9911796707
TMI Blog2024 (12) TMI 29X X X X Extracts X X X X X X X X Extracts X X X X ..... of Companies as well as logistics and coordination services. Return of income declaring loss of Rs. 64,41,09,353/- was filed for AY-2012-13 on 30.11.2012. Considering involvement of international transactions, the Ld. AO referred assessee's case to the Ld. TPO for consideration of adjustments u/s 92CA. Vide his order in F No.F-101/TPO-1/AY-2012-13 dated 29.01.2016, the Ld. TPO proposed an adjustment of Rs. 243,81,73,427/-. The assessee contested the matter before the DRP which finally approved transfer pricing adjustment of Rs.224,78,12,958/-. The Ld. AO after incorporating some corporate additions finally passed his order u/s 143(3) r.w.s. 144C on 31.01.2017. The appellant assessee has contested both transfer pricing additions proposed by TPO and confirmed by the DRP as well as corporate additions made by the Ld. AO. The appellant has raised following grounds of appeal:- 1. The order passed by the Deputy Commissioner of Income-tax, Large Taxpayer Unit-1('DCIT' or 'AO') pursuant to the directions issued by the Dispute Resolution Panel ('DRP'), under section 143(3) r.w.s. 144C(13) of the Income-tax Act, 1961 ('the Act'), is bad in law and on facts. 2. The adjustments made in th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... CM and UDS segment in AY 2012-13 is similar to facts in AY 2009-10, AY 2010-11 and AY 2011-12 wherein, the Ld. TPO accepted the transfer pricing approach of the Appellant. 6. Erroneous rejection of Overseas Tested Party Approach 6.1 Erred in law and on facts by ignoring the Global Transfer Pricing Policy of the Appellant with respect to the related-party purchases made for its UDS segment, from its Associated Enterprises ("AEs") wherein the AEs, being the less complex entities, were considered as tested party and remunerated on an arm's length basis. 6.2 Erred in law and on facts in disregarding the Transfer Pricing study maintained by Appellant and rejecting the methodical benchmarking analysis adopted by the Appellant consistently on year on year basis, thereby violating the principles of Rule 10B(2)(d) of the Rules. 6.3 Erred on facts in stating that no evidence was provided for mark-up earned by the AEs and its arm's length nature thereof in comparison to global comparable companies, without appreciating that the same has been provided in the TP Study along with the global benchmarking undertaken by the Appellant and statutory auditor's certification of AEs' margins wi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and further erred in mis-interpreting the intercompany agreement based on his own assumptions, surmises and conjectures that the AEs have obligated the Appellant to incur AMP expenses and promote the 'Ford' brand. 8.2 Erred in rejecting the Appellant's reliance on the Hon'ble Delhi High Court's ruling in the case of M/s. Maruti Suzuki Limited without providing cogent reasons and without appreciating the facts of the case. 8.3 Erred in facts in alleging that the Appellant has offered services bearing the brand/trademark owned by the AE based purely on his conjectures and surmises, without considering the fact that there was no explicit or implicit arrangement/agreement to provide any brand promotion services to the AE. 8.4 Erred in proposing a brand fee adjustment at an arbitrary and hypothetical rate of 1% of sales based on unsubstantiated presumptions, surmises, conjectures and allegations, violating section 92C(1) of the Act read with Rule 10B of the Rules. Further, disregarded the deletion of adjustment towards Brand Promotion as directed by the Hon'ble Chennai Tribunal in the Appellant's own case. 8.5 Without prejudice to the above, the Ld. TPO grossly erred in exten ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... customer. 11.2 Erred on facts and circumstances of the case and in law by not distinguishing the advance received from customers towards extended warranty and the amount received towards base warranty which had been embedded in the sales price of the passenger car. 12. Disallowance of foreign currency payments under section 40(a)(i) of the Act 12.1 Erred on facts and in law by treating the modification charges of INR 118,170 paid to Cinetic Filling, France as fees for technical services and disallowing the same under section 40(a)(i) of the Act. 12.2 Erred in law by denying the benefit of applying the Most Favored Nation clause under paragraph 7 of the protocol to the India-France DTAA, based on which the Appellant had applied the restricted scope of taxation contained in India's Double Taxation Avoidance Agreement ('DTAA') with Portugal, which had come into force after 01 January 1990. 12.3 Erred on facts and in law by treating the fees paid to Deutsche Bank, Singapore amounting to INR 17,080,437 as fees for technical services and disallowing the same under section 40(a)(i) of the Act without appreciating that the services received from the given party had not been made ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... USA 26,84,142 12.8 Erred on facts and circumstances of the case and in law by concluding that, in the absence of a Nil deduction certificate, the Appellant was obligated to withhold taxes on all the aforesaid payments. 13. Deduction claimed against previous year's disallowance 13.1 Erred on facts and circumstances of the case and in law by failing to grant allowance of provision for expenses reversed during the year amounting to INR 3,63,12,391 without appreciating that the same was disallowed in AY 2011-12. 