2022 (5) TMI 1521

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....Income Tax Act, 1961 ('the Act') :- S. No. Name of the AEs Description Amount (In INR Method used 1 Kawasaki Heavy Industries Ltd., Japan Purchase of Traded Goods 9,41,28,561 CPM 2 Kawasaki Heavy Industries Ltd., Japan Purchase of Capital Asset 2,94,11,424 Other Method 3 Kawasaki Heavy Industries Ltd., Japan Write Off Capital Asset 55,477 Other Method 4 Kawasaki Heavy Industries Ltd., Japan Fees for Technical Services Availed 61,79,780 TNMM 5 Kawasaki Heavy Industries Ltd., Japan Issue of Equity Shares 18,49,99,940 Other Method 6 Kawasaki Heavy Industries Ltd., Japan Reimbursement of Expenses 3,23,432 OtherMethod   Total   31,50,98,614   3. The respondent-assessee company also submitted Transfer Pricing (TP) study report, wherein, respondent-assessee sought to benchmark the above international transactions by using Cost Plus Method (CPM) as the most appropriate method with Gross Profit Margin i.e. gross profit to cost as Profit Level Indicator (PLI). The respondent-assessee company also selected AEs as tested party identifying 11 comparables on t....

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....fficer/TPO to make the suitable adjustments in respect of customs duty adjustments considering the fact that the comparables have not incurred any customs duty on import of goods, whereas, the respondent-assessee company incurred significant expense of customs duty of Rs.2,36,72,575/- on import of goods out of which it had recovered of Rs.1,27,29,215/- from its customers, in respect of balance of Rs.1,09,43,360/-, the respondent-assessee company sought suitable adjustments which the ld. CIT(A) had granted placing reliance on the decision of the Co-ordinate Bench of the Pune Tribunal in the case of Skoda Auto India Pvt. Ltd. vs. ACIT (ITA No.202/PN/2007). The ld. CIT(A) also directed the Assessing Officer/TPO to grant the working capital adjustments. 9. Being aggrieved by the above decision of the ld. CIT(A), the Revenue is in appeal before us. 10. It is submitted that the respondent-assessee company cannot be granted economic adjustments on account of customs duty paid in view of the decision of the Pune Tribunal in the case of Fresenius Kabi India Private Limited vs. ACIT in ITA No.2572/PUN/2016 for A.Y. 2011-12. Without prejudice to the above, it is submitted that in cas....

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....dence of customs duty on traded goods, accordingly, increased the cost of the traded goods directly affected the gross profit margin, when compared to the comparables. Accordingly, respondent-assessee claimed the adjustments on higher customs duty paid in respect of import of traded goods. The provisions of section 10B(1)(b)(iv) of the Act provides that the adjustments can be made to element difference that are likely to materially affect the price or cost or profit between the controlled and uncontrolled transactions. Therefore, there is merit in the contention of the respondentassessee that the suitable adjustments should be made to iron out the differences of profit between the profit of tested company and the comparables. On this score, we do not find any illegality in the order of the ld. CIT(A), but the question is in whose hands such adjustments should be made. The Co-ordinate Bench of this Tribunal in the case of ACIT vs. Nord Drive Systems Pvt. Ltd. in ITA No.825/PUN/2016 of A.Y. 2011-12, order dated 28.11.2019 held that the adjustments is required to be made only in the profit margin of the comparables by holding as under :- "10. In sofaras the legal position on ....

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....ed that even accepting that the technical personnel had visited the respondent-assessee company/office, there is no proof of rendition of services by the technical personnel. 16. On the other hand, ld. AR submitted that it had furnished all the necessary evidence to establish that actual conditions of services and arm's length price of the management fees cannot be determined at Nil without following the prescribed method placing reliance on the following decisions :- (i) M/s. Johnson & Johnson Ltd. (Income Tax Appeal No.1030 of 2014) (Bom-HC). (ii) M/s. Kodak India Pvt. Ltd. (Income Tax Appeal No.15 of 2014) (Bom-HC). (iii) M/s. Merck Ltd. (Income Tax Appeal No.272 of 2014) (Bom- HC). 17. We heard the rival submissions and perused the material on record. We have carefully gone through the orders of the lower authorities and find that the Assessing Officer had determined the ALP for technical know-how fees at Rs.Nil as the respondentassessee failed to demonstrate the actual conditions of services by technical personnel. On appeal before the ld. CIT(A), ld. CIT(A) considering the additional evidence filed before him in support of expenditure incurred....