9911796707
TMI Blog2014 (12) TMI 382X X X X Extracts X X X X X X X X Extracts X X X X ..... en brought on record, the order of the DRP is upheld – Decided against assessee. Rejection of Thirumalai Chemicals Ltd. - Functionally different company - Held that:- The factors which have been considered by the DRP are common to the entire industry and the entire industry has been affected because of those factors - the rejection of the comparable is not on the facts of the case - the products of the assessee are dependent on global markets with recession in world market, the business of the assessee has also suffered - if M/s. Thirumalai Chemicals Ltd., was working at 50% of capacity utilization, then the assessee was also working at 46% of its capacity utilization – there was no error in rejecting M/s. Thirumalai Chemicals Ltd., as a comparable – thus, the matter is remitted back to the AO to consider M/s. Thirumalai Chemicals as a comparable case for determining the ALP after giving reasonable opportunity of being heard to the assessee – Decided in favour of assessee. Inclusion of Gwalior Chemical Industries Ltd and Sunshield Chemicals Ltd. as a comparable companies – Held that:- The assessee stated that the restructuring in the case of Gwalior Chemical Industries Ltd has actu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... HRI AMIT SHUKLA, JJ. For The Appellant : Shri S.N. Soparkar, Shri Bandish Soparker For The Respondent : Shri Santosh Kumar ORDER PER N.K. BILLAIYA, AM: These cross appeals by the assessee and the Revenue are against the order dt.31.1.2014 passed by the DCIT-8(2), Mumbai u/s. 143(3) r.w. Sec. 144C(13) of the Act pertaining to A.Y.2009-2010. 2. The assessee is engaged in the business of manufacturing basic liquid resins, solid resins and formulations thereof. The products are sold under the brand name of "Araldite". These products are known for their bonding strength, electrical insulation capability, dimensional stability, chemical and corrosion resistance and long term durability. 2.1. The assessee is a manufacturing concern and operates in the 'Speciality chemical industry'. Its main product is Epoxy Resin. The major products groups are: • Basis liquid resins • Solid resins • Formulated products 2.2. The user industries for the above products are as follows: • Paint industry • Civil Engineering Applications • Structural composites • Electrical insulation material • Adhesives • Tooling materials 2.3. A copy of the trans ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rising out of foreign exchange fluctuation is directly linked to the assessee's business activities. 4.2. The DRP rejected assessee's contention stating that the exchange loss has been incurred as the part of purchase/sale transaction and hence is operating in nature. 4.3. Before us, the Ld. Counsel for the assessee claimed that the assessee has considered foreign exchange loss as non-operating in nature and therefore the same should be excluded while computing the operating mark-up earned by the assessee. 4.4. We find that there is no dispute that the assessee has bought material from its AE and the pricing was done in foreign currency which means that the currency fluctuation is directly related and is inbuilt in the pricing policy which the assessee has been following with its AEs therefore, we do not find any reason or merit in excluding the same for computing the operating mark-up earned by the assessee. Therefore, we do not find any error or infirmity. The order is accordingly confirmed. Ground No. 2 is dismissed. 5. Ground No. 3 relates to the rejection of the comparable companies accepted by the assessee. First grievance relates to the rejection of Daiichi Karkaria Ltd ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... en affected because of those factors. Therefore, the rejection of the comparable is not on the facts of the case. We find force in the contention of the Ld. Counsel. It is not in dispute that the products of the assessee are dependent on global markets with recession in world market, the business of the assessee has also suffered. We further find that if M/s. Thirumalai Chemicals Ltd., was working at 50% of capacity utilization, then the assessee was also working at 46% of its capacity utilization. We, therefore, do not find any error in rejecting M/s. Thirumalai Chemicals Ltd., as a comparable. We, accordingly set aside this issue back to the file of the AO and the AO is directed to consider M/s. Thirumalai Chemicals as a comparable case for determining the ALP after giving reasonable opportunity of being heard to the assessee. Ground No. 3.1.2 is allowed for statistical purpose. 5.5. We further find that on the request of the TPO, the assessee had conducted a fresh search. The TPO has not considered the fresh search nor the DRP has directed the TPO. In the interest of justice and fair play, we direct the AO to also consider the comparables given by the assessee in its fresh sear ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mes. In the opinion of the TPO, the upper range should also have been taken in the range of 12 times higher than the assessee's turnover. Accordingly, the TPO included M/s. Atul Ltd., as a comparable. 7.7. The DRP found that in A.Y. 2008-09, this company was retained by the Tribunal in the final comparable set. We find that the Tribunal in ITA No. 6217/M/2012 at para-21 of its order has directed to determine the arm's length margin on the basis of two cases one of which is M/s. Atul Ltd. As this company was part of the final comparable set for A.Y. 2008-09, we do not find any reason why the same should not be considered for the year under consideration. Ground No. 4.3.2 is accordingly dismissed. 7.8. Ground No. 4.3.3 relates to the inclusion of M/s. Pidilite Industries Ltd., as a comparable company. The TPO observed that the assessee has rejected this company on the basis of turnover filter. For the same reasons given for the inclusion of M/s. Atul Ltd., the TPO proceeded by considering this company as one of the comparable. The TPO further observed that M/s. Pidilite Industries Ltd. is also engaged in the manufacture of Epoxy Resins in earlier year also. The assessee strongly ob ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... market. It was explained that the management charges are covered by two agreements i.e. service agreement and core technology service agreement. These agreements are effective from 2001. The assessee has received various services such as I.T. services, marketing services, finance and reporting services, HR services, legal services, purchasing services etc. It was claimed that the assessee has derived benefits from these services. 8.2. The submissions of the assessee did not find favour. The TPO was of the opinion that the agreements are of general in nature and do not substantiate that specific services were requested for by the assessee. The TPO finally concluded by stating that the assessee has failed to provide evidence therefore the arm's length price of such services claimed to have been received is treated as zero. 8.3. Before the DRP, it was claimed that the assessee has carried out a benefit test analysis regarding receipt of management charges, providing invoices, screenshots of services provided by AE. The DRP was of the opinion that the assessee has not provided any evidence on how the services were rendered to it by the AE. The DRP further observed that as there was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the value of transaction with AEs by not following the order of the Tribunal for A.Y. 2008-09. 9.1. We find that the TPO has proposed adjustment to entire turnover whereas the international sales to AEs constitute only 21.06% of total sales. We find that the Tribunal has ruled in favour of the assessee on this issue in A.Y. 2008-09. We, accordingly direct the AO/TPO to decide this issue in the light of the decision of the Tribunal in A.Y. 2008-09. The assessee is directed to provide segregated figures of profits earned in AE transactions and non AE transactions. This ground is treated as allowed for statistical purpose. 10. The other grounds are of general in nature and therefore needs no separate adjudication. 11. In the result, the appeal filed by the assessee is treated as allowed for statistical purpose. ITA No. 2068/M/2014 - Departmental appeal 12. The grievance of the Revenue reads as under: "1. Whether on the facts and circumstances of the case and in law, the Hon'ble DRP was correct in holding that miscellaneous income was operational income without appreciating the fact that the companies show income under the head "miscellaneous income" in their books only when t ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
