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TMI Blog2020 (10) TMI 1147X X X X Extracts X X X X X X X X Extracts X X X X ..... erences and also on being functionally not comparable to the assessee. Computation of PLI of the comparable - assessee states that the TPO did not provide the calculation of the PLIs of the comparable companies - HELD THAT:- As before DRP, the same along with annual report were filed, which was rejected on the ground that the assessee had not given required data and valid reason for difference in margin. We are of the view that where the annual reports are available in public domain then the PLIs are to be computed based on such annual reports. The AO/TPO is thus directed to verify the correctness of the PLIs from the annual reports and revise the average of the PLIs of the finally selected comparables. Consequently, the ground of appeal no.5 and additional ground of appeal no.14 are allowed. Exclude the foreign exchange fluctuation cost while computing the PLI of the assessee - Case followed MERCEDES-BENZ INDIA PVT. LTD. [ 2019 (8) TMI 443 - ITAT PUNE] Whether TP adjustment is not made in proportion to value of international transaction? - Tribunal in Assessment Year 2013-14 had also given similar directions and the same may be adopted. We find merit in the plea of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on audited financials of said companies. The Ld. TPO has grossly erred in not providing the computation of the PLI of aforesaid comparables such that the assessee might have placed its objections before ld TPO. Rejection of Comparable by ld TPO: 6. The Ld. TPO/Dl\P and consequently Ld AO have grossly erred in rejecting Hawa Engineers Ltd., as a comparable company, without considering the FAR Analysis provided by the assessee. Cherry picking of comparables: 7. The Ld. TPO/DRP and consequently Ld AO have grossly erred in cherry picking new companies viz. Yuken India Ltd. and WPIL Ltd. as comparables ignoring the assessee's objections that such companies does not meet the comparability criteria as prescribed under Rule 10B(2) viz difference in product, R D activities, economies of scale etc. Rejection of adjustment as permitted by Rule 10B(3): 8. The Ld. TPO/DRP and consequently Ld. AO have grossly erred in rejecting the import fluctuation adjustment under Rule 10B(3) on account of exchange rate fluctuation while applying the TNMM. Voluntary transfer pricing adjustment made by the assessee 9. The Ld. TPO and consequently ld AO have grossly ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent made to the tune of ₹ 2.26 Crores. The Ld. AR for the assessee pointed out that vide ground of appeal no.7, issue which is raised is of rejection of two comparables. The assessee is aggrieved by the inclusion of M/s. Yuken India Ltd. and WPIL Ltd. on the ground that these are giant companies with R D functions and are not comparable to the assessee having turnover of ₹ 17.87 Crores. The assessee has also raised certain issues on the computation of the operating income. Further, additional grounds of appeals are against TP adjustment. Vide ground no appeal no.11, the assessee is also aggrieved by the absence of directions on account of carry forward/brought forward loss and unabsorbed depreciation. The assessee has filed written submissions, which are taken on record. 4. The Ld. DR for the Revenue has placed reliance on the orders of the authorities below and have referred to the directions given by the DRP in this regard. It is pointed out that where the TPO had applied filter of ₹ 5 Crores and above, the two concerns M/s. Yuken India Ltd. and WPIL Ltd. were selected for inclusion. About the additional ground of appeal raised by the assessee, it was stres ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The Ld. AR for the assessee pointed out that the international transactions from year to year were same; even the AEs were same and in all the years TNMM method was applied. He then pointed out that even after orders of the Tribunal, no adjustment has been made. However, the TPO has ignored all of them. He also pointed out that the assessee had made voluntary TP adjustment of ₹ 39,65,940/- which has not been referred to. The Ld. AR for the assessee stressed that there was no merit in applying CUP method for making adjustment in the hands of the assessee. 6. Another issue which is raised by the Ld. AR for the assessee was that the AO/TPO has not restricted the adjustments to the value of international transaction but has made the adjustment on the entire transactions. 