Doowon Automotive Systems India Private Limited, Kancheepuram V. DCIT, CHENNAI

ITA 692/CHNY/2016

• Counselvise Citation: [2017] 130 COUNSELVISE.COM (IT) 8072 (ITAT-CHENNAI)
• Duration Of Justice: 10 month(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-01-2017
• Appeal Filed By: Assessee
• Bench Allotted: D
• Next Hearing Date: 27-10-2016
• Assessment Year: 2011-2012
• Appeal Filed On: 22-03-2016
• Court: TRIBUNAL
• Department Lawyers: V VIVEKANANDAN
• Assessee Lawyers: SP CHIDAMBARAM
• Keywords: Transfer pricing; Business expenditure; International transaction; Corroborative evidences
• Section: 143(3); 37(1); 10B; 10

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL D BENCH, CHENNAI , . , # $ BEFORE SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER AND SHRI G. PAVAN KUMAR, JUDICIAL MEMBER ./ I.T.A. NO. 692/MDS/2016 / ASSESSMENT YEAR : 2011-12 M/S. DOOWON AUTOMOTIVE SYSTEMS INDIA PRIVATE LIMITED, NO. 19 & 20, SIPCOT INDUSTRIAL PARK, ORAGADAM, SRIPERUMBUDUR TALUK, KANCHEEPURAM DISTRICT - 602 105. [PAN: AACCD 4172F] VS. THE DEPUTY COMMISSIONER OF INCOME TAX, COMPANY CIRCLE - 1(1), CHENNAI - 600 034. ( / APPELLANT) ( / RESPONDENT) & ' / APPELLANT BY : SHRI S.P. CHIDAMBARAM, ADVOCATE *+& ' / RESPONDENT BY : SHRI V. VIVEKANANDAN, CIT ' /DATE OF HEARING : 27.10.2016 ' /DATE OF PRONOUNCEMENT : 25.01.2017 /O R D E R PER G. PAVAN KUMAR, JUDICIAL MEMBER: THE ASSESSEE HAS FILED AN APPEAL AGAINST THE ORDER PASSED U/S. 143(3) R.W.S. 144(C) OF THE INCOME TAX ACT DATED 18 .01.2016 IN PURSUANCE OF THE DIRECTIONS ISSUED BY DRP DATED 28.12.2015. :-2-: I.T.A. NO. 692/MDS/2016 2. THE ASSESSEE RAISED THE GROUNDS OF TRANSFER PRIC ING FOR THE ADJUSTMENT OF CUSTOM DUTY, WARRANTY COSTS AND WORKI NG CAPITAL ADJUSTMENTS AND OTHER GROUNDS FROM 2.2 TO 2.11 AND ALSO RAISED THE GROUNDS ON DISALLOWANCE U/S. 40(A)(I) OF THE ACT FEES FOR THE TECHNICAL SERVICES AND THE TDS CREDITS AND ALSO ON DISALLOWANCE OF INTEREST PA ID ON DELAY PAYMENT OF TDS. 3. THE BRIEF FACTS OF THE CASE THAT THE ASSESSEE CO MPANY IS A MANUFACTURER OF AUTOMOBILE AIR CONDITIONER AND COOL ING SYSTEMS, AUTOMOTIVE ANCILLARIES, COMPONENTS AND OTHER AUTOMOTIVE PARTS. WHEREAS, THE DOOWON INDIA WAS INCORPORATED IN THE YEAR 2006 AND THE MAJ OR CLIENTELE INCLUDES HYUNDAI AND VOLKSWAGON AND THE FINANCIAL YEAR 2009- 10 IS THE SECOND YEAR OF BUSINESS OPERATIONS AND FILED THE RETURN OF INCOME ELECTRONICALLY ON 23.11.2011 WITH TOTAL INCOME OF RS. 2,11,60,734/-. SUBSEQUENTLY, THE CASE WAS SELECTED FOR SCRUTINY UNDER CASS AND NOTICE U/S . 