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TMI Blog2024 (6) TMI 1216X X X X Extracts X X X X X X X X Extracts X X X X ..... nd M/s Uttam Galva Steels Ltd - We direct the TPO /AO to accept both the comparable M/s Vallabh Steel Limited and M/s Uttam Galva Steels Ltd after considering the function and activity of the two companies and direct to dispose the rectification petition filed U/s 154. The TPO/AO is directed to allow the fresh search in relation to comparable of the assessee. Remove the depreciation during the calculation of profit margin and requested for cash PLI in TNMM - In cash PLI the average of comparable 10.44% which is similar for assessee. The assessee stated that considering depreciation as a part of the total cost would not be appropriate for the purpose of benchmarking since the depreciation in the year under consideration was 16.92% of its revenue, vis-a-vis depreciation of 4.85% of seven comparable companies as taken by the TPO which in most cases as average depreciation as a percentage of revenue. The assessee has relied on the order of M/s Epcos Ferrites Ltd [ 2019 (3) TMI 554 - ITAT KOLKATA] We also relied on the same. In our considered view the depreciation should be removed for calculation of net profit margin and cash PLI is justified method. Accordingly, we remit back the matt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h Price (ALP) of the International Transactions. iii). In undertaking a fresh search and thereby making an adjustment to the international transactions with AEs. 2.3 . Comparables On the facts and circumstances of the case and in law, the learned TPO erred a. in not providing the detailed search process for selecting the companies considered comparable by him. b. Rejecting the companies proposed by the Appellant which were functionally comparable. . Vallabh Steel Limited, for which rectification application under Section 154 has been filed with the learned Transfer pricing officer and is pending for disposal. . Uttam Galva Steels Ltd. c. In selecting the companies engaged in functionally different operations: . Tata Steel BSL Limited . M/s Stelco Limited 3. On the facts and circumstances of the case, the Ld. AO has erred in proposing to initiate penalty proceedings under Section 270A of the Act against the Appellant, which is bad in law. 4. Brief facts of the case are that Jamshedpur Continuous Annealing Processing Co. Pvt Ltd ( JCAPCPL or the assessee )was incorporated on 17th March 2011 as a wholly owned subsidiary of Tata Steel Limited (TSL). It was later converted into a Joint ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted PLI i.e. cash profit/operating Revenue should be considered under TNMM in place of operating profit for better comparison. Specifically, the assessee wished to exclude depreciation on the grounds that during the year, though the assets of the Assessee were put to use to which depreciation has been recognized, the operation of the company- had not started. The assessee stated that considering depreciation as a part of the total cost would not be appropriate for the purpose of bench marking since the depreciation in the year under consideration was 16.92% of its revenue, vis-a-vis depreciation of 4.85% of seven comparable companies (taken by the TPO) which in most cases as average depreciation as a percentage of revenue en in the table below. The assessee also stated that as per rule 10B(1)(e) of the Act, the net profit margin referred to in sub-clause (ii) arising in comparable uncontrolled transactions should be adjusted to take into account the differences, if any, between the international transaction and the comparable uncontrolled transactions, or between the enterprises entering into such transactions, which could materially affect the amount of net profit margin in the op ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... profit indicator (PLI) under the TNMM. Keeping in view the aforesaid judicial precedents, we approve the use of cash profit margin by the assessee for placing the tested party and the comparable companies on equal footing. The assessee has demonstrated that the cash profit margin of the assessee was 8% (approximately), whereas the arithmetic mean of the cash . profit margins of the aforesaid nine comparable companies stands at 12,41%. It is noted that the net profit margin of the tested party was (-)6.70%, whereas the cash profit margin of the tested party stood 8% thereby indicating that the loss was caused by a considerable increase in provision for depreciation. We are of the considered view that the assessee was justified in applying cash profit margin as more appropriate financial indicator than net profit margin. 7. The Ld. D.R duly relied on the order of revenue authorities but unable to submit any contrary judgment against the submission of the Ld. A.R. 8. We heard the rival submissions and considered the documents available in the record. The grievance of the assessee is to consider the depreciation during calculation of fair net profit under TNMM by the TPO. The assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X
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