DAESEUNG AUTOPARTS INDIA PRIVATE LIMITED,KANCHEEPURAM vs. ACIT (OSD), CHENNAI

आयकर अपीलीय अिधकरण ‘डी’ �ायपीठ चे�ई म�। IN THE INCOME TAX APPELLATE TRIBUNAL ‘D’ BENCH, CHENNAI माननीय ,ी मनोज कुमार अ0वाल ,लेखा सद5 एवं माननीय ,ी मनु कुमार िग9र, �ाियक सद5 के सम:। BEFORE HON’BLE SHRI MANOJ KUMAR AGGARWAL, AM AND HON’BLE SHRI MANU KUMAR GIRI, JM आयकरअपील सं./ (िनधा;रणवष; / Assessment Year: 2012-13) M/s. Daeseung Autoparts India Pvt. Ltd. ACIT (OSD) Plot No,474, Mannur Village, Corporate Range-1, बनाम/ Vs. Valarpuram post, Sriperumpudhur Taluk Chennai. Kanchipuram- 602 105. �थायीलेखासं./जीआइआरसं./PAN/GIR No. AACCD-5629-D (अपीलाथ�/Appellant) : (� थ� / Respondent) अपीलाथ�कीओरसे/ Appellant by : Shri Vikram Vijayaraghavan (Advocate)- Ld. AR � थ�कीओरसे/Respondent by : Shri G. Suresh (JCIT)- Ld. Sr. DR सुनवाई की तारीख/Date of Hearing : 28-05-2024 घोषणा की तारीख /Date of Pronouncement : 04-06-2024 आदेश / O R D E R Manoj Kumar Aggarwal (Accountant Member)

read as under: -

1. The order passed by the Assistant Commissioner of Income - tax (OSD), Corporate Range 1, Chennai (Assessing Officer or the AO) pursuant to the directions issued by the Dispute Resolution Panel - 2, Bangalore (DRP) to the extent prejudicial to the Appellant, is erroneous, bad in law and contrary to the facts and circumstances of the case.

2. The Learned TPO/AO and the DRP erred, in law and in facts by making an adjustment of INR 18,68,09,336 to the arm's length price of the international transactions undertaken by the Appellant. Economic analysis

3. The Learned TPO/AO and the DRP erred, in law and in facts by rejecting the detailed transfer pricing documentation prepared by the Appellant in accordance with the provisions of the Income tax Act, 1961 (the Act) and proceeded to undertake a fresh search without providing cogent reasons for doing the same.

4. The Learned TPO/ AO and the DRP erred, in law and in facts by not providing the complete details of the search process undertaken in order to arrive at the comparable companies lo lest the ALP of international transactions undertaken by the Appellant.

5. The Learned TPO/AO and the DRP erred by applying certain arbitrary quantitative and qualitative filters for the purposes of the comparability analysis. Restriction of transfer pricing adjustment to the value of international transactions

6. The DRP erred in law and in facts by directing the learned AO lo effect the transfer pricing adjustment to the total cost without restricting the same lo the proportion of value of international transactions to the total cost. Cash profit-PLI

7. The Learned TPO/AO and the DRP erred, in law and in facts by treating the operating profit on operating revenue as the appropriate profit level indicator as against the cash profit on operating revenue adopted by the Appellant in determination of arm's length price. Economic adjustments

8. The Learned TPO/AO and the DRP erred in law and in facts, in not appreciating the business/ economic circumstances faced by the Appellant and consequently not allowing the economic adjustment relating to excess custom duty incurred by the Appellant.

9. The Learned TPO/ AO and the DRP erred in law and in facts, by not making suitable adjustments to account for differences in the working capital position of the Appellant vis-a-vis the comparables.

10. The Learned TPO/AO and the DRP erred in law and in facts, in not appreciating the business/economic circumstances faced by the Appellant and consequently not allowing the economic adjustment relating to excess depreciation incurred by the Appellant.