143(2) OF THE ACT WAS ISSUED. IN COMPLIANCE TO THE NOTICE, LD. AR OF THE ASSESSEE APPEARED FROM TIME TO TIME AND THE LD. AO FOUND THAT THE INTERNAT IONAL TRANSACTIONS WITH ASSOCIATE ENTERPRISE ARE MORE THAN RS. 15 CRORES AN D MADE REFERENCE U/S. 92CA OF THE ACT TO THE TRANSFER PRICING OFFICER, CH ENNAI AND RELIED ON THE FORM NO. 3CEB FILED BY THE ASSESSEE WHEREAS, THE LD . TPO VIDE ORDER F. NO. D-106/TPO-I/AY 2011-12 DATED 30.01.2015 HAS MADE TH E DOWNWARD :-3-: I.T.A. NO. 692/MDS/2016 ADJUSTMENT OF RS. 12,75,48,826/- TO THE VALUE OF IN TERNATIONAL TRANSACTIONS. FURTHER, THE ASSESSING OFFICER FIND THAT THE ASSESS EE HAS MADE PAYMENT ON TECHNICAL FEE TO ITS FOREIGN COMPANY AND NOT COMPLI ED PROVISIONS OF SECTION 9(1)(VII) R.W.S. 195 OF THE ACT AND THE EXPLANATION S WERE FILED BY THE ASSESSEE BY LETTER DATED 03.03.2015. AS THE ASSESSEE HAS NO T COMPLIED PROVISIONS OF TDS IN RESPECT OF FEES FOR TECHNICAL SERVICES RS. 9 3,48,121/- AND INTEREST ON DELAYED REMITTANCE OF TDS RS. 1,77,300/- IS NOT ALL OWABLE, THE LD. AO MADE ADDITION OF TP ADJUSTMENT RS. 10,50,34,698/- AND PA SSED ORDER DATED 25.03.2015, AGAINST THE DRAFT ASSESSMENT ORDER ASSE SSEE FILED OBJECTION WITH THE DRP. THE DRP VERIFIED THE FACTS AND THE NET PR OFIT MARGIN AND DIRECTED THE LD. TPO FOR RECTIFICATION. THE TPO MADE TRANSF ER PRICING ADJUSTMENT TO THE EXTENT OF RS. 10,50,34698/- AS PER THE DIRECTIO NS, THE ASSESSING OFFICER FOUND THAT THE ASSESSEE ALSO MADE A CLAIM FOR REDUC TION OF THE AMOUNT OF RS. 1,73,38,207/- FROM THE TOTAL INCOME, SINCE THE TDS MADE IN FINANCIAL YEAR 2010-11. WHEREAS, THE ASSESSING OFFICER HAS NOT PR OVIDED ANY RELIEF AS SUCH CLAIM HAS TO BE VERIFIED BASED ON FORM 26AS FOR TAX CREDIT AND PASSED ORDER U/S. 143(3) R.W.S. 144C DATED 18.01.2016. 4. AGGRIEVED BY THE ORDER, ASSESSEE FILED AN APPEAL WITH THE TRIBUNAL. BEFORE US, THE LD. AR ARGUED THAT THE CUSTOM DUTY A DJUSTMENT WAS NOT CONSIDERED BY THE LD. TPO AS THE COMPANY WAS INCORP ORATED IN THE YEAR 2006 AND COMMENCED PRODUCTION ONLY IN THE YEAR 2009. TH E LD. TPO FOUND THAT :-4-: I.T.A. NO. 692/MDS/2016 THE ASSESSEE HAS ADOPTED TNMM METHOD, WHEREAS DOOWO N CLIMATE CONTROL LIMITED, KOREA IS THE HOLDING COMPANY OF DOOWON IND IA AND HOLDS MAJORITY OF THE SHARES IN INDIA COMPANY THROUGH SUBSIDIARIES AN D THE LD. TPO OBSERVED THAT THE INTERNATIONAL TRANSACTIONS ARE ENTERED AND THE ASSESSEE HAS ADOPTED TNMM METHOD AS THE MOST APPROPRIATE METHOD FOR CALC ULATION OF ALP, PLI WAS WORKED OUT TO 5.42%. THE ASSESSEE COMPANY IS ENGAG ED IN MANUFACTURING CHILD PARTS OF AUTOMOTIVE CONTROLLING SYSTEMS AND I N THE INITIAL STAGE OF BUSINESS OPERATIONS. DURING THE SAID FINANCIAL YEA R, DUE TO STRINGENT QUALITY NORMS, IMPORTS WERE NECESSITATED IN THE INITIAL STA GES AND INCURRED CUSTOM DUTY ON IMPORTS AND THE BASIC CUSTOM DUTY (NON-CENV ATABLE) PORTION WAS PAID ON IMPORTED RAW MATERIAL SHALL FORM OF ADDITIONAL C OST FOR THE ASSESSEE. DUE TO CONSTRAINS OF FINISHED PRODUCTS AND THE ASSESSEE COMPANY HAS ENTERED INDIA AUTO MARKET ON PAR WITH THE LOCAL SUPPLIERS A ND HAS TO BEAR THE CUSTOM DUTY (NON-CENVATABLE) WHERE AS LD. TPO IS OF THE OP INION THAT BURDEN HAS BEEN PASSED ON TO CUSTOMERS AND THE COMPARABLES COM PANY SELECTED IN THE CASE OF AUTO COMPONENT INDUSTRY DOES NOT INCUR SUCH IMPORT DUTY FOR SOURCING RAW MATERIAL. FURTHER, THE LD. AR RELIED ON THE DECISION OF SKODA AUTO INDIA (P) LIMITED VS ACIT (30 SOT 319) PUNE FO R CLAIMING CUSTOM DUTY ADJUSTMENT. WHEREAS, THE LD. TPO FIND THE ASSESSEE COMPANY IS NOT ELIGIBLE FOR ANY CUSTOM DUTY ADJUSTMENT AND DISCUSSED ON THE BUSINESS OPERATIONS AND THE STAGES OF BUSINESS ACTIVITIES AND THE CIRCU MSTANCES AT PAGE 4 TO 7 OF THE ORDER AND CAME TO A UNILATERAL CONCLUSION THAT THE CUSTOM DUTY :-5-: I.T.A. NO. 692/MDS/2016 ADJUSTMENT CANNOT BE GRANTED AS THE ASSESSEE HAS NO T SUBSTANTIATED WITH SUPPORTING EVIDENCE AND THE COMPARABLES HAVE PAID C USTOM DUTY ON IMPORTS. THE LD. TPO HAS SELECTED COMPARABLES WITH AN AVERAG E ARITHMETIC MEAN OF 8.45%. WHEREAS, THE ASSESSEE'S PLI IS 5.42% AND CA LCULATED THE MARGIN OF COMPARABLES AT 6.49% ON INTERNATIONAL TRANSACTION A ND MADE AN DOWNWARD ADJUSTMENT AT RS. 12,75,48,826/-. WHEREAS, THE DRP ON THE BASIS OF THE OBJECTIONS OF THE ASSESSEE HAS DIRECTED THE TPO TO MAKE THE RECTIFICATION OF ADJUSTMENT AND THE LD. AO HAS RESTRICTED THE TRANSF ER PRICING ADJUSTMENT TO RS. 10,50,34,698/. THE DRP RELIED ON THE EARLIER O RDER PASSED IN THE ASSESSMENT YEAR 2009-10 AND WAS SET ASIDE BY THE TR IBUNAL AND LD. AR PRAYED FOR ADJUSTMENT OF CUSTOM DUTY AND CONTRA LD. DR RELIED ON THE LOWER AUTHORITIES ORDER. 5. WE HEARD THE RIVAL SUBMISSIONS, PERUSED THE MATE RIAL ON RECORD AND JUDICIAL DECISIONS. THE LD. AR EXPLAINED THAT THE COMPANY WAS INCORPORATED IN THE YEAR 2006 AND IN THE SECOND YEAR OF OPERATIO N. THE RAW MATERIAL COMPONENT INCLUDE IMPORT COST WHICH CONSTITUTE A MA JOR COST AND CLAIM ADJUSTMENT OF CUSTOM DUTY (NON-CENVATABLE) BEFORE T PO. WE RELY ON CO- ORDINATE 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-: I.T.A. NO. 692/MDS/2016 ' 6. THE LD. AR SUBMITTED THAT IN RESPECT OF CUSTOM DUTY COMPONENT SUITABLE ADJUSTMENT TO BE MADE WHILE DETERMINING TH E 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 DETERM INING 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 (3 0 SOT 319)[PUNE] II) TOYOTA KIRLOSKAR MOTORS PVT. LTD. V. ACIT, BANG ALORE ITA NO. 828/BANG/2010 III) PUTZMEISTER CONCRETE MACHINES PVT. LTD. V. DCI T, 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 AVA ILABLE 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 RELEVANT PROVISIONS OF INCOME TAX RULES VIS A VIS T HE SCOPE OF THE ADJUSTMENTS IN THE PRECEDING PARAGRAPHS IN THE CONT EXT OF THE ADJUSTMENTS ON ACCOUNT OF THE WORKING CAPITAL. IN PRINCIPLES, OUR FINDINGS ON THE ISSUE REMAIN APPLICABLE TO THE ADJU STMENTS ON :-7-: I.T.A. NO. 692/MDS/2016 ACCOUNT OF THE IMPORT COST MENTIONED IN GROUND 