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TMI Blog2017 (9) TMI 1776X X X X Extracts X X X X X X X X Extracts X X X X ..... t due on Excise duty Non deduction of tax at source on payment towards technical fees and also rent - Held that:- Sum was allocated to different companies by TACO; the said amount was paid by TACO and the assessee reimbursed the same. In respect of Jamshedpur office also, it was pointed out that the recovery of rent was made from the assessee and in view thereof, there was no requirement to deduct tax at source. In view of the evidence produced, we find merit in the plea of assessee and direct the Assessing Officer to allow the claim of assessee. TPA - MAM selection - CUP method v/s TNMM - Held that:- We find no merit in the plea of assessee in the absence of any third party evidence and we reject the plea of assessee in this regard. Similarly, in respect of import of machinery where the assessee had purchased the machinery from its associated enterprises on its specification, CUP method cannot be applied to benchmark its transactions. In respect of export of goods, wherein the assessee had made a comparison between the margins of associated enterprises segment with non-associated enterprises but because of import of raw material being utilized by both the segments and the same bei ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... basis under TNMM method. Adjustment on account of such difference in the depreciation between assessee and comparable companies under TNMM method. not to be allowed - See VISHAY COMPONENTS PVT. LTD. VERSUS ASST. COMMISSIONER OF INCOME-TAX, CIRCLE-7, PUNE [2017 (2) TMI 636 - ITAT PUNE]. Proportionate adjustment to be made while applying TNMM method only to the international transactions undertaken and not at the entity level - Held that:- We find that the issue is covered by the ratio laid down in CIT v. Thyssen Krupp Industries India (P.) Ltd. [2015 (12) TMI 1076 - BOMBAY HIGH COURT] and CIT v. Keihin Panalfa Ltd. [2016 (5) TMI 203 - DELHI HIGH COURT]. Hence, we direct the TPO to compute transfer pricing adjustment, if any, only with respect to international transactions. Computation of operating margins of assessee by considering the interest expenditure, loan processing charges and loss on disposal of assets as operating expenditure - Held that:- Issue of working of operating margins on account of loss on disposal of assets, loan processing charges and interest expenditure, whether is non-operating or operating in nature, has not been looked into either by the TPO or by the CIT ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... allowed though on different grounds. X X X X Extracts X X X X X X X X Extracts X X X X ..... ant should be accepted. Ground 6: Application of TNMM as most appropriate method Based on the facts and circumstances of the case and in law, the Ld. CIT(A) has erred in confirming the following actions of Ld. Assessing Officer. 6.1 Selecting inappropriate comparables to benchmark the international transactions of the Appellant under TNMM. Prayer The Appellant prays that the Ld. AO/TPO should be directed to select appropriate comparable as submitted in the form of additional evidence to Ld. CIT (A). 6.2 Computing the operating margin of the Appellant after considering the extraordinary expenditure in relation to excise duty payment amounting to ₹ 52,678,000 as an operating expense. Prayer The Appellant prays that the excise duty payment amounting to ₹ 52,678,000 should be considered as extraordinary expenditure while calculating the operating margin of the Appellant. 6.3 Not allowing for depreciation adjustment for the difference between the Appellant vis-a-vis comparables. Prayer The Appellant prays that the excess depreciation amounting to ₹ 82,28,000 should not be considered while calculating the operating margin of the Appellant. Ground ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... operating margin of the Appellant for transfer pricing analysis. The Appellant craves leave to add, alter, amend or withdraw all or any of the Grounds of Appeal and to submit such statements, documents and papers as may be considered necessary either at or before the appeal hearing." 5. The Revenue in ITA No.1026/PUN/2014 has raised the following grounds of appeal:- "1. Whether on the facts and in the circumstances of the case, the Learned CIT (A)-IT/TP erred in directing that disallowance on account of payment of earlier assessment year's excise duty in current assessment year be added to M/s. Yazaki India Limited's profit for calculation of Profit Level Indicator (PLI). 2. Whether on the facts and in the circumstances of the case, the Learned CIT (A)-IT/TP is justified in directing that while disallowance on account of payment of earlier assessment year's excise duty in current assessment year be added to profit in calculation of Profit Level Indicator (PLI) for M/s. Yazaki India Limited, when PLI of comparable companies was directed to be calculated as per financial results. 