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TMI Blog2019 (6) TMI 1627X X X X Extracts X X X X X X X X Extracts X X X X ..... eing heard to the assessee. Non-availability of authentic bifurcation of the transactions between the AE and Non-AE - inappropriate computation of transfer pricing adjustment on the total turnover of the assessee from manufacturing operations instead of adjustments, if any only on the value of international transactions pertaining to manufacturing operations - HELD THAT:- Transfer pricing adjustments should be restricted to the value of the international transactions. Since this is a case of import transactions, we agree with the assessee and direct that the transfer pricing adjustments should be restricted to the value of the international transactions. Hence, this objection of the assessee is accepted. - ITA No. 565/PUN/2015, ITA No. 644/PUN/2015 - - - Dated:- 11-6-2019 - SHRI R.S. SYAL, VP AND SHRI PARTHA SARAANTHD I CHAUDHURY, JM For the Assessee : Shri M. P. Lohia Shri Rajendra Agiwal For the Revenue : Shri Shivraj B. Morey, CIT ORDER PER PARTHA SARATHI CHAUDHURY, JM : These cross appeals preferred by the assessee as well as by the Revenue emanates from the orders of the DRP/Assessing Officer dated 23.12.2014 and 27.02.2015 for the assessme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Erred on the facts and in circumstances of the case by inappropriately rejecting the methodology adopted by the Appellant for carrying out capacity utilization adjustment to the operating profit margins of comparable companies. Without prejudice to the above, erred on the facts and in circumstances of the case by inappropriately not considering capacity utilization adjustment using alternative method. 5 Inappropriate initiation of penalty proceedings under section 271(l)(c) of the Act Without prejudice to the above grounds of appeal, erred on the facts and in law by proposing to initiate penalty proceedings under section 274 of the Act read with section 271(1)(c) of the Act, without considering the fact that, adjustment to transfer price is on account of difference of opinion which has consequently resulted in adjustment to the income of the Appellant. Additional grounds of appeal 6 JCB India Limited, not a comparable company Based on the facts and circumstances of the case, JCB India Limited is functionally different and accordingly, should not be considered as comparable to the manufacturing operations of the Appellant for FY 2009-10. 7 Action Construction Equip ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n, the assessee was providing services to its parent company in Germany and was a limited scope service provider. The assessee adopted TNMM method as the most appropriate method to benchmark its international transactions and had applied PLI of OP/OC. For benchmarking the said transactions, the TPO had selected certain concerns as comparable. Out of five external comparables selected, the TPO finally taken M/s. Kitco Ltd., M/s. Water Power Consultancy Services (India) Ltd. and M/s. Engineers India Ltd. The assessee is aggrieved by the inclusion of said three concerns in the final set of comparables, wherein the said three concerns were Public Sector Enterprises providing consultancy and end to end solutions to government and other companies. The said concerns i.e. WAPCOS is a Mini Ratna - I Public Sector Enterprise; Engineers India Ltd. was a Government of India Enterprise and became Public Listed Company in 1996 and KITCO was established in 1972 by IDBI, Government of Kerala, seven Public Sector Banks and other National and State level financial institutions, to provide technical assistance and consultancy. We find merit in the plea of the assessee that where the concerns were w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nkey projects arose out of executing projects of public sector undertakings, it could not be considered to be comparable to assessee-company providing turnkey services to its AE as contracts between Public Sector undertakings were not driven by profit motive alone but other consideration also weigh in such as discharge of social obligations etc. 15. Therefore, the decisions of the CIT(A), Assessing Officer and the TPO are required to be reversed. Considering the relief granted to the assessee, we find it relevant to not go into the other arguments relating to the functional test of BEML and other arguments raised by the assessee s AR. Accordingly, ground no.2 is allowed without going into the merits of the function test. Thus, ground no.2 is allowed. 5. Ld. DR, per contra, placed strong reliance on the orders of the subordinate authorities though principally agreeing that the issue is covered in assessee s own case as stated by the ld. AR. 6. We have perused the case records and heard the rival contentions. We observe that the issue is squarely covered in favour of the assessee by assessee s own case for assessment year 2009-10 in ITA No.1472/PUN/2015 (supra) wherein it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the adjustment on account of the low capacity utilization as under :- It is submitted that the capacity utilization in case of assessee this year in respect of manufacturing activity is only 4.50%, it has accordingly made adjustments to the PLI of the comparables whose capacity utilization is higher. In the show cause notice the assessee was informed that any adjustment can be made as per IT Rules only if there are material differences that affect prices of transactions and reasonably accurate adjustments can be made to eliminate these differences. In the reply, the assessee has side stepped the question as to how low capacity utilization affects the price of the transactions. Assessee has merely stated that capacity utilization is different. Second, as regard the reported capacity utilization which is more than 100% in the case of comparable, leading to doubts on the reliability of installed capacity figure and the corresponding capacity utilization, the assessee in its reply has merely reiterated that the figures should be accepted as reliable and that this is the only information in public domain. The assessee in its TP report has claimed capacity utilization adjustments ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hout prejudice to the argument as a full-fledged manufacturer carrying risk relating to capacity utilization, and hence adjustment is not demonstrated as warranted, the effect of difference in capacity utilization is eliminated by treating the depreciation expenses in case of each comparable as fixed costs, and computing the contribution at different level of capacity utilization. Accordingly, the adjusted PLI is determined adjusting for difference in capacity utilization in each case by comparing it with the assessee. 33. Questioning the method adopted by the TPO in the present case, ld. AR for the assessee made various submissions in this regard and the same are extracted in para 2.3.2 of the order of the CIT(A). In the said submission, the assessee sought a direction from the CIT(A) to the Assessing Officer to accept the method used by the assessee to carry out capacity utilization adjustment to the operating margins of the comparable companies identified by the assessee. The CIT(A) considering the same and directed the Assessing Officer to grant the capacity utilization adjustment by computing the formula specified in page 113 in the Book published by the Chamber of Tax ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he total turnover of the assessee from manufacturing operations instead of adjustments, if any only on the value of international transactions pertaining to manufacturing operations. The assessee filed the grievance before the DRP that the TPO while making the adjustments to the international transactions pertaining to manufacturing operations had computed the adjustments on the total operating income of Hyundai India from manufacturing operations instead of only the value of international transactions pertaining to manufacturing operations. Thus, the TPO has made an adjustment even on the international transactions accepted at arm s length price and the transactions other than international transactions beyond his jurisdiction. Aggrieved, the assessee preferred appeal before the DRP. The assessee requested that the transfer pricing adjustment should be restricted to the value of international transactions for which assessee relied on various judicial decisions such as :- (i) Demag Cranes Components (India) Pvt. Ltd. ITA No.120/PN/2011. (ii) DCIT, Mumbai vs. M/s. Starlite (2010-TII-28-ITAT-MUM-TP). (iii) Abhishek Auto Industries Ltd. vs. DCIT, New Delhi (2010-TII-54- I ..... X X X X Extracts X X X X X X X X Extracts X X X X
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