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TMI Blog2023 (10) TMI 1012X X X X Extracts X X X X X X X X Extracts X X X X ..... ed an identical issue in assessee s own case for assessment year 2006-07 [ 2019 (2) TMI 1962 - ITAT CHENNAI] and after considering nature of subsidy, has allowed claim of the assessee by observing that for earlier years, the CIT(A) has allowed claim of the assessee and the AO has accepted decision of the CIT(A) and deleted additions, while passing order giving effect to the order of the CIT(A). Therefore, consistent with the view taken by the coordinate Bench, we direct the AO to delete additions made towards disallowance of depreciation on capital subsidy received from SIPCOT. Excess depreciation claimed on UPS, Printers Scanners under the block computers - assessee has claimed depreciation on printers scanners on the ground that printers scanners and also UPS is an integral part of computer and computer software - AO had restricted depreciation claimed on printers scanners to 15% on the ground that these are only office equipments - HELD THAT:- We find that an identical issue had been considered by the Tribunal in the assessee s own case for AYs 2009-10 to 2011-12 [ 2017 (4) TMI 1193 - ITAT CHENNAI] where, the Tribunal by following the decision of BSES Yamuna Powers Ltd [ 2010 (8 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... anufacturing facility in Mega Automobile Industry. If you go by the Scheme, it aims to reimburse cost incurred by an entity to set up a manufacturing facility which consists of various forms of assets. Although the Scheme does not specify any particular asset on which reimbursement is granted, but it aims to provide reimbursement towards total cost incurred by an entity for setting up/expansion of manufacturing facility - subsidy given to an entity in any form including reimbursement by giving refund of Output VAT is to share/reimburse part of cost incurred by an entity in setting up a plant or facility. Therefore, we are of the considered view that there is not merit in the arguments taken by the Ld. Counsel for the assessee that the IPS is not given to offset cost of any particular asset and is merely issued with an objective of accelerating the industrial development. Although, the SIPCOT has issued final eligibility certificate quantifying the amount of investment and subsidy therein, no details are forthcoming from said certificate. Further, in order to ascertain the nature of investment and to consider the exact amount of investment made in any asset or fixed asset, these det ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ographies - HELD THAT:- We find that an identical issue had been considered by the Tribunal in the assessee s own case in light of TP adjustment carried out by the TPO by considering total margins of the assessee including margins earned from domestic transactions and after considering relevant facts held that the whole issue of TP adjustment in respect of import of goods pertains to domestic sale segment needs to go back to the file of the TPO to reconsider the issue in light of directions given therein. Thus we set aside the order of the TPO/AO and restore the issue back to the file of the AO/TPO to re-consider the TP adjustment towards international transactions of the assessee with reference to import of raw materials related to domestic car sale segment and decide the issue in accordance with direction given in the assessee s own case for earlier assessment years. Excess levy of interest u/s. 234C - HELD THAT:- In case, calculation errors, if any, then same needs to be rectified by the AO by considering relevant pre-paid taxes paid by the assessee including TDS credit as per records. Therefore, we direct the AO to re-examine the contention of the assessee with regard to comput ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nsideration of the information, arguments and evidence provided by the Appellant. 2. Disallowance under section 14A of the Act 2.1. The lower authorities have, in the facts and circumstances of the case and in law, erred in disallowing a sum of INR 93,44,170 under section 14A of the Act by applying provisions of Rule 8D of the Income tax Rules, 1962 ("Rules"). 2.2. The lower authorities have, in the facts and circumstances of the case and in law, erred in applying the provisions of under section 14A of the Act read with Rule 8D of the Rules, without sufficient satisfaction on record and without considering that the quantum of dividend received by the Appellant was only INR 52,773. 2.3. The lower authorities have failed to note that the issue is covered in Appellant's favor vide order of this Hon'ble Tribunal for the AYs 2009-10 to 2011-12 and AYs 2013-14 and 2015-16, wherein the disallowance under section 14A was directed to be restricted to the amount of exempt income. 3. Disallowance of capital subsidy 3.1. The lower authorities, in the facts and circumstances of the case and in law, ought to have appreciated that the subsidy was a capital receipt no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lated total income. 