AI OCR 
TaxTMI 
TaxTMI 
TaxTMI 
2022 (12) TMI 860
X X X X Extracts X X X X
X X X X Extracts X X X X
.... limitation period. In view of this, the appeal is treated as filed within the limitation period. 3. First we will take revenue's appeal in ITA No. 263/Kol/2020 and assessee's CO No. 04/Kol/2021 for AY 2014-15. The grounds taken by the revenue are reproduced as under: 1. Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in deleting the arm's length price adjustment of Rs. 12,06,40,000/- made by the AO/TPO on account of income earned and purchase of raw materials by the eligible unit from its non-eligible unit of the assessee. 2. Whether on the facts and in the circumstances of the case, the Ld. CIT(A) has erred in considering Cost Plus Method (CPM) as the most appropriate method ignoring the fact that CPM method is preferred over the other methods, where the comparable controlled and uncontrolled transactions follows same accounting norm in respect of recognition of income and cost are identifiable. 3. Whether on the facts and in the circumstances of the case, the Ld. CIT(A) has failed to bring on record any cogent reason and rationale for accepting CPM method as the most appropriate method in assessee's own case why TNMM which ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....t Appropriate Method) for benchmarking the said transactions between the eligible unit at Rudrapur and non-eligible unit at Faridabad. The TPO compared the net profit margin of the two units which were 35.17% for Rudrapur Unit and 4.30% for Faridabad unit and calculated the arm's length adjustment at 30.87% and applied the same on specified transactions thereby are proposing TP adjustments as stated above. The calculation of TPO is extracted below: The assessee followed the cost plus method (CPM) to bench mark the specified domestic transactions and accordingly filed the transfer pricing documents before the TPO showing that the assessee has followed the cost plus method to determine the arm's length price of the transactions between Rudrapur Unit and Faridabad Unit the auditor of the assessee in Form 3CEB has wrongly stated that TNMM method was considered to bench mark the said transactions between Rudrapur unit and Faridabad unit. However, the assessee did not claim any deduction u/s 801C of the Act in view of the losses during the year. The assessee is into manufacturing of gear boxes and gears at its units at Kolkata, Faridabad and Rudrapur which have been fully discussed ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....r market value / ALP. In the. Form 3CEB the Chartered Accountant had certified that the transactions were found to be at arm's length under the TNMM Method. Before the TPO however, the appellant claimed that the most appropriate method to benchmark the inter-unit transactions was the Cost Plus Method which was also set out In the Transfer Pricing Study Report ('TPSR'). To buttress Its contention, the appellant company also .furnished a certificate from the cost accountant, The Id. TPO however in his show cause observed that the methodology followed by the appellant was devoid of any logic and held that Internal TNMM was the most appropriate method In the given facts of the present case. According to him, since the units at Faridabad and Rudrapur were involved In the same line of business, Its profitability ought to be comparable. The Id. TPO computed the OP/OR and OP/TC of the Faridabad Unit at 4.31% & 4.50% and round that the OP/OR and OP/TC of the eligible unit was 35.18% and 54.2% respectively skewed and higher than the comparable unit. Accordingly the TPO in his order made adjustment of Rs.12,06,40,000/- towards the inter-unit transactions between the eligible an....
X X X X Extracts X X X X
X X X X Extracts X X X X
....d therein. It is noted that the application of CPM is in accordance and compliance with Central Excise Rules and for the purposes of payment of excise duty, the said value is accepted to be arm's length price. Accordingly, I am of the considered view that in the transfer pricing assessment, it was no longer open for the ld. TPO to question the said value and alleged that the transfer price recognized by assessee did not in fact represent arm's length price. Hence, CPM is held to be the most appropriate method in the given facts of the present case and the statement of cost as certified by the cost auditor is found to be justified. The inter-unit transactions in question are therefore held to be at arm s length and therefore the impugned adjustment of Rs.12,06,40,000/-is held to be unwarranted on facts and in law. 4. Moreover, I also find merit in the ld. AR's contention that internal TNMM was not the appropriate method since there were material differences between the units at Faridabad and Rudrapur. It Is observed that the automobile gears and shafts manufactured at Faridabad plant are bigger In size and are based on old technologies, whereas the automobile gears manufa....
