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TMI Blog2018 (4) TMI 1835X X X X Extracts X X X X X X X X Extracts X X X X ..... preceding assessment years which has not been disputed by the revenue authorities before this Tribunal - we direct Ld.TPO to consider this comparable in the final list. Yuken India Ltd - This company is engaged in manufacture of oil hydraulic equipment and the product range of this company includes power units- Parison controller, cylinders and Piston accumulators. Thus broadly it is into manufacturing activity and with TNMM as MAM to determine ALP, broad functional dissimilarities get automatically adjusted. Accordingly this comparable is directed to be included in final list of comparables. Appropriate working capital adjustment may be granted to assessee. WIPL Ltd - Merely because this company is having a huge turnover and is submitted to be having its own R D wing, cannot make it functionally dissimilar, more so when TNMM is used as the most appropriate method. This was what Ld.AR submitted while arguing comparability in case of Continental Valves Ltd. We are inclined to set aside this comparable back to Ld.TPO for due verification of functional similarities/dissimilarity of this company with that of assessee. Assessee is directed to provide entire company profile along ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e by assessee suo moto in the return of income - HELD THAT:- We agree with the proposition made by Ld.AR regarding restricting adjustment to ₹ 56,10,222/- suo moto offered by assessee, in the event adjustment to be recomputed by Ld. TPO/AO (as per the directions hereinabove) is less than ₹ 56,10,222/-. - Decided in favour of assessee. - ITA No. 7803/Del/2017 - - - Dated:- 13-4-2018 - Shri N.K.Saini, Accountant Member And Smt. Beena A Pillai, Judicial Member Appellant by: Sh. Pradeep Dinodia, C.A. and Sh. RK Kapoor Respondent by: Sh. Sanjay I Bara, CIT, DR ORDER Beena A Pillai, Present appeal has been filed by assessee against final assessment order dated 30/10/2007 passed by Ld. ITO, Ward 5 (2), New Delhi under section 143 (3) read with 144C (13) of Income Tax Act, 1961 (the Act) for assessment year 2013-14 on following grounds of appeal: 1. The Ld. Transfer Pricing Officer ('TPO')/Hon'ble Dispute Resolution Panel ('DRP') and consequently Ld. Assessing Officer ('AO') have erred in law and on facts, in making a transfer pricing ('TP') adjustment of Rs.l,42,38,110/- on account of Arm's Length Pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and ignoring that it has been rejected by the Ld. TPO himself on Turnover Filter in AY 2011-12. Thus, the Ld. TPO's approach was selective and inconsistent which is bad in law and on facts of the case. 7. Without prejudice to Ground No.4, the Ld. TPO/Hon'ble DRP and consequently Ld. AO have grossly erred in law and on facts and circumstances of the appellant's case in cherry picking new comparable Yuken India Limited ignoring the appellant's objections that the company does not meet the comparability criteria as prescribed under Rule 10.8(2) viz. R D activities, high turnover, economies of scale etc. PLI calculation not provided to appellant: 8. The Ld. TPO/Hon'ble DRP and consequently Ld. AO have grossly erred in law and on facts and circumstances of the appellant's case in neither giving the appellant complete details of the PLI recalculated by the Ld. TPO of all the companies taken in final set of comparables which is against the principle of natural justice nor considering the detailed calculation of the PLI submitted by the appellant which is bad in the facts and circumstances of the appellant's case. Incorrect calculation of Operatin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ount-(Rs.) Purchase of raw materials, components and spares 10,33,78,244 Sale of finished goods 1,03,40,906 Purchase of capital goods 73,550 License fees for trade mark 24,60,479 Service provided commercial services 1,74,025 Management services 20,54,450 Software maintenance services 2,23,345 Issue of equity shares (share application money received) 10,00,00,000 Reimbursement of exhibition expenditure (receivable) 9,42,979 Reimbursement of other expenditure (receivable) 1,98,390 2.2. Ld.TPO observed that assessee voluntarily made adjustment of ₹ 56,10,221/- to actual price of international transaction. Assessee in TP report used TNMM as most appropriate method for computing ALP of international transactions by using OP/Net sales as PLI and margin was computed at 3.83%. 2.3. There w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he list of comparables; objection against cherry picking of companies as comparables; computation of incorrect PLI s by using OP/net sales in the case of Continental Valves Ltd; ignoring the voluntary transfer pricing adjustment offered by assessee and the value of international transaction. 3.1. DRP, though upheld adjustment proposed by Ld. TPO, but directed to treat foreign exchange gain/loss as operating item and provision of bad debts and bank charges/fixed interest as nonoperating items for computing PLI of assessee as well as of comparables. 3.2. Ld.AO while giving effect to directions of DRP, was unable to determine whether adjustment granted by DRP has been provided or not since PLI computation in respect of comparables were not provided to assessee. 