AI Drafter 
TaxTMI 
TaxTMI 
TaxTMI 
2013 (6) TMI 800
X X X X Extracts X X X X
X X X X Extracts X X X X
....th price for the international transaction of export of spares, parts and components. Ground No. 3 - Erred in disallowing Appellant's claim of additional depreciation of Rs. 10,45,544 in respect of computers installed in factory. Ground No. 4(A) - Hon'ble DRP erred in directing the learned AO to dismiss the Assessee's claim of deprecation on goodwill relying on the decision of the Hon'ble Supreme Court (SC) in the case of Goezte (India) Ltd Vs CIT (284 ITR 323) Ground No. 4(B) - Erred in disallowing Appellant's claim of depreciation on the amount of Rs. 4,30,00,000 accounted for as goodwill by the Appellant in its books of accounts. Ground No. 5(A) - Hon'ble DRP erred in directing the learned AO to dismiss the Assessee's claim of depreciation on lease hold rights or alternate claim to allow deduction over the period of lease of 89 years relying on the decision of the Hon'ble SC in the case of Goezte (India) Ltd (Supra) Ground No. 5(B) - Erred in disallowing claim of depreciation in respect of lease hold rights on land. Ground No. 5(C) - Without prejudice to Ground 5(B), erred in disallowing claim ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....tudy of an international transaction, it is imperative that a comparison is made with the similarly placed transactions, as far as possible. In the present case, as noted earlier, the assessee benchmarked its International transaction of export of spares and components to its AE on the basis of TNM Method by relying on external comparable companies. So, however, the income-tax authorities have applied an internal TNMM mechanism in order to benchmark the impugned International transaction. The TPO analyzed the profitability of exports of spares and components to AEs on one hand, and compared it to the profitability of export of spares and components made by the assessee to third parties (i.e. non-AEs). At the threshold, the assessee has assailed the use of internal TNMM mechanism as inappropriate and has pointed out that the use of TNMM mechanism based on external comparable is more appropriate. Initially, we do not take up this controversy, which we shall deal with a little later. However, another pertinent plea of the assessee is to the effect that even the internal TNMM mechanism applied by the income-tax authorities is quite inappropriate and, therefore, the same has resulted in....
X X X X Extracts X X X X
X X X X Extracts X X X X
....;A'. 10. In our considered opinion, the net profit margin in any particular kind of activity is indeed effected by various factors which are industry-specific and can also be unit-specific having regard to the degree of business experience enjoyed by an entity. The factors which can be industry-specific, for example can be in the field of competitiveness, new entrants, product differentiation and other Government regulations, etc. It is therefore quite imperative that while undertaking transfer pricing analysis one must examine the transactions undertaken with regard to the relevant factors effecting such transactions vis-à-vis transactions sought to be compared. In this context, we may now appreciate the distinction being set-up by the assessee in relation to transactions of category 'B and 'C' on one hand and the transactions of category 'A' on the other. With regard to the transactions of category 'B' and 'C', which is in the realm of sourcing of components, quite clearly the same is in the nature of industrial supplies, which are in-turn, used by the buyer in manufacturing of vehicles and the services being rendered by ass....
X X X X Extracts X X X X
X X X X Extracts X X X X
....9;s length price and the same does not require any transfer pricing adjustment as done by the income-tax authorities. 13. Now, we are left with the transactions of category 'B' and 'C' which have been undertaken by the assessee with its AE. In so far as such transactions are concerned, there is no internal comparable transaction, inasmuch as such like transactions have not been carried out with non-AEs. The transactions of such nature involving sourcing of spares and components used in the manufacture of vehicles undertaken by the AE abroad have not been undertaken by the assessee with non-AEs. Therefore, in the absence of any internal transactions with third parties with similar functions and economic scenario, benchmarking of transactions of category 'B' and 'C' undertaken with AEs, cannot be done appropriately by invoking the internal TNMM mechanism. In this context, the assessee pointed out that for benchmarking the transactions between the assessee and the AEs in respect of such activities, the assessee has undertaken comparison with operating margins earned by third party support service providers in India and tabulation in this regard....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ption for adjustment of +/-5% variation for the purpose of computing ALP. Such an issue has been a subject-matter of consideration by the Pune Bench of the Tribunal in the case of Starent Networks (India) P. Ltd. in ITA No. 1350/PN/10 dated 03.10.2011, whereby following discussion is relevant: "20. We have carefully considered the rival submissions. In this case, a pertinent issue which has been vehemently agitated by the appellant is with regard to its claim of seeking benefit of the option available under the erstwhile proviso to section 92C(2) of the Act. The erstwhile proviso which was inserted by Finance Act, 2002 with effect from 1.4.2002 read as under: "Provided that where more than one price is determined by the most appropriate method, the arm's length price shall be taken to be the arithmetical mean of such prices, or, at the option of the assessee, a price which may vary from the arithmetical mean by an amount not exceeding five percent of such arithmetical mean." As per the said Proviso, an option is available to the assessee for adjustment of +/-5% variation for the purposes of computing ALP. As per the Proviso, where more than one price ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....he Revenue, the amended Proviso would have a retrospective operation and in any case, would be applicable to the proceedings which are pending before the TPO on insertion of the amended Proviso, which has been inserted by the Finance (No. 2) Act, 2009 with effect from 1.10.2009 and, in this case, the TPO has passed his order on 30.10.2009. The learned Departmental Representative has also referred to the CBDT Circular No 5/2010 (supra) read with Corrigendum dated 30.9.2010 issued by the CBDT in this regard. Per contra, the stand of the assessee is that the amended Proviso would be applicable prospectively and would not apply in respect of the stated assessment year, which is prior to the insertion of the amended Proviso with effect from 1.10.2009. 22. We have carefully examined the rival stands on this aspect. The amended Proviso has been brought on the statute by the Finance (No. 2) Act, 2009 with effect from 1.10.2009. The Explanatory Notes to the provisions of Finance (No 2) Act, 2009 contained in circular No 5 of 2010 (supra) provides the objective behind the amendment of the Proviso. The Legislature noticed the conflicting interpretation of the erstwhile proviso by the....
