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TMI Blog2014 (11) TMI 431X X X X Extracts X X X X X X X X Extracts X X X X ..... ter Concrete Pumps GmbH, Germany PCPG?). Ground No. 2 In the facts and circumstances of the case and in laws, the Ld. AO, pursuant to direction of DRP, grossly erred in considering the server UPS systems as a part of plant & machinery and not as the computer system, and thereby allowing depreciation only at the rate of 15% as against the rate of 60% claimed by the appellant. Ground No. 3: The Ld. AO erred in initiating penalty proceedings under Section 271 (1)(c) of the Act." 2. The assessee is engaged in manufacturing and trading in concrete pumps. This was first year of operations of the company. Commercial production began during the year and the first pump assembled in India was sold in February 2008. The pumps are imported from the parent company, the AE, in CKD or Semi CKD state. These are assembled by the assessee and sold in the market. The assessee returned a loss during the during the year of Rs. 4,78,71,047/-. The assessee benchmarked its international transaction using the Resale Price Method. The TPO however rejected the analysis made by the assessee and carried out separate benchmarking analyses of the Trading and Manufacturing segments after which an adjustment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... costs. The Company started developing and procuring materials locally in the subsequent years. The Company Gross Profit5 in FY 09-10 was 14.73% and in F.Y 10-11 it was 20.84% which shows an improvement in the performance of the Company once we were able to get a foothold in the market. The Learned AR was asked to provide the information relating to the price charge by Associate Enterprises in respect of material, component or other parts supplied by assessee in F.Y. 07-08 and same products in subsequent year. The assessee has submitted the details as under: "1. Details in respect of material, components or parts purchased by the appellant from its AE during the financial year 2007-08 and corresponding particulars of transactions (viz, invoice number, party name, invoice value in INR and Euro, etc) is given in 'Annexure # 1'. The workings given in Annexure # 1 contains details of purchase made by appellant company from its associated enterprise as extracted from the purchase account of the appellant company. 2. Details of material, components or parts purchased by the appellant from its AE during the financial year 2007-08 and corresponding price charged by the AE for the same p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ears and the reduction as can be seen from the working of price per unit is on account of following reasons: i) Change in form: Appellant had purchased machines in SKD form in the year under consideration and subsequently, it has manufactured/assembled these machines in India and therefore only parts and components have been purchased. Therefore, due to the change in assembly location, the price per unit in subsequent year appears to be reduced. However, the cost of assembly is separately recorded in the books of the appellant company. ii) Change in specification: The machinery purchased by the appellant company in financial year 2007-08 in SKD format has undergone change in subsequent years considering the requirements of the domestic market in India. In this context, we state that cost for new machine has reduced substantially due to replacement of metal body by Fibre Reinforced Plastic (FRP). The cost of metal as compared to FRP is very high. In this regard, we hereby submit the brochure of the machinery before and after change in specification in Annexure #5. iii) Indigenization of product: As evident from the details, appellant company has subsequently replaced certain part ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s details in respect of products procured by the assessee company from its associate enterprise in FY 2007-08 as well as in subsequent year. The assessee has also submitted the comparative analysis of price per unit charged for components forming part of Semi-Knocked Down (SKD) unit (BSA 140X-D, RS 905A) sold by the AE to the assessee company in the financial year 2007-08 by Annexure-3 and Annexure-4 is working is given in details in respect of component which forming part of Semi-Knocked Down(SKD) units and procured by the assessee individually imported and assembled in India. We find that the TPO has no occasion to verify this all documentary evidence. We find that the assessee has produced all these documentary evidence before us and the documentary evidence shows that if the TPO consider that the assessee has to incur the higher costs on account of higher import duty. We find that the Pune Bench of the Tribunal in the case of Skoda Auto India (P.) Ltd. vs. Assistant Commissioner of Income Tax, 30 SOT 319 (Pune) has held that the Transfer Pricing Officer (TPO) has decided the arms length price. He has not relied upon six comparable cases as one comparable data was rejected on th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee to get all such details of the comparable concerns so as to make this comparison possible. The assessee cannot be expected to get the details and particulars which are not in public domain. In such a situation, i.e. when information available in public domain is not sufficient to make these comparisons possible, it is inevitable that some approximations are to be made and reasonable assumptions are to be made. The argument before us was that it was first year of assessee?s operations and complete facilities ensuring a reasonable indigenous raw material content was not in place. The assessee „s claim is that it was in these circumstances that the assessee had to sell the cars with such high import contents, and essentially high costs, while the normal selling price of the car was computed in the light of the costs as would apply when the complete facilities of regular production are in place. None of these arguments were before any of the authorities below. What was argued before the AO was mere fact of higher costs on account of higher import duty but then this argument proceeded on the fallacy that an operating profit margin for higher import duty is permissible mer ..... X X X X Extracts X X X X X X X X Extracts X X X X
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