M/s. GKN Sinter Metals Pvt. Ltd., Pune V. ACIT, Circle-9, Pune

ITA 91/PUN/2013

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 1872 (ITAT-PUNE)
• Duration Of Justice: 3 year(s) 3 month(s) 28 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 06-05-2016
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Next Hearing Date: 07-12-2015
• Assessment Year: 2008-2009
• Appeal Filed On: 09-01-2013
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Assessee Lawyers: MANOJ PARDASANI
• Keywords: Value adopted by valuation officer; Capital asset; Depreciation; Transfer pricing; International transaction; Wholly owned subsidiary; Fair market value; Valuation report; Validity of assessment; Revised return
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH, PUN E , , !'#'' $ , % & BEFORE SHRI R.K. PANDA, AM AND SHRI VIKAS AWASTHY, JM / ITA NO. 91/PN/2013 %' ( ')( / ASSESSMENT YEAR : 2008-09 GKN SINTER METALS PVT. LTD., 146, MUMBAI-PUNE ROAD, PIMPRI, PUNE-411018 PAN : AAACM4432H ....... / APPELLANT ' / V/S. ASSTT. COMMISSIONER OF INCOME TAX, CIRCLE 9, PUNE / RESPONDENT ASSESSEE BY : SHRI MANOJ PARDASANI REVENUE BY : SHRI AVADESH KUMAR / DATE OF HEARING : 08-03-2016 / DATE OF PRONOUNCEMENT : 06-05-2016 * / ORDER PER VIKAS AWASTHY, JM : THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST THE ASSE SSMENT ORDER DATED 12-10-2012 PASSED U/S. 143(3) R.W.S. 144C(13) OF THE INCOME TAX ACT, 1961 (HEREINAFTER REFERRED TO AS THE AC T) FOR THE ASSESSMENT YEAR 2008-09. 2. THE BRIEF FACTS OF THE CASE AS EMANATING FROM RECORD S ARE: THE ASSESSEE COMPANY IS ENGAGED IN THE BUSINESS OF MANUFACT URING OF 2 ITA NO. 91/PN/2013, A.Y. 2008-09 POWER METAL COMPONENTS MAINLY FOR THE AUTOMOTIVE INDUSTR Y. THE ASSESSEE COMPANY IS A WHOLLY OWNED SUBSIDIARY OF GKN SINT ER HOLDINGS LTD., UK. THE ASSESSEE FILED ITS ORIGINAL RETURN OF INCOME FOR THE ASSESSMENT YEAR 2008-09 ON 30-09-2008, DECLARING TOTAL LOSS OF ` 9,67,58,122/-. THEREAFTER, THE ASSESSEE FILED REVISED RETURN OF INCOME ON 21-10-2008 DECLARING TOTAL LOSS OF ` 23,85,76,347/-. THE CASE OF THE ASSESSEE WAS SELECTED FOR SCRUTINY UNDER CASS AND ACCO RDINGLY, NOTICE U/S. 143(2) WAS ISSUED TO THE ASSESSEE ON 28-08-2009. D URING THE PERIOD RELEVANT TO THE ASSESSMENT YEAR 2008-09, THE AS SESSEE HAD ENTERED INTO INTERNATIONAL TRANSACTIONS WITH ITS ASSOCIATED ENTERPRISES (AES). THE INTERNATIONAL TRANSACTIONS ENTERED INTO BY THE ASSESSEE WITH AES WERE REFERRED TO THE TRANSFER PRICING OFFICER (TPO) FOR DETERMINING THE ARMS LENGTH PRICE (ALP). APART FROM IMPORT OF RAW M ATERIALS FROM ITS AES, THE ASSESSEE HAD ALSO PURCHASED CAPITAL ASSET C OMPRISING OF SECOND HAND MACHINES FROM ITS AE GKN SINTER METALS LICHFIE LD, UK. THE CLAIM OF THE ASSESSEE IS THAT MACHINE WAS PURCHASED FROM ITS AE AT ALP ON THE BASIS OF VALUATION CERTIFICATE ISSUED BY AN INDE PENDENT CHARTERED ENGINEER. THE TPO REJECTED THE VALUE DECLARE D BY THE ASSESSEE AND ESTIMATED THE VALUE OF MACHINE BY