NVH India Auto Parts Private Limited, Kancheepuram V. DCIT Corporate Circle 4(2), CHENNAI

ITA 2773/CHNY/2017

• Counselvise Citation: [2023] 100 COUNSELVISE.COM (IT) 5896 (ITAT-CHENNAI)
• Duration Of Justice: 5 year(s) 11 month(s) 14 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-10-2023
• Appeal Filed By: Assessee
• Order Result: PartlyAllowed
• Bench Allotted: D
• Next Hearing Date: 07-08-2023
• Assessment Year: 2013-2014
• Appeal Filed On: 16-11-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: EXCLUDING; INCLUDING CERTAIN EXPENSES
• Keywords: Gift; Transfer pricing; Business expenditure; International transaction; Additional evidence; Set aside
• Section: 43B; 143(3); 10B; 92CA

Judgement Text

आयकर अपीलीय अिधकरण, ‘डी’ ᭠यायपीठ, चे᳖ई IN THE INCOME TAX APPELLATE TRIBUNAL ‘D’ BENCH, CHENNAI ᮰ी महावीर ᳲसह, उपा᭟यᭃ एवं ᮰ी मंजुनाथ. जी, लेखा सद᭭य के समᭃ BEFORE SHRI MAHAVIR SINGH, HON’BLE VICE PRESIDENT AND SHRI MANJUNATHA. G, HON’BLE ACCOUNTANT MEMBER आयकर अपील सं./ITA No.: 2773/Chny/2017 िनधाᭅरण वषᭅ / Assessment Year: 2013-14 NVH India Auto Parts Private Limited, B-68, SIPCOT Industrial Park, Irungattukottai, Sriperumbadur Taluk, Kancheepuram – 602 105. [PAN: AACCN-2857-P] v. Deputy Commissioner of Income-tax, Corporate Circle -4(2), Nungambakkam, Chennai – 600 034. (अपीलाथᱮ/Appellant) (ᮧ᭜यथᱮ/Respondent) अपीलाथᱮ कᳱ ओर से/Appellant by : Shri. S.P. Chidambaram, Advocate ᮧ᭜यथᱮ कᳱ ओर से/Respondent by : Shri. A. Sasikumar, CIT सुनवाई कᳱ तारीख/Date of Hearing : 08.08.2023 घोषणा कᳱ तारीख/Date of Pronouncement : 31.10.2023 आदेश /O R D E R PER MANJUNATHA. G, ACCOUNTANT MEMBER: This appeal filed by the assessee is directed against the final assessment order passed by the Assessing Officer u/s. 143(3) r.w.s. 92CA(3) of the Income-tax Act, 1961 (hereinafter referred to as “the Act”) dated 15.09.2017, in pursuant to directions issued by the Dispute Resolution Panel- 2, Bangalore dated 23.08.2017 u/s. 144C(5) of the Act for assessment year 2013-14. :-2-: ITA. No: 2773/Chny/2017 2. The assessee has raised the following grounds of appeal: “1. The Appellant objects to the final assessment order dated 15.09.2017 passed under section 143(3) r.w.s. 92CA(3) of the Act by the Deputy Commissioner of Income-tax, Corporate Circle - 4(2), Chennai ('the Assessing Officer/1 'AO") for the aforesaid assessment year (AY") on the following among other grounds: TRANSFER PRICING GROUNDS 2. The AO / Transfer Pricing Officer (TPO') and the Dispute Resolution Panel (DRP) have erred in law and facts in making a downward adjustment of INR 30,114,249 to the aggregate value of international transactions of the Appellant and while doing so: 2.1 The DRP / TPO erred in rejecting the Transfer Pricing ('TP') documentation maintained by the Appellant contending that the information or data used in the computation of the arm's length price is not reliable or correct and conducting a fresh economic analysis. 2.2 The DRP/ TPO erred in not applying multiple year data for comparable companies while determining arm's length price. 2.3 The DRP / TPO erred in treating the foreign exchange loss as operating in nature and thereby erred in not excluding the same from the cost base of the Appellant as wel as the comparable companies for comparison under Transactional Net Margin Method (TNMM). 2.4 The DRP erred in confirming the action of the TPO in not granting the economic adjustments claimed by the Appellant. 2.5 The DRP / TPO has erred in not granting working capital adjustment eliminate the differences in the working capital of the Appellant vis-à-vis comparable companies. 2.6 The DRP / TPO has erred in not granting customs duty adjustment while computing the margins of the Appellant. 2.7 The DRP/ TPO ought to have appreciated that the Appellant has substantially higher imports as against the comparable companies and as such it has incurred additional expenditure towards customs duty and hence the non-cenvatable portion of customs duty paid must be eliminated from the cost base of :-3-: ITA. No: 2773/Chny/2017 the Appellant for the purpose of margin computation for comparison under TNMM. 2.8 The DRP erred in confirming the action of the TPO in conducting a fresh search for additional comparables without providing any cogent reasons. 2.9 The DRP | TPO erred in confirming inclusion of certain comparable companies that are functionally dissimilar. Specifically, the following company should have been rejected:  Minda Corporation Limited;  Victor Gaskets India Limited; and  Banco Gaskets (India) Limited.J 2.10 The DRP / TPO erred in retaining Talbros Automotive Components Limited as a comparable company without appreciating the fact that the said comparable is functionally dissimilar. 2.11 Without prejudice to the above grounds, the TPO / AO / DRP erred in computing the downward adjustment on the entire value of the international transactions, without excluding the payments made towards royalty and purchase of fixed assets. CORPORATE TAX GROUNDS 3. Disallowance of Provision for warranty 3.1 The DRP / AO erred in confirming the disallowance of provision for warranty debited in the Profit and Loss A/c amounting to INR 1,41,29,858. 3.2 The DRP | AO ought to have appreciated that the amount of provision for warranty debited to the P&L account during the year is crystalized/accrued during the subject assessment year and as such it is allowable as tax deductible expenditure. 