4. Aggrieved by the final assessment order, assessee is in appeal before us now. 4.1. Ground No. 1 and 2 raised by assessee are general in nature and therefore do not require any adjudication. 5. Ground No. 3 is in respect of erroneous rejection of the comparable Continental Valves Ltd., on account of failing low turnover filter of ₹ 5 crore applied by Ld. TPO. 5.1. Ld.AR submitted that th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as under: Continental valves Ltd was accepted as a suitable comparable in assessment year 2011-12 by the TPO. The TPO has not specified any change in circumstances on the basis of which this comparables should be rejected as a suitable comparable in the year under consideration. Further companies for performing similar functions that is manufacturing valves has been accepted as valid comparable by the TPO. The TPO is therefore directed to treat this company as a suitable comparable during the year under consideration. 5.5. Further on perusal of the order by Ld.TPO for the year under consideration it is observed that he has nowhere disputed functional dissimilarity of this comparable with that of assessee. Even for the year under consideration this company is carrying on with similar manufacturing activity. 5.6. We therefore do not find any reason to reject this comparable from the final list more so when it has already been accepted by the authorities below in the immediately preceding assessment years which has not been disputed by the revenue authorities before this Tribunal. Accordingly we direct Ld.TPO to consider this comparable in the final list. Accordingly ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... en submitted by Ld.AR in respect of this comparable in so far as the financial/segmental information is concerned. Ld.TPO in his order categorised this company to be engaged in manufacturing activity. Merely because this company is having a huge turnover and is submitted to be having its own R D wing, cannot make it functionally dissimilar, more so when TNMM is used as the most appropriate method. This was what Ld.AR submitted while arguing comparability in case of Continental Valves Ltd. 6.5. We are inclined to set aside this comparable back to Ld.TPO for due verification of functional similarities/dissimilarity of this company with that of assessee. Assessee is directed to provide entire company profile along with its full financials to Ld. TPO for the year under consideration. Ld. TPO shall then verify and compare the functional similarity of the manufacturing segment undertaken by this comparable with that of assessee to consider/reject this company for the purposes of determining ALP of international transaction. 6.6. Dynamatic Technologies Ltd. Ld.AR submits that this company has huge turnover of ₹ 406.22 crores during the year under consideration which is 20 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es who gives better output as well as a better position to bargain price to attract customers, as compared to small company which do not have such benefits which in turn affects turnover due to low profit margin. 6.11. We have perused the decision relied upon by Ld.AR. It is observed that Ld.AR did not dispute functional dissimilarity between the assessee with WIPL Ltd., Dynamatic Technologies that have been argued for exclusion due to high turnover. As observed hereinabove, we do not have before us financials and complete functional profile of these comparables in the paper book and are unable to ascertain authenticity of arguments advanced by Ld.AR. Further we are unable to ascertain whether there are any segmental information in respect of manufacturing segment undertaken by these comparables and the risk assumed by these comparables to be compared with that of assessee, which is an important factor that could affect the turnover of companies. Therefore in our considered opinion Ld.TPO shall verify from the records placed by assessee as directed hereinabove. We also direct Ld.TPO to decide comparability of these companies, with that of assessee by taking into consideration ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessee stands allowed for statistical purposes. 8. Ground No. 9-10 These grounds have been raised by assessee against incorrect calculation of operating cost and operating revenue of assessee. 8.1. Ld.AR submitted that Ld. TPO has inadvertently considered figure of total expenses of ₹ 20,56,35,378/-instead of actual operating cost being ₹ 20,48,90,405/-. He referred to page No. 287 and 296 of paper book, in order to demonstrate the mistake. Ld.AR submitted that Ld. TPO has erroneously computed arm s length by considering total expenses instead of operating cost. He submitted that Ld. TPO/AO considered total revenue amounting to ₹ 20,82,34,754/- for calculation of transfer pricing adjustment instead of operating revenue amounting to ₹ 20,77,65,823/-. 8.2. Ld. CIT DR submitted that the issue may be sent back to Ld. AO for reworking of adjustment by considering correct figures. 8.3. We have perused the submissions advanced by both the sides in the light of the records placed before us. 8.4. Ld.TPO is directed to look into the computation and adopt correct figures as per law. Assessee is thus directed to provide all necessary details for purpos ..... X X X X Extracts X X X X X X X X Extracts X X X X
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