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TMI Blog2023 (7) TMI 746X X X X Extracts X X X X X X X X Extracts X X X X ..... arable. DRP has considered the inclusion of Premier Tobacco Packers Private Limited which does not have any export turnover. TPO has not applied filter of minimum of 50% should be from exports turnover in the case of Premier Tobacco Packers Private Limited. While observing the inconsistency in the comparables selected by the Ld. TPO wherein Ld. DRP also affirmed the selection of Premier Tobacco Packers Private Limited, we find that the same is not in accordance with Rule 10B(2)(d) of the Income Tax Rules, 1962. Therefore, we direct the TPO / Ld. AO to exclude Premier Tobacco Packers Private Limited as a comparable in determining the ALP of the assessee company. We noticed that the Ld. DRP has already excluded DTE Exports Pvt Ltd., based on the insignificant turnover and following the principle of consistency, we confirm the same. Export incentives - treated as operating or non-operating income for the purpose of PLI computation - HELD THAT:- Since the assessee has adopted TNM Method which was not disputed by the Revenue, Net Profit is used as a bench mark for ALP computation. Rule 10B(1)(e)(ii) provides for computation of net profit margin in the uncontrolled comparable transaction ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... witzerland Sale of unmanufactured tobacco and its byproducts on CIF basis 13,12,79,824 TNMM 3. Alliance one International Inc, USA Sale of unmanufactured tobacco and its byproducts on FOB basis 10,32,13,440 TNMM 4. Alliance one International AG, Switzerland Purchase of software License 2,46,875 CUP Method 5. Alliance one International AG, Switzerland Advance received against sales 24,52,59,000 TNMM 6. Alliance one international Inc., USA Corporate Guarantee for borrowings from bank by the extent Standard Commercial tobacco NIL CUP Method 3. The Ld. TPO also arrived at the Profit Level Indicator [PLI] as follows: Description Amount in Rs. Operating Revenue 204,07,49,149 Operating cost 196,49,82,499 Operating profit 7,57,66,650 OP/OR(%) 3.71 OP/OC (%) 3.86 4. The Ld. TPO rejected the assessee's TP study report based on the inappropriate filter criteria selected by the assessee. The Ld. TPO therefore applied a search process for selection of comparables and selected the following comparables: Sl No. Name of the company Total OR Total OC Total OP WT OP/OC WT OP/OR 1. DTE Exports Pvt ltd 878.59 862.19 16.4 1.90 1.87 2. Sinnar Bidi Udy ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... grounds of appeal: "1. The Ld. DRP and the Ld. AO / the Ld. TPO erred in law and on facts in making TP adjustment of Rs. 13,76,30,449/- to the returned income of the appellant any by holding that the international transactions between the appellant and its AEs is not at Arm's Length. 2. The Ld. DRP and the Ld. AO / Ld. TPO erred in law and on facts in rejecting the TP documentation maintained by the appellant in the manner provided in the IT Act r.w.s prescribed Rules. 3. The Ld. DRP and the Ld. AO / Ld. TPO have erred in law and on facts in considering the export incentives as nonoperating in nature while computing the PLI. 4. Without prejudice to ground no.3, the Ld. DRP and the Ld. AO / Ld. TPO having treated export incentives as nonoperating in nature while computing the PLI of the appellant company erred in holding that the export incentives are not considered as part of the operating revenue even for the comparables ie Premier Tobacco Packers Private Limited which is contrary to the facts and evidence on record. 5. The Ld.DRP and the Ld. AO / Ld. TP erred in lay by conducting a fresh search for comparable companies and by rejecting the search process carried out by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... xclusion of DTE Exports Pvt Ltd., by the Ld. TPO and the Ld. DRP that the exports of the company is only 3.47% which is insignificant and less than 50% of the total turnover, the Ld. AR submitted that if the filter of more than 50% of the exports is applied, there would be no comparable left and benchmarking of the international transaction would be impossible. The Ld. AR also further submitted that the DTE Exports Pvt Ltd., was included as a comparable in the earlier Assessment Years and hence excluding this comparable in the impugned assessment year is not valid. The Ld. AR also further submitted that the Ld. DRP erred in taking two mutually contradicting stands while including Premier Tobacco Packers and found comparable even though the export sales are NIL and excluding the comparable viz., DTE Exports Pvt Ltd., stating that exports are only 3.47% of the total revenue. The Ld. AR therefore pleaded that the contrary view of the Ld. DRP may be rejected. The Ld. AR also further submitted that if BVPL is excluded as a comparable based on past years and DTE Exports Pvt Ltd., is included based on the functional similarity, the assessee would be adhering to the Arm's Length standard u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he inconsistency in the comparables selected by the Ld. TPO wherein Ld. DRP also affirmed the selection of Premier Tobacco Packers Private Limited, we find that the same is not in accordance with Rule 10B(2)(d) of the Income Tax Rules, 1962. Therefore, we direct the Ld. TPO / Ld. AO to exclude Premier Tobacco Packers Private Limited as a comparable in determining the ALP of the assessee company. However, we noticed that the Ld. DRP has already excluded DTE Exports Pvt Ltd., based on the insignificant turnover and following the principle of consistency, we confirm the same. 14. With respect to the export incentives, whether it is to be treated as operating or non-operating income for the purpose of PLI computation, we find that Rule-10B of the IT Rules, 1962 provides methodology for computation of ALP. Since the assessee has adopted TNM Method which was not disputed by the Revenue, Net Profit is used as a bench mark for ALP computation. Rule 10B(1)(e)(ii) provides for computation of net profit margin in the uncontrolled comparable transactions whereas a net margin realized by the enterprise namely the tested party as well as the comparables, the total income and expenditure of the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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