3.3 The DRP/ AO ought to have appreciated that the provision for warranty is made on scientific basis i.e. fixed percentage on the sales as per the agreement with the Original Equipment Manufacturer (0EM). 3.4 The DRP / AO ought to have appreciated that the provision for warranty created on scientific basis is an ascertained liability and as such it is allowable as tax deductible expenditure. :-4-: ITA. No: 2773/Chny/2017 3.5 The DRP/ AO failed to appreciate that at the end of the warranty period, the excess provision for warranty made is reversed and offered to tax. 3.6 Without prejudice to the above, AO failed to follow the directions of the DRP to allow the actual warranty expenses incurred during the previous year relevant to the subject assessment year. Disallowance of Pooja Expenses 4.1 The DRP / A0 erred in confirming the disallowance of pooja expenses made by AO amounting to INR 7,50,195. 4.2 The DRP / AO erred in not considering the evidences submitted before the Panel and erred in concluding that the Appellant has made contradicting claims before the AO and the DRP. 4.3 The DRP / AO failed to appreciate the fact that the payment of INR 3,57,000 debited under Pooja expenses was towards the gift coupons issued to staffs and workers towards bonus and the payment of INR 3,93,195 was towards the Ayudha Pooja expenses incurred on the day of Pooja for the welfare of the employees. 4.4 The DRP / A0 failed to appreciate that the above expenditure is incurred for the purpose of the business of the Appellant and therefore it is allowable as business expenditure u/s 37 of the Act.” 3. The assessee had also filed a petition for admission of additional grounds vide application dated 05.09.2018 raising certain additional grounds, challenging method adopted by the Assessing Officer to benchmark international transactions of the assessee with its AE and additional grounds filed by the assessee are reproduced as under: “1. Backqround :-5-: ITA. No: 2773/Chny/2017 The Appellant is engaged in the business of manufacture of interior automobile parts for Hyundai Motors India's passenger cars. The Transfer Pricing Officer (TPO') while completing the Transfer Pricing.(TP) assessment had not granted economic adjustment for additional cost incurred by the Appellant towards non-cenvatable portion of customs duty paid. The same was upheld by the Dispute Resolution Panel (DRP'). The details of the same are as under: 2. Issue on downward adjustment made to import purchases During the AY 2013-14, the Appellant has imported goods amounting to Rs 46,01,83,014 from its Associated Enterprise (AE). The Appellant has adopted entity level transactional net margin method with economic adjustment to benchmark the international transactions. The Appellant wishes to submit that on perusal of the import documents issued by the Customs Authorities, read with the order of the Special Valuation Branch, the value of imports made during the relevant year were concluded to be at arm's length and in conformity with the standard practice of international trade. The Order is attached vide Annexure I for reference. It is submitted that the SVB order is a reliable Government document reflecting the arms length price of the products imported. Accordingly, the same could be considered as comparable data for the purpose of benchmarking under "other method" as provided in Rule 10AB of the Income Tax Rules, 1962. The Appellant submits that above issues goes to the root of the matter and is purely a legal ground. The Appellant submits that though the Appellant had raised the main grounds of appeal challenging the customs duty adjustment, it has inadvertently omitted to raise the legal grounds in relation to benchmarking the import purchases by relying on the Custom Valuation documents read with the order of the Special Valuation Branch. It is therefore prayed that these additional legal grounds may be admitted and decided on merits. Further, the Appellant submits that the additional grounds raised by the Appellant herewith being legal grounds, this Hon'ble Tribunal has the authority/power to accept and :-6-: ITA. No: 2773/Chny/2017 adjudicate the same as held by the following judicial precedents:  CIT VS Associated Stone Industries (224 ITR 560 (SC)  CIT VS M. K. Yashwant Singh (231 ITR 145 (Del)  National Thermal Power Co Ltd (229 ITR 383 (SC) 3. Prayer In these circumstances, the Appellant hereby humbly prays that your Honours may kindly be pleased to admit the additional grounds of appeal by exercising the power vested in Your Honours under Rule 11 of the Income-Tax Appellate Tribunal Rules, 1963 ("Rules") and allow Petitioner to argue the aforesaid additional grounds of appeal.” 4. The brief facts of the case are that, the appellant M/s. NVH India Auto Parts Private Limited, is engaged in the business of manufacturing of interior parts for Hyundai Motors India Ltd’s passenger cars. The appellant company has filed its return of income for the assessment year 2013-14 on 30.11.2014, admitting a total income of Rs. 1,85,25,830/-. During the financial year relevant to assessment year 2013- 14, the assessee has entered into the following international transactions with its AE for manufacturing segment: S.No Details of International Transactions Quantum of International Transactions (Rs.) 1 Import of raw materials 460183014 2 Import of fixed assets 22091552 3 Payment of royalty 105768360 4 Payment of technical fee 39625744 5 Payment of corporate 3209040 :-7-: ITA. No: 2773/Chny/2017 guarantee fee Total 630877710 5. The appellant has adopted Transactional Net Margin Method (TNMM) with PLI operating profit to operating income. The appellant has computed operating margin of 1.24%. The assessee has selected three comparable companies after applying certain filters in Prowess and Capital Line data base. The assessee has taken three years weighted average margin of comparable companies at 3.79% and claimed that its international transactions with its Associate Enterprise (AE) at Arm’s Length Price (ALP). 