HOYA LENS INDIA PRIVATE LIMITED,MUMBAI vs. DEPUTY COMMISSIONER OF INCOME TAX 15(2)(1), MUMBAI

The appeal is barred by limitation by six days. The assessee has moved an application requesting the Bench to condone the delay. It is stated therein that the documents were given to a firm of the Chartered Accountants for filing the appeal and the appeal papers could not be filed in time due to intervening holidays. The Learned AR reiterated the submissions made in the affidavit and also submitted that the appeal fee was, however, paid by the assessee within the due date. Accordingly he prayed that the marginal delay in filing the appeal may be condoned.

We have heard learned DR on this preliminary issue. Having regard to the submissions made in the affidavit filed by the assessee as well as submissions made by learned AR, we are of the view that there is reasonable

The assessee is contesting the transfer pricing adjustment of ` 896.91 lakhs made by the TPO and confirmed by the learned CIT(A).

The assessee is engaged in the business of manufacturing/processing of spectacle lenses. It also trades in imported spectacle lenses. The assessee is an Associated Enterprises (AE) of Japanese company. The assessee followed cost plus method for benchmarking manufacturing/processing transactions and resale price method for trading transactions. The assessee adopted operative profit/operative revenue as profit level indicator. The TPO, however, adopted operating profit/operating cost as profit level indicator and proposed adjustment of ` 896.91 lakhs. The AO added the same to the total income declared by the assessee. The learned CIT(A) also confirmed the same and hence the assessee has filed this appeal before us.

The Learned AR submitted that there is computational error in the working made by the TPO. Even as per the method adopted by him the transfer pricing adjustment will work out to ` 780.18 lakhs only as against ` 896.91 lakhs proposed by him. Even though the said mistake was pointed out to the learned CIT(A) and was also appreciated by him, yet he did not give any relief in this regard, i.e., he has confirmed the transfer pricing adjustment of ` 896.91 lakhs made by the TPO.

The Learned AR submitted that the assessee has given three comparables for manufacturing segment and one comparable for trading segment. The TPO has accepted all comparables but proceeded to computing arm’s length price by adopting operative profit/operative cost and also without considering the following adjustments requested by the assessee: (a) adjustment for startup phase of operation. (b) adjustment for abnormal expenses.

On the contrary, the learned DR submitted that Rule 10B(1)(b) of the I.T. Act relating to resale price method and Rule 10B(1)(c) relating to cost plus method do not provide for adjustment as sought by the assessee. Learned DR further submitted that the assessee has paid huge management fees to its associated enterprises and hence the assessee has incurred loss.

In the rejoinder, learned AR submitted that the assessee has furnished a letter dated 15.12.2014 before the TPO, wherein it was pointed out that certain expenses has been accounted twice in the computation and certain non- operating expenses have not been excluded. He submitted that the assessee has also pointed certain abnormal expenses and certain abnormal events like reversal of sales. He submitted that the assessee has also claimed that it is incurring losses, since it is still in the starting phase. Hence the assessee has sought for adjustments for the above said exceptional items.

We have heard the rival contentions and perused the record. We have gone through the provisions of Rule 10B(1)(b) as well as Rule 10B(1)(c) of the Act. Both the provisions specifically state that price arrived at under both method is adjusted to take into account the functional and other difference, including difference in accounting practice, if any, between international transactions. The “other differences” referred in those provisions should, in our view, include abnormal items, if any. Hence subject to verification of the claim of the assessee, in our view, adjustment sought by the assessee should be considered on its merits. The assessee has also claimed deduction towards start up phase adjustment. However we notice that the assessee could not substantiate the said claim with any credible material. The TPO has observed that the assessee company has stated its operation in the year 2006 and accordingly, it has got about four years of experience in this field. Before us also, the assessee could not provide any material to show that it is continue to 4 M/s. Hoya Lense India Pvt. Ltd.

With regard to adjustment claimed towards abnormal items, we have already held that the same is required to be considered on merits. Accordingly this claim of the assessee requires examination at the end of the Assessing Officer/TPO. Accordingly, we set aside the order passed by the learned CIT(A) on this issue and restore the same to the file of the Assessing Officer/TPO to examine the said claim of the assessee. In the set aside proceedings, the Assessing Officer/TPO should also consider the mistakes pointed out by the assessee with regard to computation made by the TPO.

The next ground relates to non adjudication of ground No. 2 urged before the learned CIT(A). We notice that the said ground relates to non- adjustment of brought forward business loss of earlier years. Since this matter requires examination at the end of the Assessing Officer, we deem it proper to restore this issue to the file of the Assessing Officer/TPO for examining the same in accordance with law.

The ground No. 3 relates to charging of interest u/s. 234B of the Act. Since it is consequential in nature, the same does not require adjudication.

In the result, appeal filed by the assessee is treated as partly allowed. Order has been pronounced in the Court on 8.8.2018.