3. Whether on the facts and in the circumstances of the case, the Learned CIT(A)-IT/TP erred in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was a statutory duty and in any case, its deduction was governed under the provisions of section 43B of the Act. The assessee also clarified that it was neither fine nor penalty, hence, allowable. In respect of interest on deficit Excise duty of ₹ 1.07 crores, the assessee also claimed that the liability had crystallized during the year after search by the Excise Department, which was provided for during the year and paid off till July, 2005. Interest was paid under section 11AB of Central Excise Act, 1944 read with Rule 12 of CENVAT Rules 2002. The said interest was due because of delay in payment of Excise duty after the prescribed due date. Thus, the said interest was compensatory payment to government i.e. to compensate for delay in payment of duty and was neither fine nor penalty. It was a statutory duty which was paid before the due date of filing the return of income and was allowable in the hands of assessee. The assessee also explained that penalty of ₹ 11 lakhs imposed by the Excise Department was neither provided nor paid during the year, it was merely a contingent liability. The Assessing Officer noted that the assessee had two work units - one Export Orien ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 7; 1.84 crores, out of ₹ 10.93 crores for the quarter ending 31.03.2003, in respect of sale entitlements for DTA sales was also false and misleading and in fact the assessee was not permitted to avail any such entitlement. The assessee had wrongly availed CENVAT credit. The Assessing Officer thus, found that the assessee had planned the entire fraud with the sole and malafide intention of misuse of duty free raw material for the manufacture of goods for sale to customers in DTA and to evade payment of Central Excise, Customs duties. The assessee was thus, found to have infringed the proviso to section 3(1) of CEA, 1944. Consequent to search, the assessee admitted the charges leveled by the Excise Department in its show cause notice for infringement of law and paid defaulted duties and interest thereon, aggregating to ₹ 11.60 crores. The said were claimed as expenses by the assessee. The Assessing Officer notes that the assessee had carried out the said offences systematically over the previous year relevant to assessment years 2003-04, 2004-05 and 2005-06. The assessee had systematically over the said period removed the goods worth ₹ 45.32 crores without payment o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ut payment of said levies was both illegal and not allowed. 9. The second aspect which was considered by the Assessing Officer was whether or not the said expenditure on duty and interest was an admissible expense under section 43B of the Act. The expenses pertaining to previous years relating to assessment years 2003-04 to 2005-06 were part and parcel of expenses pertaining to previous year relating to assessment year 2005-06; they were not booked in the books of account of the assessee. Hence, the assessee claimed that they had crystallized only during the year and the same were claimed as deduction. Referring to various provisions of Central Excise Rules, 2002, the Assessing Officer held that the liability to be charged with Excise duty arose on production or manufacture of goods or articles and the same had to be paid immediately on removal of goods. Since the assessee had removed the goods in various years without payment of Excise duty and since all the goods were clandestinely removed from 100% EOU unit for sale to DTA unit during the relevant previous year, then liability to pay Excise duty arose and crystallized at the time of removal and not at the time of detection of n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the income of assessee. Further, ₹ 2,45,515/- was paid to TACO for technical fees for Mr. Shinohara from Japan. The payment of technical fees also attracts provisions of TDS and since no TDS was deducted, the same was added to the income of assessee. 13. Another adjustment made in the hands of assessee was on account of transfer pricing issue, wherein the Assessing Officer had made reference under section 92CA(1) of the Act. The Transfer Pricing Officer (TPO) vide order passed under section 92CA(3) of the Act, had proposed an upward adjustment of ₹ 14,09,92,866/- on account of international transactions, which was adopted by the Assessing Officer while framing assessment. 14. Now, coming to the order of CIT (A). The first issue of disallowance on payment of Excise duty and interest thereon, the claim of the assessee was that it had voluntarily paid the Excise duty of ₹ 10.53 crores under the proviso to section 3 and there was no element of penalty embedded thereon. In respect of another payment of ₹ 1,07,19,000/- i.e. interest on delayed payment of Excise duty was also claimed to have been voluntarily paid and no element of penalty was embedded in it. T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... creation of provision of interest and royalty. Regarding taxability of other transactions, it was noted that the said payments towards technical fees and rent to Jamshedpur office were not in the nature of reimbursement and the assessee was bound to deduct tax on source. In view thereof, the addition was confirmed. However, in respect of payment of technical fees, since the Assessing Officer had not examined the aspect of reimbursement, was held to be not sustainable. The findings of CIT (A) in respect of transfer pricing adjustment of ₹ 14.09 crores would be referred while deciding the TP issue. 