TaxTMI 
TaxTMI 
2017 (1) TMI 110
X X X X Extracts X X X X
X X X X Extracts X X X X
.... the I T Act was made to the TPO to determine arms length price(ALP) in relation to international transactions with its Associate Enterprises (AE's), as reported in Form no.3CEB. The TPO, vide order dated 28.1.2015 u/s 92CA(3) of the I T Act had made the following upward transfer pricing adjustments: i) Connector division Rs. 26,07,24,126 ii) Tooling division Rs. 5,07,58,397 iii) Payment to patent cost Rs. 75,53,314 Total Rs. 31,90,35,837 2.1 Pursuant to the receipt of the TPO's order, the Assessing Officer had passed a draft assessment order which had incorporated the transfer pricing adjustments made by the TPO and in addition, the Assessing Officer had made the following disallowances/additions: i) Additional depreciation for which 50% of the additional depreciation was allowed in AY 2010-11 .. 94,05,185 ii) The Assessing Officer disallowed amounts u/s 14A RWR 8D .. 13,65,688 2.2 Against the draft assessment order, the assessee filed objections before the Dispute Resolution Panel (DRP). The DRP confirmed the draft assessment order and the final assessment order was passed as per the directions of the DRP. 3 Aggrieved b....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... that of the appellant. 3. (a) The Ld.DRP/AO/TPO went wrong in making an upward transfer pricing adjustment of patent cost amounting to Rs. 75,53,314/-. The amount of patent cost was correctly computed and hence ought to have been allowed. (b) If for any reason, the addition of Rs. 75,53,314/- is sustained in the AY 2011-12, the said amount is to be deducted in AY 2012-13 u/s 41(1) of the IT Act. The appellant has written back in the IT return the said amount in the AY 2012-13 (as reduction of the patent cost of AY 2012-13) and hence has offered the same for assessment in AY 2012-13 u/s 41(1) of the I.T Act. The assessing officer may be directed to delete the same in the AY 2012-13 to avoid double taxation. 4. The Ld.AO/DRP went wrong in not allowing additional depreciation of Rs. 94,05,185/­ being balance 10% out of additions made to Plant and Machinery during the second half of the AY 2010-11. It is now well settled that the said additional depreciation claimed is allowable. 5. The Ld.AO/DRP went wrong in making an upward transfer pricing adjustment in respect of Section 14A r.w.s. 8D of the I.T Act amounting to Rs. 13,65,688/-. Having rega....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ansactions with Non -AE is not significant, which is factually and legally incorrect. It was submitted that the sales to non AE is Rs. 34 crores where as sales to AE is Rs. 235 crores and therefore, it is not insignificant to be ignored. It is now legally well settled that for adopting internal comparables, volume of transactions need not be considered. The ld DR supported the order of the TPO. 5.5.1 We have heard the rival submissions and perused the material on record. The assessee had used the internal TNMM method for bench marking transactions with AE. The TPO rejected the internal TNMM method adopted by the assessee for the bench marking transactions with AE since the volume of transactions with a non AE is not significant. Further, the TPO also noticed that there is inconsistency in the assessee's TP study with regard to transaction of sale with AE and non AE. The view taken by the TPO was confirmed by the DRP. We notice that the sales to the non AE is insignificant and is amounting to only Rs. 34 crores whereas the sales to AE is around 235 crores. For a proper bench marking of ALP, there should be adequate sales turnover for the assessee with the non AE and AE's. In the ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... profit. It was stated that the TPO has excluded these items from the computation of operating profits of the assessee. It was submitted that the scrap generation is significant having regard to the nature of operations of the assessee. It was contended that the export entitlements are nothing but realization on export sales. It was stated that this is closely linked to the exports and is given as an incentive to subsidise exporters by giving reduction in customs duty on raw materials. It was contended that these two items have to be reduced from raw materials cost. The ld AR relied on the following judicial pronouncements: i. TNS India Private Ltd. 57 Taxmann.com 165 ii. Watson Pharma Private Limited 54 Taxmann.com 88 iii. Petro Araldite Private Ltd. 51 Taxmann.com 230 iv. GE BE (P) Ltd. 42 Taxmann.com 554 v. Alfa Laval (India) Ltd. 46 Taxmann.com 394. 7.1 The ld DR supported the order of the TPO and DRP. 7.2 We have heard the rival submissions and perused the material on record. The DRP had rejected the claim of the assessee by observing as under: "1.2 The contention of assessee for including profits from sale of scraps ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ispose of the issue as expeditiously as possible after affording a reasonable opportunity of hearing to the assessee. It is ordered accordingly. In the result, ground no.1(e) & 1(f) are allowed for statistical purpose. 8. Second ground relating to upward revision of Tooling division amounting to Rs. 5,07,58,397/-. 