TaxTMI 
TaxTMI 
2020 (2) TMI 937
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....d.AO erred in including entities such as M/s.DHP India Ltd and Sundaram Bleistahl Limited which are functionally incomparable with the Assessee. (b) That the Ld AO erred in including Sundaram Bleistahl Limited as a comparable entity even though the Related party transactions of the said company exceeds the accepted limits for reasonable comparison for ascertaining the ALP. (c) That the Operating Margin of Assessee computed by the Ld.AO is erroneous inasmuch as he has not made the same adjustments to the financial results of the Assessee as he has made for the comparable entities. (d) That in the Computation of the ALP, Ld AO erred in not considering the adjustments to the respective Working Capital position of the Assessee and the Comparable Entities. (e) That in the computation of ALP the Ld AO erred in not including the interest paid in arriving at the operating profits of the Comparable entities. In respect of Other Additions: (a) That the Ld AO erred in holding that the tools and spares written off during the year were capital items when in reality they were merely consumable items used in normal manufacturing activity that have l....
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.... material on record. The main plea of the learned AR is that the direction of the DRP is cryptic and not adjudicated the issues in a proper perspective. On the other hand, the learned Departmental Representative submitted that the direction of the DRP to be read along with the TPO's order and the assessment order and there is no infirmity in the direction of the DRP. It has considered the whole issue and given finding on the issues raised by the assessee and the same to be sustained. In this case the matter was referred to the DRP u/s 144C of the IT Act. Under sub-section (1) of Section 144C, the Assessing Officer is under an obligation to forward a draft of the proposed order of assessment to the assessee if he proposes to make any variation in the income or loss returned which is prejudicial to the interest of such assessee. Under sub-section (2) of Section 144, the assessee within 30 days of the receipt of such draft order can accept the variation made by the Assessing Officer or he can file objections either to Dispute Resolution Panel or to the Assessing Officer. Since the assessee had filed his objections with DRP, then, under sub-section (5) the DRP, upon receipt of objec....
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....ssed by the DRP is a non-speaking order on the issues raised by the assessee, not stating the objections raised by the assessee and the reasons have also not been given as simply the order of TPO and Assessing Officer are referred. We find that similar issue was considered by the Hon'ble Delhi High Court in the aforementioned case of Vodafone Essar Ltd. (340 ITR 352) against the order passed by the DRP. 4.9.1 In view of the above, we find that it is a fit case where this issue should be restored back to the file of DRP to pass a detailed order stating all the objections of the assessee and disposing them by giving a cogent and germane reason for adjudication of the objections of the assessee. We direct accordingly. After receiving the order from DRP, the Assessing Officer will again pass order u/s 144C(13) and the present assessment passed by the Assessing Officer is set aside as the DRP is directed to readjudicate the objections raised by the assessee as per directions give above. We direct accordingly. This ground of appeal of the assessee is allowed for statistical purposes. 6. The next common ground in both the appeals is against the holding of tools and spares written o....
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....ar the assessee from claiming depreciation on the same. 7.1 The Dispute Resolution Panel issued certain directions on this issue for AY. 2009-10 as under. "The assessing officer is directed to verify the nature and the functions of tools replaced by the assessee as per the test laid down by the Hon'bleSupreme Court in the case of Saravana Spinning Mills (P) Ltd (2007) 163 TAXMAN 201 (SC). If it is found by the assessing officer that tools replaced are not independent machineries but part of the big machinery, the same should be allowed as current repairs admissible as deductible revenue expenditure. In that case, depreciation already granted by the A.O. on such replacement tools will have to be withdrawn. However it must be verified by the assessing officer that by replacing the set tools, no new asset came in to existence but they maintained the alreadyexisting machines". 7.2 The nature and functions of tools replaced by the assessee were verified accordance with the directions of DRP and in view of decision Hon'ble Supreme Court the case of Saraoana Spinning Mills (P) Ltd (2007) 163 TAXMAN 201 (SC). It was observed that the tools were having independent ....
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.... that these are not capital in nature and accordingly expensed in the Profit and Loss account. Further, tools of capital nature worth Rs. 24.34 Lakhs purchased during FY 2009-10 have been capitalised in the books of accounts. Refer the attached Schedule-5 for Fixed Assets forming part of Financial Statements for the year ended 31-03-2010". 7.5 The Assessing Officer further stated that the submissions made by the assessee are not acceptable in view of the decision taken by the department in the AY. 2009-10 discussed above. The facts of the case for AY. 2009-10 and 2010-11 are same. The assessee has not produced any details or evidence to differentiate the facts of the case between AY. 2009-10 and 2010-11. Only explanation of the assessee was with regard to the values of the items involved. However, the amount of expenditure cannot determine the nature of expenditure. Whether an item of expenditure is capital or revenue depends on various factors such as nature of business, purpose of expenditure, result of such expenditure, longevity of benefit derived, etc. However, as discussed in the above paragraphs, the purchase of tools in the present case is not amounting to Curre....
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.... the case of Saravana SpinningMills (P) Ltd (2007) 163 TAXMAN 201 (SC). Once the expenditure is not allowable u/ s 31(i) of the Act then the same cannot be allowed even u/ s 37 of the Act as per the ratio of the above judicial pronouncement. Therefore, the claim of the assessee to write off entire value of tools in the year contrary to the method followed in the earlier years was rejected. Instead the assessee was allowed to capitalize the same and claim depreciation. According to the learned DR, these items are to be capitalized and depreciation at eligible rate would be allowed to the assessee. 10. We have heard the rival parties and perused the material on record. The learned AR submitted that the Assessing Officer followed his findings for assessment year 2009-2010 in assessment year 2010-2011 so as to treat the tools and consumables as capital expenditure. He submitted that whenever the expenditure is resulted in enduring benefit have been duly accepted by the assessee as capital in nature and only the expenditure which is not having enduring benefit was treated as revenue expenditure and debited to the profit and loss account, and there is no material brought by the A.O. t....
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....the Assessee, the consumable tools do not form part of the final product, but are used in the process of manufacturing of the final product and are of lower value. Also, these tools do not satisfy the criteria for capital expenditure as mentioned herein. The tools have a short working life and have absolutely no realisable or resale value. 10.2 In the present case, the DRP followed the order relevant to the assessment year 2009-2010 in two assessment years. The assessee pleaded before us that the Assessing Officer also narrated the facts of assessment year 201-02011 and 2011- 2012 as in assessment year 2009-2010 though it was entirely different. The facts are relating to the acquisition of various instruments like SD6Doosan VC 500,Display temperature controller, Thickness gauge, Special thread plug, Pressuretransducer, Pattern tools, Tirafascettethomas and Bett ERG 50, Laptor S Gross DIA M25, Cavity gauge, Flow meters, Balancing equipment etc. These tools were used for drilling cavity on castings and machining; fixing/ placing castings on it to perform machine jobs; to measure the flow of oil; for performing milling operations on castings; enlarging the inner diameter of a....