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TMI Blog2017 (10) TMI 481X X X X Extracts X X X X X X X X Extracts X X X X ..... ut on record. The assessee is claiming that the engineering service segment on stand-alone basis has depicted profit but the goods segment has resulted in loss, which has resulted in the overall loss in the combined results considered in comparability analysis. This aspect deserves proper examination. Hence, we find that the objection of the ld. Counsel of the assessee that the segmental data should be considered in bench marking and comparability analysis is germane. Hence, we uphold the same. Accordingly, the issue is remitted to the file of the TPO. The TPO shall take into account the segmental detail and data and do the analysis afresh. - I.T.A. No.562/Mum/2017 - - - Dated:- 6-10-2017 - SHRI SHAMIM YAHYA, AM AND SHRI RAM LAL NEGI, JM For The Appellant : Shri M. P. Lohia Shri Nikhil Tiwari For The Respondent : Shri Saurabh Deshpande ORDER Per Shamim Yahya, A. M.: This is an Appeal by the Assessee directed against the Order of Assessing Officer (A.O.) dated 30.11.2016, pertaining to the assessment year (A.Y.) 2012-13 passed under the direction of the Dispute Resolution Panel (DRP), dated 07.09.2016. The grounds of appeal read as under: 1. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... while computing the margin of comparable companies considered for benchmarking the impugned transaction. 7 That the Ld. AO/ Ld. TPO / Hon'ble DRP have grossly erred in law by resorting to cherry picking of comparable companies, i.e., by not following a scientific search process, for determination of the arm's length price of the international transaction of provision of engineering services. 8 The Ld. AO/ Ld. TPO / Hon'ble DRP have erred in considering quantitative filters like minimum export sales percentage and turnover for identification of comparable companies. 9 The Ld. AO/ Ld. TPO / Hon'ble DRP have erred in rejecting companies selected by the appellant in its transfer pricing documentation as comparable by alleging them to be functionally non-comparable in respect of the impugned transaction. 10 The Ld. AO/ Ld. TPO / Hon'ble DRP have erred in accepting functionally dissimilar companies as comparables for the purpose of determination of the arm's length price for the impugned transaction. 2. At the outset, the ld. Counsel of the assessee submitted that ground nos. 1 2 are general in nature. 3. Ground nos. 3, 4 and 5 relate to an iss ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... CUP The TPO accepted the arm s length nature of all the international transactions of the Assessee except the international transaction pertaining to engineering services rendered to AEs. In the Transfer pricing documentation, assessee has benchmarked the transactions undertaken during the year at an entity level with an application of transactional net margin method (TNMM). In the TP documentation, the assessee has considered seven (7) companies undertaking functions akin to VAMPL, and the average margin (Operating profit/Operating cost) of the said companies was computed as 9.96 percent, against the assessee s net margin of 10.01 percent. 7. In the transfer pricing order, the Transfer Pricing Officer (TPO) rejected the comparable selected by the assessee and substituted other comparables which led to an adjustment of ₹ 2,61,13,622/- on the international transaction relating to the assessee pertaining to engineering services rendered to the Associate Enterprises for A.Y. 2012-13. 8. Before the Dispute Resolution Panel (DRP) at the outset, the assessee s submission was as under: 3.1 Without prejudice, the Ld. TPO has erred in computing t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the assessee was that the engineering service segment reported in the financial statement has comprised of two activities namely (a) manufacture and sale of engineering goods and (b) engineering services. The engineering services rendered to the Associated Enterprises (AE) formed part of the engineering service segment. Hence, it was the assessee s plea that for bench marking the said transaction, only engineering service segment should be considered. However, the ld. DRP did not accept this submission of the assessee without assigning any cogent reason. On this issue, the DRP observed as under: 5.1 We have gone through ground number 1. It is the contention of the assessee that the TPO has not taken the segment of engineering services and engineering manufacture segment separately. We do not find merit in this objection since the assessee has not been able to demonstrate as to how both the divisions are not intertwined with each other as far as the profitability of the entire business is concerned. The ground is accordingly rejected. The Panel proceeds into the analysis of individual comparables rejected by the TPO and contested by the assessee and also the comparables include ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... red by the TPO comprises both engineering goods and engineering services. Now the assessee has submitted detail of segmental data of engineering service and engineering goods. The assessee s international transaction comprise of engineering service to the associated enterprises. Hence, the plea of the assessee is cogent that when the segmental data is available, the same should be taken into account. In this regard, we note that in the ITAT decision in the case of Sandoz Pvt. Ltd. (supra), it was held that when the assessee submitted segmental accounts for each of its operation, which are different from the other, therefore, the correct approach under TNMM should be with each of the segmental with the corresponding comparables involved in similar lines of functioning after proper FAR analysis. 14. We find that the observation of the ld. DRP that the assessee has not demonstrated as to how both the divisions are not enter-twined is not at all tenable. By no stretch of imagination, the manufacture and sale of engineering goods on one hand and provision of engineering services on the other can be considered as the same segment unless specific facts to the contrary is put on record. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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