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2018 (6) TMI 164
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....erprises ('AEs') along with the benchmarking analysis during the year under consideration was as under :- S. No. Description of the transactions Amount (In Rs.) Method applied Denso India's Margin Arm's Length margin 1. Import of raw material, and components spare parts 126,155 TNMM using OP/TC as the PLI 8.00% 5.21% using multiple year data 2. Purchase of finished goods 1,491,874 3. Export of finished goods 7,253,726 4. Payment of royalty 86,491,631 5. Payment of application cost 13,437,657 6. Payment of technical service fee 4,769,617 7. Payment of communication expenses 1,292,598 8. Training expenses 1,577,974 9. Miscellaneous receipts 3,068,780 10. Reimbursement of expenses from group companies 1,996,839 CUP NA NA 2.1 Reference was made to the Transfer Pricing Officer (TPO) and....
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....ponents being manufactured by the assessee. The assessee suggested the inclusion of additional six more companies which were also engaged in the manufacture of auto lamps in addition to the companies proposed by the TPO. However, the TPO did not accept the submissions and the evidentiary data submitted by the assessee and also rejected the company identified by him in the show cause notice i.e. India Japan Lighting Ltd. and thereafter calculated the mean OP/TC margin at 10.90% based on a set of 3 companies and made a TP adjustment of Rs. 115,226,756/- to the assessee's income. 2.5 The AO also made a 25% disallowance in respect of Royalty by considering the same as being capital in nature and made a further disallowance of Rs. 22,34,415/- in respect of provision for bad and doubtful debts. The draft assessment order was passed proposing to assess the total income of the assessee at Rs. 401,536,300/- as against the returned income of Rs. 368,761,248/-. 2.6 Aggrieved, the assessee approached the Ld. DRP and raised its objections before it. However, the Ld. DRP upheld the order of the TPO/AO with regard to the transfer pricing adjustment as well as the disallowance pertaining to ....
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....DRP and the Ld.AO(followingthedirections of theLd. DRP), erred on facts andin law, in upholding the Ld. TPO's stance of making legally, economically and factually incorrect statements/ assumptions about the royalty/ technical know-how fee paid by the appellant to its AEs, wrongly assuming that no commensurate economic benefit arose to the appellant from receipt of such technology/ technical know-how/ information, and in ignoring the fact that the basis and quantum of royalty and technical know-how payments were within the limits approved/ prescribed by the Reserve Bank of India. 6.TheLd.DRP and the Ld.AO(following the directions of the Ld. DRP), Erred on facts and in law, in upholding the Ld. TPO's stance of conducting a fresh search for companies himself and not sharing the detailed step by step search strategy followed to arrive at the final set of 3 companies in the TP order on the basis of which the ALP was determined. 7.TheLd.DRP and the Ld.AO(following the directions of the Ld.DRP), erred on facts andin law, in upholding the Ld. TPO's stance of resorting to arbitrary rejection of low-profit/ loss making companies, based on erroneous and inconsistent reasons,....
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....d party transactions of the appellant on the ground that it had entered into related party transactions and therefore was not a valid comparable in accordance with legal provisions without cognizance of the fact that the company had not entered into any transactions with related parties at all. 14.The Ld. DRP and the Ld. AO (following the directions of the Ld. DRP), erred on facts and in law, in upholding the Ld. TPO's stance of considering incorrect Operating Profit / Total Cost ('OP/ TC') margin numbers of the companies finally considered in the TP order for ALP determination. 15.The Ld. DRP and the Ld. AO (following the directions of theLd. DRP), erred on facts and in law, in upholding the Ld. TPO's stance of not allowing a working capital adjustment to be made to the results of the companies selected by the Ld. TPO on account of differences between the working capital requirements of the appellant vis-a-vis these companies. 16.The Ld. DRP and the Ld. AO (following the directions of the Ld. DRP), erred on facts and in law,4n not allowing a comparability adjustment to be made on account of differences in levels of indigenization between the app....
