M/s. India Japan Lighting Limited, CHENNAI V. DCIT, CHENNAI

ITA 245/CHNY/2013

• Counselvise Citation: [2016] 121 COUNSELVISE.COM (IT) 3858 (ITAT-CHENNAI)
• Duration Of Justice: 3 year(s) 6 month(s) 22 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 06-09-2016
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: D
• Next Hearing Date: 08-06-2016
• Assessment Year: 2008-2009
• Appeal Filed On: 14-02-2013
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: DR MILIND MADHUKAR BHUSARI
• Assessee Lawyers: R VIJAYARAGHAVAN
• Keywords: Depreciation; Transfer pricing
• Section: 32

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL D BENCH, CHENNAI . . . , . !'# ! , % !& BEFORE SHRI N.R.S. GANESAN, JUDICIAL MEMBER AND SHRI A. MOHAN ALANKAMONY, ACCOUNTANT MEMBER ./ ITA NO.245/MDS/2013 ( )( / ASSESSMENT YEAR : 2008-09 M/S INDIA JAPAN LIGHTING LIMITED, AALIM CENTRE, 82, DR. RADHAKRISHNAN SALAI, MYLAPORE, CHENNAI - 600 004. PAN : AAACI 2673 L V. THE DEPUTY COMMISSIONER OF INCOME TAX, LARGE TAXPAYER UNIT, CHENNAI. (+,/ APPELLANT) (-.+,/ RESPONDENT) +, / 0 / APPELLANT BY : SH. R. VIJAYARAGHAVAN, ADVOCATE -.+, / 0 / RESPONDENT BY : DR. MILIND MADHUKAR BHUSARI, C IT 1 / 2% / DATE OF HEARING : 08.06.2016 3') / 2% / DATE OF PRONOUNCEMENT : 06.09.2016 / O R D E R PER N.R.S. GANESAN, JUDICIAL MEMBER: THIS APPEAL OF THE ASSESSEE IS DIRECTED AGAINST THE ORDER OF THE ASSESSING OFFICER, CONSEQUENT TO THE DIRECTIONS OF DISPUTE RESOLUTION PANEL, CHENNAI, DATED 31.08.2012. 2. SH. R. VIJAYARAGHAVAN, THE LD.COUNSEL FOR THE AS SESSEE, SUBMITTED THAT CONSEQUENT TO THE DIRECTION OF THE D ISPUTE RESOLUTION 2 I.T.A. NO.245/MDS/13 PANEL, THE ASSESSING OFFICER MADE DOWNWARD ADJUSTME NT OF ` 2.39 CRORES ON ACCOUNT OF PURCHASE OF RAW MATERIAL AND C OMPONENT FROM ASSOCIATE ENTERPRISE. ACCORDING TO THE LD. COUNSEL , THE ASSESSEE- COMPANY IS A JOINT VENTURE COMPANY BETWEEN M/S LUCA S TVS LIMITED AND M/S KOITO MANUFACTURING COMPANY LTD., J APAN. THE BUSINESS OF THE ASSESSEE-COMPANY IS MANUFACTURING A ND SELLING OF AUTOMOTIVE LIGHTING EQUIPMENTS. THE ASSESSEE ADOPT ED TRANSACTION NET MARGIN METHOD AS MOST APPROPRIATE M ETHOD. IN THE COURSE OF DETERMINATION OF ARM'S LENGTH PRICE, THE ASSESSEE HAS ADJUSTED DEPRECIATION IN THE OPERATING MARGIN RATIO . THE TRANSFER PRICING OFFICER, HOWEVER, DISALLOWED THE CLAIM OF T HE ASSESSEE ON THE GROUND THAT DEPRECIATION IS ONE OF THE OPERATIN G COSTS IN THE MANUFACTURING INDUSTRY. HAVING ADOPTED TRANSACTION NET MARGIN METHOD AS ONE OF THE MOST APPROPRIATE METHODS, THE DEPRECIATION CANNOT BE EXCLUDED FROM OPERATING COST. ACCORDING TO THE LD. COUNSEL, DEPRECIATION IS ALLOWABLE UNDER SECTION 32 OF THE INCOME- TAX ACT, 1961 (IN SHORT 'THE ACT'). THEREFORE, IT HAS TO BE ADJUSTED TOWARDS OPERATIONAL COST FOR THE PURPOSE OF DETERMI NING ARM'S LENGTH PRICE. 