11. The Learned TPO/AO and the DRP erred in laws and in facts, in not appreciating the business/ economic circumstances faced by the Appellant and consequently not allowing the economic adjustments relating to excess Power and fuel expenses incurred by the Appellant Inclusion/ exclusion of comparables 12. The Learned TPO/ AO and the DRP erred in law and in facts, by including functionally dis-similar companies to determine the arm's length price of the international transaction despite the fact that the Appellant had selected appropriate comparables in its transfer pricing documentation based on detailed economic analysis. 13. The Learned TPO/ AO and the DRP failed to consider the functionally similar companies which were included as a part of TP documentation maintained by the Appellant. Others The Learned TPO/AO and the DRP while computing the ALP of an international 14. transaction ought to have eliminated the expenses incurred by the Appellant in relation to custom duty, freight and insurance etc., from the value of international transaction of import of raw materials as these expenses are paid to third parties and not to its AEs. Thus the adjustment should be restricted to the Value paid/ Payable by the Appellant to its AEs on the international transaction undertaken between them and not for the Value paid/payable to third parties. 15. The Learned TPO/ AO and the DRP have erred in law and in facts, by rejecting the use of financial data or the prior two years i.e, FY 2010-11, FY 2009-10, which is permitted under proviso to Rule 10B(4) of the Income tax Rules, 1962 without providing any cogent reasons for the same. 16. The Learned TPO/ AO and DRP have erred in Jaw and in facts, in computing the ALP without giving benefit of +/- 5 percent under the proviso to section 92C of the Act Part 2 Corporate tax matters Disallowance of foreign exchange loss: 17. The learned AO and the DRP erred in considering the foreign exchange loss on restatement of External Commercial Borrowings ('ECB') utilized for procuring indigenous assets as a capital expenditure. 18. The Learned AO and the DRP erred by not considering that the forex gains on restatement of ECB loan were offered to tax in the earlier Assessment years and consequently the loss incurred during the subject assessment year on restatement of ECB loans should be allowable as a deductible expenditure in view of rule of ‘Consistency’. 19. The Learned AO and the DRP erred in disregarding the alternate claim of the Appellant for adding the subject forex loss to the block of assets for the purpose of claiming tax depreciation Part 3 Others 20. The Learned AO has erred in not setting off the brought forward losses in computing the taxable profits. 21. The Learned AO has erred in computing interest under section 234B of the Act without appreciating the fact that there was no taxable income post setting off the brought forward losses. 22. The learned AO has erred in initiating penalty proceedings under section 271(1)(c) of the Act despite the fact that accurate particulars of income were duly furnished and additions to income are only on account of differences in interpretation of facts and opinion.

As is evident, the assessee is aggrieved by confirmation of certain transfer pricings adjustments. The assessee is also aggrieved by disallowance of forex loss.

However, the same was rejected by Ld. TPO since it was fourth year of operations. The assessee also claimed customs adjustment. Since the same was not claimed in TP documentation, the same was not granted to the assessee. 3.3 The Ld. TPO worked out average PLI of 6 entities as 10.11% as against -4.16% reflected by the assessee. Applying the same, Ld. TPO held that Arm’s Length Price (ALP) of the transactions would be Rs.2446.82 Lacs and proposed adjustment of Rs.335.21 Lacs. The conclusion of Ld. TPO is clearly fallacious since as per TPO, ALP of the import transactions should be Rs.2446.82 Lacs instead of Rs.2111.60 Lacs as paid by the assessee. 3.4 The assessee sought rectification of the order. The Ld. TPO revised Average PLI of comparable entities to 8.97% and re-determined ALP to Rs.1845.42 Lacs as against Rs.2111.60 Lacs paid by the assessee and accordingly, revised TP adjustment to Rs.266.18 Lacs. 3.5 The Ld. AO, in the draft order, applied TP adjustments. The Ld. AO also noted that the assessee claimed loss of Rs.1779.47 Lacs in the Profit & Loss Account on foreign currency transactions. However, in the computations, the assessee added back only Rs.982.48 Lacs with respect to foreign currency loans obtained towards import purchase of plant and machinery. The remaining amount of Rs.796.47 Lacs represents exchange rate fluctuation on account of reinstatement / repayment of other loans. Out of this amount, Rs.416.78 Lacs was on account of purchase of raw material and on account of export sales whereas balance Rs.380.20 Lacs was on account of foreign loans utilized for purchase of indigenous fixed assets. The dispute arose with respect to claim of Rs.380.20 Lacs. The assessee submitted that this transaction was treated as revenue transaction in earlier years. The income arose from similar transactions which were accepted as revenue in nature in earlier years. In the alternative, the assessee sought depreciation on the same. 3.6 However, rejecting the same, Ld AO held that the same would be capital in nature and the provisions of Sec.43A would apply. Finally, the claim was disallowed and depreciation was also denied. Proceedings before Ld. DRP 4.1 The Ld. DRP upheld the action of Ld. TPO in altering the PLI on the ground that depreciation would have marginal difference in subsequent years. The assessee could not prove that the difference in depreciation was due to operational reasons. Therefore, this adjustment was denied and application of revised PLI was upheld. The assessee also claimed customs duty adjustment on imports relating to purchase of raw material. However, the same was rejected on the ground that the assessee could not demonstrate as to how higher import content was necessitated by any extraordinary circumstances beyond its control. The import of raw material was commercial decision and it was fourth year of operations. The assessee claim of working capital adjustment was also not granted since the assessee could not establish the impact of the same on its profit margins. The assessee’s objection on comparable entities was also rejected. The Ld. DRP also directed Ld. TPO to include one comparable entity and calculate ALP on the entire cost of the assessee as against proportionate cost. The action of Ld. AO, qua foreign exchange loss of Rs.380.20 Lacs, was also upheld. 4.2 Pursuant to the directions of Ld. DRP, Ld. TPO applied TP adjustment on entire cost and revised TP adjustments to Rs.1487.88 Lacs vide its order dated 05.01.2017. The Ld. AO passed final order on 19.01.2017 in conformity with these orders. Aggrieved, the assessee is in further appeal before us. Our findings and Adjudication 5. The Ld. AR argued that TP adjustments should have been restricted to the extent of value of international transactions and not to whole of transactions as directed by Ld. DRP. The Ld. AR also sought various economic adjustments viz. depreciation adjustment, working capital adjustments and custom duty adjustments. The Ld. AR also argued on comparable matrix.