TaxTMI 
TaxTMI 
2022 (2) TMI 1361
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....tory unit in Bawal, Haryana and commenced its operations in FY 2008-09. It is submitted that the assessee filed its return on 30.11.2012 declaring a loss of Rs. 5,85,01,761/- under the normal provisions of the Act. In the course of assessment proceedings, the Assessing Officer made a reference u/s 92CA(1) to the Transfer Pricing Officer and the assessee complied with the notice issued by the TPO by filing necessary information. The Ld. Counsel submits that during the financial year under consideration the assessee undertook following international transactions with its AEs, which were duly reported in Accountant's Report (Form No. 3CEB) filed along with return of income: - 3. Ld. Counsel submits that in order to bench mark its international transaction in the course of assessment proceedings the assessee conducted fresh search and arrived at a set off comparables. The Ld. Counsel submits that TPO insisted that depreciation adjustment should be carried out on profit margins of comparables and not the assessee company. Therefore, the depreciation and working capital adjusted margins were furnished for the following fresh search comparables:- 4. The Ld. Counsel submi....
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....N/07} 6. Siemens Healthcare diagnostics Ltd. vs. ACIT, IT(TP) Appeal No. 2881/Ahd/2012 7. AMD Far East Ld. vs. JDIT, ITA No. 1282/Bang/2011 8. Bekaert Industries (P) Ltd. vs. DCIT, ITA No. 146/Pun/2014 & 171/Pun/2014 9. Market Tools Research (P) Ltd. vs. ACIT, ITA No. 2066/Hyd./2011 10. Srini Pharmaceuticals Ltd. vs. ACIT, ITA No. 1851/Hyd./2012 6. The Ld. DR referring to para 14 of page 34 of the DRP submitted that it is the finding of the DRP that in the preceding previous year the claim of the assessee for depreciation adjustment was rejected by the DRP. Therefore, the Ld. DR submits that the Ld. TPO has rightly rejected the claim of the assessee for depreciation adjustment. 7. We have heard the rival submissions perused the orders of the authorities below and the decisions relied upon. From the record placed before us, we observe that the claim for depreciation adjustment was allowed to the assessee by the DRP for the AY 2013-14 in its directions dated 22.09.2017. However, it is the finding of the DRP for the assessment year under consideration in its directions dated 18.11.2016 is that in the preceding previous yea....
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.... diversified activities. This company is also engaged in rendering of IT Services and no segmental details are available. Ld. Counsel submits that the annual report of this company is placed at pages 1046 of the Paper Book Part III. The Ld. Counsel further submits that this company is affected by a peculiar abnormal circumstance as this company entered into Joint Venture Agreement (JVA) during the year under consideration with Fiat Group Company. Ld. Counsel submits that profitability of this company has been impacted by Joint Venture. Further some of the existing production equipment was also transferred to the New Joint Venture Company. Therefore, it is contended that this company should be excluded from comparables. Reliance was placed on the following decisions: - 1. M/s Adoptic India Pvt. Ltd. Vs. ITO 54 taxmann.com 55 (Hyderabad Trib.). 2. Capital IQ Information Systems (India) Pvt. Ltd. vs. DCIT 32 taxmann.com 2 (Hyderabad Trib.). 3. Ameri Prise India Pvt. Ltd. vs. DCIT 53 taxmann.com 136 (Delhi Trib.). 14. On the other hand, the Ld. DR strongly placed reliance on the orders of the DRP. 15. Heard rival submissions, perused the ord....
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....re are no segmental accounts available to establish separately the profitability from manufacturing of auto components and rendering of IT Services. In the circumstances this company cannot be considered as comparable company and accordingly, we direct the TPO to exclude this company from the comparables. 21. Coming to ground nos. 4.11 and 4.12 the Ld. Counsel for the assessee submitted that the TPO excluded KMA Auto Components P. Ltd. and ANU Industries Ltd. from the list of comparable companies for the reason that annual reports/P&L Accounts are not available. The Ld. Counsel for the assessee submits that the DRP accepted the contention of the assessee that the annual reports are available in public domain but rejected the comparables on functional comparability. The Ld. Counsel for the assessee submits that the TPO never objected on functional comparability but excluded on the ground that annual reports are not available. The Ld. Counsel for the assessee further submits that functional comparability of these comparables was established by the assessee before the TPO as well as the DRP. The Ld. Counsel for the assessee submits that both these comparable companies KMA Aut....
