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TMI Blog2023 (1) TMI 159X X X X Extracts X X X X X X X X Extracts X X X X ..... Pricing Officer (TPO) for determining the Arm's Length Price (ALP) of the international transactions. The assessee had international transactions under the three segments, viz., Assembly/Manufacturing; Trading; and Commission. It prepared a consolidated set of books of account for all the segments. However, for the purpose of the ALP determination, the assessee bifurcated its financials into the above referred three segments. The figures of revenue, separately available, were adopted as such and the combined expenses were allocated to the three segments by using different allocation keys, such as, rent base; employee cost base; and GP ratio base. 3. The first grievance in this appeal is against the transfer pricing adjustment of Rs.1,02,24,209/- made by the AO in the `Trading segment'. This segment consisted of the international transaction of 'Purchase of traded goods' at transacted value of Rs.19,37,32,319. The assessee benchmarked it by using the Resale Price Method (RPM) as the most appropriate method. The TPO observed that the assessee did not provide any rational basis for applying the allocation keys for bifurcating combined expenses under different segments. Rejecting suc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing the price at which the property purchased by an The ALP determination under is resold. Name of this method - `Resale'- and its text specifically deal with a situation in which a property purchased or service obtained by an Indian enterprise from an Associated Enterprise is resold or provided to an unrelated enterprise as such without doing any alternation to its features or characteristics. In contrast, the TNMM under Rule 10B(1)(e) contains a mechanism for computing operating margin realised by an enterprise from an international transaction and then comparing it with similar operating profit margin realised in Comparable Uncontrolled transaction. Unlike the RPM dealing specifically with the international transaction of purchase of goods or services, the TNMM is not a transaction-specific and provides for the ALP determination in a generalised manner. It goes without saying that if a particular method deals with a specific nature of transaction, then, such particular method should be preferred over a general method for that specific transaction. On a comparative study of both the methods, it gets vivid that where a certain property is purchased by an Indian enterprise from its ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ified in applying the TNMM as the most appropriate method as against the RPM. The impugned order is set aside on this score and the matter is sent back to the file of the AO/TPO for re-determining the ALP of the `Trading segment' under the RPM with the comparables and allocation of expenses as finally approved by the DRP. Needless to say, the assessee will be allowed reasonable opportunity of hearing in such fresh determination. 8. The second issue raised by the assessee is against the transfer pricing adjustment of Rs.1,11,94,115/- made by the AO in the `Manufacturing segment'. 9. The facts anent to this point are that the assessee applied the TNMM with eight comparables for demonstrating that the ALP of the international transactions under the `Assembly/Manufacturing' segment was at ALP. The TPO did not disturb the application of the TNMM as the most appropriate method. However, taking into consideration the allocation of expenses done by him on the basis of revenue, the TPO proceeded to determine the ALP of this segment. He retained only one comparable from the assessee's list, namely, Kusum Electrical Industries Limited and rejected all others. Thereafter, he selected other n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s were doing the job of assembling, who were not highly skilled or professionally qualified. The assessee submitted a list of its employees engaged in manufacturing segment with their respective designations and the nature of work done by them by clearly mentioning that only three Technicians were involved into assembly function and all others were into sales activity of the assembled products. The assessee made extensive submissions before the DRP to accentuate that it was only into 'Assembly' and not 'Manufacturing'. The DRP, after religiously recording the submissions of the asssessee, simply went ahead with countenancing the TPO's view without properly controverting the contentions advanced. As against the specific points raised by the assessee, the DRP canvassed a general view that the claims made by the assessee were not backed by any substantive material and further the evidence, if any, furnished were only self-serving in nature. It did not deny that the assessee did not have adequate machinery for full-fledged manufacturing activity. It focussed on the payment of Excise duty by the assessee as a corollary for `manufacturing'. Per contra, the ld. AR submitted that Excise du ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssailed submissions made by the assessee, which are further backed by the relevant Annual accounts, have to be accepted as correct. Ex consequenti, recharacterising the `assembly' function of the assessee into `fullfledged manufacturing' function is uncalled for. We, therefore, overturn the impugned order on this score and hold that the assessee has been engaged in basic assembly function only. 14. Having determined the nature of work done by the assessee under this segment, we now move on to the challenged comparables. In this regard, it is noted that the DRP finalised seven comparables including the one selected by the assessee and not removed by the TPO, namely, Kusum Electrical Industries.The assessee is aggrieved by the inclusion of all the six comparables chose by the TPO, which we will deal in seriatim. Mettler Toledo India Pvt. Ltd. 15. This company was chosen by the TPO as a comparable. The assessee objected to its comparability before the DRP contending that it was having Related Party Transactions (RPTs) at more than 25%, which was the filter applied by the TPO. The DRP directed that for computing the percentage of related party transactions, only RPTs of income natu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... enses incurred by it, which fails the RPT filter notwithstanding the fact that the percentage of the RPTs of the revenue items is way below 25%. We, ergo, direct to exclude this company from the list of comparables. Avery India Ltd. 18. This company was included by the TPO in the list of comparables. The assessee contended before the DRP that it was into full-fledged manufacturing of Weighing machines having high intensity of functions such as Research & Development and hence, ceased to be comparable. Rejecting the assessee's contention, the DRP approved its inclusion. 19. While discussing supra the nature of business carried out by the assessee, we have held that it is only into low-end assembly functions. In that view of the matter, the assessee cannot be compared with the companies involved into full-fledged manufacturing activity. 20. Turning to the facts of this company, we find that it is into manufacturing weighing machines and has also undertaken contracts. 77% of its revenue is from manufacturing and 23% from contracts. The very fact that this company is engaged into manufacturing of weighing machines and not into any basic level assembly, we hold that it cannot be co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 26. We have gone through the Annual report of this company, which shows that it is engaged in the business of manufacturing, marketing and servicing of road and rail weigh bridges, in-motion electronic weighing systems and other weighing systems mainly used in industrial activities, bulk material handling systems and batching systems. This company also earns royalty income which shows that it has developed its own technical know-how that has been provided to others on payment basis. In addition, this company is also engaged in Research & Development for which it has spent substantial amount. The above distinguishing features make this company incomparable to the assessee company. We, therefore, order for its exclusion. Precia Molen India Pvt. Ltd. 27. The TPO included this company in the list of comparables. The assessee objected to its inclusion by submitting that it was into full-fledged manufacturing, which did not convince the DRP. After going through the Annual report of this company, it can be seen that it is engaged in the manufacturing and marketing of electronic weighing systems having huge intensity plant and machinery. This company is also paying royalty for use of t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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