14. Set-off of brought forward losses 14.1 Erred on facts and in law by not setting off the brought forward unabsorbed depreciation of AY 1997-98 and AY 1998-99 against the assessed income of the given AY. 15. Initiation of Penalty Proceedings 15.1 Erred on facts and in law by initiating penalty proceedings on the ground that the Appellant has failed to furnish accurate particulars of income thus resulting in concealment of income. 16. Consequential Relief 16.1 The Appellant prays that directions be given to grant all such relief arising from the grounds of appeal mentioned supra as also all consequential relief thereto. The Appellant craves leave to add to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing the documentation. In the segments like contract manufacturing and unrelated dealer segment, the document is short of financial data pertaining to the AEs which are treated as tested parties. Such a global approach without substantive evidences is not as per the Indian transfer pricing guidelines. 8.1. Under the TP provisions, the primary onus is on the tax payer to determine an ALP in accordance with the rules. The same should be substantiated with the prescribed documentation as per the provisions Section 92C(3). In the present case, the assessee has not fulfilled such criteria as the price charged in international transaction has not been determined in accordance with the sub-section 92D (1) and (2). Further, the information of data used in computation of ALP as discussed in the preceding paragraphs cannot be said to be reliable or correct. Hence, the TP documentation submitted by the assessee need to be rejected and the ALP need to be computed for the international transaction of the assessee with AE as per ne provisions of Section 92C(4). 9. TPO's conclusive remarks about the two segments viz, unrelated dealer segment and contract manufacturing considered by the as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le manufacturing, the assessee has shown a separate segment of contract manufacturing wherein it has hived off the sale made to related parties. It is interesting to note that no expenses of royalty, license fee for trade name or product development expenses are debited to this segment only in order to have an inflated margin. On the sale figure side, the assessee has credited the entire sale of spares to its AEs and exported. The assessee has not shown sale of spares in domestic sale. However, it is noticed that in both the segments, the assessee is a full-fledged manufacturer of vehicles. It is taking all the risks and performing all the functions of a manufacturer and all assets are utilized for carrying out these manufacturing activities whereas contract manufacturing is only a partial responsibility and is performed in pursuance of a contract which, in the case of the assessee, is not there. The assessee has not been able to furnish any such contract executed with the AEs for carrying out such manufacturing activities. Another thing which is seminal to contract manufacturing is the manufacturer is given certain yearly projections and purchase orders. The contract manufacturer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es of the Indian market conditions are being considered. 9.5.2. Salient features of automobile industry in India: The automotive industry in India is one of the largest automotive market in the world. In the recent past, India has emerged as the 6th largest automotive manufacturing industry in passenger and commercial vehicle sector by overtaking established countries like Brazil. Similarly, India has also emerged as Asia's 4th largest exporter of passenger cars after Japan, South Korea and Thailand. In the recent past, it has also become one of the key global markets (both for consumption and as production base) by becoming base for global manufacturers like Nissan, Renault, GM, Ford, Honda, Suzuki, Hyundai, Daimler, Skoda, Volkswagen, etc. Almost all the top global brands are present now in India and also have manufacturing and assembling units. 9.5.3. One of the common features of automobile manufacturers especially passenger cars in India is that they are having strong foreign company investment and strong technical collaboration of Indian companies with global companies. For example, one of the forerunners in this sector, Maruti Suzuki Industry Limited is a tie-up of M ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tested party, it has been asked to consider Indian entity. i.e.. FIPL as the tested party and submit the Comparables. In response to which, as an alternative submission, the assessee has replied as under:- "Our alternative submission with respect to the Unrelated Dealer Sales segment asrequested by your qoodself: The Assessee firmly believes that for its Unrelated Dealer Sales segment, the tested party should be only Ford overseas Affiliate entities, and the FIPL cannot be the tested party for the international transactions in its Unrelated Dealer Sales segment as mentioned above. Without prejudice to our above position, as requested by your goodself, we have conducted a search for Indian comparable companies in the Indian passenger car segment, as an alternative submission, as follows: a) Search process for comparable companies * FIPL'S unrelated sales segment covers manufacturing, marketing, sale and service in relation to passenger cars and parts & components in the Indian market through a network of unrelated dealers throughout the country. * The search process and search results for Indian passenger car manufacturers are given in Annexure C. Kindly note