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Income Tax Appellate Tribunal, DELHI BENCH “I-1”, NEW DELHI
Before: SH. N.K.SAINI & SH. SUDHANSHU SRIVASTAVA
O R D E R PER BENCH : is the department’s appeal against order dated 29/05/2015 passed by the Ld. CIT (Appeals), XLIV, 5158/Del/2015 is the assessee’s cross appeal for the same year.
The brief facts of the case are that the assessee company is engaged in the business of manufacture of Chocolates and Confectionery Products. The return of income was filed declaring loss of Rs. 13,13,83,846/-. As the assessee company had entered into International Transactions related to purchases from the Associated Enterprises, a reference was made to the Ld. Transfer Pricing Officer (TPO) and the Ld. TPO recommended an upward adjustment of Rs. 15,20,75,072/- with regard to the Arms’ Length Price (ALP). The assessment was completed at an income of Rs. 2,09,81,026/- after making the Transfer Pricing Adjustment of Rs. 15,20,75,072/- and also after making a disallowance of 10% from miscellaneous expenses.
2.1 Aggrieved, the assessee approached the Ld. CIT (A) who, vide the impugned order, partly allowed the assessee’s appeal. The Ld. CIT (A) upheld the action of the AO in holding that the custom valuation of the imported goods could not be used as CUP for benchmarking purchases made from Associated Enterprises. The Ld. CIT (A) upheld the application of TNMM method in this regard TPO in retaining certain comparables but directed inclusion of certain comparables as contended by the assessee. Apart from this, the Ld. CIT (A) also gave relief to the assessee by directing the Ld. TPO to exclude foreign exchange loss while computing the operating profit of the assessee. The Ld. CIT (A) held against the assessee with respect of claim for adjustment on account of incremental loss associated with import of goods and held that import duty adjustment could not be allowed. The Ld. CIT (A), however, held in favour of the assessee with respect to assessee’s claim of working capital adjustment and directed the Ld. TPO to grant working capital adjustment based on OECD formula and by taking 10.25% as the Prime Lending Rate (PLR). The Ld. CIT (A) held against the assessee by holding that capacity utilization could not be given to the assessee. Similarly the Ld. CIT (A) also upheld the action of the AO in disallowing the assessee’s claim for risk adjustment. Further, the Ld. CIT (A) held in favour of the assessee by directing the TPO to restrict the Transfer Pricing Adjustment only to the international transactions with the Associated Enterprises instead of the entire operating cost. The Ld. CIT (A) also dismissed the assessee’s request benefit of +/- 5% could not be allowed to the assessee as it was not a standard deduction to be allowed in each and every case. Further, the disallowance with respect to miscellaneous expenses was restricted to Rs. 50,000/- as against Rs. 2,39,000/- disallowed by the AO. The AO was also directed to consider the loss as per the revised return and re-compute the income as per the loss declared in the revised return.
2.2 Aggrieved with the impugned order of the Ld. CIT (A), the department as well as the assessee is in appeal before the ITAT.
The assessee has raised numerous grounds of appeal challenging the upholding of disallowances with respect to the transfer pricing adjustment by the Ld. CIT (A) whereas the department, in its sole ground, is challenging the action of the Ld. CIT (A) in directing the Ld. TPO to grant working capital adjustment based on OECD formula and by taking 10.25% as the Prime Lending Rate.
None was present on behalf of the assessee when the appeal was called out for hearing nor was any application for adjournment received on behalf of the assessee. A perusal of the order sheet entry shows that this appeal was earlier fixed for hearing on It is apparent that the assessee is not interested in pursuing its appeal and, therefore, we have no option but to dismiss the assessee’s appeal for want of prosecution. Support is drawn from the order of Tribunal in CIT vs. Multi Plan India (P) Ltd. reported in 38 ITD 320 (Del.) and of the Hon’ble M.P. High Court in Estate of Late Tukojirao Holkar vs. CWT reported in 223 ITR 480 (MP).
Accordingly, the assessee’s appeal stands dismissed.
Arguing for the department’s appeal, the Ld. Sr. Departmental Representative submitted that the Ld. CIT (A) had erred in directing the AO/TPO to grant working capital adjustment based on OECD formula. He submitted that the Ld. CIT (A) did not consider the facts of the case in the right prospective and had allowed the benefit of working capital adjustment, although the same was not allowable to the assessee. The Ld. Sr. DR prayed that the directions of the Ld. CIT (A) should be reversed and that of the AO restored.
We have heard the Ld. Sr. DR and have also perused the impugned order as well as the material on record. We find that this issue has been elaborately discussed by the Ld. CIT (A) in agreement. Further, the revenue’s stand that the assessee is ineligible for any adjustments if he provides the set of comparable is not correct because under Rule 10(3) it is the duty of the AO/TPO/DRP to minimize/eliminate the difference which is likely to materially affect the price. It is the settled proposition that ‘working capital’ adjustment is an adjustment that is required to be made in TNMM. Allowability of working capital adjustment has been upheld by the various Benches of the ITAT. ITAT Delhi has held working capital adjustment to be allowable in the cases of Mentor Graphics reported in 109 ITD 101 (Del) and Sony India reported in 114 ITD 448 (Del). Therefore, in view of the settled judicial precedents and further in view of the fact that the Ld. Sr. DR could not point out any legal infirmity in the direction of the Ld. CIT (A) for allowing working capital adjustment, we are unable to agree to the contentions of the Ld. Sr. DR and we find no reason to interfere with the findings of the Ld. CIT (A) on this issue. We dismiss the grounds raised by the department.
In the result, the department’s appeal stands dismissed.
In the final result, the assessee’s appeal as well as the department’s appeal stand dismissed.
(Order pronounced in the open court on 14th August, 2018).