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TMI Blog2016 (12) TMI 1792X X X X Extracts X X X X X X X X Extracts X X X X ..... een subjected to Section 154 rectification proceedings on 14.12.2010 and 09.03.2012. We appreciate this fair submission and observe that our adjudication in the succeeding paragraph are confined to both the parties' arguments in principle only. 3. We advert to the relevant facts now. The assessee company manufactures web feeding guiding equipments along with electrical/electronic control panel. It purchased components worth Rs. 4,18,92,723/- from its associate enterprises. The assessee would adopt the transaction net margin method (TNMM) to benchmark its above import transactions to be having PLI of 4.22% (as per the Transfer Pricing Officer's order dated 19.10.2008). It had chosen fifteen comparable companies i.e. M/s. Ahmedabad Victoria Iron Works Ltd., Nichrome India, Rollatainer, Schrader Duncan Ltd., Seasons Textiles Ltd., Lippy Systems Ltd., Austin Engineering, EPC Industries, Forbes Aquamall Ltd., JBM Industries Ltd., Jai Bharat Exhaust Systems Ltd., Krypton Industries Ltd., Mivin Engineering Technologies Pvt. Ltd. and M/s. Ultra Dytech Ltd.. The Transfer Pricing Officer excluded two of them i.e. M/s. Rollatainer and M/s. EPC Industries only on the ground that they had been ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mparables (12 from the set in the draft assessment order and 4 as mentioned above from assesee's new set). 5. The assessee's arguments for adopting PBDIT as PLI are rejected. 6. The assesee's objections regarding 5% standard deduction are also rejected. 7. The assessee's objections regarding adjustment in respect of the commission income are rejected." The Assessing Officer has accordingly framed the impugned assessment making the above transfer pricing adjustment forming subject matter of adjudication before us. 5. We have heard both sides. Case file perused. The assessee's arguments are two folded. First one is that the authorities below have erred in excluding the above two loss making entities from the array of comparables. The Revenue strongly supports the impugned exclusion. We find that neither the Transfer Pricing Officer nor the Dispute Resolution Panel have looked into the FAR analysis of the above two entities M/s. Rollatainer and EPC Industries as the same have been summarily rejected in view of their consistent losses since 2002 and last three assessment years. We repeat that the impugned assessment year is 2007-08. We quote Rule 10B(4) here ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ransfer Pricing Officer for afresh adjudication as per law as indicated hereinabove. 7. The assessee's next substantive ground challenges correctness of transfer pricing adjustment of Rs. 6,52,435/- in respect of its commission income. It had derived commission income from its german and italian associate enterprises having profit level indicators @ 12.45% and 8.52% after adopting the comparable uncontrolled price (CUP) method. The Transfer Pricing Officer noticed the assessee to have earned similar commission income from a german enterprise involving PLI @ 12.13%. He accordingly rejected assessee's explanation stating various key factors of volume of business transactions, market presence and geographical factors to make the impugned adjustment after taking PLI @ 12.13% resulting in the addition in question. The Dispute Resolution Panel upholds the same. 8. Heard both sides. The assessee is unable to dispute the fact that it had already adopted CUP method wherein the german non associate enterprise had paid it commission income of 12.13% as against 8.52% obtained from its italian associate enterprise. Learned counsel raises a technical plea that the DRP's findings at page 16 obs ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... emained idle in the impugned assessment year. It adopted the transaction net margin method (TNMM) to benchmark its above purchased transaction. There is further no issue between the parties that the above term capacity utilization is a factor affecting net profit margins since it results in higher per unit cost qua the utilized capacity which in turn lowers down the profits in question at a transactional or unit level. Ld. Departmental Representative at this stage vehemently argued that such an adjustment in the hands of comparable entities is nowhere provided either in the Act or Rules. This argument fails to impress us. We find that a coordinate bench decision in DCIT vs. EDAG Engineers & Design India Pvt. Ltd. ITA No.549/Del/2011 decided on 13.10.2014 quotes Rule 10B (1)(e)(3) to be providing for adjustments for variation which could materially affect the net profit margins in case of comparable uncontrolled transactions. Ld. Departmental Representative seeks to draw a distinction that the said case law deals with CUP method as against TNMM employed in the instant case. We find that Rule 10B(e)(iii) hereinabove is regarding TNMM method only providing for various adjustments on a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d. counsel representing assessee invites our attention to the fact that it had sold 600 & 35 units of cloth guiders to associate enterprise as against 30 & 3 units to the third parties. His submission is that the impugned difference between sale price as indicated in preceding paragraph has arisen because of huge difference in volume of business which does not include written contracts all the time. The assessee further seeks to highlight the fact that it has to offer special discounted prices to associate enterprises who happen to be purchaser of huge quantity as per annexure 4 attached with Form 35A. 16. The assessee's next argument is that it has to provide warranties to local purchasers as calculated at the rate of Rs. 608/- which is not the case with respect to its associate enterprises. Learned counsel accordingly submits that the lower authorities ought to have included the above two factors for the purpose of making adjustments before arriving at the ALP adjustment in question. 17. Ld. Departmental Representative strongly supported the lower authorities' action. He however fails to rebut the fact that the assessee's bulk sales to its associate enterprises are much volumin ..... X X X X Extracts X X X X X X X X Extracts X X X X
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