9911796707
TMI Blog2018 (5) TMI 515X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee for Assessment Year [AY] 2008-09 contest the final assessment order passed by Ld. Assistant Commissioner of Income Tax-Circle 8(3), Mumbai [AO] u/s 143(3) read with Section 144C pursuant to the directions of Ld. Dispute Resolution Panel [DRP]. During hearing , the following effective grounds of appeal have been urged before us: - I. Grounds of objections in respect of transfer pricing adjustment .. 4.Ground of Objection 4- Rejection of certain companies identified by the Appellant in the transfer pricing report Erred in rejecting certain comparable companies from the set of comparable identified by the Appellant in its transfer pricing report 5.Ground of Objection 5- Non consideration of correct operating margins of comparable companies adopted in the TP Order Erred in considering incorrect operating margin of comparable companies adopted in the Order 6.Ground of Objection 6- Non exclusion of provision for inventory obsolescence from the operating cost of the Appellant. Erred on facts and in circumstances of the case and in law by not excluding INR 61,825,865/- pertaining to provision for inventory obsolescence (being n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eedings, the International Transactions carried out by the assessee with its Associated Enterprises [AE] as reported in Form 3CEB were referred for determination of Arm s Length Price [ALP] u/s 92CA(1) to Ld. Transfer Pricing Officer [TPO] on 12/05/2010. The issue under appeal is related with determination of ALP of goods exported by the assessee amounting to ₹ 86.73 crores (net of sales return) to its AE situated in Italy . Majority of the sale turnover achieved by the assessee in the impugned AY was by way of export to its AE situated in Italy . 2.3 The assessee adopted Transactional Net Margin Method [TNMM] method to benchmark these transactions with operating Profit / Total Cost [OP/TC] as the Profit Level Indicator [PLI], the assessee being the tested party. The assessee s PLI came to 6.90% as against mean PLI of 9.49% of 15 comparables as selected by the assessee in its TP study and therefore, the same being within the tolerance range of +/-5%, the transactions were claimed to be at Arm s length Price [ALP] . The prime dispute under appeal is related with computation of correct PLI reflected by the assessee and selection / rejection ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rocess whereby metals are bonded using high pressure / force and wire bonding is the process of making interconnections using metals like aluminum or copper. The resultant product then undergoes testing for quality processes, labeling and packing before being sold to the customer. Post processing of raw material as per the above processes, a new and different produce (in the form of rectifiers i.e. discrete, modules or bridges) is obtained which cannot be dismantled or brought back to the raw material stage. Further the same has a distinctive character and use. Based on the above it can be noted that VSIL is not engaged in the assembly activity wherein certain parts are brought together and attached to each other using screws, connectors etc. VSIL is engaged in manufacturing process of semiconductor devices of different types and it is the general industry practice to call such process as assembly process . Considering the same we submit that the companies identified in the transfer pricing study report are functionally comparable to VSIL. 2.5 So far as the computation of assessee s PLI is concerned, the only issue involved is adjustment of provision for inve ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cing [TP] study: - Sr. No. Name of Company OP/TC 1. BCC Fuba Ltd. 0.29 2. Circuits Systems Ltd. 15,73 3. Fine-Line Circuits Ltd - 2.54 4. Incap Limited 8.96 5. K.Dhandhapani Co. Ltd. 3.86 6. Precision Electronics Ltd 1.99 7. SPEL Semiconductor Ltd 20.50 8. Solectron EMS Ltd 6.56 9. Sulakshana Circuits Ltd 4.29 The rejection of one comparable, namely Salora International Ltd. is not under dispute before us. 2.7 Finally, the differential of mean PLI i.e. 17.20% and the assessee s revised PLI i.e. -1.05% has led to impugned TP adjustment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ustment pertains to provision for stock obsolescence adjustment while computing assessee s operating margin. The assessee, in its TP study , treated the provision for inventory obsolescence of ₹ 6.18 Crores as non-operating in nature and accordingly computed the assessee s PLI as 6.90%. The assessee submitted that it had revised the estimates for determining the provision for inventory obsolescence in accordance with Group Policy and management estimates and accordingly, the said amount has been charged to the Profit Loss Account. The same being non-recurring item due to change in inventory valuation policy, was non-operating in nature. However, not convinced, Ld. TPO treated the same as operating expenditure and revised assessee s PLI to -1.05% by making following observations:- 6.4 The assessee s plea is not acceptable. It was not demonstrated that this provision is included in the operating cost enumerated above. There is no mention of this in the annual report. Hence the OP/TC is worked out to be as follows:- Op. Revenue 87,49,42,147 Op. Cost 88,42,05,285 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be necessary. Without the relevant details, it would not be proper to exclude such provision from the operating cost, as claimed by the assessee. 