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2019 (10) TMI 211 - AT - Income TaxTP Adjustment - Arm s Length Price (ALP) in respect of an international transaction entered into between the Assessee and its Associated Enterprise (AE) under the provisions of Sec.92 - limited prayer of the Assessee in this appeal is for granting adjustment on account of capacity utilization of the Assessee and that of the comparable companies - HELD THAT - As decided in own case 2017 (1) TMI 1687 - ITAT BANGALORE Tribunal has given a detailed guidelines as to how to make or grant capacity utilization adjustment. Hence, we feel it proper that this matter also should go back to the file of the AO/TPO for granting capacity utilization adjustment as per the guidelines given by the Tribunal in the case of DCIT Vs Class India Pvt.Ltd. 2015 (8) TMI 1490 - ITAT DELHI . It is ordered accordingly.
Issues Involved:
1. Arm's Length Price (ALP) determination for international transactions under Sec. 92 of the Income Tax Act, 1961. 2. Disallowance of revenue expenditure and alternative claim for depreciation. Issue-wise Detailed Analysis: 1. Arm's Length Price (ALP) Determination: The first issue pertains to the determination of the Arm's Length Price (ALP) for international transactions entered into between the Assessee and its Associated Enterprise (AE). The Assessee, a subsidiary of Molex India Limited, which in turn is a subsidiary of Molex International Inc., USA, reported several international transactions, including the import of raw materials, production supplies, spares, machinery, and the export of tooling spares, housing, dyes, and moulds. The Transfer Pricing Officer (TPO) issued a show-cause notice to the Assessee, questioning why the ALP should not be recomputed by adopting the average mean of the margins of comparable companies. The Assessee justified the prices received in the international transactions by comparing its gross margins with those of five comparable companies, claiming that the prices were at arm's length. However, the TPO recomputed the ALP by taking the gross margin of the Assessee and comparing it with the gross margins of the comparable companies. The TPO concluded that the price charged for the international transactions was not at arm's length, as the Assessee's gross loss indicated that the prices were not comparable. The CIT(A) confirmed the TPO's action, leading to the Assessee's appeal before the Tribunal. The Assessee's limited prayer was for an adjustment on account of capacity utilization differences between the Assessee and the comparable companies. The Tribunal, referencing its previous orders in the Assessee's own cases for AY 2006-07 and 2005-06, remanded the issue to the TPO/AO for fresh consideration, with specific guidelines on how to compute capacity utilization adjustments under the Transactional Net Margin Method (TNMM). 2. Disallowance of Revenue Expenditure and Alternative Claim for Depreciation: The second issue involves the disallowance of a sum of ?33,14,764/- claimed as revenue expenditure in the profit and loss account. This amount represented the cost of capital assets (tools) each costing less than ?50,000/-, which were written off in the profit and loss account. The Assessee had also made an alternative claim for depreciation in the event that the expenditure was treated as capital expenditure. The Tribunal noted that the alternative claim for depreciation should be allowed, as per the decision in Mahendra Mills Ltd., 99 ITR 135 (SC), which states that depreciation should be allowed to an Assessee as a consequence, even if not specifically claimed. Therefore, the Tribunal directed the AO to allow depreciation, thereby granting the Assessee's alternative prayer. Conclusion: The Tribunal's judgment addressed two primary issues. For the determination of ALP, the Tribunal remanded the matter to the TPO/AO for fresh consideration with specific guidelines on capacity utilization adjustments. For the disallowance of revenue expenditure, the Tribunal directed the AO to allow the alternative claim for depreciation, following established legal precedents. The appeal was thus partly allowed.
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