ILJIN AUTOMOTIVE PRIVATE LIMITED, Kancheepuram V. DCIT CORPORATE CIRCLE 2(2), CHENNAI

ITTPA 60/CHNY/2018

• Counselvise Citation: [2022] 104 COUNSELVISE.COM (IT) 3340 (ITAT-CHENNAI)
• Duration Of Justice: 3 year(s) 9 month(s) 2 day(s)
• Appeal Type: Income Tax (Transfer Pricing) Appeal
• Pronouncement Date: 02-08-2022
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: D
• Next Hearing Date: 23-05-2022
• Assessment Year: 2014-2015
• Appeal Filed On: 30-10-2018
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Depreciation; Transfer pricing; International transaction; Working capital adjustments; Set aside

Judgement Text

आयकरअपीलीयअिधकरण,‘डी’ यायपीठ,चे ई IN THE INCOME TAX APPELLATE TRIBUNAL ‘D’ BENCH, CHENNAI ी जी मंजूनाथा, लेखा सद के सम , ी अिनके श बनज , ाियक सद एवं BEFORE SHRI G. MANJUNATHA, ACCOUNTANT MEMBER AND SHRI ANIKESH BANERJEE, JUDICIAL MEMBER आयकर अपील सं./I.T.A No.:1834/Chny/2017 िनधा रण वष /Assessment Year: 2013 – 2014 AND आयकर अपील सं./I.T.(TP)A No.:60/Chny/2018 िनधा रण वष /Assessment Year: 2014 – 2015 AND आयकर अपील सं./I.T.(TP)A No.:53/Chny/2019 िनधा रण वष /Assessment Year: 2015 – 2016 M/s. Iljin Automotive Private Limited, Plot No.B1 & B2, SIPCOT Industrial Park, Irungattukottai, Sriperumbudur, Kanchipuram – 602 105. PAN : AAACI 2641E Vs. The Deputy Commissioner of Income Tax (OSD), Corporate Circle – 2(2), 5 th Floor, Wanaparthy Block, 121, M.G. Road, Nungambakkam, Chennai – 600 034. (अपीलाथ /Appellant) ( यथ /Respondent) अपीलाथ क ओरसे/Appellant by : Shri. Shri Sandeep Bagmar, Advocate यथ क ओरसे/Respondent by : Dr. S. Palani Kumar, CIT सुनवाई की तारीख/Date of Hearing : 24.05.2022 घोषणा की तारीख/Date of Pronouncement : 03.08.2022 आदेश /O R D E R PER ANIKESH BANERJEE, JM: These three instant appeals of the Assessee filed against the order of the learned Deputy Commissioner of Income Tax, Corporate Circle-2(2), Chennai (in brevity “the ::2 :: I.T.A No.:1834/Chny/2017 & I.T.(TP)A. Nos.60/Chny/2018 & .53/Chny/2019 AO”) are identical and having separate orders that were passed u/s.143(3) r.w.s. 144C(13) of the Income Tax Act, 1961 (in brevity “the Act”), in different dates for the Assessment Years 2013-2014, 2014-2015 & 2015-2016 pursuant to the directions issued by the learned Dispute ResolutionPanel-2, Bangaluru are taken together as there are common issues involved in all the three appeals. 2. Tersely stated facts of the case are that the Assessee, an Indian Aompany, a subsidiary of Iljin, Korea, an affiliate of Iljin Group, Korea, is in the business of manufacture of automotive components since July 1997. i.e. Iljin India operates its assembling plant in Chennai, and is a leading assembler of wheel bearings. The major products assembled by AG India are Ball joint, wheel bearing, some corner modules, sub axle assembly, different case assembly, engine mounting bracket, fly wheel assembly, steering linkages. The assessee imports raw material and other relevant components, including stores and spares required in the manufacturing process, from its AEs. The ::3 :: I.T.A No.:1834/Chny/2017 & I.T.(TP)A. Nos.60/Chny/2018 & .53/Chny/2019 assessee has adopted the transactional net margin method (TNMM) for benchmarking its international transactions. 3. The first issue in the transfer pricing adjustment is in respect of comparables. In all the three years, the comparable findings reflect in the study. The details objections are as follows:- a) The TPO under Rule 10B(4) of Income Tax Rules, 1962 mandates use of current year data only to determine the ALP and not to use multiple years data. The learned TPO stated that the Assessee has not provided any such evidence that earlier year’s data could have an influence on the determination of transfer prices in relation to transactions compared. b) The Assessee’s objections in the following comparables that the TPO had taken in the TP study is as under: - Sl. No. Comparables Assessee’s Contentions B-1 ASAL and Majestic Auto Limited The comparables are broadly functional comparables. The learned TPO had selected in the ::4 :: I.T.A No.:1834/Chny/2017 & I.T.(TP)A. Nos.60/Chny/2018 & .53/Chny/2019 A.Y 2012-2013 an inconsistent approach. B-2 Jamna Auto Industries Limited Consistently selected and accepted by the learned TPO year of year. B-3 ATS Elgi Limited Leading manufacturer and distributor of automotive service equipment in India. B-4 JBM Auto Systems Private Limited Engaged in manufacturing and sale of sheet metal components. B-5 Badve Engineering Limited Engaged in diversified activities which include – metal processing and plastic processing and surface processing. The product also includes home appliances. B-6 NRB Bearings Limited Ball and Roller bearings amount to 39% of the company’s turnover, whereas bearings contribute only about 2% to the revenue of Iljin India. B-7 Talbros Engineering Limited Item wise, not comparable Assessee’s comparable in the Transfer Pricing study : Sl. No. Comparables TPO’s Contention A. Spicer India Private Limited B. JBM Auto Limited • Inconsistent application of VAE filter • Functionally comparable ::5 :: I.T.A No.:1834/Chny/2017 & I.T.