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TMI Blog2014 (4) TMI 932X X X X Extracts X X X X X X X X Extracts X X X X ..... facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in taking Avery India as the only case comparable with the assessee ignoring the other two comparable cases adopted by the TPO. 3. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred not considering the TPO's reasons for rejecting the other two comparables selected by the assessee. 2. The appellant prays that the order of the Ld. CIT(A) on the above ground be set aside and that of the AO be restored. 3. The appellant craves leave to amend or alter any grounds or add a new ground which may be necessary." Assessee-company, engaged in the business of import ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t eight companies were identified as comparable, that the operating profit (two sales) margin of the assessee was at 5.22% as against the comparables of 4.83% as claimed by the assessee. He re-worked the operating margins of the above comparables and the assessee company as under: SN Name of the Company Sales Total Cost Op.profit OP/TC % OP/Sa les % Assessee* 29.72 28.17 1.55 5.50 5.09 Comparables: 1 Addison & Co. Ltd. 115.87 109.65 6.22 5.67 5.37 2 Avery India Ltd. 74.15 68.59 5.56 8.11 7.50 3 Gansons Ltd. 39 37.05 1.95 5.26 5.00 4 L G Balakrishnan & Bros. Ltd. 409.03 373.37 35.66 9.55 8.72 5 Monozyme India Ltd. 9.82 8.94 0.88 9.84 8.9 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eering Ltd. (Merged) 59.16 49.99 9.17 18.34 15.50 10 Manugraph India Ltd. 282.92 237.09 45.83 19.33 16.20 Arithmetical mean 8.97 8.02 While working the operating margin of the assessee, the foreign exchange fluctuation gain is excluded from the sales. He held that the arithmetic mean of operating profit margin of the comparables was higher than the margin shown by the assessee, that ALP of the transactions had to be re-worked applying the safe harbor limits. Finally, he calculated ALP as under: Sl. No. Particulars Amount (Rs.) 1 International Transaction (imports from AEs) 5,48,13,219 2 Sales 29,72,34,902 3 Desired profits @ 8.02% on sales 2,38,38,239 4 Actual Profits ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... formed by the host of companies, that in addition the functional comparability the assessee had applied quantitative filters like turnover, companies having negative net worth etc. with a view to establish comparability with reference to assets employed and risks assumed, that the TPO had not provided detailed parameters (like treatment of non-operating incomes and expenses) for arriving at the operating sales, operating cost and operating margins of the comparables and hence carried out its scrutiny in a opaque manner, that the TPO had failed to issue show cause notice to the assessee for rejecting the margins of the assessee and adopting two additional comparables, Flex Engineering Ltd. (FEL) and (Manugraph India Ltd.) MIL, against the ma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he operating margin of 5.22%of the assessee, that if the operating margin of all other seven comparables(excluding FEL and MIL)were considered as per the order of the TPO and the operating margin of AIL was considered at1.65% it was evident that average operating margin of 5.33% of the said comparables was within the +/-5% of the margins/transactions of the assessee, that the international transactions, entered in to by the assessee, were at ALP and no TP adjustment was required. Finally, he deleted the addition, amounting to Rs.82.52 lakhs, made by the AO. 2.3. Before us, Departmental Representative(DR) submitted that FAA had wrongly rejected two comparables, the mean margin approved by the FAA was factually incorrect, that in earlier yea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... omparables. He did not give any notice to the assessee for inclusion of two new variables. Basic principles of natural justice demand and expect that assessees should be heard, before fastening tax-liability to them. It is not known as how did the TPO arrive at the conclusion that FEL and MEL could be compared with the other companies for arriving at operating margin. Similarly, it is also not known as whether both the companies were in the same line of business or not. If the TPO had some definite information, he should have brought it on record and should have confronted the assessee with it. It would have given a chance to the assessee to defend itself. By not affording an opportunity to the assessee, TPO had taken a unilateral decision ..... X X X X Extracts X X X X X X X X Extracts X X X X
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