TaxTMI 
TaxTMI 
2022 (7) TMI 678
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....two appeals viz. ITA No.2168 and 2169/Ahd/2017 are filed by the Revenue. 2. At the outset itself it was stated by the Ld.Counsel for the assessee that adjudication of the appeal of the assessee pertaining to A.Y. 2006-07 would take care of the remaining appeals also, since there was a solitary issue in the remaining appeals which was common and identical to that raised in Assessment Year 2006-07, relating to transfer pricing adjustment made on account of determination of the arm's length price of the International Transaction of payment of royalty by the assessee to its Associate Enterprise. It was pointed out that the disallowance was made for identical reasons, in the background of identical facts and circumstances. The ld. D.R. fairly agreed with the same. Therefore, all the appeals were taken up together for hearing with the appeal of the assessee for A.Y. 2006-07 being treated as the lead case. The decision rendered in the ground which is common to the other appeals also will apply mutatis mutandis to the other appeals. 3. ITA No. 2948/Ahd/2010 (A.Y.2006-07) (Assessees Appeal) 4. Ground No.1 & 6, it was stated were general in nature. The same are therefore not being d....
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....on u/s. 80IB of the Act was accordingly A.Y. 1999 - 2000 but a positive claim was made by the assessee only from A.Y. 2003-04 onwards when it had profits and the impugned year i.e. A.Y. 2005-06 was the last year of claim of deduction. The investment in Plant and Machinery ,being the total cost debited under the head Plant and Machinery by the assessee as per its Books of accounts during the relevant year, amounted to Rs.3,74,00,831/- and the investment in the block of computers was reflected at Rs. 1,24,84,568/-. As per the Revenue, the total of the two i.e. Rs. 4,98,85,399/- was the investment in Plant and Machinery by the assessee for the purposes of determining its SSI Status as per the notification issued under the IDR Act, which exceeding the limit of investment in plant and machinery specified therein of Rs. 1 crore, the assessee did not qualify as an SSI unit and was therefore not eligible to claim exemption u/s. 80IB of the Act. As per the assessee however out of its total investment in Plant and Machinery of Rs. 3.74 crores, only investment of Rs. 46,47,971/- qualified as plant and machinery since the rest being Moulds, Dies, Jigs, Fixtures, Tools etc. were to be excluded ....
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....s excluded by the assessee ought to have been included as per the Revenue for the purposes of determining its investment plant and machinery. That the matter went up to the Tribunal where the issue was decided in favour of the assessee holding that the exclusion by the assessee of Tools, Jigs, Dies and Moulds was in accordance with the Notification issued by the IDR Act itself and therefore was correct. * That in subsequent year also, i.e A.Y 2004-05, the dispute arose and the ITAT following its order in the preceding year allowed the assessee's claim. * That in A.Y. 2005-06 again the claim was not allowed by the A.O. but was allowed in first appeal by the ld. CIT(A). 12. In this regard, our attention was drawn to the order of the ITAT in the case of the assessee for A.Y. 2003-04 in ITA No. 2289/Ahd/2006 dated 19/12/2008 , placed before us at paper book page no. 104 to 117 ,more particularly to page No. 106 to 115 where the issue has been dealt with at para 9.3 and 9.3.1 as under: 9.3. In the light of aforesaid provisions, we have to determine the status of taxpayer's industrial undertaking. In the case under consideration is that of manufacturing bott....
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....to the other items such as tools jigs dies and moulds as also consumables. Accordingly, the A.O. is directed to exclude the cost of equipment such as tools jigs dies moulds and spare parts for maintenance and the cost of consumables stores while determining value of plant and machinery in order to ascertain the status of industrial undertaking of the taxpayer. 13. Our attention was also drawn to the order of the ITAT in the case of the assessee for A.Y. 2004-05 in ITA No. 79/Ahd/2008 dated 10/02/2012 placed before us at paper book page no. 118 to 135, particularly to page no. 124, para 8, wherein following the order of the ITAT in the preceding year, the claim of the assessee was allowed. 14. As for the Revenue's contention of inclusion of computers as plant and machinery it was contended that this issue was also considered in A.Y. 2003-04 by the ITAT and the matter restored to the A.O. to determine whether the computers were integral to the manufacturing process or not and to include in the value of plant and machinery if found so. Our attention was drawn to Para 9.3.2 is as under: 9.3.2. As regards computer hardware and software the Ld. A.R. on behalf of the taxpay....
