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2017 (2) TMI 1413 - AT - Income TaxTP adjustment - disallowance of the Technical and Management costs - payment to parent company - payment relates to Technical Development and Production Support and Technical Marketing Support - HELD THAT - As decided in assessee s own case 2015 (8) TMI 1473 - ITAT CHENNAI entire matter has to be remitted back to the file of Ld. TPO for denovo consideration because both the assessee as well as the Revenue has not examined the issue with respect to the correct factual matrix. Management services and Technical services false under different field and the nature of work involved both these services are different. When the assessee has made payments to its parent company it has to establish and justify the nature of payment and the nature of service received for the purpose of determining Arms length price in Transfer pricing matters. The onus is on the assessee to substantiate its claim. Just because the operating cost incurred by the assessee company is less than the operating cost of the comparable companies the claim of expenses incurred towards payment made to its parent company on an adhoc basis cannot be justified - case the entire confusion has arisen because the assessee company has not submitted the evidence for the service rendered by the parent company to the assessee company against which the payments are made to the parent company by the assessee company. With these observations we remit the matter back to the file of TPO for fresh considerations - Appeal of assessee is allowed for statistical purposes Comparable selection - consideration of risk related adjustment fpr comparable selection - HELD THAT - In two wheelers space the company s major customers are TVS Bajaj Auto and Hero Moto. In the Four wheeler segment the company s customers are Tata Motors Mahindra and Mahindra Hyundai Ford and General Motors. The major exports customers are General Motors Suzuki and Piaggio. Being so the AO required to reexamine the claim of risk adjustment and replacement adjustment claimed by the assessee and suitable adjustments to be given after apprising the TP documents submitted by the assessee. With this observation we remit the issue to the file of AO for the purpose of determination of risk adjustment to be granted to the assessee. Inclusion of Loss on Forex fluctuation in Operating Expenditure - reinstatement of foreign currency as per accounting standards - HELD THAT - As relying on M/S. PENTASOFT TECHNOLOGIES LTD. 2010 (7) TMI 75 - MADRAS HIGH COURT we are inclined to decide the issue against the assessee holding that foreign exchange loss is a part of operating expenditure. Non-consideration of advance tax payment - HELD THAT - In our opinion if it is duly paid as an advance tax relevant to the assessment year due credit to be given and thereafter the interest u/s.234B & 234C of the Act to be computed.
Issues Involved:
1. Legality of assessment and reference to Transfer Pricing Officer (TPO). 2. Disallowance of Technical and Management costs. 3. Consideration of comparable company Suprajit Engineering Ltd. 4. Purchase price adjustment due to exchange fluctuation. 5. Removal of 'Loss on Forex fluctuation' from Operating Expenditure. 6. Addition back of depreciation for tested party and comparable companies. 7. Removal of bank charges from Administrative Expenses. 8. Consideration of 'working capital adjustment' for determination of ALP. 9. Consideration of 'power related adjustment' for economic differences in determination of ALP. 10. Omission of advance tax payment in the final order. 11. Consequential relief of interest under sections 234B and 234C of the Act. Detailed Analysis: 1. Legality of Assessment and Reference to TPO: The appellant challenged the legality of the assessment and the reference to the TPO, asserting that both were bad in law. This issue, however, was not elaborated further in the judgment. 2. Disallowance of Technical and Management Costs: The assessee incurred payments amounting to ?20,463,035 towards Technical Services Fees to its AE. The TPO disallowed certain categories of services, determining the ALP of these services to be nil except for ECB loan-related work. The DRP upheld the TPO's findings, noting that the claimed services were beyond the scope of the Technical Assistance Agreement between the assessee and its AE. The Tribunal remitted the issue back to the TPO for fresh consideration, emphasizing the need for the assessee to substantiate its claims with satisfactory evidence. 3. Comparable Company Suprajit Engineering Ltd.: The assessee argued that Suprajit Engineering Ltd. should not be considered a comparable company without risk-related adjustments due to differences in market segments and profit margins. The DRP rejected this contention, stating that adjustments are only allowed when they can be measured accurately. The Tribunal remitted the issue back to the AO to reexamine the claim of risk adjustment and replacement adjustment, directing a detailed appraisal of the TP documents submitted by the assessee. 4. Purchase Price Adjustment Due to Exchange Fluctuation: The assessee did not press this ground during the hearing, and it was dismissed as not pressed. 5. Removal of 'Loss on Forex Fluctuation' from Operating Expenditure: The assessee argued that the forex loss of ?30,403,593 should be considered an extraordinary non-operating expenditure. The DRP and the Tribunal held that forex loss is directly related to the assessee's expenses and forms part of operating expenses, citing various judgments including the Madras High Court's decision in CIT Vs. Pentasoft Technologies Ltd. 6. Addition Back of Depreciation for Tested Party and Comparable Companies: This ground was not pressed by the assessee during the hearing and was dismissed accordingly. 7. Removal of Bank Charges from Administrative Expenses: This ground was also not pressed by the assessee during the hearing and was dismissed. 8. Consideration of 'Working Capital Adjustment' for Determination of ALP: The assessee did not press this ground during the hearing, leading to its dismissal. 9. Consideration of 'Power Related Adjustment' for Economic Differences in Determination of ALP: Similarly, this ground was not pressed by the assessee and was dismissed. 10. Omission of Advance Tax Payment in the Final Order: The Tribunal directed that if the advance tax payment of ?12,000,000 was duly paid, it should be considered, and interest under sections 234B and 234C should be computed accordingly. 11. Consequential Relief of Interest Under Sections 234B and 234C: The Tribunal acknowledged the need for consequential relief of interest, directing due credit for advance tax payments and subsequent computation of interest. Conclusion: The appeal of the assessee was partly allowed, with several issues remitted back to the TPO and AO for fresh consideration. The Tribunal emphasized the need for the assessee to provide satisfactory evidence to substantiate its claims and directed the authorities to reexamine the claims in light of the provided documentation. The judgment highlighted the importance of detailed and accurate documentation in transfer pricing matters.
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