X X X X Extracts X X X X
X X X X Extracts X X X X
....r such reasons as set out, I take a view that the subject materials so transferred from Faridabad Unit have been correctly valued. I observe that the material transferred from Faridabad Unit to the Rudrapur Unit in accordance with the "excise valuation rules", and hence the allegation of the material transferred by the Faridabad Unit to the Rudrapur Unit not being at arm's length appears to be misplaced. The appellant has also produced necessary bills of parties for similar material purchased from 3rd party vendors by the Rudrapur Unit. Although the quality of materials purchased by 3rd Party vendors are not comparable with that transferred from the Faridabad Unit, the rates of purchase from 3rd Party vendors are definitely are definitely an indicator of the genuineness of the Transfer Price from the Faridabad Unit to the Rudrapur Unit, and in such context I observe that the rate of transfer from Faridabad Unit is lower than the rate of purchase from 3rd Party vendors. After carefully examining the material on record, I find substantial merit In the arguments of the appellant. Hence the adjustment made by the Ld. TPO and as accepted by the Ld. A.O are not sustainable In the fac....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... that the assessee is not a contract manufacturer and therefore the cost plus method is not applicable in the present case but the TNMM is the most appropriate method as the assessee has transferred the profits from non-eligible unit to eligible unit and thus the transactions were not at arm's length. The ld DR referred to OECD guidelines, UN TP Manual and ICAI Guidance Note which state that CPM is applicable only when the assessee is undertaking limited manufacturing functions or acting as contract manufacturer or selling semi finished goods and therefore it cannot be applied when the assessee is engaged in routine manufacturer and undertaking entire gamut of functions which a full-fledged manufacturer undertakes. The ld DR contended that CPM will only compares gross margin which will never be correct reflection of various functions performed by the manufacturers. The ld. D.R. submitted that the TPO has rightly proposed TNMM is the most appropriate method for benchmarking the purchase of semi-finished goods from Faridabad unit and job work services rendered by Rudrapur to Faridabad. The Ld. D.R. also referred to the unit level margin of OP/OR 4.30% and OP/TC 4.50% which were not f....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... Excise Valuation Rule which provides that the cost plus method is most appropriate. The Ld. A.R. also submitted that the TPO has also ignored the fact that the profit margin of the assessee was at 19.99% as against the profit margin in the other external comparables which ranged between 12.29%, 18.68% and 17.84% respectively the details whereof available at page nos. 162 to 165 of the PB. The Ld. A.R. submitted that TPO has followed TNMM method without giving any justification and therefore the Ld. CIT(A) has rightly reversed the order of AO/TPO. The Ld. A.R. submitted that provisions of Section 80IA(8) mandates the comparison of market price with transfer price and it nowhere provides for determining of the alleged inflation of profit and therefore the very first stage the TPO/AO was not correct. The ld AR also stated that inter-unit transfer/services were never disputed by the TPO/AO in the earlier years even the assessment were finalized u/s 143(3) from AY 2008-09 to 2013-14. The Ld. A.R submitted that even following principle consistency the TPO/AO cannot disturb ALP domestic specified transactions by relying on the following decision: i) Century Ply Boards (I) Ltd.- 187 TD ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... the assessee are manufacturing the same products, the Ld. A.R. submitted that both the units are doing different manufacturing of different jobs of finished products by submitting that Faridabad unit manufactures gears for tractors and bigger trucks whereas Rudrapur unit manufactures 3rd & 4th gear for small trucks. The ld. A.R. also referred to the order of Ld. CIT(A) wherein the Ld. CIT(A) has followed the following decisions to come to the conclusion that CPM method has to be preferred to TNMM more particularly when data in respect of tested party/transaction is available namely i) Hughes Systique (I) (P) Ltd.- 36 taxmann.com 41 (Delhi), ii) Aztec Software & Tech. Services Ltd.- 107 ITD 141(Bang)(SB), and iii) Gharda Chemicals Ltd.- 35 SOT 406 (Mum). The Ld. A.R. also submitted that even the OECD guideline, UNTP manual & ICAI guidance note also refer to CPM applicable in case of transfer of semi-finished goods/job work and therefore the arguments of the Ld. D.R. that CPM is not applicable is not correct. Finally the Ld. A.R. submitted that since the assessee has submitted the cost record, CAS-4 certified by the C.A of the assessee. Thus, the Ld. A.R. submitted that valuation as....
X X X X Extracts X X X X
X X X X Extracts X X X X
....lar transaction between Rudrapur unit to Faridabad unit in the earlier year right from AY 2008-09 to 2013-14 which were accepted by the revenue even in scrutiny proceedings. Therefore on the principle consistency, the TPO/AO cannot be allowed to disturb the arm's length price adopted by the assessee as the Hon'ble Apex Court in the case of Radhasoami Satsang vs CIT in 193 ITR 321 (SC) has laid down that unless there is a change in facts and circumstances of the case, the stand as accepted by the revenue in the earlier years cannot allowed to be changed during the year. Similarly the case of the assessee also finds support from the two decision of the Co-ordinate benches as cited supra before us. Further find merit in the contention of the Ld. A.R. that mere extraordinary profit cannot be criteria for adjustment in the transfer price which is supported by the decisions of the Co-ordinate benches in the case of A T Kearney (P) Ltd. (supra) and Zavata India Ltd. (Supra). 10. Undisputedly the assessee has maintained cost records CAS-4 which were duly certified by the CA in respect of direct and indirect cost and the gross profit margin is also available. Therefore the CPM has to be th....