16. The learned Authorized Representative for the assessee in respect of claim of deduction on account of Excise duty paid and interest on Excise duty after taking us through the facts of case, pointed out that the said demand was raised during the year consequent to the action taken by the Excise authorities and even if related to the past years, since the amount was paid during the year and was not claimed in earlier years as deduction, the same was allowable as deduction under section 43B of the Act. In this regard, the learned Authorized Representative for the assessee placed r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 000 Total 11,60,72,000 20. The assessee had made Notes 2(d) to the Accounts of the year ending 31.03.2005 which reads as under:- "In January, 2005, the central excise authorities had detected certain significant regulatory lapses in the manner in which goods manufactured in the Export Oriented Unit of the Company, were cleared to domestic customers and the consequent shortfall in payment of excise duties on such clearances. Consequent to this the Company has paid the deficient duties of ₹ 116,072 ('000) [including excise duty of ₹ 52,675('000) in respect of the earlier years and interest thereon of ₹ 10,719 ['000]. These payments have been provided for in the accounts of the Company for the year ended March 2005. However no provision has been made in the accounts for any penalties that may be levied due to regulatory lapses since the authorities have so far not made any demand for the same and the same are not ascertainable on a reasonably accurate basis. The penalties could be levied under the provisions of the Central Excise Act, 1944, the Customs Act, 1962 and the Foreign Trade (Development & Regulation) Act, 1992." 21. The assessee had two units operat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessee by way of tax, duty, cess or fees, under any law for the time being in force, shall be allowed in the year of payment, irrespective of previous year in which liability to pay such sum was incurred by the assessee, according to the method of accounting regularly employed by him. It is further provided that nothing contained in section would apply in relation to any sum which is actually paid by the assessee on or before the due date applicable for furnishing the return of income under section 139(1) of the Act. Under Explanation (2), it is further provided that any sum payable means a sum for which the assessee incurred liability in the previous year even though the same might not have been payable within that year under the relevant law. Thus, section 43B of the Act allows deduction on account of any tax, duty, cess or fees irrespective of the previous year in which the liability to pay such sum was incurred by the assessee. In other words, intention of the Legislature is to allow deduction under section 43B of the Act of a sum whether relating to previous year or to any earlier or later years. Explanation (2) further lays down that "any sum payable" means sum for which the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ch liability was incurred" and claim is to be allowed on the basis of actual payments. 25. The learned Departmental Representative for the Revenue on the other hand, had placed reliance on the ratio laid down by the Mumbai Bench of Tribunal in Chetna Zarda Co's. case (supra), wherein the assessee had suppressed its sales which were discovered in search conducted by the Excise Department, then the assessee's claim of payment of Excise duty was not allowed under section 43B of the Act, since some sales had been kept outside the books of account. The ratio laid down by the Mumbai Bench of Tribunal is not applicable to the facts of the present case, where the assessee had disclosed sales in its books of account, except showing the sales to be of EOU unit, whereas in fact the sales were made by DTA unit. Hence, no merit in the said reliance. 26. Applying the said principle to the facts of the present case, we hold that the claim of assessee is in respect of Excise duty paid and the interest on Excise duty paid in July, 2005 i.e. before the due date for filing the return of income under section 139(1) of the Act, for which a provision was made as on the close of the year. The said paym ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of appeal No.6.2 i.e. computation of operating margins by considering extraordinary expenditure in relation to Excise duty payment of ₹ 5.26 crores as not part of operating expenses. 31. The learned Authorized Representative for the assessee fairly pointed out that in case the said expenditure is allowed as business expenditure, then this ground of appeal would become academic in nature. 