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TMI Blog2012 (6) TMI 650X X X X Extracts X X X X X X X X Extracts X X X X ..... es of the case in deleting the disallowance of Rs. 3,09,031/-out of Picnics and other expenses made by the AO. 3. That the ld. CIT(A) has erred in law as well as on the facts and circumstances of the case in allowing the grounds of the appeal regarding set-off of unabsorbed depreciation of earlier year against income of current year from other sources. 4. Regarding first issue, the department has mentioned in the ground of appeal above has challenged deleting the addition of Rs. 1,45,52,537/-. 5. In this respect the department has amended their grounds of appeal as on filing application under section 154 before ld. CIT(A), the ld. CIT(A) has allowed relief to the department to the extent of Rs. 40,42,759/-. Therefore, the department's grounds are taken as amended accordingly. 6. The assessee has amended its cross objection in consequence of the order passed by ld. CIT(A) under section 154 dated 27.6.2011 and has also filed appeal against order under section 154 by which the ld. CIT(A) has sustained the addition of Rs. 40,42,759/-. Besides this ground, various other grounds have been taken by the assessee in its appeal. 7. Now the appeals of the department and the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and the TPO has also remark that the product of M/s Atul Ltd. Has a varied group of products and therefore the product range of the company was also not comparable Further, during the process of identification of comparables and rejection the TPO has noticed that two companies namely Indian Toners and Developers Ltd. as well as Rainbow Ink and Varnish Manufacturing Co. Ltd. were identified under product code 24222 of NIC on prowess data base for product "printing ink" which were fairly comparable to the appellant's product segment. The TPO has also excluded the comparable of Madhya Bharat Papers Ltd. and Multiflex Laxmi Print Ltd. since these were not having financial data for the period March, 2005. Besides this the TPO has included the financials of DIC India Ltd. on the ground that it was also dealing in Printing Ink and therefore, it was considered as a comparable. Thereafter, the AO has worked out the mean operating profit margin of the comparable at 6.5% and worked out adjustments in the import price of raw material and spare parts from A.E. at Rs. 1,45,52,537/- in the following manner : 1. Dynamic Industries Ltd. 3.32% 2. Jaysynth Impex Ltd. 10.92% 3. Lona Indus ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed from TPO to keep in view the relevant provisions of I.T. Act and I.T. Rules and certainly the guidelines for multinational enterprises and tax administrations issued by OECD were not mandatory to be followed for the TPO. After deciding these technical and procedural grounds now I take up the issue that whether T.P. adjustments were required in this case and if so whether such adjustments has been correctly worked out by TPO in the order passed u/s 92CA(3) of I.T. Act. The first major issue in this order is the reduction made in the operating profit of the appellant company by TPO by Rs. 35.34 Lacs on the ground that it was the closing stock pertaining to trading goods which needed to be excluded from the stock increase shown at Rs. 86,70,387/- while working out operating profit by the appellant company at Rs. 2,78,17,500/-. Here I agree with the AR that for the purpose of working out operating profit, the closing stock of trading goods alone in isolation cannot be excluded but the operating profit component pertaining to trading goods is required to be excluded. Since, there is no segmented trading and P&L A/c of the appellant company for trading activity and manufacturing activ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... therefore, such data if available should have been considered only for the F.Y. ending March, 2005 and the approach of assessing officer in considering such data for the F.Y. ending March, 2008 was not correct and not approved. Without prejudice to this finding it is further seen that even as per data of March, 2008 the related party transactions of Atul Ltd. were 14.26% while as per ITAT Delhi Bench decision on this issue in the case of Sony India P. Ltd. and entity can be taken as uncontrolled if its related party transaction do not exceed 10 to 15 % of total revenue. Here as per available ITAT Delhi Bench decision the upper cap is 15% while the related party transactions in the case of Atul Ltd. even for the F.Y. ending March, 2008 are only 14.26% which is very much within the upper limit as held by ITAT Delhi bench and therefore, in my considered view TPO was not justified in excluding the financial results as comparable for the study for Atul Ltd. and it has to be considered and included to work out that whether transactions of the appellant with A.E. is at Arm's Length or not. The another issue which has arisen from the submissions of AR of the company is that whether ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ditives while raw material for toner comprise of magnetic powder pigments, binders resin, charge control agents and wax which are very different from the raw material used for manufacturing the ink. Further, in case of the ITDL the cost of raw material in percentage terms is 37.5% while in the case of appellant the cost of raw material is 70% and this fact alone is sufficient indication that ITDL cannot be considered as comparable to the appellant. Further, different plant and machinery are used to manufacture toners which comprises of Kneaders and Milling Plants whereas in case of Printing Ink grinders and high speed dissolvers are used. Further, the packing size for ITDL product is less than a kg. whereas the appellant product are packed size of 18 kg. and more. Similarly, the final product of ITDL is for home/office use primarily in photocopiers and digital printers whereas the appellant products is having industrial application mainly in packaging industry. Further, the NIC code of 1998 and 2004 version put the printing ink which is of the appellant in code No. 24223 whereas even as per TPOs order ITDL is covered under code 24222. Further, the excise tariff code for Sakata is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... here before the Tribunal against the order of ld. CIT(A). 