Triumph International (India) Private Limited, Kancheepuram V. DCIT, CHENNAI

ITA 1035/CHNY/2014

• Counselvise Citation: [2019] 117 COUNSELVISE.COM (IT) 8167 (ITAT-CHENNAI)
• Duration Of Justice: 4 year(s) 11 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 04-04-2019
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: D
• Assessment Year: 2009-2010
• Appeal Filed On: 23-04-2014
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: M SRINIVASA RAO
• Keywords: Depreciation; Transfer pricing; International transaction; TDS
• Section: 143(3); 2

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL , D B ENCH, CHENNAI . . . , . , # BEFORE SHRI N.R.S.GANESAN, JUDICIAL MEMBER AND SHRI S.JAYARAMAN, ACCOUNTANT MEMBER / I.T.A. NO.1035/CHNY/2014 '' /ASSESSMENT YEAR : 2009-10 M/S. TRIUMPH INTERNATIONAL (I) P.LTD., 240B, SENGUNDRAM VILLAGE, SINGAPERUMALKOIL, KANCHIPURAMDIST PIN :603 204. VS THE DEPUTY COMMISSIONER OF INCOME TAX, COMPANY CIRCLE III(2), CHENNAI. PAN: AABCT5775D ( /APPELLANT) ( /RESPONDENT) / APPELLANT BY : MR. GIRISH DAVE, SR. ADVOCATE /RESPONDENT BY : MR. M.SRINIVASA RAO, CIT /DATE OF HEARING : 07.02.2019 /DATE OF PRONOUNCEMENT : 04.04.2019 / O R D E R PER S.JAYARAMAN, AM: THE ASSESSEE FILED THIS APPEAL AGAINST THE ORDER OF THE DEPUTY COMMISSIONER OF INCOME TAX, COMPANY CIRCLE-III(2), CHENNAI, DATED 14.02.2014, PASSED IN PURSUANCE OF THE ORDER PASSE D BY DRP, CHENNAI IN F.NO. DRP/CHE/61/2013 DATED 20.12.2013 FOR ASSES SMENT YEAR 2009-10. 2. M/S TRIUMPH INTERNATIONAL (INDIA) PRIVATE LIMITE D, THE ASSESSEE, WAS INCORPORATED IN MARCH 2002 AS A WHOLLY OWNED SU BSIDIARY OF 2 ITANO.1035/CHNY/2014 TRIUMPH UNIVERSAL AG, SWITZERLAND WHICH IS ULTIMATE LY HELD BY TRIUMPH INTERNATIONAL SPIESSHOFER & BRAUN KG (TISUB), SWITZ ERLAND.TRIUMPH INDIA IS ENGAGED IN THE BUSINESS OF MANUFACTURING A ND DISTRIBUTION OF WOMEN FOUNDATION GARMENT, SWIMWEAR AND LINGERIE BRA ND IN INDIA AND COMMENCED ITS COMMERCIAL PRODUCTION DURING APRIL 20 08. THUS, THIS YEAR WAS THE FIRST YEAR OF MANUFACTURING FOR THE ASSESEE COMPANY. 2.1. THE ASSESSEE HAS ENTERED INTO VARIOUS INTERNA TIONAL TRANSACTIONS WITH ASSOCIATED ENTERPRISES (AES) DURING FINANCIAL YEAR ENDED 31 MARCH 2009. ITS ACTIVITIES ARE BIFURCATED INTO 3 SEGMENTS , NAMELY; A) MANUFACTURE & SALES TO GROUP COMPANIES (AE SEGMENT ), B) MANUFACTURE & SALES IN DOMESTIC MARKET (DOMESTIC SE GMENT) AND C) DISTRIBUTION IN DOMESTIC MARKET. BUY/SELL (DISTRIB UTION SEGMENT) . SINCE THE ASSESSE WAS IN THE INITIAL YEAR OF OPERATIONS IN RELATION TO THE MANUFACTURING ACTIVITY, IT CLAIMED TO HAVE INCURRED SIGNIFICANT START-UP COSTS WHICH, INTER ALIA, INCLUDED EXCESSIVE RAW MA TERIAL CONSUMPTION, HIGH FIXED COST, UNDER-UTILIZATION OF INSTALLED CAP ACITY, UNDER