APPLYING COMPARABLE UNCONTROLLED PRICE (CUP) METHOD. THE TPO MADE UPWARD AD JUSTMENT OF ` 1,69,52,440/- IN RESPECT OF VALUE OF MACHINE. ON THE BASIS OF ORDER PASSED BY THE TPO U/S. 92CA(3) OF THE ACT, THE ASSESSING OFFICER MADE DRAFT ASSESSMENT ORDER MAKING ADDITION OF ` 20,35,20,254/- IN RESPECT OF ADJUSTMENTS MADE BY TPO IN ALL THE INTERNATIONAL TRANS ACTIONS. THE ASSESSEE FILED OBJECTIONS BEFORE THE DISPUTE RESOLUTION PAN EL (DRP) AGAINST THE ADJUSTMENTS MADE BY THE TPO WITH REGARD T O INTERNATIONAL TRANSACTIONS. THE DRP REJECTED THE OBJECTIONS RAISED B Y THE ASSESSEE IN TOTO. THE ASSESSING OFFICER, ACCORDINGLY, PASSED THE IMPUGN ED ASSESSMENT ORDER. NOW, THE ASSESSEE IS IN APPEAL BEFORE THE TRIBUNAL AGAINST THE FINDINGS OF AUTHORITIES BELOW. 3 ITA NO. 91/PN/2013, A.Y. 2008-09 3. THE ASSESSEE HAS RAISED FOUR ISSUES IN THE GROUNDS O F APPEAL. THE LD. AR OF THE ASSESSEE STATED AT THE BAR THAT THE GROUND NO. 1 RAISED IN THE APPEAL CHALLENGING THE VALIDITY OF ASSESSMENT O RDER IS NOT PRESSED. THE LD. AR FURTHER CONTENDED THAT THE GROUND NO. 2 RAISED IN THE APPEAL ASSAILING THE FINDINGS OF LOWER AUTHORITIES IN RESP ECT OF PAYMENT OF DIVISIONAL RECHARGE AND GROUND NO. 4 RELATING TO PAYMENT OF ROYALTY ARE WITHDRAWN. THUS, IN VIEW OF THE ABOVE STATEME NT MADE BY THE LD. AR THE ONLY ISSUE THAT IS TO BE ADJUDICATED IS IN GROUND NO. 3 WHICH READS AS UNDER: 3. TRANSFER PRICING PURCHASE OF CAPITAL ASSETS [ INR 16,952,440] 3.1 ON THE FACTS AND IN LAW, THE LD. TPO, THE LD. A O AND THE HON. DRP ERRED IN DISREGARDING THE TRANSFER PRICING DOCU MENTATION MAINTAINED BY THE APPELLANT AND ERRONEOUSLY AND INA PPROPRIATELY APPLIED THE CUP METHOD BY USING THE WRITTEN DOWN VA LUE (WDV) OF THE ASSETS IN THE BOOKS OF THE AE AND ADDING AN ADHOC MARK-UP TO THE WDV TO DETERMINE THE ARMS LENGTH PRICE AS I NR 15,343,891 INSTEAD OF INR 32,296,331 AS PAID BY THE APPELLANT AND THEREBY PROPOSING AN ADDITION TO TAXABLE INCOME TO THE EXTE NT OF INR 16,952,440. 3.2 ON THE FACTS AND IN LAW, THE LD. TPO, THE LD. A O AND THE HON. DRP ERRED IN DISREGARDING THE VALUATION CERTIFICATE S ISSUED BY INDEPENDENT CHARTERED ENGINEERS WHICH WERE USED AS THE BASIS TO DETERMINE THE ARMS LENGTH PRICE. 4. SHRI MANOJ PARDASANI APPEARING ON BEHALF OF THE ASSESSE E SUBMITTED THAT THE GKN GROUP DECIDED TO RELOCATE MANUFA CTURING PLANT FROM LICHFIELD, UK TO INDIA. THE MANUFACTURING UNIT AT LICHFIELD HAD ONE COMPACTING PRESSES WHICH WAS PURCHASED BY THE ASS ESSEE. THE VALUE OF SAID MACHINE WAS ASCERTAINED BY AN INDEPENDENT CHARTERED ENGINEER. THE VALUE OF MACHINE AS GIVEN IN THE VALUATION CE RTIFICATE WAS ACCEPTED BY THE CUSTOMS DEPARTMENT FOR VALUATION P URPOSE AT THE TIME OF IMPORT OF THE SAID MACHINE. THE ASSESSEE PAID CUS TOMS DUTY, ACCORDINGLY. THE AMOUNT PAID BY THE ASSESSEE TO GKN S INTER METALS 4 ITA NO. 91/PN/2013, A.Y. 2008-09 LICHFIELD, UK FOR SECOND HAND ASSETS WAS BASED ON ECONOMI C VALUE OF THE ASSET WHICH WAS ALSO CERTIFIED BY AN INDEPENDENT