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TMI Blog2022 (2) TMI 1361X X X X Extracts X X X X X X X X Extracts X X X X ..... bundantly clear from the annual report of this company that this company namely Uniklinger is not engaged in the automotive industry and has a completely different product profile. Therefore, we are of the view that this company is functionally not comparable to the assessee and, therefore, we direct the TPO to exclude this company from comparables. Talbros Automobile Ltd. - Comparable company entering into joint venture agreement and also transferring its assets to the JV Company it can be viewed that there is an extraordinary event has taken place. Further there are no segmental accounts available to establish separately the profitability from manufacturing of auto components and rendering of IT Services. In the circumstances this company cannot be considered as comparable company and accordingly, we direct the TPO to exclude this company from the comparables. TPO excluded KMA Auto Components P. Ltd. and ANU Industries Ltd. from the list of comparable companies for the reason that annual reports/P L Accounts are not available - TPO should re-examine these two comparables viz-a-viz the annual reports and give a fresh look into these comparables and decide afresh as to whet ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... come: - 3. Ld. Counsel submits that in order to bench mark its international transaction in the course of assessment proceedings the assessee conducted fresh search and arrived at a set off comparables. The Ld. Counsel submits that TPO insisted that depreciation adjustment should be carried out on profit margins of comparables and not the assessee company. Therefore, the depreciation and working capital adjusted margins were furnished for the following fresh search comparables:- 4. The Ld. Counsel submits that assessee earned net operating margin of Rs. (-1.07)% without depreciation adjustment. However, the mean operating profit margin of comparables undertaking similar manufacturing activity was (-0.92)% after making depreciation and working capital adjustment. Therefore, it is submitted that relying on the (+/-)5% range benefit under proviso to section 92C(2) the assessee demonstrated that its international transaction are at arm s length by applying TNMM. The Ld. Counsel for the assessee submits that the Ld. TPO allowed depreciation adjustment on the comparables. However, he disallowed working capital adjustment on the ground that computation/data on same ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ation adjustment. 7. We have heard the rival submissions perused the orders of the authorities below and the decisions relied upon. From the record placed before us, we observe that the claim for depreciation adjustment was allowed to the assessee by the DRP for the AY 2013-14 in its directions dated 22.09.2017. However, it is the finding of the DRP for the assessment year under consideration in its directions dated 18.11.2016 is that in the preceding previous year relevant to AY 2011-12 the claim of the assessee for depreciation adjustment was denied by the Ld. TPO and this was upheld by the DRP. We have also gone through the judgments relied upon by the Ld. Counsel on this issue. 8. In the case of the Honda Motor Cycle and Scooter India Pvt. Ltd. vs. ACIT 56 taxmann.com 237 it was held that where there was difference in rates of depreciation charged by comparables viz-a-viz assessee suitable adjustment was to be made to profits of comparables. While holding so the Tribunal observed as under: 9. Similarly in the case of DCIT vs. Sumi Motherson Innovative Engineering Ltd. 2014 (30) ITR (Trib) 367(Delhi) the Tribunal observed as under: 10. In the case of E ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s placed on the following decisions: - 1. M/s Adoptic India Pvt. Ltd. Vs. ITO 54 taxmann.com 55 (Hyderabad Trib.). 2. Capital IQ Information Systems (India) Pvt. Ltd. vs. DCIT 32 taxmann.com 2 (Hyderabad Trib.). 3. Ameri Prise India Pvt. Ltd. vs. DCIT 53 taxmann.com 136 (Delhi Trib.). 14. On the other hand, the Ld. DR strongly placed reliance on the orders of the DRP. 15. Heard rival submissions, perused the orders of the DRP and the material placed before us. Coming to Uniklinger Ltd. we have perused the annual report of the company which is placed at pages 971 to 1008 of the compilation. In the notes to financial statements for the year ended 31.03.2012 under the head Revenue from operations it is seen that this company is deriving income from sale of fluid control products, sale of jointing sheets, sale of fluid seiling products. Further, in the segment reporting the company stated that it is in the business of manufacturing and sale of fluid control products and fluid seiling products. Therefore, it is abundantly clear from the annual report of this company that this company namely Uniklinger is not engaged in the automotive industry and has a completely ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ity. The Ld. Counsel for the assessee submits that the TPO never objected on functional comparability but excluded on the ground that annual reports are not available. The Ld. Counsel for the assessee further submits that functional comparability of these comparables was established by the assessee before the TPO as well as the DRP. The Ld. Counsel for the assessee submits that both these comparable companies KMA Auto Components Pvt. Ltd. and ANU Industries Ltd. are engaged only in the business of manufacturing of Auto Components. Ld. Counsel submits that ANU Industries Ltd. is manufacturing ignition coils, actuators, relay assembly starters, relays etc. for cars and two wheelers. As per their web site which is placed at pages 1070 and 1071 the Ld. Counsel submits that the TPO may verify the financials of these two comparables which are in public domain and may be considered these two companies as comparables. On the other hand, DR has no serious objection in examining the data of these two companies for the purpose of considering these two companies as forming part of final set of comparables. 22. We have heard rival contention perused the orders of the authorities below. We se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o carry out the directions of the DRP for granting working capital adjustment. We order accordingly. Grounds are allowed for statistical purpose. 27. Ground no. 6.1 of grounds of appeal which relates to Corporate Tax Issues i.e. allowability of R D Cess as an admissible expense the Ld. Counsel for the assessee submits that the AO rejected the claim of the assessee for allowing R D cess as admissible expense. The DRP on examining the issue of R D cess held that the cess on royalty is not penal in nature and is, therefore, an admissible expense. The Ld. Counsel for the assessee submits that the directions be given to the AO to carry out the DRP directions and allow R D cess as an admissible expense while computing the income of the assessee. DR has no objection in directing the AO to carry out the directions of the DRP. 28. Considering the rival submissions, we direct the AO to carry out the DRP directions and allow R D cess as an admissible expense and compute the income accordingly. This ground is allowed for statistical purpose. 29. We make it clear that except the grounds referred to above none of the other grounds were argued before us and, therefore, all other grounds ..... X X X X Extracts X X X X X X X X Extracts X X X X
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