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2017 (7) TMI 358
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....nts. Ford India Pvt. Limited (FIPL) is a wholly owned subsidiary of Ford Motor Company, USA (FMC). In February 1995, Ford purchased 5.8% of Mahindra & Mahindra (M&M) and in September 1995, Ford and M&M sought the approval for establishing a joint venture company to manufacture and distribute vehicles and subsequently after getting the approval, the joint venture was established. In March 1998, the equity pattern changed to 70:30 with Ford having the majority stake and the company was renamed as Ford India Private Ltd. (FIPL). The equity pattern changed in various stages and finally in March 2005, the Ford International Services purchased the remaining shares from M&M, Thus FIPL became a wholly owned subsidiary of FMC. FIPL established its fully Integrated facility in Chennai in 1999. 2.1 During the assessment proceedings, the AO found the international transaction with the A.E for Rs. 559.73 crores for the A.Y 2005-06 and Rs. 835.83 Cr. for the A.Y 2008-09. The details of International transaction for the AY 2005-06 are reproduced here under: S. No. Details of International transactions Quantum of International & Transactions (Rs.) 1 Export of auto components and ....
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....as carried out. In the case of Ford company apart from its own domestic market, in case of other markets, the vehicles are sold to Ford affiliates called National Sales Companies. The primary function of an NSC is to use its Field Sales Force to call on the independent dealers. Accordingly the Ford NSC is functionally comparable to uncontrolled wholesale distributors doing business in many product Industries. A distributor is essentially here the service provider providing distribution services to its service provider to earn mark up on its distribution cost and also a cost on its capital incurred. The tested party is the NSC. After conducting an independent search the assessee identified comparable companies in North America, Europe and Asia Pacific. Various adjustments were made by the assesses on inventory and accounts receivable. Other adjustments were made on advertising and other direct marketing expenses. The analysis were carried out during the earlier year periods. FAR analysis was also done on this activity. 2.5 There is no mention about the entrepreneurial segment of the assessee company's activities, even though the volume of sales of this segment is substantial. The....
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....ce in ALP to Rs. 122.62 Cr. In addition to the ALP difference the TPO proposed to make separate adjustment on account of brand building activities, advertisement expenses and product development expenses. Accordingly issued the show cause notice to the assessee and the assessee filed reply to the show cause notice objecting for the TP study made by the AO for substituting the single year data instead of multiple year data adopted by the assessee and for separate adjustments on account of brand building, product development, advertisement and marketing expenses and also sought for some economic adjustments. The TPO rejected the objections raised by the assessee and determined the ALP of Rs. 1,744.24 Cr. and for the adjustment of Rs. 122.62 Cr towards the ALP transactions for the AY 2005-06 as per the details given below: Operating Income 16216171090 Operating cost 16424047843 Operating profit -207876753 OP/Cost -1.27 PLI of comparables 5.01% ALP OP/Cost 6.28% ALP Profit 1018375544 ALP Sales (Cost + ALP Profit) 17442423387 Difference 1226252297 Apart from the above the TPO suggested for the following adjustments: S.No. Na....
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....to the transfer pricing adjustments. In the transfer pricing the assessee raised the issues regarding, Global TP policy and segmentation, Comparability analysis and Margin adjustment, AMP, Brand Development fee and product development expenses, etc.., and argued at length. 5.0 We have heard the rival submissions and perused the material placed on record. On going through the DRP order in Page NO.4 the DRP has given the following Directions to the AO/TPO. In addition to his report dated the 4th June' 2012 as mentioned above the Transfer Pricing officer also attended and participated during the course of the hearings before the Dispute Resolution Panel in terms of Order Sheet entry dated the 4th June, 2012 wherein he was in agreement with the adjustment detail given by the Eligible Assessee in terms of Annexure-C of its additional submissions before the Transfer Pricing Officer during the course of the proceeding before the Dispute Resolution Panel as detailed above. The Assessing authority and the Transfer Pricing Officer shall take any fresh position from those in the Transfer Pricing Order only after due verification of facts and contents and with full justification on....
