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TMI Blog2013 (9) TMI 408X X X X Extracts X X X X X X X X Extracts X X X X ..... that additional ground may be admitted and decided by the Tribunal. 1.1 We have considered the additional ground filed by the assessee. We find that most of the grounds are already covered by the grounds raised originally in the memorandum of appeal. The only new ground is regarding the benefit of +/-5% which is a legal ground, facts relating to which are already on record. The additional ground is, therefore admitted. 2. We first take up the issue relating to TP adjustment made by AO in pursuance to order passed by TPO. The assessee was engaged in manufacturing of diamonds studded gold jewellery and trading of diamonds. The assessee sold diamonds studded jewellery manufactured by it to AE and had also imported diamond from the AE. Since the assessee had entered into international transactions, the AO had referred the matter to the TPO. The TPO asked the assessee to submit the details of transfer pricing study undertaken by assessee for determining the arm's length price (ALP) of the international transactions for manufacturing and trading segment separately. The assessee in the transfer pricing study selected TNMM as the most appropriate method for bench marking the transaction. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nkar Jewels Ltd. 15.31 14.77 0.96 6.50 3 Fine Platinum (India) Ltd. 21.24 20.03 1.67 8.34 4. Goenka Diamond & Jewels Ltd. (Seg). 37.36 35.42 1.94 5.48 5. Goldium Jewellery Ltd. 55.06 48.30 6.78 14.04 6. Shreeji Jewellery Ltd. 59.07 56.98 2.09 3.66 7. Shantivijay Jewels Ltd. 59.81 58.11 2.23 3.84 8. Asian Star Company Ltd. (Seg) 70.66 57.25 13.41 23.41 9. Diagold Designs Ltd. 73.00 70.12 3.48 4.96 10. Fine jewellery (India) Ltd. 77.98 69.90 8.70 12.45 11. Shyam Star Gems Ltd. (Seg). 78.47 63.11 15.36 24.34 12. Su-Raj Diamond Industries Ltd. (Seg). 121.30 117.85 4.45 3.78 Arithematic Mean 9.49 Assessee 14.68 15.68 -0.85 -5.41 3.4 The assessee objected to the four comparables out of the nine comparables selected by the TPO for giving different reasons as per table given below: S.No. Name of Comparable Company Reasons for non-comparability with the assessee 1. Fine Platinum (India) Ltd. Different Geographical exports 2. Goenka Diamond & Jewels Ltd. (Seg). Retails sales of branded jewellery 3. Asia Star Co. Ltd (Seg). Retails sales of branded jewellery 4. Shyma Star Gems Ltd. (Seg). Trading of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rd Jewels Ltd. Trading of Studded Jewellery Activity 4.1 The TPO selected his own 10 comparables in the turnover range of Rs. 10 crore to 150 crore as the turnover of the assessee was 32.96 crore. The arithematic mean margin of these comparables was computed at 3.47 % as per details given in the table below:- S. No. Name of the Comparable Company Net Sales Operating Cost (OC) Operating Profit (OP) PLI (OP/OC)% PLI (OP/net sales) % 1. Zodiac-JRD MKJ Ltd. 11.88 11.35 0.35 4.68 4.47 2. Sunraj Diamond Exports Ltd. 12.75 12.34 0.42 3.38 3.27 3. Mini Diamonds (India) Ltd. 20.81 20.54 0.27 1.34 1.32 4. C Mahendra International Ltd. 24.53 23.24 1.22 5.23 4.98 5. Shri Sai jewels Pvt. Ltd. 37.74 36.04 1.76 4.88 4.66 6. Vanguard jewels Ltd. 39.06 38.41 0.75 1.95 1.92 7. Emmar Diamonds Pvt. Ltd. 49.35 47.27 2.08 4.40 4.21 8. Shukra jewellery Ltd. 50.39 49.66 0.74 1.49 1.47 9. Indo Unique Trading Pvt. Ltd. 50.91 48.67 2.25 4.62 4.41 10. Varun jewels Pvt. Ltd. 140.65 135.36 5.56 4.11 3.95 Arithematic Mean 3.61 3.47 Assessee 32.96 32.81 0.15 0.45 0.45 4.2 The assessee objected to six of the co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nover is Rs. 32.95 crores and hence both are working on the same economic scale hence this objection is not acceptable." The TPO thus computed the arm's length price on the basis of PLI of 3.47% of the comparable against the PLI of .45% of the assessee and the adjustment made on this account was at Rs. 99,58,969/-. 