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Income Tax Appellate Tribunal, PUNE BENCH “A”, PUNE
PER D. KARUNAKARA RAO, AM :
This appeal is filed by the Revenue against the order of CIT(A)-1, Nashik, dated 09-10-2015 for the Assessment Year 2009-10.
Grounds raised by the Revenue read as under : “1. Whether on the facts and in the circumstances of the case, the Ld.CIT(A)-1, Nashik is justified in deleting the addition of Rs.12,54,108/- on account of disallowance of depreciation on written down value of fixed assets. 2. Whether on the facts and in the circumstances of the case, the Ld.CIT(A)-1, Nashik is justified in giving relief of Rs.1,56,81,600/- directing the TP adjustment only on the value of International transaction Rs.27.04 crores, as the TPO has made adjustment of Rs.3,82,60,000/- on the entire sales of Rs.45.83 crores of the assessee. 3. The appellant prays the order of the Assessing Officer may be restored. 4. The appellant prays to adduce such further evidence to substantiate his case. 5. The appellant prays leave to add, alter, clarify, amend and or withdraw any grounds of appeal as and when the occasion demands.”
Briefly stated relevant facts are that the assessee company is
engaged in the business of manufacture of slack adjusters and brake
components used in braking systems. Assessee filed the original return of
income on 30-09-2009 declaring total loss of Rs.3,12,86,913/-. On finding
the existence of international transactions with AE, as per the rules, AO
referred the international transactions to the TPO for benchmarking
applying the provisions relating to Transfer Pricing. In the proceedings
u/s.92CA(3) of the Act, the TPO made the adjustment amounting to
Rs.3,82,60,000/-. Eventually, AO passed the order u/s.143(3) of the Act
on 26-03-3014 determining the total income at Rs.1,23,31,400/- against
the returned loss. In addition to the Transfer Pricing adjustments, AO also
made non-TP additions on account of Management Incentive Bonus Plan,
application u/s.40(a)(ia), disallowance of depreciation and on account of
Bad and Doubtful debts written off. Subsequently, in the First Appellate
Proceedings, CIT(A) gave part relief to the assessee. Aggrieved with the
order of CIT(A) the Revenue filed the present appeal before the Tribunal
with the grounds mentioned above. There is no appeal by the assessee.
Ground-wise adjudication of revenue’s appeal is given in the following
paragraphs.
Ground No.1 relates to deletion of the addition of Rs.12,54,108/- on
account of depreciation on written down value of fixed assets Assessee
submitted that during the A.Y. 2008-09 also, the similar issue of
depreciation on the assets was the subject matter in scrutiny proceedings.
For want of original bills and evidences, AO disallowed the claim of
depreciation on assets to the tune of Rs.16,99,760/-. The disallowance was
subsequently reduced to Rs.2,99,999/- in view of the order of the Tribunal
for the A.Y. 2008-09. The Tribunal granted relief in this regard to the
extent of Rs.13,99,761/-. However, in the A.Y.2009-10, i.e. the year under
consideration, the AO did not consider the said relief while computing the
allowable depreciation. AO considered the incorrect WDV without
considering the relief given by the Tribunal and disallowed the claim of
depreciation of Rs.12,54,108/- for the A.Y. 2009-10. However, after
considering the submissions of the assessee in the First Appellate
proceedings, Ld.CIT(A) relying on the decision of the Tribunal/CIT(A) for the
A.Y. 2008-09, deleted the entire addition as per the discussion in Para 6.2
of his order. Aggrieved with the same, Revenue filed the present appeal.
Ld. DR for the Revenue relied on the order of the AO dutifully.