4(B) TOO. THE DIFFERENCE BETWEEN THE AL MARGIN BEFORE AND AFTER T HE SAID ADJUSTMENTS ON ACCOUNT OF IMPORT COST WORKS OUT T O 0.57% (7.18%-6.61%). REVENUE HAS NOT DISPUTED THE SAID WO RKING OF THE ASSESSEE. IN THESE FACTUAL CIRCUMSTANCES AND IN THE LIGHT OF THE SCOPE OF ADJUSTMENTS DISCUSSED ABOVE, IN OUR OP INION AND IN PRINCIPLE, THE ASSESSEE SHOULD WIN ON THIS GROUND T OO. ONE SUCH DECISION RELIED UPON BY THE ASSESSEES COUNSEL SUPP ORTS OUR FINDING RELATES TO THE DECISION OF THIS BENCH OF TH E TRIBUNAL IN THE CASE OF SKODA AUTO INDIA P LTD 122 TTJ 699 (PUNE) D ATED 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 RE ALLY SEEN IS WHETHER THIS HIGH IMPORT CONTENT WAS NECESSITATED B Y THE EXTRAORDINARY CIRCUMSTANCES BEYOND ASSESSEES CONTR OL. AS WAS OBSERVED BY A CO-ORDINATE BENCH OF THIS TRIBUNAL IN THE CASE OF E- GAIN COMMUNICATION (P) LTD. (SUPRA) THE DIFFERENCE S 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 CONSI DERATION 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 H IGHER IMPORT DUTY, IT MUST BE PASSED ON TO THE CUSTOMERS OR IT M UST BE ADJUSTED FOR IN NEGOTIATING THE PURCHASING PRICE. A LL THESE THINGS COULD BE RELEVANT ONLY WHEN HIGHER IMPORT CONTENT I S A PART OF THE BUSINESS MODEL WHICH THE ASSESSEE HAS CONSCIOUSLY C HOSEN BUT THEN IF IT IS A BUSINESS MODEL TO IMPORT THE SKD KI TS OF THE CARS, ASSEMBLE IT AND SELL IT IN THE MARKET, THAT IS CERT AINLY NOT THE :-8-: I.T.A. NO. 692/MDS/2016 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 A SSESSEE COMPANY AND THE COMPARABLE COMPANIES ARE THE SAME A ND IT IS ON ACCOUNT OF INITIAL STAGES OF BUSINESS THAT THE U NUSUALLY HIGH COSTS ARE INCURRED. THE ADJUSTMENTS ARE THUS REQUIR ED 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 TH IS COMPARISON POSSIBLE. THE ASSESSEE CANNOT BE EXPECTED TO GET TH E 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 INEVITABL E THAT SOME APPROXIMATIONS ARE TO BE MADE AND REASONABLE ASSUMP TIONS ARE TO BE MADE. THE ARGUMENT BEFORE US WAS THAT IT WAS FIRST YEAR OF ASSESSEES OPERATIONS AND COMPLETE FACILITIES ENSUR ING A REASONABLE INDIGENOUS RAW MATERIAL CONTENT WAS NOT IN PLACE. THE ASSESSEES CLAIM IS THAT IT WAS IN THESE CIRCUMSTAN CES THAT THE ASSESSEE HAD TO SELL THE CARS WITH SUCH HIGH IMPORT CONTENTS, AND ESSENTIALLY HIGH COSTS, WHILE THE NORMAL SELLING PR ICE OF THE CAR WAS COMPUTED IN THE LIGHT OF THE COSTS AS WOULD APP LY WHEN THE COMPLETE FACILITIES OF REGULAR PRODUCTION ARE IN PL ACE. NONE OF THESE ARGUMENTS WERE BEFORE ANY OF THE AUTHORITIES BELOW. WHAT WAS ARGUED BEFORE THE AO WAS MERE FACT OF HIGHER CO STS ON ACCOUNT OF HIGHER IMPORT DUTY BUT THEN THIS ARGUMEN T PROCEEDED ON THE FALLACY THAT AN OPERATING PROFIT MARGIN FOR HIGHER IMPORT DUTY IS PERMISSIBLE MERELY BECAUSE THE HIGHER COSTS ARE INCURRED :-9-: I.T.A. NO. 