DOOWAN ELECTRONICS INDIA PRIVATE LIMITED,KANCHEEPURAM V. DCIT CIRCLE 1(1), CHENNAI

ITTPA 10/CHNY/2024

AI Insights

The case involves cross appeals by M/s. Doowon Electronics India Private Limited and the income tax department against the order of the Commissioner of Income Tax (Appeals)-16, Chennai, concerning the assessment year 2016-17. The primary issues revolved around transfer pricing adjustments, including working capital adjustments and the treatment of foreign exchange losses. The Tribunal examined the adjustments made by the Transfer Pricing Officer (TPO) and the subsequent orders by the Assessing Officer (AO) and CIT(A). The Tribunal's decision was influenced by precedents set in similar cases involving the assessee's sister concern, leading to a partial allowance of the assessee's appeal and dismissal of the revenue's appeal.

• Counselvise Citation: [2024] 140 COUNSELVISE.COM (IT) 29971 (ITAT-CHENNAI)
• Duration Of Justice: 6 month(s) 30 day(s)
• Appeal Type: Income Tax (Transfer Pricing) Appeal
• Pronouncement Date: 11-11-2024
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: D
• Next Hearing Date: 14-08-2024
• Assessment Year: 2016-2017
• Appeal Filed On: 12-04-2024
• Other Referred Cases: Doowon Automotive Systems India Private Limited vs. ITA No. 3061/Chny/2017, Mobis India Limited vs. ITA No.2112/Mds/2011, Motonic India Automotive Pvt. Ltd. vs. ACIT, ITA No.741/Mds/2014, Skoda Auto India (P) Ltd. vs. ACIT, Aurangabad, Toyota Kirloskar Motors Pvt. Ltd. vs. ACIT, Bangalore, Putzmeister Concrete Machines Pvt. Ltd. vs. DCIT, Panaji, Demag Cranes & Components (India) Pvt. Ltd. vs. DCIT, Pune
• Laws Referred To: Income Tax Act
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: SHEILA PARTHASARATHY
• Assessee Lawyers: S.P.CHIDAMBARAM
• Keywords: Set aside; Transfer pricing; International transaction; Reasonable cause; Depreciation; Working capital adjustments
• Section: 10B

Judgement Text

" आयकर अपीलीय अिधकरण,‘डी’ ᭠यायपीठ,चे᳖ई IN THE INCOME TAX APPELLATE TRIBUNAL ‘D’ BENCH, CHENNAI ᮰ी महावीर ᳲसह, उपा᭟यᭃ एवं ᮰ी एस. आर.रघुनाथा, लेखा सद᭭य के समᭃ BEFORE SHRI MAHAVIR SINGH, HON’BLE VICE PRESIDENT AND SHRI S. R. RAGHUNATHA, HON’BLE ACCOUNTANT MEMBER आयकरअपीलसं./IT(TP)A No.: 10/Chny/2024 िनधाᭅरणवषᭅ / Assessment Year: 2016-17 M/s. Doowon Electronics India Private Limited, Plot No. B20, SIPCOT Industrial Park, Oragadam, Sriperumbudur, Kancheepuram– 602 105. [PAN: AAECD-4103-C] v. The Deputy Commissioner of Income Tax, Company Circle -1(1), Chennai – 600 034. (अपीलाथᱮ/Appellant) (ᮧ᭜यथᱮ/Respondent) आयकरअपीलसं./IT(TP)A No.: 15/Chny/2024 िनधाᭅरणवषᭅ / Assessment Year: 2016-17 The Assistant Commissioner of Income Tax, Corporate Circle -1(1), Chennai – 600 034. v. M/s. Doowon Electronics India Private Limited, Plot No. B20, SIPCOT Industrial Park, Oragadam, Sriperumbudur, Kancheepuram – 602 105. [PAN: AAECD-4103-C] (अपीलाथᱮ/Appellant) (ᮧ᭜यथᱮ/Respondent) Assessee by : Shri. S.P. Chidambaram, Advocate Department by : Smt. Sheila Parthasarathy, CIT सुनवाई कᳱ तारीख/Date of Hearing : 14.08.2024 घोषणा कᳱ तारीख/Date of Pronouncement : 11.11.2024 आदेश /O R D E R PER S. R. RAGHUNATHA, ACCOUNTANT MEMBER: These cross appeals filed by the assessee and revenue are directed against the common order passed by the learned :-2-: IT(TP)A. No: 10 & 15/Chny/2024 Commissioner of Income Tax (Appeals)-16, Chennai, dated 13.02.2024 and pertains to assessment year 2016-17. 2. At the outset, we find that there is a delay of 15 days in appeal filed by the revenue, for which petition for condonation of delay along with reasons for delay has been filed. After considering the petition filed by the revenue and also hearing both the parties, we find that there is a reasonable cause for the revenue in not filing appeal on or before the due date prescribed under the law due to time barring set aside cases, giving effect to appellate orders and thus, in the interests of justice, we condone delay in filing of appeal and admit appeal filed by the revenue for adjudication. 