Per Contra, Ld. Counsel for the assessee filed the written
submissions on the issue. The same are reproduced here as under :
“1. Ld. AO has followed preceding year’s assessment order for A.Y. 2008- 09 wherein depreciation Rs.16,99,760/- was disallowed on the ground that each and every bill/voucher could not be given by the assessee in respect of additions to fixed assets in that year. The matter had come up before Hon’ble Pune Tribunal in Revenue’s appeal and the issue was remanded back to the AO for verification. (Kindly refer paper book page 11 para 15 of the order). 2. The AO has subsequent to the assessment of A.Y. 2009-10 passed order u/s.143(3) r.w.s.254 giving effect to the directions of Hon’ble Tribunal wherein on verification of records the original disallowance of depreciation of Rs.16,99,760/- has been reduced to Rs.2,99,999/- only (Kindly refer pages 4 & 5 para 5 of the order). In the remand dep. Allowed is Rs.13,99,761/-. 3. Since the disallowance of depreciation of Rs.12,54,108/- in the impugned A.Y. 2009-10 is emanating from the WDV of assets brought forward from the preceding A.Y. 2008-09 the disallowance needs to be reduced as a consequence of the factual verification and finding given by the Ld. AO for the preceding A.Y. 2008-09.”
We heard both the parties on this issue and perused the orders of the
revenue as well. On perusing the order of CIT(A) given at Para No.6.3 of his
order, we find it relevant to extract the same here as under :
“6.3 I have examined the facts of the case and the submissions made. The disallowance of depreciation Rs.16,99,760/- has been deleted by my predecessor vide Para 6.2 of his order dated 31-01-2014 in the case of appellant. The AO has disallowed depreciation of Rs.12,54,108/- in respect of addition to fixed assets made in the A.Y. 2008-09. Since the depreciation has been directed to be allowed in A.Y. 2008-09 in the appellate order, the AO is directed to delete the disallowance of depreciation in respect of those assets.”
From the above, it is evident that the disallowance of depreciation
claim relates back to the disturbed WDV figures for the A.Y. 2008-09. On
considering the same, CIT(A) deleted the addition. Once the correct WDV is
considered, the relief granted by the CIT(A) is proper. Therefore, we find the
order of the CIT(A) is fair and reasonable and does not call for any
interference. Accordingly, Ground No.1 raised by the Revenue is dismissed.
Ground No.2 relates to allowing of the proportionate computing of the
Transfer Pricing adjustment, i.e. restricting the adjustments if any to the
international transactions only (Rs.27.04 crores) and not to extend to the
entire sales of the assessee for the year (Rs.45.83 crores). The TPO
computed the PLI of the assessee on the entire sales of the assessee
amounting to Rs.45.83 crores which includes the transactions other than
the transactions with AEs. The CIT(A) held that the TP adjustment is to be
computed only on the value of international transaction and accordingly,
the AO was directed to compute the TP adjustment only on the value of
international transaction, i.e. Rs.27.04 crores.
On this limited issue, Ld. DR for the Revenue relied on the order of
the TPO/AO. On the other hand, Ld. Counsel for the assessee submitted
the following written submissions and the said submissions read as under :
“1. The assessee is engaged in the business of manufacture and sale of Automatic and Manual slack and brake adjusters in the brake systems used in two wheelers and four wheelers in the automotive segment.
The International transactions consist of imports of material from the AE and royalty and Export sale of brake adjustors and components thereof to the AE. The exports enable the assessee to obtain duty free imports of material which are used in domestic (third party) manufacture and sales as well as in the exports. Domestic purchases (third party) are also used in production for exports as well as sales in domestic market. In the circumstances, it is not possible to work out the profitability of AE and non-AE segment of the assessee separately as well as of the external comparables chosen in the peer set. Law does not expect a person to do the impossible. (Lex non cogita d impossibilia). The legal proposition is upheld by Hon’ble SC in Krishnaswamy S. PD 281 ITR 305.
In the light of mixed nature of transactions and the impossibility to benchmark under TNMM the PLI of exports and domestic activities separately and also its comparison with uncontrolled comparables, proportionate adjustment is granted by Ld.CIT(A).
