Tribunal directs revaluation of international transaction price, excludes freight & insurance costs

The Tribunal allowed the appeal for statistical purposes, directing the TPO/AO to recompute the arm's length price of the international transaction pertaining to the purchase of capital goods by considering the second valuation report submitted by the assessee and to benchmark the transaction on an aggregate basis. The Tribunal also directed the exclusion of freight and insurance costs from the purchase cost of the fixed assets.

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Issues Involved:

1. Reduction of depreciation claim by Rs. 57,81,935.
2. Adjustment for excess depreciation on the alleged excess amount paid for capital assets.
3. Partial acceptance and rejection of the valuation report determining the arm's length price.
4. Appropriateness of Written Down Value (WDV) as comparable price.
5. Inclusion of freight and insurance costs in the purchase cost of fixed assets.

Detailed Analysis:

1. Reduction of Depreciation Claim by Rs. 57,81,935:

The assessee challenged the reduction of its depreciation claim by Rs. 57,81,935, arguing that the DRP/AO erred in making this adjustment based on the alleged excess amount paid for capital assets. The Tribunal noted that the AO had disallowed the depreciation based on the TPO's adjustment, which was upheld by the DRP. The Tribunal directed the TPO/AO to recompute the arm's length price considering the second valuation report submitted by the assessee and to benchmark the transaction on an aggregate basis.

2. Adjustment for Excess Depreciation:

The DRP/AO made an adjustment for excess depreciation on the alleged excess amount of Rs. 4,89,58,707 paid by the assessee for purchasing capital assets from its Associated Enterprises. The Tribunal observed that the TPO had adopted the WDV in the books of the associated enterprise as the arm's length price, which was partially accepted by the DRP. The Tribunal rejected the cherry-picking approach and directed the TPO/AO to consider the second valuation report submitted by the assessee for determining the arm's length price.

3. Partial Acceptance and Rejection of Valuation Report:

The assessee contended that the DRP/AO erred in accepting only part of the valuation report, which was the basis for determining the arm's length price. The Tribunal found that the DRP had accepted the current asset value determined by the second valuer for certain machinery but upheld the TPO's approach for others. The Tribunal held that the partial rejection of the second valuation report was not justified and directed the TPO/AO to accept the second valuation report submitted by the assessee.

4. Appropriateness of Written Down Value (WDV):

The DRP/AO considered the WDV in the books of the associated enterprise as the most appropriate comparable price. The Tribunal noted that the DRP had accepted the current asset value determined by the second valuer for machinery with NIL WDV but upheld the TPO's approach for others. The Tribunal held that the DRP should have sought an expert opinion on the valuation and directed the TPO/AO to consider the second valuation report for determining the arm's length price.

5. Inclusion of Freight and Insurance Costs:

The assessee argued that the freight and insurance costs incurred by the associated enterprise should be excluded from the purchase cost of the fixed assets. The Tribunal agreed with the assessee and directed the TPO/AO to exclude the freight and insurance costs while benchmarking the transaction.

Conclusion:

The Tribunal allowed the appeal for statistical purposes, directing the TPO/AO to recompute the arm's length price of the international transaction pertaining to the purchase of capital goods by considering the second valuation report submitted by the assessee and to benchmark the transaction on an aggregate basis. The Tribunal also directed the exclusion of freight and insurance costs from the purchase cost of the fixed assets.

Order Pronounced:

The order was pronounced in the open Court on 12/12/2022.

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