3. The assessee has raised the following grounds of appeal: “The Order of the Commissioner of Income-Tax Appeals - 16, Chennai ('CIT(A)') is erroneous and contrary to law, facts and circumstances of the case. 2. Transfer Pricing grounds - Downward adjustment to arm's length price 2.1 The Commissioner of Income Tax (Appeals) /the Transfer Pricing Officer (hereinafter referred to as the CIT(A) / the TPO) erred in making a downward adjustment to the value of international transactions without any further examination of the facts and submissions made by the Appellant 2.2 The CIT(A) erred in confirming the order of the TPO in not providing working capital adjustment while determining the net :-3-: IT(TP)A. No: 10 & 15/Chny/2024 profit margins while benchmarking the international transactions of the Appellant. 2.3 The learned CIT(A) erred in confirming the action of the TPO and erred in stating that the Appellant has not provided reasons as to why working capital adjustments were required without considering the fact that there were differences on account of working capital. 2.4 The learned CIT(A) erred in wrongly stating that the Appellant has not brought anything on record to show the working capital differences without taking cognizance of the detailed workings/submissions filed by the Appellant. Foreign exchange fluctuation: 2.5 The CIT(A)/AO erred in confirming the order of the TPO in treating foreign exchange loss suffered by the Appellant as operating expense. 2.6 The CIT(A)/AO erred in confirming the order of the TPO in concluding that since assessee bears foreign exchange risk, they are not entitled to claim any adjustment and accordingly the loss/gain has to be treated as operating in nature. 2. 7 The CIT(A)/ AO erred in confirming the order of the TPO who failed to take cognizance of the fact that foreign exchange gain/loss arises due to external economic/ market forces and not due transactions with AEs. 2.8 The CIT(A) ought to have appreciated that the Safe Harbor Rules considers Forex loss as non- operating in nature and in the absence of such definition under the Act, the same treatment ought to be considered under the Act while benchmarking the international transaction. 2.9 Without prejudice to the above, the CIT(A) failed to appreciate that the forex loss pertaining to capital items and restatement, which are notional in nature cannot be considered as operating in nature. The Appellant craves leave to add, alter, amend, substitute, rescind, modify and/or withdraw in any manner whatsoever all or any of the foregoing grounds of appeal at or before the hearing of the appeal.” :-4-: IT(TP)A. No: 10 & 15/Chny/2024 4. The revenue has raised the following grounds of appeal: “1. The order of the learned CIT(A) is contrary to law, facts and circumstances of the case. 2. Whether on the facts and circumstances of the case, the learned CIT(A) is correct in allowing the adjustment for customs duty on the mere basis of the decision of the Hon'ble ITAT in other case without adjudicating the facts of the case in the current year. 3. Whether on the facts and circumstances of the case, the learned CIT(A) is correct in allowing the adjustment or basic customs duty when the assessee has failed to substantiate that high import content in its business was not driven by extraneous factors but out of its own choice based on business strategy. 4. For these and other grounds that may be adduced at the time of hearing, it is prayed that the order of the learned CIT(A) may be set aside and that of the Assessing Officer restored.” 5. The brief facts of the case are that the assessee is a subsidiary of Doowon Electronics Co.Ltd., Korea. The assessee was incorporated in the year 2012 and commenced its commercial production from August 2013. The assessee is engaged in the manufacture and trading of electronics and electrical products for the automobile industry. The products manufactured by the assessee include actuators, filters, etc for use in HVAC modules of automobiles, condense headers used in cooling modules of automobiles. During the A.Y.2016-17, the assessee commenced operations of its second plant involving ‘hose & pipe assembly line’ operations. The assessee filed its :-5-: IT(TP)A. No: 10 & 15/Chny/2024 return of income for the A.Y. 2016-17 on 30.11.2016 admitting a loss of Rs.8,73,46,902/-. After the return of income processed u/s.143(1), the case was selected for complete scrutiny assessment under CASS. Since, the assessee had entered into international transactions with its AEs to the tune of Rs.54,32,81,024/- reference was made to TPO – 1(2), Chennai to determine the Arm’s Length price. The TPO -1(2), Chennai, vide its order dated 31.10.2019 held that downward adjustment of Rs.3,86,45,922/- towards