Depreciation Should Be Removed For Calculation Of Net Profit Margin And Cash PLI Is Justified Method: Kolkata ITAT

The Bench comprising Dr. Manish Borad (Accountant Member) and Anikesh Banerjee (Judicial Member) observed that “The assessee stated that considering depreciation as a part of the total cost would not be appropriate for the purpose of benchmarking since the depreciation in the year under consideration was 16.92% of its revenue, vis-a-vis depreciation of 4.85% of seven comparable companies as taken by the TPO which in most cases as average depreciation as a percentage of revenue”. (Para 8)

Regarding assessee's plea to consider depreciation during calculation of fair net profit under TNMM by TPO, the Bench noted that assessee is newly set-up company and yielding huge depreciation in respect of two comparables i.e. Stelco Limited and Tata Steel BSL Limited, incorporated in 1995 and 1983 respectively.

The Bench observed that in comparison of depreciation percentage of revenue, Stelco Limited was @1.09% and Tata Steel BSL Limited @11.19% whereas assessee was @ 16.92%.

The Bench accepted assessee's plea and directed the TPO to remove both comparable during calculation of fair net profit for ALP.

Regarding assessee's request to accept Vallabh Steel Limited and Uttam Galva Steels Ltd as comparable for which rectification application u/s.154 has been filed before the TPO and is pending for disposal, the Bench directed inclusion of both after considering function and activity of both.

Hence, the ITAT remitted the matter back to the TPO for calculation of TP adjustment by considering direction given by coordinate bench in case of Epcos Ferrites Ltd.

Counsel for Appellant/ Assessee: Saumen Saha

Counsel for Respondent/ Revenue: Kiran Chatrapoty

Case Title: Jamshedpur Continuous Annealing & Processing Company Pvt. Ltd vs NeAC

Case Number: ITA No 595/Kol/2021

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