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TMI Blog2021 (10) TMI 727X X X X Extracts X X X X X X X X Extracts X X X X ..... rts , which is one of the core components. The Learned DRP has noted that assessee is also engaged in manufacturing of power train components under engine parts. Regarding JBM Auto Systems Private Limited the assessee has claimed before the DRP that it was engaged in manufacturing of sheet metal components and tools and dies for automobiles, which falls in the nature of non-core components. The company India Nippon Electricals Ltd. has been retained as comparable on the ground that it is engaged in manufacturing of electronic ignition system for two wheelers, portable engines for three wheelers, flywheel magneto generator, capacitor discharge ignition unit etc. The company Indo Schottle Auto Parts Private Limited is engaged in manufacturing of collets, Mechatronic, valves, fuel system, turbocharger etc. The company Sakthi Auto Components Ltd. is engaged in manufacturing of iron casting. The company Gajra Gears Private Limited is engaged in manufacturing automotive gears. The company RACL Geartech Ltd. mainly manufacture automotive gears and components. The company has also diversified in the field of industrial gears for electrical switchgears and circuit breaks, w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ear under consideration as compared to preceding year - lower authorities have sustained the addition mainly due to non-furnishing of documentary evidence in support of claim of increase in cost of material and employee s benefit - HELD THAT:- As before us, the assessee has submitted one new reason of the lower not net profit rate as loss on account of foreign currency transaction, which was not incurred in immediately preceding assessment year. Both the parties agreed that issue need to be examined by the Assessing Officer, accordingly, we set aside the finding of the lower authorities and restore the issue to the file of the Learned Assessing Officer for examination and verification of contentions raised by the assessee of foreign currency transaction loss during the year under consideration. The grounds of the appeal are accordingly allowed for statistical purposes. Non-payment of excise duty liability - AO disallowed the claim of payment of the excise duty in view of the comment of the auditor in tax audit report that it was not possible for him to give the date of payment of excise duty - HELD THAT:- Now, before us, the assessee has submitted that actual payment of excis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rnational transactions undertaken by the appellant during the relevant assessment year. 2.1 That the Assessing Officer/ TPO erred on facts and in law in arbitrarily rejecting the benchmarking analysis undertaken by the appellant for benchmarking its international transaction by applying Transactional Net Margin Method ( TNMM ). 2.2 That the Assessing Officer/ TPO erred on facts and in law in making the aforesaid addition without appreciating the correct FAR analysis of business of the assessee. 2.3 That the Assessing Officer/ TPO erred on facts and in law in not appreciating that while applying TNMM with external comparables, in order to satisfy comparability criteria provided under Rule 10B(2) of the Income-tax Rules, 1962 ( the Rules ) companies engaged in providing identical business only ought to be considered as comparable. 2.4 That the Assessing Officer/ TPO erred on facts and in law in making the aforesaid addition without appreciating that expenditure incurred by assessee towards tools exclusively purchased for a related party was required to be excluded from the benchmarking analysis. 2.5 That the Assessing Officer/ TPO erred on facts and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t year, which is illegal and unsustainable in nature. 3.5 That the Assessing Officer erred on facts and in law in making the aforesaid disallowance without there being any legal mandate available with the Assessing Officer for doing so. 3.6 That the Assessing Officer erred on facts and in law in making the aforesaid disallowance without appreciating that the books of accounts of the appellant are duly audited by the statutory auditors and tax auditors of the company without pointing out any adversity/ irregularity therein. 3.7 That the Assessing Officer erred on facts and in law in making the aforesaid disallowance without appreciating that the expenses debited by the appellant in profit loss account for the relevant assessment year were allowable as deduction under the provisions of section 37( 1) of the Act. 4. That the assessing officer erred on facts and in law in disallowing an amount of INR 33,92,861 on account of alleged non-payment of excise duty liability. 4.1 That the Assessing Officer erred on facts and in law in disallowing the aforesaid amount without appreciating that the excise duty liability under consideration was duly discharge ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ned DRP, the Assessing Officer has passed impugned final assessment order. Aggrieved with the said order, the assessee is before the Tribunal raising the grounds as reproduced above. 4. Before us, the parties appeared through Video Conferencing facility and filed paper-book and other documents physically as well as through email. 