RECOVERY OF ADMINISTRATIVE COSTS, ECONOMIC FACTORS AND OTHER OV ERHEADS ON ACCOUNT OF LOWER SALES VOLUME.THEREFORE, IT CLAIMED TO HAVE INCURRED HUGE COSTS DURING THE FIRST START-UP YEAR DUE TO THE FOLLOWING FACTORS:- 3 ITANO.1035/CHNY/2014 NON-UTILISATION OF FULL CAPACITY IN THE FIRST YEAR OF MANUFACTURING OPERATIONS. THE AVERAGE UTILIZATION RATE FOR THE PERIOD OF OPE RATIONS WAS ONLY L5.04%. AS A RESULT, THE ASSETS PURCHASED FOR THE PRODUCTIO N WERE UNDERUTILIZED AND THE FIXED COSTS WERE NOT FULLY ABSORBED. THE COMPANY HAD ALSO INVESTED HEAVILY ON TRAINING I TS EMPLOYEES AND OTHER SET-UP COSTS DURING THE YEAR. IN ANY PRODUCT LIFE CYCLE, AT THE STAGE OF INCEPTIO N, A COMPANY HAS TO FACE THE EFFECTS OF LEARNING CURVE, WITH ABNORMAL MATERI AL WASTAGE, INCUR ADDITIONAL COSTS ON TRAINING THE EMPLOYEES DURING T HE TRAINING PERIOD TO ASSURE SUSTAINABLE GROWTH AT THE RIGHT QUANTITY. 2.2 THUS, THE ASSESSEE CLAIMED THAT IT HAS FACED SIMILAR BUSINESS AND ECONOMIC CONDITIONS DURING THE YEAR. THEREFORE, THE HUGE LOSSES INCURRED BY IT WAS ON ACCOUNT OF THE ABOVE REASONS, ATTRIBU TED TO THE START-UP YEARS OF MANUFACTURING OPERATIONS, AND IS NOT DUE T O TRANSFER PRICING REASONS. IN ITS TP DOCUMENT, THE ASSESSEE AGGREGAT ED ALL THE INTERNATIONAL TRANSACTIONS ENTERED INTO WITH AES AN D BENCHMARKED THEM BY APPLYING THE TRANSACTIONAL NET MARGIN METHOD (TN MM). ITS OPERATING MARGIN FOR THE YEAR ENDED 31 ST MARCH 2009 WAS 18.60% VIS--VIS -1.80% FOR THE ASSESSEES SELECTED COMPARABLE COMPANIES P OST CERTAIN ADJUSTMENTS. BASED ON THEM, THE ASSESSEE HAD CONCLU DED THAT ALL THE INTERNATIONAL TRANSACTIONS ENTERED INTO WITH AES WE RE AT ARMS LENGTH. HOWEVER, THE TPO CONSIDERED CERTAIN ITEMS OF COSTS SUCH AS EMPLOYEE COST, ELECTRICITY, HEATING OIL, SHIPPING, POSTAGE, MISCELLANEOUS EXPENSES, ETC AS VARIABLE WHILE REWORKING THE CAPACITY UTILIZ ATION ADJUSTMENT CLAIMED BY THE ASSESSEE AND ALSO DID NOT GRANT RELI EF FOR START-UP 4 ITANO.1035/CHNY/2014 EXPENSES. ON THE DOMESTIC TRANSACTIONS, THE AO MADE DISALLOWANCE OF FOREIGN EXCHANGE FLUCTUATION LOSS ARISING ON RESTAT EMENT OF FOREIGN CURRENCY RECEIVABLES/PAYABLES AS NOTIONAL LOSS, DIS ALLOWED EMPLOYEES CONTRIBUTION TO EMPLOYEES PROVIDENT FUND (EPF) AND EMPLOYEES STATE INSURANCE FUND (ESI) UNDER SECTION 36(1)(VA) AND GR ANTED CREDIT FOR THE TDS AT RS.3,74,032/- AS AGAINST RS.3,96,149/- CLAIM ED BY THE ASSESSE. AGGRIEVED, THE ASSESSE FILED ITS OBJECTIONS BEFORE THE DRP AND THE DRP DISMISSED THEM. ON GIVING EFFECT TO THE ORDER, THE ASSESSEE FILED THIS APPEAL WITH FOLLOWING GROUNDS: 1. THE APPELLANT OBJECTS TO THE FINAL ASSESSMENT O RDER DATED 14.02.2014 PASSED UNDER SECTION 143(3) R.W.S. 92CA OF THE INCO ME-TAX ACT, 1961 (THE ACT) BY THE DEPUTY COMMISSIONER OF