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TMI Blog2020 (5) TMI 20X X X X Extracts X X X X X X X X Extracts X X X X ..... the margin of the transaction with the AE @ 5.94% compares favourably with the margin of non AE transaction @ ( ) 8.69% - looked at from any angle, the price charged for transaction with the AE, undoubtedly, appears to be at arm's length requiring no further adjustment. In view of the aforesaid, we uphold the decision of the Commissioner (Appeals) on the issue by dismissing the grounds no.1 and 2, raised by the Revenue. Claim of foreign exchange fluctuation loss - AO disallowed assessee s claim of foreign exchange loss arising out of external commercial borrowing (ECB) merely on the ground that they are contingent in nature - HELD THAT:- As could be seen from the material on record, identical issue came up for consideration before the Tribunal in assessee s own case for the assessment year 2007 08. ECB was availed for the purpose of expansion of three existing industrial units, hence, not on capital account and further taking note of Accounting Standard/11 r/w Accounting Standard/16, ultimately concluded that assessee s claim of loss is allowable. The contention of the learned Authorised Representative that in subsequent assessment years, the Revenue has accepted simila ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... D THAT:- No enquiry has been conducted by the Assessing Officer to demonstrate that there is a cessation of liability. Merely because the liability is pending for more than three years, it cannot be presumed that it has ceased in terms of section 41(1) of the Act. Further, it is evident, before the first appellate authority, the assessee had submitted that a part of the outstanding liability was paid in subsequent assessment year and the balance amount has been written back and offered to tax. However, learned Commissioner (Appeals) without examining the aforesaid facts has sustained the addition made by the AO. The fact that the assessee has paid part of the liability in the subsequent assessment year, demonstrates that the liability has not ceased to exist in the impugned assessment year. Further, the balance amount which remained to be paid is stated to have been offered to tax in the assessment year 2009 10. If the aforesaid is the factual position, no addition can be made by invoking the provisions of section 41(1) of the Act. Subject to verification of assessee s claim that part of the amount was paid to the creditors and the balance amount has been written back and offere ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the year under consideration the assessee has entered into certain international transactions with its overseas Associated Enterprise (AE) as well as independent parties made a reference to the Transfer Pricing Officer to determine the arm's length price of the international transaction with the AE. In the course of proceedings before him, the Transfer Pricing Officer noticed that in the year under consideration, the assessee had manufactured and exported certain agrochemical product both to its AE as well as third parties. For benchmarking such transaction, the assessee has selected TNMM as the most appropriate method with net cost plus (NCP) as the profit level indicator (PLI). He found that as per the transfer pricing study report, the assessee had compared its NCP with the weighted average NCP of certain independent comparables. Since the weighted average margin of the comparables on the basis of single year data was @ 8.03% as against assessee s PLI of 10.35%, the transaction with the AE was claimed to be at arm's length. After perusing the transfer pricing study report, the Transfer Pricing Officer called upon the assessee to explain the basis of allocation of revenu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... orwarded to the Transfer Pricing Officer seeking his comment. The Transfer Pricing Officer vide letter dated 24th February 2017, offered his comments on the additional ground raised by the assessee. After perusing the submissions of the assessee as well as the Transfer Pricing Officer s report and other facts and materials on record, he found that during the year under consideration, the assessee has effected sales to both the AE and non AEs. Further, he observed, in the remand report the Transfer Pricing Officer has not made any adverse comment with regard to the applicability of internal TNMM. Further, he observed, in the course of proceedings before the Transfer Pricing Officer, the assessee had also furnished audited segmental Profit Loss Account with regard to the AE and non AE transactions. Whereas, the Transfer Pricing Officer has not pointed out any defect or discrepancy in the audited segmental accounts. He observed, even if the Transfer Pricing Officer s methodology of ignoring other income and allocating other operating expenses and depreciation on the basis of sales is adopted, still margin earned by the assessee on AE sales at 5.94% is much higher than the margin of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... thod. Thus, he submitted, the decision of learned Commissioner (Appeals) on the issue has to be upheld. He relied upon the following decisions: i) Mattel Toys India Pvt. Ltd. v/s DCIT, ITA no.2476/Mum./2008, etc., dated 12.06.2013; ii) CIT v/s Tata Power Solar System Ltd., ITA no.1120 of 2014, dated 16.12.2016; iii) SI Group India Ltd. v/s ACIT, etc., ITA no.1307/Mum./2014, etc., dated 19.06.2019; iv) M/s. Tecnimount ICB Pvt. Ltd. v/s ACIT, etc., ITA no.4608/ Mum./2010, etc., dated 17.07.2012; and v) DCIT v/s Epcos Ferrites Ltd., ITA no.1597/Kol./2017, etc., dated 30.01.2019. 