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.

Order pronounced in the Open Court on 13th January, 2017, at Chennai. Sd/- Sd/- (एन.आर.एस. गणेशन) (�ड.एस. सु�दर �संह) (N.R.S. GANESAN) (D.S.SUNDER SINGH) �या�यक सद�य/JUDICIAL MEMBER लेखा सद�य/ACCOUNTANT MEMBER

चे�नई/Chennai, �दनांक/Dated: 13th January, 2017. tln

आदेश क� ��त�ल�प अ�े�षत/Copy to: 1. अपीलाथ�/Appellant 4. आयकर आयु�त/CIT 2. ��यथ�/Respondent 5. �वभागीय ��त�न�ध/DR 6. गाड� फाईल/GF 3. आयकर आयु�त (अपील)/CIT(A)