INCOME TAX OFFICER, CORPORATE WARD-3(3), CHENNAI, NUNGAMBAKKAM V. WOOSU AUTOMOTIVE INDIA PRIVATE LIMITED, TIRUVALLUR

ITA 914/CHNY/2025

AI Insights

The case involves two appeals by the Revenue against the orders of the Commissioner of Income Tax (Appeals), Chennai, concerning the assessment years 2012-13 and 2013-14. The appeals addressed issues related to the computation of the Profit Level Indicator (PLI) of the assessee, Woosu Automotive India Private Limited, which included adjustments for foreign exchange fluctuation losses, working capital, and customs duty. The Tribunal examined the adjustments proposed by the Transfer Pricing Officer (TPO) and the final assessment by the Assessing Officer (AO), which included significant upward adjustments to the assessee's income. The Tribunal's decision relied heavily on precedents set in the assessee's own earlier cases, where similar adjustments had been contested and resolved.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 793072 (ITAT-CHENNAI)
• Duration Of Justice: 5 month(s) 26 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-09-2025
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: D
• Assessment Year: misc
• Appeal Filed On: 29-03-2025
• Other Referred Cases: IT(TP)A No.27/Chny/2019
• Laws Referred To: Income Tax Act
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: ARV SREENIVASAN
• Assessee Lawyers: HARISH RAMANATHAN
• Keywords: Set aside; Transfer pricing; International transaction; Wholly owned subsidiary; Working capital adjustments

Judgement Text

" आयकर अपील य अ धकरण, ‘डी’ \u000eयायपीठ, चे\u000eनई IN THE INCOME TAX APPELLATE TRIBUNAL ‘D’ BENCH, CHENNAI \u0015ी जॉज\u0018 जॉज\u0018 क े, उपा\u001aय\u001b एवं \u0015ी एस.आर.रघुनाथा, लेखा सद%य क े सम\u001b BEFORE SHRI GEORGE GEORGE K, VICE PRESIDENT AND SHRI S.R. RAGHUNATHA, ACCOUNTANT MEMBER आयकर अपील सं./ITA Nos.: 907 & 914/Chny/2025 'नधा\u0018रण वष\u0018 / Assessment Year: 2013-14 & 2012-13 ITO, Corporate Ward – 3(3), Chennai. vs. Woosu Automotive India Private Limited, No. 130, Narasingapuram Village, Perambakkam Post, Tiruvallur – 631 402. Tamil Nadu. (अपीलाथ)/Appellant) [PAN: AAACW-7285-L] (*+यथ)/Respondent) अपीलाथ) क, ओर से/Appellant by : Mr. ARV Sreenivasan, CIT *+यथ) क, ओर से/Respondent by : Shri. Harish Ramanathan, C. A. सुनवाई क, तार ख/Date of Hearing : 15.07.2025 घोषणा क, तार ख/Date of Pronouncement : 24.09.2025 आदेश /O R D E R PER S. R. RAGHUNATHA, AM : These two appeals filed by the Revenue are directed against two separate orders of the Commissioner of Income Tax (Appeals), Chennai-16 both dated 31.01.2025 passed u/s.250 of the Income Tax Act (hereinafter the ‘Act’) in the matter of assessment u/s.143(3) r.w.s. 144C of Act, for the A.Y. 2012-13 and 2013-14. Printed from counselvise.com :-2-: ITA. Nos:907 & 914 /Chny/2025 2. Since the facts, issues and grounds raised are identical in both these two appeals; hence they were heard together and are disposed of by this consolidated order. We shall first adjudicate appeal concerning assessment year 2012-13 as a lead case. ITA No.914/CHNY/2025 (AY 2012-13): 3. The revenue has raised the following grounds of appeal: 1. The order of the Ld. CIT(A) is contrary to the facts and circumstances of the case. 2. Whether on the facts and in the circumstances of the case, the Ld. CIT(A) is correct in allowing to compute the PLI of the assessee by considering the forex exchange fluctuation loss as a non-operating expenses? 3. Whether on the facts and in the circumstances of the case, the Ld. CIT(A) is correct in allowing the working capacity adjustment without appreciating the fact that the assessee has failed to make out a meaningful comparison for the working capacity adjustment by relying upon skewed overdue payable to its AEs? 4. Whether on the facts and in the circumstances of the case, the Ld. CIT(A) is correct in allowing the customs duty adjustment without considering the fact that the assessee has taken a conscious decision to sell goods at a lower price for market penetration and customs duty was not a factor? 5. For these and other grounds that may be adduced at the time of hearing, it is prayed that the order of the Ld. CIT(A) be set aside and that of the Assessing Officer be restored. 