Kennametal India Limited Vs DCIT (ITAT Bangalore)
Summary: Kennametal India Limited appealed against the Final Assessment Order dated 24.10.2024 passed under section 143(3) read with sections 144C(13) and 144B of the Income-tax Act, 1961 for Assessment Year 2021-22. The assessee, engaged in manufacturing mining tools, metal castings, fixtures and jigs, special-purpose machines and hard-metal products, had reported total income of Rs.44,79,58,851/-. The Transfer Pricing Officer (TPO), after examination of the assessee’s international transactions with Associated Enterprises (AEs), proposed a transfer pricing adjustment of Rs.27,78,67,225/-. Following directions of the Dispute Resolution Panel (DRP), relief of Rs.15,29,96,103/- was granted and the adjustment was reduced to Rs.12,48,71,122/-.
Before the Tribunal, the assessee challenged, among other matters, the treatment of COVID-related fixed overheads, capacity underutilisation adjustment, allocation of lease rental and support-service income, restriction of transfer pricing adjustment to international transactions, working-capital adjustment, an addition of Rs.76,28,409/- towards bad debts, and interest under sections 234A and 234C.
On the COVID-related adjustment, the Tribunal found that the assessee’s manufacturing operations were impacted by the pandemic and lockdown and that substantial fixed costs continued to be incurred while revenues were affected. It held that identified fixed overheads attributable to the COVID-19 pandemic were extraordinary expenditure and should be excluded from operating costs for computation of the Profit Level Indicator (PLI). The Tribunal referred to Rule 10B(1)(c)(3) of the Income-tax Rules, 1962 and the OECD guidance referred to in the proceedings.
