way is not going to affect the assessee. We find that the adjudication will be mere academic and thus dismissal of the appeals will not be treated as a precedent by either side in case any issues regarding the assessee is concerned. - Decided against assessee and revenue.

Issues Involved:
1. Adjustment of Arm's Length Price (ALP) for exports of motorcycles.
2. Disallowance of depreciation attributable to written-off assets.
3. Disallowance of scholarship expenses for employees' children.
4. Disallowance of royalty and technical know-how fees as prior period expenses.
5. Adjustment of ALP for import and export of spare parts.
6. Disallowance of depreciation on unrealized foreign exchange fluctuation loss.

Detailed Analysis:

1. Adjustment of ALP for Exports of Motorcycles:
The revenue appealed against the CIT(A)'s decision to restrict the ALP adjustment from Rs. 1,32,22,520 to Rs. 64,39,600. The CIT(A) applied the gross profit margin on an aggregate basis instead of the profit markup on individual transactions. The assessee also appealed against the partial relief given. The tribunal noted that the TPO's model-to-model comparison was flawed and that the overall margin should be considered. However, since the assessee was a loss-making entity and the TPO did not make similar adjustments in subsequent years, the tribunal dismissed the appeals as academic.

2. Disallowance of Depreciation Attributable to Written-Off Assets:
The revenue's appeal against the disallowance of depreciation of Rs. 1,13,69,946 and Rs. 1,01,67,501 was dismissed. The tribunal noted that this issue was covered in favor of the assessee by a previous tribunal order, which was confirmed by the Delhi High Court and the Supreme Court.

3. Disallowance of Scholarship Expenses for Employees' Children:
The revenue's appeal against the disallowance of Rs. 18,90,458 for scholarships was dismissed. The tribunal noted that this issue was also covered in favor of the assessee by a previous tribunal order.

4. Disallowance of Royalty and Technical Know-How Fees as Prior Period Expenses:
The revenue's appeal against the disallowance of Rs. 3,40,46,541 for royalty and technical know-how fees was dismissed. The tribunal referred to the Supreme Court judgment in the case of Nonsuch Estate Ltd. vs. CIT, which held that liability arises only when approval is obtained, even if it is retrospective.

5. Adjustment of ALP for Import and Export of Spare Parts:
For the assessment year 2003-04, the tribunal noted that the TPO applied a gross profit margin of 14.17% for imports and 30% for exports, which the assessee contended was unjustified due to differences in CKD ratios, volume discounts, and the nature of sales. The tribunal found that the TPO's reasoning was arbitrary and ignored relevant factors, such as the higher margin earned by the assessee on exports to unrelated parties. However, since the assessee was a loss-making entity and the TPO did not make similar adjustments in subsequent years, the tribunal dismissed the appeals as academic.

6. Disallowance of Depreciation on Unrealized Foreign Exchange Fluctuation Loss:
The assessee's appeal against the disallowance of depreciation of Rs. 8,167 on unrealized foreign exchange fluctuation loss was not pressed.

Conclusion:
The tribunal dismissed all appeals filed by both the revenue and the assessee as academic in nature, noting that no useful purpose would be served by adjudicating the issues since the assessee was a loss-making entity and the TPO did not make similar adjustments in subsequent years. The dismissal of the appeals would not be treated as a precedent in future cases.

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