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Income Tax Appellate Tribunal, MUMBAI BENCH “K”, MUMBAI
Before: SHRI G.S. PANNU & RAM LAL NEGI
This appeal by the assessee is arising from the order passed by the Assessing Officer giving effect to the directions of Dispute Resolution Panel (DRP) dated 24.03.2014, which has been passed as a consequence of the order of Tribunal in dated 29.11.2013 in the case of the assessee for instant Assessment Year 2006-07 itself. The Tribunal in its order dated 29.11.2013 (supra) had restored the matter to the file of DRP with certain directions. The DRP vide its order dated 24.03.2014 directed the Assessing Officer in terms of provisions of Sc. 144C(13) of the Act, and the Assessing Officer while
2 Advance Power Display Systems Ltd. giving effect to the aforesaid directions of DRP vide order dated 12.05.2014 retained an adjustment of Rs.4,22,64,601/- on account of transfer pricing adjustment as against an addition of Rs.5,34,00,000/- made at the earlier stage of assessment. Not being satisfied with the order of Assessing Officer, assessee is in appeal before us assailing the transfer pricing adjustment of Rs.4,22,64,601/- retained by the Assessing Officer.
The assessee has raised various Grounds alongwith the memo of appeal as well as three additional Grounds of appeal also, and all the Grounds revolve around the efficacy of the transfer pricing adjustment of Rs.4,22,64,601/- retained by the Assessing Officer on account of international transactions entered by the assessee with its associated enterprises. However, at the time of hearing, learned representative for the assessee submitted that the assessee would be satisfied if the following additional Ground of appeal no. 2 is taken-up for consideration :-
2. While wrongly calculating revised PLI of comparable namely Circuits Systems (India) Ltd from 13.84% to 14.06% after giving effect of DRP order (DRP has directed to recalculate profitability of comparable finally selected as per the order by seeing that wherever an identifiable claim of depreciation on tools & equipments has been made as per schedule XI rates, the same should be adjusted to bring it to the rate of 10% and PLI worked accordingly) and
According to the learned representative, the Assessing Officer while passing the impugned order has made an error while carrying out the directions of DRP dated 24.03.2014 with regard to the adjustment to be made in the margin of comparable concerns on account of 3 Advance Power Display Systems Ltd.
accelerated depreciation claimed by such comparable concerns. In this regard, our attention has been drawn to para 10 of the order of DRP dated 24.03.2014 which reads as under :-
“10. As regards the claim of adjustment for accelerated depreciation, the assessee has, referring to note 1(ii) of notes to account in schedule Q, claimed before us that, in its accounts depreciation has been provided for certain items at rates different than the schedule XIV rates. It claimed that for certain tools and equipments and plant and machinery, depreciation has been claimed at 10% instead of 5.38%. The assessee claimed that in the case of the comparables taken by the TPO, the rates of depreciation adopted by them are as per schedule XIV rates, and hence an adjustment is warranted on this account. In this regard the assessee has worked out the extra depreciation charged due to difference in the rate of depreciation of tools and equipments at Rs.74,47,695/-.
10.1 We have perused the balance sheets of the comparables and find that all the comparables have applied schedule XIV rates for working out depreciation in their accounts. This fact has also not been disputed by the TPO in his order. Further, on the basis of annual accounts of the assessee, it is an established fact that it has charged depreciation for certain tools and equipments @ 10% instead of 5.38%. Though in assessment year 2009-10, this panel has taken a different view on the issue of adjustment in the assessee’s case, we find that the honourable ITAT, in the case of the assessee for AY 2008- 09 (Consolidated order passed with AY 2006-07) has interpreted rule 10B to hold that adjustments can only be made in the case of the comparables and not in the case of the tested party. Accordingly, the TPO is directed to recalculate the profitability of all the comparables finally selected as per this order to see that wherever, in the case of comparables, an identifiable claim of depreciation on tools and equipments has been made as per the schedule XIV rates, the same should be adjusted to bring it to the rate of 10% and PLI worked out accordingly. The TPO is directed accordingly to work out the net
4 Advance Power Display Systems Ltd. profit margin of the comparables and thereafter work out the necessary adjustments.”
The learned representative further submitted that assessee would be satisfied if the matter is restored back to the file of Assessing Officer/TPO for working out the correct adjustment in the margin of comparables on account of accelerated depreciation. At the time of hearing, the learned representative for the assessee also furnished an illustrative chart showing the corrected calculation of profit margin of comparables after making adjustment for accelerated depreciation as per DRP directions, which according to him is in variation with the calculation done by TPO/Assessing Officer while giving effect to the directions of DRP dated 24.03.2014.
On the aforesaid limited plea of assessee, the ld. DR appearing for the Revenue had no objection and according to him, the matter can be sent back to Assessing Officer/TPO for proper verification.
In view of the aforesaid convergence of rival stands, the captioned appeal is disposed of by adverting to the aforesaid limited plea of assessee based on the abovestated Ground of appeal. Ostensibly, the DRP had appreciated that the margin of assessee has been calculated after debiting of depreciation at rates different than the rates prescribed in Schedule XIV of Companies Act, 1956, which was followed by the comparable concerns while calculating their margins. Therefore, the DRP directed that wherever the comparable concerns have applied the rates prescribed in Schedule XIV for working out
5 Advance Power Display Systems Ltd. depreciation, the requisite adjustments be made and only the resultant adjusted margin of the comparables be compared with the margin of assessee. Before us, the limited plea of assessee is that there is an error made by Assessing Officer/TPO while carrying out the said directions and that the matter be restored back to the file of Assessing Officer for proper verification. The aforesaid point involves a pure appreciation of factual affairs, and therefore the matter is restored back to file of Assessing Officer/TPO to examine the plea of assessee on its merits. Needless to mention, the Assessing Officer/TPO shall allow the assessee a reasonable opportunity of being heard before passing an order afresh on the aforesaid limited aspect, as per law.
All the other Grounds raised by the assessee before us are rendered infructuous in view of the prayer of assessee to consider the abovestated Ground of appeal no. 2, and the same are not being dealt with.
Resultantly, appeal of assessee is partly allowed, as above.
Order pronounced in the open court on 28th October, 2016.