32. The learned Departmental Representative for the Revenue on the other hand, stressed that the Excise duty has an impact on the operating profits and hence, has to be considered as part of operating expenditure. 33. We have already decided the said issue in the paras hereinabove and allowed the claim of assessee. Once the Excise duty is allowed as expenditure, then Excise duty for the current year is to be included as part of operating expenditure. However, Excise duty relating to earlier years does not affect the margins of assessee for current year and the same is to be excluded. Accordingly, we hold so. 34. The next ground of appeal No.6.3 is against the order of CIT (A) in not allowing depreciation adjustment on account of excess depreciation of ₹ 82,28,000/-, while calculati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... evidence of associated enterprises having sold its goods to other parties on the basis of said price list or to file any other evidence establishing its claim that the associated enterprises were transacting on the basis of said price list. However, the learned Authorized Representative for the assessee had failed to file any such evidence before us. 38. The learned Departmental Representative for the Revenue pointed out that though the assessee pleads that it is a labour oriented unit but the functions performed by the assessee of procurement, manufacturing, marketing, sales and after sales service, in which Yazaki Corporation has no role to play, does not make the assessee to be labour oriented unit. The second issue which was raised by the learned Departmental Representative for the Revenue was that as per the provisions of the Act, what has to be selected is the most appropriate method and the same has to be applied to benchmark the international transactions. Further, referring to different methods provided, the learned Departmental Representative for the Revenue stressed that for applying CUP method, there should be various factors including product comparability, sourcing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ,128/- CUP 5 Technical Consultancy 5,30,245/- CUP 6 Interest on Delayed Payments 5,63,544/- CUP Total 80,57,67,355/- 40. During the course of TP proceedings, the TPO rejected the CUP method selected by the assessee, proposed the adoption of TNMM method as most appropriate method and also selected certain concerns as functionally comparable and asked the assessee to show cause as to why benchmarking should not be done for all the international transactions. Following TNMM method, the arithmetic mean of comparables, PLI worked out to 3.56%. The assessee explained that in respect of import of raw materials and consumables, materials are sold by Yazaki Corporation to any buyer at the price which is stated in the price list. In respect of import of machinery also, similar pleas were raised. As far as export of goods were concerned, the assessee pleaded that the margins earned on export to associated enterprises was comparable with the margins earned on sales to non-associated enterprises. The payment of royalty and technical fees was also held to be at arm's length price. The TPO rejected the claim of assessee of application of CUP method as the assessee despite being given ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d the assessee had also paid royalty on the export sales which had been made to Yazaki Corporation and hence, benchmarking done by the assessee was rejected. Similarly, interest on delayed payment of import price and royalty in the absence of valid comparability, was not accepted. The TPO on the other hand, proposed the application of TNMM method on the total turnover of assessee. The TPO considered comparables selected by the assessee on without prejudice basis as comparable as they were engaged in the same line of automobile industry except for the exclusion of the company Premium Auto Electricals. The arithmetic mean of PLI of set of comparables was 3.56% as against the operating profit of the assessee at (-) 8.3% and consequently, adjustment was made under section 92C of the Act at ₹ 14,09,92,866/-. 41. The CIT (A) upheld the order of TPO in rejecting the CUP method on the ground that Rule 10B(1a) of the Income Tax Rules, 1962 (in short 'the Rules') provides for comparison of controlled transactions with uncontrolled transactions for application of CUP method. However, the price list perse could not constitute uncontrolled transaction. It was further observed by the CIT ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... concern. 