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TMI Blog2020 (1) TMI 618X X X X Extracts X X X X X X X X Extracts X X X X ..... THAT:- We find that the in B.C. MANAGEMENT SERVICES PVT. LTD. [ 2017 (12) TMI 255 - DELHI HIGH COURT] has held that foreign exchange fluctuation in relation to trading transactions, prior to Safe Harbour Rules from 2013, should be treated as an operating item. In view of the above, it is held that the amount of foreign gain/loss arising out of the revenue transactions should be considered as an item of operating revenue/cost, both for the assessee as well as the comparables. Transfer pricing addition in respect of the whole segment rather than restricting it only to the international transactions - HELD THAT:- This issue is no more res integra in view of several judgments rendered by various higher forums including the Hon ble jurisdictional High Court holding that the transfer pricing adjustment should be restricted only to the international transactions and not the entity level transactions. The Hon ble jurisdictional High Court in CIT Vs. Phoenix Mecano (India) Pvt. Ltd. [ 2017 (6) TMI 1240 - BOMBAY HIGH COURT] has held that the transfer pricing adjustment made at entity level should be restricted to the international transactions only. Also see M/S. THYSSEN KRUPP INDUST ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... llowing set off of the brought forward losses - HELD THAT:- We find that this issue is no more res integra in view of the judgment of the Hon ble Supreme Court in CIT vs. Yokogawa India Ltd. [ 2016 (12) TMI 881 - SUPREME COURT] in which it has been held that the deduction should be allowed qua the eligible undertaking standing on its own without reference to other eligible or non-eligible units or undertakings. To put it simply, the profits of the eligible units should be considered on standalone basis. Similar view has been reiterated by the Hon ble Supreme Court in CIT Vs. J.P. Morgan Services India Pvt. Ltd. [ 2017 (5) TMI 640 - SC ORDER] . In view of the direct precedent, we allow the assessee s claim on this issue. - ITA No.585/PUN/2015 - - - Dated:- 13-1-2020 - Shri R.S. Syal, Vice President And Shri S.S. Viswanethra Ravi, Judicial Member For the Assessee : Shri Madhur Agarwal For the Revenue : Shri T. Vijaya Bhaskar Reddy ORDER PER R.S.SYAL, VP : This appeal by the assessee is directed against the final assessment order dated 26-02-2015 passed by the Assessing Officer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... material on record. It is made clear that admittedly there is no dispute on the application of the TNMM as the most appropriate method and aggregation of the four sets of international transactions under the Manufacturing segment, which have been accepted by the TPO. In so far as the working out of the assessee s own PLI is concerned, the assessee is aggrieved by the adoption of operating profit after depreciation. The ld. AR fairly settled down to admit that difference on account of rates of depreciation on individual assets (not the quantum of depreciation or the percentage of depreciation on overall basis) should be adjusted. We agree with this contention and hold that the operating profit of the assessee and that of the comparables should be calculated after depreciation since depreciation is an integral part of the operating cost. It is further held that no adjustment can be allowed if there is difference just on account of the amount of depreciation or percentage of depreciation to a certain base. An adjustment can be allowed in the computation of profit of the comparables only if there is difference in the rates of depreciation as charged by the assessee and comparables on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t correct operating margin of the comparable companies after working capital adjustment. There is no cross appeal by the Revenue so as to challenge the said finding of the DRP. When the matter came up before the AO/TPO, no effect was given to such direction. We, therefore, direct the AO/TPO to give effect to the direction given by the DRP in this regard and allow working capital adjustment as per its recommendation. 7. Now we espouse the challenge laid to the inclusion/exclusion of some companies in/from the list of comparables. (i) CTR Manufacturing Industries Limited 8. The TPO included CTR Manufacturing Industries Limited, with OP/OC at 22.80%, in the list of comparables. The assessee contended before the TPO that this company was functionally non-comparable. The TPO refused to accept the contention on the ground that the assessee was treating CTR Manufacturing Industries Limited as comparable since 2006-07. The DRP did not change the fortune of the assessee on this issue, against which the assessee has come up in appeal before the Tribunal. 9. Having heard both the sides and gone through the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... m the assessment year 2009-10, CTR Manufacturing Industries, merged its hitherto reportable segment of Electronics and electrical capacitors with Transformer ancillaries segment or Others segment. Annexure 2 to Notes on accounts for the year under consideration contains Segmental reporting. There are two primary segments of business, namely, Transformer Ancilliaries with revenue of ₹ 106.46 crore and Others with revenue of ₹ 14.54 crore. It is because of the omission/merger of a separate reportable segment matching with the assessee that it has been rendered non-comparable because of non-identification of the segmental information relatable to electrical capacitors. The TPO has adopted the entity level figures of this company for the purposes of inclusion in the list of comparables, which cannot be held as comparable. Under these circumstances, we direct the exclusion of CTR Manufacturing Industries Limited from the list of comparables in the assessee s Manufacturing segment. (ii) K. Dhandapani Company Ltd. 11. The next challenge by the assessee is to non-inclusion of K. Dhandapani Co. Ltd. in the list of comparables. On the basis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s other than Capacitors are entirely different in terms of features and sale price. As against the average sale price of the assessee s Capacitors at ₹ 3/- per unit, the per unit sale price by K. Dhandapani Co. Ltd. of Switchboards and CTs is ₹ 87,000/; Motor Controlled Centres and Control Panels is ₹ 1.37 lakh; and that of Busducts and Accessories is ₹ 52,000/- approximately. We fail to comprehend as to how these products are of any match to the products manufactured by the assessee. Admittedly, such other items constitute a larger chunk, namely, 48% of the total sales of K. Dhandapani Co. Ltd. What is the impact of the profit derived by K. Dhandapani Co. Ltd. from the sale of such finished goods on the overall profit of the Manufacturing segment, is not capable of ascertainment in as much as there is no separate figure of profit from Capacitors. Since such other items manufactured by K. Dhandapani Co. Ltd. constitute a sizeable composition in the overall manufacturing segment, which are miles apart from the products manufactured by the assessee, we hold that this company cannot be considered as comparable even on segmental level. 