the purchase of raw materials and components and purchase of trading material is proposed to be made on the international transaction of the assessee. Subsequently, the AO passed a draft order u/s.144C of the Act, on 19.12.2019 proposing to make a downward adjustment of Rs. 3,86,45,922/- as per the TPO order. The assessee stated in its reply dated 21.01.2020, that they opted to resort an appeal before the Ld.CIT(A) against the final assessment order. Then the AO passed an order u/s.143(3) r.w.s.144C(3) dated 23/01/2020 by adopting the TPO’s order and made a downward adjustment of Rs.3,86,45,922/- and reduced the returned loss to Rs.4,87,00,980/-. Aggrieved by the order of the AO, the assessee preferred an appeal before the ld.CIT(A). :-6-: IT(TP)A. No: 10 & 15/Chny/2024 6. The ld.CIT(A) after considering the contentions and submissions made by the Assessee, the ld. CIT(A) allowed the grounds of the assessee on customs duty adjustment of Rs.2,93,38,838/- by relying on the decisions of the this Tribunal’s decision in the similar set of facts and circumstances. However the ld.CIT(A) has dismissed the ground of the assessee on working capital adjustment stating that the assessee has not brought on record to show that the difference in working capital had impacted its profit margins and also relying on the decision of this Tribunal in the case of Mobis India Limited in ITA No.2112/Mds/2011 (AY 2007-18)(2013) 38 Taxmann.com 231. Further, the Ld.CIT(A) dismissed the ground of the assessee on treatment of foreign exchange loss as non- operating in computation of net margins to the tune of Rs.42,96,002/- by relying on the decision of this Tribunal in the case of Doowon Automotive systems india private limited in ITA No.3061/Chny/2017 for the A.Y. 2013-14 dated 23.11.2021. IT(TP)A No.: 10/Chny/2024 7. On being aggrieved, the assessee is in appeal before the Tribunal for the following TP issues; - Working capital adjustment :-7-: IT(TP)A. No: 10 & 15/Chny/2024 - Foreign Exchange Loss adjustment 8. The Ld.AR of the assessee stated that the assessee claims adjustment on account of working capital differences between its position vis-à-vis that of comparable companies. The purpose of working capital adjustments is to improve the reliability of the comparables. There are working capital adjustment differences between the comparable companies and the Doowon Electronics. The investments in working capital (i.e. inventories, debtors and creditors) require capital and operating assets to satisfy an arm's length principle, an uncontrolled entity is expected to earn a market rate of return on that required capital independent of the services that it provides. However, the amount of capital required to support these services varies greatly, because the level of inventories, debtors and creditors measured as a percentage of the total cost varies. There’s an effect on profits from investing in different levels of working capital and for the purpose of adjustment must be taken into account. In the analysis, while adjusting for differences in working capital, the profitability of each comparable company was adjusted to reflect these differences. In order to overcome the difference a working capital adjustment is made as per the method prescribed in the OECD :-8-: IT(TP)A. No: 10 & 15/Chny/2024 guidelines. The adjusted financial result post working capital adjustments of the comparable company is mentioned below. The relevant workings were provided to the TPO and CIT(A). The adjusted financial result post working capital adjustments of the comparable companies of Doowon Electronics India is provided below: Operating Margins of comparable companies (3 year weighted average) Sl. No Name of the Company 3-year weighted average – Unadjusted margins 3-year weighted average – Working capital adjusted margins 1 Rambal Ltd. -4.35% -12.06% 2 Remsons Industries Ltd. 2.04% -5.33% 3 Minda Auto Components Ltd. 4.04% -2.14% Arithmetic mean 0.576% -6.511% 9. Further, the ld. AR drew our attention and stated that the issue of Working capital adjustment is squarely covered in favour of the Assessee by the Jurisdictional Chennai ITAT orders in the case of Doowon Automotive Systems India Private Limited which operates in similar line of business and also a sister concern of the Assessee (ITA No. 3061/CHNY/2017 for Assessment Year 2013-14 vide dated 23.11.2021 Para 5.2 & 5.3). :-9-: IT(TP)A. No: 10 & 15/Chny/2024 10. Per contra, the ld.DR could not controvert the above findings of this Tribunal’s decision in the case of Doowon Automotive Systems India Private Limited (supra) for the A.Y. 2013-14. 