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....ereafter only accounted for the main body as its Plant and Machinery and rest of the items as Mould, Dies, Tools, Jigs and Fixtures, which was contrary to the intention of the language in the definition of the SSI unit as per IDR Act, to include a machine as a whole and not exclude moulds and jigs which were integral part of the machinery, and further that the verification of computers as per the direction of the ITAT in A.Y. 2003-04 was carried out by an Inspector who was illiterate in computer skill. Ld.DR pointed out that on the AO stating so, the assessee itself requested before the DRP for fresh verification to be carried out by a literate team, which was carried out and the report submitted did not help the cause of the assessee at all, since the computers and its software were found to be in the nature of customized software/operating systems like ERP, AutoCAD being used in the entire process of the assessee right from allocation of material to requisition of production, issue of inventory and even quality control function which clearly showed that the software's were being used in manufacturing process and the related hardware accordingly was attributable to the production ....
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....ows that the assessee is using software in it's manufacturing process and related hardware are accordingly attributable to the production process undertaken by the assessee. . . . . 5.12 (v) In the light of above said provision of the Act, the argument of the assessee is examined as under: During the course of its submission over inventory management, the assessee has submitted that its production and management of production including inventory data is managed a specialized inventory software. Since inventory is closely integrated with manufacturing, production without this software is not possible computer along with the inventory software valued at Rs. 1 ,17,64,388/- which therefore form an integral part of plant and machinery, have not boon stated to be part of the plant and machinery although in ifs submissions made, the assessee has stated that the computers and specialized software are used for manage of inventory of raw materials, machine components and products clearly establishing that it is not possible for the assessee to continue manufacturing without the use of computers. The computers have been i of ally ignor....
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....he purpose of various crates, trays and other finished products in which the assessee is dealing in. they can never be treated as maintenance equipments. 5.15 without prejudice to above, it is observed that before us the assessee has submitted the details of exclusion of plant and machinery as per Government of India's notification no. SO-857(E) dated 10.12.1999 issued under Industrial (Development and Regulation) Act, 1951 as under: Total cost debited under head Plant and Machinery Original cost Original cost 3,74,00.831 Less: Items excluded in terms of Para b (i) of Notification no. SO 857EUR dated 10/12/1999 Mould 78,02,436 Dies 23,75,327 Jig 17,24,908 Fixture 7,04,134 Patterns 33,18,178 Tools 75,90447 Factory equipment being racks, tables, pallets etc. 70,68,312 Consumables 1,01,359 3,06,85,100 67,15,732 Less other exclusions from the cost Development cost incurred to develop source of raw material were capitalized to plant and machinery as product development cost 5,....
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....different documents relied upon, we hold that we do not find any merit in the contention of the ld. Counsel for the assessee that its investment in Plant and Machinery did not exceed the specified limit of 1 crore and thus qualified for deduction u/s. 80IB of the Act as an SSI unit. The assesses claim is that its investment in Plant and Machinery was only Rs.46,47,971/- as reproduced in a table above and has vehemently contested the inclusion therein of Moulds ,Jigs ,Dyes etc. to the tune of Rs.3,27,52,860/- as specifically excluded from the definition of Plant and Machinery as per definition of the said term in the IDRA Act and has also contested inclusion of investment in Computers ,both hardware and software, of Rs.1,24,84,568/- as not related to its manufacturing activity and not qualifying therefore as Plant and Machinery. We are not in agreement with the contention of the Ld.Counsel for the assessee. The reason is very simple. It is not denied that as per Section 11B of the IDR Act read with aforesaid notification it is the investment in Plant and Machinery of the industrial undertaking which is to be considered for the qualifying quantum of investment. The term Plant and Mac....