CHAR TERED ENGINEER. THE ASSESSEE IN ORDER TO DEMONSTRATE THAT T HE PRICE PAID BY THE ASSESSEE FOR CAPITAL ASSET TO ITS AE IS JUST AND RE ASONABLE, OBTAINED QUOTATION OF THE SIMILAR MACHINE FROM CINCINNATI, USA (THE ORIGIN AL MANUFACTURER OF THE PRESSES). THE LD. AR SUBMITTED THAT T HERE IS ABSOLUTELY NO DIFFERENCE IN THE SPEED OF THE OLD PRESS BOU GHT FROM LICHFIELD AND THE BRAND NEW PRESSES. THE ONLY DIFFERENCE IF ANY IS ON ACCOUNT OF THE DOWNTIME FOR REPAIRS AND MAINTENANCE WHICH IS ALSO NOT SIGNIFICANTLY DIFFERENT. THE LD. AR SUBMITTED THAT EVEN TODAY THESE PRESSES ARE WORKING ABSOLUTELY IN PERFECT MANNER. IF THE PRICES OF THE OLD MACHINE PURCHASED BY THE ASSESSEE IS COMPARED TO P RICE OF THE NEW MACHINE THERE IS A SUBSTANTIAL DIFFERENCE IN THE PRICE, WHERE AS, THERE IS ABSOLUTELY NO DIFFERENCE IN THE SPEED AND QUALITY OF OUTPUT . THE LD. AR CONTENDED THAT THE TPO HAS ERRED IN HOLDING THAT THE ASSESSEE HAS PAID EXCESSIVE PRICE FOR ACQUIRING THE CAPITAL ASSET ON THE BAS IS OF WRITTEN DOWN VALUE OF THE MACHINE IN THE BOOKS OF GKN LICHFIELD. T HE TPO IN AN ARBITRARY AND UNJUSTIFIED MANNER COMPARED THE VALUE O F MACHINE WITH THE MACHINES MANUFACTURED IN INDIA AND EXTRAPOLATING THE OPERATING PROFIT MARGIN TO THE VALUE OF MACHINE IMPORTED BY THE ASSESSEE. THE TPO APPLIED CUP METHOD AND MARKED UP TH E SAME WITH ARITHMETIC MEAN OF THE OPERATING MARGIN OF THE INDIAN MANU FACTURERS OF THE MACHINE, THEREBY MAKING UPWARD ADJUSTMENT OF ` 1,69,52,440/-. 4.1 THE LD. AR FURTHER SUBMITTED THAT MACHINE WAS VALUED BY INDEPENDENT CHARTERED ENGINEER IN UK AT GBP 201800 (APP ROX ` 3 CRORES). THE ASSESSEE HAS MADE SALE OF APPROXIMATELY ` 26 CRORES WORTH OF PRODUCTS MANUFACTURED FROM THE SAID MACHINE. THE CAPIT AL GOODS CANNOT BE SOLD OR PURCHASED AT WRITTEN DOWN VALUE. THE ACTUAL SALE PRICE OF THE CAPITAL GOODS CAN EITHER BE HIGHER OR LOWER T HAN THE WRITTEN 5 ITA NO. 91/PN/2013, A.Y. 2008-09 DOWN VALUE. IF THE TPO HAD ANY DOUBT OVER THE PRICING O F THE MACHINE HE SHOULD HAVE REFERRED THE MATTER TO DEPARTMENTAL VALU ATION OFFICER (DVO) FOR DETERMINING THE VALUE OF MACHINE. HOWEVER, NO EFFORT WAS MADE BY THE TPO OR THE ASSESSING OFFICER TO SEEK EXPER T OPINION AND DETERMINE THE ACCURATE PRICE OF THE MACHINE. THE TPO IN ASSESSMENT YEAR 2009-10 HAS ACCEPTED THE VALUATION OF CAPITAL ASSET MADE BY THE SAME INDEPENDENT CHARTERED ENGINEER WHO HAD DETERMINED THE V ALUE OF MACHINE IN THE ASSESSMENT YEAR UNDER APPEAL. IN SUPPOR T OF HIS SUBMISSIONS THE LD. AR PLACED RELIANCE ON THE FOLLOWING DECISIONS : I. ASSTT. COMMISSIONER OF INCOME TAX VS. M/S. KOCH CHEMICAL TECHNOLOGY GROUP (INDIA) LIMITED IN ITA NO. 8091/MUM/2011 FO R THE ASSESSMENT YEAR 2007-08 DECIDED ON 30-09-2015. II. TECUMSEH PRODUCTS INDIA (P.) LTD. VS. ASSISTANT COMMISSIONE R OF INCOME TAX, 41 TAXMANN.COM 385 (HYDERABAD TRIB.); III. DCIT VS. C-DOT ALCATEL-LUCENT RESEARCH CENTRE PVT. LTD . IN ITA NO. 3071/DEL/2013 FOR THE ASSESSMENT YEAR 2007-08 DECID ED ON 19-01-2016. 