Principal Commissioner Of Income Tax 4No v. M/S. Motonic India Automotive Pvt. Ltd

IN THE HIGH COURT OF JUDICATURE AT MADRAS THE HON'BLE DR.JUSTICE VINEET KOTHARIANDTHE HON'BLE MR.JUSTICE C.V.KARTHIKEYAN Principal Commissioner of Income Tax 4No.121, Mahatma Gandhi RoadChennai 600 034. ..Appellant Vs. M/s. Motonic India Automotive Pvt. Ltd.No.200/5A, 5B, 10 & 11Vayalur Village, Surkauram RoadThiruvallur 602 015PAN AAFCM3603F..Respondent ----- Tax Case Appeal filed under Section 260A of the Income TaxAct, 1961 against the order of the Income Tax AppellateTribunal, Madras 'D' Bench, dated 17.8.2016 in ITANo.741/Mds/2014 for the Assessment year 2009-10, against theorder dated 21/01/2014 and made in PAN/GI No. on thefile of the Assistant Commissioner of Income Tax, Company CircleIV(3), Chennai and against the order dated 21/01/2013 and madein PAN No. on the file of the Deputy Commissioner ofIncome Tax, Transfer Pricing Officer V, Chennai. ----- For M/s.Subbaraya Aiyar Padmanabhan The Revenue has filed this appeal, aggrieved by the orderpassed by the Income Tax Appellate Tribunal on 17th August 2016allowing the Assessee's appeal and remanding the case back tothe Transfer Pricing Officer for the Assessment Year 2009-10. https://hcservices.ecourts.gov.in/hcservices/ 2. The only grievance raised by the learned counsel for theAssessee is that while remanding the case back to the TransferPricing Officer, the Income Tax Appellate Tribunal should nothave made observations on the merits of the Transfer Pricingadjustment which has to be considered by the Transfer PricingOfficer upon such remand. 3. The learned counsel for the Assessee, Mr.VikramViayaraghavan, has, however, vehemently submitted that on thesame material and evidence were available before the TransferPricing Officer in the first round of litigation itself and hehad taken a particular stand in the matter and therefore, theTribunal has made such impugned observation while remanding thecase back to the Transfer Pricing Officer, following its PuneBench decision in Demag Cranes & Components (India) Pvt. Ltd. v.DCIT, Pune [ITA No.120/PN/2011 dated 04.01.2012] vide paragraph6.1 of its order that now the Transfer Pricing Officer is boundto pass the order upon remand only in that particular manner. 4. The learned counsel also submitted that though theTribunal has allowed such additional grounds on appeal, whichwere raised during the course of argument vide paragraph 4 ofthe order, as the earlier grounds were treated as not pressed,the matter was remanded back to the Transfer Pricing Officer, onsuch additional grounds that were allowed to be raised, to passfresh orders. 5. Having heard the learned counsel for the parties, we areof the opinion that the Tribunal, while remitting the matterback to the Transfer Pricing Officer, should not have curtailedthe discretion to be exercised by the Transfer Pricing Officer,in accordance with law. The Tribunal was well within the powersto allow the new additional grounds raised by the Assesseebefore it, but when the matter was being remitted back to theTransfer Pricing Officer, the directions of mandatory nature asto how to make adjustments only in a particular manner, etc.would frustrate the very purpose of remand. The Tribunal, whilerelying upon its Coordinate Bench decision in the case of PuneBench, made the following impugned observations: "... Accordingly, we direct the A.O. to givesuitable adjustment against the custom dutycomponent while determining the ALP. 7. The next additional ground is with regardto air freight charges adjustment while computingthe ALP. In our opinion, the assessee is in thefield of manufacturing and testing of throttle "... Accordingly, we direct the A.O. to givesuitable adjustment against the custom dutycomponent while determining the ALP. 7. The next additional ground is with regardto air freight charges adjustment while computingthe ALP. In our opinion, the assessee is in thefield of manufacturing and testing of throttle body, rocker arm, solenoid valve, LPG