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2017 (4) TMI 1585 - ITAT CHENNAITP Adjustment - disallowance of customs duty payment - contention of the ld.A.R is that TPO erred in including 30% of the customs duty as part of the operating cost of the assessee to determine the ratio of operating profit to sales - contention of the assessee company is that it is in initial year of operations has been considered and the customs duty adjustment was provided to the assessee company - HELD THAT:- It has to be noted that the assessee has not excluded the customs duty in the comparables. To bring in uniformity, the customs duty was eliminated in the comparable also. The import percentage in the Comparables comes to 30% and this 30% was excluded from the assessee’s customs duty to weed out the difference between the assessee company and the comparables. TPO observed that while requesting for customs duty adjustment, the assessee had stated that they need to import because their customers are into highly engineered products and find applications in automobiles and they require an exact made to specification product and hence good calendaring process is required and the assessee company is in initial year of operations. The price reduction claimed for such high engineered products cannot be believable because from the submissions it can be gathered that the assessee company is operating in a special niche zone. The assessee company has not submitted any competitive factors that compelled them to sell their products at lesser price, than their production cost. The higher production of the assessee company than that of the comparables would also be one of the reasons for such price reduction since normally any company would not like to store the goods for longer time, which will affect their working capital. The fact that the assessee company had imported the calendared product from their AE has to be taken into account in this regard. Even though the assessee company argues that their profitability had reduced due to the sales factors, actually it is not so. The assessee has not submitted any valid documentary evidences to substantiate their claim. Hence, the TPO rejected the claim of assessee.DRP observed that the assessee submitted the computation of the ratio of operating profit to sales to arrive at the profit level indicator of the assessee. In the same, the assessee excluded the customs duty of ₹ 4.31 crores as this was a variation with materially different facts listed below and hence excluded.A.R submitted that 90% of the raw materials of the assessee are imported as such customs duty adjustments to be made and it includes ₹ 4.31 crores pertained to the customs duty in the manufacturing segment. In principle the customs duty adjustments is allowed in view of the Co-ordinate Bench decision in the case of Motonic India Automotive (P.) Ltd.[2016 (8) TMI 1423 - ITAT CHENNAI] Hence, to bring uniformity, the customs duty was to be eliminated from the comparable price also to arrive at correct PLI. Accordingly, we remit the isuse to the file of AO for fresh consideration. Excluding Forex gain from the Profit Level Indicator (PLI) by the assessee - According to TPO, as per assessee, forex loss arises only due to sales or purchase activities which are revenue in nature are not classified as a part of the operating expenses - Now the assessee is coming with the fresh submissions that their import percentage is higher and their export percentage is lower than that of the comparables - HELD THAT:- In our opinion, forex fluctuations loss in the operating cost of the assessee and also forex gains in the operating income of assessee, both to be excluded from the operating expenses as well as operating income respectively in view of the Order of Tribunal in the case of Motonic India Automotive Pvt. Ltd.[2016 (8) TMI 1423 - ITAT CHENNAI] Accordingly, this issue is remitted to the file of AO for fresh consideration. Rejection of certain comparables - HELD THAT:- We are of the opinion that if the product of the comparables selected by the TPO is not comparable with the assessee’s product, it cannot be considered. In the case of Gujarat Reclaims and Rubber Products Ltd., the raw material used by the assessee is a re-cycled from worn out tyres and tread peelings. Being so, the product of that comparable is inferior to the assessee’s product, hence it cannot be compared to the assessee’s case. Regarding Victor Gaskets India Ltd., the assessee wants to include it. Its annual report shows that the company exited out of asbestos based products in totality at its manufacturing location, thus completing a strategic plan to go asbestos free. Being so, it cannot be considered as comparable to assessee’s case. Rejection is justified.
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