9911796707
TMI Blog2019 (6) TMI 660X X X X Extracts X X X X X X X X Extracts X X X X ..... where this very same issue was examined. The Tribunal has set aside the matter to the file of the TPO with certain directions. Consistent with the view taken therein, we restore the matter to the file of the TPO for fresh adjudication in accordance with the law. Determination of ALP of international transactions for Purchase of equipment for financial lease from AE - MAM selection - HELD THAT:- We find strength in the argument of the assessee that the purchase price of the equipment cannot be determined based on ROCE adopting TNMM as the MAM. This does not appear to be a correct method. CUP is a more direct method and when internal CUP is available for determination of ALP, it would be the most direct method and this, in our view, has to be adopted as the MAM. As submitted cost of imported equipment is the basis on which the assessee determines the rate of return to be charged from the ultimate customer and that if the price of the purchase is inflated, then the rate of return would also be high. Only adjustments that could be made is on account of depreciation on these assets, as this is the only item of expenditure that affects the profit loss account. We would not e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... isallowance of claim of depreciation on equipment leased by the assessee under financial lease arrangement 6. The AO in this case has not followed the binding judgment of Hon ble Supreme Court in the case of ICDS Ltd. V CIT [Civil Appeal No.3282 of 2008) . He has from page 6 onwards in his order recorded views contrary to the ratio laid down by the Hon ble Supreme Court. This cannot be approved. He relied on the judgment of Hon ble Supreme Court in the case of M/s. Asea Brown Boveri Ltd. v. Industrial Finance Corporation of India Ors. in CA 3574 of 1998 dated October 27, ,2004. This judgment is not on the issue of claim of depreciation of assets given on financial lease under the Income-Tax Act, 1961 [ the Act ]. This judgment was rendered in an appeal under section 10 of the Special Courts (Trials of Offences relating to Transactions in Securities) Act, 1992. In fact, the judgment of Hon ble Supreme Court in the case of ICDS Ltd. (supra) has been delivered much after the judgment in the case of Asea Brown Boveri Ltd (supra) . Hence, these findings of the ld. AO, which were approved by the DRP are hereby reversed as these are not in accordance ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 12. The first issue that arises for adjudication for AY 2013-14 is grant of depreciation on assets given on financial lease. Consistent with the view taken by us on this issue in the earlier AY 2011-12, we set aside the matter to the file of AO with a direction to apply the decision of the Hon ble Supreme Court in the case of ICDS Ltd. (supra) and grant depreciation, wherever the terms conditions of the financial lease agreements entered into by the assessee is similar to the terms conditions of the financial lease agreements considered by the Hon ble Supreme Court. The assessee is directed to produce the copies of agreements as desired by the AO for verification. In the result, this ground is allowed for statistical purposes. 13. The second issue that arises before us is determination of arm s length price (ALP) of international transactions for Purchase of equipment for financial lease from AE . The assessee determined the ALP by adopting the Transactional Net Margin Method (TNMM) on the ground that the same is the Most Appropriate Method (MAM). The Return of Capital Employed (ROCE) was taken as Profit Level Indicator (PLI) in the TNMM analysis. As ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n on the leased assets in its books of accounts. However, for computing the taxable income under the Indian Income Tax Law, it has treated the finance lease transaction as pure lease transaction and claimed depreciation on the leased assets. It is not clear whether the comparables chosen by the assessee have adopted the same method of accounting in respect of their lease transactions. Such being the case, comparing the profits after depreciation for ALP analysis would be inappropriate. When there are differences in the claims of depreciation of the tested party itself (the claim in the books of accounts and claim under the Indian Income Tax Law are different), comparing the profits before depreciation would not lead to correct results. Therefore, the PLI chosen by the taxpayer (PBIT/Capital employed) cannot be accepted. Therefore, in view of section 92C(3)(c), it is relevant to hold that the data used in computation of the arm's length price is not reliable or correct. The TP analysis done by the taxpayer is rejected and the TPO proceeds to determine arm's length price by conducting an independent search for comparables considering the function ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ee has not claimed depreciation in its books of account on financial lease transaction, though depreciation had been claimed while computing the taxable income. 19. He further submitted that the adjustment proposed would result in reduction of income u/s. 92(3) of the Act and pleaded that such adjustment reducing the income is not permissible. He filed a computation to demonstrate his claim of reduction of income. He pointed out that the purchases from related party is only 16.51% of total transactions and hence adjustment in question should be restricted to such transaction only as they are relatable to international transactions with AE. 20. On merits of the adjustment made, by following the TNMM as a MAM and for arriving at the ROCE, he submits that :- (a) provision in NPA should be considered as non-operating item as it is not allowable as a deduction claimed u/s. 36(1)(vii) of the Act; (b) the double disallowance of the same expenditure is bad in law for the reason that, provision made for NPA by the assessee had been disallowed suo motu while computing taxable income and hence considering the same as an operating i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng the rival contentions, we are of the considered opinion that the argument of the ld. counsel for the assessee that the ALP of the equipment purchases and imported by the assessee cannot be determined by computing the ROCE at the entity level by using TNMM as the MAM. The assessee states that only 16.51% of its total transactions were from the AE during the year. The PLI was calculated on the entire assets given on lease (operating and finance) and the adjustment of ₹ 50.72 crores pertain to the entire transaction and was not proportionate to the purchase and import of equipment from AE. The ld. DR agrees that a mistake has crept into the computation of ALP for the purpose of determination of the TP adjustment, as it is well settled that the adjustment can be restricted to only quantum of international transaction with the AE. 25. We find strength in the argument of the assessee that the purchase price of the equipment cannot be determined based on ROCE adopting TNMM as the MAM. This does not appear to be a correct method. CUP is a more direct method and when internal CUP is available for determination of ALP, it would be the most direct me ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
