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TMI Blog2023 (9) TMI 543X X X X Extracts X X X X X X X X Extracts X X X X ..... olicies, where clay, soda ash, cullets, quartz/feldspar and others are mentioned, to say that the assessee does not deal with cullets and quartz/feldspar. Firstly, cullets and quartz/feldspar are useful only in packing division and we are not considering it now. There is no material to show that the other material that is used has nothing to do with the sanitaryware production. Even if some fraction of it is used, ultimately, the learned DRP while referring to the consolidated financial results held that the segmental results reported therein are agreeing with the figures in the financial statement (standalone) and reflect reliable financial performance of the divisions. When the functions are broadly agreeing with each other, it is not possible to count the differences in the description of the products and to eliminate the entity. Though the terms used are generic in nature giving an impression that the company is engaged in diversified activities, the core activity of both the entities is dealing in tiles and sanitaryware. One shall not lose sight of the fact that information contained in the websites of any entity and sometimes in the annual report would be intended to give ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aw. For this purpose, this issue is restored to the file of the learned Assessing Officer/learned TPO. Ground is accordingly treated as allowed for statistical purposes. Appeal therefore, stands partly allowed for statistical purposes. - Shri Rama Kanta Panda, Vice President And Shri K. Narasimha Chary, Judicial Member For the Assessee : Shri Aliasgar Rampurwala And Shri Pratik Shah, ARs For the Revenue : Shri Jeevan Lal Lavidiya, CIT-DR ORDER PER K. NARASIMHA CHARY, JM: Aggrieved by the final assessment orders passed consequent to the directions of Hon'ble Dispute Resolution Panel, Bengaluru ( DRP ), in the case of M/s. R.A.K. Ceramics India Private Limited ( the assessee ) for the assessment years 2015-16 2016-17, assessee filed these appeals. For the sake of convenience, we dispose of these appeals by way of common order, taking the appeal for the assessment year 2015-16 as lead case. 2. Brief facts of the case are that the assessee is a wholly owned subsidiary of R.A.K. Ceramics PSC, UAE. and is engaged in manufacturing and trading of vitrified tiles and sanitary wares. During the financial year 2014-15 relevant to the assessment year 2015 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 6. Assessee is, therefore, before us in this appeal. Though the assessee initially preferred this appeal on so many grounds, during the course of arguments, it is submitted that grounds No. 1 is general, ground No. 2, 5 and 7 are given-up and not pressed, Ground No. 8 is consequential in nature. Learned AR argued grounds No. 3, 4 and 6 only. Ground No. 3 relates to the exclusion of two entities namely, Cera Sanitaryware Ltd., and HSIL Ltd. Ground No. 4 relates to the request of the assessee to direct the learned Assessing Officer/learned TPO to consider the vitrified tiles segment of Murudeshwar Ceramics Limited as comparable instead of considering the said entity on an entity level, as per the directions of the learned DRP and ground No. 6 is about the computation of transfer pricing adjustment of purchase of raw materials by considering the value of the purchases pertaining to both the international transactions as well as the specified domestic transactions. 7. Learned TPO noted the functional profile of the assessee, according to its website, as - the company is into manufacturing of various products, which includes tiles, urinals, washbasins, comparable since, seat covers, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... anels, pressure pumps etc.,whereas the assessee is essentially into manufacturing of tiles. Assessee further stated that Cera Sanitaryware Ltd., incurred a considerable R D expenditure whereas the assessee does not incur any expenditure towards R D. Learned TPO discarded this argument stating that according to the annual report of Cera Sanitaryware Ltd., that company also deals in tiles in all markets and the range includes HD digital wall tiles with the matching floor tiles, digital glazed vitrified tiles, and vitrified tiles with nanotechnology. While referring to the website of Cera Sanitaryware Ltd., learned TPO observed that this company incurs R D expenditure only to the tune of 0.13% on its turnover whereas the assessee has been paying royalty at 3% of net factory sales. In respect of the objection as to the non-availability of segmental information, learned TPO recorded that TNMM will take care of this aspect. 10. Learned DRP considered the contentions raised by the assessee in the light of the observations made by the learned TPO and also the annual reports of these companies. In respect of HSIL Ltd., learned DRP found that out of the two divisions of this company, buil ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... elp them become the second largest faucet player in the country; that HSIL Ltd., is also engaged in trading of built-in ovens, microwaves, cooktops, and cooking range and models of Built-in Hob, Induction cooktop whereas the assessee does not deal in kitchen appliances; that HSIL Ltd., is engaged in manufacturing of glass container and PET bottles; that it is India's one of the largest manufacturers of packaging products in India; that it has dedicated manufacturing facilities for glass containers and PET bottles, whereas the assessee is not engaged in packaging products such as PET bottles, etc. which is different from the ceramics industry that HSIL Ltd., does not deal in tiles whereas 92% of the assessee s is from tiles; that HSIL Ltd., have luxury bathroom products/wellness products for bathroom as a spa concept that includes massage tubs, shower panels, shower enclosures, shower panels, faucets, etc. and world class bath fittings, accessories, etc; that the luxury bathroom products are sold under the brand Queo and wellness product under the brand name Amore; that HSIL Ltd., produce Water Efficient Products (WEP) which include efficient flushing system, sensor operated fau ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e year under consideration are available only in the consolidated financial statements and not in standalone financial statement. If companies engaged in manufacturing companies engaged in ceramic product industry alone are selected, companies engaged into faucets and bathroom fittings will rightly be excluded. 