7. Tax Treatment of Output VAT Incentives 7.1. The lower authorities have, in the facts and circumstances of the case and in law, failed to appreciate that the output VAT incentive (Investment Promotion subsidy) granted for the purpose of setting up/expansion of its manufacturing facility is a capital receipt and hence, cannot be treated as income under the provisions of Income Tax Act applicable for the subject year. 7.2. The lower authorities have failed to note that the eligible amount of incentives under the Investment Promotion Subsidy was also quantified based on the investment in assets and thus, it cannot be a revenue receipt to be subjected to tax. 7.3. The lower authorities ought to have appreciated that if the object of assistance was to enable the Appellant to set up a new unit or expand the existing unit, then the receipt is on the capital account based on the settled principles of the Supreme Court. 7.4. The lower authorities failed to appreciate that mechanism for determination of the quantum of disbursement of the same by way of refund of taxes is only for administration purposes and cannot be the basis for deciding the tax treatment of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... djustment towards brand building activity amounting to INR 304,76,47,898. 10.2. The lower authorities have, in the facts and circumstances of the case and in law, while acknowledging that the facts and circumstances are similar to the previous years, erred in not following the binding order of this Hon'ble Tribunal in the Appellant's own case from AY 2007-08 to AY 2011-12 wherein similar adjustment towards brand adjustment has been deleted. It is also to be noted that the impugned adjustment was deleted by this Hon'ble ITAT for the AY 2013-14 and AY 2015-16 10.3. The lower authorities have, in the facts and circumstances of the case and in law, exceeded their jurisdiction and erred in making the adjustment towards a fees for a purported brand development service alleged to be provided by the Appellant to its AE, without first establishing that there was any international transaction in this regard between the Appellant and its AE, which can be subject to section 92 of the Act. 10.4. The Ld. TPO erred in adopting the sixth method without establishing the existence of a transaction and the methodology adopted to justify the arm's length nature of such transaction. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rate reportable segment as per the Appellant's audited financial statements and that the Appellant does not maintain segment wise books of accounts. 11.4. The Ld. TPO has erred in benchmarking on the basis of the segment wise profitability details pertaining to 'Domestic vehicle sales' obtained during the assessment proceedings, without appreciating that more than 62 % of the total costs (other than raw material cost) were common costs not identifiable with any particular segment and these were only allocated to the various segments on an estimate basis. 11.5. The Hon'ble DRP erred in upholding the actions of the Ld. TPO. 11.6. The Ld. TPO and Hon'ble DRP have, in the facts and circumstances of the case and in law, erred in computing the transfer pricing adjustment beyond the scope and jurisdiction of section 92 of the Act by not restricting the value of the adjustment to the Appellant's international transactions with its Associated Enterprises ("AE"). 11.7. The Ld. TPO and Hon'ble DRP have erred in proposing the transfer pricing adjustment to the entire cost base of the Appellant which predominantly includes third party costs, on wron ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g credit for TDS to the extent of INR 22.11 crores, whereas the actual amount of TDS claimed by the Appellant in its return is INR 22.86 crores The Appellant prays that directions be given to grant all such relief arising from the grounds of appeal mentioned supra and all consequential relief thereto. The grounds of appeal raised by the Appellant herein are without prejudice to each other. The Appellant craves leave to add to and/or to alter, amend, rescind, modify the grounds herein above or produce further documents before or at the time of hearing of this Appeal. 3. Brief facts of the case are that the assessee, M/s. Hyundai Motor India Ltd., is wholly owned subsidiary of M/s. Hyundai Motor Company Ltd., South Korea. The assessee is engaged in the business of manufacturing and selling passenger cars in domestic and export market. The assessee company has filed its return of income for assessment year 2012-13 on 29.11.2012 admitting total income of Rs. 1373,39,38,640/- under normal provisions of the Income Tax Act, 1961, (In Short "the Act") and book profit u/s. 115JB of the Act at Rs. 836,20,32,607/-. The assessee had entered into various international transactions with its ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ces of Rs. 93,44,170/- u/s. 14A of Income Tax Act, 1961. 6.1 The Ld. Counsel for the assessee submits that this issue is covered in favour of the assessee by the order of the ITAT Chennai Benches for AYs 2013-14 to 2016-17, where, disallowance u/s. 14A of the Act, is restricted to exempt income. 