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.... had sought to exclude from its plant and machinery value,the assessee offered no cooperation in the matter and provided no assistance and failed to discharge its onus of establishing its claim and simply stated that the matter being very old relating to year ending March 2006 and the verification being carried out in 2010 during the pendency of proceedings before the DRP and the assessee having shifted its premises in the meanwhile and certain machinery having been sold or become obsolete, the verification was not possible. Therefore it is clearly evident that as per the IDR Act read with Notification issued also, the cost of plant and machinery as reflected in the books of the assessee was to be considered and the Revenue had rightfully considered the said figure at Rs.3,74,00,831/- . 19. Even otherwise taking up each exclusion we find that with respect to computers sought to be excluded valuing Rs.1,24,84,568/-, the only contention of the Ld.Counsel for the assessee was that in A.Y 2003-04,the computers were physically verified by the AO as to whether they could be said to be integral to the manufacturing process ,on the directions of the ITAT, and were not so found. This con....
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.... purpose of handling all activities of the assessee enterprise including manufacturing, inventory management, time scheduling, ordering of items, vendor management, financial solutions, salary payment and attendance logging. He has stated that they are not stand alone systems but are integrated by their very nature with all other systems of the enterprise. That in an ERP implemented environment each production/consumption/ sale/inventory detail needed to be accounted for on a real time basis and the software generated requisite reports including production and inventory forecasting ,production/sales forecasting ,inventory ordering and scheduling etc. That without this system the plant of the assessee cannot be run and therefore these software alongwith hardwares constitute Plant and Machinery. The AO detailed the extensive coverage of these software in the operations of the assessee company noting them to be installed in all areas of operation. He noted integrated manufacturing applications installed in the computers at shop floor which were found to be integrated with all other computers of the company by installing modems as well as Oracle and Lotus Notes softwares. He also noted....
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....contended that the assessee himself requesting for physical verification could not then have taken a 'U' turn and stated that after a lapse of so many years physical verification was not possible. b) Falling back thereafter on material before it ,in the absence of physical verification, the DRP found the assessee itself to be treating assets to the tune of Rs. 3,74,00831 as Plant and Machinery in its Books, categorizing only Rs.5,15,186/- worth of Tools and Jigs separately. The DRP held therefore that as per the assesses own claim only assets to the tune of Rs.5,15,186/- classified as Tools and Jigs and the bifurcation therefore done by the assessee of its stated Plant and Machinery was clearly stripping the Machine only to its Frame taking out many components and claiming them to be Tools ,Jigs and Dyes. c) that even as per the notification of the IDRA Patterns ,Fixtures, and factory equipment amounting to Rs.33,18,178/-,Rs.7,04,134/- and Rs.70,68,312/- resp., could not be excluded . d) That the exclusion of development cost incurred to develop source of raw material and pre-operative Revenue expenses of Rs.5,65,960/- and Rs.14,71,865/- resp. aws incorre....
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.... agree with the DRP, was only breaking down its machine to its components ,reducing the machine in turn to only its frame which surely does not qualify as Plant and Machinery. This is all the more relevant since the assessee has otherwise been unable to justify its claim by way of physical verification done on its own request. The decision of the ITAT also in the preceding years does not come to the assistance of the assessee since all these facts were not there before the ITAT. 24. In view of the above we uphold the findings of the DRP/AO that the assessee did not qualify as an SSI Unit and was therefore not eligible to deduction u/s 80IB of the Act. The order of the AO denying deduction u/s 80IB of Rs.1,06,13,472/- is accordingly upheld. Ground of appeal No.2 of the assessee is dismissed. 25. Ground no. 3 reads as under: "The Learned Dispute Resolution Panel, Ahmedabad has erred in not allowing Upward Revision of Rs. 39,52,277/- and Royalty Payment of Rs. 1,37,75,772/- being computation of arm's length price in relation to international transactions though fully explained. The addition made be deleted." 26. At the outset it was pointed that that the grievance ra....
