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2019 (3) TMI 554 - AT - Income TaxTransfer Pricing adjustments - Selection of comparable companies by assessee - functinal similarity - rejection based on product comparison - MAM selection - adopting the TNMM - HELD THAT - The comparable companies demonstrated in table No. (1) manufactured and sold electronic components and hence the said companies were functionally comparable to the assessee company. Unlike the CUP Method the TNMM does not require that the comparable company has to manufacture exactly the same product as that manufactured by the tested party. Hence the TPO while adopting the TNMM erroneously rejected the aforesaid seven companies mentioned in table no. (1) based on product comparison between the assessee company (tested party) and the aforesaid independent companies. In the TNMM what is to be seen is functional comparability and not the product comparability. The learned TPO ignored the comparability criterion laid down for application of TNMM. For that we rely on the judgment of the Hon ble High court of Mumbai in the case of Pr. CIT v. Watson Pharma (P.) Ltd. 2018 (8) TMI 199 - BOMBAY HIGH COURT wherein it was held that TNMM requires only broad functional comparability between the tested party and comparable companies. Hence we do not accept the contention of the ld DR for the revenue and we accept the nine comparable companies selected by the ld CIT(A). Selection of Cash Profit Margin as net profit indicator (PLI) under the TNMM - HELD THAT - We approve the use of cash profit margin by the assessee for placing the tested party and the comparable companies on equal footing. The assessee has demonstrated that the cash profit margin of the assessee was 8% (approximately) whereas the arithmetic mean of the cash profit margins of the aforesaid nine comparable companies stands at 12.41%. It is noted that the net profit margin of the tested party was (-)6.70% whereas the cash profit margin of the tested party stood 8% thereby indicating that the loss was caused by a considerable increase in provision for depreciation. We are of the considered view that the assessee was justified in applying cash profit margin as more appropriate financial indicator than net profit margin. Computation of arm s length range of 5% based on OP/TC ratio (AY 2002-03) - HELD THAT - We note that FAR (Function Asset Risk) analysis of the mentioned nine comparable companies selected by CIT(A)(i.e. CTR Manufacturing Inds Ltd Deltron Ltd Fine-line circuits Ltd Incap Ltd Pan Electronics (India) Ltd Ruttonsha International Rectifier Ltd SPEL Semiconductor Ltd Continental Device India Ltd and Cosmo Ferrites Ltd). are comparable with the FAR of the assessee company for the relevant financial year. Therefore considering the entirety of facts and circumstances we uphold the nine comparable companies selected by the ld CIT(A) and use of cash profit margin ratio in TNMM we uphold the order of ld. CIT(A) to delete the ALP adjustment. Payment of gratuity u/s.40A(7) of the Act and contribution to superannuation fund u/s. 40A(9) - HELD THAT - Assessee has claimed the deduction for the contribution made to Gratuity fund and Superannuation fund during the previous year relevant to the assessment year under consideration. The assessee was maintaining the said fund not on its own but managed and maintained through the Life Insurance Corporation of India. Therefore the contribution made to Superannuation and Gratuity fund maintained by the LIC can be claimed by the assessee while computing the total income and would not be hit by the provision of sections 40A(7) 40A(9) of the Act. Therefore we delete the above mentioned additions. Addition made on account of provision for tax - HELD THAT - Since the assessee had computed its total income chargeable to tax by taking net profit before tax amounting to Rs. 1, 72, 46, 000/- and the Ld. AO has also computed the assessed income taking profit before tax amounting to Rs. 1, 72, 46, 000/-as starting point. Therefore the provision for tax amounting to Rs. 7, 50, 000/- was not claimed by the assessee and as such the ld CIT(A) has rightly deleted the disallowance made on this account. Computation of deduction u/s 80HHC - CIT(A) directing the AO to consider foreign exchange gain as a part of export turnover while such gains were not derived out of export activity and were not earned in convertible foreign exchange - HELD THAT - We note that Ld. counsel cited plethora of the case laws to bolster his claim which are not being repeated again since it has already been incorporated in the submissions of Ld. A.R. and have been duly considered to arrive at our conclusion. The Ld. DR could not bring to our notice any case laws to contradict the findings of the Ld. CIT (A) therefore his order on these covered issues noted above are hereby upheld and grounds raised by the Revenue are dismissed TDS u/s 195 - payments made to non-resident associated enterprise on the ground that payments were made without deduction of tax at source - HELD THAT - We note that during the course of hearing both that is ld Counsel for the assessee as well as ld DR for the revenue have fairly agreed that this issue should be sent back to the file of the assessing officer for verification of TDS certificates with the challans indicating deposit of the amount to the government exchequer. Therefore we set aside the order of the ld CIT(A) so far this issue is concerned and remit the matter back to the file of the assessing officer for his examination. Statistical purposes this ground of the Revenue is treated to be allowed. Addition of payment of interest on term loan under section 43B - payment details in respect of payment on interest on term loan after the due date of the filing of the return - HELD THAT - Nothing contained in section 43B shall apply in relation to any sum which is actually paid by the assessee on or before the due date applicable in his case for furnishing the return of income under sub-section (1) of section139 in respect of the previous year in which the liability to pay such sum was incurred as aforesaid and the evidence of such payment is furnished by the assessee along with such return. We note that the assessee in the course of the appellate hearing submitted the payment details in respect of payment on interest on term loan after the due date of the filing of the return for the assessment year 2002-03 and disallowed by the Ld. AO in the assessment year 2002-03. We note that since the assessee had paid the interest on term loan amounting to Rs. 14, 69, 315/- as on 01-11-2002 i.e. after the due date of filing the return of income under section 139(1) of the Act for the assessment year 2002-03 therefore the assessee would be entitled to avail the deduction amounting to Rs. 14, 69, 315/- in the assessment year 2003-04 in the year in which the actual payment has been made. Therefore ld CIT(A) has rightly directed the AO to allow deduction under section 43B.
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