that w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for transaction in the nature of Manufacture of Automobiles. Time Period: Only data relating to the current year was used. The following paragraphs provide the search strategy employed to identify comparable companies through the automated search on the databases: Basis of identification - Manufacture of automobiles. In considering the potential comparable companies we have considered companies, where ae included under the industry as "Automobiles" from the above databases. The companies operating in the following industries were selected for identifying the comparable companies. Capitaline plus Industry Industry classification - CMIE -Automobiles - Motor Cycles/Mopeds Automobile-Commercial Vehicles - Heavy Commercial -Automobiles - LCVs & HCVs Vehicle -Automobiles - Passenger Cars - Commercial Vehicles - Light Commercial Vehicle -Automobiles - Scooters & 3 wheelers - Passenger cars and jeeps - Passenger Cars -Automobiles - Tractors - Passenger cars and jeeps - Utility vehicle incl. Jeeps. - Two & Three wheelers- Two wheeler - Two & three wheelers- Three wheeler. - Automobile Ancilllaries. Industry Classification - NIC Manu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1/- COGS related = Rs.1257,03,26,544/- + Royalty expenses = Rs. 142,27,26,107 = Rs.1399,30,52,651 Operating loss shown by assessee =(-) Rs.117,14,94,295/- Margin of the assessee(OP/OR) =(-) 1.92% Arithmetic mean of margin of the comparable companies....." 4.2 On the first question of need for combining UDS and CM segment the Ld. TPO observed that the assessee has arrived at a mark up at 6.39% from the UDS segment after making certain adjustments details of which with any supporting evidence were not provided. The need and necessity for these adjustments were also not clarified. The L.d TPO noted that segmental calculations alluded disproportionate allocation of expenses like labour service, depreciation etc. The AO held the view that existence of a valid contract is seminal to any contract manufacturing activity which was absent in assessee's case. It was the case of the assessee before the Ld. TPO that it makes its sales to overseas entities on the basis of purchase orders only. The Ld. TPO argued that for any segmental allocation expenditure and revenue recognition should be separately done. The assessee had also failed to submit any data during the procee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat the approach taken by the Ld. TPO is not based upon correct understanding facts of the case. It was urged that TPO has not properly understood and appreciated the facts of the case. The difference between UDS and CM segments as separate segments was attempted to be established by relying on aspects that assessee carries out manufacturing activities in CM segment based upon instructions and specifications received from the AEs as clients, all marketing activities are undertaken by AEs in their respective regions in which assessee has no role to play, all after sales and support services is given by AEs only, it does not own any non-intangibles, all product liability risks are borne by AEs and all sales are supported by firm orders which adds to utilization of idle capacity of assessee's manufacturing plants etc. On the issue of rejection of AEs as tested parties the Ld. Counsel submitted that the TPO erroneously benchmark transactions using Indian comparable. It was argued that once segmentation ground is accepted assessee become the least complex entity and therefore the tested party. It was also argued that for UDS segment, since the assessee is a complex entity the overseas e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee has sold or purchased goods. Ii was held that under the Act and the Rules, the words Enterprise' and 'Associated Enterprise' have been used interchangeably and the arguments that the Enterprise will mean the assessee and the Associated Enterprise will mean the other party to whom the assessee has sold or purchased goods is incorrect. As could be seen from the definition of Enterprise given in section 92F(iii) and Associated Enterprise as defined in Section 92A of the Act, it is evidently clear that the statute does not indicate that 'Enterprise 'shall mean the assessee and the Associated Enterprise' will mean the other party. As pointed out earlier, the words 'Enterprise' and 'Associated Enterprise' have been used interchangeably. Therefore, the conclusion of the Tribunal in this regard is not sustainable. 29. The issue regarding the assessee's plea to consider foreign AE as tested party to determine the Arm's Length nature of the underlying international transaction stands remanded to the Transfer Pricing Officer for a fresh decision on merits and in accordance with law having due regard to the orders passed by the Transf ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ith regard to the issue of tested party. On the one hand, the TPO averred that there was no reliable data available for both GMDAT and comparables; however, on the other hand, he had conveniently taken GMDAT as the 'tested party' while making adjustment to transaction relating to payment of royalty by the assessee to GMDAT. This exposes the inconsistency approach of the TPO 11.6.3 The financial statements of comparable companies have since been audited by the independent auditors and, thus, there can be no reservation in placing a reliance on the same. 11.6.4 However, the learned Sr. Counsel submitted that segment financial data for benchmarking - a part of GMDATs business - was made available to the TPO and also on his request, the financial statements of GMDAT (at company level) was furnished to the TPO and the same is not disputed. Therefore, there should be no grievance on the part of the Revenue to say that no sufficient data was made available...." 