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TMI Blog2016 (8) TMI 1423X X X X Extracts X X X X X X X X Extracts X X X X ..... nalysis undertaken by the appellant in accordance with the provisions of the Act read with the Rules and making an upward adjustment of INR 27,368,690/- to the total income of the appellant by re-determining the arm's length price of international transaction by characterizing Motonic India as distributor. 3. The learned TPO/learned AO/Hon'ble DRP has erred in not taking cognizance of the market penetration strategy adopted by Assessee. 4. The learned TPO/learned AO/Hon'ble DRP has erred in rejecting the custom duty adjustment undertaken by the appellant. 5. The learned AO has erred in levying the interest amounting to INR 48,97,810 under section 234B of the Act despite the fact that the additions to income were unanticipated and there would be consequential reduction in the interest if the issues under the appeal are allowed. 6. The learned AO has erred in initiating penalty proceedings under 271(1)(c) of the Act despite the fact that the additions to income were arising out of difference of opinion with respect to Transfer pricing matters and the learned AO has not demonstrated that the assessee has concealed the particulars of income in his order. 7. The learned T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... onnected party has to penetrate the market, compete with the local manufacturers and thus required the Appellant to quote competitive prices while also matching the schedule of the unconnected party thereby requiring following extraordinary expenses to be borne by Appellant which ought to have been excluded in its ALP: b.1) Customs duty borne by the Appellant to suit supply & quality parameters laid down by unconnected part constitute extraordinary expenses which should not be taken into account for the purpose of determining the ALP. b.2) Air-freight expenses borne by Appellant to import certain consignment from the AE to suit the manufacturing schedule of the unconnected party constitute extraordinary, unanticipated expenses which should be excluded while computing the ALP." 5. The assessee has also filed petition for admission of additional grounds stating that these grounds are emanating from the order of the lower authorities and inadvertently, the assessee has omitted to raise these specific grounds relevant to the determination of comparable ALP. Considering the bona fide explanation given by the assessee, we are of the opinion that there exists a reasonable cause in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as held in Sony India (P) Ltd.'s case (supra), but what is to be really seen is whether this high import content was necessitated by the extraordinary circumstances beyond assessee's control. As was observed by a Co-ordinate Bench of this Tribunal in the case of E-Gain Communication (P) Ltd. (supra) "the differences which are likely to materially affect the price, cost charged or paid in, or the profit in the open market are to be taken into consideration with the idea to make reasonable and accurate adjustment to eliminate the differences having material effect". We do not agree with the AO that every time the assessee pays the higher import duty, it must be passed on to the customers or it must be adjusted for in negotiating the purchasing price. All these things could be relevant only when higher import content is a part of the business model which the assessee has consciously chosen but then if it is a business model to import the SKD kits of the cars, assemble it and sell it in the market, that is certainly not the business models of the comparables that the TPO has adopted in this case. The adjustments then are required to be made for functionally differences. The other way o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... authorities. Therefore, we are of the opinion, the issue should be set aside to the files of the TPO with direction to examine the claim of the assessee relating to the import cost factor and eliminate the difference if any. However, the TPO/AO/DRP shall see to it that the difference in question is 'likely to materially affect' the price/profit in the open market as envisaged in sub rule (3) of Rule 10B of the Income tax Rules, 1962. Accordingly, ground 4(b) is allowed pro tanto." Accordingly, we direct the A.O. to give suitable adjustment against the custom duty component while determining the ALP. 7. The next additional ground is with regard to air freight charges adjustment while computing the ALP. In our opinion, the assessee is in the field of manufacturing and testing of throttle body, rocker arm, solenoid valve, LPG gas mixer, vaporizer, LPG Tank etc. and the assessee has to transport the raw materials very urgently to meet the end of the customers. The assessee is importing the entire various components which is required to manufacture its final products. In the course, it incurred air freight charges, which is abnormal expenses and adjustments to be made while determin ..... X X X X Extracts X X X X X X X X Extracts X X X X
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