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TMI Blog2014 (12) TMI 803X X X X Extracts X X X X X X X X Extracts X X X X ..... e-tax, Circle - 9(1)[2008 (9) TMI 420 - ITAT DELHI-H ] and in respect of M/s. Indian Toners 40 lacs has to be sustained which is on account of opening stock and by rectifying order u/s 154 has reduced the deletion by 40 lacs or odd -The issue in respect to deletion reduced by 40 lacs or odd has been restored to the CIT (A) to decide the same afresh after affording reasonable opportunity of being heard to the assessee as, as per order of CIT (A), no opportunity was provided to the assessee - the order of CIT(A) in deleting the addition of 1 crore or odd was correct and upheld – Decided partly in favour of assessee. X X X X Extracts X X X X X X X X Extracts X X X X ..... ee worked out its book profit u/s 115JB at ₹ 4,07,81,284/- and the tax liability under MAT was shown at ₹ 30,58,596/-. Subsequently the assessee filed a revised return on 21-09-2007 declaring profit as per the it at ₹ 2,16,40,763/- to correct the claim of depreciation and after claiming set-off of the brought forward losses of ₹ 2,15,15,630/- and declared net income of ₹ 1,25,133/-. The book profit u/s 115JB remained unchanged at ₹ 4,07,81,284/-. According to the AO, during the year the assessee undertook the following international transactions with its Associated Enterprise. S.N. Description of transaction Value in (Rs. 1. Import of raw materials, stores, spare etc. 9,55,84,461 2. Export of Polyurethane resin 2,83,16,131 3. Purchase of capital goods 1,45,43,569 4. Purchase of trading goods 1,07,97,545 5. Commission income 66,278 6. Payment of Royalty 68,06,000 7. Sharing of cost of expatriate employees by AE's. 51,39,560/- In this case, reference u/s 92CA was made to the TPO vide letter No. ACIT/ Circle- 2/Alw/2008-09/838 dated 3-12-2008. The TPO after hearing the assessee came to the conclusion that the T.P. report ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the interest rate to be used. The interest rate has to be assumed, which may be different in reality. The margins of the comparables may or may not be reliably adjusted, depending on the interest rate taken, levels of receivables, inventory and payables maintained throughout the year as against the last day. 8.12 In these circumstances, working capital adjustment, as claimed by the assessee cannot be accepted as a matter of rule, and has to be examined with extreme caution. It is evident from above findings that the assessee has not furnished position of payables and receivables at beginning and end of the year. The assessee has not made available bifurcation of trade creditors and non-trade debtors and non-trade debtors. In some cases it is not possible to segregates the debtors and creditors of the company pertaining to each segment. These findings clearly prove that quality of data as used by the assessee for working capital adjustment cannot be relied upon. Hence, the claim of the assessee for working capital adjustment is not accepted. Further, after the new set of comparables was proposed to be applied in the show-cause notice, the assessee sought more time so that it co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2 The AO accepting the TPO's order issued a draft assessment order which was carried by the assessee to DRP which also confirmed the recommendations of the TPO by holding that assessee's contentions to be not acceptable 2.3 Consequent to DRP directions u/s 144C AO passed final assessment order by adopting following computation of income: ''11. Subject to the above remarks, total income is computed as under:- (A) Profit under the head income from business & Profession (as per computation of income by the assessee ) ₹ 21515630/- Add:- Difference on account of or ALP as per TPO's Order u/s 92CA(3) ₹ 13784604/- Total profit ₹ 35300234/- Less:- Unabsorbed depreciation as per order u/s 143(3)/250 dtd 7-01-2010 the assessment year 2005-06 ₹ 30906297/- (B) Income from other sources ₹ 125133/- Total ₹ 4519070/- Book profit u/s 115JB :Rs. 4,07,81,284/- (As per audit report u/s 115JB in Form No. 29B) 1.B/F business loss allowed to be carried forward - Nil 2. unabsorbed depreciation allowed to be carried forward B/F unabsorbed depreciation as per order u/s 143(3)/ 250 dtd 7-01-20120for the A.Y. 2005-06 ₹ 30906297 Less:- Set of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... positive operating margin during F.Y. 2005-06. Lona Industries Limited NC The appellant has itself rejected this company as non-comparable during the transfer pricing assessment proceedings It is further contended that apropos each and every comparable included by the assessee in its TP Report, detailed submissions have been made before TPO and thereafter before DRP which are part of the paper book and respective paper book pages are mentioned in the written submissions. 