3 I.T.A. NO.245/MDS/13 3. THE LD.COUNSEL FOR THE ASSESSEE FURTHER SUBMITTE D THAT THERE IS SIGNIFICANT INCREASE IN THE INVESTMENT TO THE EX TENT OF 38% IN THE PLANT AND MACHINERY AT BAWAL PLANT, HARYANA, WHICH HAD MATERIAL IMPACT ON THE PROFITABILITY OF THE ASSESSEE. THERE FORE, ACCORDING TO THE LD. COUNSEL, THE ASSESSEE CONSIDERED THE CASH P ROFIT TO THE SALES RATIO AS PROFIT LEVEL INDICATOR FOR BETTER CO MPARABILITY. THE TRANSFER PRICING OFFICER, HOWEVER, ADOPTED FRESH AN ALYSIS AND SELECTED COMPANIES, WHICH ARE FUNCTIONALLY NOT COMP ARABLE. THE COMPANIES, WHICH ARE SELECTED BY THE TRANSFER PRICI NG OFFICER, ARE NOT FUNCTIONALLY SIMILAR AND NOT COMPARABLE, THEREF ORE, THOSE COMPANIES SELECTED BY THE TPO CANNOT BE A BASIS FOR TRANSFER PRICING ADJUSTMENT. THE DISPUTE RESOLUTION PANEL, WITHOUT CONSIDERING ALL THESE FACTUAL ASPECTS, SIMPLY CONFI RMED THE ORDER OF THE TRANSFER PRICING OFFICER. THEREFORE, THE ADJUS TMENT MADE BY THE ASSESSING OFFICER TO DETERMINE THE ARM'S LENGTH PRI CE IS NOT JUSTIFIED. 4. ON THE CONTRARY, DR. MILIND MADHUKAR BHUSARI, TH E LD. DEPARTMENTAL REPRESENTATIVE, SUBMITTED THAT ON THE DIRECTION OF THE DISPUTE RESOLUTION PANEL, THE ASSESSING OFFICER MAD E ADJUSTMENT OF ` 2.39 CRORES TOWARDS ARM'S LENGTH PRICE IN RESPECT O F THE PURCHASE OF RAW MATERIAL FROM THE ASSOCIATE ENTERPR ISE. THE 4 I.T.A. NO.245/MDS/13 ASSESSEE IMPORTED RAW MATERIAL AND COMPONENTS WHICH IS NOT IN DISPUTE. THE ASSESSEE WAS MANUFACTURING HEAD LAMP, TAIL LAMP, HEAD LAMP WITH BLINKERS AND AUTOMOTIVE LIGHTING EQU IPMENTS. ACCORDING TO THE LD. D.R., SINCE THE ASSESSEE WAS I N THE MANUFACTURING ACTIVITY, CLAIMED DEPRECIATION AND MA DE ADJUSTMENT TO THE OPERATING COST. AS RIGHTLY OBSERVED BY THE TRANSFER PRICING OFFICER, DEPRECIATION IS CHARGED TO PROFIT & LOSS A CCOUNT. FOR THE PURPOSE OF DETERMINING THE PROFIT LEVEL INDICATOR, THE PROFIT BEFORE DEPRECIATION HAS TO BE TAKEN INTO ACCOUNT. ACCORDI NG TO THE LD. D.R., THE BAWAL PLANT APPEARS TO BE STARTED IN THE YEAR UNDER CONSIDERATION AND FULL CAPACITY WAS NOT USED IN THE SECOND PLANT. DEPRECIATION BEING MAJOR COMPONENT OF THE OPERATING COST OF THE COMPANY, ACCORDING TO THE LD. D.R., THE ASSESSEE HA S TAKEN THE INSTALLED CAPACITY AND UTILISED CAPACITY WHICH IS N OT THE CORRECT METHOD OF APPROACH. THE COMPANY HAS TO BE TAKEN AS A WHOLE. 