8.1. The TPO has computed the average PLI of 7 companies chosen at 9.92%. According to the TPO, the PLI of the assessee is negative 37.83% and therefore, the TPO made upward revision of 47.75% (37.83% + 9.92%) amounting to Rs. 5,07,58,397/- 8.2 The only issue argued by the ld AR of the assessee was that the TPO disregarded the lower capacity utilization of the assessee's plant. It was contended that the tooling division had operated only at 40% capacity and no adjustment has been made for this factor. It was stated that if this factor is considered the PLI of Tooling division will be 8.94% instead of negative 37.83% calculated by the TPO. It was contended that the OECD Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations, July 2010, prescribe the making of adjustments to eliminate differences in capac....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... that no adjustment needs to be granted for underutilization of assessee's plant in the tooling division. It is ordered accordingly. In the result, the ground no.2 is rejected. 9 Third ground relating to upward transfer pricing adjustment of patent cost Rs. 75,53,314/-. 9.1 The TPO held that while the Tooling division was part of FCI Technology Services during the Financial year 2009-10, no patent was paid by that Company. After the demerger of the Tooling Division, it is now being paid by the assessee Company FCI DEN Connectors Ltd., which is in violation of the agreement. 9.2 The above view taken by the TPO was confirmed by the DRP after noticing that the assessee had offered this amount of Rs. 75,53,314/- in the subsequent asst year i.e. A.Y 2012-13. The ld AR reiterated the submissions made before the DRP. The ld DR present was duly heard. 9.3 We have considered the rival submissions and perused the material on record. We notice that for the assessment year 2012-13, the assessee had returned back this amount of Rs. 75,53,314/- as no more payable and has offered it for taxation. Hence, the assessee has accepted the decision of the TPO since the patent cost w....
X X X X Extracts X X X X
X X X X Extracts X X X X
....f which is allowed as a deduction (whether by way of depreciation or otherwise) in computing the income chargeable under the head "Profits and gains of business or profession" of any one previous year." 10. We have also carefully gone through the Second Proviso to section 32(1)(ii) of the Act, which reads as follows: "Provided further that where an asset referred to clause (i) or clause (ii) or clause (iia), as the case may be, is acquired by the assessee during the previous year and is put to use for the purpose of business or profession for a period of less than one hundred and eighty days in that previous year, the deduction under this sub-section in respect of such asset shall be restricted to fifty per cent of the amount calculated at the percentage prescribed for an asset under clause (i) or clause (ii) or clause (iia) as the case may be." 11. A bare reading of this section 32(1)(iia) clearly says that in case a new machinery or plant was acquired and installed after 31-03-2005 by an assessee, who is engaged in the business of manufacture or produce of article or thing, then, a sum equal to 20% of the actual cost of the machinery and plant sha....
X X X X Extracts X X X X
X X X X Extracts X X X X
....alance 50%, the assessee is entitled for the balance additional depreciation in the subsequent assessment year. In fact, the Delhi Bench of this Tribunal has observed as follows at pages 641 and 642 of the ITD: " ......Thus, the intention was not to deny the benefit to the assessees who have acquired or installed new machinery or plant. The second proviso to section 32(1)(ii) restricts the allowances only to 50% where the assets have been acquired and put to use for a period less than 180 days in the year of acquisition. This restriction is only on the basis of period of use. There I no restriction that balance of one time incentive in the form of additional sum of depreciation shall not be available in the subsequent year. Section 32(2) provides for a carry forward set up of unabsorbed depreciation. This additional benefit in the form of additional allowance u/s 32(1)(iia) is one time benefit to encourage the industrialization and in view of the decision of Hon'ble Supreme Court in the case of Bajaj Tempo Ltd (supra), the provisions related to it have to be construed reasonably, liberally and purposive to make the provision meaningful while granting the additional allowan....
X X X X Extracts X X X X
X X X X Extracts X X X X
....to allow the balance additional depreciation after such factual verification. Accordingly, finding no merit therein, ground No.3 raised by the Department is rejected." 14. A similar view was taken by Mumbai Bench of this Tribunal in MITC Rolling Pvt Ltd (supra). In view of the above decisions of the co-ordinate benches of this Tribunal on identical set of facts this Tribunal is of the considered opinion that the balance 50% of the depreciation has to be allowed in the subsequent year, therefore, the orders of the lower authorities on this issue are set side and the assessing officer is directed to allow the claim of balance 50% additional depreciation in the year under consideration." 10.3 In view of the decision of the Cochin Bench of the Tribunal in the case of Apollo Tyres Ltd (supra) which is identical to the facts of the instant case, we direct the Assessing Officer to grant additional depreciation of balance 10% for the current assessment year namely asst.year 2011-12. It is ordered accordingly. In the result, the ground no.4 is allowed. 11 Fifth ground relates to the addition made by invoking provisions of section 14A r.w.r 8D of the I T Rules. 11.1 T....