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TMI Blog2014 (4) TMI 556X X X X Extracts X X X X X X X X Extracts X X X X ..... rking returned by the assessee is upheld – Decided in favour of Assessee. Corporate additions – Held that:- Though AO may insist for a revised return the appellate authority has been vested with powers to allow the legitimate claims of the assessee even on the basis or revised computation – the AO is directed to verify the revised computation claim of the assessee – Decided in favour of assessee. - ITA No. 463/Del/2013 - - - Dated:- 11-4-2014 - Shri R. P. Tolani And Shri B. C. Meena,JJ. For the Appellant : Shri Arijit Chakravorty Adv. Shri Manoneet Dalal Adv. For the Respondent : Shri Yogesh Kumar Verma CIT (DR) ORDER Per R. P. Tolani, J. M:- This is assessee s appeal against assessment order dated 30-10-2012 passed by the DCIT Circle 11(1), New Delhi u/s 143(3)/144C pursuant to DRP directions u/s 144C(5) of the Income-tax Act, 1961. Following grounds are raised: 1. The AO/ DRP have erred in confirming the order passed u/s 92CA(3) of the Act making an addition of Rs. 126,289,712 to the total income of the Appellant on account of adjustment in the arms length price of the international transaction entered by the Appellant with its associated e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... TPO ). The DRP upheld the positions adopted by the TPO in order dated 21 September 2012. However, DRP provided a partial relief and directed the TPO to correct margins of the tested party and comparable also to exclude expenses relating to other income which were held to be non-operating in nature. 3. Ld counsel for the assessee Shri Arijit Chakravarty, Advocate, vehemently contends that 3.1. The Ld. TPO without appreciating the ALP working of assessee s 2 segments that is for manufacturing Cost Plus Method (CPM) and RPM for trading segment , rejected the same by proposing following unjustified reasons for substituting them with TNMM method: A. Manufacturing Segment: i. CPM is not applicable as appellant s functions are interlinked and the correct benchmarking will be possible only when the entity level margins are taken into account. ii. The cost base of the Appellant does not include indirect costs. iii. Determination of cost is uncertain and extensive information about cost base of the Appellant and comparable companies are not available. iv. There is no clear guidance on the accounting treatment of gross margin. v. There is no discernable link between the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... approached the ld DRP, which confirmed the proposal of TPO and AO in a summary manner. 3.2. Ld. Counsel contends that while doing so the Ld. TPO has merely stated some theoretical keys for application of the methods proposed by him. Unfortunately nowhere Ld. TPO has stated the objectivity and factual application of these principles while applying these methods. 3.3. Reliable internal data for the cost base and the gross margin information in respect of sales by to AEs as well as sale to non- AEs was available which has been totally ignored by the TPO/AO without caring to offer any objective comments thereon. 3.4. Further Ld. TPO has erred in calculating the inventory ratio by taking company-wide sales. The trading sales consist of only 8.8 % viz. (7.03crs/79.86 crs) of the combined manufacturing and trading sales. Even otherwise, the Ld TPO has not provided any working to show how the inventory level of the Appellant is significantly higher than the industry benchmark so as to distort the reliability of CPM/RPM. 3.5. Traditional Method (i.e. CUP, CPM and RPM) have to be given preference over transactional methods (i.e. PSM and TNMM). In these facts, TNMM cannot be consi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... imited Non Comparable Turnover Rs 2,196.72 crores[Reliance on Agnity India (Delhi ITAT)] Without prejudice, only Cooling Products Segment can be considered at comparable Frick India Limited Non Comparable Product - Compressors, accessoriesand fittings for manufacture of Industrial Air-Conditioning Refrigeration Ice plants Insufficient Segmental Information only a small portion of small portion of manufacture of packaged type cooling / freezing units Hitachi Home Life Solutions (India) Limited Non Comparable Product Air conditioners (approximately 95% of total revenue) Non Comparable Function Small turnover from trading of Refrigerators and Washing Machines LG Electronics India Private Limited Insufficient Segmental Information The DigitalAppliances Division includes Air Conditioners, Refrigerators, Microwave Ovens, Washing Machines, Compressors and Vacuum Cleaners Non Comparable Turnover 6,952.69 crores Without prejudice, only Digital Appliances Division is comparable Lloyd Electric E ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rch conducted by Appellant stating that it has not provided any basis for selection or rejection of companies and has resorted to cherry picking by selecting only loss making companies, without providing any specific reason for rejection of each comparable identified by the Appellant. 3.15. Ld. counsel indicated the factual inaccuracy in statement of the Ld. TPO as in submission dated 2 August 2011, complete details providing the matrix containing reasons for acceptance/ rejection for all the companies that were identified in the search process. Ld. TPO s argument thus has no basis for the allegation that the Appellant has resorted to cherry picking of comparables for achieve biased results is factually incorrect and devoid of any logic. 3.16. It may be noted that that out of 2 comparable companies selected by the Appellant, 1 company (Carrier Air-conditioning Refrigeration Limited) has also been accepted by the Ld. TPO as comparable in his search albeit at an entity wide level as against segmental level adopted by the Appellant. 3.17. One of the other company selected by the Assessee (i.e. Rinac India Limited) has not been specifically rejected by the Ld. TPO. It is p-l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd expenses. 3.22. The directions of the DRP were binding on the AO/TPO. The same has not been followed and the order of the TPO in which this direction has apparently not been complied with by the TPO has not been provided to the appellant, thus it is not in a position to take further recourse. The appellant had specifically stated that in the case of comparables, FBT had been taken as part of the operating margin. As per direction of DRP, FBT and other non-operating items had to be excluded in the case of the appellant as well as in cases of comparables. (Refer Page 27, 35 of item 4, Pages 83-87of Item 5 of the Paper book and Page B3 of the Appeal Set). 3.23. It is pleaded that the TPO/ AO/ DRP have erred in law and in facts and circumstances by not granting the adjustment for difference in the capacity utilization of the Appellant vis- -vis the comparable companies. During the AY 2008-09, the Appellant had increased its installed capacity from 52000 to 180,000 units of glass door refrigerator. However, the actual output for AY 2008-09 was only 54,995 units, resulting in utilization of only 30.55%of its installed capacity. The average capacity utilization of the comparable ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ,822,367), which was inadvertently disallowed in the computation by the Appellant and included in the total income for AY 2008-09, which has resulted in double taxation of the said amount as the Loss as per P/L was Rs. 17,975,226, and the FBT amounting to Rs. 18.22,367/- was below the line. The Appellant has however erroneously disallowed the amount of Rs. 18,22,367/-, which tantamount to double disallowance. 3.29. To correct this inadvertent mistake assessee filed a revised computation before AO. The same was rejected for consideration that assessee instead of a revised computation should have filed revised return. Consequently taking recourse to Goetze India Ltd. 157 Taxman 1(SC), this legitimate claim was rejected. DRP confirmed the same. 3.30. Ld counsel contends that the appellate authority has been vested with power to accept such claims by Hon ble Supreme Court in Goetze judgment itself. Therefore, it is pleaded that in the interest of justice this inadvertent double taxation may be suitably corrected. 4. Ld. CIT(DR) Shri Yogesh Verma relied on the orders of AO/TPO/DRP. 5. We have heard the rival contentions and perused the material available on record. In our co ..... X X X X Extracts X X X X X X X X Extracts X X X X
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