X X X X Extracts X X X X
X X X X Extracts X X X X
....rigendum reads as under: "CORRIGENDUM In partial modification of Circular No. 5/2010 dated 03.6.2010, (i) In para 37.5 of the said Circular, for the lines "the above amendment has been made applicable with effect from 1st April, 2009 and will accordingly apply in respect of assessment year 2009-10 and subsequent years." the following lines shall be read; "the above amendment has been made applicable with effect from 1st October, 2009 and shall accordingly apply in relation to all cases in which proceedings re pending before the Transfer Pricing Officer (TPO) on or after such date." (ii) In para 38.3, for the date "1st October, 2009, the following date shall be read: "1st April, 2009". In terms thereof, it is canvassed that the amended proviso has been made applicable with effect from 1.10.2009 and shall apply even to cases where proceedings were pending before the TPO on or after such date, irrespective of the assessment year involved and, therefore, in the instant case the benefit of the erstwhile proviso cannot be extended to the assessee. We have carefully pondered over the assertion made b....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ively only as held by the Hon'ble Supreme Court in the case of State Bank of Travancore v. CIT 50 CTR 102 (SC). Considering all these aspects, we therefore find no justification in the action of the lower authorities in disentitling the assessee from its claim for the benefit of +/-5% to compute ALP in terms of the erstwhile proviso to section 92C(2) of the Act. We order accordingly." 17. In view of the precedent, the stand of the Revenue in the present case to deny the assessee benefit for adjustment of +/-5% variation while computing ALP is not justified. As per the Tribunal, though the amended proviso to section 92C(2) was applicable with effect from 1.10.2009, so however, for the reasons contained therein, it would not cover such like cases as is the case before us. In para 22 of the order, which has been reproduced above, it has been observed that the applicability of amendment is to be effective in respect of assessment years 2009-10 and subsequent years and such inference was found to be fortified by the decision of the Delhi Bench in the case of ACIT v. UE Trade Corporation India (P) Ltd. vide ITA No 4405(Del)/2009 dt 24.12.2010. Apart from the aforesaid preced....
X X X X Extracts X X X X
X X X X Extracts X X X X
....est for from Indian Transfer Pricing perspective. In absence of any internal transaction with third parties with similar function and economic background, bench marking of transaction of category b and c undertaking with AE cannot be done appropriately by involving internal TNMM mechanism. In this regard assessee pointed out that for the benchmarking transaction between assessee and AEs in respect of such activities assessee has undertaken comparison with operating margins earned by third party support service provider in India and tabulation in this regard was placed in the relevant record. It was sought to be made out that margins declared by assessee on such activity at 11.05% compare favourably with average operating margins earned by third party service provider company in India which worked out to 5.1%. In this background Tribunal in A.Y. 2006-07 in assessee's own case held that aforesaid plea of assessee was liable to examined with respect to its factual aspects. For reasons stated above Tribunal remanded the issue back to the file of the AO with a direction to carry out the requisite verification exercise and after being satisfied he will pass appropriate order in accor....
X X X X Extracts X X X X
X X X X Extracts X X X X
....o Ltd v. ACIT 2011 9 taxmann.com 122 (Visakh.), again restored the matter back to the file of the Assessing Officer for examination afresh in the light of such decision. 21. In this background, the learned Counsel for the assessee further supported the claim of the assessee in principle, on the basis of a subsequent decision of the Hyderabad Bench of the Tribunal in the case of A.P. Paper Mills Ltd. v. ACIT 33 DTR 148 (Hyd). 22. On the other hand, the learned Departmental Representative, appearing for the Revenue, has not contested the aforesaid factual matrix brought out by the learned Counsel on behalf of the appellant. 23. Having regard to the precedents, where the matter has been restored for re-adjudication by the Assessing Officer in the past years, in the instant year also we deem it fit and proper to restore the matter to the file of the Assessing Officer to examine the issue in the light of the observations of the Tribunal in the assessee's own case for the past years and also on the basis of any further submissions that the assessee may deem proper to raise before him in the ensuring remand proceedings. Accordingly, Ground No. 4 in the appea....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... directed accordingly. 7. Next issue is with regards to disallowance of depreciation in respect of leasehold rights in land. We find that ITAT in assessee's own case for A.Y. 2006-07 at Para 26 to 30 following earlier years decision on the issue, has observed as under : "26. In respect of Ground No. 6, the grievance of the assessee is that the income-tax authorities have erred in disallowing the assessee's claim of depreciation in respect of lease hold rights in land. Alternatively by way of Ground No 7 the plea of the assessee is that it be allowed deduction for lease rentals paid in advance for obtaining lease hold rights over the period of lease of 89 years. 27. The brief background is that assessee paid a total consideration of Rs. 19,00,60,195/- for acquiring lease-hold rights of land. The assessee had acquired lease hold rights from Greaves India Ltd in respect of assignment of rights by MIDC for a total consideration of Rs. 1,57,76,570/- vide assignment deed dated 10.7.1998. Similarly, it had paid balance consideration of Rs. 17,42,83,623/- when the Scheme of merger was approved by the Hon'ble Bombay High Court on 1.2.2002. It had been explai....