6. The case was selected for scrutiny and during the course of assessment proceedings, a reference u/s. 92CA of the Act was made to the TPO to determine Arm’s Length Price (ALP) of international transactions of the assessee with its AE. During Transfer Pricing proceedings, the TPO conducted independent search and selected 10 comparables. Further, after considering relevant objections filed by the assessee has retained final set of 8 comparables with average margin of 5.24%. The TPO, had also recalculated operating margin of the assessee by excluding and including certain expenses and :-8-: ITA. No: 2773/Chny/2017 worked out OP/OI of the assessee at 0.49% as against operating margin computed by the assessee at 1.24%. Since, the ALP computed by the assessee does not fall within +/- 3% range of the value of the international transactions, a downward adjustment of Rs. 3,01,14,249/- has been proposed to the value of international transactions of the assessee with AE. 7. In pursuant to Transfer pricing adjustment as suggested by the TPO vide their order dated 09.09.2016, the Assessing Officer has passed draft assessment order u/s. 143(3) r.w.s. 144C(1) of the Act on 23.11.2016 and proposed TP adjustment of Rs. 3,01,14,249/- to international transactions of the assessee with its AE. The Assessing Officer, had also proposed additions towards disallowance of provision for warranty of Rs. 1,41,29,858/-, on the ground that provision for warranty claim is unascertained liability and there is no scientific basis for provision for warranty expenses. Similarly, the Assessing Officer had also proposed additions towards Ayudha Pooja expenses at Rs. 7,50,195/-, on the ground that said expenditure are in the nature of personal expenses, and cannot be allowed as deduction. :-9-: ITA. No: 2773/Chny/2017 8. The assessee has filed objection against draft assessment order before the Dispute Resolution Panel-2, Bangalore and raised various contentions including method adopted by the Assessing Officer for selecting comparables, inclusion of certain additional comparables, computation of operating margin of the assessee and denial of certain economic adjustments like custom duty adjustment for import of raw materials, working capital adjustment and adjustment made by the Assessing Officer for entire value of international transactions of the assessee. The DRP, vide their order dated 23.08.2017 rejected arguments of the assessee and sustained additions made by the Assessing Officer towards downward adjustment on account of international transactions, disallowance of provision for warranty expenses and disallowance of Ayudha Pooja expenses. Thereafter, the Assessing Officer has passed final assessment order u/s. 143(3) r.w.s. 92CA(3) of the Act on 15.09.2017 and determined total income of Rs. 6,35,20,132/- and made additions towards TP adjustment, disallowance of provision for warranty expenses and disallowance of Ayudha Pooja expenses. Aggrieved by the final assessment order, the assessee is in appeal before us. :-10-: ITA. No: 2773/Chny/2017 9. The first issue that came up for our consideration from grounds of appeal 2 to 2.11 of assessee’s appeal is downward adjustment of Rs. 3,01,14,249/- to the aggregate value of international transactions of the appellant with its associate enterprise. Although, the assessee has raised various grounds challenging downward adjustment suggested by the TPO and upheld by the DRP, but the crux of the issue is rejection of TP documentation maintained by the appellant, not applying multiple year data for comparable companies, not allowing certain economic adjustments including foreign exchange loss as operating in nature, not providing certain economic adjustments like custom duty adjustment and working capital adjustment and selection of comparables like Minda Corporation Limited, Victor Gaskets India Limited and Banco Gaskets (India) Limited and Talbros Automative Components. Therefore, we deem it appropriate to discuss the issues first on the aspect of exclusion of comparable companies sought by the appellant. 9.1. The ld. Counsel for the assessee, submitted that Victor Gaskets India Limited, is not a comparable to the appellant company because it has product dissimilarity. The products :-11-: ITA. No: 2773/Chny/2017 manufactured are used in numerous industrial, agricultural and refrigeration applications, whereas the appellant manufactures only for automobile industries. Therefore, Victor Gaskets India Ltd needs to be excluded from the list of comparables. 9.2 The ld. DR. Shri. A. Sasikumar, CIT, supporting the order of the DRP submitted that, the assessee has chosen a comparable Talbros Automative Components, which has been accepted by the TPO. Talbros Automative manufactures gaskets and forgings. The products manufactured by the appellant, Talbros Automative Component and Victor Gasket India Ltd are similar. Since, the appellant itself has accepted Talbros Automative Component, the TPO and DRP has rightly included Victor Gasket India Ltd and their order should be upheld. 