5. PER CONTRA SHRI AVADESH KUMAR REPRESENTING THE DEPA RTMENT VEHEMENTLY SUPPORTED THE FINDINGS OF AUTHORITIES BELOW IN M AKING UPWARD ADJUSTMENT WHILE DETERMINING THE VALUE OF MACHINE. THE LD. DR SUBMITTED THAT A PERUSAL OF THE VALUATION CERTIFICATE IS SUED BY THE CHARTERED ENGINEER, MARK A HOMER OF UK WOULD SHOW THAT THE CERTIFICATE HAS BEEN ISSUED BASED ON A VISUAL EXAMINATION O F THE MACHINE CARRIED OUT ON 04-12-2006. NO TEST WAS CARRIED OUT ON THE WORKING OF MACHINE. THE LD. DR SUBMITTED THAT A PERUSAL OF ANNUAL ACCOUNTS FOR THE CALENDAR YEAR ENDED ON 31-12-2007 OF M/S. GKN SINTER METALS LTD., UK WOULD SHOW THAT THE COMPANY INCURR ED LOSSES OF GBP 242,000 WITHOUT ACCOUNTING FOR PROFIT ON DISPOSAL OF CO MPANY ASSETS. THE COMPANY HAD REPORTED PROFIT OF GBP 678,000 FROM INTRA- 6 ITA NO. 91/PN/2013, A.Y. 2008-09 GROUP DISPOSAL OF FIXED ASSETS. THE BOOKS SHOW THE VALUE AFTER DEPRECIATION IS ONLY GBP 485000 AT THE BEGINNING OF THE Y EAR AND AS NIL ON DISPOSAL OF THESE ASSETS. THUS, IT IS CLEAR THAT THE D EPRECIATED MACHINERY AS PER THE BOOKS OF AE HAVE BEEN SOLD AT HAN DSOME PROFITS TO THE ASSESSEE. A PERUSAL OF RECORDS CLEARLY INDICATES THAT THE CAPITAL ASSETS HAVE BEEN DISPOSED OFF BY THE AE AT THE PROFIT MA RGIN OF 39.79%. THE HIGH PROFIT MARGIN INDICATES THAT AN INTENTION OF THE AE WAS TO REDUCE LOSSES AND TO MEET ITS CONTRACTUAL LIABILITY IN RESPE CT OF REDUNDANCY PAYMENTS TO ITS ERSTWHILE EMPLOYEES. THE MAC HINE WAS INVOICED TO THE ASSESSEE AT GBP 201,800 (APPROX ` 3,17,45,021/-) WHERE AS THE BOOK VALUE OF MACHINERY PURCHASED BY ASSESSEE IN THE BOOKS OF AE AT UK WAS 84155 GBP. THE TPO IN ORDER TO DETERMINE THE ACTUAL VALUE OF MACHINE HAS TAKEN THE ARITHMETIC MEAN OF OPERATIN G PROFIT OF THE COMPANY MANUFACTURING SIMILAR MACHINE AND AFTER COMPAR ING THE SAME WITH THAT OF THE ASSESSEE HAS MADE ADJUSTMENT OF 107,765 GBP I.E. ` 1,69,52,440/-. THE ORDER OF THE TPO IS WELL REASONED AND T HUS REQUIRES NO INTERFERENCE. THE DRP HAS ALSO UPHELD THE FIND INGS OF TPO. THE LD. DR PRAYED FOR DISMISSING THE APPEAL OF THE ASSESSEE. 6. WE HAVE HEARD THE SUBMISSIONS MADE BY THE REPRESENT ATIVES OF RIVAL SIDES AND HAVE PERUSED THE ORDERS OF THE AUTHORITIE S BELOW. WE HAVE ALSO CONSIDERED THE DECISION ON WHICH THE LD. AR OF TH E ASSESSEE HAS PLACED RELIANCE. THE ONLY ISSUE RAISED IN THE APPEAL BEFORE THE TRIBUNAL IS WITH REGARD TO THE VALUATION OF CAPITAL ASSET PU RCHASED BY THE ASSESSEE FROM ITS AES. THE ASSESSEE IN SUPPORT OF H IS SUBMISSIONS HAS PLACED RELIANCE ON THE VALUATION CERTIFICATE ISSUED BY A N INDEPENDENT CHARTERED ENGINEER AT UK WHEREAS THE REV ENUE HAS PLACED RELIANCE ON THE VALUATION MADE BY TPO BY EXTRAPO LATING THE ARITHMETIC MEAN OF OPERATING MARGIN OF THE COMPANIES MANU FACTURING 7 ITA NO. 91/PN/2013, A.Y. 2008-09 SIMILAR MACHINE IN INDIA AND APPLYING CUP METHOD TO MARKUP THE IMPORT PRICE AT ALP. 7. THE CONTENTION OF THE LD. AR IS THAT THE AUTHORITIES B ELOW HAVE DISBELIEVED