6.2 The Ld.DR fairly agreed that this issue is covered in favour of the assessee by the decision of the ITAT Chennai Benches in the assessee's own case for earlier assessment years. 6.3 We have heard both the parties and perused the materials available on record and we find the issue of disallowance u/s. 14A of the Act r.w.r.8D of the IT Rules, 1962, is covered in favour of the assessee by the decision of the ITAT Chennai Benches in the assessee's own case for AY 2013-14, where, the Tribunal by following the decision of the Hon'ble jurisdictional High Court of Madras in the case of Marg Ltd.v.CIT reported in [2020] 120 Taxmann.com 84, held that disallowances contemplated u/s. 14A of the Act, cannot exceed exempt income, and thus, directed the AO to restrict disallowance to the extent of exempt income. The relevant findings of the Tribunal are as under: 10. We have heard both the partie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as per explanation (10) to section 43 of the Act, the same needs to be deducted from cost of assets and consequently, reworked depreciation by reducing amount of subsidiary and disallowed a sum of Rs. 2,38,665/-. 7.1 The learned AR for the assessee submitted that this issue is covered in favour of the assessee by the decision of ITAT Chennai, in assessee's own case for assessment year 2006-07, where, it was held that subsidiary received from SIPCOT is capital receipt not liable for tax. 7.2 The learned DR, on the other hand, fairly agreed that this issue is covered in favour of the assessee. 7.3 Having heard both the sides and considered relevant material on record, we find that the Tribunal had considered an identical issue in assessee's own case for assessment year 2006-07 in IT(TP)A.No.14/Chny/2018 and after considering nature of subsidy, has allowed claim of the assessee by observing that for earlier years, the CIT(A) has allowed claim of the assessee and the Assessing Officer has accepted decision of the CIT(A) and deleted additions, while passing order giving effect to the order of the CIT(A). Therefore, consistent with the view taken by the coordinate Bench, we direct the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... /s. 139(1) of the Act. The Assessing Officer further noted that as per section 36(1)(ii), any sum paid to an employee as bonus or commission for services rendered, where such sum would not have been payable to him as profit or dividend, if it had not been paid as bonus or commission is covered. Therefore, he opined that any payment made to an employee which is in the nature of bonus or commission for services rendered is covered u/s. 36(1)(ii) of the Act, and thus, if such payment is not made on or before due date of filing of return of income u/s. 139(1) of the Act, then same cannot be allowed as deduction, as per section 43B(c) of the Act. 9.1 The Ld. Counsel for the assessee submits that this issue is covered against the assessee by the decision of the ITAT Chennai Benches in the assessee's own case for AY 2013-14, where, it has been held that performance incentives paid to employees is in the nature of bonus which comes under the provisions of Sec.36 (1)(ii) of the Act r.w.s.43B(c) of the Act, and for belated payment deduction cannot be allowed. 9.2 The Ld.DR fairly agreed that this issue is covered against the assessee by the decision of the ITAT Chennai Benches for AYs 2013 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n by the assessee. 9.4 In this view of the matter and by following the decision of the ITAT Chennai Benches for AYs 2013-14 to 2016-17, we are inclined to uphold the findings of the DRP and reject the ground taken by the assessee. 10. The next issue that came up for our consideration from Ground No.6 of the assessee's appeal is fresh claim of deduction towards foreign exchange loss on restatement of loans utilized for purchase of domestic assets to the extent of INR 17.96 Crs. Facts with regard to impugned dispute are that during the FY relevant to AY 2012-13, an amount of Rs. 67.04 Crs. was debited in the P & L A/c towards loss on foreign currency transactions. The said loss was also entirely disallowed and added back in the statement of total income. The assessee has raised a fresh claim before the AO, on the ground that although, the assessee should have claimed a deduction while computing taxable income in respect of foreign exchange loss on restatement of loans for purchase of domestic assets, but by an inadvertent error, said loss was not claimed as deduction, which resulted in overstating the taxable profit. The AO did not entertain the claim made by the assessee for deduc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Nadu has issued a GO on 26.02.2007 for Formulation of Ultra Mega Integrated Automobile Projects Policy, to bring out an exclusive policy for encouraging set up of major Integrated Automobile Projects in Tamil Nadu. The assessee had entered into a Memorandum of Understanding with the Government of Tamil Nadu on 22.01.2008 for setting up/expansion of its manufacturing facility. As per said Policy, incentive was granted for the purpose of setting up of Phase- II manufacturing facility (expansion along with a