4.8 The Ld. DR vehemently argued in favour of the orders of lower authorities. It was submitted that the action of the Ld. TPO duly supported by the Ld.DRP is based upon correct understanding of the facts of the case a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion on merits and in accordance with law after considering the details and documents of assessee's own transfer pricing documents, global transfer pricing report of foreign AEs, extracts of inter-company agreements etc. In respectful compliance to the order of Hon'ble jurisdictional High Court the orders passed by lower authorities on this issue of rejection of overseas AEs and adoption of domestic parties is set aside. The Ld. TPO is directed to rea-judicate the matter afresh on merits and in accordance with law after obtaining all necessary details required for his TP study, and after giving due opportunities of being heard to the assessee. The Ld. TPO shall pass a speaking order on the subject. The assessee is directed to comply with all the notices issued by the revenue on this subject matter. Accordingly, the ground of appeal no.6 raised by the assessee qua rejection of overseas AEs is allowed for statistical purposes only. 4.11 The ground of appeal No.7 raised by the assessee towards erroneous rejection of alternate Indian benchmarking study provided by it, in view of the decisions and directions in appeal Nos. 5 & 6 above, has become academic in nature and bereft of any adj ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... were for different purposes. 5.1 We have heard the rival submissions in the light of material available on records. We find sufficient force in the argument of the Ld. Counsel for the assessee that AMP expenses would not constitute International Transactions save in cases where a specific contractual agreement binds it to incur an expenditure. We have also noted that the Ld. TPO while recommending an upward adjustment in para 11.3.22 on page 58 of his TPO report, observes that the issue has been decided in favour of the assessee for 2007-08 however since the department has not accepted the decision and is in appeal before the Hon'ble Madras High Court and therefore he is making the impugned upward adjustment. The argument given by the Ld. TPO is not acceptable in view of the principles of judicial discipline. An order of a superior appellate authority is to be mandatorily followed by a lower authority until the same is overruled by the next higher appellate authority, in this case being Hon'ble Madras High Court. Thus to this extent the conduct of Ld TPO has been found to be totally unacceptable. Coming to reliance on judicial decisions relied upon by the assessee we have noted t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 35. First, question is whether there was any international transaction coming within purview of Chapter X of the Act and whether assessee's case is distinguishable on facts with that in the case of L.G. Electronics Pvt. Ltd. (supra) decided by the Special Bench. Contention of the Revenue is that this stands answered by the decision of Special Bench in the case of L.G. Electronics Pvt. Ltd. (supra). On the other hand, contention of the assessee is that in LG's case, there were some special features in the agreement entered by LG Korea with LG India, which were not available in assessee's case. As per the assessee, LG India was obliged to sell only LG products in India, whereas, there was no such exclusivity clause for the assessee. In our opinion, assessee was bound by the technical collaboration agreement dated 19th August, 1996 entered with M/s FMC. By virtue of such agreement, assessee had to sell products licensed by FMC with the badge "Ford" in India. Two lines of arguments has been taken by the assessee. One is that it was not promoting the brand name "Ford" by itself, in any of the advertisements, but was on the other hand, promoting various models of its cars. Second is t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e. Except for the license to use "Ford" as part of its corporate name, there is nothing in this agreement which enabled the assessee to use the word "Ford" in any of the products manufactured or marketed by it. 38. The litmus test for deciding whether an international transaction can be discerned out of an arrangement through which an assessee in India was manufacturing and marketing products branded with the name of a foreign enterprise, when they were related parties, had indeed come up before the Special Bench in the case of L.G. Electronics India Pvt. Ltd. (supra). There also the main argument taken by the concerned assessee was that there was no marketing intangible in the nature of brand building for LG in India, which could be construed as an international transaction. After going through the definition of "transaction" given under Section 92F(v) of the Act, Special Bench felt that there was no need for Legislature to define the word "transaction", if mutual agreements between parties were alone to be considered. Even when there was no such formal agreement, there could be still an informal or oral understanding, which could be inferred from attending facts and circumstanc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... more AMP expenses coupled with the advertisement of brand or logo of the foreign AE, gives strength to the inference of some informal or implied agreement in this regard." 