11. We have heard the rival contentions, perused the material available on record and gone through the orders of the lower authorities. The Tribunal has considered the similar issue of allowability of working capital adjustment, in the case of sister concern of the assessee in Doowon Automotive Systems India Private Limited in ITA No. 3061/CHNY/2017 for Assessment Year 2013-14 vide dated 23.11.2021. Wherein it is held as under : 5.2 We have heard the rival contentions. With regard to the allowability of working capital adjustment, the Tribunal has considered similar issue in the assessment year 2011-12 and vide its order in I.T.A. No. 692/Mds/2016, the Tribunal has observed and held as under: “7. The Ld. AR argued that the Assessing Officer/DRP has confirmed the action of the TPO in not providing working capital adjustment while determining net profit margin of the assessee. In the assessee's own case in the assessment year 2009-10, DRP in its order dated 20.12.2013 has directed the TPO to examine the issue and consider working capital adjustment. Whereas, the Ld. TPO observed that the assessee company is actually buying the parts from the AE and working capital adjustment to be allowed if the assessee demonstrates with AE of allowing the credit period to the assessee and DRP confirm the action of the TPO and the Ld. AR demonstrated the Arithmetic Mean of 4.58% of seven comparables selected at Page 41 of paper book and referred to the working capital adjustment PLR of 12.26% with the comparables current :-10-: IT(TP)A. No: 10 & 15/Chny/2024 assets being sundry creditors, sundry debtors and inventories at Page 42 and supported working capital adjustment of comparables company based on the financial statements. The Ld. DR relied on the order of TPO and prayed for no adjustment is required. Considering the facts and material on record the financial statements and the paper book, there is necessity for working capital adjustment and accordingly we remit the issue to the file of AO to consider the material for fresh consideration.” 5.3 By giving effect to the order of the ITAT, vide order dated 28.10.2018, the TPO had examined and allowed the benefit of working capital adjustment. Thus, respectfully following the above decision of the Coordinate Benches of the Tribunal, for the assessment year under consideration also, we direct the Assessing Officer to give suitable adjustment against the working capital component while determining the ALP. 12. In the facts and circumstances of the issue, since the facts are identical and respectfully following the above decision, we are of the considered view that the ld.CIT(A) has erred in confirming the rejection of adjustment on account of working capital and hence we allow this ground of the assessee. 13. Next issue of the assessee before us is disallowance of Foreign exchange gain / losses arise due to uncertainties such as fluctuations in the currency market rate. The Ld.AR stated that there could be variance in the invoice amount and the realized payment due to the difference in the exchange rate as on the date of invoice and the date of payment. The Ld.AR further stated that the forex fluctuations are not controlled by the parties to the transactions but due to external factors, for :-11-: IT(TP)A. No: 10 & 15/Chny/2024 the relevant year TP documentation, the Assessee has considered the same as non-operating and on parity basis, forex loss if any included in the financials of comparable companies has been excluded for the purpose of margin computation. The ld.AR submitted that the foreign exchange loss is not dependent upon the operations carried out by Doowon Electronics and that it is a result of various economic factors determined by the markets, macro-economic conditions, world market etc. The TPO has considered only one portion of forex losses of Rs.42,96,002/- as non-operating in nature. However, the Assessee contends that the entire loss on foreign exchange fluctuation loss of Rs.2,48,23,552/- has to be treated as non-operating in nature. In this regard, the Ld.AR Assessee submitted as under:  Given the fact that under transfer pricing provisions, the objective is to determine the ALP of transaction and to see if any profits are shifted to AEs, the forex loss/ gain arising out of external market forces are to be excluded as the same are not under the control of the Assessee or the AEs.  