7. The Ld. DR for the Revenue strongly opposed the submissions of the assessee and pointed out that the orders subsequent to the year under consideration were not relevant for deciding the issue in the present appeal. He also pointed out that the DRP gave directions under para 11 at page 40 onwards of the order and TNMM method had been applied. The Ld. AR for the assessee however objected and stated that th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nction. Both Yuken India Ltd. and WPIL Limited in their financial statement have reported that the said companies were carrying out continuous R D for development of new projects. 10. The Hon ble Delhi High Court in Agnity India Technologies [2013] 262 CTR 291 (Del.) and Hon ble Bombay High Court in Pentair Water India [TS- 566-HC-2015(BOM)-TP] have held that turnover is a relevant factor to consider the comparability of any company. The Hon ble Delhi High Court in the case of Sanvih Info Group Pvt. Ltd.(earlier known as Oks Span Tech Pvt. Ltd./Sanvih Info)[TS-439-HC-2019(Del.)-TP], have held as under:- 8. It appears that the comparable discussed in Agnity India Technologies Pvt. Ltd. (supra) which was sought to be excluded was an Infosys Group Company which undoubtedly was 'a giant corporation'. On the other hand, in Chrys Capital Investment Advisors India (P.) Ltd. the three comparables included were Brescon Corporate Advisors Limited, Keynote Corporate Services Limited and Khandwala Securities Limited and the rejected comparables were IDFC Investment Advisors Ltd., Sumedha Fiscal Services Limited and Future Capital Holdings Limited. Clearly therefore none of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Assessee (INR) 1 Export Sales of products (A) 45,95,89,953 92,61,874 2 Total Revenue from Operations(B) 76,27,92,101 17,87,07,940 Export Turnover Ration (A/B) 60,25% 5.18% 14. The next aspect, which is pointed out by the assessee is that Roto Pumps had different business model as it has different product segment of spare parts; the break up of the export sales for the year are as under:- Particulars FY 2011-12 (INR) Exports of goods Pumps 22,90,91,063 Spares 23,04,98,890 Total export Sales 45,95,89,953 Spares Sales/Total Export Sales 50.15% 15. First of all, we find support from ratio laid down by the Hon ble Punjab Haryana High Court in CIT-II vs Quark S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is allowed. 17. Ground of appeal no.6 raised by the assessee is not pressed, hence dismissed as not pressed. 18. Now, coming to the ground of appeal no. 5 and the additional ground of appeal no.14, wherein, the grievance of the assessee is that the AO/TPO has incorrectly computed the PLI of the comparable. As per Rule10B(4) read with Rule 10D of I.T. Rules, the PLIs are to be calculated based on the annual report of the company as available in the public domain. The assessee states that the TPO did not provide the calculation of the PLIs of the comparable companies and hence, no objections were filed before him. However, before DRP, the same along with annual report were filed, which was rejected on the ground that the assessee had not given required data and valid reason for difference in margin. We are of the view that where the annual reports are available in public domain then the PLIs are to be computed based on such annual reports. The AO/TPO is thus directed to verify the correctness of the PLIs from the annual reports and revise the average of the PLIs of the finally selected comparables. Consequently, the ground of appeal no.5 and additional ground of appeal no.14 ar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... direct the Assessing Officer/TPO to exclude the foreign exchange fluctuation cost while computing the PLI of the assessee. 23. Vide ground of appeal no.9, the limited grievance of the assessee is that the voluntary transfer pricing adjustment offered by the assessee should be considered. The assessee had offered a sum of ₹ 39,65,940/- which needs to be taken into account in case any transfer pricing adjustment is made in the hands of the assessee. Accordingly, we hold so. 24. Now, coming to the last issue of transfer pricing provision i.e. the grievance of the assessee that TP adjustment is not made in proportion to value of international transaction. The case of the assessee is that the DRP had allowed the said ground of appeal but the Assessing Officer had not followed the directions of the DRP. However, the Tribunal in Assessment Year 2013-14 had also given similar directions and the same may be adopted. We find merit in the plea of the assessee and following the ratio laid down by the Tribunal in assessee s own case for Assessment Year 2013-14 in ITA No.7803/Del/2017, order dated 13.04.2018, we direct the Assessing Officer accordingly to recompute if any. 25. No ..... X X X X Extracts X X X X X X X X Extracts X X X X
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