TaxTMI 
TaxTMI 
2026 (8) TMI 947
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....n law and on facts by failing to record an opinion that any of the conditions in section 92C (3) of the Act were satisfied and erroneously disregarded the TP study maintained by the Appellant as per section 92D of the Act read with rule 10D of the Income-tax Rules, 1962 ('the Rules). On the facts and in the circumstances of the case and in law, the Ld. TPO and Ld. AO, under the directions issued by the Ld. CIT (A), erred in the following grounds: Manufacturing of Earthmoving Equipment Segment 2 Erroneous Rejection of Economic Adjustments Adjustment - INR 88, 68, 93,849/- Notional Tax Effect -INR 30, 69, 36,223/- 2(a) Erred in not allowing appropriate economic adjustments when applying Transactional Net Margin Method, in accordance with the provisions of Rule 10B (3) of the Rules, to eliminate the material differences between the Assessee and the comparable companies. 2(b) Erred in rejecting the claim for idle capacity adjustment, based on erroneous assumption that idle capacity adjustment should be provided only at the starting phase of operations, without appreciating the peculiar business reasons and global economic parameters infl....
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....t the Appellant has not provided the segmental break-up, without appreciating the fact that the entire miscellaneous receipts pertain only to the manufacture of earthmoving equipment segment, which was clearly demonstrated as part of the submissions and hearings before the CIT(A). 4(b) Erred in law and on facts in disregarding the principle of consistency when the facts of A.Y. 2016-17 are similar to the facts for A.Y. 2014-15, wherein the TPO has considered the other income as operating in nature. 5 Business Support Service Income 5(a) Erred in law and on facts in treating business support service income of INR 44,69,75,894/- as a non-operating item, disregarding the detailed break-up provided by the Appellant substantiating the fact that the same is inextricably linked to the manufacturing function of the Appellant 5(b) Erred in law and on facts in passing a non-speaking order by not considering the alternate plea of the Appellant to exclude the corresponding costs incurred in relation to the provision of the business support services. Manufacturing of Diesel Engine Segment 6 Business Support Service Income 6(a) The L....
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....red in law and on facts in arbitrarily rejecting the appellant's request to obtain the capacity utilization data from the comparable companies by virtue of powers vested with the TPO under section 133(6) of the Act thereby disregarding the findings of the various Tribunals. Software Development Services Segment 8 Rejection/ selection of Comparable Companies by the Ld. TPO/ 8(a) Erred in rejecting the comparable companies selected in the Transfer Pricing Study & arbitrarily cherry-picking companies with high net margins as comparables, without considering the functional and risk analysis of the Appellant. 8(b) Erred in law and on facts in rejecting Sasken Communication Technologies Ltd. as comparable stating that the company is functionally dissimilar without understanding the functional profile of the Appellant and the Comparable. 8(c) Erred in law and on facts in selecting the following companies as comparable to the Appellant despite not being comparable due to various factors such as functional comparability, non-contemporaneous data, peculiar economic circumstance, product /intangible led revenues, research & development activiti....
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....r and thereby computing an adhoc adjustment based on his own conjectures and surmises. 10(b) Erred in passing a non-speaking order, confirming the adjustment proposed by the TPO by placing reliance merely on the survey report and the observations of the TPO, without considering the detailed submissions filed by the Appellant clearly explaining the roles & responsibilities of the Appellant and the dealers in relation to the sales made by AEs in India. 10(c) failed to take cognizance of the fact that the cost-plus markup pricing methodology under TNMM adopted by the Appellant were accepted by the TPO in the prior assessment years. The Ld. CIT (A)/ AΟΙ ΤΡΟ has failed to uphold principles of consistency and has sought to make an adjustment to the Marketing and Support Services segment when the facts and circumstances of the Appellant remained the same. 10(d) Erred in misunderstanding the information received from dealers in response to notice u/s 133(6) of the Act and wrongly inferred that the Appellant paid commission on sales made to dealers without appreciating the fact that the Appellant only pays commission on goods sold dire....
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....earth moving equipment business has been raised before the lower authorities and were duly adjudicated by the TPO (Page 56 of TPO Order). However, the appellant has inadvertently missed to include the ground while filing the subject appeal before the Hon'ble Tribunal. Hence, the appellant wishes to raise the above ground before Your Honors to determine the legal principle surrounding the issue and further submits that the basic facts pertaining to the additional ground of appeal raised before Your Honors are already on record.." ITA-718/Chny/2023 GROUDS OF APPEAL 1. The order of the Id. Commissioner of I.T. (Appeals) is erroneous on facts of the case and in law. 2 The learned CIT (A) erred in deleting the addition of Rs. 51, 44, 53,718/-, made on account of disallowance of foreign exchange fluctuation loss under the head finance cost and failed to appreciate the fact that since the ECB loan was taken by the assessee for acquisition of indigenous assets, the notional foreign exchange fluctuation loss incurred for capital purposes is not allowable, as it is not revenue in nature. 2.1 The learned CIT (A) erred in deleting the disallowance of notiona....