gas mixer,vaporizer, LPG Tank etc. and the assessee has totransport the raw materials very urgently to meetthe end of the customers. The assessee isimporting the entire various components which isrequired to manufacture its final products. Inthe course, it incurred air freight charges,which is abnormal expenses and adjustments to bemade while determining the ALP, as it isaffecting the operating profits. The plea of theassessee is to be accepted, more so, there is abinding decision of the co-ordinate Bench of theTribunal in the case of Transwitch India Pvt.Ltd. v. DCIT in ITA No.6083/Del/2010 for theassessment year 2006-07, wherein the adjustmentstowards abnormal expenses incurred by theassessee to be considered while determining theALP. Accordingly, we direct the TOP to considerthe same while determining the ALP.8. The next ground is with regard tovariation in exchange rate adjustment whiledetermining the ALP. According to the ld. AR, theassessee entered into contract in adverse pricesfixed on the prevailing exchange rate and due tofluctuation in exchange rate, there is loss andthat exchange fluctuation to be considered whiledetermining the ALP. 9. We find force in the argument of the ld.AR. It is normal that exchange rate is subject tofluctuation due to economic conditions. Whiledetermining the ALP, one has to consider thesefactors, more so, our view is fortified by thedecision of the Tribunal in the cases of HondaTrading Corp. India Pvt. Ltd. v. ACIT in ITANo.5297/Del/2011 for the assessment year 2007-08and DHL Express (India) Pvt. Ltd. v. ACIT in ITANo.7360/Mum/2010 for the assessment year 2006-07.Accordingly, we direct the TPO to provideconsiderable exchange fluctuation adjustmentwhile determining the ALP. Accordingly, thisissue is remitted to the file of the TPO fordetermining the ALP after considering the abovethree components, i.e. customs duty adjustment,air freight adjustment and foreign exchangefluctuation adjustment." (emphasis supplied) 6. From the above, it is clear that though the issuerelating to Customs Duty Adjustment, Air Freight Adjustment and https://hcservices.ecourts.gov.in/hcservices/ Foreign Exchange Adjustment were directed to be reconsidered bythe Transfer Pricing Officer for determining the Arms LengthPrice (ALP) in the case of the Assessee, the Tribunal has, infact, fixed how such adjustments have to be made or not to bemade. This hardly leaves any discretion to deal with theseissues afresh with the Transfer Pricing Officer, since theTransfer Pricing Officer, being the lower Authority, would bebound by the observations and findings of the Tribunal. 7. This, in our opinion, frustrates the very purpose ofremand for enquiry by the Transfer Pricing Officer into thesethree issues by the Transfer Pricing Officer, as directed by theTribunal itself. Therefore, we allow the present appeal of theRevenue and while upholding the remand order passed by theTribunal, we observe that the Transfer Pricing Officer will passsuch fresh order in pursuance of the remand directions,uninfluenced by the observations of the Tribunal, on the meritsof the case. It goes without saying that the Assessee will beagain given the due opportunity of hearing to make out its casebefore the Transfer Pricing Officer and fresh orders may bepassed by the Transfer Pricing Officer, after providingreasonable opportunity of hearing to the Assessee in this regard. 8. With the above observation, the appeal of the Revenue isallowed. No costs. Sd/- Assistant Registrar (CS-VI) 8. With the above observation, the appeal of the Revenue isallowed. No costs. Sd/- Assistant Registrar (CS-VI) //True Copy// kpl Sub Assistant RegistrarTo 1. The Income Tax Appellate Tribunal Madras 'D' Bench, Chennai. 2. The Principal Commissioner of Income Tax 4,No,121, Mahatma Gandhi Road,Chennai - 600 034. 3. The Deputy Commissioner of Income Tax, Transfer Pricing Officer V, Chennai. +1cc to Mr.Karthik Ranganathan, Advocate, S.R.No.11589 +1cc to M/s.Subbaraya Aiyar, Advocate, S.R.No.11103 VD(CO)SSM(01/04/2019).