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2023 (5) TMI 1295 - AT - Income TaxTP Adjustment - comparable selection - HELD THAT - We note that the TPO while rejecting the comparables being not given any reasons. The DRP while upholding the rejection of the comparables, simply stated that these companies are involved in manufacturing different products. We note that assessee had adopted TNMM as the most appropriate method under which identical similarities in the functions are not necessary. Broad similarities in the business model and functioning are only necessary to be compared as the net margin is considering for the purposes of comparing. We, therefore remand the comparables back to the Ld.AO/TPO for necessary verification of the FAR of these comparables with that of assessee. In the event, the broad similarities are ascertained under TNMM and passes through the filters applied by the Ld.TPO, the same may be considered for inclusion. Annanya Interface Controls Pvt. Ltd. company as per the corporate information given is engaged in manufacturing of control panels for machines and installation, erection of machines. In the profit and loss account, the revenue from operations are from sale of products and sale of services. It is nowhere into manufacturing of any automation equipments / instruments as has been observed by the DRP. It also do not provide any automation solutions for industrial plants. The assessee before us is into manufacturing of control systems, industrial automation instruments and equipments and electrical measuring instruments. The product that is developed by the comparable company is a small element manufactured by the assessee. The manufacturing activities carried out by the assessee in the varied products cannot be compared with that of the comparable and therefore deserves to be excluded. Abak Elcerofab Engg Pvt. Ltd - As rightly pointed out by the Ld.DR, the revenue has been recognised by this company to be as manufacturing sales. From the annual report, it is not discernible what is the manufacturing activity carried out by this company. We therefore remand this company back to the Ld.AO/TPO to carry out necessary verification and to find out what is the product manufactured by this company and to ascertain whether the manufacturing activity is comparable with that of assessee. In the event, the product manufactured is more or less similar with that of assessee and the same may be retained. Thus this comparable is remanded back to the Ld.AO/TPO for necessary verification. Dembla Valves Ltd.company is involved in manufacture of various kinds of valves that forms a small part of an equipment used in a particular industry. We therefore do not find it comparable with that of assessee who is involved in manufacturing the entire equipment. Limitorque India Ltd., Flowserve India Controls Pvt. Ltd. and Koso India Pvt. Ltd. - direct the Ld.AO/TPO to verify the RPT filter of these three comparables and to apply it at threshold limit of 15%. In the event, the RPT of these three comparables exceed 15%, comparables will stand excluded. Not considering Swati Switchgears India Pvt. Ltd. as a comparable - We note that in the order giving effect dated 11.10.2019, the Ld.TPO has not mentioned anything in respect of this comparable as per the directions of the DRP. We therefore remand this comparable back to the Ld.AO/TPO to follow the directions of the DRP and to carry out necessary verification as observed by the DRP. Remi Sales Engineering Ltd. (sought for inclusion) - As revenue accepted this comparable in the preceding assessment year. Without there being a cogent reason, the comparable cannot be excluded. There is nothing placed on record to establish that this company is functionally not similar to the assessee. Innovative Automation Pvt. Ltd.(sought for exclusion) - We note that assessee is also into sale of finished goods without any value addition. The plain activity carried by this comparable is trading of a finished product. This is functionally similar with the assessee under the trading segment. We therefore do not find any infirmity in this comparable to be included. Correcting the margin of the comparable Innovative Automation Pvt. Ltd. - We accordingly direct the Ld.AO/TPO to follow the directions of the DRP and recomputed the margin of this comparable in accordance with law. Appropriate working capital adjustment that was not granted while computing the margins of the assessee under both trading and manufacturing segment - HELD THAT - It must not be forgotten that transfer pricing analysis is estimation and not an exact science. One has to see that, reasonable adjustment must be made where ever it is needed, so as to bring both comparable and test party on same footing. In present facts of case, DRP may be correct in denying working adjustment due to unavailability required data, however there is no merit in observations of DRP/TPO as supported by Ld.CIR DR, in denying working capital adjustment due to absence of details for working out adjustments in comparable companies