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2024 (9) TMI 355 - AT - Income TaxTP Adjustment - adjustment of custom duty - HELD THAT - The assessee has not filed any data, analysis to establish the distinctive features of the foreign spare parts with that of Indian local spares available in India. During the course of hearing, the Bench has raised the query from the assessee s counsel as to whether any adjustment on this count has ever been allowed to the assessee in the previous or in future assessment year. In response to the query of the Bench, the assessee filed submissions on 28th August, 2024 and candidly accepted that the claim of the assessee for custom duty adjustment in manufacturing segment was not allowed by the AO as well as appellate authorities in respect of previous years. Assessee has also pointed out that from A.Y. 2016-17 onwards, the assessee is not making any adjustment on this custom duty aspect in its TP documentation. Therefore, considering the judgment of Sony India Pvt. Ltd. 2008 (9) TMI 420 - ITAT DELHI-H as relied upon by the TPO, we dismiss this ground of appeal of the assessee. Adjustment of base cost in manufacturing segment is also rejected by the TPO affirmed by DRP and followed by AO - The assessee has candidly accepted that no such adjustment has been allowed to the assessee in previous years by the assessing authorities or by the appellate authorities and the assessee himself has stopped claiming this adjustment from A.Y. 2016-17 onwards in its TP documentation. Therefore, we do not find any infirmity in the order of DRP / AO hence, this contention of the assessee is also de void of any merits. Additional ground in relation to the grant of proportionate adjustment - We observed that from the order of TPO for A.Y. 2013-14 adjusted margin has been provided to the assessee for that year. It is settled law that each year under the Income Tax Act is a separate assessment year and principle of res judicata are not applicable to the income tax proceedings. However, there has to be consistency in the approach of Revenue and if some claim is accepted in previous year and there is no change in facts and circumstances of the case then it is to be applied for the subsequent year also. - no such material / evidences has been placed before us on the basis of which we can conclude that the facts and circumstances of the impugned year are akin to the subsequent year i.e. A.Y. 2013-14. Therefore, in the interest of justice, we remit this issue to the file of TPO for deciding afresh in accordance with law. Applicability of TNMM method v/s RPM method applied by the assessee for its trading segment transactions - We are of the view that this issue would also require fresh consideration at the end of TPO and in case the facts of the impugned year are akin to the facts of the A.Y. 2013-14 then applying the consistency principle, the TPO will decide the matter. During the course of hearing, the Bench has also raised a query as to whether the assessee has incurred expenses on advertising and packing of the material purchased for trading purposes. In response to the query of Bench, the assessee submitted that the appellant has incurred sales promotion and advertisement cost under the head other expenses however, the value of these expenses is minimal amounting to Rs. 2,67,396/- only. We direct the TPO to give benefit of this fact to the assessee. Non granting working capital adjustment for manufacturing and trading segment - DRP in its order has principally accepted that Rule 10B provides reasonable accurate adjustment to eliminate the material effects of difference on the price cost or profits. However, failure of assessee to demonstrate the effect of working capital adjustment with appropriate data has forced the DRP to reject the claim of assessee. It is settled position of law that if there is huge difference in working capital of the comparables with that to tested party. Suitable adjustment is required to be made. However, since the assessee failed to provide any analytical approach before the lower authorities assessee could not get any relief. Before us the counsel of assessee strongly contended that assessee can prove with TP documentation and other material that there was huge difference in the working capital of the comparables and tested party. Therefore, in the interest of justice we remit this issue to the file of TPO for examining a fresh. We also direct assessee to provide all the necessary details / material in support of his contention. Payments made to the headquarters in lieu of services received from the AE - As observed that the argument of the ld. DR that the assessee has failed to obtain any benefit via rendering of these services by AE is not justifiable because it is settled position of law that for claiming of an expense, the incurring of expense as well as genuineness of expenses is to be seen nor the fruits ripped by the businessman on incurring of business expenses. It is equally settled position of law that the AO / TPO would not sit in the arm chair of a businessman as held in the case of S.A. Builder 2006 (12) TMI 82 - SUPREME COURT - Therefore, this disallowance is not permissible hence, we allow the same. Disallowance of provision for warranty - We restore this issue to the file of TPO to examine as to whether the assessee has reversed these charges in subsequent year and has offered the same for taxation and then the TPO will decide the issue, in accordance with law.
Issues Involved:
1. Adjustment of custom duty 2. Applicability of TNMM method instead of RPM method 3. Rejection of comparability analysis 4. Adjustment of working capital 5. Disallowance of foreign exchange fluctuation 6. Payments made to headquarters for services 7. Addition of provision for warranty Detailed Analysis: 1. Adjustment of Custom Duty: The assessee's main grievance in the manufacturing segment was the rejection of adjustment for custom duty paid on imported spare parts. The TPO denied this adjustment, citing the decision in M/s Sony India Pvt. Ltd. v. Dy. CIT, which held that custom duty adjustment should not be allowed. The DRP upheld this decision. The assessee argued that they incur significant customs duty due to higher imports compared to comparable companies, warranting an adjustment. However, the Tribunal found the assessee's arguments too general and unsupported by material evidence. The claim was also not allowed in previous years, and the assessee stopped claiming this adjustment from A.Y. 2016-17 onwards. Thus, the Tribunal dismissed this ground of appeal. 2. Applicability of TNMM Method Instead of RPM Method: The assessee contended that the TPO erred in applying the TNMM method instead of the RPM method for the trading segment. The assessee argued that the RPM method was accepted in A.Y. 2013-14 and should be applied consistently. The Tribunal directed the TPO to reconsider this issue, emphasizing the importance of consistency if the facts remain unchanged. The TPO was also instructed to consider the minimal sales promotion and advertisement costs incurred by the assessee. 3. Rejection of Comparability Analysis: Grounds 8 and 9 related to the rejection of the comparability analysis conducted by the TPO. The Tribunal set aside these issues to the TPO for fresh examination, in line with the directions given for the trading segment. 4. Adjustment of Working Capital: The assessee argued that the TPO and DRP erred in not granting working capital adjustments for the manufacturing and trading segments. The Tribunal observed that the TPO and DRP rejected the claim due to the assessee's failure to demonstrate the impact of working capital differences on profits. The Tribunal remitted this issue to the TPO for fresh examination, directing the assessee to provide necessary details and material to support their contention. 5. Disallowance of Foreign Exchange Fluctuation: The assessee did not press this ground, and it was dismissed as not pressed. 6. Payments Made to Headquarters for Services: The assessee paid Rs. 1,30,25,887 for various support services from its AE and benchmarked this payment using the TNMM method. The TPO rejected this method and applied the CUP method, arguing that the assessee failed to establish the receipt of services and the benefit derived. The Tribunal held that the genuineness of the expense should be considered, not the benefit derived, citing the Supreme Court's decision in S.A. Builder. The Tribunal allowed this ground, relying on judgments from the Delhi High Court. 7. Addition of Provision for Warranty: The assessee claimed that the provision for warranty was reversed in subsequent years, and only the net provision utilized was claimed. The Tribunal remitted this issue to the TPO to verify the reversal of charges and decide accordingly. Conclusion: The Tribunal allowed some grounds for statistical purposes, remitted others for fresh examination, and dismissed a few based on the assessee's concession or lack of pressing. The order emphasized the need for consistency and adequate evidence in transfer pricing adjustments.
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