TaxTMI 
TaxTMI 
2026 (8) TMI 873
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....sued and served on the assessee. The learned Assessing Officer (in short 'AO') observed that assessee has entered into the following international transactions with its Associated Enterprise (in short 'AE'): S. No. Particulars Amount Method used 1 Purchase of raw materials 710.444,470 TNMM 2 Sale of finished goods 1,350,005,105 TNMM 3 Purchase of finished goods 1,657,767.023 TNMM 4 Payment of Royalty 21,424,716 TNMM 5 IT Charges paid 149,370.001 TNMM 6 Professional charges paid 17,694,225 TNMM 7 Commission income 6,308,908 TNMM 8 Service fees recovered 14886083 TNMM 9 Reimbursement of ESOP cost 11,399,882 TNMM 10 Reimbursement of other expenses 8,184.751 TNMM 11 Recovery of expenses 20.190,998 Other Method 12 Purchase of fixed assets 43,589,109 TNMM 3. The AO made a reference under section 92CA of the Act to the learned Transfer Pricing Officer (in short 'TPO') after obtaining approval from competent authorities. The learned TPO, after considering the submissions made by the assessee on various dates, computed the Arm's Lengt....
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....Income-tax Act, 1961 ("the Act"), for the manufacturing segment without considering the submissions filed by the Appellant. 2.2 The Learned AO/ Learned TPO/ Hon'ble DRP erred in rejecting the TP documentation maintained by the Appellant by invoking provisions of sub-section (3) of 92C of the Act. 2.3 The Learned AO/ Learned TPO/ Hon'ble DRP erred in rejecting comparability analysis carried in the TP documentation without providing any cogent reasons for the same. 2.4 The learned AO/ learned TPO/ Hon'ble DRP erred in not appreciating the claim for suitable economic adjustment considering the impact of COVID, being an exceptional event, on the business operations of the Appellant during the relevant year, while determining the arm's length price ('ALP'). 2.5 The learned AO/ learned TPO/ Hon'ble DRP erred in not appreciating the Appellant's claim for exclusion of the fixed overheads incurred during the COVID period while computing the ALP. 2.6 The learned AO/ learned TPO / Hon'ble DRP erred in not granting suitable economic adjustment towards capacity underutilization arising due to significant drop in bu....
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....section 234A of the Act without considering the fact that the return of income was filed within the prescribed timeline. 5. Levy of interest under section 234C of the Act 5.l The learned AO has erred in computing interest under section 234C of the Act without appreciating the fact that the same is to be computed on the tax due on the returned income. The appellant craves leave to add, alter, rescind and modify the grounds herein above or produce further documents, facts and evidence before or at the time of hearing of this appeal. For the above and any other grounds which may be raised at the time of hearing, it is prayed that necessary relief may be provided. 7. Ground No.1 is general in nature and needs no adjudication. In ground No.2, the assessee has raised covid adjustment which is exceptional, on the business operations of the assessee by way of sub-grounds in 2.4 and 2.5. On this issue, the learned AR submitted that learned TPO has included the extraordinary event as part of the operating expenses due to which the margin of the assessee stood drastically reduced. He further submitted that the assessee's manufacturing operations which ar....
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....a, the learned Departmental Representative (in short 'DR') fully supported the Order of the AO and the DRP stating that effect of covid is not only on the assessee but also on the other enterprises which was used as comparables. Therefore, the learned DRP has rightly rejected the covid adjustment and prayed to uphold the same. 13. We have heard the rival contentions and perused the material on record. It is an apparent fact that the assessee was severely impacted in the manufacturing, on account of covid 19 pandemic reducing the sales for the impugned Financial Year wherein the fixed costs remained unabsorbed during the year. The assessee has demonstrated in its written submissions the comparative sales summary for the Financial Years 2019-20 to 2021-22 as follows: Plant FY 2019-20 FY 2020-21 FY 2021-22 BN01 5,27,343 5,97,043 25,14,946 BN02 55,98,28,062 56,15,67,521 79,40,71,275 BN03 37,64,98,412 25,14,53,659 32,87,29,932 BN04 18,15,03,795 17,23,05,313 23,33,42,914 BN05 1,25,61,33,264 1,22,79,95,267 1,78,71,78,545 BN06 18,22,76,119 15,68,56,151 18,99,51,915 BN07 53,17,12,256 58,53,27,066....
