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TMI Blog2015 (5) TMI 1027X X X X Extracts X X X X X X X X Extracts X X X X ..... er pricing adjustment - clubbing of results of three group companies of Suzlon for the purpose of determining the arm's length price - Held that:- Suzlon Energy Ltd. was engaged in the activities of supply alone whereas the assessee is in the business of supply, installation, commissioning as well as development of sites. Thus, it is clear that the business activities carried out by the assessee are not comparable with the Suzlon Energy Ltd., for the purpose of determination of arm's length price. The Transfer Pricing Officer included the Suzlon Energy Ltd. in the computation of arm's length price, however, in view of the fact that the Suzlon Energy Ltd. is not a functional comparable to the assessee, therefore, the inclusion of Suzlon Energy Ltd. in the list of comparable is not proper. The learned CIT(A) accepted the objection of the assessee that Suzlon Energy Ltd. alone is not a good comparison of the assessee and, therefore, clubbed the margins of all the three companies. Further, we note that the Transfer Pricing Officer has determined the arm's length price at 13.39% in the comparison to the operating margin of the assessee @ 11.57%. However, the Transfer Pricing Officer has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... investment made in the subsidiary company, therefore, no disallowance is called for. The Assessing Officer did not accept the contention of the assessee and worked out the disallowance as per rule 8D for the purpose of section 14A of the Act. Consequently, the Assessing Officer made a disallowance of ` 15,64,000 under section 14A. 3. On appeal, the learned CIT(A) held that provisions of rule 8D is not applicable for the year under consideration in view of the judgment of the Hon'ble Jurisdictional High Court in Godrej & Boyce Mfg. Co. Ltd. v/s DCIT, [2010], 328 ITR 081 (Bom.). However, the learned CIT(A) has made a reasonable estimate of disallowance at ` 5,00,000, under section 14A. 4. Before us, the learned Departmental Representative submitted that though the provisions of rule 8D is not applicable for the year under consideration, however, it has persuasive value for computing a reasonable disallowance of expenditure under section 14A of the Act. He further contended that the learned CIT(A) has not given any basis for restricting the disallowance to ` 5,00,000. 5. On the other hand, the learned Counsel for the assessee reiterated its contention as raised before the autho ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... under consideration as under:- Sr.no. Category Description Amount of Transaction (` in lakh) 1. Imports - goods components and spare parts EIL imports raw material from its group entities for its manufacturing activity ` 31624.14 2. Exports - manufactured Blades / CBCT EIL manufacturers blades / CBCT for export (e-40 Model) ` 342.27 3. Import - capital goods EIL imports capital goods like machinery, accessories, spares, etc., from its group entities ` 5772.57 4. Reimbursement of guarantee charges Reimbursement of guarantee charges ` 243.33 5. Sale of computer Sale of computer ` 0.87 9. In its transfer pricing study, the assessee has bench marked its international transaction in respect of import of raw materials / spares from the group entity for its manufacturing activities by adopting the TNMM as most appropriate method and selecting 11 comparable companies. The assessee has arrived mean margin of the comparable at 7.16% in comparison of the assessee's operating margin @ 11.57%. Accordingly, the assessee claimed that its international transactions are at arm's length. The Transfer Pricing Officer rejected the comparables selected by the assessee and asked ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nstead of the margin of Suzlon Energy Ltd. alone. Thus, the learned CIT(A) has taken into consideration the combined margin of Suzlon Energy Ltd. along with the other two companies at 18.10% and, thereafter, worked out the operating mean margin of the comparables at 11.21% as against the profit margin of the assessee @ 11.15% and held that the international transaction of the assessee is at arm's length and consequently, deleted the addition which was made by the Transfer Pricing Officer on account of transfer pricing adjustment. 11. Before us, the learned Departmental Representative submitted that the learned CIT(A) has considered the re-calculation of the margin of three companies as integrated / combined average margin of Suzlon Group of companies without giving an opportunity to the Assessing Officer / Transfer Pricing Officer. Thus, the learned Departmental Representative submitted that the learned CIT(A) has violated the provisions of rule 46A of the I.T. Rules, while accepting the fresh evidence / details produced by the assessee. He further contended that there is no provision of combining the results of more than one company as done by the learned CIT(A), therefore, the o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n of arm's length price. The Transfer Pricing Officer included the Suzlon Energy Ltd. in the computation of arm's length price, however, in view of the fact that the Suzlon Energy Ltd. is not a functional comparable to the assessee, therefore, the inclusion of Suzlon Energy Ltd. in the list of comparable is not proper. The learned CIT(A) accepted the objection of the assessee that Suzlon Energy Ltd. alone is not a good comparison of the assessee and, therefore, clubbed the margins of all the three companies. Further, we note that the Transfer Pricing Officer has determined the arm's length price at 13.39% in the comparison to the operating margin of the assessee @ 11.57%. However, the Transfer Pricing Officer has not given the benefit of tolerance range of + 5% while making the adjustment. Without going into the controversy whether the learned CIT(A) is justified in taking the consolidated results of three group companies of Suzlon, we note that when the Suzlon Energy Ltd. is not a comparable and, therefore, cannot be included in the set of comparables for the purpose of determination of arm's length price and further the arm's length price determined by the Tra ..... X X X X Extracts X X X X X X X X Extracts X X X X
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