www.taxguru.in ITA1 No.3096/Ahd/2010 (AY- 2006-07) General Motors India Pvt. Ltd. Vs DCIT, Panchmahal Circle, Godhra ITA No.3308/Ahd/2011 (AY- 2007-08) General Motors India Pvt. Ltd. Vs ACIT, Pandhmahal Circle, Godhra IN THE INCOME TAX APPELLATE TRIBUNAL ‘D’ BENCH – AHMEDABAD (BEFORE SHRI G. C. GUPTA, VP AND SHRI A. MOHAN ALANKAMONY, AM) I.T.A. Nos. 3096/Ahd/2010 and 3308/Ahd/2011 A.Ys. 2006-07 and 2007-08 General Motors India Pvt. Ltd., The D. C. I. T. / Chandrapura Industrial Estate, A. C. I. T., Dist. Panchmahal, vs Panchmahal Circle, Halol 389 350 Godhara P. A. No. AAACG 8371 P Appellant Respondent Appellant by Shri S. N. Soparkar, AR Respondent by Shri S. C. Tiwari, TPO and Shri D. P. Gupta, CIT - DR Date of hearing: 27-06-2013 Date of pronouncement: 02-08-2013 O R D E R PER A. MOHAN ALANKAMONY: 1. These two appeals of the assessee company are directed against the orders of the AOs u/s 143(3) r.w.s. 144C of the Act dated 20.9.2010 and 28.10.2011 for the assessment years 2006-07 and 2007-08 respectively. The above orders of the AOs were based on the directions of the Dispute Resolution Panel [DRP] dated 27.8.2010 and 27.9.2011 for the AYs 2006-07 and 2007-08 respectively. I. ITA NO.3096/A/10 – AY 2006-07: 2. For this assessment year, the assessee company [‘the assessee’ in short] had, in fact, raised six grounds in an elaborate and illustrative manner. However, the assessee has, subsequently, come up 1 www.taxguru.in ITA2 No.3096/Ahd/2010 (AY- 2006-07) General Motors India Pvt. Ltd. Vs DCIT, Panchmahal Circle, Godhra ITA No.3308/Ahd/2011 (AY- 2007-08) General Motors India Pvt. Ltd. Vs ACIT, Pandhmahal Circle, Godhra with its concise grounds along with an additional ground vide its letter dated 5.9.2012, according to which, ground No.1 being general in nature; it does not survive for adjudication. The remaining grounds are reformulated as under: “That the AO/TPO erred: (2) in disallowing Rs.3,14,830/- being proportionate lease charges in respect of lease- hold land; (3) in disallowing Rs.4,16,978/- being expenditure incurred on gifts; (4) in disallowing Rs.2,50,68,560/- on account of provision for slow moving and obsolete inventory made by the assessee in respect of some items in accordance with the method of accounting consistently followed by it; (5) without prejudice, the AO/DRP erred in not allowing a deduction of Rs.3,67,03,644/- being provision for slow moving and obsolete inventory reversed during the year and credited to P & L account; (6) in making an ad-hoc disallowance of Rs.10,60,000/- out of account of workmen and staff welfare expenses; (7, 8, 9 & 11) in making a transfer pricing adjustment of Rs.152,44,00,000/- [Rs.140.26 crores + Rs.12.18 crores]; - by reducing an expenditure of Rs.140,26,00,000/- on purchase of CKD Kits; - by making an addition of Rs.12,18,00,000/- in respect of its Tech. Centre operations; Additional ground: - by making the transfer pricing addition to the entire value of transactions entered Into by the assessee and had not made adjustments only to the value of International transactions entered into by the assessee (i.e., proportionate adjustments) and ignoring established jurisprudence in this regard; & (10) by not providing the benefit of 5 per cent range as provided by the proviso to s. 92C (2) of the Act. 2 www.taxguru.in ITA3 No.3096/Ahd/2010 (AY- 2006-07) General Motors India Pvt. Ltd. Vs DCIT, Panchmahal Circle, Godhra ITA No.3308/Ahd/2011 (AY- 2007-08) General Motors India Pvt. Ltd. Vs ACIT, Pandhmahal Circle, Godhra II. ITA NO.3308/A/10 – AY 2007-08: 2.1. Likewise, for the AY 2007-08 also, the assessee has raised fifteen grounds in an exhaustive manner and, subsequently, vide its letter dated 12.9.2012 substituted the same with thirteen concise grounds. 2.2. Ground Nos.1 & 6 being general and no specific issues are involved; they do not survive for adjudication. The remaining concise grounds are reformulated as under: “That the AO/TPO erred: (2) in disallowing Rs.2,91,258/- being proportionate lease charges in respect of lease hold-land; (3) in disallowing Rs.5,15,876/- being expenditure incurred on gifts; (4 & 5) in disallowing Rs.2,44,28,818/- on account of provision for slow moving and obsolete inventory made by the assessee in respect of some items in accordance with the method of accounting consistently followed by it; - in disallowing the said amount which was the cost of inventory for which provision had been made; (7, 8, 9 & 10) In making