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TMI Blog2022 (5) TMI 1538X X X X Extracts X X X X X X X X Extracts X X X X ..... ties. This fact has adequately been highlighted by the assessee in its financial statements. Depreciation and amortization (including impairment loss) has jumped from 222.43 Lacs in earlier year to Rs.677.93 Lacs in this year. No such losses have been observed in the summarized financial statements of the comparable entities as extracted by Ld. TPO . Therefore, the impairment losses in our considered opinion, have to be treated as non-operating expenditure and the same are to be excluded while computing assessee s PLI. The decision of Delhi Tribunal in Insofer Mfg. India Pvt. Ltd. [ 2020 (8) TMI 928 - ITAT DELHI ] also support the view that the impairment losses were not related to normal business operation and therefore, could not be treated as operating expenditure to compute assessee s PLI. Selection of M/s Jolly Boards Ltd as comparable - We find that this entity is in composite business i.e., manufacturing as well as in realty and property development. However, segment-wise or product-wise performance has not been provided. Its other income includes profit on sale of investments and income (net) from property development. Therefore, in such a case, in the absence ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... A(1) to learned Deputy Commissioner of Income Tax, Transfer Pricing 1(2) (in short TPO). The Ld. TPO, vide its order dated 30.09.2016 u/s 92CA(3) proposed certain adjustments which forms subject matter of this appeal. The assessee has filed concise grounds of appeal on 30.09.2019. However, the only grounds urged during hearing are computation of correct margins of the assessee, exclusion of one comparable entities and Transfer Pricing (TP) Adjustment of management service fees paid by the assessee. The corresponding grounds read as under: - 4. The lower authorities have erred in considering Jolly Board Ltd as a comparable while computing the operating margin of comparable companies, despite such company being functionally dissimilar to the Appellant. 5. The lower authorities have, in the facts and circumstances of the case and in law, erred in incorrectly computing the operating margin of the Appellant and those of the comparable companies selected for benchmarking purposes. 6. The lower authorities have erred in the facts and circumstances of the case and in law, in treating the impairment loss incurred on account of the Appellant discounting its manufacturing ope ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt fees, Ld. AR submitted that these were regular payment and accepted in all the other years and lower authorities determined the Arm s Length Price (ALP) as Nil without following any of the prescribed method. The Ld. CIT-DR, on the other hand, submitted that the comparable entities may have similar kind of losses and therefore, the aforesaid two items were operating in nature. The Ld. CIT-DR supported the order of lower authorities on other issues. Having heard rival submissions and after going through the orders of lower authorities, our adjudication would be as under. Proceedings before Ld. TPO 3.1 Upon perusal of Ld. TPO s order, it could be seen that the assessee is engaged in manufacture, sale and trading of structural core materials in the field of wind energy, marine and other industrial markets. The assessee imported raw material as well as traded goods from its Associated Enterprises (AE). The assessee also made payment of royalty, management fees and reimbursement of expenses to its AE. It exported finished goods also. All these transactions were benchmarked using Transactional Net Margin Method (TNMM) adopting Profit Level Indicator as OP/OI (Operating Pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... operations and the assets were disposed-off in the subsequent years. The assessee submitted that manufacturing facility was established pursuant to long term supply agreement with Suzlon Ltd. However, Suzlon Ltd. could not purchase the quantity committed by them prior to setting up of plant and the assessee scouted for other customers in the wind sector. However, due to sluggish growth of wind sector and unfavorable regulatory scenario, the demand was low and to utilize the idle capacity, DIAB group assisted the assessee in purchasing significant part of the goods produced. Owing to aforesaid adverse market conditions, it was decided to discontinue manufacturing operations. This was one-off event and not part of routine business activities. Such revaluation of asset was unique to the assessee and similar item was not observed in comparable entities. Another pertinent fact brought to the notice was the fact that impairment losses were not claimed as business expenditure and added back in the computation of income. 4.2 However, Ld. DRP held that treatment in computation of income would not have much relevance in the transfer pricing proceedings since profit margins of tested party ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted the margin of this entity as 34.25% which has reduced the TP adjustment to Rs.555.46 Lacs. 4.4 Regarding management fees, it was held by Ld. DRP that the activities were in the nature of stewardship only and would not be required to be remunerated separately. The assessee failed to produce any document to substantiate the claim that the service was actually rendered. The assessee failed to justify the volume and quality of services and the amount paid by it to its AE. The agreement was very general and non-specific in nature. Finally, the action of Ld. TPO in determining the ALP as Nil was upheld. 4.5 Aggrieved as aforesaid, the assessee is in further appeal before us. Our findings and Adjudication 5. It is undisputed fact that the assessee has incurred impairment losses of Rs.464.67 Lacs during the year. The assessee has also paid compensation to the vendors for termination of the contract. Both these items, though debited in the Profit Loss Account, were added back by the assessee in its computation of income (page 237 of the paper-book). In other words, these items have been treated by the assessee to be not tax deductible, being non-operative in nature. F ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... could not be held to be comparable to the assessee. We direct Ld. TPO / AO to exclude this entity from final set of comparable. The grounds raised by the assessee, in this regard, stand allowed. 7. The last issue is determination of ALP of management fees of Rs.42.84 Lacs paid by the assessee to its AE, it is undisputed fact that the assessee has entered into management service agreement with its AE wherein its AE is required to perform certain management services such as corporate sales and marketing services, corporate administration, IT services, technical services etc. as required by the assessee from time to time. Pursuant to the agreement, the assessee has paid the sum to its AE. These payments are recurring in nature and always allowed to the assessee in earlier years as well as in subsequent years. The opinion of lower authorities that the services should be need based or the same should bring benefits to the assessee has no logic since the requirement of the services has to be assessed from assessee s point of view. The assessee had filed email communications etc. in support of receipt of services which has been billed on monthly basis by AE. Therefore, to determine of ..... X X X X Extracts X X X X X X X X Extracts X X X X
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