It is pertinent to note that the forex loss/ gain arises due to transaction with Indian banker while buying/selling the forex and no gain accrues to AEs. For eg. If at the time of agreeing the price with AE if 1 USD is INR 50 and post placing the order, receiving the goods, at the time of payment if 1USD is 52 Rupees then the Assessee would have paid INR 52 to Bank for 1 USD to remit the same to AE. In this regard, it is pertinent to note that AE has not gained anything. AE has received only 1 :-12-: IT(TP)A. No: 10 & 15/Chny/2024 USD as agreed. It is due to the macro-economic factor/ market forces, Assessee had to pay additional INR 2 to Banker in India for securing the 1USD.  Given the above, for determining the ALP of transaction with AEs, the forex fluctuations should be excluded. This is also the position taken by CDBT in computation of margins under safe harbor provisions. The relevant extract of Rule is as follows: (j) “operating expense” means the costs incurred in the previous year by the assesse in relation to the international transaction during the course of its normal operations including depreciation and amortisation expenses relating to the assets used by the assessee, but not including the following, namely:-  interest expense;  provision for unascertained liabilities;  pre-operating expenses;  loss arising on account of foreign currency fluctuations;  extra-ordinary expenses;  loss on transfer of assets or investments;  expense on account of income-tax; and  other expenses not relating to normal operations of the assessee; 14. Per contra, the ld.DR stated that the issue is covered in favouar of the revenue by the Jurisdictional Chennai ITAT orders in the case of Doowon Automotive Systems India Private Limited which operates in similar line of business and also a sister concern of the Assessee (ITA No. 3061/CHNY/2017 for Assessment Year 2013-14 vide dated 23.11.2021 Para 6.2) and prayed for dismissing the ground of the assessee. :-13-: IT(TP)A. No: 10 & 15/Chny/2024 15. We have heard the rival contentions, perused the material available on record and gone through the orders of the lower authorities. The Tribunal has considered the similar issue of treating the foreign exchange loss as operating in nature for the purpose of computing PLI, in the case of sister concern of the assessee in Doowon Automotive Systems India Private Limited in ITA No. 3061/CHNY/2017 for Assessment Year 2013- 14 vide dated 23.11.2021. Wherein it is held as under: “6.2.We have considered the rival contentions. Similar issue was subject matter in appeal before the Tribunal in assessee’s own case for the assessment year 2012-13 and vide its order in Doowon Autometive (supra), the Tribunal has observed and held as under: “9. We have heard both the parties and perused the material on record. We are of the opinion that the similar issue came up for consideration before this Tribunal in the case of M/s.Motonic India Automotive Pvt. Ltd. in ITA No.741/Mds/2014 for assessment year 2009-10 vide order dated 17.08.2016 wherein it was held that:- “8. The next ground is with regard to variation in exchange rate adjustment while determining the ALP. According to the ld. AR, the assessee entered into contract in adverse prices fixed on the prevailing exchange rate and due to fluctuation in exchange rate, there is loss and that exchange fluctuation to be considered while determining the ALP.” 9.1. However, in the present case as rightly pointed out by the ld. D.R that earlier year the assessee claimed foreign exchange loss as operating expenditure. This year assessee has shifted its stand and claimed it as non-operating expenditure. There is no consistency in its approach and also no reason has been given for such a change. Being so, in our opinion, foreign exchange loss is to be treated as operating nature only. Hence, this ground is dismissed. Respectfully following the above decision in assessee’s own case for the assessment year 2012-13, the ground raised by the assessee stands dismissed for the assessment year 2013-14.” :-14-: IT(TP)A. No: 10 & 15/Chny/2024 16. Therefore, in the facts and circumstances of the case and respectfully following the above decision of this Tribunal of assessee’s sister concern (supra) for the assessment year 2013-14, the ground raised by the assessee is dismissed for the assessment year 2016-17. IT(TP)A No.: 15/Chny/2024 17. On being aggrieved by the order of the Ld.CIT(A), the Revenue is in appeal before us for the only issue is allowance of custom duty adjustment while computing the margin of the Appellant. 