THE VALUATION CERTIFICATE ISSUED BY AN INDEPENDEN T CHARTERED ENGINEER, WHEREAS THE SAME HAS BEEN ACCEPTE D BY THE CUSTOMS AUTHORITIES AND EVEN IN THE SUBSEQUENT ASSESSM ENT YEAR I.E. ASSESSMENT YEAR 2009-10 THE VALUATION CERTIFICATE ISSUED BY THE SAME CHARTERED ENGINEER HAS BEEN ACCEPTED BY THE TPO. WE ARE OF THE CONSIDERED VIEW THAT IF THE TPO WAS NOT SA TISFIED WITH THE VALUATION CERTIFICATE GIVEN BY AN INDEPENDENT CHAR TERED ENGINEER AT UK, THE TPO SHOULD HAVE REFERRED THE MATTER TO DVO WHO IS AN EXPERT TO DETERMINE THE VALUE OF SUCH CAPITAL ASSETS. THE TPO HAS ERRED IN EXTRAPOLATING THE AVERAGE ARITHMETIC MEAN OF OPE RATING PROFIT OF COMPANIES MANUFACTURING SIMILAR MACHINES IN INDIA. 8. THE CHENNAI BENCH OF THE TRIBUNAL IN THE CASE OF M/S. C OASTAL ENERGY PVT. LTD. VS. THE ASSISTANT COMMISSIONER OF INCOME TAX IN ITA NO. 2099/MDS/2010 FOR THE ASSESSMENT YEAR 2006-07 DEC IDED ON 13-07-2011 HAS OCCASION TO DEAL WITH THE ISSUE, WHERE TH E TPO REFUSED TO ACCEPT THE VALUE ADOPTED BY THE CUSTOMS AUTHORITY. THE TRIBUNAL HAS HELD THAT THE VALUE ADOPTED BY THE CUSTOMS AUTHOR ITIES SHOULD BE ACCEPTED AS THE CUSTOMS AUTHORITIES ASSIGN VALUE TO TH E IMPORTED GOODS ON SCIENTIFIC FORMULATED METHOD AND THEIR VALUATION IS NOT A N ARBITRARY EXERCISE. THE RELEVANT EXTRACT OF THE OBSERVATIONS OF TH E CHENNAI BENCH OF THE TRIBUNAL ARE AS UNDER: 6. THE NEXT QUESTION TO BE CONSIDERED IS WHETHER T HIS PRICE VARIATION NOTICED BY THE TPO SHOULD BE TAKEN AS THE BASIS FOR MAKING ADJUSTMENT IN THE TRANSFER PRICING. THE GRIEVANCE OF THE ASSES SEE IS THAT THE COMPARABLE PRICE HAS BEEN OBTAINED BY THE TPO FROM THE CUSTOMS AUTHORITIES AND THE VALUATION OF THE CUSTOMS AUTHOR ITIES NEED NOT 8 ITA NO. 91/PN/2013, A.Y. 2008-09 NECESSARILY BE REALISTIC AS THAT DEPARTMENT IS MORE INTERESTED IN COLLECTING IMPORT DUTIES. WE SHOULD STATE WITHOUT F EAR OF CONTRADICTION THAT THE CUSTOMS AUTHORITIES ARE ASSIGNING VALUES T O THE IMPORTED GOODS ON THE BASIS OF SCIENTIFICALLY FORMULATED METHODS A ND THEY ARE RESPONSIBLE FOR MAKING A FAIR ASSESSMENT VALUE OF T HE IMPORTED GOODS. THE VALUATION MADE BY THE CUSTOMS AUTHORITIES IS NO T AN ARBITRARY EXERCISE. BUT ON THE OTHER HAND, IT DEPENDS UPON LA RGE VOLUME OF INTERNATIONAL DATA CLASSIFIED ACCORDING TO INTERNAT IONALLY ACCEPTED PROTOCOL. THEREFORE, IT IS NOT POSSIBLE TO SAY THAT THE CREDIBILITY OF THE PRICE RATE FURNISHED BY CUSTOMS AUTHORITIES NEEDS TO BE D ISCOUNTED. THE VIEW TAKEN BY THE CHENNAI BENCH OF THE TRIBUNAL HAS BEEN FOLLOWED BY THE DELHI BENCH OF THE TRIBUNAL IN THE CASE OF DC IT VS. C- DOT ALCATEL-LUCENT RESEARCH CENTRE PVT. LTD. (SUPRA). 