INCOME-TAX, COM PANY CIRCLE III (2), CHENNAI (THE ASSESSING OFFICER/AO) FOR THE AFORESAID ASSESSMENT YEAR ON THE FOLLOWING AMONG OTHER GROUNDS: TRANSFER PRICING GROUNDS 2. ADJUSTMENT OF RS.1,42,23,286 TO THE VALUE OF INT ERNATIONAL TRANSACTION OF SALES MADE TO ASSOCIATED ENTERPRISES (AE) 2.1 THE TPOS RECOMMENDATION/COMPUTATION IN PURSUAN CE OF DRP DIRECTIONS AND THE CONSEQUENTIAL FINAL ASSESSMENT O RDER PASSED BY THE AO IS ERRONEOUS IN SEEKING TO MAKE AN UPWARD ADJUSTMEN T OF RS. 1,42,23,286/- TO INCOME/SALES DECLARED BY THE APPEL LANT. 2.2 THE AO/DRP ERRED IN STATING THAT ONCE IDLE CAP ACITY ADJUSTMENT HAS BEEN ALLOWED THERE WAS NO NEED TO GO TO INDIVIDUAL EXPENSES WITHOUT APPRECIATING THE FACT THAT SELECTION OF CERTAIN ITE MS OF FIXED COSTS IS AN IMPORTANT FACTOR IN COMPUTING THE ADJUSTMENT. 2.3 THE DRP ERRED IN CONFIRMING THE ORDER OF THE TP O/AO IN TREATING CERTAIN ITEMS OF EXPENDITURE AS VARIABLE EXPENSES, INSTEAD OF FIXED COSTS, SUCH AS EMPLOYEE COST, ELECTRICITY, POWER, HEATING OIL (DIESEL), REPAIRS & MAINTENANCE (OTHERS). PROFESSIONAL CHARGES, COMMUNI CATION AND MISCELLANEOUS EXPENSES WHILE ARRIVING AT THE ADJUST MENT FOR CAPACITY UTILIZATION. 5 ITANO.1035/CHNY/2014 2.4 THE TPO/AO/DRP ERRED IN NOT PROVIDING APPROPRIA TE ADJUSTMENT FOR START-UP COST. 2.5 THE DRP ERRED IN CONFIRMING THE ORDER OF THE TP O/AO IN NOT PROVIDING APPROPRIATE ADJUSTMENT FOR EXCESS EMPLOYEE COST INC URRED BY THE APPELLANT VIS-A-VIS COMPARABLE COMPANIES CONSIDERIN G THE START-UP PHASE OF OPERATIONS. 2.6 THE TPO ERRED IN NOT PROVIDING APPROPRIATE ADJU STMENTS FOR EXCESS DEPRECIATION CHARGED BY THE APPELLANT VIS--VIS COM PARABLE COMPANIES CONSIDERING THE START-UPPHASE OF OPERATIONS. 2.7 THE DRP ERRED IN CONFIRMING THE ORDER OF THE TP O/AO IN NOT TREATING THE TRAVELEXPENDITURE INCURRED IN RELATION TO IMPLE MENTATION OF SAP AS ABNORMAL COST AND EXCLUDE THE SAME WHILE RECKONING THE OPERATING COST FOR THE PURPOSE OFDETERMINATION OF ALP OF INTERNATI ONAL TRANSACTIONS. 2.8 THE LEARNED AO/DRP ERRED IN NOT PROVIDING THE A DJUSTMENT TO THE ARMS LENGTH MARGIN OF COMPARABLE COMPANIES ON ACCO UNT OF DIFFERENCES IN THE FUNCTIONAL AND RISK PROFILE OF THE APPELLANT VI S--VIS COMPARABLE COMPANIES MAINLY IN RESPECT OF MARKETING, ADVERTISE MENT AND PROMOTION EXPENSES. CORPORATE TAX GROUNDS 3. DISALLOWANCE OF FOREIGN EXCHANGE FLUCTUATION LOS S ARISING ON RESTATEMENT OF FOREIGN CURRENCY RECEIVABLES/PAYABLE S AS NOTIONAL LOSS 3.1 THE DRP ERRED IN CONFIRMING THE ORDER OF THE AO IN TREATING THE FOREIGN EXCHANGE FLUCTUATION LOSS AMOUNTING TO RS.5,17,50,0 01/- ON ACCOUNT OF FOREIGN CURRENCY RECEIVABLES/PAYABLES AS NOTIONAL L OSS AND THEREBY ERRED IN DISALLOWING THE SAID LOSS WHILE ARRIVING AT THE TOTAL INCOME OF THE APPELLANT. 