4. The brief facts of the case are that the assessee was incorporated as private limited company under the Companies Act, during October 2007 as a wholly owned subsidiary of the Korean Holding Company Woosu AMS Co. Ltd., South Korea. The company is having its manufacturing facility in Sriperumbudur. It is mainly engaged in the manufacture of transmission parts for automobile products such as Rail-sub- Assembly, Fork-Shift, Rail shift, Complete Shaft Assembly, Brkt Assembly-Eng Supt, Gear Differential and Shaft Input. The company caters to OEM Hyundai Motors India Printed from counselvise.com :-3-: ITA. Nos:907 & 914 /Chny/2025 and its ancillary units. The Assessing Officer (AO) considering the issues involved, the matter was referred to Transfer Pricing Officer (TPO) for determination of arm’s length price with reference to international transactions entered into by the assessee and as reported in form 3CEB for the relevant A.Y.2012-13 u/s.92CA(1) of the Act. The assessee submitted a supplementary benchmarking analysis whereby a fresh set of comparable companies were identified and the margin computation for the assessee and for the comparable companies were updated after performing suitable economic adjustments. The TPO rejected the supplementary benchmarking analysis submitted by the assessee during the course of proceedings to be an after-thought and conducted a fresh benchmarking analysis. The issues that emerge from the TPO’s order dated 06.01.2016 are with respect to economic adjustments on foreign exchange fluctuation loss, working capital adjustment, non-cenvatable custom duty adjustment, abnormal wastage related adjustment, freight charges adjustment, risk adjustment power related adjustment. 5. In pursuant to TP adjustment as suggested by the TPO, the AO has passed a final assessment order u/s.143(3) r.w.s 144C(3) of the Act by making an upward adjustment of Rs.16,38,74,154/- on account of transfer pricing, disallowance of Rs.92,953/- u/s.40(a)(ia) of the Act and disallowance of unrealized forex loss amounting to Rs.16,12,076/- and determined total income of the assessee at Rs.98,86,770/- against a returned income of (-) Rs.15,56,92,413/- (loss). 6. Being aggrieved by the assessment order, the assessee preferred an appeal before the Learned Commissioner of Income Tax (Appeals) (“Ld. CIT(A)”). Printed from counselvise.com :-4-: ITA. Nos:907 & 914 /Chny/2025 7. When this appeal was called out for hearing, Ld.DR for the revenue assailing the action of the ld.CIT(A), on the first issue in this appeal of the revenue with regard to reduction of economic adjustment on foreign exchange fluctuation has strongly supported the order of the AO/TPO. 8. On the second issue, with regard to working capital adjustment, the Ld.DR filed a written submissions dated 15.07.2025. In the written submissions, the Ld.DR submitted as under: “2. (i)On the issue of working capital adjustment, the CIT(A) has failed to note that the TPO has observed that: “Normally, payables and receivables would carry a credit period of 60 days - 120 days. In the case of the assessee, the payables were claimed to be outstanding for more than 365 days (About Rs.29 Crores classified as non- current asset category)….. Any laxity in collection or intentional delay may not justify an adjustment to the profit margin of the comparable. In this case, the assessee failed to prove that as per invoice it had a credit period for more than a year justifying that the cost are overstated to the extent of interest as per Indian Interest Rates” 9. On the third issue, with regard to custom duty adjustment, the Ld.DR in the written submissions submitted as under: “2.