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... auditor s report for the year ending 31-03-2010, relevant part of which is reproduced as under : As per the sanction of the Government of Kerala, the three fellow subsidiaries namely Keltron magnetic Ltd., Keltron Resistors Ltd. and Keltron Crystals Ltd., amalgamated with Keltron Component Complex Ltd. While preparing the financial statements for the year 2008-09 the company prepared the amalgamated balance sheet. In the notes of accounts forming part of financial statements for the year 2008-09, it is said that it is in accordance with AS14 Accounting for Amalgamation Company has incorporated amalgamation entries in financial statement. However Ministry of Corporate affairs Government of India has sanctioned the scheme of amalgamation only on 5th November 2009 and the company has filed the certified copy of the order with the Registrar of Companies, Cochin only on 24th November 2009. Upto 31st December 2009, Company has maintained four sets of books of accounts and has functioned as four separate companies. On the effective date of amalgamation, i.e. 01/10/2010 three transferor companies closed the books of accounts and transferred all accounts to the transfe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (ii) That properties, rights and power as well as liabilities and duties of the transferor companies including of proceedings, amendment by or against the transferor companies were transferred to the transferee company . It has further been reported in such Annual report that The amounts as shown in the balance sheet, profit and loss account, corresponding schedules etc., including the respective figures relating to the previous year, which are formed part of the statement of accounts of the company are redrafted after incorporating events, transactions of the above merged entities with the transferee company . It is, therefore, vivid beyond an iota of doubt that merging of accounts of the other three companies with Keltron Components Complex Limited on amalgamation, got completed in an earlier year and did not have any reflection in its accounts for the year under consideration. This fact is further fortified on perusal of the Balance sheet of the company for the year under consideration also having corresponding figures as on 31.3.2009. Shareholders funds as on 31.3.2010 stands at ₹ 34.07 crore which is almost the same figure as on 31-03-2009. The am ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by impliedly accepting the functional comparability. The claim of the assessee is that Gujarat Poly AVX Electronics Limited is not a persistent loss making company as has been held by the TPO. Some calculation has been placed on record in support of the contention. In the absence of its verification done by the authorities below, we set aside the impugned order and remit the matter to the file of AO/TPO for examining if this company is really a persistent loss making company. In case it is found to be incurring losses in the year under consideration and also two or more consecutive immediately preceding years, then this company should be categorized as a persistent loss making company liable for exclusion. In the otherwise scenario, this company is directed to be included. We order accordingly. II. I.T.ENABLED SERVICES/BACK OFFICE SERVICES SEGMENT 21. The assessee provided back office services to its AEs with the transacted value of ₹ 9,88,98,418/-. It applied the Transactional Net Marginal Method (TNMM) with the Profit Level Indicator (PLI) of OP/OC. The TPO did not dispute the application of the TNMM as the most appropriate method and al ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ervices Thin film 321,490 BC components Beyschiag GmbH Support Services Resistors 5,013,669 Vishay Electronic GmbH Support Services Resistors 8,358,881 Total 98,898,419 23. As the assessee has only challenged the comparability of certain companies, we consider it expedient to first examine the nature of services rendered by the assessee in this segment. Page 4 of the TPO s order gives an overview of the services rendered by the assessee to various AEs in this segment, which have been stated to be: in the nature of Information Technology Enabled Services which, inter alia, include Accounts Receivable Processing (ARP services), Global IT Support (IT Support Services), Bill of Materials Conversion (BOMcon Services), Marketing Logistics Support services (Support services), Designing Services, Restriction of Hazardous Substance (R ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al order. Relevant discussion regarding the grant of working capital adjustment has been made in para nos. 55 to 57 of the order. Similarly qua the risk adjustment, the Tribunal vide para nos. 45 to 48 has directed the AO/TPO to allow the risk adjustment in terms of the directions given in another order mentioned therein. In the absence of any distinguishing feature having been brought to our notice by the ld. DR, respectfully following the precedent, we set-aside the impugned order and direct the AO/TPO to grant working capital adjustment and risk adjustment in the terms as discussed by the Tribunal in its order in the assessee s own case for the A.Y. 2008-09. 26. To sum up, we set-aside the impugned order and remit the matter to the file of AO/TPO for a fresh determination of the ALP of the international transactions under the Manufacturing and ITES/Back-office services segments in terms of the discussion made supra in this order. Needless to say, the assessee will be allowed a reasonable opportunity of hearing in such fresh determination. 27. Ground No.23 is against the disallowance of stock written off in Domestic Tariff Area (DTA) amountin ..... X X X X Extracts X X X X X X X X Extracts X X X X
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