9. THE HYDERABAD BENCH OF THE TRIBUNAL IN THE CASE OF TEC UMSEH PRODUCTS INDIA (P.) LTD. VS. ASSISTANT COMMISSIONER OF INCOME TAX (SUPRA) IN A SIMILAR CASE WHERE THE VALUE OF IMPORTED MACHIN E WAS NOT ACCEPTED BY THE TPO, THE TRIBUNAL HELD THAT TO DETERMIN E THE VALUE OF MACHINERY THE BEST WAY IS TO REFER THE MACHINERY TO VALU ATION OFFICER. WITHOUT DOING SO, THE TPO OR DRP CANNOT DETERMINE VALUE AT NIL AND CONSEQUENTLY DENY DEPRECIATION CLAIM TO THE ASSESSEE. TH E RELEVANT EXTRACT OF THE FINDINGS OF THE TRIBUNAL ARE AS UNDER : (F) (I) AS BRIEFLY STATED ABOVE, ASSESSEE HAS IMPO RTED CERTAIN MACHINERY (OLD AS WELL AS NEW MACHINERY) FROM TPC USA. THE PUR CHASE PRICE OF THESE MACHINERIES WAS BASED ON FAIR MARKET VALUE AND SUPPORTED BY AN INDEPENDENT VALUERS REPORT M/S SGS GLOBAL TRADE SOLUTIONS INC., WHO CERTIFIED SECOND HAND MAC HINERY PROCURED BY ASSESSEE. AS ASSESSEE SUBMITTED BEFORE THE AUTHORITIES, THE COMPARATIVE ANALYSIS OF THE MACHIN ERY PREPARED INDICATES THAT PURCHASE PRICE PAID TO M/S TPC USA I S LOWER THAN THE VALUE DETERMINED BY M/S SGS GLOBAL TRADE SOLUTI ONS. ASSESSEE PAID CUSTOMS DUTY AND ALSO COUNTERVAILING DUTY AND THE VALUATION WAS ACCEPTED BY THE AUTHORITIES AT THE TI ME OF IMPORT. THOUGH TPO AS WELL AS DRP WERE OF THE OPINION THAT THE MACHINERY DOES NOT HAVE ANY VALUE, WE DO NOT UNDERS TAND ON WHAT BASIS THEY HAVE COME TO THIS OPINION. THERE IS NO DISPUTE 9 ITA NO. 91/PN/2013, A.Y. 2008-09 WITH THE FACT THAT THE MACHINERY WAS IMPORTED AND U SED IN ASSESSEES BUSINESS FOR MANUFACTURING OF ITS COMPRE SSORS / PARTS, SO, THERE IS NO DISPUTE WITH REFERENCE TO USAGE OF SECOND HAND MACHINERY. IT IS ALSO NOT THE CASE OF THE REVENUE T HAT MACHINERY IMPORTED WAS KEPT IDLE AND ASSESSEE UNNECESSARILY P AID THE AMOUNT TO THE AE. THIS BEING SO, THE VALUE PAID BY ASSESSEE DULY SUPPORTED BY VALUATION REPORT CANNOT BE IGNORED. IN CASE OF ANY DOUBT ON THE MATTER, THE BEST WAY IS TO REFER THE M ACHINERY TO THE VALUATION OFFICER UNDER THE IT ACT. WITHOUT DOING S O, THE TPO OR THE DRP HAS NO BASE TO DETERMINE THE VALUE AT NIL AND C ONSEQUENTLY DENYING THE DEPRECIATION CLAIM OF THE ASSESSEE WHIL E AT THE SAME TIME, THE PAYMENT OF CUSTOM DUTY AND COUNTERVAILING DUTY ARE CONSIDERED AS VALUE OF COST. NOT ONLY THAT, AS SUBM ITTED BY ASSESSEE AND AS SEEN FROM THE TABLE FURNISHED, NEW MACHINERY WORTH US$ 500,965 WAS ALSO TREATED AS OLD MACHINERY AND VALUATION WAS DETERMINED AT NIL. THIS SHOWS NON-APP LICATION OF MIND BY TPO AS WELL AS BY DRP. 10. THE MUMBAI BENCH OF THE TRIBUNAL IN THE CASE OF ASS TT. COMMISSIONER OF INCOME TAX VS. M/S. KOCH CHEMICAL TECHNOLOG Y GROUP (INDIA) LIMITED (SUPRA) THE TRIBUNAL HAS HELD THAT B EFORE REJECTING THE VALUATION REPORT, THE TPO IS DUTY BOUND TO REFER THE VALUATION OF MACHINERY TO DVO. THE TPO NOT BEING AN EXPE RT TO DETERMINE THE VALUE OF MACHINE CANNOT ASCERTAIN THE FAIR M ARKET VALUE OF MACHINE. THE RELEVANT EXTRACT OF THE FINDINGS OF THE TRIB UNAL ARE REPRODUCED HERE-IN-UNDER : 7. .IT IS TO BE NOTED THAT THE INVOICES SUBM ITTED BY THE ASSESSEE INDICATE THAT THE ASSESSEE HAS PAID THE PR ICE FOR PURCHASE OF MACHINERIES TO THE A.E. AS CLAIMED BY THE ASSESSEE. IT IS ALSO TO BE NOTED THAT THE PURCHASE PRICE PAID BY THE ASSESSEE IS SUP PORTED BY REPORT OF APPROVED VALUER FROM THE U.S.A. THEREFORE, IT