5. The ground No. 1 (one) and 1.1 of the appeal are general in nature and, therefore, we are not required to adjudicate upon specifically. 6. The grounds No. 2 to 2.1 of the appeal relate to transfer pricing adjustment. The assessee has challenged the transfer pricing adjustment mainly on rejection of the benchmarking analysis of the assessee, not appreciating FAR ( functions carried out, assets employed and risk undertaken) analysis of the business of the assessee, wrong selection of comparables by the learned TPO, while benchmarking non-exclusion of expenditure incurred towards tools exclusively purchase related party, applying additional filters for selection/rejection of the comparable and wrong rejection of certain comparables selected by assessee; not allowing ideal capacity adjustment. 6.1 The brief facts qua the issue in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed mean margin of those comparables has been worked out to 4.81% as under: S. No. Company Name WC adjusted OP/OR 1. Omax Autos Ltd. 1.18% 2. Gajra Gears Pvt. Ltd. 1.58% 3. Talbros Automotive Components Ltd. 4.33% 4. Auto Ignition Ltd. 4.41% 5. Minda Industries Ltd. 4.41% 6. Munjal Auto Inds. Ltd. 4.63% 7. Rane T R W Steering Systems Pvt. Ltd. 4.81% 8. India Nippon Electricals Ltd. 6.49% 9. Setco Automotive Ltd. 6.77% 10. R A C L Geartech Ltd. 7.90% ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he light of decision of the Tribunal in the case of Nissin Brake India P. Ltd. Vs DCIT (2020) 116 taxmannn.com 576 (Delhi Trib.). He has submitted that in the case of Nissin Brake (supra), the Tribunal has held that in automotive industry, auto components can be divided into two parts. First one core components and others are non-core components . According to him, The Tribunal directed to compare entities engaged in manufacturing of respective components only and products of one Category cannot be treated as being comparable in terms of market position to the other. The learned Counsel submitted that this aspect of comparability has not been examined by the learned TPO and therefore issue of transfer pricing adjustment may be restored back to the file of the Learned AO/TPO for deciding afresh. (ii) The comparable companies selected by the Ld. TPO are engaged in research and development activity (R D) which own significant amount of intangibles assets, whereas, the assessee company is not engaged in any R D activity and in fact paying royalty to its AEs for technical know-how, which it uses for manufacturing exhaust systems. He submitted that impact of research and de ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ial on record. The assessee has carried out multiple international transactions, which includes, purchase of fixed assets, availing of technical guidance on tools and jigs design from Futaba, availing of technical services from YMP Press Dies (Thailand ) Co. P Ltd; import of the spares, raw material, finished goods and other consumables; payment of royalty and payment of service fee etc. The functions performed and risk undertaken under different international transactions has been reported by the assessee in its transfer pricing study (available on page 367 to page 372 of paper-book). For ready reference, the relevant analysis is reproduced as under: 4.2 Availing of Technical guidance on Tools and Jigs Design from Futaba FMI has entered into a license agreement with Futaba for granting of proprietary information and availing of technical support services from Futaba in relation to the information and trademark obtained on license. The scope of services includes the following: Providing instructions for the manufacture or fabrication of the products and operation method; Supervision of installation, wiring and piping of equipment or jig supplied by F ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uting the above mentioned technical services, personnel of Futaba may be required to make visits to India. Expenses pertaining to travel, accommodation other allowances of these personnel are borne by FMI. However, these people only make intermittent visits and continue to be employed by Futaba. Futaba is also responsible for ensuring that the proprietary information provided to FMI is free from any defect or error. If any defect, error or mistake is found in proprietary information, the same shall be corrected by Futaba at its own cost. FMI is responsible for adhering to quality specifications and manufacturing and assembly procedures of Futaba. It is also responsible for ensuring that the products manufactured are as per quality specifications laid down by Futaba. 