TaxTMI 
TaxTMI 
TaxTMI 
2025 (8) TMI 1676
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....by the appellant in its transfer pricing documentation. * Jay Ushin Limited * Shivam Autotech Limited * Delux Bearings Private Limited * Omax Auto Limited * Nexteer Automotive India P Limited 2.6 Non-Inclusion of new comparable companies identified by the Assessee based on the updated information available in the public domain at the time of Transfer Pricing Assessment proceedings. * Minda Vast Access Systems Private Limited * SAR Auto Products Limited * JMT Auto Limited 2.7 Non-rejection of comparable companies failing RPT filter * Kwangsung Brake India Private Limited * Joyson Anand Abhishek Safety Systems Private Limited 2.8 Incorrect determination of margins in respect of comparable companies - correct margins as per annual reports to be considered 2.9 Erroneous consideration of Entity level margins vis-à-vis Comparable Segment marginsof M/s ZF Steering Gear Limited as against the segmental margins of auto- component segment which is available in the audited financials. 2.10 Adjustment for basic custom duty 2.11 Adjustment towards fixed costs incurred during shut down of plants 2.12 Joint venture arrangement in substance is a third party negoti....
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.... issues which fall for our primary consideration are: (i) Treatment of export incentives as operating income while computing the margin of Assessee (ii) Treatment of cash discount as operating income while computing the margin of Assessee (iii) Treatment of miscellaneous expenses as operating expense for comparable companies (iv) Considering segmental margin of ZF Steering Ltd (v) Inclusion of functionally similar comparable companies 3.3 The Ld AR indicated that the other grounds, being consequential in nature, do not require our indulgence, as they would become academic, if these issues are decided in favour of the Assessee. 4. Ground no.2.2: Treatment of export incentives as operating income while computing the margin of Assessee: 4.1 Brief facts of this issue as explained by the Ld AR is that the TPO while issuing the show cause notice to the Assessee had not proposed exclusion of this income from the margins of the Assessee. However, in the order of TPO, export incentives are excluded from the operating income of the Assessee without any reasoning. The Assessee had objected the same before DRP and the DRP had adjudicated this issue but upheld TPO's stand by re....
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....ls utilized in manufacturing of goods for exports. This refund of duties is only shown under other income under the head "Export Incentives". While the duty paid on imports form part of integral cost of the business and it has been undisputedly accepted by the TPO as operating expense, however, the refund of the same is being considered as non-operating. The Ld AR contends that duty drawback is integral part of the business operations and cannot partake a different characterization. Therefore it is inextricably connected to the core business and as such it should be treated as operating income while computing the margins of Assessee as well as comparable companies (wherever applicable). 4.4 As regards the MEIS Income, the ld. AR submitted that the Primary objective of MEIS scheme is to offset infrastructural inefficiencies and associated costs involved in export of goods/products, which are produced/manufactured in India, especially those having high export intensity, employment potential and thereby enhancing India's export competitiveness and to increase the flow of foreign exchange into India. The rewards granted under the MEIS scheme would be in the form of Duty credit scrips ....
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....oods sold is concerned, we find that the reasoning adopted by the TPO has considerable cogency. The export benefits are given to the taxpayers to promote and stimulate the growth of exports of goods and services in India. They are also meant to earn valuable foreign exchange for the country. The export incentives was available to the Assessee only after trading exports made by the Assessee. Global transfer pricing policy of the group company mentions cost in inter company transfer before the goods and services are dispatched from the premises of a company to the other company. In the Global Transfer Pricing Policy the future value of benefits which may be available in a few countries cannot be included as this will disturb the very basis/purpose or providing uniform return to teach and every enterprise which is a member of global transfer pricing policy. The very purpose of global transfer pricing is to provide a minimum amount of return to the members of global transfer pricing policy. If India provide tax incentive or other incentive to compensate its taxpayers on the basis of the economic situation, then this benefit is available to Indian taxpayers and the same cannot be transf....