9.3 We have heard rival contentions and considered arguments of both the sides in light of facts brought on record by the TPO on comparable company and approval of the DRP. The appellant company is mainly manufacturing internal parts for Hyundai Motor Cars. The products manufactured by Victor Gasket India Limited are also similar to products manufactured :-12-: ITA. No: 2773/Chny/2017 by the appellant. Further, there is a similarity between goods manufactured by Victor Gasket India Limited and Talbros Automative Components. The major product line of Victor Gaskets is gaskets only. Since, the appellant has itself shortlisted Talbros Automative Component and the products manufactured by Victor Gasket India Limited are similar to Talbros Automative Component, in our considered view, the TPO has rightly included Victor Gasket India Limited, in the list of final set of comparables. Further, TNMM is resistant to product profile/functional difference. Even, in OECD guidelines it has stated that net profit indicators are less affected by transactional difference as compared with other methods. Further, net profit indicators also may be more tolerant to some functional difference between the control and uncontrolled transactions than gross profit margins. Therefore, we are of the considered view that, there is no error in the reasons recorded by the ld. DRP to uphold inclusion of Victor Gaskets India Ltd as comparable and thus, we reject grounds taken by the assessee. 10. The appellant has also sought to exclude Banco Gaskets (India) Ltd, on the ground that said company has product :-13-: ITA. No: 2773/Chny/2017 dissimilarities to appellant company and it has proprietary software and also incurred substantial amount of R&D facility. We find that, the Assessing Officer has discussed comparability of Banco Gaskets (India) Ltd in light of product manufactured by said company and product manufactured by the appellant company and held that, functions performed by Banco Gaskets (India) Ltd are similar to functional carried out by the appellant company. The TPO, had also brought out clear fact that the appellant has selected company called Talbros Automotive Components, which is similar to Banco Gaskets (India) Ltd. The major product line of appellant and Banco Gaskets (India) Ltd are similar. From the above findings, it is very clear that the appellant could not give any valid reasons to exclude Banco Gaskets (India) Ltd, except for the reason of higher margin. It is well established principle of law that for higher margin, the company cannot be excluded. Further, TNMM method is resisted the product line/functional difference and this fact has been reiterated in OECD guideline. Therefore, we are of the considered view that there is no merit in arguments of the Ld. Counsel for the assessee for exclusion of Banco Gaskets (India) Ltd and thus, we reject grounds taken by the assessee. :-14-: ITA. No: 2773/Chny/2017 11. The Ld. Counsel for the assessee argued that Minda Corporation Ltd is not a good comparable to appellant company, because it manufactures diversified products for 2 wheeler, 3 wheeler and off road vehicle application. Further, the company has filed many patents and also extensive R&D facility. Therefore, Minda Corporation should be excluded from the final set of comparables. 11.1 The ld. DR, Shri. A. Sasikumar, CIT, supporting the order of the DRP submitted that, the assessee has chosen the comparable M/s. Jay Ushin Ltd, which has been accepted by the TPO. The products manufactured by M/s. Jay Ushin Ltd are similar to the appellant line of products. Therefore, the TPO has rightly considered Minda Corporation as comparable and thus, their order should be upheld. 11.2 We have heard both the parties and considered relevant material available on record in light of discussion of the TPO on comparability of Minda Corporation with appellant company. We find that the assessee has chosen a comparable M/s. Jay Ushin Ltd, and said company has been accepted by the TPO. M/s. Jay Ushin Ltd manufactures door latches, locks sets of :-15-: ITA. No: 2773/Chny/2017 switches and it is on the same line that of Minda Corporation Ltd. The product line of Minda Corporation Ltd is interior plastic, lock and switches. Therefore, on comparison appellant company and Minda Corporation Ltd are similar. Further, in the TNMM method net profit indicators are less affected by transactional difference as compared with other methods. Further, TNMM is resistant to product profile/functional difference. Therefore, we are of the considered view that there is no merit in arguments taken by the Ld. Counsel for the assessee for exclusion of Minda Corporation Ltd and thus, we reject ground taken by the assessee. 