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2022 (7) TMI 1328 - AT - Income TaxTP Adjustment - comparable selection - Jtekt Sona Automotive India Limited, Roots Industries India Limited AND Remi Elektrotechnik Limited - HELD THAT - We notice that the TPO/DRP have not examined the facts pertaining to the claim of the assessee for inclusion of the mentioned three comparables and have just rejected the same on the basis that no data is available in the public domain. We also notice that the assessee has submitted the financial statements of these companies from the public domain before the lower authorities. In view of this, we remit this issue back to the TPO/AO to take into consideration the details submitted by the assessee and also verify the data from public domain and decide the issue of comparability of these companies in accordance with law, after providing reasonable opportunity of being heard to the assessee. Exclusion of Roop Telsconic Ultrasonix Ltd - Roop Telsconic Ultrasonix Ltd. shows that it manufacture consists of ultrasonic equipments which support the claim of the ld. AR that it is into product manufacturing. In determining the degree of comparability between controlled and uncontrolled transactions, it is necessary to compare the significant risks that could affect prices or profits. The risk involved for a company involved in manufacturing of equipments would be significantly different from the component manufacturing company. The assessee is a manufacturer of components and therefore cannot be compared with an equipment manufacturing company as per the principle laid down in Rule 10B(2)(b). In view of the above discussion, we hold that Roop Telsconic Ultrasonix Ltd. is functionally different from the assessee and cannot be included as a comparable. It is directed to be excluded from the comparables. Contract manufacturing segment - Comparability of the companies should be made with respect to functions, assets and risks. In the given case, Vikram India. Ltd. which is into manufacturing activities is not functionally comparable with the assessee and therefore, we delete the inclusion of this company from the comparables. Not providing working capital adjustment in relation to the Contract Manufacturing segment - There would remain no comparable uncontrolled transactions for the purpose of comparison. The transfer pricing exercise would therefore fail. Therefore in keeping with the OECD guidelines, endeavor should be made to bring in comparable companies for the purpose of broad comparison. Therefore the working capital adjustment as claimed by the Assessee should be allowed. Not granting proportionate adjustment - HELD THAT - The coordinate bench of the Tribunal in the case of IKA India (P.) Ltd. 2018 (10) TMI 49 - ITAT BANGALORE dealt with the similar issue and held that section 92 of the Act can be applied only in respect of international transactions i.e., transactions with AE. we hold that the transfer pricing adjustment should be restricted only to the international transactions with the AE. This ground is allowed in favour of the assessee. Disallowing depreciation claimed by the Appellant on additions made to fixed assets - AO disallowed the entire depreciation claimed by the assessee stating that assessee has not provided any supporting details with respect to assets and depreciation claimed thereon - HELD THAT - In view of the fact that the additional evidence has not been verified by the TPO/DRP, we deem it fit to remit this issue back to AO/TPO for fresh consideration and decision in accordance with law, after providing reasonable opportunity of being heard to the assessee. The assessee is also directed to produce all the relevant details and evidence in respect of the claim and cooperate with the remand proceedings. Disallowance of special discount u/s. 40(a)(ia) - HELD THAT - We have given a careful consideration to the rival submissions and are of the view that the issue with regard to the question whether the payment in question is in the nature of discount or commission should be set aside to the AO/TPO for fresh consideration denovo in the light of the submissions made before us, the case laws cited and the real nature of the transaction and not to conclude only on the basis of entries in books of accounts and nomenclature used therein. The AO and TPO will afford opportunity of being heard to the assessee in the set aside proceedings. Disallowance of liquidated damages - AO disallowed the claim of liquidated damages on the ground that the assessee has not provided any details with respect to the basis of quantification of liquidated damages and evidence in support of the same - DRP did not consider the additional evidence provided by the assessee and verify it for the reason of time constraint - HELD THAT - Since the evidence and supporting bills submitted by the assessee are not verified by the lower authorities, we remit this issue to the AO to look into the facts and evidence afresh and decide the issue in accordance with law, after providing reasonable opportunity of being heard to the assessee. Disallowance of claims made by buyers pursuant to the slump sale - HELD THAT - The assessee has submitted Form 3CEA to substantiate that the capital gain / loss is computed correctly. The certificate from the chartered accountant is issued based on the information and explanation provided to the best of their knowledge and the same does not prevent the AO from going into the root of the transaction calling for further evidence. In our view the onus is on the assessee to provide the required details as a foolproof evidence to substantiate the claim that the buyer deducted an amount from the final sale consideration. In the given case we notice that the lower authorities did not take call for any further evidence and have not taken the necessary steps to verify the issue factually based on details furnished by the assessee. We therefore remit the issue back to the AO with a direction to issue summons to the buyer of the undertaking in order to verify the claim of the assessee and decide the issue in accordance with law, after giving reasonable opportunity of being heard to the assessee.
