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2022 (12) TMI 860 - AT - Income TaxTP Adjustment - MAM selection - Selection of CPM or TNMM as MAM - HELD THAT - Undisputedly the assessee has maintained cost records CAS-4 which were duly certified by the CA in respect of direct and indirect cost and the gross profit margin is also available. Therefore the CPM has to be the most appropriate method which is inconsonance the provisions of Section 92B read with Rule 10B(1), 10C(1) (2) as the eligible unit is a contract manufacturer and procuring semi-finished goods from Faridabad unit besides doing contractual job for the said non eligible unit. We also note that assessee s net profit as a whole of 19.99% during the year which is better and much higher than other comparables namely M/s Bharat Gears Ltd. 12.29%, M/s JMT Auto Ltd. 18.68% and M/s Hi-Tech Gears Ltd. 17.84%. Therefore considering these facts which show the net margin of the assessee being better than the comparable industries, we are of the view that price as determined by the assessee is at ALP. No merit of the submissions of the ld DR that the assessee is not a contract manufacturer which are incorrect observations on the part of the TPO/AO. Argument of the ld DR that the assessee itself followed TNMM method as mentioned in Form 3CEB, we observe the same was a mistake as the assessee in the TPSR mentioned CPM as MAM correctly and also placed the documents justifying and corroborating the fact that the assessee has followed CPM for benchmarking the domestic transactions between eligible unit and non-eligible unit. We also observe that OECD guidelines, UNTP manual ICAI guidance Note also refer to CPM to be applicable where the semi-finished goods are transferred job work is done. Appeal of revenue dismissed. Additional depreciation u/s 32(1)(iia) - assessee had made some additions to fixed asset in the latter half of F.Y. 2012-13 and consequently the assets were put to use for less than 180 days - additional depreciation has been denied by the AO on the ground that there was no provision in the Statute granting additional depreciation to the assessee which has not been allowed in the preceding assessment year in which the conditions were made on the ground that the provision of Section 32(1)(iia) provides that the assessee is entitled to claim depreciation @ 50% of the of the normal rates as prescribed under clause (iia) and the said benefit has been specially granted w.e.f. 1.4.2016 by Finance Act,2015 from AY 2016-17 - HELD THAT - The issue has been decided by the coordinate bench in M/s Birla corporation Ltd. 2014 (12) TMI 436 - ITAT KOLKATA by holding that assessee is entitled to remaining 50% of the depreciation in the subsequent year where the said depreciation could not be claimed in preceding assessment year because of the reason that the asset was put to use for less than 180 days in terms of provision of Section 32(1)(ii). Foreign currency loss - Claim denied by the AO on the ground that being notional and contingent in nature - alternative argument of the ld Counsel for the assessee that the assessee is entitled to depreciation on this amount of loss after it is capitalized in asset cost - HELD THAT - As perused Section 43A which begins with non-obstante clause and provides that where assessee has acquired any asset during the previous year from outside the country for the purpose of business or profession and in consequence of forex fluctuations in the rate of exchange after acquisition of asset there is an increase or reduction in the liability of the assessee as expressed in Indian currency as compared to the liability existing at the time of making payment towards the whole or a part of the cost of the asset or towards the repayment of the whole or a part of the moneys borrowed by the assessee from any person, directly or indirectly in any foreign currency specifically for the purpose of acquiring asset along with interest if any, the amount by which the liability as aforesaid is so increased or reduced during previous year and which is taken into account at the time of making the payment irrespective of the method of accounting adopted by the assessee shall be added to or deducted from the actual cost of the asset. Therefore the arguments of assessee can not be accepted on this issue. In view of this we are not in agreement with the conclusion drawn by the ld CIT(A) on this issue and are inclined to reverse the appellate order by restoring the order of AO. We find force in the alternative argument of assessee that the assessee is entitled to depreciation on this amount of loss after it is capitalized in asset cost. Accordingly the AO is directed to allow depreciation on this amount at the applicable rate of depreciation after capitalizing the loss. The ground no. 6 raised by the revenue is partly with the above observations.
Issues Involved:
1. Deletion of arm's length price adjustment. 2. Consideration of Cost Plus Method (CPM) vs. Transactional Net Margin Method (TNMM). 3. Allowance of additional depreciation. 4. Disallowance of foreign currency loss. Detailed Analysis: 1. Deletion of Arm's Length Price Adjustment: The Revenue challenged the deletion of the arm's length price (ALP) adjustment of Rs. 12,06,40,000/- made by the Assessing Officer (AO)/Transfer Pricing Officer (TPO) on account of specified domestic transactions between the eligible unit and non-eligible unit of the assessee. The TPO had rejected the Cost Plus Method (CPM) followed by the assessee and adopted the Transactional Net Margin Method (TNMM) as the Most Appropriate Method (MAM) for benchmarking. The TPO compared the net profit margin of the two units and proposed an ALP adjustment based on the profit margin variance. 2. Consideration of Cost Plus Method (CPM) vs. Transactional Net Margin Method (TNMM): The Commissioner of Income Tax (Appeals) [CIT(A)] upheld the CPM as the MAM, noting that the TPO did not provide specific defects in the benchmarking exercise performed by the assessee. The CIT(A) observed that the goods supplied by the non-eligible unit to the eligible unit were semi-finished goods, and the valuation was in accordance with the Central Excise Valuation Rules, which was accepted as the arm's length price. The CIT(A) also noted that the units at Faridabad and Rudrapur were not comparable due to differences in technology, size of manufactured gears, and input costs. Consequently, the CIT(A) directed the deletion of the ALP adjustment and upheld the CPM as the MAM. 3. Allowance of Additional Depreciation: The Revenue contested the CIT(A)'s decision to allow additional depreciation of Rs. 60,66,115/- under Section 32(1)(iia) of the Income Tax Act. The AO had disallowed the claim on the ground that the Finance Act, 2015, which allowed the remaining 50% of additional depreciation in the succeeding year, was effective from 01.04.2016 and not applicable for AY 2014-15. The CIT(A) allowed the claim, referencing the decision of the Coordinate Bench in M/s Birla Corporation Ltd. vs. DCIT, which held that the assessee is entitled to claim the remaining 50% of additional depreciation in the subsequent year if the asset was put to use for less than 180 days in the previous year. 4. Disallowance of Foreign Currency Loss: The AO disallowed the foreign currency loss of Rs. 1,65,65,143/-, treating it as notional and contingent. The CIT(A) allowed the claim, stating that the loss was not due to direct forex exposure but was an arrangement by the bank, and thus not covered under Section 43A of the Act. The Tribunal, however, reversed the CIT(A)'s decision, concluding that the loss was indirectly incurred by the assessee and covered under Section 43A, which mandates capitalization of such losses. The Tribunal directed the AO to allow depreciation on the capitalized amount. Conclusion: The Tribunal upheld the CIT(A)'s decision on the deletion of the ALP adjustment and the allowance of additional depreciation. However, it reversed the CIT(A)'s decision on the foreign currency loss, directing capitalization of the loss and allowance of depreciation. The appeals of the Revenue and cross-objections of the assessee were partly allowed for AY 2014-15, while the appeals for AY 2015-16 were dismissed.
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