new engine and transmission plant with an installed capacity of 3.30 lakh cars per annum). The scheme further envisages that the incentive was given by way of refund of Output VAT under the state policy. The Government of Tamil Nadu agreed to provide a structured package of support to the assessee in the form of fiscal and other incentives subject to fulfilling of certain conditions within the investment period i.e. '7' years from 01.06.2006. The obligations to be fulfilled by the assessee to avail the infrastructure support, utilities, and various incentives offered by the Government of Tamil Nadu is investment of INR 4,000 Crs., in eligible fixed assets within a period of '7' y ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... IPS as capital in nature and not liable for tax. The relevant findings of the AO are as under: VAT expenditure is purely revenue expenditure. The assesseee company was not required to expend VAT refund money for any particular purpose as evident from the MoU between the state Govt. & HMIL. The assessee company had to invest Rs. 4000/- crore in eligible fixed assets within 7 years, SIPCOT started payment of incentive in the form of refund of output VAT from 1st year of investment in fixed asset on the basis of interim eligibility certificate issued by Commercial Tax Dept. to SIPCOT on the condition that the assessee has to complete investment in eligible fixed assets as per clauses in MoUdtd: 22.01.2008. It was further mentioned in separate agreement between GoTN and HMIL that if assessee fails to. fulfill the condition as per MoU, the interim refund granted will be recovered from assessee. It was stated by the assessee that there was no fixed purpose for utility of such incentive. It could have been utilized on any head which was not distinguishable. This clearly shows that the incentive: was given for running of the business of assessee more profitably. Thus, incentive re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... duction and, therefore, such a subsidy could only be treated as assistance given for the purpose of carrying on the business of the assessee, Consequently, the contentions raised on behalf of the assesses on the facts of that case stood rejected and it was held that the subsidy received by Sahney Steel and Press Works Ltd, could not be regarded as anything but a revenue receipt. Order of Ld. 1TAT Madras Chennai in the case of the M/s. Eastman Exports Global Clothing (P) Ltd in I.T.A. Nos.47 & 48/Mds/2016 is also relevant in the case of assessee. The same is reproduced hereunder: - "This court examined tests laid down in various cases for distinguishing between capital expenditure and revenue expenditure. When an expenditure is made not only once and for all but with a view to bringing into existence an asset or an advantage for the enduring benefit of a trade, I think that there is very good reason (in the absence of special circumstances leading to an opposite conclusion) for treating such an expenditure as properly attributable not to revenue but to capital. Whether by spending the money any advantage of an enduring nature has been obtained or not will depend upon the fa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... m of assessee the receipt of Rs. 32,75,60,000/- from Govt. as capital receipt is hereby rejected". In view of above, the claim of assesses that the "Output VAT subsidy of Rs. 33,00,82,506/- received by the assessee should be treated as a capitalreceipt not chargeable to tax" is not tenable at all and it was rightly treated by assessee as revenue receipt. 11.2. The Ld. Counsel for the assessee submitted that in order to treat any subsidy received from Central/State Government, the primary condition is purpose test. If any subsidy is primarily granted as in incentive for the purpose of setting up/expansion of its manufacturing activity to encourage huge investment, then, said subsidy will be in the form of capital receipt not chargeable to tax. The Ld. Counsel for the assessee further submitted that the form of receipt of subsidy would not change the character of receipt, because, in many case, the subsidy has been quantified in terms of fiscal incentives like VAT/Sales Tax, refund, etc., but what is required to be seen is purpose of granting such subsidy. In the present case, the Government of Tamil Nadu, has given subsidy to encourage investment in the field of in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... meet any portion of the actual cost, it falls outside the purview of Explanation 10 to Sec. 43(1) of the Act. In this regard, the assessee relied upon the decision of the Hon'ble Bombay High Court in the case of PCIT v.Welspun Steel Ltd. reported in 264 Taxman 252. The assessee had also relied upon the following judicial precedents: • P.J. Chemicals - Supreme Court-210 ITR830 • Electrosteel Castings Ltd. - Kolkata ITAT - 189 LTD 183 • Bhagwati Sponge P. Ltd. - Kolkata LTAT - 72 taxmann.com 40 • Everest Industries Ltd. - Mumbai ITAT - 192 TTJ 904 11.4 The Ld.DR supporting the order of the AO and ld. DRP submitted that the assessee has received IPS in the form of refund of Output VAT after commencement of