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....39;s would partake the character of " fees for technical services" on which tax is liable to be withheld as per the provisions of section 195 r.w.s 9(1) (vii) of the IT Act and the relevant DTAAs. 5. For these grounds and any other ground including amendment of grounds that may be raised during the course of the appeal proceedings, the order of Id. CIT(A) may be set aside and that of the Assessing Officer be restored. 2. The brief facts of the case are that the assessee - Caterpillar India Private Limited is a wholly owned subsidiary of Caterpillar Commercial S.A, Belgium which in turn is a wholly owned subsidiary of Caterpillar Inc. The company is engaged in the activities of manufacture and sale of earthmoving equipment including excavators, bull dozers, dumpers and loaders and spares for the same, manufacture and sale of diesel engines and gen-sets, provision of engineering design and related services, provision of marketing support services, provision of software development services (IT) and provision of shared services / information technology enabled services (ITES) to AE located in the Asia Pacific Region. 3. The assessee under consideration filed its return ....
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....6, following principle of consistency and judicial discipline, we are also respectfully following the decisions rendered by the Coordinate Benches in the earlier years, remit the issue to the file of the TPO for reconsideration based on the evidence and explanations of the assessee which confirms that this ground raised by the assessee, has in fact relevant even after almost four years of operations. The TPO is directed to examine the issue in the light of various factors like cost audit report, data of comparables in similar business, agreement between the assessee and its AE and Non-AE customers. The assessee is directed to come forward with a substantial explanation along with corroborative evidence to substantiate its claim, as a substantial time period has already been crossed and the claim of the assessee depends crucially on time factor. In view of the above, ground nos. 2(a) to 2(e) raised by the assessee are allowed for statistical purposes only. 6. Ground nos. 3(a) and 3(b) pertains to provisions no longer required, written back. This issue also discussed by the Coordinate Benches in their earlier orders in A.Y. 2007-08 and A.Y. 2015-16. It is brought to our notice tha....
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....also to be excluded for the purposes of comparison. We have gone through the relevant orders on this issue and respectfully follow the order of the Coordinate Bench's in A.Y. 2015-16. In view of the above, matter is set aside to the file of the TPO with direction to exclude the relevant expenses after giving a proper opportunity of being heard to the assessee and the assessee is directed to come forward with relevant details required by the TPO. In view of this, ground nos. 5(a) & 5(b) are allowed for statistical purposes only. 10. As the issue raised in ground nos. 6(a) & 6(b) is concerned, are similar to what we have discussed and adjudicated in para 9 (supra), our directions will apply mutatis mutandis here also. In view of this, ground nos. 6(a) & 6(b) are allowed for statistical purposes only. 11. Ground nos. 7(a) to 7(e) are nothing but the duplication of ground nos. 2(a) to 2(e), already discussed and decided (supra) vide para 5, hence the same need not be adjudicated again, hence our findings w.r.t. ground nos. 2(a) to 2(e) will apply mutatis mutandis for ground nos. 7(a) to 7(e) also. In view of this, ground nos. 7(a) to 7(e) are allowed for statistical purposes only....
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....15 and A.Y. 2015-16 be followed. The relevant extract from the Coordinate Bench's direction for A.Y. 2014-15 (para 12) is as under - "Since the primary issue is remitted to the file of the TPO, we also direct the TPO to examine the issue of necessity of granting custom duty adjustment in light of the principle laid down by the jurisdictional Tribunal in the case of Doowon Automotive Systems India Pvt Ltd [IT(TP)A.NO.7/Chny/2018." 16. In view of the above, we follow the decision of the Coordinate Bench in the case of the assessee for A.Y. 2014-15 and restore the matter back to the file of the TPO for reconsideration of the matter in the light of Doowon Automotive Systems India Pvt Ltd [IT(TP)A.NO.7/Chny/2018. The additional ground no. 2 raised by the assessee is allowed for statistical purposes only. 17. Additional Ground No. 3 - Alternate ground on provision for obsolescence. AO disallowed the provision for obsolescence. While Coordinate Bench for A.Y. 2015-16 had disallowed the provision for obsolescence. The Ld. CIT (A) allowed the provisions for obsolescence as allowable expense. Coordinate Bench for A.Y. 2015-16 order has, however allowed the alternate ground for....