12. The Ld. Counsel for the assessee submits that although, the appellant has considered Talbros Automotive Components, but said company needs to be excluded because products manufactured by the said company is not similar to what the assessee manufactures. The ld. DR, on the other hand supporting the order of the DRP submits that, the assessee itself has chosen said company as a comparable. Now, the assessee seeks to exclude said company without any valid reason. Therefore, Talbros Automotive Components cannot be excluded from the list of comparables. :-16-: ITA. No: 2773/Chny/2017 12.1 We have heard both the parties and considered relevant reasons given by the DRP to retain Talbros Automotive Components as a comparable company. First of all, the appellant itself has chosen Talbros Automotive Components as a comparable company. Further, the appellant has not raised any objections for exclusion of Talbros Automotive Components before the TPO. Therefore, on this ground itself, the objections raised by the assessee for exclusion of Talbros Automotive Components needs to be rejected. Be that as it may. The assessee itself chosen the comparable and included the same in the TP study. The assessee has not given any valid ground for excluding Talbros Automotive Components from the list of comparables. It appears that the assessee somehow want to exclude Banco Gaskets (India) Ltd and Victor Gaskets India Ltd, both of which are included by the TPO based on Talbros Automotive Components. In absence of valid and cogent reasons, the arguments of the assessee for exclusion of any comparable cannot be accepted. Therefore, we are of the considered view that there is no error in the reasons given by the ld. DRP to reject arguments of the assessee for exclusion of Talbros Automotive Components and thus, we reject ground taken by the assessee. :-17-: ITA. No: 2773/Chny/2017 13. The next issue that came up of our consideration for rejecting the Transfer Pricing documentation maintained by the appellant and not applying multiple year data for comparable companies while determining arm’s length price. The Ld. Counsel for the assessee submits that, the TPO has erred in rejecting TP documentation maintained by the appellant without assigning any valid reasons. The Ld. Counsel for the assessee further submits that, the ld. TPO had also erred in not accepting multiple year data of comparable companies without assigning any reason. 13.1 The ld. DR, on the other hand supporting the order of the DRP submits that, the TPO has given valid reasons for rejecting TP documentation of the assessee, because the assessee has not applied certain filters while selecting comparable companies. Similarly, Rule 10B(4) of I.T. Rules, 1962 makes them compulsory to use only the current financial year data. Therefore, the TPO has rightly rejected the objections of the assessee with regard to rejection of TP study and multiple year data and their order should be upheld. :-18-: ITA. No: 2773/Chny/2017 13.2 We have heard both the parties, perused materials available on record and gone through orders of the authorities below. During TP proceedings, the TPO has issued show cause notice proposing single year data as prescribed in the Income Tax Rules, 1962, as against multiple year data used by the assessee to include certain additional filters and modify certain filters used by the assessee in its TP study, for the purpose of proper selection of comparable companies. From the above, it is very clear that, the TPO was not satisfied with ALP determined by the assessee in the TP study based on the comparables selected by using certain filters and computing three years weighted average margin of comparable companies. In our considered view, the TP documentation maintained by the assessee is not in accordance with section 92C(1) & (2) and Rule 10B and 10C of I.T. Rules, 1962. Therefore, we are of the considered view that there is no error in the reasons given by the TPO/DRP to reject TP study conducted by the assessee and use of multiple year data for comparable company and thus, we reject ground taken by the assessee. :-19-: ITA. No: 2773/Chny/2017 14. The next issue that came up for our consideration is re- computation of operating margin of the assessee. The Ld. Counsel for the assessee submits that, the TPO and DRP are erred in re-computing operating margin of the assessee by considering foreign exchange loss as operating in nature. The Ld. Counsel for the assessee further submits that, foreign exchange loss incurred by the assessee does not arise out of normal business operations and is due to the changes in foreign exchange rates prevailing in the market which is out of the control of the assessee. Therefore, the same should be treated as non-operating expenses for the purpose of computation of margin of the assessee. 14.1 The ld. DR, on the other hand supporting the order of the DRP submitted that, the assessee could not make out a case for exclusion of foreign exchange loss for computation of operating margin. Further, foreign exchange loss incurred by the assessee is on trading account. Therefore, same needs to be considered as operating in nature. The TPO and DRP after considering relevant facts has rightly included foreign exchange loss as operating in nature and their order should be upheld. :-20-: ITA. No: 2773/Chny/2017 14.2 We have heard both the parties and considered relevant reasons given by the TPO/DRP to reject arguments of the assessee for treating foreign exchange loss as non-operating in nature. Generally foreign exchange loss/gains incurred on trading account is operating in nature, which is directly linked to business operations of the assessee and also operating margin of any company. Further, the coordinate bench of ITAT, Chennai in the case of GE Healthcare Bio-Sciences Ltd in ITA No. 677/Mds/2015 for assessment year 2010-11 has held that, foreign exchange loss is operating in nature. Therefore, we are of the considered view, that there is no merit in arguments of the Ld. Counsel for the assessee, to treat foreign exchange loss as non-operating in nature and thus, we reject ground taken by the assessee. 