commercial production. Therefore, the nature of subsidy has to be examined in light of the purpose and manner of such subsidy has been given by the Governments. If you go through the Scheme promoted by the Government of Tamil Nadu, although, it states that it is for encouragement of investments in Ultra Mega Integrated Automobile manufacturing industries, but such subsidy has been given in the form of refund of Output VAT payable by any entity after ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Court in the case of CIT v. Chaphalkar Brothers Pune, reported in (2018) 400 ITR 279 (SC), that subsidy received towards accelerating industrial investment/setting up of units is to be treated as capital in nature, even if such subsidy has been quantified in terms of reimbursement of expenses or VAT, etc.,. Further, CBDT Circular No.142 dated 01.08.1974, which deals with characterization of subsidy received under 10% Central Outright Grant of Subsidy Scheme, 1971, states that classification of a subsidy as capital or revenue depends on whether the subsidy has been granted for helping the growth of the industries or for supplementing their profits. If the subsidy is granted for the purpose of growth of industries, then, the receipt of the subsidy was concluded to be on capital account. In the present case, going by the Scheme promoted bythe Government of Tamil Nadu, it shows that industrial promotion subsidy has been promoted for encouraging Ultra Mega Integrated Automobile Industry in the state of Tamil Nadu. Therefore, we are of the considered view that from the submissions of the assessee, it appears that IPS accrued to the assessee for the impugned assessment year on the basis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t or reimbursement, then, the same shall not be included in the actual cost of the asset. In the present case, IPS Scheme given by the Government of Tamil Nadu aims reimbursing cost of infrastructure of setting up/expansion of manufacturing facility in Mega Automobile Industry. If you go by the Scheme, it aims to reimburse cost incurred by an entity to set up a manufacturing facility which consists of various forms of assets. Although the Scheme does not specify any particular asset on which reimbursement is granted, but it aims to provide reimbursement towards total cost incurred by an entity for setting up/expansion of manufacturing facility. Therefore, from the above, it is undoubtedly clear that subsidy given to an entity in any form including reimbursement by giving refund of Output VAT is to share/reimburse part of cost incurred by an entity in setting up a plant or facility. Therefore, we are of the considered view that there is not merit in the arguments taken by the Ld. Counsel for the assessee that the IPS is not given to offset cost of any particular asset and is merely issued with an objective of accelerating the industrial development. Further, as we have already state ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e as revenue in nature and has offered to tax. Based on certain subsequent decisions, the assessee has raised additional ground and argued that subsidy received under Focus Market Scheme is capital in nature and not chargeable to tax. 12.1 The Ld.AR submits that this issue is covered against the assessee by the decision of the ITAT Chennai Benches in the assessee's own case for AY 2013-14 in ITA No.3192/Chny/2017. 12.2 The Ld. DR fairly agreed that this issue is decided against the assessee. 12.3 We have heard both the parties and perused the materials available on record. We find that an identical issue had been considered by the Tribunal in the assessee's own case for AY 2013-14 in light of subsidiary received from Government of India, Ministry of Commerce & Industry under the Focus Market Scheme, and held that said subsidy is Revenue in nature which is taxable as income of the assessee. The relevant findings of the Tribunal are as under: 32. We have heard both the parties, perused material available on record and gone through orders of the authorities below. The Government of India, Ministry of Commerce and Industry has come out with Foreign Trade Policy for the period 1st ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pose for which the subsidy is given. In other words, in such cases, one has to apply purpose for test. The point of time at which subsidy paid is not relevant. The source is immaterial. The form of subsidy is immaterial. 