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2018 (4) TMI 1835 - ITAT DELHITPA Computation - comparable selection - rejection of the comparable Continental Valves Ltd., on account of failing low turnover filter of ₹ 5 crore applied by Ld. TPO - HELD THAT:- On verification of profit and loss account of this comparable it is observed that purchase of raw materials constitute materials consumed in production process and not for trading process which establishes this comparable to be engaged in carrying out manufacturing activity only. Further from TPO order passed by Ld.TPO for assessment year 2011-12, as well as DRP for assessment year 2012-13 it is observed that this comparable has been accepted during these assessment years. On perusal of the order by Ld.TPO for the year under consideration it is observed that he has nowhere disputed functional dissimilarity of this comparable with that of assessee. Even for the year under consideration this company is carrying on with similar manufacturing activity. No reason to reject this comparable from the final list more so when it has already been accepted by the authorities below in the immediately preceding assessment years which has not been disputed by the revenue authorities before this Tribunal - we direct Ld.TPO to consider this comparable in the final list. Yuken India Ltd - This company is engaged in manufacture of oil hydraulic equipment and the product range of this company includes power units- Parison controller, cylinders and Piston accumulators. Thus broadly it is into manufacturing activity and with TNMM as MAM to determine ALP, broad functional dissimilarities get automatically adjusted. Accordingly this comparable is directed to be included in final list of comparables. Appropriate working capital adjustment may be granted to assessee. WIPL Ltd - Merely because this company is having a huge turnover and is submitted to be having its own R& D wing, cannot make it functionally dissimilar, more so when TNMM is used as the most appropriate method. This was what Ld.AR submitted while arguing comparability in case of Continental Valves Ltd. We are inclined to set aside this comparable back to Ld.TPO for due verification of functional similarities/dissimilarity of this company with that of assessee. Assessee is directed to provide entire company profile along with its full financials to Ld. TPO for the year under consideration. Dynamatic Technologies Ltd. - We are unable to verify the functional comparability of this company with assessee due to insufficient materials regarding this comparable. However from observations of Ld. TPO we observe that this company is into manufacturing activity of engineering products with huge turnover - set aside this comparable back to Ld.TPO for due verification. Comparability based upon turnover being a relevant factor - WIPL Ltd., & Dynamatic Technologies argued for exclusion due to high turnover - We do not have before us financials and complete functional profile of these comparables in the paper book and are unable to ascertain authenticity of arguments advanced by Ld.AR. - unable to ascertain whether there are any segmental information in respect of manufacturing segment undertaken by these comparables and the risk assumed by these comparables to be compared with that of assessee, which is an important factor that could affect the turnover of companies. TPO shall verify from the records placed by assessee as directed hereinabove - direct Ld.TPO to decide comparability of these companies, with that of assessee by taking into consideration observations made in the case of CIT vs. Agnity India Technologies Pvt. Ltd.. [2013 (7) TMI 696 - DELHI HIGH COURT]. PLI computation - considering foreign exchange gain/loss, as operating item and provision for bad debts and bank charges/fixed interest as non-operating expenses for the purpose of computing PLI of assessee as well as that of comparables - HELD THAT:- It is observed that Ld. AO has failed to follow directions of DRP and has computed incorrect PLI of comparables. This is evident from order passed by Ld. TPO under section 154. We also direct Ld. TPO to provide the computation of PLI in respect of the comparables to assessee in the interest of principle of natural justice. This ground raised by assessee stands allowed for statistical purposes. Incorrect calculation of operating cost and operating revenue of assessee - HELD THAT:- TPO is directed to look into the computation and adopt correct figures as per law. Assessee is thus directed to provide all necessary details for purposes of computing the value of international transaction as per law. Considering the proportionate transfer pricing adjustment made by assessee suo moto in the return of income - HELD THAT:- We agree with the proposition made by Ld.AR regarding restricting adjustment to ₹ 56,10,222/- suo moto offered by assessee, in the event adjustment to be recomputed by Ld. TPO/AO (as per the directions hereinabove) is less than ₹ 56,10,222/-. - Decided in favour of assessee.
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