5. REFERRING TO THE COMPANIES LIKE AUTOLITE (INDIA) LTD., LUMAX DK AUTO INDUSTRIES LTD., FIEM INDUSTRIES AND HALONI X LTD., THE LD. D.R. SUBMITTED THAT THESE ARE ALL COMPANIES WHICH A RE MANUFACTURING A SIMILAR PRODUCT AS THAT OF THE ASSE SSEE. THEREFORE, THE CONTENTION OF THE ASSESSEE THAT THE TRANSFER PR ICING OFFICER 5 I.T.A. NO.245/MDS/13 SELECTED SUCH COMPANIES, WHICH ARE NOT COMPARABLE, IS NOT JUSTIFIED. ACCORDING TO THE LD. D.R., THE ASSESSEE COULD NOT E STABLISH HOW THE SET OF COMPANIES SELECTED BY THE TRANSFER PRICING O FFICER ARE FUNCTIONALLY DIFFERENT FROM THE ASSESSEE-COMPANY. THE TRANSFER PRICING OFFICER, AFTER CONSIDERING THE ANNUAL REPOR T OF EACH COMPANY, FOUND THAT THEY ARE PERFORMING SIMILAR FUN CTION AND HAVING SIMILAR PROFILE AS THAT OF THE ASSESSEE. THEREFORE , ACCORDING TO THE LD. D.R., THE TRANSFER PRICING OFFICER RIGHTLY MADE ADJUSTMENT TO THE EXTENT OF ` 2.39 CRORES. 6. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS ON EITH ER SIDE AND PERUSED THE RELEVANT MATERIAL AVAILABLE ON RECORD. THE CONTENTION OF THE ASSESSEE IS THAT DEPRECIATION OF PLANT AND M ACHINERY TO THE EXTENT OF INVESTMENT MADE BY THE ASSESSEE AT BAWAL PLANT HAD MATERIAL IMPACT ON THE PROFITABILITY OF THE ASSESSE E. AS RIGHTLY FOUND BY THE TPO AND DRP, DEPRECIATION IS ONE OF THE ELEM ENTS OF OPERATING COST WHICH NEEDS TO BE CONSIDERED AS PART OF THE OPERATING COST. MOREOVER, AS RIGHTLY SUBMITTED BY THE LD. D.R., THE ASSESSEE COULD NOT ESTABLISH HOW THE COMPANIES LIKE AUTOLITE (INDIA) LTD., LUMAX DK AUTO INDUSTRIES LTD., FIEM INDUSTRIE S AND HALONIX LTD. ARE NOT COMPARABLE WITH THAT OF THE ASSESSEE, ESPECIALLY WHEN 6 I.T.A. NO.245/MDS/13 THEY ARE MANUFACTURING THE SIMILAR PRODUCTS AS THAT OF THE ASSESSEE- COMPANY. IN THE ABSENCE OF ANY MATERIAL TO SUGGEST THAT THE COMPANIES SELECTED BY THE TPO ARE NOT COMPARABLE WI TH THAT OF THE ASSESSEE-COMPANY, THIS TRIBUNAL IS OF THE CONSIDERE D OPINION THAT THERE IS NO MERIT IN THE CONTENTION OF THE ASSESSEE . 7. WITH REGARD TO EXTRAORDINARY COSTS, THIS TRIBUNA L IS OF THE CONSIDERED OPINION THAT THERE IS NO MATERIAL TO SUG GEST THAT THE SO- CALLED EXTRAORDINARY COSTS SAID TO BE INCURRED BY T HE ASSESSEE AFFECT THE PROFITABILITY OF THE ASSESSEE. IN THE ABSENCE OF ANY MATERIAL, THIS TRIBUNAL IS OF THE CONSIDERED OPINION THAT THE ASSE SSING OFFICER HAS RIGHTLY DETERMINED THE ARM'S LENGTH PRICE AT ` 2.39 CRORES AS PER THE DIRECTION OF THE DISPUTE RESOLUTION PANEL. THIS TR IBUNAL DO NOT FIND ANY REASON TO INTERFERE WITH THE ORDER OF THE LOWER AUTHORITY AND ACCORDINGLY THE SAME IS CONFIRMED. 8. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS DISMISSED. ORDER PRONOUNCED ON 6 TH SEPTEMBER, 2016 AT CHENNAI. SD/- SD/- (. !'# ! ) ( . . . ) (A. MOHAN ALANKAMONY) (N.R.S. GANESAN) % / ACCOUNTANT MEMBER /JUDICIAL MEMBER /CHENNAI, 5 /DATED, THE 6 TH SEPTEMBER, 2016. 7 I.T.A. NO.245/MDS/13 KRI. / -267 87)2 /COPY TO: 1. +, /APPELLANT 2. -.+, /RESPONDENT 3. DIT (INTERNATIONAL TAXATION), CHENNAI 4. THE TPO IV, CHENNAI 5. 79 -2 /DR 6. ( : /GF.