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....e proposed order of assessment (hereafter in this section referred to as the draft order) to the eligible assessee if he proposes to make, on or after the 1st day of October, 2009, any variation in the income or loss returned which is prejudicial to the interest of such assessee. (2) On receipt of the draft order, the eligible assessee shall, within thirty days of the receipt by him of the draft order,- (a) file his acceptance of the variations to the Assessing Officer; or (b) file his objections, if any, to such variation with,- (i) the Dispute Resolution Panel; and (ii) the Assessing Officer. (5) The Dispute Resolution Panel shall, in a case where any objection is received under sub-section (2), issue such directions, as it thinks fit, for the guidance of the Assessing Officer to enable him to complete the assessment. (6) The Dispute Resolution Panel shall issue the directions referred to in sub-section (5), after considering the following, namely:- (a) draft order; (b) objections filed by the assessee; (c) evidence furnished by the assessee; (d) report, if any, of the Assessing Off....
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....d reliance on the decision of the Supreme Court in the case of Indian Molasses Co. Ltd. v. CIT [ 959] 37 ITR 66 (SC). * The Appellant submits that pursuant to stringent norms prescribed by the Ford Group for inventory monitoring, the Appellant had created the said provision for stock obsolescence on scientific basis, by identifying each part which is obsolete, at both the plant as well as vendor's place. * In addition, the Appellant submits that the creation of such provision was accepted by the statutory auditors and tax auditors as being in line with Accounting Standard-2 issued by the Institute of Chartered Accountants of India and section 145 of the Act respectively. * In this regard, reliance has been placed on the following decisions to substantiate the Appellant's claim: Judicial Precedents Principle/Ruling CIT v. Becton Dickinson [2013] (ITA Nos.39-43 of 2012) (Delhi High Court) * The Delhi Tribunal had expressed a finding that the assesse had a foolproof method of identification of slow moving or dead stock and had put a realizable value for the purpose of valuing the same. Further, the Tribunal had noted that the assessee had consist....
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....low moving or dead stock and has put the realizable value for the purpose of valuing the same. In fact, the principle of valuation is the cost or the market value whichever is lower. The market value here become obsolete or slow moving it naturally has a lower market value which the assessee has recognized. The assessee has properly identified such stock and has also followed in accordance with commercially accepted accounting principles of valuation. In our view, the CIT(A) was correct in law and on facts to have deleted the addition made by the AO which was based not taking into consideration the hard realities of assessee's business. The addition in our view, is properly deleted and we decline to interfere." In the instant case the assessee has not established such fool proof method of identification of slow moving and dead stock and ascertained the liability as per the consistent reliable system. Therefore, the facts of the case relied upon by the assessee are not applicable and the addition made by the AO is confirmed and this ground of appeal is dismissed. 7.0 Ground No.10 of the A.Y.2005-06 is related to the warranty: During the course of assessment proceedings, th....
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....wed as a deduction. The Hon'ble Tribunal observed that the issue was covered in favour of the Appellant in view of the Apex Court's ruling in the case of CIT v. Rotork Controls India Limited (2009) 314 ITR 62. * Given the above, it is requested that the provision created towards warranty be considered as a deductible expenditure under the provisions of the Act. * Notwithstanding the above, the following case laws support the Appellant's position: Judicial precedents Principle/Ruling Bharat Earth Movers v. CIT [2000] 245 ITR 428 (SC) It was held that the provision created by the assessee for meeting the liability incurred by it under leave encashment scheme proportionate to the entitlement earned by the employees was entitled to deduction out of the gross receipts for the accounting year during which the provision was made for the liability and it will not tantamount to contingent liability on account of reasonable quantification of the same. 7.2 Per contra the Ld.DR relied on the lower authorities orders. 7.3 We heard both the parties and perused the material placed on record. On similar facts, ITAT Chennai 'D' Bench in ITA No.2976....
