TaxTMI 
TaxTMI 
2026 (9) TMI 841
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....ounds in the instant appeal: "The grounds mentioned herein are without prejudice to one another. These grounds represent the grievances of the Appellant against the order dated 27 March 2015 passed by the leamed Assessing Officer ('Ld. AO') under section 143(3) read with section 144C and section 254 of the Income-tax Act, 1961 ("Act") in pursuance of the order dated 08 August 2013 passed by the Hon'ble Income-tax Appellate Tribunal, Ahmedabad and the directions dated 25 March 2015 issued by the learned Dispute Resolution ("Ld. DRP") in respect of matter stated in enclosed grounds of appeal. 1. That the order of the Ld. AO, pursuant to the directions dated 25 March 2015 issued by the Ld. DRP, to the extent detrimental to the Appellant, is perverse, erroneous on facts and bad in law and has been passed in violation of the principles of natural justice. Grounds on Transfer Pricing issues: General Grounds 2. That the order of the learned Additional Commissioner of Income-tax Transfer Pricing-1. Ahmedabad (hereinafter referred to as the learned Transfer Pricing Officer, "TPO") passed under section 92CA of the Act, the subsequen....
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....TPO /Ld. AO/Hon'ble DRP erred in law and on facts and circumstances of the case, in determining the adjustment of INR 29,509,744 in the Lighting division (Distribution segment) of the Appellant on the basis of following 8.1. Erred in making an adjustment to the complete segment which also includes transactions with external parties and not restricting the adjustments proportionate to international transactions. 9. Power Controls Division (Manufacturing segment) That the Ld. TPO/Ld. AO/Hon'ble DRP erred in law and on facts and circumstances of the case, in determining the adjustment of INR 1,68,97,082 in the Power Controls Division (Manufacturing Segment) of the Appellant on the basis of following: 9.1. Erred in applying modified turnover filter, considering the data of only FY 2006-07 only and selecting only 5 comparables from the set of comparable identified by the assessee. 9.2. The Hon'ble DRP has erred in rejecting alternate economic analysis carried out by the. Assessee by considering associated enterprises as the tested party and not considering the transfer pricing followed by the group. 9.3. Erred in making a....
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....nd replacement expenses' was made without any basis and without any technical evaluation or past experience. 13.3 Without prejudice to grounds 13.1 and 13.2 above, the Ld. AO erred in restricting the allowance of warranty provision utilized to the extent of provision for warranty made during the year. 14.1 That, on the facts and circumstances of the case and in law, the Ld. AO erred in making disallowance of Rs. 71,82,595 on account of utilisation of provision for foreseeable losses which was disallowed in earlier years. 14.2 That, on the facts and circumstances of the case and in law, the Ld. A.O. erred in ignoring established facts of the case and not following the direction of Hon'ble ITAT, Ahmedabad in respect of the claim of utilisation of provision for foreseeable losses. 15. That, on the facts and circumstances of the case and in law, the Ld. AO erred in disallowing the claim of bad debts of Rs. 2,31,09,143 written off from the profit & loss account. 16. That, on the facts and circumstances of the case and in law, the Ld. AO erred in disallowing the claim of expenditure of Rs. 11,16,49,202 incurred for purchase of business....
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....4. Next comes the first and foremost issue between the parties in light of the assessee's 6th substantive ground that both the learned lower authorities have erred in law and on facts in rejecting its turnover filter thereby applying the turnover threshold limit of 50% less than the turnover(s) of the respective divisions, namely, is lighting, power control and wind divisions involving varying sums. We are taken to the learned Dispute Resolution Panel "DRP" directions dated 25.03.2015 deciding the issue in the department's favour as under: "2.4 Directions of DRP The assessee has objected to the action of the TPO in applying the filter of manufacturing turnover of 50% of assessee's turnover for the manufacturing function of the Power Control division. According to the assessee, the turnover filter is of no relevance in the case of an entrepreneur being compared to an entrepreneur, as there may be varying business strategies and policies that cannot be evaluated. The assessee has selected all companies having manufacturing turnover above Rs. 10 crores without any satisfactory basis or reason for selecting the said benchmark. The selection of the aforesa....
