TMI Blog2014 (11) TMI 546X X X X Extracts X X X X X X X X Extracts X X X X ..... gment - the taxpayer has used the data relating to earlier two years' data in addition to the current year - The selection of keywords itself is not correct as the taxpayer is into manufacture of compressor and the wrong selection of keywords has resulted into inappropriate selection of comparables - Therefore, the study made under TNMM is rejected - as selection of comparables by TPO suffers from these basic def iciencies, this issue requires re-examination by TPO by selecting proper comparables and then determine the ALP – thus, the matter is remitted back to the AO for fresh consideration. Adoption of operating cost on the basis of estimation – Held that:- Following the decision in M/s Tecumseh Products India Pvt. Ltd. Versus Asst. Commissioner of Income tax [2014 (4) TMI 816 - ITAT HYDERABAD] - Without considering the objections of Assessee, TPO determined the operating cost based on the proportionate cost on the ratio of sales in various segments - The action of the TPO was not justified at all when Assessee has maintained separate books of account, which was also accepted under the provisions of the Act - there is no reason for rejecting the same and estimating the operat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erabad facility manufactures compressors for Air-Conditioning equipments, whereas the Ballabgarh facility makes compressors for refrigeration equipments. In addition, Assessee manufactures subassembly and components (pump kits, crankshafts etc.) from its Export Oriented Manufacturing Unit (EOU Unit) in Balanagar and exports them to TPC USA. All the compressor sub-assembly components produced from EOU Unit is exported only to TPC USA, in order to manufacture compressor for sale in USA market. The annual requirements and the specifications of the components are provided by TPC USA. Assessee does not sell similar components to any other customer in India or outside India and therefore acts as a contract manufacturer for TPC USA with respect to sale of compressor sub-assembly and components. 4. In this appeal, assessee has raised 6 revised grounds, out of which, ground No.6 is general in nature and therefore, it need not be adjudicated. Ground Nos.2, 3 and 4 pertains to determination of arm s length price and resultant T.P. addition. Ground No.5 pertains to disallowance of payment of INR 5,02,000 towards daughter s marriage benefit. Assessee placed on record voluminous paper book ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e adjustments in computation. 7. At the outset Ld counsel submitted that the issues were already crystallized in assessee favour in earlier years and TPO referred to orders in earlier years. The learned counsel referring to the orders of the authorities and the paper books filed submitted that orders of the TPO/DRP suffers certain factual errors as well as the issues on comparability. On Ground 2 referring to the adjustments made with reference to sales made to AE of Compressor sub-assembly and components, it was submitted that Assessee operates 100% EOU and exports to TPC USA. Assessee arrived at the cost, which is identifiable from the separate books of account maintained for the EOU at 14,81,19,868/-. However, the AO without any show cause notice to Assessee, re-worked out the proportionate operating cost, ignoring the separate details furnished in this regard, at operating cost at a figure of ₹ 14.72 crores, on the basis of sales turnover. It is the submission that when Assessee has maintained segmental information, particularly 100% EOU unit accounts are maintained as such, there is no need to adopt proportionate turnover at a higher figure than what was spent by Asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... purchase of compressors of ₹ 1,28,02,516 the taxpayer has again used CUP as MAM. The taxpayer has provided details of purchase value of the component and its resale value. It has been shown that there is a significant increase in the sale value. Based on such increased difference, the taxpayer concludes that this is an internal CUP. The contention of the taxpayer is considered and not found acceptable. The taxpayer has mixed the RPM and the CUP and has concluded that the transactions are at Arm's Length Price. The RPM relies on the gross profit margins. Further, the gross profit margins of the international transactions are required to be compared with the gross profit margins earned by independent parties. In this case the taxpayer has compared its gross profit margin with itself to arrive at the Arm's Length Price. There are no external independent comparables used by the taxpayer. The CUP calls for strict comparability of the product on which transactions happen between the related party and independent party, which has not been provided. The method thus, fails. iii) Sale of AK Kits and components: For the transaction relating to Sale of AK Kits and componen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er in ITA.No.2228/H/2011 and 1863/H/2012 dated 28.05.2014 which is as under : D) Whether the comparables selected by the TPO is correct ? There are two sets of objections on the comparables selected by TPO; one being data pertaining to companies which have different accounting period than that of Assessee and the second one being the functional comparability of selected companies, being in business of compressor manufacturing whereas adjustments were done in the segmented results of supply of components (to the compressors). As selection of comparables by TPO suffers from these basic def iciencies, we are of the opinion that this issue requires re-examination by TPO by selecting proper comparables and then determine the ALP. In the interest of justice, we restore this issue of arriving at ALP to the f ile of TPO/AO for fresh consideration by taking objections from Assessee and also on the basis of TP proceedings of earlier year. Therefore, for determination of ALP, the issue is set aside to the f ile of the TPO/AO to do the same afresh as per the provisions of the Act. Respectfully following the orders in earlier years, the matter is restored to the file of AO/TPO. B. Ad ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s transactions. Therefore, since segmental working is available on the basis of separate books of account maintained for EOU unit, we are of the opinion that operating cost has to be taken at ₹ 16,38,68,871 and the TPO/AO is directed to take operating cost with the above f igure. Accordingly, this contention of Assessee is allowed. Respectfully following the same we direct the AO/TPO to accept the operating cost on the basis of separate books maintained. 10. In view of this, since, operating cost is also directed to be adopted on the basis of the audited books of accounts, the TPO/A.O. is directed to re-workout the adjustments if any, required after fresh analysis as directed above, as in earlier years, in this year also. Grounds 2,3,4 are accordingly allowed for statistical purposes. 11. Ground No.5 is as under : The Ld. A.O. and the Hon ble DRP have erred, on the facts and circumstances of the case, in disallowing the payment of INR 5,02,000 made on account of Daughter s Marriage benef it. 11.1 This issue has also been decided in assessee s own case for A.Ys. 2007-08 and 2008-09 in ITA.No.2228/Hyd/2011 and ITA.No.1863/Hyd/2012 dated 28.05.2014 vide paras 21 an ..... X X X X Extracts X X X X X X X X Extracts X X X X
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