18. The Ld.AR stated that the assessee is in the initial years of operation and in order to establish itself as a strong player in a market of experienced players, the assessee had to price its product on par with local players. Hence, the assessee was not able to pass on the non-cenvatable portion of the basic customs duty to its customers. The comparable companies, on the other hand, have been in existence for a longer time when compared to the assessee and have been able to formulate an established production process by sourcing raw materials and components :-15-: IT(TP)A. No: 10 & 15/Chny/2024 locally. Accordingly, the company has suffered additional cost due to non-cenvatable Basic Customs duty in contrast to comparable company which have been in existence for a very long time and the comparable companies are not dependent on imported raw materials. The Comparable companies would have sourced raw materials within India and they would have paid VAT. Therefore, the comparable companies would not have to incur non-cenvatable BCD. It is just and crucial as well as pertinent to note that VAT cost incurred by comparable companies is cenvatable but BCD paid on imported raw materials is not cenvatable. Further, BCD is actually paid to the Government and not to the AE. Therefore, it is imperative to eliminate such additional cost. In fact Rule 10B(e)(iv) also suggests elimination of such additional cost while determining ALP of an international transaction. 19. Further, the ld.AR stated that the percentage of imported goods consumed by Doowon Electronics India is 56.42% as against 6.64% of comparable companies. The company was not able to pass on the non-cenvatable portion of basic customs duty to its customers. :-16-: IT(TP)A. No: 10 & 15/Chny/2024 a. Details pertaining to the year of incorporation of Doowon Electronics India and comparable companies have been reproduced below for your reference: Name of the company Year of incorporation Doowon Electronics India Private Limited 2012 (commercial production started from August 2013) Rambal Ltd. 1996 Remsons Industries Ltd. 1971 Minda Auto Components Ltd. 1985 b. Summary of workings in respect of the customs duty adjustment is provided below: Particulars Reference Amount (in INR) Total imports consumption during the year A 191,581,132 Total Consumption during the year B 339,541,669 Customs Duty of Doowon India C 32,247,163 Consumption ratio of Tested party D 56.42% Consumption ratio of Comparable companies E 6.64% Difference in customs duty between tested party and Comparables F = D – E 49.78% Customs duty of Doowon India based on total consumption G = C/B*A 57,152,056.27 Customs duty adjustment H = G*F 28,451,946 20. Further, the Ld.AR for the assessee stated that the same issue is covered in favour of the Assessee by the Jurisdictional Chennai ITAT orders in the case of Doowon Automotive :-17-: IT(TP)A. No: 10 & 15/Chny/2024 Systems India Private Limited which operates in similar line of business and also a sister concern of the Assessee (ITA No. 3061/CHNY/2017 for Assessment Year 2013-14 vide dated 23.11.2021 Para 4& 4.1). Hence, the ld. CIT(A) has followed the ITAT order and allowed this ground. In light of the above, the Ld.AR prayed for dismissing the appeal of the Revenue. 21. The Ld.DR stated that the they rely on the orders of the AO / TPO and set aside the order of the Ld.CIT(A) on this ground. 