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TMI Blog2017 (3) TMI 1035X X X X Extracts X X X X X X X X Extracts X X X X ..... the directions of Hon'ble Dispute Resolution Panel, Ahmedabad ('DRP') under section 144C(5) of the Income-tax Act, 1961 ('the Act'), in making the upward transfer pricing adjustment of Rs. 1,12,40,558/- in respect of appellant's international transactions of sale of ANH Chemical with associated enterprise Gulbrandsen Chemicals Inc. ('AE'). The appellant submits that no transfer pricing adjustment is warranted in its case and wishes to raise the following grounds of appeal: i. The Hon'ble DRP/Ld.TPO/Ld. AO erred in determining the arm's length price of sale of ANH Chemical to AE on each individual transaction basis rather than on annual aggregate basis, in contradiction to all prior years except immediately preceding year wherein also principle of aggregation on monthly basis has been followed. a. The Hon'ble DRP/Ld.TPO/Ld. AO failed to appreciate that Appellant has long term business arrangement with its AE for sale of chemical products and under such arrangement evaluation of pricing on annual aggregate basis is in conformity with arm's length principle and is permissible under the Act and Rules in respect of closely linked tran ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... PO/Ld. AO failed to appreciate that such adjustments are necessary to establish comparability between transactions with AE and transactions with Non-AE customers before determination of arm's length price. vi. (a) The Hon'ble DRP/Ld.TPO/Ld. AO erred by not granting the benefit of adjustment o f +/- 5% as per proviso to section 92C(2) of the Act. (b) The Hon'ble DRP/Ld.TPO/Ld. AO erred by not computing the transfer pricing adjustment with reference to the lower end of +/- 5% arm's length range as provided in proviso to section 92C(2) of the Act. Ground No. 2: a) The Hon'ble DRP/Ld. AO erred in not granting the claim of weighted deduction u/s. 35(2AB) amounting to Rs. 76,28,284/- in respect of capital as well as revenue expenditure incurred for carrying out the research & development activities of the business despite compliance with all the conditions of the provision. b) The Hon'ble DRP/Ld. AO further erred in not considering the alternative claim of the appellant in granting the allowance of the eligible amount of Rs. 6,17,377/- in terms of provisions contained in Sec.35(1)(iv) allowing the deduction in respect of any expenditure of capital nat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . 1,30,01,806/- on the ground of non-submission of the Form No.3CK to 3CM along with the return of income filed. The disallowance being bad in law and in facts is prayed to be directed to be allowed. 3. The Ld. Commissioner of Income Tax (Appeals)-I, Baroda has erred in facts and in law in confirming the action of the Ld. A.O. in disallowing an amount of expenses claimed of Rs. 3,23,170/- as prior period expense. The disallowance is confirmed without considering the submission of the appellant being bad in law and in facts and hence the same is prayed to be allowed. 4. The Ld. Commissioner of Income Tax (Appeals)-I, Baroda has erred in facts and in law in confirming the action of the Ld. A.O. in making disallowance of depreciation in respect of excess Cenvat Credit availed on capital good and thereby making disallowance of Rs. 16,68,060/-. The disallowance is confirmed without considering the submission of eh appellant being erroneous in facts and in law and the same is prayed to be allowed." 3. So far as the grievance raised in first ground of appeal of the assessee is concerned, the relevant material facts are like this. The assessee before us an Indian company which is who ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... prices so determined are followed for all the product deliveries made pursuant to relevant sale contracts". The assessee further explained that the assessee has an ongoing arrangement with its AE under which the AE is obliged to purchase at least 50% of its production, and to make advance payment along with purchase order 120 days before the expected date of deliveries. The assessee also pointed out certain factual errors in the computations made by the assessee. It was then explained that if at all the sale prices to non AEs are to be taken as valid internal CUP inputs, adjustments are required to be made in respect of (i) advance payments, (b) guaranteed sales of 50% products, (iii) absence of credit risk and (iv) absence of sales and marketing costs. These adjustments were claimed at 8%, 20%, 3% and 5% respectively. The TPO rejected these contentions, though he did rectify some of the errors pointed out by the assessee. An ALP adjustment of Rs. 1,12,40,558 was accordingly recommended. 6. Aggrieved by the adjustment so proposed, assessee carried the matter in appeal before the DRP but without any success. The DRP noted that aggregation of transactions, which is what average pric ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ought by the assessee. The DRP accepted the plea of the assessee to the extent that the relevant date is the date on which sale contracts are entered into rather than the date of actual sales and to that extent remitted the matter to the file of the TPO for fresh examination. The assessee is not satisfied by the stand so taken by the DRP and is in appeal before us. 7. We have heard the rival contentions, perused the material on record and duly considered facts of the case in the light of the applicable legal position. 