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2018 (7) TMI 1972 - AT - Income TaxTP Adjustment - comparable selection - functional dissimilarity - HELD THAT:- As far as exclusion of 3 companies viz., Bharath Electronics Ltd [BEL]., MIC Electronics Ltd. and Bharath Heavy Electricals Ltd. [BHEL] is concerned, it is clear from the order of DRP that the 3 companies were manufacturers of equipments, whereas the assessee was only manufacture of components which are used in making equipments. This functional difference has been rightly noticed by the DRP in excluding these 3 companies from the list of comparable companies. Besides the above, it is also seen that BHEL is engaged in diverse activities of manufacture of power station equipments like boilers, turbines, etc. In terms of size, it is to be regarded as a very big company not comparable with that of assessee. No grounds to interfere with the order of DRP, consequently we dismiss the relevant grounds of appeal of the revenue in this regard. Determining the PLI, depreciation should be regarded as part of operating cost - HELD THAT:- There is substantial variation in the manner of charging depreciation by the Assessee and the comparable companies. The question therefore is as to whether the profits to be compared should be ignoring the depreciation charge/expenditure. An identical issue was considered by this Tribunal in the case of Honeywell Technology Solutions Lab v. DCIT, [2013 (9) TMI 189 - ITAT BANGALORE] wherein relied case of 24/7 Customer.com (P.) Ltd. v. Dy. CIT [2013 (1) TMI 45 - ITAT BANGALORE] held that if there are differences in the method of charging depreciation between the Tested party and the comparable companies, then there would be impact on the operating profits and in such circumstances it is safe to consider PLI without considering depreciation as part of the operating cost. The Tribunal in the case of BA Continuum India Pvt Limited v. ACIT [2014 (9) TMI 258 - ITAT HYDERABAD] took the view that depreciation had an impact on the profit margin of the assessee. The Assessing Officer was directed to use the profit level indicator as profit before depreciation, interest and taxes to recompute the arm’s length price. It would be just and appropriate to set aside the order of DRP and the final order of assessment and direct the AO/TPO to consider the determination of PLI by considering the ratio of the decisions referred to above. Appeal by the revenue is treated as partly allowed for statistical purposes.
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