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TMI Blog2021 (10) TMI 955X X X X Extracts X X X X X X X X Extracts X X X X ..... s. In the present case, this is first year of operation; the appellant does not have its own manufacturing facilities and is purely operating in domestic market. In our considered view, these factors certainly would have substantially impact on the profit margin of the assessee. Therefore, findings of the authorities below cannot be sustained under the facts and circumstances of the present case. The impugned order is therefore hereby set-aside and the issue of computation of Arm's Length Price is restored to the file of the Assessing Officer. The Assessing Officer would refer the matter to the TPO for making search for fresh set of comparables, who accordingly, recommend the computation of Arm's Length Price afresh. The grounds raised by the assessee are allowed for statistical purpose only. - ITA No. 1669/DEL/2017 - - - Dated:- 13-10-2021 - R. K. Panda , Member ( A ) And Kul Bharat , Member ( J ) For the Appellant : Saweta Gupta, AR For the Respondents : Vijay Choudhary, Sr. DR ORDER Per Kul Bharat, JM This appeal filed by the assessee is directed against the order dated 16.09.2016 of the learned CIT(A)-44, New Delhi, relating to Assessment Ye ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... operations and earning low Gross margin as compared to the comparable companies. 8. Without prejudice to the above and in law and on facts and circumstances of the case, the Ld. CIT (A) has erred on law by not granting the Appellant the option to chose a price that falls within +/- 5% range of the arithmetic mean of the comparables, as contemplated under the proviso to section 92C(2) of the Act. 9. In law and on facts and circumstances of the case the Appellant in the interest of justice, may be allowed to adduce additional evidence as may be necessary in support of the grounds raised hereinabove after following due procedures laid down in the Income Tax (Appellate Tribunals) Rules, 1963 . 2. The facts giving rise to the present appeal are that the assessee company filed its return of income on 30.11.2011 declaring a loss of ₹ 7,59,41,961/-. The assessee was incorporated on June 2009. It is currently engaged in the manufacturing of suspension of products (shock absorbers and strut modules). The current financial year (i.e. Financial Year 2010-11) is the first full year of operations and the company was still in the process of setting up its full fledged operati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pricing are being disposed of together. 9. The ld. counsel for the assessee has filed written submissions. The gist of the submissions of the assessee in brief are that for the purposes of computation of Arm's Length Price of the impugned international transaction, the assessee in its transfer pricing study relied upon Transactional Net Margin Method ( TNMM ) by considering AEs as tested party. The appellant applied operating profit (OP) earned by the AE from the international transaction by net cost as the relevant Profit Level Indicator ( PLI ). On the basis of functional, assets and risk analysis of the transaction, AEs of the assessee was characterized as manufacturer of goods assuming less than normal risks associated with carrying out such a business. Thus, it was selected as the tested party since they are the least complex of the controlled tax payers. To obtain a benchmark of comparable companies for the AEs of the appellant, Osiris Database, a search engine covering financial and business data for companies operating across the globe was used for the transactions of receipt of engineering support services and administrative support services. The arithmetic mean OP ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... verifiable with any statutory Courts. 11. In rejoinder, the Ld. counsel for the assessee submitted that for an entity selected as a tested party, reliable information regarding its comparable should be available in public domain. It was further submitted that the assessee had outsourced all the manufacturing process since the appellant performed very little functions for manufacturing process. The assessee was not able to identify that there existed similar third party arrangements due to limited data availability in public domain. Further, the comparables as proposed by Ld. TPO vide his order dated 29.12.2014 were completely functionally different to the appellant as those comparables are involved in full fledged in-house manufacturing which is evident from their annual reports as enclosed with the Paper Book. On the other hand, the assessee has outsourced its manufacturing function to Delphi India. He submitted that the authorities below failed to appreciate that there would be certainly impact on profit margin if the manufacturing is carried out by self and it is outsourced. Further, due to lack of reliable comparable data, the appellant could not be taken as a tested party f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... comparables reliable and verifiable data should not be present. The Ld. AR is arguing that the appellant is performing simpler task. In subsequent grounds of appeal the Ld. AR has taken the stand that the appellant is in nascent stage therefore, conducting manufacturing process as 3rd party contract manufacturers therefore, during this stage the appellant is completely dependant on its AE for technology trade norms and technology guidelines for its operation. Appellant only does not take selling and marketing support and technology support from its AE but also imports vital raw materials from the AE. BWI Group is old establishment in automobile-sector therefore, the function performed by these AEs for manufacturing of parts used by the appellant as raw materials cannot be said as simpler task just because those intermediate products are used by appellant as raw materials. The expenditure of the appellant is on the use of trade mark and technology expertise of the AE therefore, I am not convinced that the appellant is performing simpler function compare to its AE. Further, Ld. AR has not provided complete and reliable data in respect of its AE for bench marking the internationa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ess than 20% of the turnover. Therefore in my view small portion of export turnover, will not effect the change in the functionality which warrants exclusion of these comparables. As a result I approve all the three comparables in the final list. Accordingly, this grounds of appeal is dismissed. 14. We find merit into the contention of the learned counsel for the assessee that comparables selected by the TPO are functionally different on account of the fact that the assessee did not have its own manufacturing facility, the business model of the assessee is quite different coupled with fact that the appellant is operating only in domestic market whereas the comparables namely Rane (Madras) Limited and Gabriel India Ltd. had sufficient export turnover. We are conscious of the fact that two companies cannot be compared with accurate arithmetic precision; however, the factors that would influence the profit margin substantially should be kept in mind while rejecting the comparables. In the present case, this is first year of operation; the appellant does not have its own manufacturing facilities and is purely operating in domestic market. In our considered view, these factors cert ..... X X X X Extracts X X X X X X X X Extracts X X X X
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