chosen. Regarding comparable companies, one has to fall back upon only on information available in public domain. If that information is insufficient, it is beyond the power of the assessee to produce correct information about comparable companies. Revenue on the other hand has sufficient powers u/s. 133(6) to compel production of required details from comparable companies. If this power is not exercised to find to get information required, then it is no defense to say that Assessee has not furnished required details to deny any adjustment on account of working capital differences. Therefore this objection of DRP is not sustainable. Thus respectfully following decision of coordinate Bench of this Tribunal in the case of Huawei Technologies India (P.) Ltd 2018 (10) TMI 1796 - ITAT BANGALORE we direct working capital adjustment to be computed and to allow as per actual, after considering exclusion/inclusion of comparable companies in the final set of comparables as discussed hereinabove. Addition made on global sales and marketing activity expenses incurred by assessee to be in the nature of AMP spent - Expenditure incurred by assessee towards global sales and marketing activity has to be treated as operating cost and has to be allotted in the ratio of the turnover of the other international transaction for determining the ALP under TNMM analysis. TDS u/s 192 - Expat salary reimbursement disallowed u/s. 40(a)(i) - HELD THAT - In the present facts of the case, the Ld.AO has recorded that TDS u/s. 192 has been deducted on gross salary however the same has not been verified by the Ld.AO. We accordingly remand this issue to the Ld.AO for necessary verification in accordance with the observations hereinabove. Refund of DDT- whether lower authorities erred in not refunding amount paid as divident distribution tax in excess of 10% with interest - HELD THAT - We note that this issue has been now decided in case of DCIT vs. Total Oil India Pvt. Ltd. 2023 (4) TMI 988 - ITAT MUMBAI (SB) Accordingly, the Ld.AO is directed to follow the decision of Hon ble Special Bench and consider this claim in accordance with law.
Issues Involved:
1. Inclusion/Exclusion of Comparables in Manufacturing Segment 2. Inclusion/Exclusion of Comparables in Trading Segment 3. Working Capital Adjustment 4. Global Sales and Marketing Activity Expenses 5. Expat Salary Reimbursement Disallowance Summary of Judgment: 1. Inclusion/Exclusion of Comparables in Manufacturing Segment: - Ground No. 6(c): The Tribunal remanded the comparables (Amtech Electronics (India) Ltd., Continental Controls Ltd., Supernova Engineers Ltd.) back to the Ld.AO/TPO for necessary verification of the FAR (Functions, Assets, and Risks) of these comparables with that of the assessee. If broad similarities are ascertained under TNMM and pass through the filters applied by the Ld.TPO, they may be considered for inclusion. - Ground No. 6(d) r.w. Ground Nos. 8-10: The Tribunal directed the Ld.AO/TPO to exclude Annanya Interface & Controls Pvt. Ltd. and Dembla Valves Ltd. from the final list due to functional dissimilarities. For Abak Elcerofab Engg Pvt. Ltd., the Tribunal remanded it back for necessary verification. Limitorque India Ltd., Flowserve India Controls Pvt. Ltd., and Koso India Pvt. Ltd. were remanded back to verify the RPT filter at a threshold limit of 15%. 2. Inclusion/Exclusion of Comparables in Trading Segment: - Ground No. 12: The Tribunal directed the inclusion of Remi Sales & Engineering Ltd. as it was accepted in previous assessment years without any cogent reason for exclusion. Innovative Automation Pvt. Ltd. was retained as it was functionally similar with the assessee under the trading segment. - Ground No. 13: The Tribunal directed the Ld.AO/TPO to follow the DRP's directions and recompute the margin of Innovative Automation Pvt. Ltd. in accordance with the law. 3. Working Capital Adjustment: - Ground No. 16: The Tribunal directed the Ld.AO/TPO to compute and allow working capital adjustment as per actuals, following the decision in Huawei Technologies India (P.) Ltd., and OECD guidelines. 4. Global Sales and Marketing Activity Expenses: - Ground Nos. 17-19: Following the Hon'ble High Court's decision in the assessee's own case for A.Y. 2010-11, the Tribunal held that the expenditure incurred by the assessee towards global sales and marketing activity should be treated as operating cost and allocated in the ratio of the turnover of the other international transactions for determining the ALP under TNMM analysis. 5. Expat Salary Reimbursement Disallowance: - Ground Nos. 20-28: The Tribunal remanded the issue back to the Ld.AO for necessary verification in accordance with the observations made, following the decision of the Hon'ble Karnataka High Court in Flipkart Internet Pvt. Ltd. and other relevant decisions. Other Grounds: - Ground Nos. 1-5, 6(a)-(b), 7, 11, 14-15, 29-31: These grounds were either general in nature or consequential and did not require adjudication. Order Pronounced in the open court on 17th May, 2023.
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