TMI Blog2018 (5) TMI 1849X X X X Extracts X X X X X X X X Extracts X X X X ..... Without prejudice to our objection to inclusion of 'Suprajit Engineering', if TPO decides to include as comparable then appropriate risk related adjustment to be considered. 3.1 The TPO/DRP erred in law and on facts in not allowing appropriate adjustments under Rule 10B to account for, inter alia, differences in risk profile between the Assessee and the 'Suprajit Engineering'. 3.2 The TPO/DRP erred in law and on facts in arbitrarily not considering research reports/data from company websites provided to demonstrate difference in risk between asseessee and the 'Suprajit Engineering' viz (i) presence of 'Suprajit Engineering' in to 'replacement market' (ii) 'Suprajit Engineering' catering to 'diversified industry' (iii) the research reports demonstrating additional margin earned in the 'replacement/diversified market' by the 'Suprajit Engineering' (iv) research reports regarding additional margin earned by companies catering to 'automobile replacement market'. 3.3 The Ld DRP omitted to consider the order passed by the hon'ble tribunal in assessee's own case during AY 2012-13-IT A No.31 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion was that assessee was supplying more than 99% of its products for OEM car manufacturers whereas M/s. Suprajit Engineering Ltd was supplying spares to two wheelers and three wheelers market and also catering replacement markets. As per the ld. Authorised Representative, assessee had therefore rightly made a risk adjustment of 5% which was unjustly denied by the lower authorities. Further, as per the ld. Authorised Representative Co-ordinate Benches through various decisions had allowed risk adjustment between 5.25% to 29.15%. Despite pointing out this, as per the ld. Authorised Representative, lower authorities rejected the claim for risk adjustment viz-a-viz M/s. Suprajit Engineering Ltd. 6. Per contra, ld. Departmental Representative strongly supported the orders of the authorities below. 7. We have considered the rival contentions and perused the orders of the authorities below. Contention of the assessee is that risk profile of the assessee and that M/s. Suprajit Engineering Ltd, considered as a comparable for TP study of the assessee, were different. As per the assessee, it was supplying 99% of its products to Hyundai Motor India and had never catered to replacement marke ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s RISK FREE RATE. The judicial decisions in this regard peg such adjustment in the range between 5.25% to 29.15% . But on conservative basis, we have ,claimed only of 5% of the comparable companies margins but further restricted the same to a lower level of 50% of the EBITDA of the comparable companies' and additional 5% in case of Suprajit due to its very diversified functional profile, as discussed above''. A reading of the above reply clearly show that 5% risk calculated by the assessee was a pure estimate and was not based on any empirical data. OECD guidelines, though it allows a risk adjustment where found necessary, does not say that any such adjustment had to be given merely based on estimates, founded on surmises. What was held by this Tribunal in assessee's own case for assessment year 2012-2013 with regard to risk adjustment for M/s. Suprajit Engineering Ltd is reproduced hereunder:- ''10. We have heard both the parties and perused the material on record. It is not correct to observe by the DRP that the assessee has not claimed this adjustment in its TP study. Admittedly, the assessee claimed this adjustment in its TP study @ 10% as reflected in paper book-II (ris ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e case of Sony India (P) Ltd vs. DCIT, (2008) 114 ITD 448 had also allowed a flat 20% as a fair and reasonable adjustment for differences in intangible ownership and risk assumed in the controlled transactions and that of the comparables. However, in our opinion, essential requirement for allowing a risk adjustment is that the assessee should have quantified and claimed the risk adjustment in its TP documentation based on a clear and logical workings, considering the risk profile of tested party and comparables companies and not based on surmises. Just because assessee was serving a single customer would not mean that it was bearing market risk different from any other competitor. As already mentioned by us, assessee had simply estimated risk adjustment at 5% without properly quantifying the difference in the risk profile between assessee and M/s. Suprajit Engineering Ltd. We are of the opinion that lower authorities were thus justified in not allowing the risk adjustment claimed by the assessee. Grounds 3 and 4 of the assessee stand dismissed. 9.Ground No.6 raised by the assessee is reproduced hereunder:- ''6. Without prejudice to our submission made in ground no. 5 above, TPO/ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... virtue of export made by the assessee. The exchange value based on upward or downward of the rupee value is not in the hands of the assessee. In other words, the assessee does not determine the exchange value of the Indian rupee. It has to be remembered but for the fact that the assessee is an export house, there was no question of earning any foreign exchange. Therefore, when the fluctuation in foreign exchange rate was solely relatable to the export business of the assessee and the higher rupee value was earned by virtue of such exports carried out by the assessee, there is no reason why the benefit of section 10A should not be allowed to the assessee." In view of the above, we are inclined to decide the issue against the assessee holding that foreign exchange loss is a part of operating expenditure. Further, in view of above judgement of Madras High Court cited supra, we are not in a position to follow the Order of Tribunal, Bangalore Bench in the case of M/s.Airbus India Operations Pvt. Ltd. for assessment year 2009-10 vide order dated 10.10.2014(supra)''. Nothing has been brought before us by the ld. Authorised Representative so as to persuade as to take a different view. W ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... interest for calculating working capital adjustment, assessee had considered the prime lending rate @18.5% and this is clear from page book 450 which gives the work- out of the working capital adjustment. There is nothing on record to show that the interest paid by the assessee or the comparables, on their respective loans were at the rate of 18.5% or the rates were significantly different. This in our opinion reduced the claim of working capital adjustment at 3.18%, to a mere estimate. Actual interest paid was never considered by the assessee. Hence, we are of the opinion that lower authorities were justified in taking a view that assessee had not produced sufficient data for proving its claim of working capital adjustment. We do not find any reason to interfere with the orders of the lower authorities. Ground No.8 of the assessee stands dismissed. 17. Vide its ground No.10, grievance of the assessee is on a disallowance of employees contribution to Provident Fund/ remitted after the due date mentioned in the relevant statute, but before the due date of filing the return of income. 18. The issue raised by the assessee is covered by the judgment of Hon'ble Jurisdictional High Co ..... X X X X Extracts X X X X X X X X Extracts X X X X
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