(ii)On the issue of custom duty adjustment, it is submitted that the CIT(A) has not appreciated the following facts brough out by the TPO: “During the TP proceedings, the assessee has not filed any cost sheet working for pricing the goods. From the financials, it is seen that the assessee ahs probably been selling the goods to the customers at below the cost price. In such a case, it cannot be said that it was the basic customs duty alone which could not be passed on. The assessee has taken a conscious decision to sell goods at a lower price for market penetration and in the hit taken by the assessee in the process, customs duty was not a factor. The assessee has stated that in order to be competitive, the goods could not be priced higher. The assessee commenced production in the year 2007. Market penetration could be a strategy in the initial year or two, but could not continue for five years” 3. Thus, it is submitted that the assessee is intentionally increasing its cost with a view of increasing the income of its AE. Printed from counselvise.com :-5-: ITA. Nos:907 & 914 /Chny/2025 4. Therefore it is submitted that the global group, of which the assessee is a part, as part of its strategy, is inflating the cost of the present assessee, leading to erosion of tax base in India. Prayer: In view of above submissions, it is prayed that the decision of the CIT(A) may kindly be reversed and that of the TPO restored.” 10. Per contra, the Ld.AR for the assessee, supporting the order of the Ld.CIT(A) submitted that, these issues with regard to foreign exchange fluctuation adjustment, working capital adjustment and custom duty adjustment are squarely covered in favour of the assessee in assessee’s own case by the decision of this Tribunal, in IT(TP)A No.27/Chny/2019 dated 23.08.2023 for A.Y.2014-15 where the identical issues have been considered by the Tribunal. 11. We have heard the rival contentions perused the material available on record and gone through the orders of the authorities along with the decision of the Tribunal. We find that the above issues are squarely covered, in favour of the assessee by the decision of the co-ordinate bench in assessee’s own case in in IT(TP)A No.27/Chny/2019 dated 23.08.2023 for AY 2014-15. 12. With regard to the first issue in this appeal of the revenue with regard to reduction of economic adjustment on foreign exchange fluctuation, the Tribunal held as under: “8.1 We noted that in principle, the foreign exchange fluctuation loss adjustment has to be given being a non-operating expenses and the AO/TPO will recompute the PLI after considering the details and facts of foreign exchange fluctuation loss claimed by assessee. In term of the above, this issue is also set aside to the file of the AO/TPO and allowed for statistical purposes”. Printed from counselvise.com :-6-: ITA. Nos:907 & 914 /Chny/2025 13. We find that the adjustment on account of foreign exchange fluctuation suggested by the TPO/AO is not warranted as held in the order of this Tribunal in assessee’s own case and hence respectfully following the decision of this tribunal(supra), there is no reason to interfere in the order of the Ld.CIT(A) and hence we dismiss the grounds raised by the revenue in this aspect. 14. With regard to the second issue of working capital adjustment, the Tribunal held as under: “We noted that the TPO himself in the proceedings for assessment year 2013- 14 considering the impact of negative working capital in profitability of assessee allowed working capital adjustment. Now the contention of the Revenue is to restrict the adjustment to the difference in agreed credit period between the AO and the assessee and that of comparables. But according to assessee, this is improbable as similar data is not available in the case of comparable companies. The ld. Counsel for the assessee drew our attention to OECD guidelines which provides for considering the availed credit period rather than agreed credit period. The ld. Counsel for the assessee filed the OECD guidelines of July, 2010 wherein it is mentioned as under: “A major issue in making working capital adjustments involves the selection of the appropriate interest rate (or rates) to use. The rate (or rates) should generally be determined by reference to the rate(s) of interest applicable to a commercial enterprise operating in the same market as the tested party.” The ld. Counsel stated that the CIT(A) has rightly allowed the claim. We uphold the order of CIT(A) and this issue of Revenue’s appeal is dismissed” 15. We also find that the working capital adjustment suggested by the TPO / AO is not warranted as held in the order of this Tribunal in assessee’s own case and hence respectfully following the decision of this tribunal(supra), we do not find fault in the order of the ld.CIT(A) and hence we dismiss the grounds raised by the revenue in this aspect. 