Issue is squarely covered in favour of the assessee by the decision of jurisdictional Bombay High Court in the case of Thyssen Krupp Industries India P. Ltd. reported in 381 ITR 413”
We heard both the sides on the issue of restricting the computation
of the TP adjustment in respect of international transactions of Rs.27.04
crores and not to the entire sales of Rs.45.83 crores involved in
computation of the said adjustments. We have also considered the orders
of the Revenue and the submissions of the assessee. We find it relevant to
extract the findings given by the CIT(A) at para 2.2.7of his order and
therefore, the same is reproduced hereunder for the sake of completeness :
“2.2.7 From the TP order, I find that the TPO has computed the PLI of the assessee @ (-) 2.60% whereas the mean PLI of the comparables is computed @5.75%. Though the TPO has mentioned that the adjustment is to be made only to the value of international transaction but in fact he has computed the adjustment on the entire sales of the assessee Rs.45.83 crores. This is not permitted. The AO/TPO is directed to compute the TP adjustment only on the value of international transaction Rs.27.04 crores. This ground is therefore allowed.”
From the above, it is evident that the TPO aims at the TP adjustment
on the value of the international transactions and however, in the
computation, the adjustments were extended to the entire sales of Rs.45.83
crores. Further, we have also considered the judgment of Hon’ble Bombay
High Court in the case of CIT Vs. Thyssen Krupp Industries India Pvt.
Ltd.(supra) relied upon by the Ld. Counsel for the assessee. We find the
Hon’ble High Court in similar circumstances has held as under :
“3. Re question (a). . . . . . . . . . . . (e) We find in terms of Chapter X of the Act, re-determination of the consideration is to be done only with regard to income arising from International Transactions on determination of ALP. The adjustment which is mandated is only in respect of International Transaction and transactions entered not by assessee with independent unrelated third parties. This is particularly so as there is no issue of avoidance of tax requiring adjustment in the valuation in respect of transactions entered into with independent third parties. The adjustment as proposed by the Revenue if allowed would result in increasing the profit in respect of transactions entered into with non-AE. This adjustment is beyond the scope and ambit of Chapter X of the Act.”
From the above excerpts of the order of CIT(A) as well as from the
judgment of jurisdictional High Court on this particular issue, we find the
order of CIT(A) is a well reasoned one and the same is in tune with the said
binding judgment of the jurisdictional High Court of Bombay. Therefore,
we hold that the order of CIT(A) on this issue does not call for any
interference. Accordingly, Ground No.2 raised by the Revenue is dismissed.
Ground Nos.3 to 5 raised by the Revenue are general in nature and
therefore they are dismissed as such.
In the result, appeal of the Revenue is dismissed.
Order pronounced on this 25th day of April, 2018.
Sd/- Sd/- (SUSHMA CHOWLA) (D.KARUNAKARA RAO) �ाियक सद� / JUDICIAL MEMBER लेखा सद� / ACCOUNTANT MEMBER पुणे / Pune; �दनांक Dated : 25th April, 2018. Satish
आदेश क� आदेश क� �ितिलिप �ितिलिप अ�ेिषत अ�ेिषत/Copy of the Order is forwarded to : आदेश आदेश क� क� �ितिलिप �ितिलिप अ�ेिषत अ�ेिषत
अपीलाथ� / The Appellant; 1. ��यथ� / The Respondent; 2. आयकर आयु�(अपील) / The CIT(A)-1, Nashik 3. आयकर आयु� / The CIT-1, Nashik 4. िवभागीय �ितिनिध, आयकर अपीलीय अिधकरण, पुणे “ए” / 5. DR ‘A’, ITAT, Pune; गाड� फाईल / Guard file. 6.
आदेशानुसार आदेशानुसार/ BY ORDER,स आदेशानुसार आदेशानुसार
स�यािपत �ित //True Copy// //True Copy// Senior Private Secretary आयकर अपीलीय अिधकरण ,पुणे / ITAT, Pune