3.2 THE DRP ERRED IN CONFIRMING THE ORDER OF THE AO WITHOUT APPRECIATING THAT THE LOSS ON FOREIGN EXCHANGE FLUCTUATION HAS A RISEN ENTIRELY ON RESTATEMENT OF FOREIGN CURRENCY RECEIVABLES/PAYABLE S WHICH ARE REVENUE IN NATURE. 3.3 WITHOUT PREJUDICE TO THE ABOVE, THE DRP ERRED I N CONFIRMING THE ORDER OF THE AO IN NOT CONSIDERING THE CREDIT ENTRIES TO THE EXTENT OF RS.4,40,40,855/- IN FOREX FLUCTUATION ACCOUNT WHILE DISALLOWING RS.5,17,50,001/- AND AS SUCH THE TOTAL LOSS ON ACCO UNT OF FOREIGN EXCHANGE FLUCTUATION ON REVENUE ITEMS IS ONLY RS.77 ,09,146/- (I.E. DIFFERENCE BETWEEN RS.5,17,50,001/- AND RS.4,40,40, 855/-). 3.4 WITHOUT PREJUDICE TO THE ABOVE, THE DRP/AO OUGH T TO HAVE APPRECIATED THAT THE DISALLOWANCE OF FOREIGN EXCHANGE FLUCTUATI ON LOSS CANNOT IN ANY EVENT BE HIGHERTHAN THE AMOUNT DEBITED TO THE PROFI T & LOSS ACCOUNT. 5. DISALLOWANCE OF EMPLOYEES CONTRIBUTION TO EMPLO YEES PROVIDENT FUND 6 ITANO.1035/CHNY/2014 (EPF) AND EMPLOYEES STATE INSURANCE FUND (ESI) UNDE R SECTION 36(1)(VA) OF THE ACT. 5.1 THE FINAL ASSESSMENT ORDER IN PURSUANCE OF DRP DIRECTIONS IS ERRONEOUS IN DISALLOWING AN AMOUNT OF RS.17,76,433/ - BEING EMPLOYEES CONTRIBUTION EPF AND ESI UNDER SECTION 36(1)(VA) OF THE ACT. 5.2 THE AO/ DRP OUGHT TO HAVE APPRECIATED THAT THE APPELLANT HAS REMITTED THE EPF AND ESI CONTRIBUTIONS RECEIVED FRO M EMPLOYEES BEFORE THE DUE DATE FOR FILING OF INCOME TAX RETURN AS PER SECTION 139(1) OF THE ACT AND AS SUCH ITS DISALLOWANCE IS UNWARRANTED. 6. MISCELLANEOUS 6. 1 THE ASSESSING OFFICER ERRED IN GRANTING CREDIT FOR TAX DEDUCTED AT SOURCE (TDS) FOR AN AMOUNT OF RS.3,74,032/- AS AGAI NST A TOTAL TDS OF RS.3,96,149/- CLAIMED BY THE APPELLANT IN ITS RETUR N OF INCOME. 7. 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 HEARIN G OF THE APPEAL. 2.3 SINCE THE LD AR HAS WITHDRAWN GROUND NO. 4 A ND MADE THE DUE ENDORSEMENT IN THE RECORD AND THE LD DR HAS NOT OBJ ECTED TO IT, SUCH GROUNDS WERE NOT EXTRACTED, SUPRA, AND THEY ARE TRE ATED AS DISMISSED AS WITHDRAWN. 3. THE ASSESSEE PLEADED FOR ADMISSION OF ADDITIONAL GROUNDS AND SUBMITTED THAT FOR ASSESSMENT YEAR 2009-10, THE TRA NSFER PRICING OFFICER (TPO) CONCLUDED THAT : (I) THE MANUFACTURING SEGMENT OF THE APPELLANT CATE RS TO THE NEED OF THE AE SEGMENT ONLY; AND HENCE THE CAPACITY UTILIZATION OF 10.61% FOR THE AE SEGMENT IS REJECTED AND; 7 ITANO.1035/CHNY/2014 (II) CAPACITY UTILIZATION OF THE APPELLANT IS TO BE RECKONED AT 15.04% AFTER CONSIDERING THE PRODUCTION OF THE APPELLANT AT THE MANUFACTURING SEGMENT / ENTITY LEVEL. 