22. We have heard the rival contentions, perused the material available on record and gone through the orders of the lower authorities. We note that the Tribunal has considered the similar issue of customs duty adjustment and allowed in favour of the assessee, in the case of sister concern of the assessee in Doowon Automotive Systems India Private Limited in ITA No. 3061/CHNY/2017 for Assessment Year 2013-14 vide dated 23.11.2021. Wherein it is held as under: 4. We have heard both the sides, perused the materials available on record and gone through the orders of authorities below including case law and other paper books filed by the assessee. Similar grounds was subject matter in appeal before the Tribunal and vide order dated 18.08.2017 in I.T.A. No. :-18-: IT(TP)A. No: 10 & 15/Chny/2024 2560/Mds/2016 relevant to the assessment year 2012-13, wherein, decision of the Coordinate Benches of the Tribunal in assessee’s own case for the assessment year 2011-12 in I.T.A. No. 692/Mds/2016 dated 25.01.2017 has been followed while adjudicating the above ground. The relevant findings of the Tribunal order relevant to the assessment year 2011-12 are extracted as under: “5. We heard the rival submissions, perused the material on record and judicial decisions. The Ld. AR explained that the company was incorporated in the year 2006 and in the second year of operation. The raw material component include import cost which constitute a major cost and claim adjustment of custom duty (non- cenvatable) before TPO. We rely on coordinate bench decision of Motonic India Automotive Pvt. Ltd Vs. ACIT, ITA No. 741/Mds/2014 dated 17.08.2016 at page 5 Para 6 which read as under: “6. The ld. AR submitted that in respect of custom duty component suitable adjustment to be made while determining the ALP. In our opinion, the plea of the assessee is justified. The TPO has not considered the custom duty adjustment on the reason that it is equivalent to central excise in commercial market. This is not correct. The Tribunal consistently holding that while determining ALP, there should be suitable adjustment in respect of custom duty, which was considered in the following cases : i) Skoda Auto India (P) Ltd. v. ACIT, Aurangabad (30 SOT 319)[Pune] ii) Toyota Kirloskar Motors Pvt. Ltd. v. ACIT, Bangalore – ITA No. 828/Bang/2010 iii) Putzmeister Concrete Machines Pvt. Ltd. v. DCIT, Panaji – ITA No. 107/PNJ/2012 iv) Demag Cranes & Components (India) Pvt. Ltd. v. DCIT, Pune in ITA No.120/PN/2011 6.1 At this stage, it is pertinent to mention the finding of the Pune Bench in the case of Demag Cranes & Components (India) Pvt. Ltd. v. DCIT(supra) dated 4.1.2012 in ITA No.120/PN/2011, which is as follows : “37. We have heard the parties and perused the available material on records in the light of the second limb of the ground 4(b). It is relevant mentioned that we have already analysed the :-19-: IT(TP)A. No: 10 & 15/Chny/2024 relevant provisions of Income Tax rules vis a vis the scope of the adjustments in the preceding paragraphs in the context of the adjustments on account of the ‘working capital’. In principles, our findings on the issue remain applicable to the adjustments on account of the import cost mentioned in ground 4(b) too. The difference between the AL Margin before and after the said adjustments on account of ‘import cost’ works out to 0.57% (7.18%-6.61%). Revenue has not disputed the said working of the assessee. In these factual circumstances and in the light of the scope of adjustments discussed above, in our opinion and in principle, the assessee should win on this ground too. One such decision relied upon by the assessee’s counsel supports our finding relates to the decision of this bench of the Tribunal in the case of Skoda Auto India p Ltd 122 TTJ 699 (Pune) dated March 2009 wherein, it is held (in para 19 of the order) that, “No doubt , a higher import content of raw material by itself does not warrant an adjustment in operating margins, as was held in Sony India (P) Ltd.’s case (supra), but what is to be really seen is whether this high import content was necessitated by the extraordinary circumstances beyond assessee’s control. As was observed by a Co-ordinate Bench of this Tribunal in the case of EGain Communication (P) Ltd. (supra) “the differences which are likely to materially affect the price, cost charged or paid in, or the profit in the pen market are to be taken into consideration with the idea to make reasonable and accurate adjustment to eliminate the differences having material effect”. We do not agree with the AO that every time the assessee pays the higher import duty, it must be passed on to the customers or it must be adjusted for in negotiating the purchasing price. All these things could be relevant only when higher import content is a part of the business model which the assessee has consciously chosen but then if it