TMI Blog2014 (12) TMI 382X X X X Extracts X X X X X X X X Extracts X X X X ..... Functionally different company - Held that:- The factors which have been considered by the DRP are common to the entire industry and the entire industry has been affected because of those factors - the rejection of the comparable is not on the facts of the case - the products of the assessee are dependent on global markets with recession in world market, the business of the assessee has also suffered - if M/s. Thirumalai Chemicals Ltd., was working at 50% of capacity utilization, then the assessee was also working at 46% of its capacity utilization – there was no error in rejecting M/s. Thirumalai Chemicals Ltd., as a comparable – thus, the matter is remitted back to the AO to consider M/s. Thirumalai Chemicals as a comparable case for determining the ALP after giving reasonable opportunity of being heard to the assessee – Decided in favour of assessee. Inclusion of Gwalior Chemical Industries Ltd and Sunshield Chemicals Ltd. as a comparable companies – Held that:- The assessee stated that the restructuring in the case of Gwalior Chemical Industries Ltd has actually taken place in the subsequent year and fairly conceded to its inclusion - so far as M/s. Sunshield Chemicals Ltd., ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Appellant : Shri S.N. Soparkar, Shri Bandish Soparker For The Respondent : Shri Santosh Kumar ORDER PER N.K. BILLAIYA, AM: These cross appeals by the assessee and the Revenue are against the order dt.31.1.2014 passed by the DCIT-8(2), Mumbai u/s. 143(3) r.w. Sec. 144C(13) of the Act pertaining to A.Y.2009-2010. 2. The assessee is engaged in the business of manufacturing basic liquid resins, solid resins and formulations thereof. The products are sold under the brand name of Araldite . These products are known for their bonding strength, electrical insulation capability, dimensional stability, chemical and corrosion resistance and long term durability. 2.1. The assessee is a manufacturing concern and operates in the Speciality chemical industry . Its main product is Epoxy Resin. The major products groups are: Basis liquid resins Solid resins Formulated products 2.2. The user industries for the above products are as follows: Paint industry Civil Engineering Applications Structural composites Electrical insulation material Adhesives Tooling materials 2.3. A copy of the transfer pricing study report for the ye ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... led Management services availed Huntsman Advanced Materials (Switzerland) Gmbh 85,68,250/- With the aforementioned factual matrix the assessee is aggrieved 3. Ground No. 1 is of general in nature and needs no separate adjudication. 4. Ground No. 2 relates to the treatment of foreign exchange fluctuation as operating in nature while computing the operating mark-up earned by the assessee. 4.1. The Assessing Officer noticed that the assessee has treated foreign exchange loss of ₹ 2,10,40,000/- as non operating item of expense. The assessee was asked to justify the same. In its reply, the assessee conceded that the losses were incurred in the course of business activity of the assessee on account of import/export of raw materials/finished goods etc. The AO was of the opinion that the profit or loss arising out of foreign exchange fluctuation is directly linked to the assessee s business activities. 4.2. The DRP rejected assessee s contention stating that the exchange loss has been incurred as the part of purchase/sale transaction and hence is operating in nature. 4.3. Before us, the Ld. Counsel fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n in respect of its other main product during the year. Referring to the assessee s claim for using as a comparable of M/s. Pidilite Industries Ltd in A.Y. 2008-09, the DRP observed that the Tribunal has rejected the case of M/s. Pidilite Industries as a comparable for the reason that there was a merger in that year which was regarded as an abnormal factor. Taking a leaf out of this, the DRP observed that M/s. Thirumalai Chemicals Ltd was also under the influence of abnormal factor resulting in very poor capacity utilization and therefore cannot be considered as a comparable. 5.4. Before us, the Ld. Counsel for the assessee stated that even the assessee was working at 46% of capacity utilization as against 50% of capacity utilization in the case of M/s. Thirumalai Chemicals Ltd. The factors which have been considered by the DRP are common to the entire industry and the entire industry has been affected because of those factors. Therefore, the rejection of the comparable is not on the facts of the case. We find force in the contention of the Ld. Counsel. It is not in dispute that the products of the assessee are dependent on global markets with recession in world market, the busi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the final list of comparables. Since the Tribunal has excluded this company from the final list of comparable in A.Y. 2008-09, the same should be excluded from the final list of comparables for the year under consideration also. We, direct the AO accordingly. Ground No. 4.3.1 is partly allowed for statistical purpose. 