TaxTMI 
TaxTMI 
2013 (11) TMI 1262
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....d in 1996 as wholly owned subsidiary of N.V. Bekaert S.A. Belgium and was engaged in the manufacturing of Steel Tyre Cord and Hose Reinforcement Wire, used as a reinforcing material in radial tyres etc. The major purchasers in India are CEAT, J.K. Industries, MRF etc. These tyre manufacturing companies have been sourcing these materials from Bekaert group companies located outside India. In this background the parent company thought it prudent to establish a unit in India itself to meet the market requirement to the extent possible. The plant of the assessee was established at MIDC Ranjangaon Pune. Even though the commercial production started in February, 2001, the business of the assessee company practically took off from A.Y. 2004-05 onwards. The Bekaert Group head quartered at Belgium is the largest independent multi-national manufacturer of these products and have more than 55 manufacturing facilities worldwide. During the year under consideration, the assessee company was found to have numerous international transactions which were examined by the TPO for determining Arm's Length Price (hereinafter called ALP). The TPO found most of the transactions at ALP requiring no adjust....
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.... incidental activity were not accepted by the Assessing Officer. 5. Matter was carried before the First Appellate Authority wherein detailed submissions were made from time to time. It was explained as to how different expenses constituting indirect cost expenses considered by TPO for calculating ALP should not have been considered. It has been claimed that the TPO has erred in allocating the expense on the basis of turnover as in the initial years the assessee was in the process of establishing and stabilizing its business. The majority of the expenses were towards this activity which got reflected in higher turnover in subsequent years. It was further submitted that the spools were mainly collected for its own use and only the excess was exported, that too with 10% mark up. In the initial years the export of spools was more than its own use as the production and business had not stabilized and gradually the consumption increased. The TPO, as per the assessee, had failed to consider the benefit accruing to the assessee on the free use of spools which otherwise would have costed Euro 5.32 per spool on import. According to the assessee no incremental overhead cost (other than dir....
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....p; Factory Building 6,782,345 93,704 Plant Machinery 117,426,676 17,070,800 Furniture and Fixture 1,438,528 211,304 Office equipments 701,641 140,116 Computers 234,603 944,170 Vehicles 126,583,793 765,282 19,225,378 Additional unsecured loan 104,562,753 104,562,753 Total (A) 312,943,528 95% 613,438,723 97% Value of Activity related to spools 8,636,819 10,891,428 Packing material consumed 986,607 Freight outward 3,631,617 4,606,543 Cost incurred for spools 3,942,624 Total (B) 16,....
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....eing established and stabilized. It was also observed that the system of collecting these spools also had to be put in place and stabilized to ensure its supply on a sustained basis. In such a view of matter, the export of spools made in the initial years cannot be completely seen in isolation as an independent business activity demanding allocation of indirect expenses in the ratio of turnover. In view of the above as well as in consideration of the facts and circumstances of the case, the CIT(A) found that the system adopted by the TPO to allocate indirect expenses on the basis of turnover in initial assessment years was not correct. As against that, the claim of the assessee that no indirect expenses can be considered for determining the ALP of export of spools also looks incorrect because no activity can be carried out without any involvement of cost which are generally clubbed and classified as indirect expenses. Therefore, the CIT(A) observed that a method has to be found out which can lead to proper computation of ALP. In this context, the proposition of the assessee to adopt the system used by the TPO in A.Y. 2004-05 were found appropriate. In the said method, every economi....
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....lus 10% mark up. For determining the cost only indirect cost has been taken into account. According to the assessee, the method employed by the TPO was incorrect because spools were available to assessee free of cost and only excess was exported with 10% mark up and indirect expenses are not attributable to this incidental activity. Accordingly no adjustment is called for. 10. After going through the above material and submissions, we find that addition of Rs. 49,62,075/- made by the Assessing Officer on the basis of order of the TPO passed u/s.92CA(3) for export of spools. The assessee was incorporated in 1996 as wholly owned subsidiary of N.V. Bekaert S.A. Belgium and was engaged in the manufacturing of Steel Tyre Cord and Hose Reinforcement Wire, used as a reinforcing material in radial tyres etc. The major purchasers in India are CEAT, J.K. Industries, MRF etc. These tyre manufacturing companies had been sourcing these materials from Bekaert group companies located outside India. In this background, the assessee company thought it prudent to establish a unit in India itself to meet the market requirement to the extent possible. Accordingly, plant was established at MIDC Ranj....
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....ort cost on the basis of principle of ALP. It was found by the TPO that the assessee imported dies of Rs. 6,59,634/- from Bekaert China and of Rs.1,00,614/- from Bekaert Belgium. After considering the details relating to the said transaction, the TPO came to the conclusion that the margin of 12% applied on the cost of die was in contravention to the stated policy of the Chinese company and considering the same the TPO held that the ALP of the imported Chinese die would be of Rs. 5,88,958/- and, therefore, an addition of Rs.76,676/- was made, which was objected on behalf of the assessee stating that the Chinese company had imported the dies from group company and the pricing pattern for dies covers direct cost and margins for overhead expenses and for this 12% margin has been charged. The CIT(A) having considered the facts and circumstances involved, did not find merit in the submission of the assessee and the finding of the TPO was found to be in accordance with the established Transfer Pricing principles. In view of above, the addition was sustained by the CIT(A). This reasoned finding need no interference from our side. We uphold the same. 12. As a result, appeal of Revenue is....