39. As mentioned by us, here the assessee had simultaneously advertised the logo "Ford" along with the model name of its own cars. May be it is true that assessee was not legally constrained to manufacture only cars for which technical knowhow was made available by M/s FMC and it had freedom to do independent manufacturing of cars as well. No doubt, the technical agreement dated 19th August, 1996, mentioned above by us, does not say in so many words that assessee was to exclusively manufacture cars which carried the logo "Ford" and use only the technical knowledge made available to it by FMC. In our opinion, such contrived situations cannot and should not blind one to the ground realities. Admittedly assessee was a 100% owned subsidiary of FMC. On a query raised by the Bench, learned A.R. did admit that its directors were appointed by FMC only. In such a scenario, to say that assessee could manufacture cars other than those branded as "Ford", in our opinion, will be hard to digest. At the best this was only a r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... interpreted to mean that every Indian knew "Ford" before assessee sold the cars in India. Ford might have been known among middle class and upper middle class strata, but, without doubt, there would be a substantial number of persons in India, who would have become aware about the brand "Ford" through the advertisements placed by the assessee and its marketing efforts in India. A compilation and analysis of assessee's market share vis-à-vis its major competitors, done by us, based on the data given by the assessee in its written submission, reveals interesting results:- Comparative sales chart (Rs. In Crores Financial year Maruti Suzuki India Hyundai Motor India Mahindra & Mahindra Ltd Toal Ford India Pvt Ltd (assessee) % of sale of assessee to total 2006-07 17458 10354 11238 39050 2192 5.61 2007-08 21221 12215 13015 46451 2032 4.37 2008-09 24334 17869 14668 56871 1702 2.99 Assessee has itself admitted its market share for relevant previous year as 1.9% only. Therefore, its claim that it had a head-start over others by using the "Ford" logo appears to be on a weak footing. 43. Even if we presume there indeed was any such advantage in the ini ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g as an international transaction. We do not find anything substantial or material enough to depart from the view taken by the Special Bench in this regard. Thus both legs of the first question are answered in favour of Revenue. 45. Coming to the next question which is whether TPO can take suo motu cognizance of a transaction for ALP analysis, in our opinion this also stands answered by Special Bench in the case of L.G. Electronics India Pvt. Ltd. (supra). Admittedly, assessee had not reported the brand promotion exercise as an international transaction as required under Section 92E. Once there was no reporting of an international transaction by the assessee, as held by the Special Bench, it was well within the power of the TPO to consider such transaction also, whether or not it was referred by Assessing Officer to him, under sub-section (1) of Section 92CA. Obviously such transaction can come to the notice of TPO only during the proceedings before him. In any case, by virtue of addition of clause (2B) to Section 92CA by Finance Act, 2012 with retrospective effect from First June, 2002, power of TPO in this regard has been clarified. Hence this question also stands answered in f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the assessee was fixed at Rs. 91,39,76,522/-. 47. Written submission given by the Department before us and the arguments of the learned D.R. does show that Revenue is confused with regard to the demarcating lines of the two elements which made up the value of "Ford" brand development in India. Argument of the Revenue is that low profits of the assessee was due to lower margins fixed on the prices of cars sold by it and this was done under the direction of FMC, since FMC was in lieu getting a benefit by way of additional marketing intangible in the nature of brand building. As per the Revenue, the brand building exercise gave a future value to the brand which would accrue to the parent company, namely, FMC. This concept of add-on brand value on normal sales and add-on brand value on additional sales, brought out by the Revenue to justify two additions, is, in our opinion, hazy and not supported by any empirical data. Its argument that assessee had reduced the prices and increased the AMP expenditure so that its parent company derived marketing intangible in the nature of brand development in India, is not backed by any empirical data. These are mere surmises. Unless Revenue is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urred for and on behalf of FMC for creating and maintaining its marketing intangible which was the "Ford" logo. When both expenses were inter-built, some mechanism needs to be devised for ascertaining the cost of international transaction. Assessee here had not declared any cost/value for the international transaction comprising of brand building and therefore, it became imperative for the TPO to apply Bright Line test for determining such value. TPO had identified three comparable cases and ascertained the amount of advertisement, marketing and promotion expenses incurred by them as a percentage of their sales, and applied it to the turnover of the assessee. The excess of total AMP expenses over