15. The next issue that came up for our consideration from grounds of appeal filed by the assessee is working capital adjustments. The Ld. Counsel for the assessee submits that, for any business in the event there exists difference between the tested party and an uncontrolled comparable that would materially affect the profits determined under the relevant profit level indicator. The need for working capital adjustment :-21-: ITA. No: 2773/Chny/2017 arises by allowing customers to defer payment for a certain period, any company foregoes the right to receive its revenues immediately and to earn additional income by re-investing these revenue over the deferral period. The primary logic underlying a working capital adjustment is to ensure that returns derived from a set of comparable companies can accurately be applied to the assessee having controlled transactions. The assessee has filed all details to prove that there is a necessity of providing working capital adjustment when compared to working capital level of comparable companies. But, the TPO/DRP rejected arguments of the assessee without any reason. 15.1 The ld. DR, on the other hand supporting the order of the TPO submitted that, Rule 10B of I.T. Rules, 1962 provided for making reasonable accurate adjustment to the uncontrolled comparable transactions to eliminate material affect of such difference on price or cost or profit, if the tax payer is able to demonstrate that difference in its working capital vis-à-vis the comparable companies which affected its margin. In the present case, the appellant has failed to file proper workings to prove that there is a material difference in working capital :-22-: ITA. No: 2773/Chny/2017 level of the appellant companies and comparable companies. Therefore, the TPO and DRP has rightly rejected ground of the assessee and their order should be upheld. 15.2 We have heard both the parties, perused materials available on record and gone through orders of the authorities below. Rule 10B of I.T. Rules, 1962 provides for making reasonably accurate adjustment to the uncontrolled comparable transactions to eliminate material affect of such difference on price, cost or profit, in case, the tax payer is able to demonstrate difference in its working capital vis-à-vis, the comparable companies. In order to provide working capital adjustment three factors needs to be followed, (i) whether the comparable company have financed their working capital by own funds or borrowed funds (ii) whether any cost has been incurred on the working capital by the comparable companies and if so, (iii) how the cost of such working capital has had an impact on the margins of the comparable companies. We find that, it is difficult to measure exact difference in working capital level as data with regard to the working capital employed by the appellant and the comparable companies is not available on a daily basis. Further, even it is available, its :-23-: ITA. No: 2773/Chny/2017 impact on the profit margin cannot be measured. The adjustment sought by the appellant is for the difference in the working capital levels between the tested parties and the comparable companies. But, such difference in working capital levels cannot be measured with reasonable accuracy. The final figures disclosed in the balance sheet are only an opening and closing figures of debtors and creditors. These opening and closing figures are the balances, as they existed on the opening and closing day of the year respectively. They do not show the movements in their accounts during the year. Further, the working capital requirements are not uniform during the entire period of the year. The disclosure of the figures of Debtors and Creditors which are important for computing the working capital adjustment does not provide the breakup of trade and non-trade nature of such balances. Further, the appellant has failed to provide such data and also resistant to provide working capital adjustment when compared to working capital levels of the assessee and working capital levels of the comparables. In absence of necessary details and also resistant for providing working capital adjustment, a general and vague argument of the assessee for providing working capital adjustment cannot be :-24-: ITA. No: 2773/Chny/2017 acceded. Therefore, we are of the considered view that, there is no merit in arguments of the assessee for providing working capital adjustment, and thus, we are inclined to uphold the findings of the ld. DRP and reject ground taken by the assessee. 16. The next issue that came up for our consideration is economic adjustment like differential adjustment like basic customs duty. The Ld. Counsel for the assessee submitted that the ld. DRP/TPO has erred in not granting custom duty adjustment while computing the margin of the appellant. He further submits that the TPO/DRP ought to have appreciated that the appellant has substantially higher imports as against the comparable companies and as such it has incurred additional expenditure towards customs duty and hence, non- cenvatable portion of customs duty paid must be eliminated from the cost base of the appellant for the purpose of margin computation. 