Date of Judgment: 30/10/2015 Justice S.Muralidhar /Justice Vibhu Bakhru (Delhi High Court)
No ALP adjustment where buyer outsourced purchase only for administrative convenience and seller is only charging fixed manufacturing charges . ‘Pass through’ costs not having effect on profits can be excluded from PLI denominator.
While admitting the appeal on 9th July 2015, this Court framed the following questions of law:
(i) Whether on the facts and in the circumstances of the case, the Tribunal erred in replacing the PLI adopted by the Assessee to determine the ALP with another PLI despite not providing any cogent reasons for the same and in fact providing contradictory remarks while rejecting Return on Capital Employed („ROCE‟) as the PLI?
(ii) Whether on the facts and circumstances of the case, the Tribunal erred in not treating the cost of the raw material as a pass through cost and thus rejecting the Assessee‟s contention that cost of the raw material should be excluded from the total cost if the alternate PLI (i.e. Operating Cost as a percentage of Total Cost excluding raw material cost) is adopted even if the raw material was ordered based on recommendations and a confirmed order by the Assessee‟s customer Maruti Udyog Ltd.
Question (i) is accordingly answered in the negative, i.e. in favour of the Revenue and against the Assessee.
Question (ii) is answered in the affirmative, i.e in favour of the Assessee and against the Revenue. The impugned order dated 29th March 2012 of the ITAT and the corresponding orders of the TPO, the AO and the CIT (A) for AY 2003-04 were set aside. The addition directed to be made by the AO to the income of the Assessee for the AY in question is deleted.
The appeal was allowed in the above terms but in the circumstances with no order as to costs.
Direct link to download the full text of the above judgment – http://lobis.nic.in/ddir/dhc/SMD/judgement/30-10-2015/SMD30102015ITA142013.pdf