692/MDS/2016 FOR THE INPUTS. THAT ARGUMENT HAS BEEN REJECTED BY A CO-ORDINATE BENCH AND WE ARE IN RESPECTFUL AGREEMENT WITH THE V IEWS OF OUR ESTEEMED COLLEAGUES. THIS ADDITIONAL ARGUMENT WAS N OT 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, THEREFO RE, 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 B ENCH OF THE TRIBUNAL IN THE CASE OF SKODA AUTO INDIA P LTD (SUP RA) 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 RELA TING TO THE IMPORT COST FACTOR AND 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 T HE 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 AD JUSTMENT AGAINST THE CUSTOM DUTY COMPONENT WHILE DETERMINING THE ALP. CONSIDERING THE CUSTOM DUTY ADJUSTMENT AND CO-ORDIN ATE BENCH DECISION, WE REMIT THE DISPUTED ISSUE TO THE FILE OF AO FOR CUST OM DUTY ADJUSTMENT. 6. THE LD. AR ARGUED ON THE ADJUSTMENT OF WARRANTY COST, WHEREAS, THE DRP AND AO HAS CONFIRMED ACTION OF THE TPO IN NOT EXCLUDING THE :-10-: I.T.A. NO. 692/MDS/2016 EXTRAORDINARY COST INCURRED BY THE ASSESSEE RELATIN G TO WARRANTY BECAUSE OF INITIAL PERIOD OF OPERATIONS AND WE FIND THAT THE W ARRANTY ISSUE IS NOT DISCUSSED BY THE TPO IN HIS ORDER. ACCORDINGLY, WE ARE OF THE OPINION THAT WARRANTY COST HAS TO BE DEALT BY THE TPO AND WE REM IT THE DISPUTED ISSUE TO THE FILE OF THE AO FOR FRESH CONSIDERATION. 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 C APITAL ADJUSTMENT. WHEREAS, THE LD. TPO OBSERVED THAT THE ASSESSEE COM PANY IS ACTUALLY BUYING THE PARTS FROM THE AE AND WORKING CAPITAL ADJUSTMEN T TO BE ALLOWED IF THE ASSESSEE DEMONSTRATES WITH AE OF ALLOWING THE CREDI T PERIOD TO THE ASSESSEE AND DRP CONFIRM THE ACTION OF THE TPO AND THE LD. A R DEMONSTRATED THE ARITHMETIC MEAN OF 4.58% OF SEVEN COMPARABLES SELEC TED AT PAGE 41 OF PAPER BOOK AND REFERRED TO THE WORKING CAPITAL ADJUSTMENT PLR OF 12.26% WITH THE COMPARABLES CURRENT ASSESTS BEING SUNDRY CREDITORS, SUNDRY DEBTORS AND INVENTORIES AT PAGE 42 AND SUPPORTED WORKING CAPITA L ADJUSTMENT OF COMPARABLES COMPANY BASED ON THE FINANCIAL STATEMEN TS. 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 STAT EMENTS AND THE PAPER BOOK, :-11-: I.T.A. NO. 692/MDS/2016 THERE IS NECESSITY FOR WORKING CAPITAL ADJUSTMENT A ND ACCORDINGLY WE REMIT THE ISSUE TO THE FILE OF AO TO CONSIDER THE MATERIAL FO R FRESH CONSIDERATION. 8. THE ASSESSING OFFICER DISALLOWED THE FEE FOR TEC HNICAL SERVICES RS. 93.49.121/- INCURRED DURING THE PREVIOUS YEAR UNDER PROVISIONS OF SECTION 40(A)(I). THE LD. AR SUBMITTED THAT THE LD. AO SHO ULD HAVE ALLOWED THE DEDUCTION IN THE YEAR OF PAYMENT OF TAX AND THE LD. AO ALSO DISALLOWED RS. 1,77,300/- TOWARDS INTEREST PAID ON DELAYED PAYMENT OF TDS AND THE SAME SHOULD BE ALLOWED AS DEDUCTION U/S. 37(1) OF THE AC T. IN THE ASSESSMENT PROCEEDINGS, THE ASSESSEE COMPANY FILED THE