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TMI Blog2019 (8) TMI 443X X X X Extracts X X X X X X X X Extracts X X X X ..... nst appeal of Revenue for assessment year 2009-10. 2. This bunch of cross appeals filed by assessee and Revenue and also Cross Objection filed by assessee on similar issues were heard together and are being disposed of by this consolidated order for the sake of convenience. However, in order to adjudicate the issues, reference is being made to the facts and issues in ITA Nos.514/PUN/2014 and 566/PUN/2014, relating to assessment year 2009-10. 3. The learned Authorized Representative for the assessee pointed out that major issues raised in the present bunch of appeals stand covered by the orders of Tribunal in assessee's own case starting from assessment year 2005-06 followed in assessment years 2006-07 to 2008-09. 4. First, we take up appeal of assessee in ITA No.514/PUN/2014, relating to assessment year 2009-10 wherein the assessee has raised the following grounds of appeal:- 1. The learned Assessing Officer erred in making addition to the total income of the Appellant of Rs. 22,18,12,968 on account of transfer pricing adjustments by not considering the transfer pricing analysis documented in transfer pricing report for AY 2009-10. The Appellant prays that the addition made ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ment for the differences in the functions, risks and assets for AY 2009-10. 6. The learned Assessing Officer erred in computing the arm's length price of the international transactions without taking into account the benefit of +/- 5 per cent variation from the mean, which is permitted and opted for by the Appellant under the provisions of section 92C(2) of the Act. The Appellant prays that benefit of the +/- 5 per cent range as available under the proviso to section 92C(2) of the Income-tax Act, 1961 be allowed to the Appellant while carrying out transfer pricing adjustments in AY 2009-10. 7. The learned Assessing Officer erred in disallowing the royalty expenditure of Rs. 8,10,18,409 as capital expenditure for AY 2009-10. The Appellant prays that the entire royalty expenditure of Rs. 8,10,18,409 should be allowed as revenue expenditure for AY 2009-10. 8. The learned Assessing Officer erred in disallowing the expenditure of Rs. 1,24,78,000 on homologation as capital expenditure for AY 2009-10. The Appellant prays that the entire of expenditure on homologation of Rs. 1,24,78,000 should be allowed as revenue expenditure for AY 2009-10. Additional ground with respec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... asion. 10.4 On the facts and the circumstances of the case, a transfer pricing adjustments /additions/variations cannot be made without arriving at the finding that the intention of the assesses was to evade tax and shift profits outside of India. Further, such finding of tax evasion and of shifting of profits constitutes a condition precedent for making the Transfer Pricing Adjustment. 10.5 The transfer pricing adjustments/additions/variations made by the Assessing Officer is bad in law, illegal, without jurisdiction and contrary to and/or beyond and in excess of the express statutory provisions of the Act including sections 4, 5, 9, 92, 92C, 92CA, etc. The approval of the CIT under section 92CA(1) is also not in accordance with law and hence adjustment must be quashed. 10.6 The Appellant requests your Honours to kindly admit the additional ground of appeal and prays that the transfer pricing adjustments/additions/variations made by the learned AO under section 143(3) of the Act should be deleted. Your Honours would appreciate that additional ground can be raised at appellate stage, if the facts in connection with the issues raised, are on record. In support of the said pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lation of PLI - a. When such expenditure is clearly not part of the operating income of Assessee Company and without prejudice the same should have to be included in the peers companies to maintain the comparability. 7. However, during the course of hearing, the learned Authorized Representative for the assessee pointed out that in case the issue raised in grounds of appeal No.1 to 6 is decided, which admittedly stands covered by earlier order of Tribunal, then there is no need to adjudicate the additional grounds of appeal. So, first we address the issue raised vide grounds of appeal No.1 to 6, 9 and additional ground of appeal No.10. 8. The issue raised vide above said grounds of appeal is against adjustment made by comparison of margins of Completely Built Units (CBUs) to the margins of spares. The assessee was engaged in the manufacture and sale of Mercedes Benz cars, automobile parts, components and consumables. The assessee in addition to manufacturing Mercedes Benz cars had also imported Completely Built Units (CBUs) from the parent company. The sale of cars was normally done through dealers. In addition to import of CBUs, the assessee had also imported spare parts or p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ad applied RPM method to compare the margins of CBUs with margins of spare parts, we deem it fit to restore this issue back to the file of Assessing Officer/TPO who shall compare the margins shown by assessee on aggregate basis with finally selected mean margins of comparables and in case it is to be found to be within +/- 5% range, then no addition is warranted in this regard. We direct the Assessing Officer to follow our directions in para 17 of order dated 30.04.2019, which is being referred to but not being reproduced for the sake of brevity. 