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TMI Blog2022 (10) TMI 354X X X X Extracts X X X X X X X X Extracts X X X X ..... uction of temporary weather shed as revenue in nature, and accordingly direct deletion of addition of made by the Revenue by treating the same as capital in nature. Addition made to the income of the assessee on account of Transfer Pricing adjustment made to the transaction of purchases of components by the assessee entered into with its Associate Enterprise(AE) - HELD THAT:- The entire exercise of determining ALP of an international transaction by comparing profitability ratio of the assessee-company with that of a comparable entity indulging in the same type of transactions, requires the comparison of the correct profits of both the entities, after making all necessary adjustment to arrive at the correct profits. Now since the assessee has clearly demonstrated that it had booked excess purchases in the impugned yearthe same needed to be reduced for the purpose of arriving at the correct profit, and only thereafter profitability ratio of the assessee was required to be calculated. The contentions of the assessee in this regard, we find is correct. The authorities below i.e. both the AO and the CIT(A) have given no reason absolutely for dismissing this contentions of the assessee. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ary weather shed in its rented premises and the same not being in the nature of capital expenditure was accordingly claimed by the assessee as revenue expenditure. He drew our attention to para 5.2 of the assessment order, wherein the AO disagreed with the contentions of the assessee stating that as per the assessee's claim the expenditure was for the construction of structure which had enduring benefit to the assessee therefore it could not be treated as revenue expenditure but was capital in nature and needed to be capitalized, and accordingly, the claim of the assessee towards repairs & maintenance to the extent of Rs.2,01,600/- was disallowed; the same was treated as capital in nature and after allowing depreciation at the rate of 10% thereon amounting to Rs.20,160/- the remaining amount of Rs.1,81,420/- was disallowed to the assessee. Our attention was drawn to para 5.1 of the assessment order containing the explanation of the assessee vis-à-vis the claim of repairs & maintenance expenses to the tune of Rs.2,01,600/- as under: "5.1 On verification of the details furnished with regard to repairs arid maintenance expenditure it was noticed that the amount of Rs.2,01,60 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssee is found to be tenable and hence no inference-is drawn." 5. The ld.counsel for the assessee, thereafter took us through para-7 of the CIT(A)'s order wherein he dealt with the issue in appeal upholding order of the AO stating that construction of weather shed would not tantamount to repairs to the existing structure, but creation of new asset altogether, and therefore, need to be treated as capital in nature. Our attention was drawn to para 7.1 of the CIT(A)'s order wherein the assessee's submissions before the ld.CIT(A) were reproduced, and thereafter to para 7.2 of the CIT(A)'s order containing finding of the CIT(A) upholding the disallowance as under: "7.1 During the course of appellate proceedings, the appellant has made the following submissions: "During the year under consideration, the assesses company was operating from the tented premises. The assesses company has incurred the expenses for the purpose of construction of temporary weather shed in the said rented premises. The assessee company puts a claim u/s. 31 of the Income Tax Act, 1961 since this expense is not in the 'nature of the capital expenditure. The construction of such weather shed is in na ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... amounts to Rs.2,01,600/-. The assessee's claim that it was a temporary weather shed has not been disputed or controverted by the Revenue authorities at any stage. Considering the same, and taking note of the fact that temporary structures are entitled to depreciation at the rate of 100% as per the depreciation rates under Income Tax Rules,1962, as per Rule 5, Appendix-I, as pointed by the ld.counsel for the assessee before us, and not controverted by the Revenue , we see no infirmity in the claim of the assessee to the entire amount of expenditure on construction of temporary weather shed as revenue in nature. Such claim of the assessee, we have noted, is in accordance with provisions of law, as prescribed under the Act read along with Rules made thereunder. The Revenue has been unable to controvert the assesses claim either on facts or in law. Therefore, finding merit in the contentions of the ld.counsel for the assessee, we allow entire claim of Rs,2,01,600/- incurred on construction of temporary weather shed as revenue in nature, and accordingly direct deletion of addition of Rs.1,81,420/- made by the Revenue by treating the same as capital in nature. Ground of appeal No.2 rais ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ; The assessee company selected Transaction Net Margin Method to determine the profit at the Arms' length Price. • The assessee Company made the Profit comparative statement by selecting the financial data of Praj Industries as Comparable. • The Profit level indicator of the assessee company worked out at 10 as compare to Profit level indicator of Praj Industries Limited at 12. Accordingly the Assessing officer has made the addition for the difference of the Profit level, which comes to RS 66,72,802/-. • The asssessee company explained the reasons for the deviation in the profit. • The assessee company submits herewith the Profit reconciliation statement. (Enclosed) • The difference is arisen due to the fact that the assessee company had made the Raw material provision of RS 1,29,88,895/- since the material has been received and the invoices were not received. • Subsequent, the invoices were received in the subsequent year i.e. F.Y. 2005-06 pertains to A.Y. 2006-07. • On receipt of the actual invoices, it was observed that excess the raw material provision was made by RS 66,92,252/-, which was reversed in the F.Y.2005-06 p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . We hope the information will meet with your requirement." KHS MACHINERY PVT. LTD. ASSESMENT YEAR : 2006-07 ITEM NO. - 45 Details of Prior Period Income for the year ended 31-03-2005 Sr. No. Description Amount 1. Excess Provision for Purchase 6,692,252 2 Interest on Fixed Deposits 1,716,010 3 Service Charges 44,625 4 Miscellaneous Income 100,883 Total Rs. 8,553,770/- 14. The ld.counsel for the assessee thereafter pointed out that the ld.CIT(A) did not even consider this contention of the assessee and upheld the adjustment made by the TPO holding that the issue had been discussed in detail by him. The ld.counsel for the assessee thereafter took us to the order passed by the TPO under section 92CA(3) of the Act making the impugned adjustment, placed before us at page no.29 to 32. He took us to para-6 of the order wherein adjustment made by the TPO on account of international purchases of parts and spare parts was discussed by the TPO and pointed out therefrom that these adjustment pointed out by the assessee before the ld.CIT(A) and the AO of excess purchases booked by the assessee during the year resulted in substantial drop in its PLI, was not even discussed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sary adjustment to arrive at the correct profits. Now since the assessee has clearly demonstrated that it had booked excess purchases in the impugned year to the extent of Rs.66,72,802/-, the same needed to be reduced for the purpose of arriving at the correct profit, and only thereafter profitability ratio of the assessee was required to be calculated. The contentions of the assessee in this regard, we find is correct. The authorities below i.e. both the AO and the CIT(A) have given no reason absolutely for dismissing this contentions of the assessee. We find merit in the contention of the Ld.Counsel for the assessee and noting the working given by the assessee after making this adjustment to the profitability ratio of the assessee, resulting in the same being comparable with the comparable case, we hold that the assessee has fairly demonstrated its international transactions of purchases of parts/spare parts with its AE to be at ALP requiring no adjustment at all to be made to the same under section 92 of the Act. 17. In view of the same, we direct deletion of adjustment made to the international transactions of parts/spare parts to the extent of Rs.66,72,802/- and allow ground ..... X X X X Extracts X X X X X X X X Extracts X X X X
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