such amount does give a measure of the brand promotion expenditure incurred by the assessee for FMC. Thus, we have to hold that only addition that could be made was by considering the excess AMP spends, and the addition done by the lower authorities considering 1% of sales, as brand development fee was not justified. In our opinion, there was indeed a duplication in measuring the brand development fee for working out the ALP. What could have been considered was only the excess AMP expendit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the authorities below, on the exhaustive definition of 'intangibles' in Explanation to section 92B, we may only reiterate that this definition would have been relevant only in the event of there being any transaction in the nature of sale, purchase of lese of intangible assets but then, it is not even the case of the revenue, that there was any sale, purchase or lease of intangibles. In view of these discussions, as also bearing in mind entirely of the case, we are of the considered view that the accretion of brand value, as a result of use of the brand name of foreign AE under the technology use agreement - which has been accepted to be an arrangement at an arm's length price, does not result in a separate international transaction to be benchmarked. The impugned ALP adjustments of Rs.54,15,28,903, Rs. 62,20,34,587 and Rs.253,44,00,000, for the assessment years 2009-10, 2010-11 and 2011-12 respectively, must, therefore, stand deleted. We hold so. Grievance of the assessee, with respect to ALP adjustments on account of accretion in brand value of the AE due to its use by the assessee, is thus upheld. 45. So far as the assessment year 2009-10 is concerned, ground no.2 in the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stified. No change in facts qua those of AY-2007-08 has been brought to our notice. Accordingly in respectful compliance to the decision of the coordinate bench of this tribunal in assessee's own case for 2007-08, we set aside the order of lower authorities and direct the Ld. AO to delete the impugned addition. Accordingly ground of appeal no.8 is allowed. 6.0 The next issue raised by the assessee through ground of appeal no.9 is regarding erroneous selection of comparable companies for business processing service segment. The Ld. TPO had proposed an adjustment of Rs.8,58,09,699/-. The DRP confirmed the findings of this issue as contained in page 6 to 14 of its order. Before us the Ld. Counsel of the assessee informed that the "....FIPL performs a limited amount of administrative and other ancillary services for Ford U.S. Standard "Business process services" ("BP serves") are standard accounting tasks, human resources processing (HR); information technology management and contract testing; research; engineering; marketing, sales, and service(MS&S); customer service operations(CSO); product testing and homologation; finance; purchase; and material, planning and logistics(MP & L)... ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cated. Thus, Professional Management Consultant Pvt Ltd and TVS - E Services Ltd had reportedly shown profit in one out three years and Sparsh BPO services Ltd in two out of three. It was admitted by the Ld. AR that the impugned annual reports of above three companies could not be produced before the Ld. TPO and Hon'ble DRP thereby not affording them an opportunity to verify the same. Reference was invited to para 48 & 49 of the DRP order confirming the above hypothesis propounded by the assessee. 6.2 We have heard the rival submissions in the light of material available on records. It is an undisputed fact of the case that the financials of the above three companies were not provided to the lower authorities. We find sufficient force in the argument of the assessee qua reliance placed on the decision of Hon'ble Bombay High Court in the case of Goldman Sachs Supra. We there deem it fit to restore the matter to the file of the Ld. TPO for read judication de novo qua inclusion of above three companies in his TP study after giving an opportunity of being heard to the assessee and passing of an speaking order. The assessee is directed to submit the impugned financials before the TPO f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ar 2008-09. Therefore we confirm the finding of the Tribunal directing the exclusion of Infosys BPO Limited from the lift of comparables. The conclusion arrived at by us is duly supported by the decision of the Hon'ble Division Bench of the Karnataka High Court in PCIT Vs. Swiss Re Global Business Solutions India Pvt. Ltd. (2018) 96 taxmann.com 643(Kar.HC). The order impunged in the said appeal passed by the Tribunal noted that the turnover of Infosys BPO Limited is Rs.649.56 Crores while the Turnover of the assessee company therein was Rs.11 Crores, which is much more than 65 times of the said assessee's turnover and therefore, the Court held that thre is no illegality or infirmity in the order passed by the Commissioner of Income Tax (Appeals) ('CIT(A)' for brevity) excluding the said Company out of the comparables. The Court also take note of the decision of the High Court of Punjab and Haryana in the case of Agilant Technologies (International) Pvt. Ltd Vs. ACIT 2015 SCC OnLine P&H 10135 and held that the Companies having turnover of more than 23 times of the assessee's turnover cannot be compared with the assessee. The decision of Bombay High Court in the case of CIT Vs. M/s.P ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... No.2089/Mds/2011, the DRP directed the Ld. AO to follow the order of the Hon'ble tribunal and restricted the downward adjustment to Rs.20,98,88,368/-. 