OWENS-CORNING (INDIA) PRIVATE LIMITED (FORMERLY KNOWN AS OWENS-CORNING (INDIA) LIMITED),MUMBAI vs. ASSISTANT COMMISSIONER OF INCOME TAX RANGE 7(3)(1), MUMBAI

The appellant before us is a company incorporated under the provisions of the Companies Act, 1956 and is, inter-alia, engaged in the business of manufacture and trading of fibre glass products. For the assessment year under consideration, it filed a return of income declaring a total income of Rs.41,61,49,410/-, which was subject to scrutiny assessment whereby the total income has been assessed at Rs.62,89,21,060/- in an order passed u/s 143(3) r.w.s. 144C(13) of the Act dated 23.08.2017. Being aggrieved with the enhancement of the returned income, assessee is in appeal before us on the abovestated Grounds of appeal.

Insofar as Grounds of appeal no. 1.1 to 1.7 are concerned, the same are in relation to an addition of Rs.19,21,38,016/- made by the Assessing Officer on account of a transfer pricing adjustment. In this context, the relevant facts are that the appellant is a subsidiary concern of IPM Inc.,

It is noted from the order of the TPO that assessee had entered into varied international transactions in the manufacturing segment, trading segment as also in commission segment. The dispute between the assessee and the Revenue relates only to the ‘international transactions’ entered in the manufacturing segment whose details have been enumerated by the TPO in para 5 of his order. Notably, assessee aggregated different transactions under the manufacturing segment while benchmarking the same in its Transfer Pricing Study report, an aspect on which there is no Owens-Corning (India) Pvt. Ltd.

Before us, the assessee has urged various issues in Grounds no. 1.1 to 1.7 with respect to the adjustment of Rs.19,21,38,016/- made to the manufacturing segment, but at the threshold, a plea was raised with respect to Grounds of appeal no. 1.3 and 1.4. The two Grounds are with regard to Additional Ground of objection raised by the assessee before the DRP, which is to the effect that the amount of fixed assets written-off of Rs.9,06,80,292/- is not a part of its operating costs and the same cannot be considered to compute its margin for carrying out the comparability analysis with the margin of selected comparables. It has been canvassed before us

On the other hand, the ld. DR opposed the plea of the assessee by referring to the discussion made by the DRP. According to him, the DRP had brought out that the Additional objection raised by the assessee could not be entertained as it was raised at the fag end of the proceedings; that in the absence of details of the assets written-off, the claim could not be verified. The ld. DR also referred to an observation of the DRP that in the absence of the relevant details, it was not clear as to whether any depreciation on such assets was allowed in this year or not. For all the above reasons, the plea of the assessee has been opposed by the ld. DR.

In reply, the learned representative pointed out that the Additional objection raised before the DRP does not require any additional/fresh evidence and that it was possible to decide the matter on the basis of available material on record. Further, it is pointed out that the Assessing Officer has himself not taken note of the amount of fixed assets written-off while computing the total income in the assessment order. In other words, according to the appellant, the said amount has not been taken as deduction while computing the income and, in this context, he referred to the ‘business income’ computed by the assessee in its computation of income at Rs.41,61,49,407/-, a copy of which is placed at page 25 of the Paper Book. It is explained that the aforesaid figure has formed the basis for the Assessing Officer to start the computation of income in para 17 of the assessment order. Therefore, in this manner, it is canvassed that once an amount has not been taken into consideration to arrive at ‘business income’, it could not be taken as part of operating costs for the purposes of computing the segmental margin of one of the segments. Insofar as the plea of ld. DR on Owens-Corning (India) Pvt. Ltd.

We have carefully considered the rival submissions. In our view, the impugned sum cannot be construed as part of operating costs for the purpose of arriving at the margin of assessee’s manufacturing segment. The said proposition is amply supported by the earlier decisions of our coordinate Benches in the case of Thyssenkrupp Industries India (P.) Ltd. (supra) as well as Claas India Pvt. Ltd. (supra). Moreover, factually speaking, it is quite clear that though the assessee had debited the fixed assets written-off of Rs.9,06,80,292/- in the Profit & Loss Account, but while computing income for the purposes of income-tax, the said amount has been added back and this aspect is also accepted in the assessment order. In para 17 of the assessment order, the Assessing Officer while computing the total income under the normal provisions of the Act has started with the figure of Rs.41,61,49,407/-, which is the ‘business income’ computed by the assessee in its return after adding back the element of fixed assets written- off of Rs.9,06,80,292/-. This feature further strengthens the argument of the assessee that the impugned sum cannot be construed as a part of operating costs of the manufacturing segment for the purpose of carrying out comparability analysis in order to determine the ALP of the international transactions. In the course of hearing, it was also put across to the assessee as to whether similar treatment is also meted out in the case of the four comparable concerns whose arithmetic mean has been arrived at by the TPO at 8.07%. In response, the appellant had furnished a working of the margin of each of the four comparables to point out that even after considering the element of fixed assets written-off as non-operating costs in each of the four

Considering all these aspects, in our view, the DRP erred in not considering the Additional plea sought to be raised by the assessee. The DRP, in our view, wrongly noted that the new plea would require admission of any fresh evidence. In fact, all that is required to verify the Additional plea is the examination of the existing material available on the records of the Assessing Officer. Therefore, in our view, there was no justification on the part of the DRP not to admit such a plea. The other objections referred by the ld. DR before us are also not germane and, in any case, the same have been effectively met out by the learned representative before us. Thus, we find no merit in the stand of the Revenue to oppose the aforesaid Additional plea of the assessee.