42. The first issue which arises before us is the application of most appropriate method. The case of assessee before the authorities below and in its transfer pricing report and even before us is the CUP method, is the most appropriate method. For applying CUP method, the assessee has in respect of transaction of import of raw materials relied on price list of associated enterprises from whom such raw materials were imported. The assessee was time and again asked to justify that the said goods were also sold by the associated enterprises to third parties. In this regard, the assessee has only furnished a certificate of CA without any supporting evidence that associated enterprises has sold the goods to other parties on the basis of price list. In this regard, it may be noted that though the assessee claims that it had bought the goods as per price list of associated enterprises but for the year under consideration, the assessee has shown loss in its hands from its transaction. Further, in the absence of assessee having established that price list was applicable to third parties for exports and in the absence of any third party evidence, we find no merit in the plea of a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... see and proceeded to benchmark the international transactions by selecting said companies as comparable. 44. Before the CIT (A), the assessee reiterated that the companies which were selected as comparables, manufactured, different finished products, which were not comparable to the products manufactured by the assessee and it also submitted the annual reports of said concerns and elaborate note providing the business description of the companies. The plea of assessee before the CIT (A) was that the companies which were selected by the TPO were in different sub- industries, though part of auto component industries. However, the assessee was in the business of manufacturing and selling of wire harnesses, which was very competitive business, but with low margins. The assessee stressed that the concerns which were primarily engaged in wire and harnessing should be selected as comparable. In this regard, additional evidence was furnished before the CIT (A) under Rule 46A of the Rules and identified the companies which were engaged in the said business and related products and selected two concerns i.e. Ellora Trading Ltd. and Minda S A I Ltd. The additional evidence was remanded to th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... presentative for the Revenue on the other hand, strongly objected to the additional evidence which was filed by the assessee before the CIT (A) and also referred to the observations of CIT (A) in respect of said two comparables selected by the assessee. 47. We have heard the rival contentions and perused the record. The limited issue which arises before us is that once the CUP method is rejected and TNMM method is held to be applied as most appropriate method, then the margins of assessee are to be compared with functionally comparable companies. The assessee during the TP proceedings had on without prejudice basis selected certain concerns which were in automobile sector and its components. The TPO selected five concerns out of six suggested by the assessee, had benchmarked the international transactions and determined the arm's length price of international transactions. The assessee before the CIT (A) pointed out that on later search, it has found two additional concerns to be in the same segment of wiring harnesses as that of the assessee and were functionally comparable to the assessee, as against the concerns which were initially selected. The plea of assessee in this regard ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... esult of evidence adduced by the taxpayer. Accordingly, it was held that the taxpayer could not be estopped from pointing out that data matrix of the concern taken wrongly as comparable. The Tribunal further noted that since transfer pricing was in the initial stages in the said year, a liberal approach be given and the assessee be allowed an opportunity to make out its case properly and place all the relevant facts before the tax authorities, so that proper arm's length price could be determined in accordance with law. 50. We further find that the Tribunal in Vishay Components (P.) Ltd. v. Asstt. CIT [2017] 79 taxmann.com 281 (Pune - Trib.), relating to assessment year 2007-08, order dated 10.02.2017, has also upheld the order of TPO in selecting the concerns as comparable on the basis of data which came in public domain after the TP study report. The relevant findings of the Tribunal in Vishay Components (P.) Ltd's case (supra), are as under:- "11. We have heard the rival contentions and perused the record. The first issue which arises by way of grounds of appeal No.2 and 4 raised by the assessee under transfer pricing provisions is the selection of data by the TPO during the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s. 14. Under section 92D of the Act, it is provided that every person who has entered into an international transaction is to keep and maintain such information and documents in respect thereof as may be prescribed. Rule 10D of the Rules prescribes the information and documents to be kept and maintained under section 92D of the Act. It is not any ones' case that the assessee has not maintained such documents as prescribed under Rule 10D of the Rules. The plea of the assessee before us is that by way of maintenance of such information and documents, the assessee is to keep a record of its international transactions and by way of clause (l) to also prepare the details of adjustments, if any, made to the transfer prices to align them with arm's length prices determined