7.1 In this regard we have noted that the following decision of Hon'ble Coordinate Bench of this tribunal in its own case for AY-2007-08 vide ITA No.2089/Mds/2011 :- "....53. Coming to the last question which is the disallowance of product design expenditure of 14.84 Crores, finding of the TPO is that ownership of the developed product vested with FMC and therefore, expenditure incurred in development of the product had to be attributed to FMC. On the other hand, as per assessee, it was only improving on various models of the cars manufactured and sold in India and economic ownership of the product improvement was with it, though legal owner was FMC. We are of the opinion that both the assessee as well as FMC had benefitted from the product development expenditure incurred. Through the technical collaboration agreement, assessee derived all assistance including technical knowhow for manufacturing various models of the cars, though ownership of all such knowhow was with M/s FMC. Assessee was doing research and development work for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eriod. The assessee informed Ld. AO that under mercantile system of accounting accrual of income is independent of its receipt and that so long as a customer has some say over the amount which it has paid to the payee it cannot be deemed as income of the assessee. The Ld. Counsel for the assessee submitted that the AO held the view that just like the base warranty, which is part of the sale price and hence offered as income of year of sale, the extended warranty would also be income of the year of sale and no distinction can be made. The Ld. AO differed with the assessee on the argument for treating the two separately. The Ld. Counsel for the assessee informed that base warranty and extended warranty cannot be treated at par as the amount of base warranty is embedded in the price of the car whereas the extended warranty is separately built through separate invoice. It was argued that the extended warranty contract are revocable and hence no income would accrue in the year of receipt. It was also argued that if extended warranty is treated as income in the year of sale then a case of double taxation would arise because the said extended warranty would be offered to tax in the year o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nly those amounts as its income in respect of which no claims arose by the customers. Wherever warranty claims were made by customers pointing out some defect in the car, the assessee would not be showing the same as its income. 8.2 The amounts received on account of extended warranty by the assessee therefore would become its income only in the year in which such extended warranty contracts mature. Now as the assessee has already been offering the said amounts in the year of maturity of such contracts, there taxation in the year of sale of car would certainly tantamount to a case of double taxation. Accordingly, we are of the view that the amounts received by the assessee as advance from customers towards extended warranty of Rs.11,83,06,406/- and added by the Ld. AO was not required. Accordingly, Ld. AO is directed to delete the addition. The ground of appeal No.11 raised by the assessee is therefore allowed. 9.0 The next issue raised by the assessee through ground of appeal no.12 is regarding disallowance of foreign currency payments made u/s 40(a)(i). The Ld. Counsel for the assessee informed that the Ld. AO has disallowed certain foreign currency payments by invoking provisi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 62 The remittance is towards reimbursement of expenses incurred towards Everest media ride and drive. 9. Ford Motor Company, USA 2,597,283 The remittance is towards fire protection engineering services. 10. Ford Motor Company, USA 2,684,142 The remittance is towards reimbursement of actual costs on environmental resources management (Environment Regulatory Support). ...." 9.2 The Ld. Counsel for the assessee informed that the DRP has held the view that the assessee is in no position to decide upon taxability of amounts given to the foreign entities and that therefore it was mandatory upon it to have deducted the TDS. It has also been held that in case there was a case of not taxability and corresponding non-deduction of TDS on the impugned receipts then it was imperative upon the deductees to have applied for non-deduction TDS certificates from competent authorities. The Ld. DR vehemently argued in favour of authorities below. 9.3 We have noted that Hon'ble Coordinate Bench of this tribunal in assessee's own case for AY-2011-12 and AY-2012-13 had passed orders vide ITA Nos. 673, 840, 748 and 749 qua cross appeals filed by the assessee as well as the revenue. The impu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Ld. Counsel for the assessee submitted that its arguments of allowing provisions which were created in a particular year and added back therein would require to be allowed in the year of its reversal, were not accepted by the DRP. It was submitted that the DRP was of the view that any expenditure is to be allowed only when made for the purposes of business and where the liability to spend has crystalized. Mere reversal would not justify an allowance. The DRP had noted that party wise details were not furnished before the AO and that in respect of few payees TDS was also not deducted. The DRP also noted that as regards allowance of amounts disallowed in last year, the same was untenable given the fact that no claim was made in the return of income. The Ld. DR would like to make us to believe the correctness of the order of lower authorities. 