16. The functional difference between the assessee and Cera Sanitaryware Ltd., described by the learned AR is that the Director's report shows that Cera Sanitaryware Ltd., is engaged in diversified businesses as it has a sanitaryware unit, faucet ware unit, bathware unit, tiles unit; that it has a power unit as well to reduce cost and as a green initiative; that the Cera Sanitaryware Ltd., has added products like kitchen sinks, mirrors besides products like shower cubicles, shower panels, steam cubicles and whirlpools in its bathware unit; that faucet manufacturing company cannot be compared to ceramics manufacturer; that revenue from operations shows that company sold faucet ware, fittings, allied products along with tiles and sanitaryware; that faucets and bathroom fittings cannot be compared to the ceramics/tiles/sanitaryware industry; that the raw materials requir ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pute the adoption of TNMM as the most appropriate method of the aggregation approach followed by the assessee of aggregating the international as well as specified domestic transactions. In respect of HSIL Ltd it is the submission of the Ld. DR that both these Companies are into the business of premium range tiles and sanitaryware, both incur expenditure for technology and functionally similar. He submitted that while benchmarking the purchase of raw material, it is immaterial what other components the company is making, unless and until it is proved that such making of other material is adversely impacting the comparison of the profit margins. While purchasing the raw material, all the entities using the same in their processes, are expected to pay a similar price and therefore, it will have no impact on the benchmarking of such a transaction. He took us through the range of products that are manufactured by both these entities to establish that the substantial business of both the company is a similar. Referring to Hindware he submitted that the assessee started this unit in 1990 and has been producing the premium range tiles and sanitaryware under the brand name Hindware . 2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on and packaging division. There is segmental information in consolidated financial statements though it is not to be found in the financial statement standalone. Assessee says that because non-availability of segmental information in the financial statements (standalone), that too when HSIL Ltd., operates in more than one segment, it is not a good comparable. 23. On a perusal of the annual reports of HSIL Ltd., learned DRP found as a matter of fact that this entity has broadly two divisions, namely, building products division and packaging products division. In the building product division they are manufacturing tiles and allied products. The sales of the sanitary products were Rs. 963.71 crores with a profitability of Rs. 177.89 crores with a profit margin of 19.47%. Learned DRP perused the financial statement standalone and also the consolidated financial results and gave a factual finding that there is no difference in net turnover of the company as reported in its financial statement (standalone) and the net turnover taken in the consolidated financial results and the segmental results reported in the consolidated financial statement reflect the financial performance of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... company and its areas of activity will be mentioned in usually general and wide spread terms to attract the customers and the same cannot be given much weight. In these circumstances, we agree with the findings of the learned DRP and decline to exclude HSIL Ltd., from the list of comparables. 25. Coming to the Cera Sanitaryware Ltd., broadly, this company also performs the same functions insofar as production of sanitaryware is concerned. However, at the outset, learned AR brought to our notice that Note 22 forming part of the accounts shows out of the total consumption of material worth Rs. 709 crores, the consumption of material of Rs. 323 alone is relevant for the sanitaryware production and Rs. 366 crores goes for brass ingots and components, whereas in the profit and loss account, the revenue from operations to the tune of Rs. 822 crores are shown as one segment and that too from the sale of vitreous China sanitaryware, faucet ware, fittings, tiles and allied products. He submitted that this clarifies that this company is deriving almost equal amount of revenues from faucet ware manufacturing as it has been deriving from the sale of vitreous China sanitaryware, tiles etc. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ke a view according to law. For this purpose, this issue is restored to the file of the learned Assessing Officer/learned TPO. Ground is accordingly treated as allowed for statistical purposes. Appeal therefore, stands partly allowed for statistical purposes. ITA No. 201/Hyd/2021 (AY. 2016-17): 30. Facts for this year are similar to the facts for the assessment year 2015-16. At the outset, learned AR submitted that ground No. 1 is general in nature, and the assessee is not pressing grounds No. 3, 5, 7 and 8, whereas ground No. 10 is consequential in nature. He is arguing only grounds No. 2, 4, 6 and 9 in this appeal. Vide grounds No. 2 and 4, in this year also, assessee challenges the inclusion of HSIL Ltd., and Cera Sanitaryware Ltd., which are infact covered by ground No.3, for the assessment year 2015-16. Following the same, we direct the learned Assessing Officer/learned TPO to keep the HSIL Ltd., in the list of comparables while deleting Cera Sanitaryware Ltd., therefrom. Ground No. 6 also covered by ground No. 6 of the earlier year s appeal. We follow the same and restore the issue to the file of the learned Assessing Officer/learned TPO. Ground No. 9 relates to ris ..... X X X X Extracts X X X X X X X X Extracts X X X X
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