Jamshedpur Continuous Annealing & Processing Company Pvt. Ltd. Vs National e-Assessment Centre (ITAT Kolkata)
ITAT Kolkata held that for determining fair and true profit for the purpose of application of Transactional Net Margin Method (TNMM), it is appropriate that the effect of depreciation must be excluded.
Facts- Jamshedpur Continuous Annealing & Processing Co. Pvt Ltd was incorporated on 17th March 2011 as a wholly owned subsidiary of Tata Steel Limited (TSL). It was later converted into a Joint Venture (JV) between TSL and Nippon Steel and Sumitomo Metal Corporation (NSSMC) on 17th August 2012. The commercial operations of JCAPCPL commenced on 01/04/2015. The company has been set up as India’s first CAPL 600,000 tonnes per annum of high-quality cold rolled sheets exclusively for the automotive industry.
During calculation of Net profit margin in ALP the TPO had considered the depreciation of assessee. The assessee is a newly set up business entity and yielding huge depreciation. The assessee requested for acceptance of cash PLI for calculation ALP which was rejected the by the TPO. The DRP had accepted the assessee’s plea, but the TPO had not is calculated the considered. The adjustment by TPO amount to Rs. 35,27.000/- 2017 for AY 2017-18 was which upheld by AO.
Conclusion- Held that in our considered view the depreciation should be removed for calculation of net profit margin and cash profit level indicator (PLI) is justified method. Accordingly, we remit back the matter to the file of TPO/AO for further calculation of TP adjustment by considering the direction of the Bench. We order accordingly.
FULL TEXT OF THE ORDER OF ITAT KOLKATA
The instant appeals were filed by the assessee that is directed against final assessment order passed by the ld. National e-Assessment Centre(in brevity AO) U/s 143(3) rws144C (13)/ 144B of the Income Tax Act (brevity the Act) dated 25/10/2021 in pursuant to the directions of Dispute Resolution Panel-2 (in brevity DRP), New Delhi, dated 13/09/202 1 issued U/s 144C(5) of the Act pertains to Assessment years2017-18 & 2018-19.
2. At the outset both the appeals have the same nature and fact and have a common factual issue. For brevity we have taken together, heard together and disposed of together. We have taken on ITA No. 595/Kol/2021 as the lead case.
3. The assessee has raised following grounds of appeal:
1.General Ground
That on the facts and in the circumstances of the case and in law, the Learned AO erred in assessing the total loss at INR 2,699,202,298 under normal provisions as against loss of INR 2,709,117,138 declared by the Appellant in the return of income under normal provisions of the Act.
2.Transfer Pricing Adjustment
That on the facts and in the circumstances of the case, the Learned TPO and the Learned AO erred, in carrying out an adjustment to the international transactions with AEs.
2.1. Rejected Cash PLI
On the facts and in the circumstances of the case and in law, with respect to the transaction of purchase of spare parts from NSENGI, the learned TPO has erred in rejecting the cash profit level indicator (“PLI”) of the Appellant as well as of comparable for the purpose of bench marking.
2.2. Rejected Transfer pricing Documentation and Economic Analysis
That on the facts and in the circumstances of the case, the Learned TPO and the Learned AO erred.
i) in rejecting the transfer pricing documentation maintained by the company in accordance with the provisions of the Act read with the Income Tax Rules, 1962 (“Rules) And
ii) in not accepting the economic analysis undertaken by the Appellant which was in accordance with the provisions of the Act read with Income Tax Rules, 1962 (Rules) for establishing the Arm’s Length Price (ALP) of the International
iii) In undertaking a fresh search and thereby making an adjustment to the international transactions with AEs.
2.3. Comparables
On the facts and circumstances of the case and in law, the learned TPO erred.
a. in not providing the detailed search process for selecting the companies considered comparable by him.
b. Rejecting the companies proposed by the Appellant which were functionally comparable.