is a business model to import the SKD kits of the cars, assemble it and sell it in the market, that is certainly not the business models of the comparables that the TPO has adopted in this case. The adjustments then are required to be made for functionally differences. The other way of looking at the present situation is to accept that business model of the assessee company and the comparable companies are the same and it is on account of initial stages of business that the :-20-: IT(TP)A. No: 10 & 15/Chny/2024 unusually high costs are incurred. The adjustments are thus required either way. It is, therefore, permissible in principle to make adjustments in the costs and profits in fit cases. We also do not agree with the authorities below that the onus is on the assessee to get all such details of the comparable concerns so as to make this comparison possible. The assessee cannot be expected to get the details and particulars which are not in public domain. In such a situation, i.e. when information available in public domain is not sufficient to make these comparisons possible, it is inevitable that some approximations are to be made and reasonable assumptions are to be made. The argument before us was that it was first year of assessee’s operations and complete facilities ensuring a reasonable indigenous raw material content was not in place. The assessee’s claim is that it was in these circumstances that the assessee had to sell the cars with such high import contents, and essentially high costs, while the normal selling price of the car was computed in the light of the costs as would apply when the complete facilities of regular production are in place. None of these arguments were before any of the authorities below. What was argued before the AO was mere fact of higher costs on account of higher import duty but then this argument proceeded on the fallacy that an operating profit margin for higher import duty is permissible merely because the higher costs are incurred for the inputs. That argument has been rejected by a Co-ordinate Bench and we are in respectful agreement with the views of our esteemed colleagues. This additional argument was not available before the authorities below and it will indeed be unfair for us to adjudicate on this factual aspect without allowing the TPO to examine all the related relevant facts. We, therefore, deem it fit and proper to remit this matter to the file of the TPO for fresh adjudication in the light of our above observations.” 38. The perusal of the impugned orders shows that the above cited guidelines by way of decision of this bench of the Tribunal in the case of Skoda Auto India p Ltd (supra) were not available to the revenue authorities. Therefore, we are of the opinion, the issue should be set aside to the files of the TPO with direction to examine the claim of the assessee relating to the import cost factor and :-21-: IT(TP)A. No: 10 & 15/Chny/2024 eliminate the difference if any. However, the TPO/AO/DRP shall see to it that the difference in question is ‘likely to materially affect’ the price/profit in the open market as envisaged in sub rule (3) of Rule 10B of the Income tax Rules, 1962. Accordingly, ground 4(b) is allowed pro tanto.” Accordingly, we direct the A.O. to give suitable adjustment against the custom duty component while determining the ALP. Considering the custom duty adjustment and co-ordinate bench decision, we remit the disputed issue to the file of AO for custom duty adjustment.” 23. In the facts and circumstances of the case and respectfully following the decision of this Tribunal (supra), we are of the considered view that the customs duty adjustment need to be given to assessee and hence, we direct the AO to give suitable adjustment against the customs duty component while determining the ALP and dismiss the ground of the revenue. 24. In the result, the appeal of the revenue is dismissed and the appeal of the assessee is partly allowed. Order pronounced in the court on 11th November, 2024 at Chennai. Sd/- (महावीर िसंह ) (MAHAVIR SINGH) उपा᭟यᭃ/Vice President Sd/- (एस. आर.रघुनाथा) (S. R. RAGHUNATHA) लेखासद᭭य/Accountant Member :-22-: IT(TP)A. No: 10 & 15/Chny/2024 चे᳖ई/Chennai, ᳰदनांक/Dated, 11th November, 2024 JPV आदेशकीŮितिलिपअŤेिषत/Copy to: 1. अपीलाथŎ/Appellant 2. ŮȑथŎ/Respondent 3.आयकर आयुƅ/CIT - Chennai 4. िवभागीय Ůितिनिध/DR 5. गाडŊ फाईल/GF "