5.4 The Ld. AR, drawing our attention to the financial statements, Directors Report and other documents placed in the paper-book , has reiterated the contentions. It has been submitted that the impugned provision was non-recurring in nature as there was change in stock valuation policy during the impugned AY and the same one time extraordinary event and therefore the provisions were non-operating in nature. Per Contra , Ld. DR submitted that stock valuation was part and parcel of the assessee s operations and the assessee in subsequent years has treated similar provisions as operating in nature and therefore, the action of lower authorities was justified. 5.5 So far as the observations of the lower authorities are concerned, upon perusal of financial statements, we find that aforesaid provision has not been directly debited by the assessee in the Profit Loss Account under any of the following heads:- Purchase of Traded Goods Personnel Cost Operating O ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... which were not considered while arriving at the adjustment. The Ld. DRP, vide para-30 directed Ld. TPO to consider the submissions of the assessee and make necessary rectifications. Needless to add that errors, if any, which have crept into while computing margins of the comparables are to be rectified and therefore, Ld. TPO is directed to consider the submissions of the assessee forthwith in this regard. Ground No. 5 stand allowed for statistical purposes. 7.1 In Ground No. 4, the assessee is aggrieved by rejection of nine comparables selected by him in his TP study. The prime argument of Ld. AR, in this regard, is that these comparables have been accepted by the revenue in subsequent years and therefore, the same were to be accepted in impugned AY also in view of rule of consistency . We do not agree with the same since there could not be any rule of consistency in the matter of comparables since TP study for a particular year is unique for each year and depend upon the functions performed, risk assumed and assets employed by the entities and the same could not applied blindly to any other years unless it is demonstrated that the entities were exposed to similar busi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Ld. TPO has rejected the same on the ground that these were functionally dissimilar. On the other hand, as per assessee s submissions, semi-conductor devices, capacitors and PCBs are all are all being used for general power management applications and therefore comparable. Upon due consideration, we find that the important factor to adjudge the comparability is nature of manufacturing process being carried out by the assessee as well as the comparables since we have already noted that TNMM method require only broad product comparability and not product to product comparison. It is also noted that Ld. TPO, in AY 2009-10, has accepted few of these comparables, finding them functionally comparable to the assessee. Therefore, the matter stand remitted back to the file of Ld. AO / TPO to re-appreciate the functional comparability between assessee and the nine comparables with a direction to the assessee to demonstrate the same with requisite material. This ground stands allowed for statistical purposes. 8.1 By way of Ground Number 8, the assessee seeks risk adjustment while arriving at ALP of the international transactions. The assessee, before lower authorities, had contended ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vided to the assessee on mere assumptions without there being any cogent material on record to substantiate those assumptions / contentions. Resultantly, this ground stand dismissed. 9. Ground Number 9 is related with benefit of +/-5% in terms of erstwhile proviso to Section 92C(2) which has been rejected by Ld. DRP in terms of Board s Circular No. 142/13/2010-SO (TPL) dated 30/09/2010 . Prima facie, the said circular applies to pending proceedings as on 01/10/2009. Therefore, since the matter of comparable has already been remitted back to the file of Ld. AO / TPO, at the moment, we can only direct the lower authorities to grant adjustments / concessions, which are available to the assessee within the framework of law while determining ALP of the transactions as aforesaid. This ground stand allowed for statistical purposes. 10. By way of Ground No. 11, the assessee is seeking endorsement of Ld. DRP s directions which are related with depreciation on projectors and allowance of provisions disallowed in earlier years. We find that directions to verify the same has already been provided by Ld. DRP vide Para No. 54 of its directions. By endorsing the same, we direct the ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
