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TMI Blog2017 (9) TMI 1586X X X X Extracts X X X X X X X X Extracts X X X X ..... On going through the profiles of these two comparables, it is undisputed that ITD Imagetic Ltd. is not manufacturing business whereas Tirupati Inc. Ltd. manufacturers printing inks on the other hand, the assessee is a trading company. It is undisputed that the risk profile of a manufacturing company is different from that of a trading company. We are of the considered opinion that the risk profile and the functionality of these two companies being different than that of the assessee company, these two companies should not have been selected as a comparable. Accordingly, we restore these two comparables to the file of the TPO with the direction that these two companies be excluded from the final set of comparables if on verification it is confirmed that both these two companies carry out manufacturing operations. Needless to say, the assessee will be afforded due opportunity of being heard at the time of verification by the TPO. Accordingly, ground no. 7 stands allowed for statistical purposes. - ITA No. 6610/Del/2016 - - - Dated:- 27-9-2017 - SHRI R.S. SYAL, VICE PRESIDENT AND SHRI SUDHANSHU SRIVASTAVA, JUDICIAL MEMBER For The Appellant : Shri K. Sampath, Adv. For The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and 234D of the Income-tax Act, 1961; 10. That the Ld. AO erred in initiating penalty proceedings u/s 271 (1) (c) of the Act. The Appellant craves leave to add, delete, modify all or any of the above grounds of appeal. 2. The brief facts of the case are that the Assessee Company is engaged in the business of trading of roller, chemical, blanket, Testing equipments, liner, web cloths and other items related to printing industry. It imports material manufactured by the Felix Boettcher GMBH Co. KG, Germany, Boettcher Thailand Limited, Thailand and KB Roller Tech Koplerwalzen GMBH, Germany and market the same to Indian printing industry. It is a subsidiary of Boettcher Holding GMBH Company, Germany which makes products related to the printing industry. The materials purchased were sold without further processing the same. The Assessee Company filed its return for the AY 2012-13 u/s 139(1) of the Income-tax Act, 1961 (hereinafter called The Act ) declaring loss of ₹ 73,53,082/-. As per Form 3CEB filed along with the return for the AY 2012-13, the assessee had entered into international transactions with its associated enterprises/concerns during the year. Ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on of total income at ₹ 67,84,771/- as against returned loss of ₹ 73,53,082/- in the impugned order is unjustified and wrong. The returned loss is supported by the books of accounts which are audited by Chartered Accountants as also by the Accountant's report in Form 3CEB. It was submitted that the Appellant duly complied with the requirements of sec. 92E and Rule 10E and Form No.3CEB in which no specific defect had been pointed out by the AO/TPO. It was that the returned loss may be accepted as fully explained and supported by books of accounts, documents, etc. as required in law. Further, it was submitted by the Ld. AR that the corrections for AE-related transactions and self additions and AE rate adjustments, as directed by the Hon ble DRP, be also directed to carried out by the AO. 3.1 The Ld. AR further submitted that Ground Nos.2, 3, 4 and 5 are inter-connected and that they are directed against the addition of Rs. l,41,36,214/-by recalculating ALP of international transactions u/s 92CA(5) of the Act. It was submitted that the Appellant-Company applied TNMM method i.e. Transactional Net Margin Method on the revenue corresponding to the International tran ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Appellant s transfer pricing arbitrarily. It was urged that the addition of Rs. l,41,36,214/- may kindly be deleted. 3.4 It was further submitted by the Ld. AR that during the year 2011-12 relevant to AY 2012-13, the Appellant had purchased goods from Associated Enterprises of ₹ 5,34,88,788/- and the total amount of goods purchased including goods purchased from Associated Enterprises aws ₹ 13,61,83,125/-. The total turnover of the Appellant during the previous year 2011-12 was Rs.l8,45,31,019/- and the said revenue had been earned by way of sales of goods purchased from Associated Enterprises as well as other non-related parties. It was submitted by the Ld. AR that the Appellant calculated ALP of transactions with associated enterprises under TNMM method and made addition of ₹ 36,98,683/- in computation of taxable income. The TNMM method was followed in view of the directions of the Hon ble DRP as the appropriate method in the Appellant s case in AY 2008-09 and that there was no justification for deviating from that method and adopting the new method. Sufficient reasons for changing the method were not recorded. Provisions of Rule 10CA was not followed in adop ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sis of similarity with the controlled transaction/entity comparability of controlled and uncontrolled transactions has to be judged, inter-alia, with reference to comparability factors as indicated under Rule 10B (2) of the Income-tax Rules, 1962. The Ld. AR submitted that the TNMM method adopted by the appellant and the resultant computation of ALP may kindly be accepted as proper and reasonable. 3.6 The Ld. AR further submitted that the authorities below also erred in not observing the Rule of Consistency in deviating from the method adopted in AY 2008-09 in Appellant s case. Attention was drawn to the decision of Mumbai Bench of the ITAT in the case of Clariant Chemicals (I) Ltd. v. JCIT (ITA No.2393/Mum/2011) wherein after finding that there was a similarity in facts of the case in two different years, the Hon ble ITAT held that When the facts are same the question will be that whether on the same facts Department can take a different stand for the year under consideration which is against the rule of consistency. When there is no difference in the facts of preceding year where the case of assessee has been accepted by the TPO expressly, then in our considered view TPO can ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , the relevant law and rules, the ALP of transactions with associated enterprises only should have been calculated by applying the said operating profit ratio of comparable companies on the turnover generated due to transactions with associated enterprises only. It was submitted that during the year the appellant company achieved operating margin ratio of (-)7.66% and the total value of transactions with associated enterprises of the appellant company was ₹ 5,34,88,788/-. The turnover generated due to international transactions with associated enterprises should be calculated by applying the operating margin ratio of the company on the said value of transaction. The resultant turnover comes to ₹ 4,96,84,209/-. The operating profit ratio of comparable companies as determined by TPO 7.98% should be applied on the above turnover of ₹ 4,96,84,209/- and the resultant ALP will be ₹ 4,57,19,409/-. The difference is in negative i.e. (-) ₹ 39,50,000/-. The Ld. AR submitted that as the difference is in negative no addition should be made under transfer pricing rules. 3.10 On ground no 7, the Ld. AR submitted that the TPO worked out average operating ratio to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .08.2016 had directed the TPO to calculate the ALP by restricting the adjustment to the international transaction and also allowing credit of amount of ₹ 3698683/- already added back by the assessee in the computation of taxable income. It is very much evident that while passing the order subsequent to the directions of the Hon ble DRP, the AO has not followed the directions of the Hon ble DRP in this regard and has proceeded to calculate the ALP by applying the entity level turnover. Therefore, we deem it fit to restore this issue to the file of the TPO/AO for giving effect to the directions of the Hon ble DRP in a proper manner after verification and after affording due opportunity to the assessee to present its case. Accordingly, ground no. 6 and 8 of the assessee s appeal stand allowed for statistical purposes. 5.1 As far as ground no. 7 of the appeal challenging selection of two comparables viz. ITDL Imagetic Ltd. And Tirupati Incs Ltd. are concerned, on going through the profiles of these two comparables, it is undisputed that ITD Imagetic Ltd. is not manufacturing business whereas Tirupati Inc. Ltd. manufacturers printing inks on the other hand, the assessee is a tr ..... X X X X Extracts X X X X X X X X Extracts X X X X
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