33. Therefore, in the light of decision of the Hon'ble Supreme Court, in the case of Sahney Steel & Press Works Ltd. Vs. CIT(supra), if we examine facts of the present case, we are of the considered view that duty credit scrips received by the assessee from Govt. of India for export of certain goods to some specified regions is certainly in the nature of revenue receipt, because which is primarily given to offset higher freight cost and other disabilities to select international markets, with a view to enhance our export competitiveness to these countries. We further, are of the opinion that this subsidy was given by way of assistance in carrying on of trade or business and to meet recurring expenses, but it was not for acquiring any capital asset. It was not to meet part of the cost to manufacturing activity. It was not granted for production or bringing into existence any new asset. The subsidy was given year after year only after setting up of industry and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ter considering nature and purpose of amount received under Focus Market Scheme, has very well considered the same as revenue receipt and offered to tax. Therefore, based on some judgements of higher forum making a claim for excluding said receipt from tax by claiming that it is in the nature of capital receipt is not correct, unless the assessee demonstrates that facts of those case laws considered by appellate forum and facts of assessee's case are similar in nature. As regards various case laws relied upon by the assessee including the decision of ITAT., Chennai in the case of Eastman Exports Global Clothing Pvt.Ltd. in ITA No.47 & 48/Chny/2016, we find that the ITAT, Chennai Bench in above case has not apprised facts in right perspective of law and hence, the judgment of Chennai Bench is not considered. As regards decision of Hon'ble Rajasthan High Court in the case of Pr.CIT Vs. Nitin Spinners Ltd. in Income Tax Appeal No.31 of 2019, we find that facts of case before Hon'ble High Court and facts of present case are different and hence, same is not considered. 35. In this view of the matter, and considering facts and circumstances of the case, we are of the considered view th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e DRP, fairly agreed that this issue has been decided in favour of the assessee by the ITAT Chennai Benches for earlier assessment years. 14.3. We have heard both the parties, perused the materials available on record and gone through orders of the authorities below. We find that an identical issue had been considered by the Tribunal in the assessee's own case for AY 2013-14, where the Tribunal by following the decision of the ITAT Chennai Benches in the assessee's own case for earlier assessment years, decided the issue in favour of the assessee. The relevant findings of the Tribunal are as under: 28. We have heard both the parties, perused material available on record and gone through orders of the authorities below. Admittedly, additions made by the TPO towards brand development services is recurring issue, which was subject matter of deliberations from the Tribunal right from assessment year 2009-10 to assessment year 2011-12. The Tribunal in the assessee's own case for assessment year 2009-10 to 2011-12 had considered an identical issue and held that in absence of mutual agreement or arrangement between two or more AEs for allocation, apportionment or contribution to any co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ous stages involved in the manufacturing process is explained by the assessee as per which the process up to the stage of trial run and pre-delivery inspection is common for both export and domestic sales. Further, inputs for manufacture, such as import of raw materials, domestic purchase of raw materials, spares, etc., are also common for domestic and export sales. Based on the functional analysis of process, in the TP documentation, the assessee has tested its international transactions with its AE at entity level by applying Transaction Net Margin Method (TNMM) as the most appropriate method. The assessee's margin was at 5.01% on sales while the comparable companies' margin was arrived at 5.41%. Accordingly, claims that international transactions were considered to be at Arm's length price. 15.1. During transfer pricing proceedings, the TPO did not accepted TP study conducted by the assessee at entity level by applying TNMM as most appropriate method and on the basis of segmental financials furnished by the assessee, the ld.TPO has carved out domestic segment (manufacturing and spares) alone and benchmarked it with comparable companies selected by the assessee in the TP documen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... TPO to reconsider the issue in light of directions given therein. The relevant findings of the Tribunal are as under: 49. We have heard both the parties, perused materials available on record and gone through orders of the authorities below. We have also carefully considered various case laws cited by the ld.AR for the assessee. The assessee is a wholly owned subsidiary of Hyundai Motor Company, South Korea. The assessee is engaged in manufacturing and selling cars in India and exporting them to AE's abroad. The assessee has entered in to various international transactions with its AE's and claimed it as tested party and benchmarked the same by applying TNMM as most appropriate method. The TPO did not accept TP study conducted by the assessee and according to him, there is huge variation between profit margins of domestic segment and export to AE segment, in both categories of vehicles and spares. Accordingly, he has rejected TP study conducted by the assessee and recharacterized TP study by segregating domestic car sale segment on a standalone basis and made TP adjustment. We have given our thoughtful