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TMI Blog2013 (8) TMI 735X X X X Extracts X X X X X X X X Extracts X X X X ..... Rs. 56.25 crore. It will not be appropriate to compare the margin of manufacturing companies to those of trading companies. - business profile of the assessee itself was not very clear. - it is appropriate that a fresh transfer pricing study be undertaken for selecting proper comparables after careful study of functional profile of the assessee so as to arrive at proper TP adjustment - Decided in favour of assessee. - IT Appeal No. 7129 (Mum.) of 2011 - - - Dated:- 15-5-2013 - Amit Shukla And Rajendra Singh, JJ. For the Appellant : Vijay Kothari and Ajit Shetty. For the Respondent : Ajit Kumar Jain. ORDER:- PER : Rajendra Singh This appeal by the assessee is directed against the order dated 16.8.11 of the AO passed in pursuance to direction of Dispute Resolution Panel (DRP) dated 20th June 2011. The dispute raised by the assessee relate to transfer pricing (TP) adjustment made by AO in relation to transaction with associate enterprise (AE). 2. The facts in brief are that the AO during the assessment proceedings noted that the assessee company who was engaged in the business of trading in consumer electronics products such as televisions, digital video, a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... however, did not accept the contentions raised and conducted his own study based on new comparables which were also dealing in consumer electronics goods. The TPO computed the arithematic meanmargin in case of these comparables at 2.23% after excluding the loss cases as per details given below:- Name of the company Operating profit (Rs. Crores) Operating Cost (Rs crores) Operating revenue (Rs crore) Operating margin on operating revenues (%) Bharti Teletech Limited 180 20,037 20,217 0.89 Usha International Limited 1,832 43,453 45,285 4.05 Voltas Limited ( 1,560) 61,967 60,407 -2.58 HCL Infosystem Limited 170 8,824 9,074 1.87 Spice Mobiles 17,968 13,89,270 14,07,238 1.28 Salora International 2,322 72,974 75,296 3.08 Vijay Home Appliances Limited (2,09,92,405) 41,94,22,646 39,84,30241 -5.27 Arithematic mean 0.47 Arithematic mean without loss making companies 2.23 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ised by the assessee. It was observed by him that the comparables selected by the assessee were mostly loss making companies which were really not comparable. The TPO had selected the comparables which were functionally comparable to the business of the assessee. DRP also observed that in case of TNMM method, the product identity was not a necessary condition. The DRP, further pointed out that the assessee itself in the TP study had applied the TNMM method at entity level. The new argument raised before DRP that bench marking should be done only with reference to international transaction was, therefore, not acceptable. The DRP however, observed that the assessee had not given any basis for allocation of expenditure between the international and other transactions with any supporting document. The DRP, therefore, upheld the decision of TPO subject to exclusion of certain provisions made in the P L account which resulted into adjustment of Rs. 47.85 crore in place of Rs. 65.27 crore made by the AO/TPO. The AO accordingly, passed the assessment order making adjustment of Rs. 47.85 crore. Aggrieved by the decision of AO, the assessee is in appeal before the Tribunal. 6. Before us le ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The learned CIT (DR) appearing for the revenue on the other hand submitted that the assessee itself in the TP study had bench marked the transaction at entity level and not in relation to the international transaction and the same had been followed by the TPO and, therefore, the assessee should not be aggrieved with the approach adopted by the TPO. Referring to the details of original TP study available at pages 72 to 73 of paper book, learned CIT(DR) pointed out that the business profiles of the companies selected by the assessee also included manufacturing activity and, therefore, the objection of the assessee to the manufacturing companies selected by the TPO was not justified. As regards, the product differences, it was submitted that in TNMM method only the broad similarity of products was required and it was not necessary that the product should be exactly the same. The comparables which were functionally similar have to be taken. It was pointed out that the assessee itself had selected Salora International which was also a manufacturing concern. Learned, CIT (DR) pointed out discrepancies in the figures of margin in relation to Salora International which was 3.30% as per th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oss cases have to be excluded. No such exercise has been done. 7.1 We also find that both assessee and TPO have applied TNMM method at entity level which is not correct. The adjustment is required to be computed only with respect to international transaction and not in respect of the entire business transactions. The argument given by TPO and DRP that they have made the adjustment at the entity level because the assessee had also made entity level adjustment, cannot be accepted. Merely because the assessee had made mistakes in computing the TP adjustment the authorities cannot follow the same blindly as they are duty bound to compute the adjustment correctly as per law. Because of the mistakes committed by both the sides TP adjustment has been made at Rs. 65.27 crore when the entire purchases from the AE was only Rs. 56.25 crore. The assessee has also objected to the comparables selected by the TPO on the ground that the products dealt with by the companies were totally different. The case of the department is that they have selected only those companies which were dealing in consumer electronics products which were the products dealt in by the assessee. The objection raised by t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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