TaxTMI 
TaxTMI 
TaxTMI 
2023 (4) TMI 558
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....y, ground no. 5 is dismissed as not pressed. 4. Ground no. 6 being premature, at this stage, is dismissed. 5. As regards the substantive issue relating to Transfer Pricing (TP) adjustments, briefly the facts are, the assessee is a resident corporate entity and a wholly owned subsidiary of Diamond Electric Mfg. Co. Ltd., a Japanese company engaged in the business of manufacturing and sale of automobile and electric equipments. The assessee carries out its operations in India initially trading in automotive ignition coils. Subsequently, the assessee set up a factory unit in Haryana and started manufacturing and sale of ignition coils. In the year under consideration, the assessee had carried out activities, both in trading as well as manufacturing segments. Insofar as trading segment is concerned, the assessee imports ignition coils from its parent company in Japan and sells it primarily to Maruti Suzuki India Ltd. (MSIL). As far as the international transaction relating to purchase of traded goods, the assessee benchmarked it for transfer pricing analysis applying Cost Plus Method (CPM) by treating the overseas Associated Enterprise (AE) as the tested party and the price paid to t....
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....s Rupee, thereby, increasing the import cost. It was submitted, the forex rate increased from Re. 0.35 in financial year 2008-09 when the agreement with MSIL was entered to approximately Re.0.54 during October, 2009. Thus, he submitted, the foreign exchange fluctuation was to the extent of 54.29%, which had an adverse impact on the profitability of the assessee. He submitted, though, negotiation was taken up with MSIL to commensurate increased purchase price for ignition coil to absorb the increased cost on account of foreign exchange fluctuation, however, MSIL did not revise the purchase price for ignition coils substantially. Therefore, the assessee had to bear the adverse impact on its resale operation due to the foreign currency appreciation. He submitted, since, the comparable companies did not face any foreign exchange fluctuation risk, whereas, 90% of assessee's transactions are in foreign currency, the assessee sought adjustment on account of foreign exchange fluctuation. He submitted, in assessee's own case in assessment year 2009-10, the DRP has allowed adjustment on account of foreign exchange fluctuation to ensure parity between comparables and the assessee. In this con....
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....at 13.89%. In support of such contention, learned counsel relied upon the following decisions: i. Schefenacker Motherson Ltd. Vs. ITO [2009] 123 TTJ 509 (Delhi) ii. DCIT Vs. Reuters India (P.) Ltd. [2013] 33 taxmann.com 481 (Mumbai - Trib.) iii. CIT Vs. Reuters India (P.) Ltd. [2016] 69 taxmann.com 187 (Bombay) iv. Qual Core Logic Ltd. Vs. DCIT [2012] 22 taxmann.com 4 (Hyd.) v. Amdocs Business Services (P.) Ltd. Vs. DCIT [2012] 26 taxmann.com 120 (Pune) vi. DCIT Vs. Epcos Ferrites Ltd. [2019] 102 taxmann.com 422 (Kolkata -Trib.) vii. DCIT Vs. AT & S India (P.) Ltd., IT Appeals No.1262 & 2071 (Kol.) of 2010, 186 (Kol.) of 2011 and 779 (Kol.) of 2012 10. Learned Departmental Representative strongly relied upon the observations of the Assessing Officer and learned Commissioner (Appeals). 11. We have considered rival submissions and perused the materials on record. As regards, the transfer pricing adjustment made to trading segment, on perusal of facts and materials on record, we find that the assessee imports ignition coil from its AE in Japan and sales it to MSIL. It is further observed that the price fixed for purchase and sale of ignition coils were fixed in ....
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....DRP. We have also gone through the judgments relied upon by the Ld. Counsel on this issue. 8. In the case of the Honda Motor Cycle and Scooter India Pvt. Ltd. vs. ACIT 56 taxmann.com 237 it was held that where there was difference in rates of depreciation charged by comparables viz-a-viz assessee suitable adjustment was to be made to profits of comparables. While holding so the Tribunal observed as under: "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" "9. Similarly in the case of DCIT vs. Sumi Motherson Innovative Engineering Ltd. 2014 (30) ITR (Trib) 367(Delhi) the Tribunal observed as under: "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 fi....
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....iation 30% will be Rs95. It shows that the comparability is jeopardised due to higher rate of depreciation charged by company B at 30% in comparison with lower rate of depreciation claimed 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 simplicitor, 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 margin of these four comparable companies, should be recomputed by the TPO/AO in line with the rates of depreciation charged by the assessee under SLM....." 11. The ratio of the above decisions clearly....