a transfer pricing adjustment of Rs.227,21,60,504/- [Rs.206 crores + 16.32 crores]; - by reducing the expenditure of Rs.206 crores on purchase of CKD Kits by the assessee from its AEs; - by making an addition of Rs.16,32,00,000/- with respect to its Tech. Centre operations; (11) by making an addition of Rs.4,89,60,504/- to the taxable income with respect to royalty transaction; (12) by not providing relief on account of working capital adjustment to reflect the differing levels of trade receivables, trade payables and inventories (working capital adjustments) between the assessee and the potential comparables; & (13) by not providing the assessee the benefit of 5 per cent range as provided by the proviso to s. 92 C(2) of the Act. 3 www.taxguru.in ITA4 No.3096/Ahd/2010 (AY- 2006-07) General Motors India Pvt. Ltd. Vs DCIT, Panchmahal Circle, Godhra ITA No.3308/Ahd/2011 (AY- 2007-08) General Motors India Pvt. Ltd. Vs ACIT, Pandhmahal Circle, Godhra 3. As the facts of the issues involved in these appeals being almost similar and identical, for the sake of convenience and clarity, they were heard, considered together and disposed of in this consolidated order. 4. For record, we would like to point out that the final arguments of the cases were concluded by the rival parties on 15.3.2013. Subsequently, on 15.5.2013, the Revenue came up with the copies of findings of the Hon’ble Mumbai Benches in the cases of (i) M/s. Onward Technologies Limited in ITA NO.7985/Mum/2010 and (ii) M/s. Aurionpro Solutions Limited in ITA NO.7872/Mum/2001 with a plea that since the issue of determining of the ‘tested party’ under dispute is covered by the above findings and in favour of the Revenue, the same requires to be considered while deciding the present appeals. In order to facilitate the assessee to have its comments, if any, on the case laws on which the Revenue has placed its reliance (supra), the cases were scheduled for final hearing on 7.6.2013 and finally the case was re-heard on 27.06.2013. 5. Reverting back to the main issue, during the course of hearing, the assessee vide its application dated 2.11.2012 sought the permission of this Bench to produce additional evidence on the premise that during the hearings before the TPO & DRP, un-audited analysis of the product line profitability schedules prepared by the assessee including the figures of yearly sales and operating profit were submitted. One of the objections recorded by the TPO and the DRP were that the said accounts were un- audited. In view of the above, the assessee places the following additional evidence on record: 4 www.taxguru.in ITA5 No.3096/Ahd/2010 (AY- 2006-07) General Motors India Pvt. Ltd. Vs DCIT, Panchmahal Circle, Godhra ITA No.3308/Ahd/2011 (AY- 2007-08) General Motors India Pvt. Ltd. Vs ACIT, Pandhmahal Circle, Godhra “Audited analysis of PLP by General Motors India (GMI) with the transfer pricing calculation of General Motor Daewoo Auto & Technology [GMDAT] for the period from 1.4.2006 to 31.3.2007.” 5.1. After hearing the rival parties and also having considered the reasoning of the assessee in non-furnishing of the audited accounts before the authorities below earlier, the additional evidence now sought to be furnished was directed to be placed on record. 6. We shall now proceed to adjudicate the issues chronologically as under: Briefly stated, the issues involved are that – A.Y. 2006-07: 7. The assessee is engaged in manufacture and trading of automobiles and its parts. The assessee had, for the assessment year 2006-07 furnished its return of income admitting ‘Nil’ income. The AO had made a reference u/s 92CA (1) of the Act to the TPO for computation of ALP in relation to the international transaction as detailed in the audit report in Form No.3CEB. The TPO had passed an order u/s 92CA (3) of the Act, proposing an adjustment of Rs.152.44 crores thereby enhancing the income of the assessee by the said sum. In the TP proceedings, the assessee had made various submissions with regard to reduction in the expenditure on purchase of CKD Kits and services, change of tested party, partial/total disallowance of extraordinary expenses on account of adjustments made to compensate for lower capacity utilization, reduction of cost on account of lower level of indigenization, reduction in the quantum of additional marketing, advertisement, selection of companies which 5 www.taxguru.in ITA6 No.3096/Ahd/2010 (AY- 2006-07) General Motors India Pvt.