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....ch, the collated relevant screenshots/extracts from the paper book submission pertaining to each of the pages referred to herein have been compiled and enclosed as Annexure 5. Likewise, the manner of sales to AEs was specifically explained at Pg. 1221, PB Vol. III. 19. Accordingly, the observation that the role of AEs or the manner of sales has not been clarified is contrary to the material available on record. Without prejudice, relying on the Coordinate Bench's order in the Appellant's own case for A.Y. 2015-16. The relevant extract from the Coordinate Bench's ruling in Appellant's own case for A.Y. 2015-16 (para 24) on this ground is as follows- "Since we have already remitted the main issue in relation to redetermination of margin of the Assessee in manufacturing segment, we feel that in the interest of justice and fair play that the allocation between the AE segment and the Non-AE segment could also be remitted back to the file of the TPO for re-examination. It is the bounden duty of the Assessee to clarify each and every point raised by the TPO as well as by the ld. CIT (A) and furnish necessary document to substantiate its stand in case, if the TPO is satisfied w....
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....ent..." 24. From the above section, while section 43A of the Act overrides section 36(1) (ii) of the Act, it is only to the extent of foreign exchange difference in respect of imported assets (assets acquired from a country outside India). However, in respect of the capital assets acquired domestically/indigenously out of the ECB proceeds, the provisions of section 43A of the Act are not applicable, as the exchange differences arise on translation/repayment of a foreign currency loan attributable to the acquisition of domestic capital assets. The Company submits that the rationale for availing ECBs was to reduce the incurrence of interest costs. Therefore, the resultant foreign exchange fluctuation loss arises from the borrowing transaction and not from the acquisition of the capital assets. Given the same, the consequent foreign exchange fluctuation loss assumes the character of revenue expenditure and shall be a deductible expenditure. 25. Further to the above, the Chennai Tribunal ruling in the case of Hyundai Motor India Limited v. DCIT [2017] 81 taxmann.com 5 (see page 220-222 of CIT (A) order) wherein it was held that foreign exchange losses recognized in accordance wit....
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.... or 43A of the Act. 28. In this regard, in Appellant's own case for AY 2014-15 (IT(TP)A No. 42/Chny/2023 - para 22), the Coordinate Bench restored the matter to the file of the Assessing Officer with a direction to verify whether the relevant assets were acquired domestically and had been put to use. The Coordinate Bench further directed the AO to adjudicate the issue in accordance with the ratio laid down by the jurisdictional Coordinate Bench in the case of Hyundai Motor India (Supra). The relevant extract of the Coordinate Bench's order is reproduced below: "Respectfully following the same, we remit this issue to the file of the AO for fresh adjudication for bringing on record the facts such as the whether the assets were purchased in India and it has already been put to use and then decide this issue in light of the ratio laid down by jurisdictional Tribunal in the case of Hyundai Motor India Ltd Vs DCIT [2017] 81 taxmann.com 5. Hence, the corresponding ground is allowed for statistical purposes." 29. Hence, Department's ground on this issue is dismissed, as the issue in earlier year was set-aside for fresh adjudication and there is nothing on record, which negat....
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.... A.Y. 2014-15 Para 27-28 Annexure 2 A.Y. 2013-14 Para 9 Annexure 3 A.Y. 2010-11 Para 5.1-5.2 Annexure 4 A.Y. 2008-09 Para 5.1 Annexure 5 35. The Ld. DR submitted a note referring to the Delhi High Court judgment in the case of Centrica Offshore. This judgment has also been taken cognizance of by the Hon'ble Tribunal in assessee own case and the argument of the Ld. DR has been rejected. The relevant extract from the ITAT's direction for A.Y. 2015-16 is as under: "48. Ground Nos.5, 5.1 & 5.2 The AO disallowed the reimbursement as according to him it is in the nature of "fees for technical services". The ld. CIT (A) allowed the same basis the fact that tax has already been deducted TDS u/s. 192 of the Act and also by following the Tribunal decision in Assessee's own case for AY 2008-09. The Ld. DR vehemently argued that employees are that of the overseas entity and as such deduction of tax at source u/s. 192 has no relevance. In this regard, the Ld. DR relied on Delhi High Court decision in the case of Centrica India Offshore Ltd 374 ITR 336 and SLP dismissed by the Hon'ble Supreme Court. 49. We have heard the rival contentions and....