11. Detailed arguments were advanced by both the parties. The ld. D/R has explained the order of TPO. Page 2 onwards was read also by ld. D/R. It was explained that there is no dispute in method adopted by assessee or by the TPO. Method adopted is TNMM method. It was explained that ld. CIT(A) has deleted the addition mainly on the basis of earlier two years data whereas he should have considered the data of current year. Rule 10B(4) was explained. It was further submitted that rules are very clear. Arm lengths price will be applicable in case of international transactions even if the transactions are of Rs. 1. Attention of the Bench was drawn on page 8 of TPO's order. It was submitted that the decision in case of Sony India should not have been applied as in this case as the Tribunal has made certain observations only. In this order itself it has been observed that there is difference of price of 10 to 15% only, therefore, the Arm Length Price will not be applicable. The ld. CIT(A) was not justified in agreeing with the argument of ld. A/R on this account. It was further submitted that in case of M/s. Atul Ltd., product ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted that old data can be taken into consideration where current data are not available. Attention of the Bench was drawn on page 52 of the Paper Book. It was also submitted that TPO has not looked into details of all the companies as he has taken into consideration the details of only Indian Toners & Developers Ltd. 13. In reply, the ld. CIT D/R invited attention of the Bench at page 8 of the order of TPO. It was further submitted that 14.26% transactions are for assessment years 2005-06 whereas ld. CIT(A) has mentioned that the transactions are of 2008. Therefore, findings of ld. CIT(A) are not correct. Attention of the Bench was drawn on page 19 of order of ld. CIT(A). It was also submitted that prices are also not the same as different items are produced. TPO has examined all the companies and then only Indian Toners & Developers Ltd. was picked up. 14. In respect of ground raised in the cross objection, the ld. Counsel of the assessee stated that ground no. 1 is inter-linked with ground no. 1 of the department, therefore, the same arguments are advanced. 15. The ld. D/R has fairly accepted the contention of the ld. A/R. 16. Ground no. 2 relates to not disposing the ground r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... w we will take the remaining addition raised through ground no. 1 of the department and ground no. 1 of the cross objection filed by assessee. 21. After considering the rival submissions and perusing the material on record and taking into consideration other material on which reliance has been placed by respective parties, we noted that TPO has made addition of Rs. 1,45,52,530/- by adopting mean profit @ 6.5% of total revenue receipts shown by assessee at Rs. 59.75 crores or odd. In this way the TPO deduced the profit of assessee at Rs. 3.88 crores or odd and after reducing operating profit shown by assessee at Rs. 2.42 crores or odd, the addition of Rs. 1.50 crores or odd as stated above was made. Thereafter, the AO passed assessment order in view of the finding of ld. TPO. The ld. TPO has taken the mean operating profit margin of 8 comparables i.e. M/s. Dynamic Industries Ltd., M/s. Jaysynth Impex Ltd., M/s. Lona Industries Ltd., M/s. Metrochem Industries Ltd., M/s. Organic Coating Ltd., M/s. Indian Toners & Developers Ltd., M/s. Rainbow Ink & Varnish Mfg. Co. Ltd. and M/s. DIC India Ltd. Before arriving at profit by applying Arm Length Price on international transactions on the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... found that M/s. Atul Ltd. is a comparable case because of the decision of Tribunal in case of M/s. Sony India Pvt. Ltd. and in respect of M/s. Indian Toners & Developers Ltd., it was held that this is not a comparable case because there was vast difference in the product manufactured by assessee and manufactured by M/s. Indian Toners & Developers Ltd. The ld. CIT(A) found that this is also incorrect to say that both the companies has same NIC Code i.e. 24222. It was found that assessee company's NIC Code is 24223 whereas M/s. Indian Toners & Developers NIC Code is 24222. A list of NIC Code is placed on record and we find that NIC code of both the companies i.e. M/s. Indian Toners & Developers Ltd. and assessee company are different. 22.1 The ld. CIT(A) has discussed in detail why M/s. Indian Toners & Developers Ltd.2 is not comparable with the facts of the assessee's case and again the finding of ld. CIT(A) have been reproduced somewhere above in this order which, in our view, are findings of fact. If the findings of ld. CIT(A) are taken into consideration, which in our humble view remained uncontroverted, then the mean profit on the basis of 8 companies mentioned above a ..... X X X X Extracts X X X X X X X X Extracts X X X X
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