(TP)A. Nos.60/Chny/2018 & .53/Chny/2019 3.1 The learned Counsel of the Assessee further mentioned that the comparables selected by the Transfer Pricing Officer has a significant RPD and the Spicer India Private Limited has 23.97 RPD. In fact, some of the comparables are significantly different and the issue is directed to be sent back to the learned Transfer Pricing Officer [TPO] for using the proper filters in the entity level and that the comparables should be fit for the Assessee’s style of work. The learned Counsel of the Assessee further mentioned that the order of the Co-ordinate Bench of the Tribunal in the case of M/s. Doosan Power Systems India Private Limited, Gurgaon Vs. The Assistant Commissioner of Income Tax (OSD), Chennai in I.T.(TP).A. No.83/Chny/2018 dated 31.03.2021 has set aside to the file of the learned TPO. 3.2 The respectful consideration of the observation of the order of the Co-ordinate Bench of the Tribunal, the directions was made in the entity level adjustment and in the case of working capital adjustment; accordingly the matter is set aside to the file of the learned TPO for further adjudication. ::6 :: I.T.A No.:1834/Chny/2017 & I.T.(TP)A. Nos.60/Chny/2018 & .53/Chny/2019 The learned Counsel of the Assessee further mentioned about the rejection of the working capital adjustment and foreign exchange loss which is treated as operating expenses in nature. The Assessee filed an objection before the learned DRP and for all the years, the Assessee filed paper-books which are kept on record. In this issue, the Assessee filed an objection which is also kept in the paper-book at Page Nos.222 to 501. The learned DRP rejected the claim of the Assessee and it is not supported with necessary documentation ascertaining the nature of utilization of the nature of utilization of forex loss. The learned Counsel of the Assessee prayed that the foreign exchange loss should be treated as operating in nature. 4. The learned CIT-DR vehemently argued and objected the issue and accordingly the matter is being setting aside for further adjudication and the Assessee is directed to submit the paper-book and documents for adjudicating the issue. ::7 :: I.T.A No.:1834/Chny/2017 & I.T.(TP)A. Nos.60/Chny/2018 & .53/Chny/2019 5. The learned Counsel of the Assessee further agitated the issue of custom duty adjustment and the rejection of working capital adjustments. In relation to the custom duty adjustment, the Assessee was asked for custom duty in order to eliminate the impact on merits, duty from the profit margin of the Assessee and comparables for a better comparability. The learned Counsel of the Assessee further argued that the Assessee had submitted the detailed workings along with its own justification for claiming the adjustment in relation to the customs duty. The Assessee’s claim of custom duty adjustment is thereby rejected by following the decision of the jurisdictional ITAT Chennai Bench of the Tribunal in the case of M/s. Mobis India Limited, Kancheepuram Vs. The Deputy Commissioner of Income Tax, Chennai [I.T.A. No.2112/Mds/2011, dated 14.08.2013]. 5.1 The learned Counsel of the Assessee further mentioned that the learned TPO has provided cogent reasons and justification for rejecting the claim of the Assessee. As per the learned TPO, the gross profit of the Assessee shows ::8 :: I.T.A No.:1834/Chny/2017 & I.T.(TP)A. Nos.60/Chny/2018 & .53/Chny/2019 that the Assessee is able to observe material costs which includes BCD element as part of its sale price. Also, the Assessee did not demonstrate the higher import contained was initiated by any extraordinary circumstances beyond its control. 6. We have heard the rival submissions and we direct the TPO to adjust the custom duty during the calculations of the ELI, subject to proper verification of the documents. In relation to the working capital adjustments, at this stage, we are unable to verify the documents. So the matter is being setting aside to the learned TPO for adjustment of the working capital by considering the index a mentioned by the Assessee. 7. Corporate Tax : The learned Counsel of the Assessee also argued that the allow-ability of additional depreciation in the computation of the return, the Assessee did not claim this deduction in the return and however the issue was not agitated properly before the Bench. ::9 :: I.T.A No.:1834/Chny/2017 & I.T.(TP)A. Nos.60/Chny/2018 & .53/Chny/2019 Accordingly, we are setting aside the matter before the learned Assessing Officer for further consideration 8. In the result the appeal of the Assessee in I.T.A. No.1834/Chny/ 2017 is allowed for statistical purposes. 8.1 The appeals of the Assessee in I.T.(TP).A. No. 60/Chny/2018 & I.T.(TP)A. No.53/Chny/2019 are allowed for statistical purposes. Order pronounced in the court on 3 rd August, 2022 at Chennai. Sd/- Sd/- (जीमंजूनाथा) (G. MANJUNATHA) लेखा सद /ACCOUNTANT MEMBER (अिनके श बनज ) (ANIKESH BANERJEE) ाियकसद एवं /JUDICIAL MEMBER चे(ई/Chennai, िदनांक/Dated, the 3 rd August, 2022 IA, Sr. PS आदेशकी*ितिलिपअ,ेिषत/Copy to: 1. अपीलाथ /Appellant 2. *-थ /Respondent 3. आयकरआयु. (अपील)/CIT(A) 4. आयकरआयु./CIT 5. िवभागीय*ितिनिध/DR 6. गाड3फाईल/GF