3.1 WHILE ISSUING THE ORDER GIVING EFFECT TO THE DI RECTIONS OF HONORABLE DISPUTE RESOLUTION PANEL DATED 05.02.2014, THE TPO HAS ACCEPTED THAT THE ASSESSEES REVENUE CONSISTED THE FOLLOWING INCO ME STREAMS: PARTICULARS AMT. MANUFACTURING EXPORT SALE 20,80,31,348 AE TRANSACTION MANUFACTURING DOMESTIC SALE 6,24,87,127 NON -AE TRANSACTION DISTRIBUTION DOMESTIC SALE 12,60,36,884 NON-AE TRANSACTION TOTAL 39,65,55,259 3.2 THE TPO WHILE COMPUTING THE MARGIN OF THE ASSES SEE AT A AE SEGMENT LEVEL WITHIN THE MANUFACTURING SEGMENT, OUG HT TO HAVE RECKONED THE CAPACITY ACHIEVED BY THE ASSESSEE WITH RESPECT TO THE AE SEGMENT AT 10.61% (ANNEXURE A TO THE SUBMISSION MADE TO THE TP O DATED25TH OCTOBER 2012) INSTEAD OF RECKONING THE CAPACITY UTI LIZATION AT THE MANUFACTURING SEGMENT I ENTITY LEVEL AT 15.04%. 3.3 BEFORE THIS HONBLE TRIBUNAL, AMONG OTHER GROUN DS OF APPEAL, THE ASSESSEEHAS CHALLENGED THE FINAL ASSESSMENT ORDER P ASSED IN PURSUANCE OF THE DIRECTIONS ISSUED BY DRP. HOWEVER, IT HAS IN ADVERTENTLY OMITTED TO RAISE SPECIFIC GROUND THAT WHILE ALLOWING ADJUSTMEN T FOR UNDER UTILIZATION OF CAPACITY IN THE MANUFACTURING AE SEGMENT, THE TPO O UGHT TO HAVE RECKONED THE CAPACITY ACHIEVED IN THE AE SEGMENT VI S--VIS CAPACITY ACHIEVED BY THE COMPARABLE COMPANIES INSTEAD OF COM PARING THE ENTITY LEVEL CAPACITY (I.E. MANUFACTURING RELATING TO AES AND MANUFACTURING RELATING TO DOMESTIC SEGMENT). 3.4 THE ABOVE GROUNDS DO NOT REQUIRE INVESTIGATION OF ADDITIONAL FACTS AS THESE DETAILS ARE AVAILABLE IN THE TP ORDER. IT IS THEREFORE PRAYED THAT THESE ADDITIONAL LEGAL GROUNDS MAY BE ADMITTED AND DECIDED ON MERITS. THE ASSESSEERELIED ON THE FOLLOWING DECISIONS FOR A DMISSION OF ADDITIONAL GROUNDS OF APPEAL: CIT VS ASSOCIATED STONE INDUSTRIES (224 ITR 560 ( SC) CIT VSM.K.YASHWANT SINGH (231 ITR 145 (DEL) NATIONAL THERMAL POWER CO LTD (229 ITR 383 (SC) ADDITIONAL GROUNDS OF APPEAL 1. WITHOUT PREJUDICE TO THE GROUNDS OF APPEAL ALREA DY FILED AS PART OF FORM 36B, THE DRP / TPO WHILE COMPUTING THE ADJUSTMENT F OR UNDERUTILIZATION OF CAPACITY IN THE MANUFACTURING S EGMENT HAS ERRED IN CONSIDERING THE CAPACITY UTILIZED BY THE APPELLANT AT THE WHOLE MANUFACTURING SEGMENT / ENTITY LEVEL OF 15.04% INST EAD OF CONSIDERING 8 ITANO.1035/CHNY/2014 THE CAPACITY UTILIZED BY THE APPELLANT ONLY IN RESP ECT OF THE AE SEGMENT WITHIN THE MANUFACTURING SEGMENT, WHICH IS AS LOW A S 10.61%. 4. WE HEARD THE RIVAL SUBMISSIONS ON THE ADDITIONA L GROUNDS AND GONE THROUGH RELEVANT MATERIAL. WE FIND THAT THE AS SESSEES ADDITIONAL GROUND THAT WHILE COMPUTING THE ADJUSTMENT FOR UN DER UTILIZATION OF CAPACITY IN THE MANUFACTURING SEGMENT HAS ERRED IN CONSIDERING THE CAPACITY UTILIZED BY THE APPELLANT AT THE WHOLE MAN UFACTURING SEGMENT / ENTITY LEVEL OF 15.04% INSTEAD OF CONSIDERING THE C APACITY UTILIZED BY THE APPELLANT ONLY IN RESPECT OF THE AE SEGMENT WITHIN THE MANUFACTURING SEGMENT, WHICH IS AS LOW AS 10.61%, IS PURELY LEGA L IN NATURE AND