LETTER EXPLAINING THE PAYMENT OF FEES FOR TECHNICAL SERVICES AND INTEREST ON DELAY P AYMENT OF TDS AND THE DRP HAS CONFIRMED THE ACTION OF AO. BEFORE US, THE LD. AR ARGUED THAT THE EXPENDITURE HAS TO BE ALLOWED AS DEDUCTION IN WHICH THE CORRESPONDING TAX IS ACTUALLY PAID. WE FOUND THE ASSESSEE COMPANY HAS I NCURRED THIS EXPENDITURE TOWARDS THE FEE FOR TECHNICAL SERVICES AND WE ARE O F THE OPINION THAT THE ASSESSING OFFICER SHOULD VERIFY AND GRANT THE DEDUC TION IN THE YEAR IN WHICH ASSESSEE COMPANY MAKES THE TDS PAYMENT AND ACCORDIN GLY, WE REMIT THIS ISSUE TO THE FILE OF THE ASSESSING OFFICER. FURTHE R, THE ASSESSING OFFICER HAS DISALLOWED RS. 1,77,300/- BEING INTEREST PAID ON DE LAY PAYMENT OF TDS AND THE LD. AR ARGUED THAT THE SAME CANNOT BE DISALLOWE D U/S. 40(A)(II) OF THE ACT. WE PERUSED THE ASSESSMENT ORDER AND FOUND THA T THERE ARE NO PROPER CLARIFICATIONS AVAILABLE. THE ASSESSING OFFICER OBS ERVED THAT THE INTEREST PAID :-12-: I.T.A. NO. 692/MDS/2016 FOR DELAY IN FILING RETURN AND PAYMENT OF ADVANCE T AX IS NOT ALLOWED AS BUSINESS EXPENDITURE WHILE APPLYING THE SAME ANALOG Y, WE ARE OF THE OPINION THAT THE INTEREST PAID ON DELAYED PAYMENT OF TDS CA NNOT BE ALLOWED ACCORDINGLY WE UPHELD THE ACTION OF THE ASSESSING O FFICER IN DISALLOWING THE INTEREST ON DELAY PAYMENT OF TDS RS. 1,77,300/- AND DISMISS THE ASSESSEE'S GROUND. 9. THE ASSESSING OFFICER HAS NOT ALLOWED THE CLAIM OF FEES FOR TECHNICAL SERVICE RS. 1,73,38,207/- ON PAYMENT OF TDS WITHOUT APPRECIATING THAT THE ENTIRE AMOUNT WAS DISALLOWED IN THE PREVIOUS ASSESS MENT YEAR 2010-11 FOR NON-DEDUCTION OF TDS AND THE ASSESSING OFFICER SHOU LD HAVE CONSIDERED THESE FACTS. THE DRP HAS UPHELD THE ACTION OF THE ASSESSI NG OFFICER AS THE ASSESSEE COULD NOT PRODUCE, NECESSARY DOCUMENTS FOR VERIFICA TION. BEFORE US, THE LD. AR ARGUED THAT THIS AMOUNT PERTAINS TO ASSESSMENT Y EAR 2010-11, WHEREAS, TDS HAS BEEN MADE IN THE SAID FINANCIAL YEAR. WE A RE OF THE OPINION THAT THE CLAIM HAS TO BE ALLOWED BASED ON THE EVIDENCE AND T HE ASSESSEE COMPANY SHOULD PRODUCE AND SUPPORT THE PAYMENT WITH THE PAY MENT DETAILS AND ALSO PRODUCE COPY OF 26AS BEING NECESSARY FOR THE ASSESS ING OFFICER TO ALLOW THE CLAIM. ACCORDINGLY, WE REMIT THE ISSUE TO THE FILE OF THE LD. AO FOR VERIFICATION AND DECIDE THE ISSUE A FRESH IN THE LIGHT OF FIRST PROVISION TO SECTION 40(A)(I) OF THE ACT. :-13-: I.T.A. NO. 692/MDS/2016 10. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS A LLOWED FOR STATISTICAL PURPOSE. ORDER PRONOUNCED ON WEDNESDAY, THE 25TH DAY OF JANU ARY, 2017 AT CHENNAI. SD/- ( ' ) (CHANDRA POOJARI) $ / ACCOUNTANT MEMBER SD/ - ( . ) ( G. PAVAN KUMAR ) ) $ /JUDICIAL MEMBER /CHENNAI, 1 /DATED: 25TH JANUARY, 2017 JPV ' *#34 54 /COPY TO: 1. APPELLANT 2. *+& /RESPONDENT 3. 6 ( )/CIT(A) 4. 6 /CIT 5. 4 *## /DR 6. 9 /GF