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2019 (8) TMI 929 - AT - Income TaxTP Adjustment - MAM selection - Adjustment to purchase and sale of raw materials from Associated Enterprises ("AEs") (manufacturing segment) - which method is to be applied i.e. internal Cost Plus Method or internal TNMM method or external TNMM method? - as per assessee no opportunity was given by the TPO before rejecting internal TNMM method - HELD THAT:- Opportunities given to the assessee have been tabulated and the assessee’s contentions have been considered. Even the last reply given on 10.10.2017 has been considered before passing the order on 20.10.2017. The TPO has also at pages 28 to 30 of its order dealt with the reply of assessee in this regard. Further in the absence of proper segmental being available, there was no basis on which internal TNMM method could be applied. In the totality of the above said facts and circumstances, we find no merit in the reliance placed upon by the assessee on internal TNMM method. Most appropriate method to be applied, which as per the TPO, in this case was external TNMM method - most appropriate method to be applied, which as per the TPO, in this case was external TNMM method. In the totality of the above said facts and circumstances, we find merit in the exercise carried on by the TPO in this regard, wherein proper show cause notice was issued to the assessee at the start of proceedings itself as to why this method should not be applied in view of the nature of business of assessee, wherein the assessee was engaged in importing of raw material and in some cases, manufacturing certain items and selling the same in domestic market or in some cases, importing then assembling and selling in the domestic market. The household appliances from the manufacturing unit at Pune included kitchen hoods, built in hobs, cooking ranges, cook-tops, etc. The most appropriate method which needs to be applied was the TNMM method. Selection of comparables - Acrysil Ltd. - There is no comparison between kitchen appliances manufactured by assessee and sinks manufactured by Acrysil Ltd. Accordingly, the said concern cannot be selected as comparable to the assessee and the same is rejected. JSL Lifestyle Ltd. - In the absence of segmental being available and the products being different, though some of them are comparable to the products dealt in by the assessee and where the concern was also engaged in R&D activity as against the assessee which was not so engaged, then there is no merit in including the margins of said concern in the final list of comparables. Accordingly, we direct the Assessing Officer / TPO to exclude the same. Gorani Industries Ltd - he said concern was functionally comparable to the assessee as it was engaged in manufacturing and sale of glass, gas, cook tops, chimneys, etc. The said concern was functionally comparable to the assessee and for the instant assessment year had shown marginal profits though OP/OR was only 0.13%; but there is no merit in rejecting the said concern either on the ground it was persistent loss making, which it was not, and even on the ground that it had marginal profits. The assessee on the other hand, had shown margins of 1.94%. Accordingly, we direct the Assessing Officer to include Gorani Industries Ltd. as functionally comparable to the assessee. Where the margins shown by assessee are at 1.94%, then no adjustment needs to be made in the hands of assessee on account of arm's length price of international transactions of purchase of raw material to be made in the hands of assessee. In any case, the adjustment, if any, is to be restricted to the value of international transactions and not to the entity transaction. As in the case of Thyssen Krupp Industries India Pvt. Ltd. [2015 (12) TMI 1076 - BOMBAY HIGH COURT] has laid down the said proposition and merely because an appeal has been filed against one of the judgments of Hon’ble Bombay High Court in CIT Vs. Firestone International Pvt. Ltd. (supra) has been dismissed does not mean that the proposition laid down by the Hon’ble Bombay High Court does not stand. We find no merit in the order of DRP in this regard.
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