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TMI Blog2015 (7) TMI 246X X X X Extracts X X X X X X X X Extracts X X X X ..... the TPO on the basis of individual transactions. 2. On the facts and in the circumstances of the case, Ld. CIT(A) has erred in deleting the disallowance of depreciation amounting to Rs. 1,13,69,946/- attributable to assets written off especially when no evidence was produced to the effect that the said assets were actually used for the purpose of business during the relevant period. 3. On the facts and in the circumstances of the case, Ld. CIT(A) has erred in deleting the disallowance of depreciation amounting to Rs. 1,01,67,501/- attributable to assets written off during the financial years 1999-00 and 2000-01 ignoring the fact that the said assets were not used for the purpose of business during the financial year relevant to assessment year under reference. 4. On the facts and in the circumstances of the case , Ld. CIT(A) has erred in deleting the disallowance of Rs. 18,90,458/- on account scholarship given to children of employees of assessee company ignoring the fact that the said expenditure was not wholly and exclusively for the purpose of business. 5. On the facts and in the circumstances of the case , Ld. CIT(A) has erred deleting the disall ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ounds of appeal before or at the time of hearing of the appeal." 4. The grounds raised by the assessee in ITA No. 1790/Del/2010 for assessment year 2003-04 reads as under:- "I. The learned Commissioner of Income Tax [Appeals) has erred on facts and in law in upholding the following disallowances made by the learned Assessing officer: - i. Adjustment in arm's length price amounting to Rs. 3,73,70,533/- for spare parts imported by the Appellant; ii. Adjustment in arm's length price amounting to Rs. 2,07,62,701/- for spare parts exported by the Appellant; III. Disallowance of scholarship fee amounting to Rs. 13,52,650/- given by the Appellant to the children of its employees; and iv. Disallowance of depreciation amounting to Rs. 8.167/- claimed by the Appellant on amount capitalized in respect of unrealized foreign exchange fluctuation loss. II. The order passed by the learned Commissioner of Income Tax [Appeals) is contrary to facts, law and the principles of natural justice. III. Each ground of appeal is independent of the other ground." 5. Facts of the case is that Yamaha India Private Limited is a company in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arms length price given partial relief to the assessee. He took our attention to the order of the TPO placed at Pg. 340 to 360. Ground No.2 and 3 of the revenue's appeal deals with disallowance of depreciation Rs. 1,13,69,946/- and - Rs. 1,01,67,501/- At the outset itself the ld AR pointed out to us that this issue is squarely covered in assessee's favour by the order of coordinate bench of this Tribunal in ITA NO.1986 and 1987-Del-2005 dated 23.05.2008. The above order has been confirmed by the Hon'ble Delhi High Court and SLP filed has been dismissed by Apex court and took our attention to PB pg 446. Ground No. 4 relates to scholarship given to children of employees of Rs. 18,19.458/-. He pointed out to us that this issue is also covered in favour of the assessee by the ITAT order in ITA No. 3073/Del/2004 dated 10.10.2006 in assessee's own case. Ground No.5 & 6 are regarding disallowance of Rs. 3,40,46,541/- regarding prior period expenses. The issue has been discussed by the CIT(A) in para 11.2 on page 30. According to the ld AR the issue is covered by the judgment of the Supreme Court in the case of Nonsuch Estate Ltd. Vs. CIT 98 ITR 189 and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ; iii) Sales by YMC, Japan to Norkis Trading Co., Philippines is trading sale, not manufacturing sale which does not require deputation of its personnel as against the assessee company which is a manufacturing company requiring deputation of personnel from YMC, Japan for which YMC, Japan has to incur substantial expenditure. iv) In the alternative and without prejudice to the above, the margin charged by the YMC, Japan of 21.4% is much less as compared to the margin charged by the assessee company on export of spare parts at 53.18% in respect of transaction with unrelated parties. v) The fact that assessee company is a loss making company it does not benefit in case it over pays beyond the arm's length price to its AE i.e. YMC, Japan. The ld AR submitted that the fact that margin declined with the increase in CKD parts gets established from the TPO order itself whereby he has applied a margin of 8% in respect of motor cycles as against much higher margin ranging between 30% to 50% in respect of spare parts. Motor cycle being a complete product, it is a hundred per cent complete product and if the same is split into CKD the margin will increase and the ma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rmed by the CIT(A) in respect of adjustment to arm's length price as under- S. No. Particulars Amount-Rs. 1. Import of Spare Parts from Associated Enterprises 1,89,38,516 2. Export of Spare Parts to Associated Enterprises 1,33,10,887 3. Export of Motor Cycles to Associated Enterprises 64,39,600 1.0 Addition on account of import of Spare Parts - Rs. 1,89,38,516 According to the ld AR the TPO has made this adjustment on the ground that the margin charged by the Associated Enterprise (AE) i.e. Yamaha Motor Co. Ltd., Japan on sales of spare parts is 21.4% as against 16.32% margin charged in respect of spare parts sold by the Yamaha Motor Co. Ltd., Japan (YMC, Japan) to unrelated party i.e. Norkis Trading Co., Philippines. On this basis he computed the arm's length price at Rs. 20,19,83,738/- in respect of import of spare parts as against Rs. 22,09,22,254/- actually charged by the YMC, Japan from the assessee company. The difference amount of Rs. 1,89,38,156/- has been added as adjustment on account of arm's length price. The ld AR pointed out that the CIT(A) has confirmed the same in para 6.7 on page 8 of its order. According to him ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f confirms that there is no overcharging of the prices by the YMC, Japan to assessee company. 