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....transaction. iii) Once TNMM method is accepted at entity level, no separate bench marking needs to be done in relation to payment of royalty. Reliance in this regard was placed on the following decisions: * Kaypee Electronics & Associates (P) Ltd. vs. DCIT Circle-1 [2018] 94 taxmann.com 251 * Sony Ericsson Mobile Communication India Pvt. Ltd. vs. CIT-3 [2015] 55 taxmann.com 240. * Magneti Marelli Powertrain India Pvt. Ltd. DCIT [2016] 75 taxmann.com 213 (Delhi) iv) The ALP could not have been determined at NIL by the TPO. Reliance was placed on the following case law - * CIT vs. Lever India Exports Ltd. [2017]78 taxmann.com 88 (Bom) * CIT-I Vs. Cushman and Wakefield (India) (P.) Ltd. [2014] 46 taxmann.com 317 (Delhi) * Eaton Fluid Power Ltd. Vs. ACIT [2018] 92 taxmann.com 158 (Pune Tribunal) v) Another AE could not have been treated as a comparable. 29. The CIT-DR on the other hand relied on the DRP's order more particularly pointing out the fact that the AE had not charged any royalty from its associate emprise. Therefore the payment of royalty by the assessee to its AE was justifiably tre....
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....e the income of the assessee with other comparable enterprises in India. In the present case, the TPO observed that no royalty was charged by other group entites and accordingly the Arms Length Price for royalty charges was inferred as nil. The AO accordingly disallowed the royalty payment. As argued by the Ld. AR that the technical know-how was provided to the assessee only and the same was not comparable with other entities of the group. The assessee had not made the one-time payment but making the continuous payment to the know-how provider which has been accepted by the Department in the past. The assessee has been charging 5% royalty each and every transaction and therefore the said payment cannot be said to have been paid on the aggregate amount, as argued by Ld. CIT-DR. The findings of the Assessing Officer in considering the royalty charges as nil as arms length price cannot be accepted since the AO in the present case has not brought on record, the ordinary profits which can be earned in such type of business. Therefore in our view the payment of royalty is not hit by the provisions of Section 92 of the Act and there is no reason to hold that the expenses should not be all....
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....g the arm's length price and the Profit Level Indicator (PLI) of PBDIT (Profit Before Depreciation Interest and Tax) to sales. The adjustment was made observing that the comparable of M/s. Praj Industries, acomparable, showed PBDIT to sales of 12.83% as against 10.88% shown by the assessment company. The DRP on the other hand held that the PLI to be adopted should be PBIT (Profit Before Interest to Tax) to sales and on noting that the PLI of the comparables came to 12.06% as against 7.03% assessee, enhanced the adjustment accordingly to Rs.1,37,75,772/- 34. The only contention of the Ld. Counsel for the assessee before us was that it had objected to the adoption of the PBIT of the assessee company @7.03% pointing out that none of the data as regards revenue or cost were matching with the profit and loss account of the assessee and had submitted summary of the financial information also to the ACIT TPO-2. Our attention in this regard was drawn to the letter of the ACIT TPO-2, Ahmedabad addressed to the assessee pointing out the proposed adjustment to be made to the purchase transaction of the assessee on the direction of the DRP to adopt the PBIT to sales as opposed to PBIT to sa....
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....0IB of the Act. This denial of deduction was made without prejudice to the denial of claim of the assessee to deduction u/s. 80IB of the Act on account of the finding by the revenue authorities that the assessee did not classify as SSI unit to be eligible to claim the deduction. Since we have held the assessee ineligible to claim deduction u/s 80IB of the Act at para 18- 24 of our order above, this ground is of no consequence. Ground of appeal No.4 is therefore dismissed. 39. Ground no. 5 reads as under: "5. The Learned Dispute Resolution Panel, Ahmedabad ' has erred in not allowing Foreign Exchange Loss of Rs. 38,75,690/- though fully explained. The addition made be deleted." 40. Briefly facts relation to the issue are that during the course of assessment proceedings, it was noticed that the assessee had claimed foreign exchange loss of Rs. 22,56,487/-. Perusal of the ledger account indicated that the assessee had debited an amount of Rs. 61,06,497/- towards foreign exchange loss while an amount of Rs. 38,50,009/- had been credited as gain. The AO noted that the total debits included an amount of Rs. 38,75,690/- on account of re-statement of loans availed for ca....