11. The ground of appeal No.1 raised by assessee is general in nature and hence, does not need any adjudication. 12. The grounds of appeal No.2 and 3 raised by assessee are thus allowed as per our directions in the paras above. The grounds of appeal No.4 and 5 as admitted by assessee would become academic, once the grounds of appeal No.2 and 3 are allowed and similarly, ground of appeal No.9 and additional ground of appeal No.10 would become academic. 13. Now, coming to ground of appeal No.6, which is against allowability of +/- 5% range which stands allowed in the case of assessee. 14. The Revenue is also in appeal for the year under ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oduct to be launched has to conform to various norms, procedures, standards, etc. The Assessing Officer was of the view that since from the nature of expenses it was seen that homologation was meant for product before its launch and the benefits were spread over number of years, hence debiting the expenditure in a single year would give distorted picture of the income of assessee for that year. In view of that, he treated homologation expenses as capital expenditure and disallowed the same. The Dispute Resolution Panel (DRP) dismissed the objections raised by assessee and upheld the disallowance made by the Assessing Officer, which was then made by Assessing Officer in final assessment order. 20. The learned Authorized Representative for the assessee in this regard pointed out that in earlier years i.e. assessment years 2002-03 to 2004-05, the issue was allowed by the Tribunal, where an adhoc disallowance was made out of homologation expenses. In assessment year 2005-06 to 2008-09, no disallowance was made by Assessing Officer himself and thereafter, in the instant assessment year, disallowance has been made holding expenses to be capital in nature. It was pointed out by the learn ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... perspective, it cannot be used in new cars. The assessee had debited cost of such material consumed during homologation process and also the cost of certification under the head homologation cost. It was put to the assessee that what happens to the engines in fully built cars or new cars, which were sent for certification and it was fairly pointed out that in case they were in usable condition, the same were not destroyed. In case of any technical variation in any existing vehicle or any of the components that the assessee wants to introduce in the existing vehicles, it was incumbent upon the assessee to get homologation certificate before any change was so introduced. Another expenditure which was incurred was that ARAI may in random, choose any car (as produced) for conducting conformity of production. Hence, it were not only the initial stage for which specifications need to be approved from ARAI but even for the existing vehicles, random checks were made that the assessee was manufacturing the same in conformity with the procedure laid down. The expenditure thus, laid out was for the purpose of smooth running of business and the revenue expenditure merits to be allowed in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... No.328/PN/2014, relating to assessment year 2009-10, order dated 19.10.2016 and it was held that where Euro rates had fallen, then it was an unique event for this year and such foreign exchange loss was to be excluded while computing PLI of assessee. We find merit in the claim of assessee in treating foreign exchange loss as non-operating in nature. There was fluctuation in the rate of Euro / INR rates when compared to the previous year and the market witnessed around 14.10% increase in Euro / INR rates. In such facts and circumstances, where the phenomenon was unique, then the same is to be excluded while computing PLI of assessee. 29. We find that same ratio has been laid down by the Tribunal in Demag Cranes & Components (India) Pvt. Ltd. Vs. DCIT (supra). The year under appeal in the case of Demag Cranes & Components (India) Pvt. Ltd. Vs. DCIT (supra) and the assessee is same. Following the same parity of reasoning, we direct the exclusion of foreign exchange loss while computing PLI of assessee company. Upholding the order of DRP, we dismiss the ground of appeal No.2 raised by Revenue. 30. Now, coming to the last issue raised by Revenue i.e. ground of appeal No.3, which is a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reasonable opportunity of hearing to the assessee. Consequently, grounds of appeal No.3 to 5 are allowed and the ground of appeal No.1 thus, becomes academic and the same is dismissed. The learned Authorized Representative for the assessee pointed out that once the grounds of appeal No.3 to 5 are allowed, then grounds of appeal No.6 to 10 raised by assessee would become academic, hence the same are dismissed as academic. 35. The issue raised in ground of appeal No.11 is against treatment of royalty payment as capital expenditure instead of revenue expenditure. This issue has been decided in the hands of assessee since assessment year 2002-03 onwards and following the same parity of reasoning, the royalty has been allowed as revenue expenditure in the hands of assessee. Accordingly, we direct the Assessing Officer to apply the same proposition and allow the claim of assessee in entirety. 36. Now, coming to appeal filed by Revenue in assessment year 2010-11, wherein the grounds of appeal No.1 to 6 have been raised against order of DRP in allowing homologation expenses as revenue expenditure. The Revenue is aggrieved by the order of DRP as in earlier year the Assessing Officer had ..... X X X X Extracts X X X X X X X X Extracts X X X X
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