Toyota Industries Engine India Pvt Ltd Vs NFAC (ITAT Bangalore)
ITAT Bangalore held that as professional and consultation charges & purchase of fixed assets are capitalized in the books of accounts, it should not be considered for computation of proportionate TP adjustment.
Facts- This appeal by assessee is directed against final assessment order passed by AO / NFAC for the assessment year 2016-17.
It mainly contested that AO has erred in computation of proportionate adjustment by including the two international transactions which are capital in nature i.e. Payment of professional and consultancy charges and Purchase of fixed assets.
Conclusion- We are inclined to remit this issue to the file of Assessing Officer/TPO to examine whether these two expenditures namely payment of professional and consultation charges & purchase of fixed assets are capitalized in the books of accounts of assessee. If it is so, these expenditures cannot be considered for computation of proportionate TP adjustment and the Assessing Officer/TPO has to decide the issue after giving the opportunity of hearing to the assessee.
FULL TEXT OF THE ORDER OF ITAT BANGALORE
This appeal by assessee is directed against final assessment order passed by AO/NFAC dated 28.4.202 1 u/s 143(3) r.w.s. 144C(13) r.w.s. 144B of the Income-tax Act,1961 [‘the Act’ for short] for the assessment year 2016-17.
2. The assessee has raised following grounds of appeal:-
“The grounds mentioned herein below are independent and without prejudice to the other grounds preferred by the Appellant.
1. That on facts and circumstances of the case and in law, the order passed by the Learned AO, pursuant to the directions of the Hon ‘ble Dispute Resolution Panel — 2, Bangalore (‘Panel’), and the order of the Learned Deputy Commissioner of Income-tax, Transfer Pricing- Circle (2)(2)(2), Bangalore (Learned TPO’) to the extent prejudicial to the Appellant, is bad in law and facts and liable to be quashed.
2. That on the facts and in the circumstances of the case, the Learned AO erred in making a TP adjustment in connection with the Appellant’s international transactions by INR 422,124,000.
3. That the learned AO in pursuance of the directions issued by the Hon ‘ble Panel erred in proposing a TP adjustment by not appreciating that the Appellant has incurred significant losses during AY 2016-17 due to business reasons.
4. That, on the facts and circumstances of the case, the Learned AO in pursuance of the directions issued by the Hon ‘ble Panel erred in rejecting the TP documentation maintained by tile Appellant under Section, 92D of the Act.
5. That the Learned AO in pursuance of the directions issued by the Hon’ble Panel erred in law and facts by rejecting the economic analysis undertaken by the Appellant in accordance with the provisions of the Act and the Income-tax Rules, 1962 (`the Rules’), thereby arbitrarily rejecting the economic analysis undertaken by the Appellant and in conducting fresh economic analysis.
6. That the Learned AO in pursuance of the directions issued by the Hon’ble Panel, erred in rejecting the choice of tested party as Toyota Industries Corporation (`TIC0′) in connection with the international transaction of purchase of raw materials and in conducting a fresh economic analysis by considering TIEI as tested party with respect to all the international transactions entered into by the Appellant during AY 2016-1 7.
7. That the Learned AO in pursuance of the directions issued by the Hon’ble Panel, erred in rejecting the transaction-by-transaction benchmarking approach adopted by the Appellant and following aggregation approach to benchmark all the international transactions entered during AY 2016-1 7.
8. That the Learned AO in pursuance of the directions issued by the Hon’ble Panel, erred in the methodology adopted for computation of related party transactions (`RPT’) / sales filter.
9. That the Learned AO in pursuance of the directions issued by the Hon’ble Panel, erred in the selection of following comparable companies which do not satisfy the test of comparability:
