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TMI Blog2024 (9) TMI 355X X X X Extracts X X X X X X X X Extracts X X X X ..... TP documentation. Therefore, considering the judgment of Sony India Pvt. Ltd. 2008 (9) TMI 420 - ITAT DELHI-H] as relied upon by the TPO, we dismiss this ground of appeal of the assessee. Adjustment of base cost in manufacturing segment is also rejected by the TPO affirmed by DRP and followed by AO - The assessee has candidly accepted that no such adjustment has been allowed to the assessee in previous years by the assessing authorities or by the appellate authorities and the assessee himself has stopped claiming this adjustment from A.Y. 2016-17 onwards in its TP documentation. Therefore, we do not find any infirmity in the order of DRP / AO hence, this contention of the assessee is also de void of any merits. Additional ground in relation to the grant of proportionate adjustment - We observed that from the order of TPO for A.Y. 2013-14 adjusted margin has been provided to the assessee for that year. It is settled law that each year under the Income Tax Act is a separate assessment year and principle of res judicata are not applicable to the income tax proceedings. However, there has to be consistency in the approach of Revenue and if some claim is accepted in previous year and th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... contention. Payments made to the headquarters in lieu of services received from the AE - As observed that the argument of the ld. DR that the assessee has failed to obtain any benefit via rendering of these services by AE is not justifiable because it is settled position of law that for claiming of an expense, the incurring of expense as well as genuineness of expenses is to be seen nor the fruits ripped by the businessman on incurring of business expenses. It is equally settled position of law that the AO / TPO would not sit in the arm chair of a businessman as held in the case of S.A. Builder[ 2006 (12) TMI 82 - SUPREME COURT] - Therefore, this disallowance is not permissible hence, we allow the same. Disallowance of provision for warranty - We restore this issue to the file of TPO to examine as to whether the assessee has reversed these charges in subsequent year and has offered the same for taxation and then the TPO will decide the issue, in accordance with law. - Shri Prakash Chand Yadav, Judicial Member And Shri Waseem Ahmed, Accountant Member For the Assessee : Sri. Sachit Jolly Sri. Rishabh Malhotra, Advocates For the Revenue : Sri. Subramanian. S, JCIT ORDER PER: PRAKAS ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... able, a Penalty Order u/s. 271(1)(b) of the Income Tax Act, 1961 dated 15.12.2017 was passed levying penalty of ₹10,000. Later on Mr. NishantPeriwar and Mr.Gurwinder Singh, Authorized Representatives of the assessee company appeared and produced details and evidences called for. 4. During the relevant financial year, it was observed that the assessee had international transaction exceeding Rs. 15 crores. Therefore, with the prior approval of the Commissioner of Income-tax, Bangalore-I, Bangalore, a reference was made to the Transfer Pricing Officer to determine the Arms' Length Price as per provisions of Section 92CA of the 1.T. Act, 1961. This order u/s. 92CA of the Income-tax Act, 1961 dated 31.10.2017 passed by the Asst. Commissioner of Income-tax (Transfer Pricing)-1(3)(1), Bangalore has been received in this office. This order passed by the Asst. Commissioner of Income-tax (Transfer Pricing)-1(3) (1), Bangalore has decided that adjustment to Arms Length Price to the extent of Rs. 19,44,46,400/- is required to be made u/s. 92CA of the I.T. Act, 1961. 5. The draft assessment order dated u/s. 143 (3) r.ws. 92CA dated 18.12.2017 was forwarded to assessee company. The ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n imported components viz-a- viz. the comparables, it is noticed that the working of such adjustment sought by the taxpayer is given on page Nos. 365 and 366 of the taxpayer's paper book. A perusal of the said working shows that it is mainly based on proportion of imported components and the duty paid on such imported components. In our opinion, this basis adopted by the taxpayer for seeking the adjustment on account of excess custom duty borne by it is not correct inasmuch as consideration of duty payment alone would not justify such adjustment and it would be necessary to take into account the cost of components imported along with the custom duty paid thereon for the purpose of comparison with the corresponding indigenous components consumed by the comparables Moreover, the local levies such as sales tax etc. are also required to be taken into account for such comparison. It is also pertinent to note here that if the taxpayer company has purchased the imported components after payment of custom duty at a higher price than the indigenous components purchased by the comparables, this decision must have been taken by it consciously taking into account all the commercial conside ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nctive characteristic or feature which are used in the manufacture of automated control systems and HMIs ie. they are not of such a nature that they can be procured locally. GEIP incurs customs duty on such imports whereas, in the case of comparable companies import costs are much lower. Further, the assessee wishes to submit that the Industrial Automation market in India is highly competitive and the diversity of competition is higher than most of the developed markets. Competition includes American, European and Asian multinationals as well as home grown players. Considering that GEIP is operating in a very competitive market with severe pressure on prices, the company had to absorb the import duty incurred on the purchases and were not passed on to the customers. The Hon'ble Panel would appreciate that in order to secure orders and be competitive, GEIP even entered into contracts with customers with very low margins. The Assessee wishes to place reliance on the Pune Tribunal judgment in the case of Skoda Auto India Private Limited vs ACIT (ITA No. 202/PN/07) wherein it was inter alia held that any such comparison would require an adjustment on account of functional differenc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... orders of authorities below. 