8. As learned senior counsel rightly contends, the fundamental issue that we are required to adjudicate in this case is whether aggregation of transactions, which are entered into in a single contract though not necessarily at the same price, is permissible- particularly when the same principle has been permitted in all the earlier assessment years. As to the question, whether such an approach is permissible, we find some judicial precedents to support this approach. We find that, in the case of Knorr Bremese India Pvt Ltd Vs ACIT [(2016) 380 ITR 303 (P&H)], Hon'ble Punjab & Haryana High Court has observed that "The doubt, if any, in this regard is set at rest by ru ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f Radhasoami Satsang Vs CIT [(1992) 193 ITR 321 (SC)], " each assessment year being a unit, what is decided in one year may not apply in the following year but where a fundamental aspect permeating through the different assessment years has been found as a fact one way or the other and parties have allowed that position to be sustained by not challenging the order, it would not be at all appropriate to allow the position to be changed in a subsequent year". In this view of the matter, there is no good reason to take a different stand now and claim that aggregation of transactions cannot be permitted in this assessment year, so far as benchmarking of ANH sales to AE is concerned. The plea of the assessee is indeed well taken and it merits our acceptance. We have also noted that there is no dispute that once this principle is adopted, the benchmarking done of the assessee is to be accepted and the transactions are to be held as arm's length transactions. The assessee, therefore, deserves to succeed on this issue. Having said that, we must clarify that we refrain from making any observations on merits regarding application of aggregation principle in general and that our conclusions a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e allowed the expe4nediture incurred in the purchase of plant and machinery of an amount of Rs. 6,17,377/- at 100% in terms of provisions contained in sec.35(1)(iv) providing for deduction in respect of any expenditure of a capital nature on scientific research related to the business carried on by the assessee as admissible under sub-section (2) of section 35. Sub-section (2) of section 35 bars the claim of allowance of expe4nditure of capital nature incurred in the purchase of land and, therefore, the expense incurred on plant and machinery is eligible for allowance. 15.12 We have considered the alternate submission of the assessee carefully. From the records it is observed that during the course of assessment proceedings also the assessee had made similar claim before the Assessing Officer, which was not accepted by the AO as the necessary details were not submitted by the assessee. Before us also the assessee apart from making general claim has not submitted any details/proof in support of its claim. In absence of any details/proof, the assessee's claim in this respect is rejected." 12. We have heard the rival contentions, perused the material on record and duly considered ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t's decision in (2014) 41 taxmann.com 149 (Gujarat) CIT vs. Amoli Organics (P.) Limited, holding that if the assessee has deposited the above contributions within the grace period, the impugned disallowance is not sustainable. 16. Revenue fails to rebut this legal position. We thus remit the issue back to the file of the Assessing officer for factual verification and allow the impugned contribution to the extent that has been deposited within the stipulated grace period. This ground of assessee's appeal succeeds for statistical purposes. 17. Assessee's next substantive ground challenges both the lower authorities' action disallowing a sum of Rs. 1,64,045/- (i.e. Rs. 2,98,263/- being 1/5th expenses less Rs. 1,34,218/- involving 10% depreciation claim) regarding repair and replacement expenses of its building's roof holdings. The Assessing Officer treated the same as capital expenditure to allow depreciation @ 10%. He found the assessee to have incurred the expenditure in question on replacing of plant building's roofing. 18. We come to learned DRP's findings. It observes that the above expenses have not been incurred on current repairs as the assessee itself had treated the impug ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the course of proceedings before the DRP the assessee has made elaborate submission as under. 19.2 The expenditure is incurred in the previous year 2004-05 relevant to A.Y. 2005-06 and the expenditure is for purchase of stores & spares in bulk to be utilized over a period of 2-5 years. Considering such estimated life, it is amortized accordingly. For the same reasons and the law as discussed in relation to the claim for amortized expense of repairs to building, the claim is allowed as made. 19.3 The particulars of expense is enclosed indicating the description of the items purchased as well as evidencing that such items are not independent items of equipment which can independently function. 19.4 The amortized claim of similar expense in the A.Y. 2005-06 is accepted by the Assessing Officer and following the rule of consistency, he ought to have allowed the same. 19.5 The assessee's submissions have been considered carefully, but the same are found not acceptable. The assessee has submitted that the expenses claimed on account of stores and spares were incurred in the previous year 2004-05 relevant for the assessment year 2005-06 and the assessee has amortized the same ..... X X X X Extracts X X X X X X X X Extracts X X X X
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