Tribunal Upholds Exclusion of Solar Trial Losses in Profit Calculation, Dismisses AO's Claims

The Tribunal upheld the Dispute Resolution Panel's decision to exclude losses from Solar Trial in computing the Profit Level Indicator, recognizing the activity as extraordinary. The Tribunal also directed the exclusion of non-operating transactions for accurate PLI computation, dismissing the AO's grounds. The judgment did not provide specific details on the disallowed repairs and maintenance. Regarding the rejection of set-off of unabsorbed depreciation, the Tribunal allowed the adjustment based on relevant case law, dismissing the AO's grounds. The appeal by the AO was dismissed, and the cross-objection by the assessee was treated as infructuous.

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Issues Involved:
1. Adjustment on account of Transfer Pricing (TP)
2. Disallowance out of repairs and maintenance
3. Rejection of claim for set-off of brought forward unabsorbed depreciation

Issue-wise Detailed Analysis:

1. Adjustment on account of Transfer Pricing (TP):
The primary issue was the exclusion of losses in Solar Trial (ST) in computing the Profit Level Indicator (PLI) of the manufacturing segment and the non-identification of a separate segment for the Solar Test (ST). The Transfer Pricing Officer (TPO) found that the assessee had segmented its activities into manufacturing and indenting but had also separated out ST as a separate segment, which was not recognized in the audited segmental accounting. The TPO rejected the PLI computation of the assessee, including ST in the manufacturing segment, and computed the PLI of the manufacturing segment at 3.51%. The TPO used three comparables and determined the PLI of OP/OC at 25.83%, proposing an adjustment of Rs. 10.26 crores.

The assessee objected, arguing that ST costs were extraordinary and should be excluded. The Dispute Resolution Panel (DRP) agreed, noting that the ST activity was an exception to the regular business and incurred exceptional expenses. The DRP directed the TPO to exclude the losses in ST run-up in computing the PLI of the manufacturing segment and to exclude non-operating transactions for accurate PLI computation. The Tribunal upheld the DRP's order, acknowledging the ST activity as extraordinary and not part of regular business, thus dismissing the grounds raised by the AO.

2. Disallowance out of repairs and maintenance:
The judgment does not provide specific details on the disallowance out of repairs and maintenance amounting to Rs. 31.63 lakhs. However, it can be inferred that this issue was part of the overall assessment and objections raised by the assessee. The primary focus of the judgment was on the transfer pricing adjustment and the set-off of unabsorbed depreciation.

3. Rejection of claim for set-off of brought forward unabsorbed depreciation:
The AO rejected the assessee's claim for set-off of unabsorbed depreciation aggregating Rs. 2.86 crores, referring to the decision in the case of Times Guarantee Ltd., which limited the carry forward of unabsorbed depreciation to eight years. The DRP, however, directed the AO to allow the adjustment, referencing the cases of General Motors India Private Ltd. and Hindustan Unilever Ltd., which supported the assessee's claim.

During the hearing, both parties agreed that the issue was covered in favor of the assessee by the judgments of the jurisdictional High Court and the Gujarat High Court. The Tribunal reproduced the relevant portions of the Gujarat High Court's judgment, which clarified that unabsorbed depreciation from the assessment years 1997-98 to 2001-02 could be carried forward without any time limit, following the amendment by the Finance Act, 2001. Consequently, the Tribunal dismissed the grounds raised by the AO.

Conclusion:
The Tribunal dismissed the appeal filed by the AO and treated the cross-objection by the assessee as infructuous. The order was pronounced in the open court on 8th March 2017.

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