2023 (3) TMI 968 - AT - Income Tax

Tribunal Orders Re-examination of Transfer Pricing Methods for Capital & Finished Goods Transactions 'sLengthPrice

Owens - Corning (India) Pvt. Ltd. [Formerly known as Owens Corning (India) Ltd.] Versus DCIT, Circle 7 (1) Mumbai

The tribunal directed a fresh examination by the AO/TPO to determine the most suitable method for benchmarking transactions related to the purchase of ... TP adjustment made in respect of purchase of capital goods from its AEs - ALP determination - MAM selection - assessee bench marked the above said transaction under TNM Method under its manufacturing segment - HELD THAT:- We are of the view that this issue requires fresh examination at the end of AO/TPO by selecting most appropriate method to bench mark the transactions of purchase of capital goods. As submitted by the assessee that the AE is purchasing capital goods and supplying them to non-AEs also in other Countries with the mark up ranging from 13% to 20%. Though Ld D.R contended that the non-AEs located in India alone should be considered for this purpose, yet we are of the view that the margin earned by AE from the transactions entered with non- AEs may be relevant, since the AE has been selected as Tested party. However, we leave this matter open to the wisdom of assessee and the TPO. Accordingly, we restore this issue to the file of TPO/AO for bench marking the purchase of capital goods afresh, in accordance with law. TP adjustment made in respect of purchase of finished goods - AR contended that “internal CUP” is the most appropriate method - HELD THAT:- When the assessee has purchased finished goods from both AEs and Non-AEs, there is merit in the contentions of Ld A.R that “internal CUP” may be most appropriate method. Accordingly, we are of the view that this issue also requires fresh examination at the end of TPO/AO. Accordingly, we set aside the order passed by AO on this issue and restore the same to the file of AO/TPO for determining ALP of purchase of finished goods by adopting most appropriate method. We also make it clear that the transfer pricing adjustment, if any, should be restricted to the purchases made from AE only. The assessee is also directed to furnish all the relevant details before the AO/TPO. Disallowance of claim of amortization amount premium paid on lease hold land - HELD THAT:- Having regard to the submissions made by Ld A.R and the Form No.8 filed by the assessee, we restore this issue to the file of AO with the direction to follow the decision that may be rendered by Hon’ble Bombay High Court on an identical issue urged by the assessee before it in AY 2004-05. Disallowance of depreciation - HELD THAT:- Since the Tribunal has restored the matter relating to disallowance of depreciation made in AY 2006-07 to the file of AO for re-examination, it would be proper for us to restore this issue to the file of the assessing officer for examining it afresh in the light of decision taken by him in AY 2006-07 in the set aside proceedings. Accordingly, we restore this issue to the file of AO. Computation of book profit u/s 115JB - AO had added the amount of disallowance of amortization of premium and disallowance of depreciation to the net profit while computing book profit u/s 115JB - DRP directed the AO not to make these additions while computing book profit - HELD THAT:- As we direct the AO to comply with the directions given by Ld Dispute Resolution Panel on this issue. Issues involved:1. Transfer Pricing adjustment for purchase of capital goods from Associated Enterprise (AE)2. Transfer Pricing adjustment for purchase of finished goods from AE3. Disallowance of claim of amortization of premium paid for leasehold land4. Disallowance of depreciation on additions to fixed assets made during the period relevant to AY 2006-075. Computation of Book profits u/s 115JB of the ActIssue 1 - Transfer Pricing adjustment for purchase of capital goods from AE:The assessee challenged the transfer pricing adjustment made for purchasing capital goods from its AE. The Transfer Pricing Officer (TPO) disagreed with the assessee's study and made adjustments. The tribunal found the TNM method adopted by the assessee inappropriate and directed a fresh examination by the AO/TPO to determine the most suitable method for benchmarking the transactions.Issue 2 - Transfer Pricing adjustment for purchase of finished goods from AE:The TPO made adjustments for the purchase of finished goods from the AE. The tribunal set aside the order and directed the AO/TPO to determine the ALP of purchase of finished goods using the most appropriate method. The adjustment should be limited to purchases from the AE, and the assessee must provide all relevant details.Issue 3 - Disallowance of claim of amortization of premium paid for leasehold land:The tribunal restored the issue to the AO to follow the decision of the High Court on a similar issue pending from a previous assessment year.Issue 4 - Disallowance of depreciation on additions to fixed assets:The tribunal decided to restore this issue to the AO for re-examination in light of the decision taken in a previous assessment year regarding the disallowance of depreciation.Issue 5 - Computation of Book profits u/s 115JB of the Act:The tribunal directed the AO to comply with the directions given by the Dispute Resolution Panel regarding the computation of book profits under section 115JB of the Act.In conclusion, the appeal of the assessee was treated as allowed for statistical purposes, and various issues related to transfer pricing adjustments, disallowances, and computation of book profits were subject to further examination and directions by the tribunal.