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TMI Blog2021 (7) TMI 711X X X X Extracts X X X X X X X X Extracts X X X X ..... elf been treated and accepted as non-operating for self and the comparables, the same become neutral qua the computation of operating margin, leaving no room for any further adjustment. We, therefore, reject the claim of the assessee. The ground fails. Adjustment towards excess Custom duty paid on imports by it vis- -vis the comparables - HELD THAT:- There is no merit in the contention of the assessee. Ordinarily, costly purchases are coupled with the increased sale price of final products, thereby leaving the ultimate profit margin at almost the same level as that with cheap purchases. There can be no adjustment just for the assessee making more imports and consequently paying higher custom duty vis- -vis the comparables making indigenous purchases and paying no custom duty. It has not been shown that the import price of the assessee when added with custom duty was higher than the indigenous purchase price of the comparables or that the goods manufactured by it with such costly purchases were sold at same prices as the comparables. As admittedly, there is no difference in custom duty rate paid by the assessee and its comparables, there can be no question of allowing any re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... enues from 'Manufacturing segment' in totality at the entity level - HELD THAT:- This issue is fairly settled by judgment of Hon'ble jurisdictional High court in CIT Vs. Phoenix Mecano (India) Pvt. Ltd[ 2017 (6) TMI 1240 - BOMBAY HIGH COURT] holding that the transfer pricing adjustment made at entity level should be restricted to the international transactions only - We, therefore, direct the AO/TPO to restrict the transfer pricing addition to the extent of international transactions under the segment of 'Manufacturing activity'. Recomputation of losses to be carried forward in case resultant transfer pricing adjustment is less than voluntary adjustment offered in turn of income - Additional ground raised - HELD THAT:- The additional ground raised by the assessee is for allowing adjustment towards voluntary transfer pricing addition offered by the assessee in the computation of total income. In this regard, we direct the TPO to allow necessary relief qua the suo motu transfer pricing adjustment offered by the assessee, if the resultant transfer pricing addition turns out to be more than that. The transfer pricing addition made in the impugned order unde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2.99%. The gross amount of transfer pricing adjustment was accordingly worked out at ₹ 70,33,52,992. Since the assessee had already offered a voluntary transfer pricing adjustment of ₹ 20.87 crore, the TPO proposed a further adjustment of ₹ 49,46,50,386. The assessee assailed the draft order, incorporating the above transfer pricing adjustment, before the Dispute Resolution Panel (DRP). After giving effect to directions given by the DRP, the AO made a transfer pricing addition of ₹ 27,83,25,927 in the final assessment order, against which the assessee has come up in appeal before the Tribunal. A. ADJUSTMENT TOWARDS FOREIGN EXCHANGE FLUCTUATION 4.1. The assessee has raised an unusually peculiar claim against non-consideration of impact of abnormal movement in the foreign exchange rates while computing the operating profit margin. Such a claim was not made in the Transfer pricing study report and hence there is no discussion in the order of the TPO. This issue was taken up before the DRP contending that there was extraordinary movement in the rate of US dollar against Indian rupees during the year under consideration vis- -vis the preceding year, whic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the first time that the assessee raised this issue before the DRP contending that the excess custom duty paid by it on imports should be adjusted in the margin of comparables. A chart was filed before the DRP demonstrating that Action Construction Equipment Ltd., one of the comparables, had 22% imports to the total raw materials consumed; Tata Hitachi Construction Machinery Co. Ltd. at 44.78%; and JCB India Ltd. at 7.86%. As against that, the assessee's imports constituted 65% of total material consumed. In view of such higher percentage of imports to total material consumed, the assessee prayed for a suitable adjustment in the profit margin of the comparables on account of the resultant excess custom duty paid by it. This contention was repelled by the DRP, against which the assessee has approached the Tribunal. 5.2. A case has been set up that since the assessee made more imports and paid higher custom duty, its effect should be unloaded from the profit margin of comparables. On a pertinent query, it was fairly agreed that there was no difference between the rate at which custom duty was paid by the assessee and the comparables. Thus the claim of the assessee rests at its ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e companies in the list of comparables, namely, JCB Ltd. and BEML and computed the average PLI of finally selected four comparables at 2.99%. It has been noted above that the assessee, through ground Nos. 3 and 6, seeks exclusion of two companies from the list of comparables drawn by the TPO, namely, Bharat Earth Movers Limited and JCB India Limited. We will deal with them ad seriatim. I. Bharat Earth Movers Limited 7.1. The TPO included this company in the list of comparables. The assessee objected to its inclusion on the ground that it was functionally different and further it was a government company with fixed customer base. Following his order for earlier years, the TPO included it in the list of comparables. No reprieve was allowed by the Dispute Resolution Panel (DRP). The assessee has come up before the Tribunal. 