5. The assessee raised objections against the TP adjustment proposed by the TPO before the DRP. The assessee objected to rejection of claim of the assessee of abnormal expenses in relation to the manufacturing segment as well as the selection of certain comparables by the TPO. DRP observed that the claim of the assessee of lower capacity of utilization lacked sound financial analysis and, therefore the claim of abnormal expenses was rejected. The DRP also did not find any merit in the objection raised by the assessee against some of the comparables selected by the TPO. The DRP thus confirmed the order of TPO, following which the assessment was made by AO on the basis of adjustment proposed by TPO, aggrieved by which the assessee is in appeal before Tribunal. 6. Before us the learned AR for the assessee reiterated the submissions made before lower authorities regarding ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 92C(3) in which it was clearly mentioned that in cases where information or data used in computation of arm's length price given by the assessee was not reliable or correct, the AO could proceed to determine the arm's length price on the basis of material or information or documents in his possession. In this case, the comparables given by the assessee had not been found reliable by the TPO for various reasons given and accordingly he had proceeded to select his own comparable which could not be faulted with on the facts of the case. He also referred to the decision of Mumbai bench of Tribunal in case of Willis Processing Services (57 SOT 339) in which it was held that there was no embargo on the TPO to carry out a fresh search and there was no limit fixed in the Act or in the Rules on the number of comparables which could be used. As regards the claim of abnormal expenses on the ground of low capacity of utilization, it was submitted that it was difficult to standerdize capacity in case of manufacturing of jewellery as there is a wide variation in consumption of time and labour in manufacturing of different types of jewellery products. Therefore, no such claim can be allowed. In r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... section 92 C (3) are satisfied TPO/AO could proceed to determine the arm's length price on the basis of material or information or documents in his possession. One of such conditions prescribed in clause (c) of section 92 C (3)is that in case information or data used in computation of arm's length price given by the assessee are not reliable or correct, he can proceed to determine the arm's length price on his own. In this case the AO/TPO have not found the certain comparables reliable and, therefore, in such cases it is within the power of TPO to proceed to select his own comparables and determine adjustment taking into account material or documents in his possession. This aspect had also been considered by the Mumbai Bench of Tribunal in case of Willis Processing Services (I) (P.)Ltd. (supra) in which it was held that there was no embargo on the TPO to carry out a fresh search and there was no limit fixed in the Act or in the Rules on the number of comparables which could be used. We, therefore, see no merit in the objection of the assessee against the selection of more comparables by the TPO. The objection raised is, therefore, rejected. 8.3 The assessee has also objected to th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the said company placed on record. We find, that the said company was manufacturing as well as trading for which consolidated account had been maintained. The auditors in the note no. 7 have clearly mentioned that there were two reportable segment i.e. jewellery manufacturing and investment activity. The turnover of jewellery manufacturing segment has been given at 94.1 crore which also includes trading. Therefore, no separate data in respect of manufacturing is available. Moreover the learned DR has pointed out that there are related party transactions in that case more than 16%. In such a situation, the said company in our view, cannot be considered as comparable to the case of the assessee and it has been rightly rejected. 8.5 However, we find, merit in the submissions of learned AR that adjustment in case of the manufacturing segment has been made on the total turnover and not limited to transactions with AE. The sales of AE was Rs. 7,88,70,082/- and, therefore, the AO is required to compute the cost of such sales by applying margin in case of the assessee which was (-)5.41%. Thereafter, PLI of 9.49% is required to be added to the cost of sales to arrive at the market value of ..... X X X X Extracts X X X X X X X X Extracts X X X X
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