Issues Involved:
1. Inclusion and exclusion of comparables in the license manufacturing segment. 2. Inclusion and exclusion of comparables in the contract manufacturing segment. 3. Working capital adjustment. 4. Transfer pricing adjustment towards intra-group services. 5. Non-grant of proportionate adjustment. 6. Disallowance of depreciation allowance. 7. Disallowance of special discount to dealers/customers. 8. Disallowance of liquidated damages. 9. Disallowance made against consideration received on slump sale. 10. Consequential issues. Detailed Analysis: 1. Inclusion and Exclusion of Comparables in the License Manufacturing Segment: The Tribunal addressed the adjustment made by the TPO in the license manufacturing segment. The TPO rejected the comparables chosen by the assessee based on negative PBIT, non-payment of royalty, and data unavailability in the public database. The Tribunal held that a company can be rejected only if it is a consistent loss-making entity for three consecutive years. The Tribunal directed the inclusion of four comparables that had profits in certain years and remitted the issue of three other comparables back to the TPO/AO for verification of data from the public domain. 2. Inclusion and Exclusion of Comparables in the Contract Manufacturing Segment: The Tribunal noted that the TPO rejected the comparables chosen by the assessee and selected new comparables. The Tribunal remitted the issue of the inclusion of Electronica Machine Tools Ltd. back to the AO/TPO for fresh consideration after verifying the details from the public domain. The Tribunal also directed the exclusion of Vikram India Ltd. as it was functionally different from the assessee. 3. Working Capital Adjustment: The Tribunal directed the AO/TPO to allow the working capital adjustment claimed by the assessee, following the decision in the case of Huawei Technologies India Pvt. Ltd., which emphasized that reasonable adjustments should be made to bring both comparable and test party on the same footing. 4. Transfer Pricing Adjustment Towards Intra-Group Services: The Tribunal admitted additional evidence submitted by the assessee and remitted the issue back to the AO/TPO for fresh consideration. The Tribunal directed the AO/TPO to consider the detailed report from the AE and the additional evidence submitted by the assessee. 5. Non-Grant of Proportionate Adjustment: The Tribunal held that the transfer pricing adjustment should be restricted only to the international transactions with the AE, following the decision in the case of IKA India (P.) Ltd. 6. Disallowance of Depreciation Allowance: The Tribunal remitted the issue back to the AO/TPO for fresh consideration and verification of the additional evidence submitted by the assessee, which included supporting bills and invoices substantiating the claim of depreciation. 7. Disallowance of Special Discount to Dealers/Customers: The Tribunal set aside the issue to the AO/TPO for fresh consideration, directing them to determine whether the payment in question is in the nature of discount or commission based on the real nature of the transaction and not merely on the basis of entries in books of accounts. 8. Disallowance of Liquidated Damages: The Tribunal remitted the issue back to the AO for fresh consideration and verification of the evidence and supporting bills submitted by the assessee, which were not verified by the lower authorities. 9. Disallowance Made Against Consideration Received on Slump Sale: The Tribunal remitted the issue back to the AO with a direction to verify the claim of the assessee that the buyer deducted an amount of Rs.94.70 lakhs from the final sale consideration by issuing summons to the buyer of the undertaking. 10. Consequential Issues: The Tribunal noted that the additional ground with regard to education cess and secondary & higher education cess was not pressed by the ld. AR in light of recent statutory amendments and hence dismissed it as not pressed. Conclusion: The appeal by the assessee was partly allowed, with several issues remitted back to the AO/TPO for fresh consideration and verification based on the additional evidence and detailed submissions provided by the assessee. The Tribunal emphasized the need for reasonable adjustments and verification of facts to ensure a fair determination of the arm's length price and other related issues.
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