under these Rules and consequent adjustments made to the total income for tax purposes. The proviso under sub-rule (2) to Rule 10D of the Rules provides that the assessee shall be required to substantiate, on the basis of material available with him, that income arising from international transaction entered into by him has been computed in accordance with section 92 of the Act. Further, information which is specified ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... estic transaction] have not been kept and maintained by the assessee in accordance with the provisions contained in sub-section (1) of section 92D and the rules made in this behalf; or (c) the information or data used in computation of the arm's length price is not reliable or correct; or (d) the assessee has failed to furnish, within the specified time, any information or document which he was required to furnish by a notice issued under sub-section (3) of section 92D, the Assessing Officer may proceed to determine the arm's length price in relation to the said international transaction [or specified domestic transaction] in accordance with sub-sections (1) and (2), on the basis of such material or information or document available with him." 17. Under the said sub-section, the Assessing Officer during the course of any proceedings for assessment of income, on the basis of material or information or documents in his possession, is of the opinion that the conditions laid in clauses (a) to (d) are not fulfilled, then the Assessing Officer may proceed to determine the arm's length price in relation to such international transaction in accordance with sub-section (1) and (2), ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as the TPO may require on any points. Further, the TPO is also empowered to take into account such material which he has gathered i.e. the data. However, there is a restriction in the section itself that such data should be available in public domain. Such material collected to be used against assessee should be put to the assessee to explain. Further, as decided by us in the paras hereinabove in view of Rule 10B(4) of the Rules, the data should be relatable to the financial year in which the international transaction has been entered into. Thus, it is incumbent upon the TPO to ensure that all the conditions provided under the Act and as per the Rules are fulfilled. 19. In the facts of the present case itself, we have noted that the assessee had prepared its transfer pricing report and computed the PLI of comparables by adopting the data for preceding two years. The assessee in its transfer pricing report had not used the data of the year in which the international transaction had taken place to benchmark its international transaction to be at arm's length price or not. During the course of transfer pricing proceedings, the TPO show caused the assessee as to why instant year's d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is to be carried out by the TPO who in turn, has to determine the arm's length price of international transaction on the basis of information available with him and once such information is made available to him, then the same can be applied by the TPO after confronting the same to assessee, to compute the transfer pricing adjustment, if any, in the hands of the assessee. Accordingly, the TPO under the Act is fully justified in carrying out the fresh search, if needed, for identifying the comparable companies, may be additional and proceed with transfer pricing proceedings. Such data collected by the TPO cannot be called as non-contemporaneous, where the concerns picked up by the TPO are functionally comparable and the data for the relevant year was available. 20. We find support from the ratio laid down by the Bangalore Special Bench in Aztec Software and Technology v. ACIT (supra), wherein the Tribunal while considering the statutory provisions for determination of arm's length price of a taxpayer observed that the burden to establish the transaction to be at arm's length price was upon the taxpayer, who had to furnish comparable transactions, apply appropriate method for dete ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt of arm's length price by tax authorities could be deleted in appeal only if appellate authorities are satisfied and records a finding that arm's length price submitted by the assessee was fair and reasonable. The relevant findings of the Tribunal are as under:- "133. Having regard to the statutory provisions, particularly the mandate of sections 92(1) and 92D read with relevant rules, we hold that it is obligatory on the part of the taxpayer to furnish information relating to controlled international transactions, select a suitable method for determination and furnish ALP of such international transactions carried by it and give basis and supporting authentic evidence of ALP and adjustments made. The taxpayer has further to cooperate in the determination of the ALP by the tax authorities by furnishing all relevant information. The tax authorities in cases where they are of the opinion that ALP has not been correctly determined by the taxpayer, can substitute their own ALP on the basis of material or information furnished by the assessee or collected by them. However, such ALP has to be determined having in mind provisions of sections 92 and 92C and other rules and regulations. