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TMI Blog2016 (8) TMI 856X X X X Extracts X X X X X X X X Extracts X X X X ..... ingly, notice u/s. 143(2) was issued to the assessee on 28-08-2009. During the period relevant to the assessment year 2008-09, the assessee had entered into international transactions with its Associated Enterprises (AEs). The international transactions entered into by the assessee with AEs were referred to the Transfer Pricing Officer (TPO) for determining the Arm's Length Price (ALP). Apart from import of raw materials from its AEs, the assessee had also purchased capital asset comprising of second hand machines from its AE GKN Sinter Metals Lichfield, UK. The claim of the assessee is that machine was purchased from its AE at ALP on the basis of valuation certificate issued by an independent Chartered Engineer. The TPO rejected the value declared by the assessee and estimated the value of machine by applying Comparable Uncontrolled Price (CUP) method. The TPO made upward adjustment of Rs. 1,69,52,440/- in respect of value of machine. On the basis of order passed by the TPO u/s. 92CA(3) of the Act, the Assessing Officer made draft assessment order making addition of Rs. 20,35,20,254/- in respect of adjustments made by TPO in all the international transactions. The assessee filed o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s was based on economic value of the asset which was also certified by an independent Chartered Engineer. The assessee in order to demonstrate that the price paid by the assessee for capital asset to its AE is just and reasonable, obtained quotation of the similar machine from Cincinnati, USA (the original manufacturer of the presses). The ld. AR submitted that there is absolutely no difference in the speed of the old press bought from Lichfield and the brand new presses. The only difference if any is on account of the downtime for repairs and maintenance which is also not significantly different. The ld. AR submitted that even today these presses are working absolutely in perfect manner. If the prices of the old machine purchased by the assessee is compared to price of the new machine there is a substantial difference in the price, whereas, there is absolutely no difference in the speed and quality of output. The ld. AR contended that the TPO has erred in holding that the assessee has paid excessive price for acquiring the capital asset on the basis of written down value of the machine in the books of GKN Lichfield. The TPO in an arbitrary and unjustified manner compared the value ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ould show that the company incurred losses of GBP 242,000 without accounting for profit on disposal of company assets. The company had reported profit of GBP 678,000 from intra group disposal of fixed assets. The books show the value after depreciation is only GBP 485000 at the beginning of the year and as Nil on disposal of these assets. Thus, it is clear that the depreciated machinery as per the books of AE have been sold at handsome profits to the assessee. A perusal of records clearly indicates that the capital assets have been disposed off by the AE at the profit margin of 39.79%. The high profit margin indicates that an intention of the AE was to reduce losses and to meet its contractual liability in respect of redundancy payments to its erstwhile employees. The machine was invoiced to the assessee at GBP 201,800 (approx Rs. 3,17,45,021/-) where as the book value of machinery purchased by assessee in the books of AE at UK was 84155 GBP. The TPO in order to determine the actual value of machine has taken the arithmetic mean of operating profit of the company manufacturing similar machine and after comparing the same with that of the assessee has made adjustment of 107,765 GBP ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o be considered is whether this price variation noticed by the TPO should be taken as the basis for making adjustment in the transfer pricing. The grievance of the assessee is that the comparable price has been obtained by the TPO from the customs authorities and the valuation of the customs authorities need not necessarily be realistic as that department is more interested in collecting import duties. We should state without fear of contradiction that the customs authorities are assigning values to the imported goods on the basis of scientifically formulated methods and they are responsible for making a fair assessment value of the imported goods. The valuation made by the customs authorities is not an arbitrary exercise. But on the other hand, it depends upon large volume of international data classified according to internationally accepted protocol. Therefore, it is not possible to say that the credibility of the price rate furnished by customs authorities needs to be discounted." The view taken by the Chennai Bench of the Tribunal has been followed by the Delhi Bench of the Tribunal in the case of DCIT Vs. CDot Alcatel-Lucent Research Centre Pvt. Ltd. (supra). 9. The Hydera ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by DRP." 10. The Mumbai Bench of the Tribunal in the case of Asstt. Commissioner of Income Tax Vs. M/s. Koch Chemical Technology Group (India) Limited (supra) the Tribunal has held that before rejecting the valuation report, the TPO is duty bound to refer the valuation of machinery to DVO. The TPO not being an expert to determine the value of machine cannot ascertain the fair market value of machine. The relevant extract of the findings of the Tribunal are reproduced here-in-under : "7. ...................It is to be noted that the invoices submitted by the assessee indicate that the assessee has paid the price for purchase of machineries to the A.E. as claimed by the assessee. It is also to be noted that the purchase price paid by the assessee is supported by report of approved valuer from the U.S.A. Therefore, it is very much evident that to substantiate the price paid for purchase of certain second hand machineries from the A.E., the assessee has produced documentary evidences including the valuation report. Whereas, the Transfer Pricing Officer, apart from making some general observations to the effect that the details of date of purchase by the A.E., depreciated value in i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ly, ground raised by the assessee is allowed." 11. In the present case, we observe that the TPO has made upward adjustment of the international transactions in respect of valuation of capital asset purchased by the assessee from its AEs. The said adjustment has been made by the TPO without making reference to the DVO and rejecting the valuation report from an independent Chartered Engineer furnished by the assessee. Undisputedly the valuation report was accepted by the Customs Authorities for the purpose of levy of import duty. We do not concur with the action of TPO for making such adjustment. The Act provides for reference to Valuation Officer for valuation of capital assets in case of any doubt. The TPO has erred in extrapolating avg. operating margin of Indian manufactures and applying CUP method to markup import price and determine ALP. In so far as objection of TPO with respect to variation in the book value of capital asset and the price at which assessee has purchased the capital asset is concerned, it is not necessary that book value and market value of the capital asset are at par. Our view is further fortified by the decision rendered by the Bangalore Bench of the Tri ..... X X X X Extracts X X X X X X X X Extracts X X X X
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