2.6 Apropos respective comparables, following is submitted (i) Atul Limited:- The ITAT vide its order date4d 16-09- 2011 for AY 2005-06 has held the same to be includible in assessee's TP Study. LD. TPO / or DRP have neither followed ITAT nor any reason has been assigned as to why in this year it is to be excluded. (ii) Similarly the comparable of Chromatic India Ltd., was rejected by the TPO in assessment year 2007-08, which in first appeal ld. CIT(A) held to be includible, which has not been challenged by the Department which is in its appeal before ITAT as only issue of royalty has been challenged. 2.7 Apropos the comparables adopted by the TPO beyond the list of assessee's comparables, the gist of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s. Mazda Colours Ltd. 5.73 The company manufactures pigments and therefore the products are comparable. Micro Inks Ltd. 12.01 Significant related party transactions (RPT): The company was considered as non-comparable by the Appellant for F.Y. 2005-06 since it had significant related partly transaction during the said year. As per the related party disclosure in the notes to accounts in the annual report of the company for F.Y. 2005-06, it can be computed that the company had related party transactions of more than 27 percent during F.Y. 2005-06 which is above the threshold (25 percent) considered by the appellant in transfer pricing documentation. 2.8 It is pleaded that if the comparables adopted by the TPO on his own are excluded then assessee's OP margin will be satisfactory and will fall below (+_ 5%) safe harbor rule. Similarly, if the comparables as proposed by the assessee are included then no adjustment is required. Reliance is placed on following case laws:- 1. Mentor Graphics Pvt. Ltd. (109 ITD 101) (2007) (Delhi ITAT). 2. E-Gain Communication Pvt. Ltd. (118 ITD 243) (2208) (Pune ITAT). 3. Sony India (P) Ltd. (315 ITR 150) (2008) (Delhi ITAT). 4. Philips Sof ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... entity can be taken as un-controlled if its related party transactions do not exceed 10 to 15% of total revenue. However, the TPO found that this cannot be taken as comparable case because M/s. Atual Ltd. was a related party and was having 14.26% transaction as a percentage of sales of related transaction and it was nearly 15% and, therefore, it was held that since it is near 15% and the decision of Tribunal in case of Sony India Pvt. Ltd. cannot be relied upon and held that this is not a comparable case. 21.1. We have gone through the product of M/s. Atual Ltd. as well as assessee's case and found that they are comparable because of the decision of Tribunal in case of M/s. Sony India Pvt. Ltd. Though ld. CIT D/R has tried to distinguish the facts of the assessee's case as compared with M/s. Atul Ltd. and has stated that ld. TPO was correct in holding that both the companies are not comparable. The ld. CIT (A) has given detailed reasoning for holding that both these companies are comparable. The ld. CIT (A)'s finding are reproduced somewhere above in this order and these findings remained uncontroverted. On technicalities, the TPO as well as ld. CIT D/R, now here before the Tribu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... etion reduced by ₹ 40 lacs or odd has been restored by us to the file of ld. CIT (A) to decide the same afresh after affording reasonable opportunity of being heard to the assessee as, as per order of ld. CIT (A), no opportunity was provided to the assessee. Therefore, we hold that the order of ld. CIT (A) deleting the addition of ₹ 1 crore or odd was correct and we confirm the order to that extent. In view thereof and looking at the entirety of the facts and circumstances of the case, we are of the view that comparables 1 to 6 as applied by the TPO to the assessee's case cannot be regarded as comparables and they should be excluded from the TPO working. Similarly following the ITAT Jaipur Bench judgment in assessee's own case for assessment year 2005-06, all the comparables of M/s. Atul Limited and M/s. Rainbow Ink & Varnish Mfg. co. Ltd. have been accepted to be comparables to the assessee's case. Therefore, the same should be included in AL working. The AO will work out the TP adjustment accordingly, if the adjustment results in (+ _ 5%) variation then safe harbor rule of proviso to sec. 92C(2) will be applicable to the assessee's case. Thus the TPO ..... X X X X Extracts X X X X X X X X Extracts X X X X
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