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2016 (7) TMI 811 - AT - Income TaxTPA - selection of comparable - Exclusion of HMT Bearings Ltd - Held that:- It is undisputed fact that this company is a public sector undertaking company. Its operations are based on policy requirements of the Government and it is a preferred company of the Govt. of India for entrusting of work and therefore, it totally operates in a controlled environment. Hence, this company cannot be compared with that of the assessee-company, which is a private company operating in uncontrolled business environment Exclusion of SLN Bearings Ltd., the assesseecompany is seeking exclusion of this company from the list of comparables on the ground that its export sales are less than 4%. We find from the Annual Report of the company, filed in paper book at page Nos.545 to 567, that the export sales were ₹ 62.03 lakhs as against total sales of ₹ 1239.17 lakhs which is less than 4% and whereas exports of assessee-company are 100% of total sales. Thus we hold that this company cannot be compared with the assessee-company whose export earnings are less than 4% as the assessee-company exports constitutes 100% of the sales. Gains made on account of foreign exchange earnings as part of operating income included. Exclusion of preliminary expenditure and preoperating expenditure from operating cost - Held that:- As this expenditure have nothing to do with operations of the company. We hold that this should not be included as part of operating cost. Accordingly, we direct the AO to exclude this expenditure from operating expenditure. We make it clear that our directions relating to adjustment of operating profits/operating cost should be made applicable even in case of comparable companies finally chosen and accordingly, the issue is restored to the file of TPO/AO on the above lines.
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