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....t of operating income it should be derived from normal operations. Undoubtedly in the instant case, the export incentive is derived during the course of normal operations. Apart from this definition, the Cost Accounting Standards elucidates the term Revenue from operations as under: "4.9 Revenue from operations: is the income arising in the course of the ordinary activities of an entity from the sale of goods or rendering of services. Revenue from operations represents income arising from the sale of goods or rendering of services and includes other operating revenue, such as sale of scrap, government subsidies, or incentives received. Revenue from operations is generally recognised at the net value excluding indirect taxes. Sometime, revenue is presented at the gross value including excise duty and the excise duty is presented as deduction from such gross value of the revenue. Other Operating Revenue is the incidental income arising in the course of ordinary activities of an entity but not arising from the sale of main goods or services, and it does not include Other Income. Examples: (i) Sale of By-products; (ii) Sale of manufacturing scrap; (iii) Export incentives ....
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....ds of the Assessee while computing its margin for the purpose of Transfer Pricing benchmarking analysis with comparable companies. We also hold that merely because some of the comparables may not have such export incentive cannot debar the assessee from considering such income as operating revenue. Turning to the decisions relied on by the Ld DR. in the case of Sami Labs (Supra), we find that in the said decision it has been held in principle that export incentive is operating revenue, therefore this decision does not actually aid the contention of the Ld DR/DRP. The other decision which was considered by DRP and also emphasised by Ld DR in the case of Goodyear India Ltd (supra), the issue was whether export incentive and rebate should be reduced from cost of goods. What was held was that such incentives were available to an Assessee only after the exports were made and therefore, could not go to reduce the cost of goods. Apparently, the issue for consideration in the aforesaid case is different from the issue under consideration. Therefore, the decision of Goodyear is distinguishable on facts. Our view is also supported by the jurisdictional Tribunal decision in the case of M/s. G....
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....the case of respondent assessee itself for Assessment year 2005-06 and 2007-08 and the Tribunal held that the same has to be included for the purposes of arriving at operating profit for the application of TNMM method. This on the basis that comparison should be made on like to like and similar to similar. So far as the depreciation is concerned, the impugned order of the Tribunal adopted the same reasoning which it had applied while holding that DEPB benefit is includable in arriving at the net profit in its order in the earlier assessment years 2005-06 and 2007-08 in the subject assessment year with regard to claim of depreciation. Therefore, the DEPB was includable in arriving at the operating profit and depreciation was includable while arriving at the total costs of the respondent assessee as the same is not excluded in arriving at the profits of the comparable companies. (d)We find that so far as exclusion of DEPB benefit in arriving at the operating profit of the respondent assessee is concerned, the order of the Tribunal for the assessment years 2005-06 and 2007-08 were appealed by the revenue to this Court. Mr. Suresh Kumar, learned Counsel appearing for the Revenue very f....
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....nized as an income component. Hence, if the expenses incurred are considered as operating, the cash discount earned in relation to such expenses shall also to be treated as operating in nature and cannot partake a different character. The Assessee had filed additional evidence presenting the accounting treatment. 8.2 In support of its arguments, the ld. AR placed reliance on the ruling of Jurisdictional tribunal in the case of M/s. Hyundai Motor India Limited vs ACIT - ITA No. 3912/Chny/2017 8.3 Per contra, the Ld. DR placed reliance on the observation of the DRP and also opposed admission of additional evidence at this stage as it is bereft of any reasons. In the rejoinder, the Ld AR contended that additional evidence is only to elucidate the accounting treatment but the issue at hand can also be decided without the same on a principal basis. 8.4 We have heard the contentions of the rival parties and perused the material available on record and we proceed to decide the issue without considering the additional evidence in this regard. The question is whether the cash discount reflected as income in the Profit and Loss can be treated as operating revenue. It is quite explicit fro....
