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TMI Blog2024 (9) TMI 849X X X X Extracts X X X X X X X X Extracts X X X X ..... or further adjudication on the two issues as directed above and the comparables should be taken by considering the Rule of Consistency. No such comparable is allowed in TP study related to the transaction of purchase of raw material and consumables and export of finished goods. TPO should follow the direction of Hon ble DRP and the issue of purchase of fixed assets applicability of ROCE will not be accepted and ld. TPO should make a separate re-workings of the margin, vis-a-vis the international transaction of purchase of fixed assets pursuant to the rejection of comparables of DRP s direction as retained the original transfer pricing adjustment vis-a-vis impugned transaction of purchase of fixed assets. In our considered view, the matter is restored to the file of ld. TPO/AO for further calculation of TP adjustment by considering the direction of the Hon ble DRP. Appeal of the assessee allowed for statistical purposes. - DR. MANISH BORAD, ACCOUNTANT MEMBER SHRI ANIKESH BANERJEE, JUDICIAL MEMBER Fort the Appellant : Shri Ketan Kumar Ved, A.R. and Shri Amit Poddar, C.A. For the Respondent : Shri Rakesh Kumar Das, CIT (DR) ORDER Per Anikesh Banerjee, Judicial Member:- The instant a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 39;s length, arrived at after considering the underlying depreciation on purchased fixed assets through the application of TNMM. 3.3. For that the authorities below erred in considering Return on Capital Employed ( ROCE ) as the relevant Profit Level Indicator ( PLI ) for benchmarking the transactions, and in doing so, erred in disregarded the commercial use of such assets in the Appellant's business operations. 3.4. For that further and in any event and without prejudice to the above:- 3.4.1. The appellant had no opportunity to deal with the TPO's ROCE since, he did not provide the computation of the ROCE margins at any stage of the proceedings in gross violation of the principle of natural justice; and 3.4.2. The authorities below wrongly determined the final set of companies resulting in inflated TP adjustmen . 3. Brief facts of the case are that the assessee started operations in India in 1935 as the Indian Oxygen and Acetylene Company and is currently Headquarter in Kolkata. Erstwhile a part of the BOC Group, the assessee is a subsidiary of the BOC Group Limited, UK, the latter having a stake of 89.48% of equity capital. With the acquisition of the BOC Group by the Lin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (including the transaction of Cylinder Rental Charges) were at arm s length. On Transfer Pricing during the year, the assessee s transaction was studied and finally the adjustment was proposed amounting to Rs. 56,00,556/-. In another case related to purchase of fixed assets, the assessee has also started TP Study and the method of aggregation was rejected by the ld. TPO and finally the proposal for the amount of Rs. 6,86,42,156/- was accepted. Aggrieved, the assessee filed a petition before the Hon ble DRP and the Hon ble DRP has accepted the assessee s submission. The grievance of the assessee was that the ld. TPO had used the same set of comparables for benchmarking the international transaction of purchase of fixed assets and rental of cylinders as he had used for the international transaction of purchase of raw materials and consumables and export of finished goods. The direction was made by the DRP but as per the assessee, the direction was not considered by the ld. TPO during the revised order. Accordingly section 144C(13) will be applicable for deletion of the adjustment of the addition. The Hon ble DRP has accepted the assessee s aggregation method and finally against the o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tment to the tune of INR 25,61,96,698.11 by completely disregarding the arm s length price determined by the assessee in respect of the following international transactions with the AEs S.N. Category of International Transaction (2) Adjustment (INR) 1. Payment of Intra-group Services (IS Support Services) 7,66,62,259.46 2. Payment of Intra-group Services (Accounting Centre of Excellence) 1,27,38,549.07 3. Purchase of raw materials consumables 3,66,19,020.00 4. Export of Finished Goods 1,81,38,225.00 5. Payment of Cylinder Rental Charges 56,00,556.00 6. Payment of Technical Assistance Fees (TAF) 3,77,95,932.00 7. Purchase of Capital/Fixed Assets 6,86,42,156.58 25,61,96,698.11 2.2. The TPO erred in not applying the Rule of Consistency during the transfer pricing proceedings without appreciating that the fact pattern of the case is same as the preceding years. 2.3. The TPO disregarded the Rule of Consistency during the transfer pricing proceedings and arbitrarily proceeded to evaluate the afore-stated transactions in the manner contrary to that in the earlier years without appreciating the fact that the assessee is having similar transactions in all the earlier years and there is no d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Transfer Pricing Study, and consequently resorted to erroneous bench-marking and wrong Arm s Length; 4.2. The TPO erred on facts and resorted to rejecting 3 comparable companies (out of the 8 'comparable companies as illustrated in the Transfer Pricing Study), mentioned hereunder, citing arbitrary reasons that the said comparable companies are functionally not comparable to the assessee as also they have high incidence of fuel consumption a) Arrow Oxygen b) Bombay Oxygen Corporation Limited c) Refex Refrigerants Limited 4.3. It would be amply evident from the Annual Reports of the comparable companies that the said three comparable companies are primarily engaged in the manufacture and sale of industrial gases and hence, ideally and genuinely comparable to that of the assessee. Moreover, power and fuel constitutes a critical component to the manufacturing process of industrial gases and a bare perusal of the related industry analysis of similar companies as also the annual Report of Linde India Limited would amply enunciate the fact that consumption of power and fuel is a critical pre-requisite of the said business process practiced globally. Accordingly, the rejection of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 7. The ld. A.R. argued that ld. TPO rejected the aggregation approach adopted by the appellant and held that the said transaction needs to be benchmarked separately. As per the ld. A.R., the ld. TPO applied the PLI of return on capital employed to benchmark the transaction of purchase of fixed assets. The ld. TPO applied the said set of comparables as was selected for manufacturing segment especially for purchase of raw materials and consumables and export of finished goods. 7.1. The ld. A.R. further argued that in objection filed before us by the Hon ble DRP, the assessee challenged the following aspects of the impugned transfer pricing adjustment related to the payment of cylinder rental charges also. The action of the ld. TPO is duly rejected relating to aggregation approach adopted by the appellant and application of PLI as return and capital employed by Linde India s ROCE and the selection of comparables of the ld. TPO rejected by the Hon ble DRP. Hon ble DRP has made direction on 22.11.2016, which are reproduced as below:- 5. Benchmarking of Purchase of Capital / Fixed Assets is to be considered at an Aggregated level 5.1. The TPO erred on facts and in law in conducting a f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vs.- DCIT, Circle-15(3)(1), Mumbai in ITA No. 7210/Mum/2018 for A.Y. 2014-15. The other issues are already adjudicated by the ITAT, Kolkata. The entire adjustment is not being accepted for application of 144C(13). In our factual consideration, we find that the ld. TPO has passed the rectified order under section 92CA(3) read with section 144C(5) dated 26.12.2016 in pursuance of the direction of the Hon ble DRP dated 22.11.2016. We accordingly fully rely on the order of Hon ble DRP. The method taken by the assessee, i.e. TNMM should be taken instead of ROCE and the aggregation method will be applicable for the TP Study. We further direct that the matter should be remitted back to the file of ld. TPO/AO for further adjudication on the two issues as directed above and the comparables should be taken by considering the Rule of Consistency. No such comparable is allowed in TP study related to the transaction of purchase of raw material and consumables and export of finished goods. The ld. TPO should follow the direction of Hon ble DRP and the issue of purchase of fixed assets applicability of ROCE will not be accepted and ld. TPO should make a separate re-workings of the margin, vis-a- ..... X X X X Extracts X X X X X X X X Extracts X X X X
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