TMI Blog2014 (1) TMI 1023X X X X Extracts X X X X X X X X Extracts X X X X ..... r the Respondent : Ms. Neerja Pradhan ORDER Per I. P. Bansal (J.M.) : This appeal is filed by the assessee and is directed against the assessment order dated 18-10-2012, passed under Section 143(3) read with Section 144C(13) of the IT Act, 1961( "the Act") for the assessment year 2008-09. 2. The grounds of appeal in appeal of the assessee are as under:- "On Facts and in Law and without prejudice to each other 1) a) The learned AO. has erred (and the learned DRP erred in upholding) in TP Adjustment of Rs. 1,13,50,821/- b) The TPO has made the adjustment considering the margins of comparable companies only for financial year ('FY') 2007- 08 against using multiple year data as enumerated under Rule 10B(4). c) The TPO has erred in rejecting functionally comparable companies merely because they have incurred a loss. d) The TPO has erred in the selection of four comparables by cherry picking them rather than on the basis of analysis of the functions and risks undertaken and has consequently violated the provisions of Rules 10B(2) of the Rules and additional comparable selected by TPO be rejected on account of dissimilarity of functions. e) The TPO has erred in se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ties. For benchmarking the international transactions with its AEs, the assessee has adopted TNMM as most appropriate method using the Net Profit Margin (NPM) as the Profit Level Indicator (PLI). In the TP report the assessee has carried out detailed benchmarking exercise and selected a set of 10 broadly comparable companies with a weighted average NPM of 3.03%. The Net Profit Margin (NPM) of the assessee is 4.21%. The TPO rejected two comparables, namely, Alumeco India Extrusion Ltd and Shree Narmada Aluminum Inds. Ltd. on the ground that these comparables have incurred persistent losses‟. The TPO also selected additional comparables, which were rejected by the assessee in its benchmarking analysis in the TP report and final set of 11 comparables has been taken by the learned TPO with a mean margin of 7.26%. Against such computation of 7.26% net margin as computed by the TPO, it was the case of the assessee before the learned DRP that the correct net profit margin of 11 comparables is 5.79%, therefore, the correct net profit margin of comparables should be applied; Loss making company should not be rejected as the same are functionally comparable companies; segment profitab ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ndia Pvt. Ltd. Vs. ACIT, reported in (2013) 55 SOT 497 (Mum), wherein it has been held that the TP adjustments are to be restricted to international transactions alone and cannot be applied to the entire turnover of the company. It is incumbent upon the TPO to workout the ALP of the relevant transactions by following some authorized method and the entire cost borne by the assessee cannot be disallowed by taking the ALP at Nil. Copy of this order is placed at pages 35 to 46 of the paper book. (ii) With regard to priority of adjustment towards the profit of the year under consideration in relation to unabsorbed brought forward depreciation and unabsorbed business loss, learned AR has relied upon following decisions :- (a) CIT Vs. Premier Automobiles Ltd., reported (1994) 206 ITR 1 (Bom), wherein Their Lordships of Hon‟ble Bombay High Court after referring to Section 32(2) and the provisions of Section 72(2) 72(3) of the Act, have observed as follows :- "11. We have perused the above sections. Under s. 32(2) of the Act, a legal fiction has been created that unabsorbed depreciation of the earlier year shall form part of the current year's depreciation allowance and, there ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al transactions and its ALP is more than 5% as held by the Tribunal in case of Emersons Process Management India Pvt. Ltd. vs. Add CIT (supra) and in other cases. The computation made by the AO is, therefore, required to be reworked. As regards the GP rate, the AO made the addition only on the ground that the GP rate had fallen compared to the previous year and that the explanation given by the assessee was not substantiated by evidence. The AO has not pointed out any defects in the books of accounts. In our view, in the absence of any defects, books of accounts cannot be rejected. In relation to international transactions with the AE, there is provision for separate TP adjustments, and merely because there is TP adjustment, entire books cannot be rejected in the absence of any defects. We also note that the assessee had explained the fall in GP rate due to increase in material cost and in manufacturing expenses and due to impact of foreign exchange fluctuations. The AO has written that the assessee could not file supporting evidences. However, we find that it is not clear from the assessment order, whether the AO called for any evidence in support of increase in material cost and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ven above, the difference between margin taken for arms length price and margin shown by the assessee is less than 5%, then appropriate relief should be granted to the assessee. We direct accordingly. 10. Now, coming to the priority adjustment of brought forward unabsorbed depreciation and brought forward business loss and current depreciation, we restore this issue to the file of the AO with a direction to readjudicate the same in the light of aforementioned decisions relied upon by the learned AR and as per provisions of law after giving the assessee a reasonable opportunity of hearing. We direct accordingly. 11. It may also be mentioned here that during the course of hearing, it was submitted by learned AR that he has no objection regarding the comparables selected by the TPO and the objection of the assessee was limited only to the grievance which has been pointed out during the course of hearing of appeal and adjudication of TP issue should be limited to the submission of the assessee. Thus, as per the contentions of the learned AR, we dismiss grounds No.2, 4 5 and partly allow rest of the grounds as raised by the assessee in its grounds of appeal. Consequently, appeal f ..... X X X X Extracts X X X X X X X X Extracts X X X X
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