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2018 (10) TMI 1629 - AT - Income TaxTPA - international transaction during the year as defined u/s 92B - adjustment pertains to purchase of Lipholiser machine - Held that - This Lipholiser was never put to use by Dabur UK and the same was in absolutely new condition. It was also highlighted by the assessee that the custom authorities had not disputed the declared import price of the machine. The claim of the Lipholiser having not been put to use in UK was also supported by a certificate from the UK based Chartered Accountant and the Ld. Commissioner of Income Tax (A) has accepted the same after calling for comments from the AO Although the department has argued at length against the action of the Ld. Commissioner of Income Tax (A) in deleting transfer pricing adjustment with regard to the import of Lipholiser machine, no defect could be pointed out in the documents which had been relied upon by the Ld. Commissioner of Income Tax (A) while deleting the adjustment. The department also does not have any comparative case to support its stand on the issue and, therefore, it is our considered opinion that the Ld. Commissioner of Income Tax (A) took a reasoned and logical view of the whole issue by placing reliance on the various evidences which had been accepted by him as additional evidences under Rule 46A of the Income Tax Rules. - Decided against revenue Transfer pricing adjustment which pertains to sale of Paclitaxel drug and Disodium Pamidronate - Held that - CIT(A), while allowing relief to the assessee, has noted that no comparison had been done by the TPO in relation to the sale of Paclitaxel and Disodium Pamidronate with uncontrolled transaction. Also observed that a mere price comparison of uncontrolled transaction of assessee with another uncontrolled transaction as taken from data base was a gross error as far as the application of CUP method was to be considered. TPO has used the data base of export rates maintained by IBIS which do not satisfy stringent condition of comparability regarding CUP method. The assessee was able to demonstrate that by applying TNMM that its margin was better than those of the comparable companies Although the department has vehemently argued against the deletion of the transfer pricing adjustment in this regard, no factual or legal infirmity in the finding so arrived at by the Ld. Commissioner of Income Tax (A) could be pointed out. Accordingly, in view of the facts of the case, we find no reason to interfere with the findings of the Ld. Commissioner of Income Tax (A) on this issue also and we dismiss the ground raised by the department in this regard.- Decided against revenue TPA pertaining to MCS (Methylene Chloride Soluble Extract) from its Associated Enterprise Dabur Nepal - Held that - Commissioner of Income Tax (A) noted that the cost price per kg as per Cost Certificate was ₹ 4648 per kg as compared to the price of ₹ 32 per kg which was taken by the TPO for computing proposed adjustment. The Ld. Commissioner of Income Tax (A) also noted that the TPO had not provided any material on the basis of which the price of ₹ 32 per kg was to be supported whereas the assessee had justified the ALP by usage of TNMM method. Thus, the Ld. Commissioner of Income Tax (A) found the working and data of the assessee more reliable than the working of the TPO in this regard and thereafter proceeded to allow relief to the assessee. Although the Department has argued vehemently against the action of the Ld. Commissioner of Income Tax (A) in this regard, it remains undisputed that the provision for applying CUP require strict compliance and the same was not done by the TPO. Accordingly, we find no reason to interfere with the findings of the Ld. Commissioner of Income Tax (A) on this issue also - Decided against revenue Corporate Guarantee given to ABN AMRO Bank for Foreign AEs and interest on loan - Held that - We do not fully agree with the findings of the Ld. Commissioner of Income Tax (A) in this regard that the benefit of interest saving of 1% should be shared between the AE and the assessee equally as no cogent reasoning has been given for the same and, accordingly, we deem it fit to modify the order of the Ld. Commissioner of Income Tax (A) in this regard to the extent that corporate guarantee fee @1% should be applied in the case of the assessee in place of 0.5% as has been applied by the Ld. Commissioner of Income Tax (A). We accordingly direct the Assessing Officer to re-compute the ALP for corporate guarantee fee @1%. TPA pertaining to interest on loan Commissioner of Income Tax (A) held that interest of both the loans was to be charged at LIBOR plus1.5%. We also note that the Ld. DRP for immediately preceding assessment year 2006-07 has held that the foreign