16.1 The ld. DR, on the other hand supporting the order of the TPO/DRP submits that the assessee has not provided any adjustment for customs duty in its own TP study. Further, any :-25-: ITA. No: 2773/Chny/2017 adjustment on account of BCD, the assessee needs to establish with evidence that the non-cenvatable customs duty not included as part of the cost. In absence of any evidence, the arguments of the assessee for adjustment towards non- cenvatable customs duty cannot be given. The TPO/DRP has rightly rejected arguments of the assessee and their order should be upheld. 16.2 We have heard both the parties, perused materials available on record and gone through orders of the authorities below. The issue of custom duty adjustment has been discussed by the TPO in their order. The TPO has given cogent reasons and justification for rejecting claim of the assessee. The observations of the TPO remain uncontroverted. Further, the assessee has not provided any adjustment for custom duty in its own TP study. Further, the appellant had not make out a case for providing adjustment towards un-cenvatable custom duty with necessary evidences. Further, the appellant has also failed to prove that the non-cenvatable customs duty is not factored in the cost of goods manufactured and sold. In absence of any evidence, a general argument of the assessee in light of certain judicial precedents cannot be accepted. :-26-: ITA. No: 2773/Chny/2017 Although, the appellant has relied upon various judicial precedents, but on perusal of those judgments, we find that those judgments are rendered on facts of their own case, and therefore, cannot be made applicable to facts of the assessee’s case. Therefore, we are of the considered view that, there is no merit in the ground taken by the assessee for custom duty adjustment and thus, we reject ground taken by the assessee. 17. The next issue that came up for our consideration from ground no.3 of assessee appeal is addition towards disallowance of provision for warranty expenses amounting to Rs. 1,41,29,858/-. The Ld. Counsel for the assessee submits that, the ld. DRP/AO ought to have appreciated that amount of provision for warranty is crystallized/accrued during the subject assessment year and as such it is allowable as deductible expenditure. The Ld. Counsel for the assessee, further submits that the provision for warranty is made on scientific basis, i.e., fixed percentage on the sales as per agreement with the original equipment manufacturer. Since, the provision for warranty is provided on scientific basis and is also ascertained liability, the Assessing Officer ought to have allow deduction for said provision. :-27-: ITA. No: 2773/Chny/2017 17.1 The ld. DR, on the other hand supporting the order of the DRP submitted that, in order to allow deduction for warranty expenses, the assessee should prove that said liability is not contingent in nature and ascertained during the relevant period. Further, there should be a scientific basis for providing warranty. But in the present case, the assessee has provided for warranty on estimate basis without any scientific basis. Therefore, the Assessing Officer and DRP has rightly rejected arguments of the assessee and their order should be upheld. 17.2 We have heard both the parties, perused materials available on record and gone through orders of the authorities below. The sole basis for the assessee to seek deduction towards provision for warranty expenses is the decision of Hon’ble Supreme Court in the case of Rotork Controls India (P) Ltd vs ACIT, 314 ITR 62, where the Hon’ble Supreme Court held that, if provision for warranty is created on scientific basis and further said provision is crystallized during the year, then same needs to be allowed as deduction. In the present case, the assessee itself has admitted that warranty has been provided on the basis of agreement with original equipment manufacturer on fixed percentage basis without scientific :-28-: ITA. No: 2773/Chny/2017 basis. Further, no evidence has been filed to prove as to whether such liability is crystallized or not. From the above, it is undoubtedly clear that provision for warranty expenses is contingent in nature and there is no scientific basis for working out said warranty expenses. Therefore, we are of the considered view that the ratio laid down in Rotork Controls India (P) Ltd vs ACIT (Supra), is not applicable to facts of the present case. Further, the DRP has relied upon the decision of Hon’ble Karnataka High Court in the case of CIT vs Micro Land Ltd [2012] 18 Taxmann.com 80 (kar), where the Hon’ble High Court by considering the decision of Hon’ble Supreme Court in the case of Rotork Controls India (P) Ltd vs ACIT (Supra) held that, if provisions for warranty is not on the basis of scientific method and said warranty expenses is contingent in nature, same needs to be disallowed as deduction. Since, the appellant could not explain how provisions made for warranty expenses is on scientific basis and crystallized, in our considered view there is no error in the reasons given by the Assessing Officer/DRP to disallow provision for warranty expenses. Thus, we are inclined to uphold the findings of ld. DRP towards disallowance of warranty expenses and reject ground taken by the assessee. :-29-: ITA. No: 2773/Chny/2017 18. The next issue that came up for our consideration from ground no.4 of assessee’s appeal is disallowance of Pooja expenses amounting to Rs. 7,50,195/-. The Ld. Counsel for the assessee, submitted that ld. Assessing Officer erred in not considering the evidence submitted by the assessee to prove expenditure incurred towards Pooja expenses is for the benefit of employees. The Ld. Counsel for the assessee, further submitted that out of total expenditure, a sum of Rs. 3,57,000/- is towards gift coupons issued to staff and workers towards bonus and the balance amount of Rs. 3,93,165/- was towards Ayudha Pooja expenses. 