As per the working submitted, if the element of fixed assets written- off of Rs.9,06,80,292/- is excluded from the operating costs, the reworked margin of the assessee would be as under :-

Thus, the margin of assessee’s manufacturing segment is liable to be adopted at 5.33% as against 2.62% considered by the TPO. Once it is compared with the margin of the comparables adopted by the TPO at 8.07%, the difference, in our view, is within the variation of + 3% permissible in terms of the second proviso to Sec. 92C(2) of the Act and, therefore, necessity of any adjustment to the stated value of international transactions is obviated. Therefore, on the basis of Grounds no. 1.3 and 1.4, the claim of assessee is allowed and the Assessing Officer is directed to delete the addition of Rs.19,21,38,016/- made to the returned income on account of transfer pricing adjustment. Pertinently, so far as the other pleas on this aspect raised by way of Grounds of appeal no. 1.1, 1.2, 1.5, 1.6 and 1.7 are concerned, they are rendered academic since assessee has already succeeded in seeking deletion of the addition in terms of Grounds 1.3 and 1.4 above and, therefore, they are not being adjudicated for the present.

Insofar as Ground of appeal no. 2 is concerned, the same relates to the claim of amortisation of premium paid for leasehold land of Rs.20,14,932/-. It is noticed that the Assessing Officer disallowed the claim by relying on the decision of the Special Bench of the Tribunal in the case of Joint Commissioner of Income Tax vs Mukund Ltd., (2007) 106 ITD 231 (Mum) as also the stand of the assessing authority in assessee’s own case for the earlier assessment years. Before us, it was pointed out that the lead year of dispute on this aspect was Assessment Year 2001-02, wherein the Tribunal in assessee’s own case vide dated 19.11.2008 decided the issue against the assessee. In Assessment Year 2004-05 also, vide ITA No. 461/Mum/2009 dated 16.03.2011 the said issue has been decided against the assessee. The learned representative for the Owens-Corning (India) Pvt. Ltd.

In Ground of appeal no. 3, the dispute pertains to depreciation of Rs.20,75,940/- disallowed by the Assessing Officer out of total depreciation claim of Rs.21,83,10,119/-. The facts relevant to the partial disallowance of depreciation are as follows. It was noted by the Assessing Officer that in Assessment Year 2006-07, depreciation in respect of ‘addition to fixed assets’ of that year was disallowed since assessee had failed to produce supporting documents for verification. The Assessing Officer also noted that appeal of the assessee against the denial of depreciation for Assessment Year 2006-07 was also dismissed by the CIT(A) and further appeal of the assessee was pending before the Tribunal. Considering the consequential effect of the disallowance made in Assessment Year 2006-07, the Assessing Officer scaled down the depreciation claimed in this year by a sum of Rs.20,75,940/-, which is sought to be assailed by the assessee before us.

On the other hand, the ld. DR appearing for the Revenue has defended the action of the Assessing Officer.

Having considered the rival stands, in our view, the lead year of dispute is Assessment Year 2006-07. In Assessment Year 2006-07, the depreciation in respect of ‘addition to fixed assets’ made in that year has not been allowed by the income-tax authorities and the said position continues to prevail till now. In this view of the matter, in our view, the Assessing Officer made no mistake in giving consequential effect and scaling down assessee’s claim for depreciation in this year. We are inclined to uphold the stand of the Assessing Officer with a caveat that if the position of assessee’s claim of depreciation for Assessment Year 2006-07 is altered by any higher authority in favour of the assessee, the consequential relief be allowed to the assessee in the instant assessment year also. With these remarks, we hereby affirm the ultimate decision of the Assessing Officer and accordingly, assessee fails on this aspect.

Insofar as Ground of appeal no. 4 is concerned, the same relates to assessee’s claim of depreciation @ 60% on computer software as against 25% allowed by the Assessing Officer.

The last Ground in this appeal is with regard to disallowance of Provisions for legal and professional fee of Rs.93,50,000/- and Power and fuel expenditure of Rs.47,62,500/-. In this context, the relevant discussion contained in para 10.4 of the assessment order reveals that the Provision for expenses, included Provision for legal and professional expenses of Rs.93,50,000/- and Power and fuel expense of Rs.47,62,500/-. It is further noted by the Assessing Officer that in the absence of any basis of estimation of the above Provisions, it could not be proved that the corresponding services have been received by the assessee during the year under consideration. Thus, in the absence of supporting evidence, the Assessing Officer also doubted the genuineness of the claim and finally, he has disallowed the same u/s 37(1) of the Act.

Before us, the only plea raised by the assessee is that the aforesaid Provisions have been made in the books of account on an estimated basis pending the receipt of actual bills, which were received by the assessee in the subsequent financial year. The learned representative also pointed out that it is only on the receipt of the bills in the subsequent year that assessee has deducted the requisite tax at source and made the payments to the vendors/parties. In this background, the only point sought to be canvassed

In our considered opinion, insofar as the case made out by the Assessing Officer to disallow the impugned Provision of expenses is concerned, the same is fair and proper as nothing cogent has been led by the assessee to counter the findings contained in para 10.4 of the assessment order. Thus, the disallowance made by the Assessing Officer u/s 37(1) of the Act is hereby affirmed. Insofar as assessee’s plea for considering the claim in the subsequent year is concerned, the same be considered by the Assessing Officer in accordance with law as and when the claim is put forth by the assessee before him. Thus, we hereby affirm the said addition and accordingly, assessee fails on this aspect.

Resultantly, appeal of the assessee is partly allowed, as above.