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TMI Blog2013 (11) TMI 1262X X X X Extracts X X X X X X X X Extracts X X X X ..... Bekaert S.A. Belgium and was engaged in the manufacturing of Steel Tyre Cord and Hose Reinforcement Wire, used as a reinforcing material in radial tyres etc. The major purchasers in India are CEAT, J.K. Industries, MRF etc. These tyre manufacturing companies have been sourcing these materials from Bekaert group companies located outside India. In this background the parent company thought it prudent to establish a unit in India itself to meet the market requirement to the extent possible. The plant of the assessee was established at MIDC Ranjangaon Pune. Even though the commercial production started in February, 2001, the business of the assessee company practically took off from A.Y. 2004-05 onwards. The Bekaert Group head quartered at Belgium is the largest independent multi-national manufacturer of these products and have more than 55 manufacturing facilities worldwide. During the year under consideration, the assessee company was found to have numerous international transactions which were examined by the TPO for determining Arm's Length Price (hereinafter called ALP). The TPO found most of the transactions at ALP requiring no adjustment except for (a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g Officer. 5. Matter was carried before the First Appellate Authority wherein detailed submissions were made from time to time. It was explained as to how different expenses constituting indirect cost expenses considered by TPO for calculating ALP should not have been considered. It has been claimed that the TPO has erred in allocating the expense on the basis of turnover as in the initial years the assessee was in the process of establishing and stabilizing its business. The majority of the expenses were towards this activity which got reflected in higher turnover in subsequent years. It was further submitted that the spools were mainly collected for its own use and only the excess was exported, that too with 10% mark up. In the initial years the export of spools was more than its own use as the production and business had not stabilized and gradually the consumption increased. The TPO, as per the assessee, had failed to consider the benefit accruing to the assessee on the free use of spools which otherwise would have costed Euro 5.32 per spool on import. According to the assessee no incremental overhead cost (other than direct cost charge) were incurred for the export activity c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sp; 211,304 Office equipments 701,641 140,116 Computers 234,603 944,170 Vehicles 126,583,793 765,282 19,225,378 Additional unsecured loan 104,562,753 104,562,753 Total (A) 312,943,528 95% 613,438,723 97% Value of Activity related to spools 8,636,819 10,891,428 Packing material consumed 986,607 Freight outward 3,631,617 4,606,543 Cost incurred for spools 3,942,624 Total (B) 16,211,060 5% 16,484,578 3% Total (A+B) 329,154,588 100% 629,923,301 100% Other expenses Water charges 542,230 284,229 Communication 1,661,098 1,763,510 Rent 639,333 582,503 Sales commission ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee that no indirect expenses can be considered for determining the ALP of export of spools also looks incorrect because no activity can be carried out without any involvement of cost which are generally clubbed and classified as indirect expenses. Therefore, the CIT(A) observed that a method has to be found out which can lead to proper computation of ALP. In this context, the proposition of the assessee to adopt the system used by the TPO in A.Y. 2004-05 were found appropriate. In the said method, every economic activity was captured for allocating the expense and in view of the same, this method will give the most appropriate method for determining ALP, especially in years when the business has not stabilized. The computation given by the assessee is already quoted above and as per this the addition comes to Rs. 5,07,651/-. Accordingly, the addition to that extent be sustained by the CIT(A). However, the Assessing Officer was directed to check the computation while giving the appeal effect and ensure that the computation is made properly as per the principle laid by the TPO in A.Y. 2004-05. Accordingly, the addition to that extent was sustained. Same has been opposed by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s engaged in the manufacturing of Steel Tyre Cord and Hose Reinforcement Wire, used as a reinforcing material in radial tyres etc. The major purchasers in India are CEAT, J.K. Industries, MRF etc. These tyre manufacturing companies had been sourcing these materials from Bekaert group companies located outside India. In this background, the assessee company thought it prudent to establish a unit in India itself to meet the market requirement to the extent possible. Accordingly, plant was established at MIDC Ranjangaon Pune. Spools are packaging material made of either steel or plastic on which the steel tyre cord is wound and packaged. These spools are reusable. These were used for the supply of goods made by the assessee as well as other companies of this group engaged in manufacturing of similar products. The goods being manufactured by the assessee company are an import substitution and therefore, foreign group companies do supply similar products to the Indian consumers. As the spools are reusable and has no utility to the buyers, as a measure to benefit local group companies, wherever possible, are involved in collection of empty spools for free from buyers for the packaging of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tern for dies covers direct cost and margins for overhead expenses and for this 12% margin has been charged. The CIT(A) having considered the facts and circumstances involved, did not find merit in the submission of the assessee and the finding of the TPO was found to be in accordance with the established Transfer Pricing principles. In view of above, the addition was sustained by the CIT(A). This reasoned finding need no interference from our side. We uphold the same. 12. As a result, appeal of Revenue is dismissed and that of the assessee is partly allowed. 13. In ITA.No.1094/PN/2011 and 1059/PN/2011 for A.Y. 2003-04, similar issue of addition on account upward adjustment to ALP u/s.92CA(3) of the Act in respect of export of spools has been raised. The Assessing Officer made addition of Rs. 62,83,591/- which was restricted to Rs. 5,20,372/- by the CIT(A). We have discussed and decided similar issue in A.Y. 2002-03 vide para 10 of this order. Facts being similar, so following same reasoning, we uphold that the CIT(A) was not justified in restricting the addition to Rs. 5,20,372/- from Rs. 62,83,591/-. The Assessing Officer is directed accordingly. 14. As a result, appeal of the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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