TaxTMI 
TaxTMI 
2024 (11) TMI 1439
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....ime barring set aside cases, giving effect to appellate orders and thus, in the interests of justice, we condone delay in filing of appeal and admit appeal filed by the revenue for adjudication. 3. The assessee has raised the following grounds of appeal: "The Order of the Commissioner of Income-Tax Appeals-16, Chennai ('CIT(A)') is erroneous and contrary to law, facts and circumstances of the case. 2. Transfer Pricing grounds - Downward adjustment to arm's length price 2.1 The Commissioner of Income Tax (Appeals) /the Transfer Pricing Officer (hereinafter referred to as the CIT (A) / the TPO) erred in making a downward adjustment to the value of international transactions without any further examination of the facts and submissions made by the Appellant 2.2 The CIT (A) erred in confirming the order of the TPO in not providing working capital adjustment while determining the net profit margins while benchmarking the international transactions of the Appellant. 2.3 The learned CIT (A) erred in confirming the action of the TPO and erred in stating that the Appellant has not provided reasons as to why working capital adjustments were required without consider....
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.... and other grounds that may be adduced at the time of hearing, it is prayed that the order of the learned CIT (A) may be set aside and that of the Assessing Officer restored." 5. The brief facts of the case are that the assessee is a subsidiary of Doowon Electronics Co. Ltd., Korea. The assessee was incorporated in the year 2012 and commenced its commercial production from August 2013. The assessee is engaged in the manufacture and trading of electronics and electrical products for the automobile industry. The products manufactured by the assessee include actuators, filters, etc. for use in HVAC modules of automobiles, condense headers used in cooling modules of automobiles. During the A.Y. 2016-17, the assessee commenced operations of its second plant involving 'hose & pipe assembly line' operations. The assessee filed its return of income for the A.Y. 2016-17 on 30.11.2016 admitting a loss of Rs. 8,73,46,902/-. After the return of income processed u/s. 143(1), the case was selected for complete scrutiny assessment under CASS. Since, the assessee had entered into international transactions with its AEs to the tune of Rs. 54,32,81,024/- reference was made to TPO - 1(2),....
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....s to improve the reliability of the comparables. There are working capital adjustment differences between the comparable companies and the Doowon Electronics. The investments in working capital (i.e. inventories, debtors and creditors) require capital and operating assets to satisfy an arm's length principle, an uncontrolled entity is expected to earn a market rate of return on that required capital independent of the services that it provides. However, the amount of capital required to support these services varies greatly, because the level of inventories, debtors and creditors measured as a percentage of the total cost varies. There's an effect on profits from investing in different levels of working capital and for the purpose of adjustment must be taken into account. In the analysis, while adjusting for differences in working capital, the profitability of each comparable company was adjusted to reflect these differences. In order to overcome the difference a working capital adjustment is made as per the method prescribed in the OECD guidelines. The adjusted financial result post working capital adjustments of the comparable company is mentioned below. The relevant workings....
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....essee demonstrates with AE of allowing the credit period to the assessee and DRP confirm the action of the TPO and the Ld. AR demonstrated the Arithmetic Mean of 4.58% of seven comparables selected at Page 41 of paper book and referred to the working capital adjustment PLR of 12.26% with the comparables current assets being sundry creditors, sundry debtors and inventories at Page 42 and supported working capital adjustment of comparables company based on the financial statements. The Ld. DR relied on the order of TPO and prayed for no adjustment is required. Considering the facts and material on record the financial statements and the paper book, there is necessity for working capital adjustment and accordingly we remit the issue to the file of AO to consider the material for fresh consideration." 5.3 By giving effect to the order of the ITAT, vide order dated 28.10.2018, the TPO had examined and allowed the benefit of working capital adjustment. Thus, respectfully following the above decision of the Coordinate Benches of the Tribunal, for the assessment year under consideration also, we direct the Assessing Officer to give suitable adjustment against the working capital compone....