18.1 The ld. DR, on the other hand supporting the order of the Assessing Officer and DRP submitted that, assessee could not explain how Pooja expenses is eligible for deduction. The Assessing Officer and DRP, after considering relevant facts has rightly rejected arguments of the assessee and their order should be upheld. 18.2 We have heard both the parties, perused materials available on record and gone through orders of the authorities below. The assessee has debited a sum of Rs. 7,50,195/- :-30-: ITA. No: 2773/Chny/2017 under the head Pooja expenses and claimed that said expenditure has been wholly and exclusively incurred for the purpose of business of the assessee. We find that out of total expenditure, a sum of Rs. 3,57,000/- claims to have been paid towards gift coupons issued to staff and workers as bonus. If the argument of the assessee is correct, then said payment needs to be examined in light of payment of the Bonus Act and provisions of section 36(1)(va) r.w.s. 43B of the Act. In so far as balance amount of Rs. 3,93,165/-, although the assessee claims that said expenditure was incurred for Ayudha Pooja, but no evidence has been filed to substantiate the claim. Therefore, we are of the considered view that the issue needs to go back to the file of the Assessing Officer for further verification. Thus, we set aside the issue to the file of the Assessing Officer and direct the Assessing Officer to reexamine the claim in light of our discussion given herein above and also any evidence that may be filed by the assessee to justify its claim. 19. The next issue that came up for our consideration is petition filed for admission of additional grounds filed by the assessee. The assessee has filed a petition dated 05.09.2018 :-31-: ITA. No: 2773/Chny/2017 raising certain additional grounds and claimed that said grounds are purely legal grounds, which goes to root of the matter and same needs to be admitted in the interest of justice. 19.1 The Ld. Counsel for the assessee, submitted that the appellant has imported goods amounting to Rs. 46,01,83,014/- from its Associate Enterprise. Although, the appellant has adopted Transactional Net Margin Method (TNMM) for economic adjustment to bench mark the international transactions, but because of subsequent developments opined that other method as provided in Rule 10AB of I.T. Rules, 1962 is applicable, in light of order passed by the Customs Authorities, accepting valuation of import of raw materials. Therefore, he submitted that additional grounds filed by the assessee should be admitted and decide the issue in accordance with law. 19.2 The ld. DR, on the other hand submitted that petition filed by the assessee is not maintainable because the ground taken by the assessee is not legal grounds. Further, the assessee could not make out a case that facts with regard to :-32-: ITA. No: 2773/Chny/2017 the grounds taken in the petition are already on record before the Assessing Officer. Therefore, the additional grounds filed by the assessee should not be admitted. 19.3 We have heard both the parties, perused materials available on record and gone through orders of the authorities below. The petition filed by the assessee for admission of additions grounds is not admissible, because if you go through the facts narrated by the assessee in their petition and ground taken in light of certain additional evidences is purely a factual issue, but not a legal issue which can be raised at any stage of proceedings. It is a well settled principle of law by the decisions of various courts, including the decision of Hon’ble Supreme Court in the case of National Thermal Power Co Ltd vs ACIT 229 ITR 383 (SC), that if facts with regard to any legal ground are already on record before the Assessing Officer at the time of proceedings, then said legal grounds can be admitted at any stage of proceedings. In the present case, as we have already noted, the grounds taken by the assessee in its petition are purely a factual issue, which is solely dependent on subsequent order passed by the Customs Authorities on valuation of goods declared under the Customs :-33-: ITA. No: 2773/Chny/2017 Act, 1962. Therefore, we are of the considered view that the petition filed by the assessee for admission of additional grounds cannot be admitted at this stage and thus, we reject petition filed by the assessee for admission of additional grounds. 20. In the result, appeal filed by the assessee is partly allowed for statistical purposes. Order pronounced in the court on 31 st October, 2023 at Chennai. Sd/- (महावीर ᳲसह ) (MAHAVIR SINGH) उपा᭟यᭃ /Vice President Sd/- (मंजुनाथ. जी) (MANJUNATHA. G) लेखासद᭭य/Accountant Member चे᳖ई/Chennai, ᳰदनांक/Dated, the 31 st October, 2023 JPV आदेश की Ůितिलिप अŤेिषत/Copy to: आदेश की Ůितिलिप अŤेिषत/Copy to: 1. अपीलाथŎ/Appellant 2. ŮȑथŎ/Respondent 3.आयकर आयुƅ/CIT 4.. िवभागीय Ůितिनिध/DR 5. गाडŊ फाईल/GF