IS VE RY MUCH EVIDENT THAT TO SUBSTANTIATE THE PRICE PAID FOR PURCHASE OF CERTAIN SECOND HAND MACHINERIES FROM THE A.E., THE ASSESSEE HAS PRODUCE D DOCUMENTARY EVIDENCES INCLUDING THE VALUATION REPORT. WHEREAS, THE TRANSFER PRICING OFFICER, APART FROM MAKING SOME GENERAL OBSERVATION S TO THE EFFECT THAT THE DETAILS OF DATE OF PURCHASE BY THE A.E., DEPREC IATED VALUE IN ITS BOOKS ARE NOT AVAILABLE, HAS QUANTIFIED THE VALUE OF THE TWO MACHINERIES AT 50% OF THE VALUE CLAIMED BY THE ASSESSEE. ON WHAT BASIS HE ADOPTED 50% OF 10 ITA NO. 91/PN/2013, A.Y. 2008-09 THE VALUE AS ALP HAS NOT BEEN PROVIDED BY THE TRANS FER PRICING OFFICER. IN OUR VIEW, WHEN THE ASSESSEE HAS SUBMITTED A REPORT FROM THE APPROVED VALUER INDICATING THE FAIR MARKET VALUE OF MACHINER IES PURCHASED, BEFORE REJECTING SUCH VALUATION REPORT, THE TRANSFER PRICI NG OFFICER WAS DUTY BOUND TO REFER THE VALUATION OF THE MACHINERIES TO THE DVO AS PER THE PROCEDURE LAID DOWN UNDER THE STATUTE. THE TRANSFER PRICING OFFICER NOT BEING AN EXPERT TO DETERMINE THE VALUE OF MACHINERI ES AND THERE BEING NO OTHER MATERIAL BROUGHT ON RECORD BY HIM TO DEMONSTR ATE THAT HE MADE ENQUIRY OF ANY KIND TO ASCERTAIN THE FAIR MARKET VA LUE OF MACHINERIES, HE COULD NOT HAVE QUANTIFIED THE VALUE OF THE MACHINER IES AT 50% OF THE VALUE SHOWN BY THE ASSESSEE. THE DRP, IN OUR VIEW, HAS ALSO SUSTAINED THE DISALLOWANCE WITHOUT PROPER APPLICATION OF MIND AND IN A MECHANICAL MANNER. THE TRIBUNAL FURTHER REMARKED THAT SINCE THE TPO FAILED T O MAKE REFERENCE TO THE DVO FOR VALUATION OF ASSET AND MADE 50% DISALLOWANCE OF PURCHASE VALUE OF MACHINERY IN AN ARBITRARY MANNER, THE RE IS NO POINT IN REMITTING THE ISSUE BACK TO THE TPO AND GIVE HIM SECOND INNINGS. THE OBSERVATIONS OF THE TRIBUNAL IN THIS REGARD ARE AS UNDE R: 7.2 WE MAY OBSERVE, THE LEARNED DEPARTMENTAL REPRE SENTATIVE HAD SUBMITTED BEFORE US THAT AT THIS STAGE ALSO, THE MA TTER CAN BE REMITTED BACK TO THE FILE OF THE TRANSFER PRICING OFFICER FO R MAKING A REFERENCE TO THE DVO FOR VALUATION OF ASSETS. HOWEVER, WE ARE UN ABLE TO ACCEPT SUCH CONTENTION OF THE LEARNED DEPARTMENTAL REPRESENTATI VE FOR THE SIMPLE REASON THAT WHEN THE TRANSFER PRICING OFFICER HAS F AILED TO REFER THE VALUATION TO THE DVO AND ON THE CONTRARY HAS PROCEE DED TO QUANTIFY THE VALUE OF THE MACHINERIES AT 50% BY ADOPTING A METHO D WHICH IS NOT IN CONFORMITY WITH THE STATUTORY PROVISIONS, IN OUR VI EW, THE MATTER CANNOT BE RESTORED BACK TO HIM AGAIN FOR GIVING HIM A SECO ND INNINGS. CONSIDERING THE FACT THAT 50% DISALLOWANCE MADE OUT OF THE PURCHASE VALUE OF MACHINERIES IS WITHOUT ANY BASIS AND IN VI OLATION OF STATUTORY PROVISION, WE ARE INCLINED TO DELETE THE ADDITION M ADE ON ACCOUNT OF ADJUSTMENT MADE BY THE TRANSFER PRICING OFFICER BY DISALLOWING 50% OF PURCHASE VALUE OF SECOND HAND MACHINERIES. ACCORDIN GLY, GROUND RAISED BY THE ASSESSEE IS ALLOWED. 