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2019 (11) TMI 1644 - AT - Income TaxTP Adjustment - comparable selection - HELD THAT - We find merit in the prayer of the assessee to consider the companies which are engaged in the similar line of business in the very same product as comparable companies. It is the submission of the assessee that the comparables selected by TPO are engaged in different activities though they are engaged in food processing only. The Ld A.R submitted that the assessee has already gathered annual reports of companies dealing in the very same product i.e. gherkins dealt with by the assessee. Accordingly we are of the view that the issue relating to bench marking of international transactions requires fresh examination at the end of the AO/TPO by considering the fresh comparable companies. Export incentives - whether they are part of operating income or not? - HELD THAT - Issue been settled by Hon ble Bombay High Court in the case of Welspun Zucchi Textiles Ltd 2017 (1) TMI 1037 - BOMBAY HIGH COURT . Accordingly we direct the AO/TPO to consider export incentives as part of operating income. Whether the outstanding receivables due from AE is an international transaction or not? - HELD THAT - Since we are restoring main issue to the file of AO/TPO we restore this issue also to the file of AO/TPO for examining it afresh.
Issues:
Challenging Transfer pricing adjustment made by AO. Detailed Analysis: The assessee appealed against the assessment order passed by the Assessing Officer (AO) for the assessment year 2014-15. The issues raised by the assessee primarily revolved around the Transfer pricing adjustment made by the AO. The assessee, engaged in growing, processing, and exporting Gherkins to its Associated Enterprises (AE), adopted the TNMM method to benchmark its international transactions. However, the AO rejected the Transfer Pricing Study conducted by the assessee, citing reasons such as the selection of a comparable company making persistent losses and the absence of qualitative filters in the selection process. The TPO selected seven comparable companies with an average margin of 10.17% and made a Transfer Pricing adjustment of ?5,98,07,371, which was confirmed by the DRP. The main contention raised by the assessee was that the comparable companies selected by the TPO were engaged in food processing, which differed from the Gherkins business of the assessee. The assessee argued that companies engaged in processing and exporting Gherkins should have been selected for benchmarking purposes. The assessee provided a list of companies involved in similar activities as members of the Indian Gherkin Exporters Association and requested the TPO to consider them as comparable companies for benchmarking. Furthermore, the assessee argued that export incentives should be considered as part of operating income based on a decision by the Hon'ble Bombay High Court in a specific case. The assessee also contested the classification of outstanding receivables due from AE as an "International Transaction." The ITAT found merit in the assessee's arguments and directed the AO/TPO to reexamine the benchmarking of international transactions by considering companies engaged in the same product line as the assessee. Additionally, the ITAT instructed the AO/TPO to include export incentives as part of operating income and to review the classification of outstanding receivables due from AE as an international transaction. Consequently, the ITAT set aside the AO's order on the aforementioned issues and remanded them to the file of the AO/TPO for fresh examination. The appeal of the assessee was treated as allowed for statistical purposes, and the order was pronounced in the Open Court on 8th November 2019.
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