SINCE THIS ISSUE IS NOT AT ALL CONSIDERED BY THE LOWER AU THORITIES, WE THEREFORE ADMIT THE ADDITIONAL GROUND AND RESTORE THE MATTER TO THE FILE OF THE TPO/AO TO CONSIDER IT, DE NOVO. 5. THE LD.AR SUBMITTED THAT THOUGH CAPACITY UTILIZA TION ADJUSTMENT WAS GRANTED BY THE TPO BUT HE EXCLUDED CERTAIN COS TS FROM SUCH ADJUSTMENT. THE APPELLANTS CAPACITY UTILIZATION WA S AT 10.61%, AS IS PLEADED IN THE ADDITIONAL GROUNDS, SUPRA, AND THE C OMPARABLES CAPACITY UTILIZATION WAS AT 56.41%. HOWEVER, THE TPO HAS AD OPTED HIGHER RATES FOR BOTH OF THEM WHICH REQUIRE RECONSIDERATION/ RE- ADJUDICATION. FURTHER, THE LD AR SUBMITTED THAT THE TPO/AO/DRP ERRED IN NO T PROVIDING APPROPRIATE ADJUSTMENT FOR START-UP COST AND TROUBL E COST AND THEY HAVENOT APPRECIATED THE FACT THAT SELECTION OF CER TAIN ITEMS OF FIXED COSTS 9 ITANO.1035/CHNY/2014 IS AN IMPORTANT FACTOR IN COMPUTING THE ADJUSTMENT. FURTHER, THE LD. AR SUBMITTED THAT THE DRP ERRED IN CONFIRMING THE ORDE R OF THE TPO/AO IN NOT TREATING THE ONE TRAVEL EXPENDITURE INCURRED IN RELATION TO IMPLEMENTATION OF SAP AS ABNORMAL COST AND EXCLUDE THE SAME WHILE RECKONING THE OPERATING COST FOR THE PURPOSE OF D ETERMINATION OF ALP OF INTERNATIONAL TRANSACTIONS. IN THIS REGARD, HE PLAC ED RELIANCE ON THE FOLLOWING DECISIONS:- NIPPON PAINT INDIA P.LTD IN ITA NO.779/MDS/2016, ITAT., CHENNAI BENCHES, ARISTON THERMO INDIA LTD., PUNE ITAT BENCH IN IT A NO.1455/PN/2010 & IN THE CASE OF CALSONIC KANSEL MOTHERSON PRODUCTS L TD. DELHI ITA NO. 667/DEL/2015. PER CONTRA, THE LD DR SUPPORTED THE ORDERS OF LOWE R AUTHORITIES. 5.1 WE HEARD THE RIVAL SUBMISSIONS AND GONE THROUGH RELEVANT MATERIAL. IT IS CLEAR FROM THE ABOVE THAT THE ASSE SSEE CONTENDED BEFORE THE INCOME-TAX AUTHORITIES THAT ADJUSTMENTS ARE BE MADE TO THE PROFIT MARGIN OF THE ASSESSEE ON ACCOUNT OF ABNORMAL START -UP COSTS AND UNDER CAPACITY UTILIZATION BEING THE INITIAL YEAR OF OPER ATIONS.THE CAPACITY UTILIZATION ADJUSTMENT GRANTED BY THE TPO IS, O N ADMISSION OF ADDITIONAL GROUNDS OF APPEAL, SUPRA, ALREADY RESTO RED TO THE FILE OF THE TPO/AO TO CONSIDER IT, DE NOVO. THE LD AR SUBMITTED THAT THE 10 ITANO.1035/CHNY/2014 TPO/AO/DRP ERRED IN NOT PROVIDING APPROPRIATE ADJUS TMENT FOR START-UP COST AND TROUBLE COST AND THEY HAVE NOT APPRECI ATED THE FACT THAT SELECTION OF CERTAIN ITEMS OF FIXED COSTS IS AN IMP ORTANT FACTOR IN COMPUTING THE ADJUSTMENT. FURTHER, THE LD. AR SUBM ITTED THAT THE DRP ERRED IN CONFIRMING THE ORDER OF THE TPO/AO IN NOT TREATING THE ONE TRAVEL EXPENDITURE INCURRED IN RELATION TO IMPLEMENTATION OF SAP AS ABNORMAL COST VIS--VIS, COMPARABLE WHICH WERE ALREADY ESTA BLISHED IN MARKET AND THEY DID NOT HAVE SUCH FACTORS. IN OUR VIEW, TH ESE FACTORS ARE REQUIRED TO BE ADJUSTED SO AS TO HAVE