1.6 The other reasoning given by the TPO to reject the contention of the assessee company about the volume discount in para 4.3 reads as under- "The difference in the volumes is not very significant." This is factually incorrect as is evident from the fact that the sale to Norkins, Philippines by YMC, Japan was JPY 378,80,40,612 as against sale to assessee company of JPY 52,74,68,316. The difference in the turnover is 7 times which is quite significant and the TPO's observation that it is not significant is incorrect. 1.7 Further Norkis, Philippines is not a manufacturing unit but it was a trading company and YMC, Japan is not required to support the sale of spare parts as has been done in the case of the assessee company. By charging margin of 21.4% the YMC, Japan is also incurring substantial cost towards deputation of its personnel to assessee company. That cost is to be taken into account while comparing the margin with Norkis Trading Co., Philippines as similar facility is not provided by YMC, Japan to Norkis Trading Co. 1.8 Further the assessee comp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e has been discussed by the TPO in para 5 on Paper Book page 3497 He has computed the arm's length price of this export of spare parts to AEs at Rs. 2,58,48,4507-. As per the TPO the gross profit margin earned by the assessee in respect of unrelated party is 53.18% on sale which turns out to be 114.65% on cost after allowing benefit of the marketing cost. The allegation of the TPO is that the gross profit margin earned on sale of spare parts between AEs is 46.04% which turns out to be 85.32% on cost. The difference on account of this has been added as adjustment on account of arm's length price. During the course of the hearing before the TPO the assessee was asked to submit the margin earned by it in respect of sale of spare parts to related parties as well as unrelated parties. The complete list was submitted which is placed at Paper book page 295 to page 323. The TPO has quoted this in para 5.1.1 on page 350. As per this list the margin varies from loss to 98.85% in the case of related parties and in the case of unrelated parties against the margin range between loss margins to profit margin of 94.24%. It was further submitted by the assessee that the volume disc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nding that the contention of the assessee that there is no demand in the Indian market of these spare parts was not correct explanation. Thus the adjustment proposed by the TPO which has been confirmed by the CIT(A) is unsustainable. (c) Addition of Rs. 55.18.448/- in respect of Camshaft: The assessee has exported camshafts, which it has earlier imported, to YMC, Japan for a total value of Rs. 75,93,565/-. The TPO has valued the same at Rs. 1,31,12,013 and has made an adjustment of Rs. 55,18,448/-. The above adjustment has been proposed ignoring the explanation of the assessee that the same was sold considering the low demand and high inventory carrying cost. This was done due to poor demand of YBX model and this sale was made to YMC, Japan at the request of the assessee only. The YMC, Japan purchased these items for use in Brazil and Japan and that too after it was required to incur additional cost towards additional surface treatment, inspection for rust and damaged parts, special transportation boxes, etc. due to difference in technical specification of the camshafts required in India and those used in Brazil and Japan. It was further submitted that YMC, Japan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... TPO on Paper book page 358 (internal page 17) has applied mark-up on cost of 13.723% in respect of model RX 100 36L5, RX Cargo 5 RAI. Further the TPO applied margin of 8.08% in respect of model YB 125 T5RE1 ignoring the fact that the margin earned on YB 125 5PY3 in respect of sale to unrelated parties was negative 0.428%. In this regard the adjusted cost worked out by the TPO in respect of the YB125 model on paper book page 357 is absolutely incorrect and against all principles of transfer pricing. Secondly, the overall margin needs to be taken into consideration and in any case if model to model comparison is to be made it has to be done on a scientific basis and not on adhoc basis to suit and support the adjustment which otherwise are not justified. Thus the action of the TPO and CIT(A) in confirming this addition on export of motor cycle is against the facts on record. It may not be out of place to mention that this approach of the TPO in applying model to model approach (that too on faulty basis) is against its own finding in respect of export of miscellaneous spare parts whereby he has applied the overall margin ignoring the actual marking on the miscel ..... X X X X Extracts X X X X X X X X Extracts X X X X
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