loan given to UK subsidiary was to be benchmarked at LIBOR plus 100 bps plus certain risk adjustment and accordingly, rate of LIBOR plus 300 bps was proposed by the Ld. DRP. Although the Ld. Commissioner of Income Tax (A) has duly made a mention of this direction of the Ld. DRP for assessment year 2006-07, it is apparent that he has not considered the directions of the Ld. DRP while deciding this issue. We also note that the assessee has not filed any appeal against this direction of the Ld. DRP for assessment year 2006-07. Accordingly, in view of the factual matrix, this issue needs to be restored to the file of the Ld. Commissioner of Income Tax (A) to be decided afresh Disallowance reducing the WDV of assets by the amount of subsidy received from the West Bengal Government - Held that - Commissioner of Income Tax (A) has noted that he has examined the documents relating to West Bengal Incentive Scheme, 2000 and that further this subsidy is a one-time receipt. It has also been mentioned that nowhere on the perusal of the documents it was found that the subsidy was to be related to the reduction of the cost of fixed assets and, further the recipient of the subsidy was free to use the subsidy in any manner. We find that an identical issue had arisen in Bhagwati Sponge (P) Ltd. vs. DCIT 2016 (7) TMI 608 - ITAT KOLKATA and the co-ordinate Bench held that the capital investment subsidy received from state government could not be reduced from the cost of capital asset for allowing depreciation - decided against revenue
Issues Involved:
1. Transfer Pricing Adjustments for the Assessment Year 2005-06. 2. Transfer Pricing Adjustments for the Assessment Year 2007-08. 3. Disallowance of Depreciation on Fixed Assets due to Capital Subsidy for the Assessment Year 2007-08. Issue-Wise Detailed Analysis: 1. Transfer Pricing Adjustments for the Assessment Year 2005-06: - Facts: The assessee, a pharmaceutical company, engaged in international transactions with its subsidiaries Dabur Oncology PLC and Dabur Nepal Private Limited. The assessee used the Transactional Net Margin Method (TNMM) to justify the arm's length price (ALP) of these transactions. - TPO's Observations: - Lipholiser Machine: The TPO noted that the machine was purchased at a higher value than what Dabur Oncology PLC paid. The TPO computed depreciation and determined the value at ?85,10,592/- against ?2,13,50,000/- claimed by the assessee, resulting in an upward adjustment. - Paclitaxel Drug: The TPO used export rates from a database to determine that the FOB value per unit of the drug was less than that of unrelated parties, leading to an adjustment of ?98,79,900/-. - Disodium Pamidronate: The TPO similarly adjusted the ALP based on external data, resulting in an upward adjustment of ?67,35,902/-. - MCS Extract: The TPO determined the landed cost at ?6048 per kg, making an adjustment of ?1,03,43,105/-. - CIT (A)'s Decision: The CIT (A) deleted all the adjustments made by the TPO, finding the TNMM method applied by the assessee more appropriate and noting the lack of comparability in the TPO's CUP method. - Tribunal's Conclusion: - Lipholiser Machine: The Tribunal upheld the CIT (A)'s decision, noting that the machine was new and unused, with no defects in the documents provided. - Paclitaxel and Disodium Pamidronate: The Tribunal agreed with the CIT (A) that the TPO failed to demonstrate comparability and that the TNMM method was more appropriate. - MCS Extract: The Tribunal supported the CIT (A)'s reliance on the cost certificate provided by the assessee and found the TPO's adjustment unjustified. 2. Transfer Pricing Adjustments for the Assessment Year 2007-08: - Facts: The assessee provided a corporate guarantee to ABN AMRO Bank for foreign AEs and gave loans to foreign AEs. - TPO's Observations: - Corporate Guarantee: The TPO proposed an adjustment of ?3,63,83,575/- by adopting an interest rate of 4.75%. - Loan to Foreign AEs: The TPO proposed an addition of ?5,62,08,167/- by adopting an interest rate of 14%. - CIT (A)'s Decision: The CIT (A) restricted the adjustment to ?66,76,850/- and deleted the disallowance of ?20,92,221/- on depreciation. - Tribunal's Conclusion: - Corporate Guarantee: The Tribunal modified the CIT (A)'s decision, directing the AO to re-compute the ALP for corporate guarantee fee at 1%. - Interest on Loan: The Tribunal restored the issue to the CIT (A) for fresh consideration, taking into account the directions of the DRP for the previous year. - Depreciation on Fixed Assets: The Tribunal upheld the CIT (A)'s decision, agreeing that the subsidy was capital in nature and should not be reduced from the cost of fixed assets. Final Result: - ITA No. 575/Del/2014: Dismissed. - ITA No. 3495/Del/2014: Partly allowed.
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