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TMI Blog2023 (3) TMI 1092X X X X Extracts X X X X X X X X Extracts X X X X ..... in the remand proceedings, TPO apart from finding deficiencies in the valuation report submitted by the assessee made no efforts to seek any expert opinion on the valuation of machinery purchased by the assessee, and rather the TPO justified the adoption of WDV as the arm s length value of the machinery. When the DRP had agreed with the findings of the TPO in its remand report then the expert opinion on the valuation should have been sought - when the DRP chose not to call for such a report and even the TPO neither in the first round nor in the remand proceedings sought such a report, partial rejection of the second valuation report submitted by the assessee is not justified. We do not agree that the Revenue had no other option and therefore proceeded to accept the valuation report submitted by the assessee in cases where the WDV is Nil. We completely reject the cherry-picking basis of considering the valuation report adopted by the lower authorities while computing the arm s length price of the impugned international transaction. In such peculiar circumstances of the present facts, the second valuation report submitted by the assessee from the government-approved valuer mer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pital assets from its Associated Enterprises after having accepted the operating margins (earnings before interest and tax) to be at arms length following the Transaction Net Margin Method (TNMM). 3. The learned DRP/AO erred in accepting merely a part of the valuation report which was the basis of determining the arm's length price. The learned DRP/AO resorted to cherry picking by accepting the value as determined in the valuation report merely in regard to machineries whose value was NIL in the books of the Associated Enterprises and rejected the value determined in the report for all other machineries. 4. The Learned DRP/AO erred in holding that Written down Value (WDV) in the books of AE is the most appropriate comparable price without appreciating the fact that depreciation rates and working conditions vary in different countries. They failed to appreciate that the valuation has to be based on the working condition, efficiency of the fixed assets and balance useful life of the assets. 5. The Learned DRP/AO/TPO erred in not appreciating the fact that the AEs have incurred freight and insurance costs worth Rs. 26,60,725 which were included in the purchase cost ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Chartered Engineer. By considering the independent valuer report, the assessee claimed that the international transaction of purchase of capital goods is at arm s length by adopting Comparable Uncontrolled Price ( CUP ) method as the most appropriate method. 5. The AO made reference to the Transfer Pricing Officer ( TPO ) for the determination of ALP of the international transactions entered into by the assessee. The TPO, during the transfer pricing assessment proceedings, asked the assessee to further justify the transactions by producing copies of purchase invoices of the asset as originally brought by the associated enterprises, details of depreciation availed by the associated enterprises on these assets, and their WDV at the time of sale to the assessee to find if the associated enterprises have overpriced the assets to the assessee. In reply thereto, the assessee furnished invoice-wise details of each machinery, name of machinery, cost at which the assessee purchased the machinery from the associated enterprise, and WDV in the books of the assessee after depreciation. Further, the TPO observed that the assessee has purchased the fixed assets at a price more than the boo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the fresh valuation report. The learned DRP, vide its directions issued under section 144C(5) of the Act, after considering the remand report of the TPO held that the assessee has failed to bring on record any evidence of the prevailing market price of the new machinery with similar specifications. The learned DRP further doubted various findings in the second valuation report and accordingly held that the assessee has failed to discharge its onus of establishing the arm s length price for the purchase price as the valuation report submitted by it neither constitutes a CUP nor is it proper valuation reflecting the market price on the date of sale. The learned DRP further noted that the WDV of certain machinery is NIL in the books of the associated enterprise, however, such machinery are in working condition. Accordingly, the learned DRP issued the following directions: 17. However, the contention of the assessee that assets which are in working condition and which are in fact being used by the assessee in its business cannot be valued at Nil, merely because its WDV is NIL has also to be considered. As an alternative to the WDV in the books of AE, the assessee has proposed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee without referring to the valuation of machinery to the valuation expert. The learned AR also submitted that the learned DRP has accepted the second valuation report in certain cases, while in others has upheld the TPO s approach and thus has done the benchmarking on a cherry-picking basis. The learned AR by placing reliance on certain judicial precedents submitted that transactions that are closely linked should be benchmarked on an aggregated basis. 9. On the contrary, the learned Departmental Representative ( learned DR ) submitted that accepting the second valuation report in which the learned DRP has found many errors will amount to upholding the arm s length price. The learned DR further submitted that there is no provision in the Act to permit the TPO to seek the report from the expert valuer. The learned DR submitted that the assessee has purchased machinery separately and therefore they should be benchmarked separately. The learned DR also submitted that the computation of current asset value by the second valuer is nothing but similar to the computation of WDV as adopted by the TPO for determining the arm s length price. 10. We have considered the rival ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s in the valuation report submitted by the assessee. The learned DRP though in principle agreed with the objections of the TPO in its remand report, however, proceeded to determine the arm s length price of certain machinery by considering the current asset value determined by the second valuer on the basis that no other option was available. 12. During the hearing, the learned DR submitted that the TPO/DRP cannot make a reference to the DVO for the determination of the value of the machinery under sections 50C and 142A of the Act, as the valuation made by the TPO/learned DRP does not apply to the cases listed in section 142A of the Act. It was further submitted by the learned DR that the amendment which empowered the AO to make such a reference was brought into the statute by the Finance Act 2014 with effect from 01/04/2014, and therefore is not applicable to the year under consideration. In rebuttal, the learned AR, inter-alia, by referring to the provisions of section 131(1)(d) of the Act submitted that AO/TPO would have called for the valuation report or any other expert opinion by exercising the powers to issue commissions under the provision of aforesaid section. The learn ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the first round nor in the remand proceedings sought such a report, partial rejection of the second valuation report submitted by the assessee is not justified. Therefore, we do not agree that the Revenue had no other option and therefore proceeded to accept the valuation report submitted by the assessee in cases where the WDV is Nil. In view of the above, we completely reject the cherry-picking basis of considering the valuation report adopted by the lower authorities while computing the arm s length price of the impugned international transaction. In such peculiar circumstances of the present facts, the second valuation report submitted by the assessee from the government-approved valuer merits acceptance. 14. As regards, benchmarking of the transaction on an aggregate basis, the assessee submitted that all the plant and machinery purchased by the assessee were being used in the continuous process of manufacturing shirting fabrics, and therefore need to be benchmarked as a closely linked transaction. From the record, it is evident that the assessee purchased these machinery from two of its associated enterprises. Further, as per Form 3CEB, on page 45 of the paper book, the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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