11. IN THE PRESENT CASE, WE OBSERVE THAT THE TPO HA S MADE UPWARD ADJUSTMENT OF THE INTERNATIONAL TRANSACTIONS IN RESPECT OF VALUATION OF 11 ITA NO. 91/PN/2013, A.Y. 2008-09 CAPITAL ASSET PURCHASED BY THE ASSESSEE FROM ITS AES. T HE SAID ADJUSTMENT HAS BEEN MADE BY THE TPO WITHOUT MAKING RE FERENCE TO THE DVO AND REJECTING THE VALUATION REPORT FROM AN INDEPEND ENT CHARTERED ENGINEER FURNISHED BY THE ASSESSEE. UNDISPUTEDLY THE V ALUATION REPORT WAS ACCEPTED BY THE CUSTOMS AUTHORITIES FOR THE PURPOS E OF LEVY OF IMPORT DUTY. WE DO NOT CONCUR WITH THE ACTION OF TPO FOR MAKING SUCH ADJUSTMENT. THE ACT PROVIDES FOR REFERENCE TO VALUATION OFFICER FOR VALUATION OF CAPITAL ASSETS IN CASE OF ANY DOUBT. THE TPO HAS ERRED IN EXTRAPOLATING AVG. OPERATING MARGIN OF INDIAN MANUFACTURES AND APPLYING CUP METHOD TO MARKUP IMPORT PRICE AND DETERMINE ALP. IN SO FAR AS OBJECTION OF TPO WITH RESPECT TO VARIATION IN THE BOOK VALUE OF CAPITAL ASSET AND THE PRICE AT WHICH ASSESSEE HA S PURCHASED THE CAPITAL ASSET IS CONCERNED, IT IS NOT NECESSARY THAT BOOK VALUE AND MARKET VALUE OF THE CAPITAL ASSET ARE AT PAR. OUR VIEW IS FURTHER FORTIFIED BY THE DECISION RENDERED BY THE BANGALORE BENCH OF THE TRIBUNAL IN THE CASE OF INTEL ASIA ELECTRONICS INC. VS. ADIT REPORTED AS 140 TTJ 513. WE OBSERVED THAT THE DRP WHILE DEALING WITH THE OBJECTION S OF THE ASSESSEE IN RESPECT OF VALUATION OF CAPITAL ASST HAS NOT PROPERLY APPRECIATED THE FACTS AND CIRCUMSTANCES. THE DRP HAS M ERELY EXAMINED ONE ASPECT OF THE TRANSACTION RELATING TO PRICING OF CAPITAL ASSET I.E. THE PRICE PAID BY ASSESSEE TO ACQUIRE OLD MACHIN E VIZ-A-VIZ PRICE OF NEW MODEL OF SAME MACHINE. THE DRP HAS FAILED TO TAKE HOLISTIC VIEW OF THE TRANSACTION. 12. THUS, IN VIEW OF THE FACTS OF THE CASE AND VARIOUS DEC ISIONS DISCUSSED ABOVE, WE SET ASIDE THE FINDINGS OF THE AUTHORITIE S BELOW ON THIS ISSUE AND DIRECT THE ASSESSING OFFICER TO DELETE THE A DDITION MADE 12 ITA NO. 91/PN/2013, A.Y. 2008-09 ON ACCOUNT OF ADJUSTMENT IN THE VALUE OF CAPITAL ASSET. A CCORDINGLY, GROUND NO. 3 RAISED IN THE APPEAL BY THE ASSESSEE IS ALLOWED. 13. IN RESPECT OF GROUND NO. 1 RAISED IN THE APPEAL THE LD. AR OF THE ASSESSEE STATED AT THE BAR THAT HE IS NOT PRESSING. T HE GROUND NO. 2 AND 4 OF THE APPEAL HAVE BEEN WITHDRAWN BY THE LD. AR OF THE ASSESSEE ON THE INSTRUCTION FROM THE ASSESSEE. THUS, GROUND NO. 1 IS DISMISSED AS NOT PRESSED AND GROUND NO. 2 AND 4 ARE DISMISSED AS WITHDRAWN. 14. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PARTLY A LLOWED IN THE AFORESAID TERMS. ORDER PRONOUNCED ON FRIDAY, THE 06 TH DAY OF MAY, 2016. SD/- SD/- ( . . / R.K. PANDA) ( ! ' / VIKAS AWASTHY) #' / ACCOUNTANT MEMBER $ % #' / JUDICIAL MEMBER / PUNE; &# / DATED : 06 TH MAY, 2016 RK *+,%-.#/#)- / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT. 2. / THE RESPONDENT. 3. DRP, PUNE. 4. DIT (INTL. TAXATION), PUNE 5. !'( %%)* , )* , + +,- , / DR, ITAT, B BENCH, PUNE. 6. ( . /0 / GUARD FILE. // ! % // TRUE COPY// #1 / BY ORDER, %2 )- / PRIVATE SECRETARY, )* , / ITAT, PUNE