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2022 (8) TMI 198 - Income Tax
TP Adjustment - Comparable selection - Revenue is aggrieved by the inclusion of Gorani Industries Limited (GIL) in the list of comparable - HELD THAT:- In view of the fact that the Trading revenue in the case of GIL is more than double of the assessee and only the consolidated figures are meant to be compared, we hold that Gorani Industries Limited cannot be considered as comparable. The obvious reason is that the profit margin widely varies in a Manufacturing model of activity vis-à-vis the Trading model. In view of such an extensive fluctuation in the Trading and Manufacturing revenue streams of the two companies, we hold that GIL cannot be considered as comparable. The impugned order is overturned to this extent and this company is directed to be excluded from the list of comparables.
Inclusion of Butterfly Gandhimathi Appliances Limited (BGAL) in the list of comparables - It can be seen from the above that GAL merged with BGAL and the transactions of assets and liabilities etc. of GIL have been incorporated in the books of BGAL as on 31-03-2012, which is relevant to the assessment year under consideration. In view of the fact that the figures of this company for the year are influenced by the merger taking place, we hold that the extraordinary financial event makes it incomparable. We, therefore, order to exclude this company from the list of comparables.
Proportionate adjustment - restricting the transfer pricing adjustment to the extent of international transactions rather than the entity level is no more res integra in view of several judgments rendered by various higher forums including the Hon’ble jurisdictional High Court in CIT Vs. Phoenix Mecano (India) Pvt. Ltd. [2017 (6) TMI 1240 - BOMBAY HIGH COURT] holding that the transfer pricing adjustment should be restricted only to the international transactions and not the entity level transactions.
The Hon’ble High Court in has held that the transfer pricing adjustment made at entity level should be restricted to the international transactions only. Here, it is pertinent to mention that the Department’s SLP against the judgment in the case of Phoenix Mecano (India) Pvt. Ltd. has since been dismissed by the Hon’ble Supreme Court in CIT Vs. Phoenix Mecano (India) Pvt. Ltd. [2018 (7) TMI 798 - SC ORDER]
Also see CIT Vs. Thyssen Krupp Industries Pvt. Ltd. [2015 (12) TMI 1076 - BOMBAY HIGH COURT] and CIT Vs. Tara Jewels Exports (P). Ltd. [2015 (12) TMI 1130 - BOMBAY HIGH COURT]. We, therefore, set aside the impugned order on this score and direct that the transfer pricing adjustment should be restricted only to the extent of the international transactions.
The impugned order on the issue of transfer pricing adjustment of the international transactions of Purchase of Raw Material, Purchase of traded goods and Sale of finished goods is set aside and the matter is remitted to the file of the AO/TPO for a fresh determination in the terms indicated above. Needless to say, the assessee will be allowed reasonable opportunity of hearing in such fresh proceedings.