13. After considering the rival submissions, we observe that synopsis filed by assessee would show that the arguments made by the assessee are too general and that too without the support of any material to refute the observations made by ld. TPO in its order. Further, the perusal of objections filed before the ld. DRP and extracted by us in above para would clearly demonstrate that before DRP also, the assessee has simply contended that the spare parts imported by it were having distinctive characteristics when compared to local spare parts available in India. The assessee has not filed any data, analysis to establish the distinctive features of the foreign spare parts with that of Indian local spares available in India. During the course of hearing, the Bench has raised the query from the assessee s counsel as to whether any adjustment on this count has ever been allowed to the assessee in the previous or in future assessment year. In response to the query of the Bench, the assessee filed submissions on 28th August, 2024 and candidly accepted that the claim of the assessee for custom duty adjustment in manufacturing segment was not allowed by the Ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the interest of justice, we remit this issue to the file of TPO for deciding afresh in accordance with law. The other contention of the assessee in manufacturing segment was with respect to the adjustment of working capital. The assessee has raised this ground separately as ground no. 11, so we will deal with this ground separately. In manufacturing segment, the assessee has also sought relief on account of low margin deal as well as on account of forex loss. However, at the time of hearing, the learned counsel for the assessee fairly conceded these two adjustments hence, the same are dismissed. In view of the above discussion, ground no. 6 of the assessee is partly allowed for statistical purposes. 16. By virtue of ground no. 7, the assessee has mainly contended that the ld. TPO has erred in applying TNMM method instead of RPM method in the trading segment of the assessee. Facts with respect to this ground are like that the assessee as a part of distribution operations is purchasing and reselling automated control system from its AE as well as from non AE s. It is also an admitted fact that goods purchased from AE and non AE are not similar. At the outset, learned counsel for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... his ground is related to trading and distribution segment. Since, we have already set aside the other issues of trading segment to the file of the TPO, we direct the TPO to examine this contention of the assessee afresh, in accordance with law. Therefore, in the result, the ground no. 10 is also allowed for statistical purposes. 24. So far as the Ground No.11 is concerned, the contention of the assessee is that the TPO as well as DRP have erred in law in not granting working capital adjustment for manufacturing and trading segment. Ld. counsel for the assessee has argued that it is settled position of law that difference between the working capital of the tested party and of the comparables should be given credence while calculating Arm s Length Price (ALP). 25. The ld. DR relied upon the orders of the authorities below. 26. After considering the rival submissions, we observed that the ld. TPO while discussing this issue at page no. 14 of its order in para 9.2 has observed that the taxpayer has not been able to demonstrate that the working capital difference has impacted the profits of the tested parties. Ld. TPO has also observed that the assessee failed to file any data to suppor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... E are not allowable. 32. After considering the rival submissions, we observed that the argument of the ld. DR that the assessee has failed to obtain any benefit via rendering of these services by AE is not justifiable because it is settled position of law that for claiming of an expense, the incurring of expense as well as genuineness of expenses is to be seen nor the fruits ripped by the businessman on incurring of business expenses. It is equally settled position of law that the AO / TPO would not sit in the arm chair of a businessman as held by Hon'ble Supreme Court in the case of S.A. Builder 237 ITR Page 1. Therefore, we are of the view that this disallowance is not permissible hence, we allow the same. Further, we would like to rely upon the judgment of Hon'ble Delhi High Court in the case of HIV Communication Private Limited in ITA No. 306 of 2011; Abhishek Auto Industries Limited in ITA No. 1433/Del/2009. 33. In result ground number 13 14 are allowed. 33. Ground Nos. 15 and 16 are related to the disallowance of provision for warranty. At the outset, learned counsel for the assessee submitted that the assessee has reversed these provisions in subsequent year and only ..... X X X X Extracts X X X X X X X X Extracts X X X X
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