10.1 We have heard rival submissions in the light of material available on records. We have found sufficient force in the argument of DRP that any expenditure is to be allowed only when made for the purposes of business and where the liability to spend has crystalized. We are also in agreement with observation that when the liability in hand ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y. It is the case of the assessee that the restriction of 8 years is not applicable for set off of unobserved depreciation. It was argued that Hon'ble Coordinate Bench of this tribunal in assessee's own case vide ITA No.2344 & 2345 / Mds/2010 has directed the AO to allow unobserved depreciation of AY-97-98 & 98-99. 11.1 We have heard rival submissions in the light of material available on records. As regards assessee's reliance upon the decision of the Hon'ble Coordinate Bench of this tribunal in assessee's own case at ITA No.2344 & 2345 / Mds/2010 dated 12.05.2017 Supra, the same has been examined. It has been noted that the Hon'ble Coordinate Bench has observed as under:- "......9.0 The next issue is carry forward and set off of unabsorbed depreciation for the AY 1997-98,1998-99 and 1999-2000. This issues is involved in both the AYs 2005-06 & 2008-09. The AO in the assessment: - 19 -: ITA Nos.2344 & 2345/Mds/2012 Order, did not allow the carry forward and set off unabsorbed depreciation losses loss for the AY 1997-98 as per the following reasons: In the statement of total income filed along with the Return, the assessee claimed the unabsorbed depreciation losses of following ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssee to claim the balance of unabsorbed depreciation, forever. Further, by virtue of the amendment bought out by the Finance Act 2001, the unabsorbed depreciation for the interregnum period (AY 1997-98 to AY 2001-02) would revive back into life and become eligible for carry forward and set off for an indefinite period. Further, in the case of Best & Crompton Engineering Ltd. [2014] 30 ITR(T) 638 (Chennai Tribunal), the Hon'ble Chennai Tribunal placed reliance on the decision of the Gujarat High Court in the case of General Motors India (P.) Ltd. v. Deputy Commissioner of Income-tax [2012] 354 ITR 244 and held that, the unabsorbed depreciation prior to AY 2002-03 i.e. from AY 1999-2000 to AY 2001-02 would be available for carry forward and set off against income of subsequent years without any time limit in view of the section 32(2) as amended by Finance Act, 2001. :- 20 -: ITA Nos.2344 & 2345/Mds/2012 The observations made by the Gujarat High Court in the case of General Motors India (P.) Ltd (supra) and followed by the Chennai Tribunal in the case of Best & Crompton Engineering Ltd. (supra) are elucidated below: * Prior to the Finance Act No.2 of 1996, the unabsorbed depreciat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ection 32(2), in computing the profits and gains of business or profession for any previous year, deduction of depreciation under section 32 shall be mandatory. Therefore, the provisions of section 32(2) as amended by Finance Act, 2001 would allow the unabsorbed depreciation allowance available in the AYs 1997-98, 1999-2000, 2000-01 and 2001-02 to be carried forward to the succeeding years, and if any unabsorbed depreciation or part thereof could not be set off till the AY 2002-03 then it would be carried forward till the time it is set off against the profits and gains of subsequent years. * It is held that any unabsorbed depreciation available to an assessee on 1st day of April, 2002 (A.Y 2002-03) will be dealt with in accordance with the provisions of section 32(2) as amended by Finance Act, 2001. And once the Circular No.14 of 2001 clarified that the restriction of 8 years for carry forward and set off of unabsorbed depreciation had been dispensed with, the unabsorbed depreciation from AY 1997-98 up to the AY 2001-02 got carried forward to the AY 2002-03 and became part thereof, it came to be governed by the provisions of section 32(2) as amended by Finance Act, 2001 and were ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he above jurisdictional decisions, the Appellant had submitted that the brought forward unabsorbed depreciation of AY 1997-98, 1998-99 and 1999-2000, to the extent not set-off against the income of AY 2005-06, be allowed to be carried forward to the future years for an indefinite period. 9.2 We heard the rival submissions and perused the material placed on record. The Ld.AR relied on the decision of this Tribunal in of DCIT V. Tamil Nadu State Transport Corporation (Villupuram) Limited [2012] I.T.A. No. 1713/Mds/2011 Circular No.14 of 2001 and jurisdictional High Court of Madras cited supra. This issue is squarely covered by the decision of this Tribunal and the case law relied upon by the assessee cited supra. 9.3 Respectfully following the order of this Tribunal in the cited case we direct the AO to allow the unabsorbed depreciation of AY 1997-98, 1998-99, 1999-2000 to the extent not set off against the income of the AY 2005-06 for future years. The appeals of the assessee on this issue for the AY 2005-06 & 2008-09 are allowed...". 11.2 In respectful compliance to the order of the Hon'ble coordinate bench Supra we hold the view that the assessee is eligible for claim of its ..... X X X X Extracts X X X X X X X X Extracts X X X X
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