7.2. It is found as an admitted position that BEML is a government company. The Mumbai Bench of the Tribunal in ThyssenKrupp Industries India Private Limited vs. Addl. CIT (ITA No. 6460/Mum/2012), vide its order dated 27.02.2013 excluded Engineers India Ltd., inter alia, on the ground that it was a Government company and profit motive can never be a rele ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .3. It is seen that JCB India Ltd. was included by the TPO in the list of comparables for the A.Y. 2011-12 also. The assessee objected to the same before the Tribunal, which upheld its inclusion by primarily noting that the nature of Manufacturing activity of the assessee matched with that of JCB India Ltd. inasmuch as both were dealing in similar products and further that the revenue from the non-manufacturing activity (Trading segment of that company along with Service charges) constituted only 0.35% of the Manufacturing revenue. Relying on the judgment in the case of CIT vs. Mercer Consulting (India) P. Ltd. (2017) 390 ITR 615 (P H), the Tribunal rejected the contention of assessee for exclusion of JCB India Ltd. by holding that its revenue from the non-manufacturing activity was just 0.35% with 99.65% of its activity similar to that of assessee. However, a direction was given to the AO/TPO for carrying out reasonably accurate adjustment to the profit of JCB India Ltd. so as to eliminate the effect of microscopic difference of the inclusion of revenue from Trading and Service segments. Relevant discussion has been made in paras 10 to 21 of the order. 8.4. The ld. AR contended ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t purchase of material and also the profit margin on their sale. The ld. AR failed to point out anywhere from the Annual report of this company that the Spare parts and components were only purchased and not manufactured and further that the amount of revenue from Spare parts and components was only from Trading sale and not the Manufacturing sales. It is just elementary that Spare parts and components go with the products finally sold, whether purchased or manufactured. On a consideration of the figures of sales, purchases and inventory of Spare parts and components, it clearly transpires that JCB India Ltd. was also into manufacturing of the Spare parts and Components and further selling the same both with the manufactured and traded products. Thus the contention of the ld. AR that the Spare parts and components were only purchased and not manufactured, fails. 8.6. Now we turn to the bifurcation of sale of Spare parts and Components pertaining to trading and manufacturing activity. As these are an integral part of the goods sold - be they manufactured or traded - we need to allocate sale of Spare parts and Components in same proportion as their respective sales. As the manufac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hen the matter came up before the Hon'ble High Court, it approved the view point of the Tribunal by holding that: 'the case could not have been rejected merely because there was a deviation of 0.55% ..... A minuscule difference cannot result in the rejection of the case if it is otherwise comparable.' Answering the apprehension of the Revenue, it was held: 'Indeed even the TPO would be entitled to refer to cases which deviate from the filter' by finally holding that: 'When export filter of 75% was applied, a little less than 75% in a case of a comparable does not make any difference, if the company is otherwise similar. It has to be accepted as comparable.' The facts of the extant case are more or less similar as the issue herein is also of selection or rejection of a comparable on the ground of an infinitesimal inclusion of about 0.87% turnover of non-manufacturing activities with the otherwise 99.13% turnover of the matching manufacturing activity. As such, we are unable to countenance the contention of the assessee for the exclusion of JCB India Ltd. on this sole reason. Following the view taken by the Tribunal in the assessee's own case for the A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ual report, is ₹ 788.40 crore and from the Trading segment is ₹ 99.46 crore (which is more than 12% of the Manufacturing segment), such two segments cannot be clubbed. The position would have been different if the assessee's Trading revenue had been negligible, like that of JCB Ltd., thereby justifying clubbing of the two. We, therefore, reject this contention. D. MISCELLANEOUS ISSUES 10.1. Ground no. 7 of the assessee's appeal is against inappropriate computation of working capital adjustment. The facts apropos this issue are that the TPO did not grant any working capital adjustment to the assessee. The DRP agreed in principle that the working capital adjustment should be allowed. It, therefore, directed the AO/TPO to grant working capital adjustment in accordance with the methodology given in Annexure to Chapter III of the OECD Transfer Pricing Guidelines, 2010. The TPO, while giving effect to the direction given by the DRP, took certain figures of opening and closing of trade receivables, trade payables and inventory and accordingly computed their average for determining the amount of working capital. The ld. AR submitted that such figures adopted by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ourt in National Thermal Power Company Ltd. Vs. CIT (1998) 229 ITR 383 (SC) has observed that the purpose of the assessment proceedings before the taxing authorities is to assess correctly the tax liability of an assessee in accordance with law. If, for example, as a result of a judicial decision given while the appeal is pending before the Tribunal, it is found that a non-taxable item is taxed or a permissible deduction is denied, we do not see any reason why the assessee should be prevented from raising that question before the Tribunal for the first time, so long as the relevant facts are on record in respect of that item . Answering the question posed before it in affirmative, their Lordships held that on the facts found by the authorities below, if a question of law arises (though not raised before the authorities) which has bearing on the tax liability of the assessee, the Tribunal has jurisdiction to examine the same. Having gone through the subject matter of the additional ground taken by the assessee, it is apparent that the same raises a pure question of law. We, therefore, admit the same and take it up for adjudication. 12.3. On merits, the additional ground raised b ..... X X X X Extracts X X X X X X X X Extracts X X X X
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