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the present case before us, where under the provisions of the Act itself, the TPO is empowered to substitute the arm's length price on the basis of material or information furnished by the assessee or collected by him. In case, such an authority has been delegated to the TPO and in exercise of such authority, certain information is collected by the TPO, which in turn, is confronted to the assessee and thereon applied to determine the arm's length price of international transaction, the said exercise of the jurisdiction by the TPO cannot possibly be questioned. Accordingly, we find no merit in the reliance placed upon by the learned Authorized Representative for the assessee. The learned Authorized Representative for the assessee further relied upon on other decisions which are factually different from the issue before us. Accordingly, we find no merit in the claim of assessee in this regard and upholding the action of TPO, the grounds of appeal Nos.2 and 3 raised by the assessee are dismissed." 14. The issue arising in the present grounds of appeal Nos.2 and 4 is identical to the issue before the Tribunal in assessment year 2006-07 and following the same parity of reasoning, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ut that annual report was not available in data base, he admitted that though annual report was not available but all the figures were there in prowess data base. He also pointed out that annual report of subsequent year was available and audited i.e. for assessment year 2006-07. Hence, the data which was available could be considered as reliable data. We find merit in the plea of assessee. Accordingly, we direct the Assessing Officer to benchmark the international transactions of assessee by applying TNMM method and comparing the margins of assessee with margins of two concerns i.e. Minda S A I Ltd. and Ellora Trading Ltd. as against the comparables originally adopted by the TPO and upheld by the CIT (A). The Assessing Officer shall determine the addition, if any, with respect to assessee's international transactions with its associated enterprises on an aggregate basis under TNMM method. This takes care of grounds of appeal Nos.6.1 and 7. 54. The issue in ground of appeal Nos.6.3 is against adjustment on account of rate of depreciation. 55. The plea of assessee before us was that it had provided for depreciation at rates higher than the rates prescribed in Schedule XIV of Compa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... depreciation from the profits for comparison under TNMM analysis distorts comparability analysis. There are varying opinions whether depreciation could be taken into account for working out the profits of an enterprise or not. The Bangalore Bench of Tribunal in Toyota Kirloskar Motors (P) Ltd. v. ACIT (2012) 28 Taxman.com 293 (Bang.) had in such circumstances observed as under:- "19.4.1 We have heard both parties and carefully perused and considered the material on record including the judicial decisions cited on both sides. There are varying opinions among experts whether depreciation should be taken into account for working out profits of an enterprise. One view is that it is not revenue deduction at all. As per that view, depreciation is only an annual loss in the cost / value of the capital assets due to factors like age of assets, their usage etc. and therefore allowance of depreciation, being capital in nature, should find no place in the computation of profits. The opposite view is that depreciation, though a capital loss, needs to be deducted, to replace the value of assets to the extent it has depreciated. Be that as it may, in the present case, ALP of the transactions ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ar. In such an instance, when the price is determined by considering the depreciation cost, excluding depreciation from the profits for comparison under TNMM distorts the comparability analysis. We are therefore of the opinion that in view of the finding of the Mumbai ITAT in the case of Fiat India Pvt Ltd (supra) in which the assessee therein is in the asset intensive automobile industry, as is the assessee in the present case, that cash PLI or PBDIT to sales is not the appropriate PLI and also note that the TPO has given depreciation adjustment for differences in relative level of depreciation cost with reference to sales. We, therefore, dismiss this ground raised by the assessee." 