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....raised by Assessee is thus, allowed. 9. Next, coming to the issue raised by the Assessee by way of ground no. 2.5 in relation to treatment of miscellaneous expenses as non-operating expense. 9.1 Brief facts of this issue as explained by the Ld AR is that the TPO while issuing the show cause notice to the Assessee has not provided any reasons for proposed exclusion of Miscellaneous Expenses from the margins of the Comparable Companies. However, in the order of TPO, the margins of the comparable companies are adopted after exclusion of Miscellaneous Expense. The Assessee had objected the same before DRP and the DRP had adjudicated this issue (along with other expenses) but overall upheld the action of the TPO by relying on the Safe Harbour Rules 10TA and without much analysis simply put that it is not connected to the normal business operations and therefore it should be excluded. TheLd. DR submitted that the Assessee, while computing the operating margins has considered all the above items as operating expense in nature both in the case of Assessee as well as comparable companies. However, the TPO and the DRP were of the view that such expenses are non-operating expenses and consi....
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.... as business expenditure, accordingly taking a cue from the corporate tax provisions it could be safely inferred that Miscellaneous expense is operating in nature. Therefore Miscellaneous expense incurred by every company in its usual course of business cannot be said that they have no nexus with normal operation of business. The view expressed is supported by the decision of the Delhi Tribunal in the case of ITO vs E Value serve.com (2016) 75 taxmann.com 195 (Delhi - Trib) wherein it is held that miscellaneous expenses ought to be treated as operating expenses for Assessee as well as comparable companies. Relevant para of the order is produced below: "47. Ground no. 6: The main contention of department is that ld. CIT(A) had concluded that misc. income and misc. expenses were operating profits without verifying their nature. We find that ld. CIT(A) has observed in regard to misc. income that the same pertained to income from other sources and the misc. income was included as part of operating profit in the case of comparable company. Therefore, there could not be any prejudice to revenue on this count. As regards misc. expenses, ld. CIT(A) has observed that the same included a m....
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....as comparable in the TP order while determination of arm's length results. Relevant findings of the TPO are at para 6.4.3 of the TPO order dated 12.10.2023 for AY 2021-22. 10.3 Per contra, the ld. DR, supporting the order of lower authorities, pointed out that 95.6% of the revenue earned by ZF Steering Gear Ltd is from Auto component segment and only 3.7% of revenue is from the renewable energy segment. Since, the company earns more than 95% of the income from core comparable activity, the ld. DR objected to compute the margins at segmental level. 10.4 We heard the rival submissions and gone through relevant material. We find merit in the Assessee's above submission that since the audited financial statement of ZF Steering Gear Ltd provides segmental reports, the non-comparable segment need not be considered as there could be some degree of influence of such non- comparable segment on the overall margins as in the present case. Our view is also supported by the jurisdictional Tribunal decision in the case of M/s. CMA CGM Shared Service Centre (India) (P.) Ltd vs DCITIT(TP)A No.76/Chny/2016 wherein the Tribunal has considered only comparable segment results of the comparable c....
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....tech Limited (c) Omax Autos Limited Jay Ushin Limited ("Jay Ushin") Functionally dissimilar 11.1 The ld. AR submitted that Jay Ushin is engaged in the manufacture of auto ancillary products ranging from security systems, switches, body parts, Fuel Units and Heater control panels. The business of Jay Ushin viz., manufacture of security systems for automotive industry is similar to that of the Assessee, which is engaged in the manufacturing of occupant safety products for automotive industry. The ld. AR pointed out that fuel units and heater control panels manufactured by Jay Ushin are similar to the business of Talbros Automotive Components Ltd ("Talbros Automotive") which is accepted as a comparable company by TPO. Talbros Automotive is engaged in the business of manufacture of gaskets, heat shields, forgings, chassis systems, suspension systems, etc. Therefore, ld. AR submitted that Jay Ushin ought not be excluded from the final list of comparables. 11.2 On the other hand, the ld. DR has relied on the orders of lower authorities in rejecting Jay Ushin on account of functional dissimilarity. 11.3 We have heard both the parties and considered relevant material available on rec....