4.2.2 Risk Analysis FMI bears the market/ business risk in relation to manufacture and selling of products in India for which the technical services have been availed as it may be subject to adverse market conditions. Futaba s business risk is limited to the extent of work or services provided to FMI The payment made by FMI to Futaba is denominated in Japanese Yen. Hence, FMI is exposed to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt to the below amount each per day/one Technical Qualified Staff and support staff for the number of working days elapsed from (and including) the date of Arrival in India or Thailand and to (and including) the date of Departure from India or Thailand: Japanese Staff US$ 250 Local Manager, and above Manager US$ 50 The other employee US$ 40 In event that Technical Qualified Staff or support staff of FMI or YMPPD'S supplier is dispatched, parties shall pay 105% of what parties actually paid to parties suppliers. FMI or YMPPD shall bear below expenses for dispatch of their Technical Qualified Staff: Hotel accommodation expenses and meal expenses in India or Thailand. The expenses of transportation from Hotel to Site. The expenses of mail, telephone, telegram, wire and other communication for performance of Technical assistance and commercial support The expenses of Travelling in India or Thailand for performance of technical assistance and support. The expenses of round air passage and luggage from India to Bangkok and back again to India complying with parties travel rule. The expenses of Interpreter (J ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... shed goods and consumables from STC in respect of its manufacturing plant. The value of spares and consumables imported are given below: Associated Enterprises Amount(INR) Shimla Trading Company Ltd. 53,24,543 4.5 Payment of Royalty FMI entered into an agreement with Futaba for grant of a nonexclusive license for the use of Proprietary Information for the engineering, manufacturing and sale of products and the trademark of Futaba for use on the products, packing, advertisement documents and other related documents. The Proprietary Information and the trademark were the exclusive property of Futaba developed by it over time as part of its research and development efforts. In relation to the Proprietary Information, Futaba provides FMI with the following assistance: The necessary Proprietary Information for the manufacture of the products, and more particularly: Development, designing, and determination of specification of the products; Furnishing of Proprietary Information in respect of the installation of production faciliti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... yment of service fee made by FMI to Futaba is denominated in Japanese Yen. Hence, FMI is exposed to the inherent foreign exchange risk arising due to fluctuation in the exchange rates. The value of transaction involving availing of professional services by FMI is given below: Associated Enterprise Amount (INR) Futaba Industrial Co. Ltd. 19,322,582 6.8 The assessee has benchmarked its international transaction on aggregate basis under Transactional Net Margin Method (TNMM) as most appropriate method. This method has been accepted by the learned TPO. The learned TPO has also allowed working capital adjustment to the margin (PLI) sought by the assessee. The dispute is regarding selection of comparables by the learned TPO. According to the learned Counsel of the assessee, the comparables chosen by the learned TPO are engaged in manufacturing of non-core components and, therefore those companies are not functionally comparable with the assessee in view of the decision of the Tribunal in the case of Nissin Breaks India private limited (supra). For ready reference, t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d how to adopt the filter depends on the facts of each case. High turnovers cannot be rejected prima facie while low turnovers are accepted when it suits to the parties without objections from either of the sides. An acceptable range would be the turnover of the taxpayer and the range of the upper limit at ten times as well as the lower limit at ten times (1/10) with a margin of variation may be considered as a right comparable. Since, in this case the turnover is 16 times which is well beyond the margins for a right comparison and eliciting correct results. Hence, we hold that BIPL may not be considered as a comparable in the instant case. 5. Munjal Showa Ltd.: The company is engaged in the manufacturing of shock absorbers, struts and rear cushions. Since, the product line is different the profits cannot be comparable and hence cannot be considered as a right comparable. 6. Foundation Brake Manufacturing Pvt. Ltd.: The company has been showing losses continuously for the last three years and doesn't cross the proposed filter, hence cannot considered as a right comparable. 6.9 We find that the Tribunal (supra) invoking safe harbour rules for Inter ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... et metal components and tools and dies for automobiles, which falls in the nature of non-core components. The Learned DRP has accepted Auto Ignition Ltd as functionally comparable on the ground that it is engaged in manufacturing and export of heavy duty auto Electric components for commercial vehicles, tractors off-road vehicles etc. The company Rane TRW Steering Systems Private Limited has been retained by the Learned DRP on the ground that company is engaged in manufacturing of suspension systems, Valve train components, Viction metal products, die-casting product any steering gear valve. The company Minda Industries Ltd. has been observed as engaging manufacturing of switches, lightning, batteries and blow moulding products for two wheelers as well as four wheelers. The company India Nippon Electricals Ltd. has been retained as comparable on the ground that it is engaged in manufacturing of electronic ignition system