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....es of natural justice. Therefore, Ld. Counsel requested that a direction to be given to the TPO to share computation of working capital adjustment with the assessee and compute the correct working capital adjustment. DR has no serious objection in giving direction to the TPO to compute the working capital adjustments after provide the information to the assessee. 25. Heard rival submissions. The Ld. Counsel for the assessee submitted that the following in the synopsis furnished before us pointing out the deficiencies in granting working capital adjustment. 26. Considering the rival submissions, we direct the TPO to examine the contentions of the assessee and to provide the details of working capital computations and after giving adequate opportunity to the assessee to carry out the directions of the DRP for granting working capital adjustment. We order accordingly. Grounds are allowed for statistical purpose. 27. Ground no. 6.1 of grounds of appeal which relates to Corporate Tax Issues i.e. allowability of R&D Cess as an admissible expense the Ld. Counsel for the assessee submits that the AO rejected the claim of the assessee for allowing R&D cess as admi....
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.... Depreciation and S. No Company Name Working Capital Adjusted OP/OR(%) 1 Kalyani Forge Ltd 3-94 2 Lucas- TVS Ltd. 0.90 3 NHK Spring India Limited 0.13 4 ANU Industries Ltd. 2.02 5 KMA Auto Components Pvt. Ltd -12.96 6 Super Circle Auto Limited -0.70 7 RSM Autokast Ltd. 0.25 Arithmetic Mean -0.92 (Refer submission dated January 19, 2016 at page 17 of the Paper Book part I). Document 4 "In other words, the amount of depreciation of the comparable companies on their assets shall be recomputed under straight line method alone as per the rates at which the assessee has provided depreciation. To clarify, if the comparables have charged depreciation at a higher rate in comparison with the assessee on some of its assets, then suitable reduction should be made in the amount of their depreciation" Document 5 "The crux of the matter is that a higher amount of a particular expenditure per se can be no reason to claim adjustment in profit ratio. That is the reason for which the legislature has provided for comparing composite figure of operating profit which envelopes the ov....
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....e of depreciation 30%. will be Rs. 95. It shows that the comparability is jeopardized due to higher rate of depreciation charged by company B at 30% in comparison with lower rate of depreciation charged by company A at 20%. In such a situation, although both the companies use similar type of assets and everything else is also equal, but their respective operating profit percentages undergo change due to higher or lower rate of depreciation, thereby distorting their comparability. It is this difference in the amounts of depreciation due to different rates of depreciation and not due to different quantums of depreciation simiplicitor, which calls for bringing both the companies at par. 5.23.The assessee is seeking adjustment only due to higher rates of depreciation charged by it under SLM with the lower rates of depreciation charged by four comparable companies, other than Mapro Industries Ltd. and Karvy Consultants Ltd. In view of above discussion, we hold that the operating profit margins of these four comparable companies should be recomputed by the TPO/AO in line with the rates of depreciation charged by the assessee under ....
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....mparable has to be excluded". Document 13 64. Additionally, based on the directions of Hon'ble DRP wherein the DRP had allowed 65. working capital adjustment for comparables, the Ld. TPO has passed an order dated December 9, 2016, wherein the Ld. TPO has computed the margins of comparables taking working capital adjustment into consideration to arrive at the Arm's Length Price. The Ld. TPO has wrongly computed the margins and has not provided any detailed working or backup of the same. In this regards, the Appellant also filed a rectification letter with Hon'ble DRP along with the computation of margins in a CD (Refer rectification letter dated December 22, 2016 at Page 5-11 of the paper book - part I). Document 14 66. 67. The Hon'ble DRP rejected the Appellant's objections stating that the issue does not relate to the directions issued by the DRP. (Refer DRP Rectification order dated March 17, 2017 at page 1-4 in the Paper Book - part 1) The appellant had provided the margin computation of all the comparables in the submission dated December 8, 2016 filed before the Ld. TPO, which has also been reiterated below: Table 11: L....