A MEANINGFUL COMPARABILITY ANALYSIS BETWEEN THE INTERNATIONAL TRANSACTIONS OF THE ASSESSEE AND THE COMPARABLES. IN OUR CONSIDERED OPINION, IN ORDER TO ARRIVE AT AN APPROPRIATE ADJUSTMENT, THE ENTIRE FACTUAL MATRIX I S REQUIRED TO BE RE- EXAMINED/ VERIFIED ON THE BASIS OF THE MATERIAL TO BE FURNISHED BY THE ASSESSEE, WHICH DESERVES TO BE CARRIED OUT BY THE T PO/ ASSESSING OFFICER. THEREFORE, WE RESTORE THESE ISSUES BACK TO THE FILE OF THE TPO/ ASSESSING OFFICER WHO SHALL ALLOW THE ASSESSEE A RE ASONABLE OPPORTUNITY TO MAKE SUBMISSIONS AND PRODUCE RELEVANT MATERIAL I N SUPPORT OF ITS STAND AND THEREAFTER THE TPO/ ASSESSING OFFICER SHA LL ALLOW AN APPROPRIATE ADJUSTMENT IN THE OPERATING MARGINS OF THE ASSESSEE. 11 ITANO.1035/CHNY/2014 6. THE NEXT ISSUE IS IN CONNECTION WITH THE DISALLO WANCE OF FOREIGN EXCHANGE FLUCTUATION LOSS ARISING ON RESTATEMENT OF FOREIGN CURRENCY RECEIVABLES/PAYABLES AS NOTIONAL LOSS .IN THIS REGA RD, THE RELEVANT PORTION OF THE ORDER OF THE AO / DRP IS EXTRACTED AS UNDER : 5.2 NORMALLY, A FOREIGN EXCHANGELOSS/GAIN CAN BE R EALIZED OR UNREALIZED. REALIZED FOREIGN EXCHANGELOSS/GAIN IS THE DIFFERENCE IN RATE OF FOREIGN EXCHANGEBETWEEN THE DATE OF INVOICE AND DATE OF RECEIPT/ PAYMENT. UNREALIZED FOREIGN EXCHANGE LOSS/GAINREFE RS TO THE LOSS/ GAIN DUE TO RESTATEMENT OF ASSETS AND LIABILITIES AS ON THE BALANCE SHEET DATE AT THE PREVAILING EXCHANGE RATE. AS UNREALIZED FOREIGN EXCHANGE LOSS IS ALLOWABLE ONLY ON REVENUE ACCOUNT, THE ASSESSEE WA S REQUESTED TO PRODUCE LEDGER EXTRACT AND THE SAME WAS SUBMITTED V IDE LETTER DATED 12.03.2013. 5.4 AN EXAMINATION OF THE ABOVE LEDGER EXACT SHOWED THAT THE ASSESSEE HAS THE PRACTICE OF RESTATING ITS ASSETS AND LIABIL ITIES AT THE PREVAILING RATE OF EXCHANGE AT THE END OF EVERY MONTH AND REVERSING THE ENTRY SUBSEQUENTLY HOWEVER, IT IS NOTICED THAT CERTAIN EN TRIES REPRESENTS NOTIONAL LOSSES, THE SAME CANNOT BE ALLOWED AS EXPENDITURE. THE LISTS OF SUCH ENTRIES AS EXTRACTED FROM ASSESSEES SUBMISSIONS A RE AS UNDER:- DATE PARTICULARS VEH.TYPE VEH.NO. DEBIT CREDIT 30.06.2008 TO TRIUMPH INTERNATIONAL SERVICES AG JOURNAL VOUCHER AJV/08/360 4,24,14,484 30.06.2008 TO TRIUMPH UNIVERSAL JOURNAL JV/08/2164 1,85,05,000 31.07.2008 TO TRIUMPH INTERNATIONAL SERVICES AG JOURNAL JV/08/2525 91,69,483 5.5 THE EXCESSOF DEBIT ENTRIES OVER THAT OF CREDIT I.E. TO SAY A SUM OF RS.5,17,50,001/- [4,24,14,484 + 1,85,05,000 9,69, 483} BEING NOTIONAL LOSS IS DISALLOWED AND ADDED BACK TO TOTAL INCOME. [ADDITION: RS.5,17,50001/- . . . 