36. The learned Authorized Representative for the assessee has placed heavy reliance on the ratio laid down by the Delhi Bench of Tribunal in Schefenacker Motherson Ltd. v. ITO (supra), but the same has been distinguished by the later decision of Bangalore Bench of Tribunal in Toyota Kirloskar Motors (P) Ltd. v. ACIT (supra), where reliance is placed on the decision of Mumbai Bench of Tribunal in Fiat India Pvt. Ltd. v. DCIT (2010- TIOL-30-ITAT-Mum-TP). Hence, we find no merit in the said reliance pl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gin, then it was entitled to make an appropriate adjustment on account of higher depreciation charged during the relevant tax period due to change in the depreciation policy. The said plea of the assessee was also rejected since the change in policy was only in respect of some of the assets, otherwise the depreciation method had not changed. The plea of the assessee that suitable adjustment was warranted because of assessee's ratio of depreciation / sales was at 24% as compared to the average ratio of 5.48%, in case of comparable companies, was held to be irrelevant because depreciation had to be reckoned with cost of assets rather than sales. Another plea of the assessee that the TPO had accepted CP/S as PLI for subsequent tax period and to be applied in accordance with rule of consistency was also rejected as for two years subsequent to the relevant tax year the TPO had rejected the CP/S. 39. Further, in another decision of Delhi Bench of Tribunal in Honda Motorcycle & Scooters India Pvt. Ltd. in ITA No.1379/Del/2011, order dated 13.04.2015 involving the manufacturing enterprise where the TNMM method was adopted as most appropriate method, the Tribunal held that for the for pur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... being Income Tax Appeal No.1827 of 2013 relating to A.Y. 2005-06 and Income Tax Appeal No.171 of 2014 relating to A.Y. 2007-08. However, this Court by orders dated 22nd September, 2015 for A.Y. 2005-06 and 1st July, 2016 for A.Y. 2007-08, dismissed the Revenue's appeal. In the above view, the issue with regard to the exclusion of the DEPB benefit stands concluded by virtue of order of this Court against the Revenue and in favour of the respondent assessee. (e) So far as depreciation is concerned, we find that the analysis done by the Tribunal to include DEPB benefit to hold it to be an operating revenue to determine operating profit, would be equally applicable in case of depreciation for the purposes of holding it to be an operating expenses to determine operating costs. It must be borne in mind that the depreciation which is incurred by the comparables are not being excluded before arriving at the total cost while applying the TNMM method for the purposes of determining the ALP price of the respondent assessee's export to its Associate Enterprise. The comparison to determine the ALP has to the extent possible has to be done between like to like and similar to similar. One sided ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the same, additional grounds of appeal be admitted. 61. The assessee is aggrieved by the determination of operating margins of assessee, wherein the following items i.e. loan processing charges, loss on disposal of assets and interest on loan taken as operating in nature. The case of assessee is that the said items are on capital account and cannot be considered as part of operating cost for the purpose of calculating operating margins. Further, the assessee is also aggrieved in ignoring to consider scrap sales as operating income while computing operating margins of assessee. The claim of assessee in this regard is that scrap sales are linked to the regular manufacturing activities of the assessee and thus, should be considered as operating in nature. In the petition filed for admission of additional evidence, the assessee has pointed out that calculation of operating margins was submitted before the lower authorities. However, specific ground seeking for correct treatment of aforesaid items in calculation of operating margins was not taken before the lower authorities and hence, additional ground of appeal before the Tribunal. This issue vide additional ground of appeal No.9 i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... regard to loan processing charges and the nature of such charges. In respect of scrap sales, in case, it arises on account of business activity of the assessee, then the same is to be included in the hands of assessee as operating revenue. The Assessing Officer / TPO is also directed to verify this claim and allow the claim of assessee as similar claim has been allowed in the hands of assessee in later years. The Assessing Officer shall afford reasonable opportunity of hearing to the assessee. The ground of appeal No.9 raised by the assessee is thus, allowed for statistical purposes. 65. Now, coming to the last ground of appeal i.e. additional ground of appeal No.10 raised by the assessee against economic adjustment to be allowed on higher import content. 66. The additional ground of appeal raised by the assessee is a new plea raised before us i.e. in respect of economic adjustment for higher import content of assessee vis-a-vis comparable companies. The first aspect of additional ground of appeal is that no such plea was ever raised before any authorities below. The assessee in order to plead its case of economic adjustment for higher import content of the assessee vis-a-vis its ..... X X X X Extracts X X X X X X X X Extracts X X X X
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