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....pital in nature. 24. The Ld. DRP and the Ld. AO (follwoign the directions of the Ld. DRP), erred on facts and in law, in disregarding the fact that the royalty in question was paid n products manufactured and sold during the year and that the ratio of decision of CIT vs. Southern Switchgears [148 ITR 272] and upheld by the Apex Court [232 ITR 359] is not applicable on the facts of the case. 25.The Ld. DRP erred in stating that no objection has been filed in respect of the disallowance of Rs. 2,234,415 being provision for bad and doubtful debts, even though the appellant had filed an application of additional objection dated July 1, 2010 before Ld. DRP which was also discussed at the time of hearing before the Ld. DRP, however no cognizance was taken of this fact in the body of the Ld. DRP's order / Directions. 26.The Ld. AO erred on facts and in law, in making a disallowance of Rs. 2,234,415 being provision for bad and doubtful debts, when the same has been reduced from Loans and Advances under the assets side of the balance sheet and is thus in the nature of actual write off in view of the decision of the Apex Court in the case of Vijaya Bank vs CIT. ....
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....road buckets of core and noncore component. It was submitted that even as per these rules, the products manufactured by the Assessee and the auto lamp companies would fall within the same bucket of non-core products. It was submitted that while undertaking benchmarking analysis using TNMM, broader basket of products should be accepted and since the auto lamps falls within the similar product of electrical auto component should be considered as comparable to the Assessee. 3.2 Without prejudice, it was further submitted that the TPO has not provided any rejection reason for rejecting the following companies which should also be included in the comparable set for determination of arm's length margin: * Axles India Ltd. * India Forge & Drop Stampings Ltd. * Simmonds Marshall Ltd. * Subros Ltd. * Frontier Springs Ltd. * Caparo Maruti Limited * Ghatge Patil Industries Limited * Shriram Foundry Limited * Sona Koyo Steering Systems Limited * X L O India Limited * Wheels India Limited * P H C Manufacturing Pvt. Ltd. 3.3 Coming to the next issue in dispute, it was submitted that the TPO d....
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....see as well as the comparables. The Ld. AR submitted that the TPO in his order had erred in computation of the operating margins of the Assessee and the comparables selected by the TPO. In this regard, it was submitted that the correct operating margin computation in the case of comparables was duly furnished before the TPO but the TPO, while passing his order, had failed to consider an amount of INR 3,275,000/- received by the Assessee from its AEs as an award for good operational performance as operating income. It was submitted that considering that the amount received by the Assessee is closely interlinked to its routine business operations, it should be validly considered as part of the Assessee's operating income. 3.6 With respect to the grounds relating to disallowance of royalty @ 25%, it was submitted that the issue was covered in favour of the assessee by the judgment of the Hon'ble Delhi High Court in assessee's own case for earlier assessment year. A copy of the said judgment was placed before us. 3.7 With respect to the grounds pertaining to disallowance of provision for bad and doubtful debts, it was submitted that the assessee had filed additional objections be....
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....e Ld. DRP show that the assessee's submissions and objections have been dismissed in a summary manner without specifying the reason for which the comparables selected by the assessee were rejected and new comparables introduced. It is also seen from the perusal of the order of the TPO as well as the directions of the Ld. DRP that the assessee's plea for including 6 new comparables was also rejected in a summary manner without giving a proper reasoning. Thus, as the factual matrix stands, we find that the comparables have not been analysed by the Ld. TPO in light of the submissions of the assessee which have been simply disregarded without analysing the claim of the assessee and without passing a reasoned order. Accordingly, in such a situation, we have no other option but to restore the entire issue of the selection of the comparables to the file of the TPO for making a fresh comparability analysis after duly considering the evidences and submissions of the assessee in this regard. The assessee shall be given due opportunity to present its case by the TPO. We, however, also direct that the assessee will not be at liberty to pray for inclusion of any other new comparables except the....