7.5. Ground No. 4.3.2 relates to the inclusion of Atul Ltd as comparable company. 7.6. The assessee has rejected this company on the basis of turnover filter stating that this company s turnover is more than 750 crores. The TPO observed that the turnover of this company is ₹ 1159 crores whereas the turnover of assessee is 312 crores. The TPO further observed that the assessee itself has chosen the turnover range of ₹ 25 crores to ₹ 750 crores. According to the TPO, the lower range has been taken in a range of 12 times below its turnover whereas the upper range is only 2.5 times. In the opinion of the TPO, the upper range should also have been taken in the range of 12 times higher than the assessee s turnover. Accordingly, the TPO included M/s. Atul Ltd., as a comparable. 7.7. The DRP found that in A.Y. 2008-09, this company was retained by t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of being heard to the assessee. Ground No. 4.3.3 is treated as allowed for statistical purpose. 8. Ground No. 5 with its sub-grounds relate to the disallowance of Management service charges paid by the assessee to its AEs. 8.1. It was noticed that the assessee has claimed to have procured services from its group company M/s. Huntsman Advanced Materials, GMBH. It was claimed that the services procured by the assessee are proprietary in nature. Information about similar services being rendered by independent service provider is not available, therefore, CUP method could not be applied. The assessee has chosen to aggregate its transaction and test it with TNMM. This contention of the assessee was out-rightly rejected. The assessee was asked to explain whether these services were requested for, how the services were rendered to the assessee, copy of the written agreement and at what rate these are available in the local market. It was explained that the management charges are covered by two agreements i.e. service agreement and core technology service agreement. These agreements are effective from 2001. The assessee has received various services such as I.T. services, marketing s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... duction in this regard before the AO/TPO and it is further claimed that adequate opportunity was not provided by the concerned authorities, we are of the considered opinion that it will be in the fitness of the things if the impugned order on this issue is set aside and the matter is restored to the file of AO/TPO for deciding this issue afresh as per law after allowing a reasonable opportunity of being heard to the assessee. While deciding this issue in the fresh proceedings, the assessee s other objections on this score shall also be dealt with. 8.6. Facts and issues being identical, respectfully following the findings of the Co ordinate Bench, we direct the AO/TPO accordingly. Ground No. 5 with its sub ground is treated to be allowed for statistical purpose. 9. Ground No. 6 is without prejudice to the other grounds. The grievance of the assessee is that the AO/TPO and the DRP erred in not restricting the amount of adjustment to the value of transaction with AEs by not following the order of the Tribunal for A.Y. 2008-09. 9.1. We find that the TPO has proposed adjustment to entire turnover whereas the international sales to AEs constitute only 21.06% of total sales. We ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gly direct the TPO to treat miscellaneous income and provisions written back as items of operating in nature. 13.1. Before us, the Ld. Departmental Representative relied upon the findings of the TPO. 13.2. We find that on identical issue, the Co ordinate Bench of the Tribunal, Mumbai in ITA Nos. 2414/M/2013 and 2474/M/13 had the occasion to consider the sundry balances written back as well as excess provision written back and whether the same amounts to operating revenue. The Tribunal at para 10.2 of its order has held that if the uniform approach is adopted, unless any contrary material has been brought on record, we see no infirmity in such basis of the calculation . We further find that provisions written back relate to guarantee commissions waived by the AE and provision for inventory is no longer required. These transactions were entered in the usual course of the business activity of the assessee. Further, the miscellaneous income is earned by the assessee out of day to-day operations which consists of sale of scraps and discount received. Since the assessee is following consistent accounting standards and policies, we do not find any reason why this income/write back ..... X X X X Extracts X X X X X X X X Extracts X X X X
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