7. We have considered rival submissions and perused the material on record. The short issue before us is, whether the arm s length price of international transaction with the AE is to be determined by applying external or internal TNMM. Undisputedly, the adjustment made by the Transfer Pricing Officer relates to the arm s length price of export of goods to the AE. It is evident, the Transfer Pricing Officer in his order has accepted that the assessee has sold its manufactured products both to the AE and the non AEs. Further, the Transfer Pricing Officer has accepted that in respons ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rth mentioning, before us the learned Departmental Representative had submitted that for applying Internal TNMM there has to be product similarity. However, we are not convinced with the aforesaid submission. On a careful reading of rule 10B it becomes clear that unlike Comparable Uncontrolled Price (CUP) method, product similarity is not a relevant factor under TNMM as the net margins of the controlled as well as uncontrolled transactions have to be compared. In the facts of the present case, the assessee has furnished the audited segmental accounts of both AE and non AE transactions. Pertinently, even the Transfer Pricing Officer has also not applied CUP but has determined the arm's length price by applying external TNMM. Thus, in our considered opinion, there is nothing wrong in determining the arm's length price of the transaction with the AE by applying internal TNMM if relevant information relating to both the segments is available. The decisions relied upon by the learned Authorised Representative also support our aforesaid view. 9. From the facts on record, it is noticed that the net cost plus margin of the transaction with the AE is 10.35% as against margin of s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... val submissions and perused the material on record. Undisputedly, the Assessing Officer has disallowed assessee s claim of foreign exchange loss arising out of external commercial borrowing (ECB) merely on the ground that they are contingent in nature. However, as could be seen from the material on record, identical issue came up for consideration before the Tribunal in assessee s own case for the assessment year 2007 08. While deciding the issue in ITA no.180/Mum./2012, dated 22nd August 2015, the Tribunal after taking note of the fact that ECB was availed for the purpose of expansion of three existing industrial units, hence, not on capital account and further taking note of Accounting Standard/11 r/w Accounting Standard/16, ultimately concluded that assessee s claim of loss is allowable. The contention of the learned Authorised Representative that in subsequent assessment years, the Revenue has accepted similar claim of loss by the assessee remains uncontroverted. Keeping in view the aforesaid facts, we do not find any necessity to interfere with the decision of learned Commissioner (Appeals) on the issue. Grounds no.3 to 6, raised by the Revenue are dismissed. 16. Grounds no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... onstant monitoring. It is also observed, in similar circumstances disallowance under rule 8D(2)(iii) was made in assessment year 2007 08, which appears to have been accepted by the assessee. Therefore, some disallowance under section 14A r/w rule 8D(2)(iii) has to be made. However, such disallowance has to be restricted to the average value of only those investments which have yielded dividend income during the year. The Assessing Officer is directed to verify the aforesaid aspect and compute disallowance under rule 8D(2)(iii) accordingly. This ground is partly allowed for statistical purposes. 24. In ground no.2, the assessee has challenged confirmation of disallowance of ₹ 25,02,600, out of the expenditure incurred towards repairs to plant and machinery. 25. Brief facts are, during the assessment proceedings, the Assessing Officer noticed that the assessee has debited an amount of ₹ 1,35,27,569, towards repairs to plant and machinery. After calling for necessary details and perusing the same, he observed that on various occasions the assessee has paid substantial amount for purchase of materials. Alleging that detailed narration of nature of materials / items pu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent of spare parts, he cannot contradict himself by stating that the detailed narration of materials / items purchased are not available. As observed earlier, on a purely ad hoc basis a part of the expenditure incurred by the assessee has been treated as capital in nature. There is absolutely no basis for coming to such conclusion. When the expenditure incurred by the assessee has not been doubted, such disallowance purely on ad hoc basis without being backed by proper reasoning cannot be sustained. Accordingly, we delete the disallowance made by the Assessing Officer. This ground is allowed. 29. In ground no.3, the assessee has challenged the addition of ₹ 64,185, made by invoking provisions of section 41 of the Act. 30. Brief facts are, during the assessment proceedings the Assessing Officer on verifying the Balance Sheet of the assessee observed that the assessee has shown sundry creditors of ₹ 22,98,92,482, as at 31st March 2008. After calling upon the assessee to furnish certain details relating to the sundry creditors, the Assessing Officer observed that in respect of one party i.e., Abhinandan Rasayan Pvt. Ltd., an amount of ₹ 64,185, has been shown a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd offered as income in the assessment year 2009 10, the Assessing Officer is directed to delete the addition. 33. In grounds no.4 and 5, the assessee has raised the issue of provision made for loss arising on sales return amounting to ₹ 40,90,000. 34. During the assessment proceedings, the Assessing Officer noticing that the assessee has claimed ₹ 40,90,000 on account of provision for sales return, called upon the assessee to justify the claim. As observed by the Assessing Officer, in letter dated 20th December 2011, the assessee submitted that the provision was required to be added back while computing the income. However, erroneously, it remained to be added back. Further, the assessee requested the Assessing Officer to make the necessary adjustment to the income returned. After considering the submissions of the assessee, the Assessing Officer disallowed and added back the amount of ₹ 40,90,000, to the income of the assessee. 35. Before the first appellate authority, the assessee has raised an additional ground claiming deduction of the aforesaid amount. However, noticing that in the course of assessment proceedings, the assessee itself has accepted t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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