consideration to the reasons given by the ld.TPO / DRP and arguments advanced ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... had held that arm's length price should be determined on a transaction by transaction basis, based on functions performed, asset employed and risk assumed by the assessee. Further, the Act is very clear, as per which each international transaction has to be benchmarked based on the nature of transactions by applying most appropriate method. There is no common rule for applying TNMM as most appropriate method for all transactions. Some international transactions have to be tested by applying CUP method, resale price method or cost plus method and selection of appropriate method is depends upon nature of transactions. Therefore, we are of the considered view that there is no merit in the arguments taken by the ld.AR for the assessee that the TPO / DRP has erred in segregating domestic car sale segment on a standalone basis for the purpose of benchmarking ALP of international transactions with its AE. 50. Be that as it may. The fact remains that the TPO while segregating domestic car sale segment on a standalone basis has benchmarked transactions by considering 5 comparables selected by the assessee in its TP documentation. It was the claim of the ld.AR for the assessee that 5 compa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s been treated as operating expenses by the TPO. The assessee has received royalty income from Mobis under similar agreement for sharing technology and know-how, but the same has been considered as non-operating by the TPO. When the TPO has considered royalty payment by the assessee to its parent company as operating in nature, then there is no reason for the TPO to consider royalty income received from Mobis as non-operating income. Therefore, we are of the considered view that the ld.TPO was erred in considering royalty received from Mobis as non-operating. Hence, we direct the ld. TPO to consider Royalty income as operating income for computing operating margin. 52. As regards commission / discount income, incentives and insurance claim income, we find that all these incomes are generated from main business activity of the assessee of manufacturing and sales of cars. The assessee has received commission / discount on procurement of raw materials and insurance claim is received towards damaged cars manufactured by the assessee. When the assessee is recognizing income from sale of cars as operating in nature, then insurance claim received towards damaged cars is also operating i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as been substantially changed in subsequent assessment years. Further, it is a well settled principle of law that forex gain or loss is revenue in nature and operating income/expenditure. Therefore, we are of the considered view that there is no merit in the arguments taken by the ld.AR for the assessee that forex loss should be considered as non-operating in nature. Hence, we reject arguments taken by the assessee. 54. As regards working capital adjustment claimed by the assessee by filing additional ground, we find that the issue is now settled by various decisions including the decision f ITAT, Chennai in the case of Doosan Power Systems India Pvt. Ltd., in ITA No.581/Mds/2016, where myself is one of the party to the decision held that working capital adjustment needs to be given while computing operating margin of the assessee. Therefore, there is merit in additional ground taken by the assessee requesting working capital adjustment. But, fact remains that since assessee has taken additional ground, the facts with regard to claim of the assessee was not before the TPO. Hence, this issue needs to go back to the file of the TPO to examine the claim of the assessee in light of f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er assessment years. 16. The next issue that came up for our consideration from Ground No.13 of the assessee's appeal is excess levy of interest u/s. 234C of the Act. Computation of interest u/s. 234C of the Act,is directory and consequential in nature, which depends upon total income computed for the relevant assessment year. In case, calculation errors, if any, then same needs to be rectified by the AO by considering relevant pre-paid taxes paid by the assessee including TDS credit as per records. Therefore, we direct the AO to re-examine the contention of the assessee with regard to computation of interest u/s. 234 of the Act, and decide the issue in accordance with law. 17. The next issue that came up for our consideration from Ground No.14 of the assessee's appeal is short credit of TDS and relief u/s. 90 of the Act. The Ld. Counsel for the assessee submitted that a direction may be given to the AO to verify the claim of TDS available as per records and adjust against tax demand. The Ld. Counsel for the assessee had also prayed to give a direction to the AO to allow relief u/s. 90 of the Act, in accordance with law. We find that credit for TDS should be given as per Form No. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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