TaxTMI 
TaxTMI 
2016 (8) TMI 644
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.... and in law, the Ld. AO [following the directions of Ld. DRP] erred in assessing the returned income of the Appellant of Rs. 22,87,383/- at the income of Rs. 2,71,84,416/-. 3. The Ld. DRP / Ld. TPO erred on facts and circumstances of the case and in law by confirming an Transfer Pricing adjustment amounting to Rs. 7,74,42,676/- holding that the international transactions entered into by the Appellant with its Associated Enterprises ('AEs') during the Financial Year ('FY') 2009-10 pertaining to purchase of raw material, sale of finished goods and purchase of fixed assets do not satisfy the arm's length principle envisaged under the Act and in doing so have grossly erred in: 3.1 by disregarding the economic analysis conducted by the Appellant to determine the Arm's Length price (,ALP') of the international transactions in compliance with section 92D of the Act read with Rule 10D of the Income-tax Rules, 1962 ('Rules') in the Transfer Pricing ('TP') documentation; 3.2 rejecting the arm's length margin computed by the Appellant using multiple year / average data and instead of using current year data for comparable companies, i.e. d....
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....r costs incurred, on the fixed assets imported by the Appellant and thereby enhancing the income of the Appellant by Rs. 11,56,332/-; 3.10 denying the benefit of (+ / -) 5% range mentioned in the proviso to Section 92C(2) of the Act in determination of the arm's length price; 4. That the Ld. AO has grossly erred in law in levying interest under section 234D of the Act and also withdrawing interest under section 244A of the Act; 5. On the facts and in the circumstances of the case and in law, the Ld. AO erred in initiating penalty proceedings under section 271(1)(c), 271AA and 271BA of the Act. 3. Brief facts of the case are that the assessee had filed its return of income declaring nil income after adjusting brought forward losses of Rs. 91,01,938/-. Subsequently, the assessee revised its return of income declaring a loss of Rs. Nil, after adjusting brought forward loss of Rs. 22,87,383/-. The AO noticed that during the year the assessee had entered into following international transactions as per form 3CEB: Name of the AE Nature of transactions Amount (Rs.) Calsonic Kansel Corp., Japan Purchase of raw material 83830475 Calsonic Kansel Thailand Co. Ltd. Purchase ....
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....ear of operations. They were not operating in the gestation phase and hence would not be incurring similar levels of expenses. Therefore, in order to ensure closer comparability, capacity adjustment is required, ld. counsel submitted that as far as Chennai plant is concerned, the same did not start during the year, but started on 19.4.2010. In this regard he referred to page 298 of appeal set, wherein the certificate issued by the company in this regard is contained. He further referred to the TP report, contained at page 326 of paper book, wherein this fact is mentioned. 8. As regards Manesar plant, ld. counsel pointed out that this plant started on 1.4.2009, which is evident from the certificate of company, contained at page 296 of appeal set. He submitted that it worked only 18.93% of its actual capacity during the year. 9. Ld. counsel pointed out that all these facts are not disputed. He referred to page 17 of ld. DRP's order, wherein ld. DRP has noted these aspects, but did not dispute the same. He also pointed out that ld. DRP has restricted the adjustments only to depreciation, which is not correct because assessee had incurred fixed cost on various items for which adjustm....
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....ed by assessee as per pages 313 to 315 of appeal set and allow the capital working adjustment, if so required. In the result, this ground is allowed for statistical purposes. 15. Brief facts, apropos ground no. 3.9, are that assessee had undertaken international transactions of purchase of fixed assets amounting to Rs. 3,00,64,627/- from CKC, Japan. These goods had been procured by CKC Japan from third parties as per the specification provided by assessee/ CKM India. The assessee in its submissions made before ld. TPO pointed out that the complete process of procuring the specified capital goods involved a detailed examination of specifications, supplier identification, quality management and thereupon the dispatch procedure etc. In connection with all the functions undertaken, CKC Japan had charged a nominal mark up of 4% approximately for the procurement of capital goods. This mark up of 4% was charged by CKC Japan against the overheads and time cost of engineers incurred for the procurement and supply of capital goods. 16. Ld. TPO pointed out that assessee had used foreign comparables to justify the mark up on capital goods. He pointed out that the use of foreign comparable wa....