AI Drafter 
TaxTMI 
TaxTMI 
2015 (10) TMI 2049
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....law and on facts in not granting depreciation u/s 32 in respect of compensation received which has been treated as capital expenditure; (iv) The Ld Assessing Officer/TPO has erred in law and on facts in making the transfer pricing adjustment of Rs. 15,40,31,031/- on account of international transaction of import of seeds made by the assessee from its AE; (v) The Ld. Assessing Officer has erred in law and on facts in making an addition on account of fall in gross profit margin. 2. The assessee is engaged in the business of processing and marketing of vegetable seeds. It is an indirect subsidiary of M/s Seminis Inc. USA, which is a world's largest vegetable seeds company and offers several distinct hybrid seeds. As against the return of loss of Rs. 22,67,56,028/-, the assessment in the case of the assessee was completed at a loss of Rs. 29,76,983/- after making the various additions/disallowances, including transfer pricing adjustment of Rs. 15,40,31,031/-. 3. At the outset, the Ld. Counsel for the assessee, Shri Rajan Vora submitted that, so far as the issue relating to disallowance of product adaptability and demonstration expenses (R&D expenses) of Rs. 24,40,373/- as r....
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....bmissions and also perusal of the impugned order and the material placed on record, we find that the issue of R&D expenses are recurring in nature and are incurred on yearly basis. Similar nature of expenditure have been allowed from the stage of the Tribunal and also by the Assessing Officer in pursuant of the finding given in earlier years. As stated by Ld. Counsel, in assessee's line of business R & D expenses are continuous process without which assessee cannot carry out its business. Hence such a R & D expenses need to be allowed under section 35D. As regard details of expenses, these are already available on recorded and accordingly, we direct the Assessing Officer to allow the expenses u/s 35 after verification and in accordance with the precedence of the earlier years. Thus, grounds raised by the assessee on this issue is treated as allowed. 6. As regards, the issue relating to non-granting of depreciation in respect of compensation treated as 'capital expenditure' raised vide ground no. 2, the Ld. Counsel submitted that the assessee has paid Rs. 74,85,711/- as compensation to "Ceekay Seeds" for termination of agreement dated 13.10.2006. The Assessing Officer has treated....
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....ne/allowed for the sum of Rs. 55 lakhs. Thus, ground no. 3 as raised by the assessee is treated as allowed. 8. So far as the issue relating to Transfer Pricing Adjustment, Ld. Counsel Shri Rajan Vora, submitted that the same has been made on account of transaction of import of seeds by the assessee from its AE for resale. The assessee for the purpose of bench marking its arms length margin has applied Resale Price Method (RPM) by adopting Gross Profit to Net Sales (GP/Sales) as the Profit Level Indicator (PLI) and identified eight comparables for benchmarking the Arm's Length Price of the assessee. The assessee's gross margin was (-) 44.57% whereas, the arithmetic mean of gross margins of the comparables based on single year data was (-) 29.93%. The Transfer Pricing Officer however has disregarded the assessee's Transfer Pricing Analysis by rejecting the RPM method and instead adopted TNMM on entity level as the Most Appropriate Method (MAM). Thereafter, the TPO, took three comparables, whose arithmetic average margin was arrived at 20.14% as against the assessee's net margin of (-) 12.44%. Accordingly, adjustment of Rs. 15,20,31,031/- was made. The relevant working of the TPO w....
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....on of importing of its seeds from its AE. 10. However, the Shri Rajan Vora, submitted that here in this year in the case of the assessee, a huge addition on account of gross profit was made by the Assessing Officer after rejecting the books of account, in the draft assessment order. The assessee before the DRP had written a letter dated 27.09.2011 stating that if G.P. additions are to be sustained then transfer pricing adjustment should be telescoped in such GP additions. Accordingly, the DRP has given direction to the Assessing Officer, that no separate TP addition of Rs. 15,40,31,031/- should be made in the computation. Relevant extract of the assessee's letter has been reproduced by the DRP from pages 13 to 15 of the DRP's order. He submitted that even though the said letter has been filed, however, so far as TP adjustments are concerned, same are unsustainable in view of the earlier years precedence in the form of the order of the Tribunal, that Arm's Length Price in the case of the assessee has to be determined after complying RPM as the MAM and once RPM is applied, then no adjustment would be required to be made. On the issue of GP addition also, Mr. Vora made his detail s....
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....e to very heavy rain and flood. There was also change in management. Thus Assessing Officer after rejecting the books of account has made the addition of Rs. 20,95,32,645/-, being difference between the gross profit rate of previous year, which was at 46.74% and current year G.P. margin which was 2.40% and accordingly, GP difference of 44.34% was made the basis for addition. The assessee's case before the Assessing Officer was that the fall in the GP margin was mainly firstly, on account of inventory written off in the profit and loss account at Rs. 16,34,68,410/- and secondly on account of increase in expenses incurred in relation to sales, like scheme discount, trade discount and compensation paid to dealers aggregating to Rs. 6,12,55,579/-. Such an extra ordinary items were not there in the earlier years. It was because of these factors that the assessee's GP come down. If these extra items are removed then GP will come to 42.70% as compared to 46.74% in the earlier year. All these details and facts were submitted before the Assessing Officer, after which the Assessing Officer did not ask for further details. From the perusal of the submissions and the material placed on record ....