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....rolled companies is found out, then we should not have any grudge against application of turnover filter. A small number of more comparable companies are better than a big number of uncontrolled companies which are less comparable. Turnover filter, especially in manufacturing unit is considered necessary in view of the concept of economies of scale. As a unit gets bigger and bigger, which may be identified on the basis of turnover the profit margin goes up compared to smaller companies because of economies of scale which comes into play. In view of the above discussion this DRP has no hesitation in upholding this turnover filter" 5. It is in this factual backdrop that the assessee quotes (2015) 376 ITR 183 (Delhi) Chryscapital Investment Advisors (India) Pvt. Ltd. v. Deputy Commissioner of Income Tax that an entity could not be simply directed to be excluded for its turnover volume or abnormal profits in such an instance of applicability of the Transactional Net Margin Method "TNMM" as the right approach to accurate adjustments going by Rule 10B(2)(e) r.w. clause (ii) & (iii) thereof, reading as under: "30. The reasoning adopted in various judgments noticed above, shows....
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....nsaction is to be seen with reference to functions performed as provided in sub-rule (2)(b) of rule 10B read with sub-rule (1)(e) of that rule after taking into account assets employed or to be employed and the risks assumed by the respective parties to the transaction. As noticed earlier, Rule 10B(3) mandates that a given or select uncontrolled transaction selected in terms of Rule 10B(2) "shall be comparable to an international transaction" if none of the differences, if any, between the compared transactions, or between enterprises entering into such transactions "are likely to materially affect the price or cost charged or paid or the profit arising from such transaction in the open market or reasonably accurate adjustment can be made to eliminate the effects of such difference." 32. Now, the sequitur of Rule 10B (2) and (3) is that if the comparable entity or entity's transactions broadly conform to the assessee's functioning, it has to enter into the matrix and be appropriately considered. The crucial expression giving insight into what was intended by the provision can be seen by the use of the expression: "none of the differences, if any, between the transa....
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....nsel at this stage seeks to buttress the point that such an "ALP" computation ought to be limited to the assessee's international transactions with the Associated Enterprises "AE" than taken in all the relevant segments. His further case is that that the assessee deserves arithmetic mean margin benefit as well. Case law Commissioner of Income Tax v. Keihin Panalfa Ltd. (2016) 381 ITR 407(Del) is also quoted in support that we ought to restrict the impugned adjustments only qua those international transactions which had been executed with the AEs. We find merit in the assessee's foregoing submissions and direct the learned TPO to finalize his consequential computation as per law in very terms. 8. Mr. Jolly further invites our attention to the assessee's 10th substantive ground that the learned lower authorities have further erred in law and on facts whilst considering only those receipts/expenses which are part of operating revenue, namely, amortization of goodwill, bad debts and legal expenses. He quotes (2021) 133 taxmann.com 519 (Del-Trib), DHR Holdings India Pvt. Ltd. Vs. JCIT that amortization of goodwill is to be treated as abnormal and non-recurring expenses liable to be e....
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....dicial consistency to delete the impugned disallowance(s) therefore. 12. The assessee's 14th substantive ground is directed against the disallowance of provision for unforeseeable losses made in the lower proceedings amounting to Rs. 71,82,591/-. Learned senior counsel's case is that the sum represents its reversal which had been disallowed in AY 2005-06 wherein the issue got settled in the "vivad se vishwas scheme". That being the case, we direct the learned Assessing Officer to finalize his afresh computation after verification of these clinching facts in consequential proceedings at the assessee's risk and responsibility. This 14th substantive ground is allowed for statistical purposes. 13. The assessee's 15th substantive ground raises the next issue of bad debts disallowance of Rs. 2,31,09,143/- made in the lower proceedings for the reason that it failed to satisfy the corresponding condition under section 36(i)(vii) and 36(ii) of the Act. We are informed that it has already succeeded on the very issue in AY 2011-12 (supra) in para 68 to 75 thereof. Deleted in very terms therefore. 14. The assessee's 16th substantive ground is that the learned lower authorities have er....
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.... 18. The assessee's all other remaining grounds nos. 21 to 24 are treated as consequential in nature. No other ground or argument has been pressed before us. 19. The assessee's instant "lead" appeal ITA No.3695/Del/2015 is partly accepted in the foregoing terms. ITA No.2781/Ahd/2012 AY: 2008-09 20. It transpires at the outset during the course of hearing that this is the "second" round of proceedings between the parties before the tribunal. We are fairly informed that earlier coordinate bench's order dated 04.12.2018 had partly allowed assessee's instant appeal. It thereafter filed miscellaneous application M.A. No. 161/Del/2019 that its 3rd, 10th to 11th and 15th to 16th substantive grounds remained unadjudicated. Learned coordinate bench's order dated 14.09.2021 accepted the same. We are now dealing with the aforesaid 3rd, 10th to 11th and 15th to 16th substantive grounds only in the instant second round of proceedings therefore. 21. That being the case, the assessee 3rd substantive ground raised herein seeks to reverse the learned lower authorities' action disallowing its warranty and replacement expenses of Rs. 5,27,13,406/- which already stand accepted in AY ....