The Kolkata bench of the Income Tax Appellate Tribunal ( ITAT ) has held that depreciation must be removed while calculating net margin. The ITAT remitted the matter back to the file of TPO/AO for further calculation of TP adjustment by considering the direction of the Bench.
Jamshedpur Continuous Annealing & Processing Company Pvt. Ltd( ‘JCAPCPL’ ) 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 JV was incorporated for constructing, owning and operating a Continuous Annealing and Processing Line ( ‘CAPL’ ) in Jamshedpur for the production of continuously annealed, cold-rolled steel/coils and sheets for catering to the niche product requirements of the automotive sector which was not very established in India. 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 the calculation of the Net profit margin in ALP, the TPO had considered the depreciation of the asseessee. The assessee is a newly set up business entity yielding huge depreciation—the assessee requested for acceptance of cash PLI for calculation ALP which was rejected by the TPO. The DRP had accepted the assessee, but the TPO had not considered it. The adjustment is calculated by the TPO amount to Rs. 35,27.000/- for AY 2017-18 which was upheld by the ld. AO. The aggrieved assessee filed an appeal before us by challenging the assessment order.
The grievance of the assessee is to consider the depreciation during calculation of fair net profit under TNMM by the TPO. The assessee is newly set-up company and yielding huge depreciation in respect of comparable M/s Stelco Limited and M/s Tata Steel BSL Limited who are incorporated in 1995 and 1983 respectively. In comparison of depreciation percentage of revenue was @1.09% for Stelco Limited and 11.19% for Tata Steel BSL Limited whereas the assessee has @16.92%. The assessee prayed to reject both the comparable and functionally different. We accordingly direct the TPO /AO to remove both the equivalent during the calculation of fair net profit for ALP.
Further, the assessee has requested to accept two comparable M/s Vallabh Steel Limited, for which rectification application under Section 154 has been filed before the TPO and is pending disposal and M/s Uttam Galva Steels Ltd.
The Tribunal directed the TPO /AO to accept both the comparable M/s Vallabh Steel Limited and M/s Uttam Galva Steels Ltd after considering the function and activity of the two companies and directed to dispose of the rectification petition filed U/s 154. The TPO/AO is directed to allow the fresh search about the comparable of the assessee.
A two-member bench comprising Dr Manish Borad, Accountant Member &Shri Anikesh Banerjee, Judicial Member viewed that the depreciation should be removed for calculation of net profit margin and cash PLI is the justified method. The ITAT remitted the matter back to the file of TPO/AO for further calculation of TP adjustment by considering the direction of the Bench.
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