WOOSU AUTOMOTIVE INDIA PRIVATE LIMITED,THIRUVALLUR vs. ACIT, CHENNAI

आदेश / O R D E R

PER D.S.SUNDER SINGH, ACCOUNTANT MEMBER:

1.0 This is an appeal filed by the assessee against the Assessment order dated 27/01/2016 made u/s 143(3) r.w.s. 144C of Income Tax Act, 1961 for the AY 2011-12.

ITA No.870/Mds/2016 :- 2 -:

2.0 Background:

Assessee is an Indian company registered in the year 2007 under the Indian Companies Act. It is 100% subsidiary of Woosu AMS Co Ltd., South Korea. It is manufacturing automobile parts like assembly shift, fork shift, complete shaft assembly, Brakt assembly gear differential, and shaft input and caters to the requirements of OEM, Hyundai Motor India Ltd. Its plant is in Sriperumbudur, Tamilnadu.

2.1 The assessee filed the return of income declaring the total loss of Rs.9,23,42,893/- on 30/11/2011. The case was selected for scrutiny and during the assessment proceedings the Assessing Officer(AO) found International transaction of Rs.66,91,34,205/- and referred the transaction to the TPO u/s 92CA for determining the Arm’s Length price.

The assessee adopted the TNMM as most appropriate method. The assessee has selected three comparables and arrived at the adjusted operating margin of @1.47% and claimed that the transaction is at arm’s length. The TPO selected 14 comparables on the basis of functional similar and arrived at comparable margin of 8.83% and suggested upward adjustment of Rs.5,81,33,860/-. The assessee went to DRP and the DRP has confirmed the order of the AO. Accordingly, the AO passed Assessment Order making upward adjustment of Rs.5,81,33,860/- on account of international transaction.

ITA No.870/Mds/2016 :- 3 -:

2.2 The assessee filed appeal in this case mainly on two issues requesting for relief. The first is related to TP issue and the second is related to the depreciation.

Appearing for assessee the Ld.AR argued that the assesse has selected three comparables after making search process. Out of the comparables selected by the assessee, the TPO has adopted two comparables and rejected one of the comparables and did not give any reason for rejecting the comparables selected by the assesse. The TPO has selected 14 comparables and did not furnish the search criteria adopted by the TPO. The Ld.AR argued that by not giving sufficient opportunity to support it’s case for arriving at the average margin, the TPO has arrived at the distorted comparable margin of 8.53% against the average margin arrived by the assessee at 1.47%. The Ld.AR submitted that adopting average margin of 8.53 against the average of 1.47% leads to distorting profit margins and affects the financials adversely. Therefore, the Ld.AR requested an opportunity to explain it’s case and the search earlier for selecting 14 comparables by TPO should be made available with search process and filters to defend it’s case. On the other hand, the Ld.DR supported the orders of the lower authorities.

3.0 We heard the rival submissions and perused the material placed before us.

ITA No.870/Mds/2016 :- 4 -:

The facts are not in dispute that both the parties have accepted TNMM method as most appropriate method. The assesse selected three comparables and the TPO has rejected two comparables, out of the three comparables selected by the assesse and reasons for rejecting the comparables was not given either in show cause notice or in the TPO’s Order. Company-wise reasons for rejecting the comparables selected by the assessee required to be given to the assessee to support it’s case.

The DRP also has not addressed this issue and provided the search filters applied by the TPO for inclusion of 14 live comparables and the reasons for eliminating the two comparables selected by the assessee. The average margin raised to 8.53% against the margin worked out by the assessee at 1.47% which shows substantial increase which results into sizeable increase of quantum addition. In the instant case, it appears that sufficient opportunity was not given with regard to search filters applied by the TPO for inclusion of 14 new comparables and rejecting the two comparables selected by the assessee. Therefore, we are of the considered opinion that in the interest of justice, the case should be remitted back to the AO to address the deficiency of reasons for rejection of comparables selected by the assessee and search criteria applied for inclusion of 14 new comparables and arrive at fresh bench marking.

Accordingly, the issue is set-aside to the file of AO/TPO with direction to give an opportunity of being heard to assessee and decide the issue afresh on merits. All the issues of TP are kept open before the AO/TPO. The ITA No.870/Mds/2016 :- 5 -: issue relating to the transfer pricing in Ground Nos.1 to 11 stands disposed off and allowed for statistical purposes.

4.0 Ground No.10 is related the disallowance of additional depreciation amounting to Rs.59,32,534/-. The AO disallowed the additional depreciation since machinery was used and second hand machinery.

The DRP has confirmed the addition made by the AO. We heard the both the parties and as per the provisions of Sec.32(i)(a) depreciation is not allowable if the machinery is used before its installation. For ready reference we reproduce the relevant provisio of Income Tax Act Section 32(iia) here under:

“no deduction shall be allowed in respect of any machinery or plant which, before its installation by the assessee, was used either within or outside India by any other person”.

In the instant case, the AO stated that the machinery was second hand machinery and used before its installation. The finding of the AO was not controverted by the Ld.AR of the assesse with tangible evidence.

Therefore, we do not find any infirmity in the order of AO and the addition made by the AO is confirmed.

5.0 Ground No.13 is consequential in nature and no separate adjudication is required.

ITA No.870/Mds/2016 :- 6 -:

6.0 Ground No.14 is general in nature which does not require separate adjudication.

7.0 In the result, the appeal of the assessee is partly allowed for statistical purposes.