12 ITANO.1035/CHNY/2014 . . . . THE ASSESSEE ON THE OTHER HAND HAS CLAIMED, THAT HE FOLLOWS MERCANTILE SYSTEM OF ACCOUNTING CONSISTENTLY EVERY YEAR AND AC CORDINGLY RESTATES THE TRADING LIABILITIES INCURRED IN FOREIGN CURRENCY AT THE END OF EVERY MONTH AND REVERSES SUCH RESTATEMENT AT THE COMMENCEMENT OF IM MEDIATELY SUCCEEDING MONTH. AS A MATTER OF: CONSISTENCY THE A SSESSEE CLAIMED THAT THE LOSS SHOULD HAVE BEEN ALLOWED. WE HAVE CONSIDERED THE FACTS OF THE CASE. WE DO NO T FIND ANY INFIRMITY IN THE AOS ORDER. THE OBJECTION IS REJECTED. 6.1 IN THIS REGARD, THE LD AR SUBMITTED THAT THE RATIO OF THE DECISION OF THE HONBLE APEX COURT IN COMMISSIONER OF INCOME TA X, DELHI VS M/S. WOODWARD GOVERNOR INDIA P. LTD., BE APPLIED. ALTERN ATIVELY, HE PLEADED THAT CERTAIN ENTRIES VIZ., THE OPENING ENTRIES IN A PRIL 2008 AND OMISSION OF CERTAIN ENTRIES IN PAGE 57 OF LEDGER EXTRACT IN THE COPY OF THE PAPER BOOK BE TAKEN INTO ACCOUNT. 6.2 WE HEARD THE RIVAL SUBMISSIONS AND GONE THROUGH RELEVANT MATERIAL. IT IS CLEAR FROM THE ABOVE THAT THIS ISS UE REQUIRES RE- EXAMINATION / VERIFICATION BY THE TPO/ ASSESSING OF FICER OF THE RELEVANT MATERIAL WHICH ARE TO BE FURNISHED BY THE ASSESSEE . THEREFORE, WE RESTORE THE MATTER BACK TO THE FILE OF THE TPO/ ASS ESSING OFFICER, WHO 13 ITANO.1035/CHNY/2014 SHALL AFTER AFFORDING EFFECTIVE OPPORTUNITY TO THE ASSESSE DECIDE THIS ISSUE IN ACCORDANCE WITH LAW . 7. THE NEXT ISSUE IS IN CONNECTION WITH THE DISALLO WANCE OF EMPLOYEES CONTRIBUTION TO EMPLOYEES PROVIDENT FUN D (EPF) AND EMPLOYEES STATE INSURANCE FUND (ESI) UNDER SECTION 36(1)(VA) OF THE ACT. 7.1 IN THIS REGARD , THE LD AR SUBMITTED THAT THE A O/ DRP OUGHT TO HAVE APPRECIATED THAT THE ASSESSEE HAS REMITTED THE EPF AND ESI CONTRIBUTIONS RECEIVED FROM EMPLOYEES BEFORE THE DU E DATE FOR FILING OF INCOME TAX RETURN AS PER SECTION 139(1) AND AS SUCH ITS DISALLOWANCE IS UNWARRANTED. 7.2 WE HEARD THE RIVAL CONTENTIONS. SINCE THE IMPUG NED PAYMENTS WERE MADE WITHIN THE DUE DATE FOR FILING OF RETU RN OF INCOME, RELYING ON THE HONBLE JURISDICTIONAL HIGH COURT DECISION IN THE CASE OF M/S. INDUSTRIAL SECURITY & INTELLIGENCE INDIA PVT. LTD. IN T.C.A. NOS. 585 & 586 OF 2015 & MP NO.1 OF 2015 DATED 24.07.2015, THE CO RRESPONDING GROUNDS ARE ALLOWED. 8. THE LAST GROUND IS THAT THE ASSESSING OFFICER HA S GRANTED CREDIT FOR TAX DEDUCTED AT SOURCE (TDS) FOR 3,74,032/- AS AGAINST A TOTAL TDS 14 ITANO.1035/CHNY/2014 OF 3,96,149/- CLAIMED BY THE ASSESSEE IN ITS RETURN. IN THIS REGARD, WE DIRECT THE AO / TPO TO EXAMINE THIS ISSUE AND GR ANT DUE CREDIT TO THE ASSESSEE WHILE GIVING EFFECT TO THIS ORDER. 9. IN THE RESULT, THE ASSESSEES APPEAL IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED ON 04 TH APRIL, 2019 SD/- SD/- ( . . . ) ( . ) (N.R.S.GANESAN) (S.JAYARAMAN ) ( ! / JUDICIAL MEMBER) ( ! / ACCOUNTANT MEMBER) /CHENNAI, $ /DATED 4 TH APRIL, 2019 SOMU () *) /COPY TO: 1. APPELLANT 2. RESPONDENT 3. + ( ) /CIT(A) 4. + /CIT 5. ) / /DR 6. 2 /GF