for two wheelers, portable engines for three wheelers, flywheel magneto generator, capacitor discharge ignition unit etc. The company Indo Schottle Auto Parts Private Limited is engaged in manufacturing of collets, Mechatronic, valves, fuel system, turboc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s also no evidence vis-a-vis the comparables whether such factors resulted in any such simultaneous effects on the working of the comparables. The tabular chart which has been filed in the synopsis before the Panel is merely based on presumption without any proof or documentary evidence. It is not clear as to how the assessee has worked out the tested party margins after the so-called capacity adjustments in the absence of relevant data. These adjustments are not routine and cannot be claimed on the basis of presumptions and surmises. The law in this regard was explained by the Bangalore Bench of the Hon'ble ITAT in Tavant Technologies India (P) Ltd v DCIT [2017] S3 taxmann.com 105 (Bangalore - Trib.) in the following words 7. Having considered the rival submissions as well as the relevant material on record, we note that the assessee has claimed the adjustment on account of under-utilisation of capacity and particularly n account of cost of employees and cost of rental which remained unutilized. However, the assessee has not given the proper details as well as evidences to show the level of capacity of utilization of the assessee as well as comparable companies. The l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e and, therefore, profit generated on same cannot be part of revenue operation of the assessee. In our opinion, the Learned DRP has correctly held the profit on sale of a set as non-operative item. As far as the depreciation on operative expense is concerned, the learned DRP has held to be operative in view of assets used for the purpose of the business, and thus depreciation is part of expenditure connected with business operation of the assessee. The depreciation is also justified as operating expense, because profit earned on employing the tools in the business is part of profit earned on manufacturing process which is part of operating revenue. We do not find any error in the order of the Learned DRP on the issue and accordingly, we reject this contention of the assessee to refer this matter back to the learned TPO. The grounds No. 2.4 and 2.8 of the appeal are accordingly dismissed and other grounds from 2.1 to 2.10 except ground No. 2.4 and 2.8 are allowed for statistical purposes. 7. The ground No. 3 to 3.7 of the appeal relate to disallowance made on the basis of low net profit rate of the assessee during the year under consideration as compared to preceding year. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of expenditure is to be supported by necessary evidence as required by the Assessing Officer in the absence of which mere entries of these expenses in the books of account and audited by a chartered accountant do not obviate tire requirement of furnishing supporting evidence in respect of such expenses; or curtail, restrict or delimit the power of the Assessing Officer to call for supporting evidence as by doing so he is not going into the question of commercial expediency of the expenditure nor is he examining whether the expenditure is wholly and exclusively incurred for the purpose of business in terms of section 37. The evidence of expenditure is required to assert in whether the expenditure has been incurred at all and if yes, what is the extent or quantum of that expenditure. The question of its being incurred wholly and exclusively for the purpose of business arises at a stage subsequent to that. That stage has not readied in this case. The Panel, therefore, is not inclined to interfere with the order of the AO, in the absence of evidence in support of expenditure. The objection stands rejected accordingly. 7.2 Before us, the Learned Counsel of the assessee referre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... T and no amount was paid in cash. The adjustments were made on different dates subsequent to the year-end but before the due date of filing of the tax return under Section 139 of the Act and accordingly a particular date of payment could not be ascertained Reference should also be made to the Tax Audit report wherein the tax auditor has reported NIL outstanding balance but has not provided any certain date of payment. It is further stated that as per section 43B of the Act, any tax duty, cess or fee, by whatever name called, under any aw for the time being in force, is allowable as deduction if the same is 'actually paid on or before the due date as specified in section 139 of the Act. Accordingly, any tax which is actually paid on/before the due date of furnishing the tax return as specified u/s 139 of the Act shall be allowable as deduction. Further as per the provisions of excise laws, the liability of excise duty may be discharged by payment in cash well as through adjustments from the input credits available and permissible under law. The term Actual payment shall also include the adjustment of ex.ise duty from the input credit balances available. Reliance is placed on ..... X X X X Extracts X X X X X X X X Extracts X X X X
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