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.... that AE has not gained anything. AE has received only 1 USD as agreed. It is due to the macro-economic factor/ market forces, Assessee had to pay additional INR 2 to Banker in India for securing the 1USD. ● Given the above, for determining the ALP of transaction with AEs, the forex fluctuations should be excluded. This is also the position taken by CDBT in computation of margins under safe harbor provisions. The relevant extract of Rule is as follows: (j) "operating expense" means the costs incurred in the previous year by the assessee in relation to the international transaction during the course of its normal operations including depreciation and amortisation expenses relating to the assets used by the assessee, but not including the following, namely:- ● interest expense; ● provision for unascertained liabilities; ● pre-operating expenses; ● loss arising on account of foreign currency fluctuations; ● extra-ordinary expenses; ● loss on transfer of assets or investments; ● expense on account of income-tax; and ● other expenses not relating to normal operations of the assessee; 14. Per contra, the ....
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....e ground raised by the assessee stands dismissed for the assessment year 2013-14." 16. Therefore, in the facts and circumstances of the case and respectfully following the above decision of this Tribunal of assessee's sister concern (supra) for the assessment year 2013-14, the ground raised by the assessee is dismissed for the assessment year 2016-17. IT(TP)A No. : 15/Chny/2024 17. On being aggrieved by the order of the Ld.CIT(A), the Revenue is in appeal before us for the only issue is allowance of custom duty adjustment while computing the margin of the Appellant. 18. The Ld.AR stated that the assessee is in the initial years of operation and in order to establish itself as a strong player in a market of experienced players, the assessee had to price its product on par with local players. Hence, the assessee was not able to pass on the non-cenvatable portion of the basic customs duty to its customers. The comparable companies, on the other hand, have been in existence for a longer time when compared to the assessee and have been able to formulate an established production process by sourcing raw materials and components locally. Accordingly, the company has suffered ad....
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....ent Year 2013-14 vide dated 23.11.2021 Para 4& 4.1). Hence, the ld. CIT (A) has followed the ITAT order and allowed this ground. In light of the above, the Ld.AR prayed for dismissing the appeal of the Revenue. 21. The Ld.DR stated that the they rely on the orders of the AO / TPO and set aside the order of the Ld.CIT (A) on this ground. 22. We have heard the rival contentions, perused the material available on record and gone through the orders of the lower authorities. We note that the Tribunal has considered the similar issue of customs duty adjustment and allowed in favour of the assessee, in the case of sister concern of the assessee in Doowon Automotive Systems India Private Limited in ITA No. 3061/CHNY/2017 for Assessment Year 2013-14 vide dated 23.11.2021. Wherein it is held as under: 4. We have heard both the sides, perused the materials available on record and gone through the orders of authorities below including case law and other paper books filed by the assessee. Similar grounds was subject matter in appeal before the Tribunal and vide order dated 18.08.2017 in I.T.A. No. 2560/Mds/2016 relevant to the assessment year 2012-13, wherein, decision of the Coor....
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....e between the AL Margin before and after the said adjustments on account of 'import cost' works out to 0.57% (7.18%-6.61%). Revenue has not disputed the said working of the assessee. In these factual circumstances and in the light of the scope of adjustments discussed above, in our opinion and in principle, the assessee should win on this ground too. One such decision relied upon by the assessee's counsel supports our finding relates to the decision of this bench of the Tribunal in the case of Skoda Auto India p Ltd 122 TTJ 699 (Pune) dated March 2009 wherein, it is held (in para 19 of the order) that, "No doubt, a higher import content of raw material by itself does not warrant an adjustment in operating margins, as was held in Sony India (P) Ltd.'s case (supra), but what is to be really seen is whether this high import content was necessitated by the extraordinary circumstances beyond assessee's control. As was observed by a Co-ordinate Bench of this Tribunal in the case of EGain Communication (P) Ltd. (supra) "the differences which are likely to materially affect the price, cost charged or paid in, or the profit in the pen market are to be taken into consideration with the idea ....