X X X X Extracts X X X X
X X X X Extracts X X X X
....hold the order of Ld. CIT(A) by dismissing ground nos. 1 to 4 of the revenue. 11. In the assessee's cross objection , ground no. 1 & 2, have been taken in support of the ld CIT(A) on the issue of ALP of the specified Domestic Transactions. Since we have dismissed the appeal of the revenue assailing the order of ld CIT(A) on the issue of deletion of TP adjustment by holding the CPM as MAM, the ground 1 & 2 raised by the assessee in the CO as stated above become infructuous and are accordingly dismissed. 12. The issue raised in ground no. 5 by the revenue is against the order of Ld. CIT(A) allowing the additional depreciation of Rs. 60,66,115/- u/s 32(1)(iia) of the Act which was rejected by the AO. 13. Facts in brief are that the assessee had made some additions to fixed asset in the latter half of F.Y. 2012-13 and consequently the assets were put to use for less than 180 days. Accordingly, the assessee claimed depreciation @ 10% being 50% of normal rate of depreciation. During the year, the assessee claimed 10% additional depreciation on the ground that the assessee had claimed only 50% depreciation in FY 2012-13 in terms of proviso to Section 32(1) of the Act. The assessee refe....
X X X X Extracts X X X X
X X X X Extracts X X X X
....sions and gone through facts and circumstances of the case. The facts are admitted and there is no dispute on the facts. Only issue for adjudication is whether the assessee is entitled for the balance 50% additional depreciation in view of sec. 32(1)(iia) of the Act in the next assessment year for remaining unutilized additional depreciation. We have gone through the relevant provisions of second proviso to section 32(1)(ii) and 32(1)(iia) of the Act. In the present case before us, the assessee has purchased and installed new plant and machinery for its manufacturing unit and put to use for a period of less than i.e. 180 days, during the FY 2005-06 relevant to AY 2006-07 and claimed 50% additional depreciation u/s. 32(1)(iia) of the Act in view of the second proviso to section 32(1)(ii) of the Act. Further, the balance 50% of additional depreciation on such plant and machinery has been claimed by the assessee company during the year under consideration i.e. the FY 2006-07 relevant to this assessment year 2007-08. A bare reading of clause (iia) of section 32(1) of the Act w.e.f. the AY 2006-07, provides for allowance of additional depreciation equal to 20% of actual cost of new plan....
X X X X Extracts X X X X
X X X X Extracts X X X X
....se for less than 180 days, in this assessment year for the balance of depreciation." Similar ratio was laid down in the case of Cosmo Fins Ltd.- 139 ITD 683 (Del) and DCIT vs. National Engg. Industries Ltd.-193 ITD 420 (kol). Since the issue before us is same as decided by the co-ordinate benches (supra), we therefore respectfully following the decisions of respective benches dismiss the ground no. 5 raised by the revenue by confirming the order of Ld. CIT(A) on this issue. 16. The issue raised in ground no. 6 is against the order of Ld. CIT(A) allowing the foreign currency loss of Rs. 1,65,65,143/- by the Ld. CIT(A) which was denied by the AO on the ground that being notional and contingent in nature. 17. Facts in brief are that during the year, the assessee has charged in the profit and loss account a sum of Rs. 1,65,65,143/- under the head foreign currency loss. Upon noticing the same , the AO called upon the by order sheet dated 4.12.2017 to furnish the details of foreign currency loss and also justify the claim as to how this loss was admissible which was replied by the assessee vide written submission dated 8.12.2017 by submitting that the assessee has obtained term loan ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....see did not have any direct exposure of forex but certainly the assessee have indirect exposure through bank and thus this is the forex loss indirectly incurred by the assessee. Hence this is covered by the provisions of Section 43A. We have carefully perused Section 43A which begins with non-obstante clause and provides that where assessee has acquired any asset during the previous year from outside the country for the purpose of business or profession and in consequence of forex fluctuations in the rate of exchange after acquisition of asset there is an increase or reduction in the liability of the assessee as expressed in Indian currency as compared to the liability existing at the time of making payment towards the whole or a part of the cost of the asset or towards the repayment of the whole or a part of the moneys borrowed by the assessee from any person, directly or indirectly in any foreign currency specifically for the purpose of acquiring asset along with interest if any, the amount by which the liability as aforesaid is so increased or reduced during previous year and which is taken into account at the time of making the payment irrespective of the method of accounting a....