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....c)(3) of the Income Tax, 1962, also allows adjustment on account of differences materially affecting the comparability. Therefore, in our view, expenditure incurred by the assessee should be treated as an extraordinary expenditure incurred not in the regular operations of the assessee and the same needs to be excluded from the operating cost for the computation of PLI. Similar observations were also made in the decision of the Co-ordinate Bench of Tribunal in the case of DCIT Vs. M/s Lam Research (India) Pvt. Ltd, in IT(TP)A No. 2327/Bang/2016 and also Co-ordinate Bench of Delhi in the case of DCIT Vs. ITE Ltd., 104 taxmann.com 281. 16. The next ground raised by the assessee in 2.6 and 2.7 relates to economic adjustments towards capacity underutilization. On this issue, the learned AR submitted that the assessee's primary customers are in the automotive industry and the major portion of its manufacturing revenue derived from its automotive sector. He further submitted that automobile sector witnessed a slow down in the past few years which was further compounded due to shortage of integrated circuit that had a wide scale impact. He also referred to the automobile production tren....
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....uires certain economic adjustment made to the financial data of the comparable companies. The learned TPO has observed that assessee did not submit any evidence for assuming the capacity utilization of the comparable companies and the data relied upon by the assessee for seeking capacity utilization adjustment was either unreliable or incorrect. It is a fact that assessee has underutilized capacity during the Financial Year and therefore eligible for adjustment to the same. The learned DRP observed that it is difficult to make an adjustment for differences in capacity utilization between the assessee and comparable companies due to lack of sufficient data available in the public domain. The DRP has put the onus on the assessee for the maintenance of robust documentation in this regard in order to claim capacity adjustment which would tantamount to requiring the assessee to perform an impossible tax. On the other hand, the TPO, by exercising his powers under section 133(6) of the Act should have collated the same from comparable companies. In this regard, we find that Co-ordinate Bench of Mumbai in the case of M/s Kiara Jewellery P.Ltd. in ITA No.8109/Mum/2011 has directed the AO/TP....
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....using appropriate PLI. The contention of the assessee is that this adjustment should be restricted to the international transactions only. The learned DRP has observed that the fundamental principle is that since the transactions with non-AEs are at arm's length, no adjustment is necessary for those transactions and therefore the entire adjustments should be made with respect to the transactions with AE and therefore adjustment between AEs and non-AEs is not appropriate. The Hon'ble High Court of Karnataka in the case of PCIT Vs. TT Steel Service India (P.) Ltd., reported in (2024) 168 taxmann.com 515 (Karnataka) by relying on the findings of the Hon'ble High Court of Bombay held as follows: (d) The grievance of the Revenue before us is that the adjustment is not to be restricted only in respect of transactions entered into with the AE. All the transactions of the respondent-Assessee would have necessarily be varied/adjusted by the margin arrived at by the TPO to arrive at the ALP. (e) We find that in terms of Chapter X of the Act, re-determination of the consideration is to be done only with regard to income arising from international Transactions on determinatio....
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....into by the assessee with other parties. Thus, the grounds raised by the assessee are allowed. 24. The assessee has raised in ground No.3 and sub grounds challenging the additions amounting to Rs. 76,28,409/- towards bad debts in the intimation issued under section 143(1) of the Act. The learned AR submitted that the claim of bad debts as a deduction was mechanically done by the CPC under section 143(1) of the Act without considering the adjustment already made in the computation of income by the assessee. The learned AR submitted that the same amount of Rs. 76,28,409/- has already been offered to tax while filing the return of income and making an addition again leads to clear case of double addition. He further submitted that the learned DRP mechanically upheld the action of the CPC. He therefore prayed that amount which has already been offered to tax by the assessee cannot be included in the income of the assessee arising out of the intimation. 25. Per contra, the learned DR relied on the Orders of the Revenue authorities. 26. We have heard the rival contentions. It is the contention of the learned AR that the assessee has already offered to tax the impugned addition o....