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2020 (2) TMI 937 - AT - Income TaxValidity of directions passed by DRP u/s 144C (5) - non-speaking order - HELD THAT - Order passed by the DRP is a non-speaking order on the issues raised by the assessee, not stating the objections raised by the assessee and the reasons have also not been given as simply the order of TPO and Assessing Officer are referred. We find that similar issue was considered by the Hon'ble Delhi High Court in the aforementioned case of Vodafone Essar Ltd. 2011 (12) TMI 22 - DELHI HIGH COURT against the order passed by the DRP. We find that it is a fit case where this issue should be restored back to the file of DRP to pass a detailed order stating all the objections of the assessee and disposing them by giving a cogent and germane reason for adjudication of the objections of the assessee. We direct accordingly. After receiving the order from DRP, the Assessing Officer will again pass order u/s 144C(13) and the present assessment passed by the Assessing Officer is set aside as the DRP is directed to readjudicate the objections raised by the assessee. Allowability of expenditure relating tools and consumables - A.O. held that the assessee is considered to be eligible to claim the depreciation on the tools u/ s 32 of the Act instead of allowance u/ s 31(i)/37 - nature and functions of tools replaced by the assessee - HELD THAT - All the tools were found to be having independent functions and do not form part of any big machinery. The learned AR also explained to us that these are not tools consumables acquired in the assessment year under consideration. In the assessment years under consideration, the assessee acquired consumable tools for day to day manufacture operation of the assessee and nothing to do with these machineries mentioned by the Assessing Officer and confirmed by the DRP in their respective orders. In our opinion, the Assessing Officer is required to examine the details relating to the incurring of expenses for tools and consumables, if they are not relating to acquisition of above independent machinery, then the Assessing Officer shall treat the same as revenue expenditure and to be allowed in toto. We restore the entire issue relating to allowability of expenditure relating tools and consumables to the file of the Assessing Officer for fresh consideration.
Issues Involved:
1. Transfer Pricing Adjustments 2. Treatment of Tools and Spares as Capital or Revenue Expenditure Issue-wise Detailed Analysis: 1. Transfer Pricing Adjustments: The appellant challenged the inclusion of certain entities in the calculation of the Arm's Length Price (ALP) and the methodology used by the Assessing Officer (AO) and Transfer Pricing Officer (TPO). The specific grievances were: - Inclusion of entities like M/s DHP India Ltd and Sundaram Bleistahl Limited, which were deemed functionally incomparable. - Inclusion of Sundaram Bleistahl Limited despite its related party transactions exceeding acceptable limits. - Errors in the computation of the Operating Margin of the assessee. - Failure to consider adjustments to the Working Capital position. - Exclusion of interest paid in the operating profits of comparable entities. The Dispute Resolution Panel (DRP) upheld the TPO's rationale, rejecting the assessee's objections. The DRP's directions were deemed non-specific and lacked detailed reasoning, merely referencing the TPO's and AO's orders. The Tribunal found the DRP's order to be a "non-speaking order," failing to address the objections raised by the assessee comprehensively. Consequently, the Tribunal directed the DRP to re-adjudicate the objections with detailed reasoning, setting aside the current assessment order for further examination. 2. Treatment of Tools and Spares as Capital or Revenue Expenditure: The second issue pertained to whether the tools and spares written off by the assessee should be treated as capital items or revenue expenditure. The AO had disallowed the claim of ?1,53,15,391 as revenue expenditure, treating it as capital expenditure instead, based on the nature and function of the tools, their life span, and the method of accounting followed by the assessee in previous years. The AO's decision was influenced by the Supreme Court's ruling in Saravana Spinning Mills (P) Ltd, which held that tools with independent functions and not part of a larger machinery should be capitalized. The assessee argued that these tools were consumables with limited life, used in the normal manufacturing process, and thus should be treated as revenue expenditure. The Tribunal noted that the nature of the tools and their usage did not bring any new asset into existence and were essential for day-to-day manufacturing operations. The Tribunal directed the AO to re-examine the details of the tools and consumables. If they were found to be consumables used in the manufacturing process and not part of independent machinery, they should be treated as revenue expenditure. Conclusion: The Tribunal allowed the appeals partly for statistical purposes, directing the DRP to re-adjudicate the Transfer Pricing issues with detailed reasoning and the AO to re-examine the nature of tools and consumables for appropriate classification as revenue expenditure. The order emphasized the need for detailed and reasoned adjudication of objections raised by the assessee.
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