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.... AY 1996- 97 has been provided below: No. Nature of expenses Amount in INR 1 Stamp duty for increase in Authorized Capital 3,980,000 2 Registration charges for increase in Authorized Capital 5,970,000 3 Others (eg. Fees for Registration of a Company) 60,086 Preliminary expenses incurred in AY 1996-97 10,010,086 8.2 We heard the rival submissions and perused the material placed on record. The assessee is entitled for amortization of expenses incurred before the commencement of business and after commencement of business for extension or in connection with the setting up of new unit. In this case, the assessee has incurred the expenditure before setting up of the unit as evidenced from the details and nature of expenditure referred above and as stated by the assessee the expenditure was incurred in 1996-97 relevant to the AY 1997-98. The assessee has made the claim from AY 1997-98 onwards and no disallowance was made during any of the previous years. The AO has not brought on record any evidence controvert the submissions made by the assessee. No new fact has been brought on record to disallow the expenditure in the year und....
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.... writing: The Appellant submits that the AO has erred in restricting the carry forward of unabsorbed depreciation of the earlier years by erroneously interpreting the provisions of law on the aforementioned claim without taking into cognizance that the unabsorbed depreciation of any preceding previous year(s) should be considered as the previous year's depreciation as provided under section 32(2) of the Act (amended by the Finance Act, 2001). The Appellant places reliance on the decision of the jurisdictional Tribunal in the case of KMC Speciality Hospitals India Ltd. [2014] 32 ITR(T) 149 (Chennai Tribunal) wherein it was held that the interregnum restriction of limiting the claim for an eight-year period does not take away the right of an assessee to claim the balance of unabsorbed depreciation, forever. Further, by virtue of the amendment bought out by the Finance Act 2001, the unabsorbed depreciation for the interregnum period (AY 1997-98 to AY 2001-02) would revive back into life and become eligible for carry forward and set off for an indefinite period. Further, in the case of Best & Crompton Engineering Ltd. [2014] 30 ITR(T) 638 (Chennai Tribunal), ....
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....nt of section 32(2) by Finance Act, 2001, it would have incorporated a provision to that effect. However, it does not contain any such provision. Hence, a purposive and harmonious interpretation has to be taken keeping in view the purpose of amendment of section 32(2). While construing taxing statutes, rule of strict interpretation has to be applied, giving fair and reasonable construction to the language of the section without leaning to the side of assessee or the revenue. But if the Legislature fails to express clearly and the assessee becomes entitled for a benefit within the ambit of section by the clear words used in section, the benefit accruing to the assessee cannot be denied. * However, Circular No.14 of 2001 had clarified that under section 32(2), in computing the profits and gains of business or profession for any previous year, deduction of depreciation under section 32 shall be mandatory. Therefore, the provisions of section 32(2) as amended by Finance Act, 2001 would allow the unabsorbed depreciation allowance available in the AYs 1997-98, 1999-2000, 2000-01 and 2001-02 to be carried forward to the succeeding years, and if any unabsorbed depreciation or part....
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....orbed depreciation computed for the AY 1996-97 and carried forward to the AY 1997-98 becomes the depreciation allowance of AY 1997-98. The unabsorbed depreciation allowance after set off against the income of the current year, will become the unabsorbed depreciation allowance of AY 1997-98 and the limitation of 8 years, as per the amended provisions of sec.32(2), starts from the AY 1997-98. Therefore, all the depreciation allowances that are brought forward from the earlier years and were available during the AY 1997-98 can be carried forward for another period of 8 years i.e., up to AY 2005-06. In any case, with the change in the provisions of section.32(2) w.e.f. 01.04.2002 the unabsorbed depreciation once again was made available to the assesse indefinitely by clubbing with the current depreciation allowance." In light of the above jurisdictional decisions, the Appellant had submitted that the brought forward unabsorbed depreciation of AY 1997-98, 1998-99 and 1999-2000, to the extent not set-off against the income of AY 2005-06, be allowed to be carried forward to the future years for an indefinite period. 9.2 We heard the rival submissions and perused the material p....