16. With regard to the third issue of custom duty adjustment, ITAT held as under: Printed from counselvise.com :-7-: ITA. Nos:907 & 914 /Chny/2025 “Before us, the ld. Counsel for the assessee argued that the assessee has made claim before TPO in regard to economic adjustment in respect of higher non-cenvatable customs duty paid on imports as compared to comparable companies for the reason as the assessee could not pass on the impact of entire higher import duty to its customer and as a consequence to the extent of such higher non-cenvatable duty, assessee’s PLI needs to be adjusted before comparing against the comparable companies. He also stated that the comparable companies have largely indigenized their operations with majority of the raw materials procured locally and the comparable companies do not bear the additional cost of the customs duty in regard to their indigenized operation. According to counsel, the assessee has no choice but to import the raw material either form its AE or from other parties due to business reasons. The assessee has to pay higher import duties on account of stringent quality requirement. The assessee has tried to show the details of higher custom duty incurred but no comparable was cited but ld. Counsel for the assessee stated that his mater can go back to the file of AO for verification whether the assessee is paying higher custom duty i.e., non – cenvatable custom duty and the comparables are either procuring indigenous raw material or buying lesser custom duty which could be set – off against cenvat. We noted that the authorities below have not adjudicated this issue by comparing the custom duty paid by the assessee and its comparable. Hence, this issue needs verification at the level of TPO/AO. Needless to say, the assessee will file all the details before the AO/TPO and accordingly, the matter is restored back to the file of the AO/TPO, who will examine the facts in detail and then decide this issue. Principally, the assessee is entitled to claim of non-cenvatable custom duty adjustment and it has to be decided based on facts. Accordingly, this issue is remitted back to the file of the AO”. 17. We find that the custom duty adjustment suggested by the TPO / AO has already been adjudicated by this tribunal in its order in assessee’s own case(supra) in favour of the assessee and hence the ld.CIT(A) has followed the view taken by this tribunal in adjudicating the issue and remitted back to the files of TPO/AO for verification of facts and hence respectfully following the decision of this tribunal(supra), we do not find fault in the order of the ld.CIT(A). Therefore, we dismiss the grounds raised by the revenue in this aspect. 18. In view of the above discussions, and bearing in mind the entirety of the case, we uphold the conclusions arrived at by the Ld.CIT(A) and decline to interfere in the matter. Printed from counselvise.com :-8-: ITA. Nos:907 & 914 /Chny/2025 19. We find the issues in A.Y.2012-13 raised by the revenue are similar to the facts and circumstances relevant to A.Y.2013-14 in ITA No.907/Chny/2025, wherein, we have upheld the order of Ld.CIT(A). Therefore, we hold our reasonings and findings would be equally applicable to the assessment year 2013-14 under consideration. Thus, the ground raised by the revenue for AY 2013-14 are also dismissed. 20. In the result, both the appeals of the revenue for the A.Y.2012-13 and 2013-14 are dismissed. Order pronounced in the court on 24th September, 2025 at Chennai. Sd/- Sd/- (जॉज\u0003 जॉज\u0003 क े) (GEORGE GEORGE K) उपा /VICE PRESIDENT (एस. आर. रघुनाथा) (S.R.RAGHUNATHA) लेखा सद\u0017/ACCOUNTANT MEMBER चे\u000eनई/Chennai, 1दनांक/Dated, the 24th September, 2025 SP आदेश क, *'त3ल4प अ5े4षत/Copy to: 1. अपीलाथ)/Appellant 2. *+यथ)/Respondent 3.आयकर आयु6त/CIT 4. 4वभागीय *'त'न ध/DR 5. गाड\u0018 फाईल/GF Printed from counselvise.com "