2017 (3) TMI 1575

X X   X X   Extracts   X X   X X

Full Text of the Document

X X   X X   Extracts   X X   X X

....lakhs iii. Rejection of claim for set off of brought forward unabsorbed depreciation-Rs. 2.86 crores. 2. Challenging the order of the TPO/AO, the assessee filed his objection before the DRP. Vide its letter dt.27.11.14 DRP issued direction u/s. 144C(5) of the Act. In pursuance of the same, the AO completed the assessment u/s 143(3) r.w.s. 144C(13) of the Act determining the income of the assessee at Rs. Nil under normal provisions and book profit of Rs. 9.21 crores. 3. First two grounds of appeal are about excluding losses in Solar Trial in computing PLI of manufacturing segment and not identifying separate segment in respect of Solar Test. While going through the transfer pricing study report, the Transfer Pricing Officer(TPO) found that the assessee had benchmarked its transaction after segment ligation of the activities into manufacturing and indenting, that there were only two segments as per the segmental accounting, that while computing the margin (PLI) it had divided the segmental accounting into three parts, that it separated out Solar Test (ST)as separate segment from the manufacturing segment, that same was not so presented in the audited segmental accounti....

X X   X X   Extracts   X X   X X

Full Text of the Document

X X   X X   Extracts   X X   X X

....for the solar tubes, that the assessee stopped manufacturing the tubes, that it had incurred huge costs with respect to ST test activity, that the AE had paid compensation to the assessee to recover from the losses, that the activity resulted in loss, that same had to be excluded in the PLI computation of manufacturing segment, that even if it was part of manufacturing activity it had to be excluded as an unusual event, that the TPO had not excluded the non-operating expenditure and income while computing the PLI, that if the nonoperating expenditure/income was considered the net cost plus markup ratio would be 17. 39% and operating margin ratio would be 14.81%, that the assessee had considered the neutral glass tube segment of TGL, that TGL was not a consistently loss-making company, that the other three comparables were manufacturing different products from the assessee. 3.1. After considering the order of the TPO and the objections of the assessee, the DRP held that in schedule 20 the revenue from ST activity was shown at Rs. 10.27 crores as against cost of Rs. 11.58 crores resulting in net loss of Rs. 1.31 crores, that in the notes to accounts (schedule 22-item number 21) re....

X X   X X   Extracts   X X   X X

Full Text of the Document

X X   X X   Extracts   X X   X X

....he economic ambience turned for the worse across the globe creating uncertainties for the ultimate consumption of solar receiver tubes. The Company therefore decided to provide for impairment of the assets used for the solar trial activity considering no use in near future and having regard to the principles of Accounting Standard on Impairment of Assets (AS 28), the company has made the provision of Rs. 1 39, 063, 509 in respect of such impairment." Under the head modernisation and expansion (page 42 of the PB) the assessee has, in the Directors Report, mention as follow: "Your company has, during the year, undertaken solar trial test activity to produce solar receiver tubes. The activity was undertaken from 9 October 2009 to 23 November 2009. The Company's regular business is production of tubes for pharmaceutical packaging and the solar trial activity was exception to its regular business. The Solar trial was conducted looking into opportunity of high profitable solar receiver tubes production which is a component of concentrated solar power plant. However, during the year under review, the economic ambience turned for the worse across the globe creating unc....

X X   X X   Extracts   X X   X X

Full Text of the Document

X X   X X   Extracts   X X   X X

....essee. 4.2. During the course of hearing before us, the representatives of both the sides agreed that the issue stands covered in favour of the assessee by the judgment of the honorable jurisdictional High Court delivered in the case of Hindustan Unilever Ltd. (72 taxmann.com 325) and the judgment of honorable Gujarat court in the case of General Motors India Private Ltd.(supra). We would like to reproduce the relevant portion of the order of the above mentioned judgment of the Gujarat High Court and same reads as under: "32. The last question which arises for consideration is that whether the unabsorbed depreciation pertaining to the assessment year 1997-98 could be allowed to be carried forward and set off after a period of eight years or it would be governed by section 32 as amended by the Finance Act, 2001 ? The reason given by the Assessing Officer under section 147 is that section 32(2) of the Act was amended by the Finance (No. 2) Act of 1996, with effect from the assessment year 1997-98 and the unabsorbed depreciation for the assessment year 1997-98 could be carried forward up to the maximum period of eight years from the year in which it was first computed. Acc....

X X   X X   Extracts   X X   X X

Full Text of the Document

X X   X X   Extracts   X X   X X

....r that assessment year ; (ii) if the unabsorbed depreciation allowance cannot be wholly set off under clause (i), the amount not so set off shall be set off from the income under any other head, if any, assessable for that assessment year ; (iii) if the unabsorbed depreciation allowance cannot be wholly set off under clause (i) and clause (ii), the amount of allowance not so set off shall be carried forward to the following assessment year, and- (a) it shall be set off against the profits and gains, if any, of any business or profession carried on by him and assessable for that assessment year ; (b) if the unabsorbed depreciation allowance cannot be wholly so set off, the amount of unabsorbed depreciation allowance not so set off shall be carried forward to the following assessment year not being more than eight assessment years immediately succeeding the assessment year for which the aforesaid allowance was first computed : Provided that the time limit of eight assessment years specified in sub-clause (b) shall not apply in case of a company for the assessment year beginning with the assessment year relevant to the previous year in whic....

X X   X X   Extracts   X X   X X

Full Text of the Document

X X   X X   Extracts   X X   X X

....t years for carry forward and set off of unabsorbed depreciation. The Act has also clarified that in computing the profits and gains of business or profession for any previous year, deduction of depreciation under section 32 shall be mandatory. 30.3 Under the existing provisions, no deduction for depreciation is allowed on any motor car manufactured outside India unless it is used (i) in the business of running it on hire for tourists, or (ii) outside in the assessee's business or profession in another country. 30.4 The Act has allowed depreciation allowance on all imported motor cars acquired on or after 1st April, 2001. 30.5 These amendments will take effect from the 1st April, 2002, and will, accordingly, apply in relation to the assessment year 2002-03 and subsequent years." 39. The Central Board of Direct Taxes Circular clarifies the intent of the amendment that it is for enabling the industry to conserve sufficient funds to replace plant and machinery and accordingly the amendment dispenses with the restriction of eight years for carry forward and set off of unabsorbed depreciation. The amendment is applicable from the assessment year 2....