TMI Blog2014 (12) TMI 803X X X X Extracts X X X X X X X X Extracts X X X X ..... Developers Ltd., it was held that this is not a comparable case because there was vast difference in the product manufactured by assessee and manufactured by M/s. Indian Toners & Developers Ltd. - CIT (A) found that this is also incorrect to say that both the companies has same NIC Code i.e. 24222 - assessee company’s NIC Code is 24223 whereas M/s. Indian Toners & Developers NIC Code is 24222 - a list of NIC code is placed on record and it was found that NIC code of both the companies i.e. M/s. Indian Toners & Developers Ltd. and assessee company are different – thus, the view of the CIT(A) is correct. Application of section 154 – Rectification of order on mistake apparent from record – Held that:- CIT (A) has held that an addition of ₹ 40 lacs has to be sustained which is on account of opening stock and by rectifying order u/s 154 has reduced the deletion by ₹ 40 lacs or odd -The issue in respect to deletion reduced by ₹ 40 lacs or odd has been restored to the CIT (A) to decide the same afresh after affording reasonable opportunity of being heard to the assessee as, as per order of CIT (A), no opportunity was provided to the assessee - the order of CIT(A) in d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rbed depreciation against the taxable income as computed by the ld. AO. 2.1 Brief facts of the case are that Sakata Inx (India) Ltd. is a wholly subsidiary of Sakata Inx Corporation, Japan. M/s. Sakata India was incorporated in 1994. In the year in question, the company was engaged in the manufacturing and selling printing inks and resins. The manufacturing plants of Sakata India is situated at Bhiwadi. The plant has developed high quality printing inks. For the year in question, the assessee filed its original return of income on 29-11-2006 along with profit as per I.T. Act at ₹ 2,60,71,160/- and after claiming set off of brought forward losses of ₹ 2,59,46,027/- declared net income of ₹ 1,25,133/- being Income from other sources. The assessee worked out its book profit u/s 115JB at ₹ 4,07,81,284/- and the tax liability under MAT was shown at ₹ 30,58,596/-. Subsequently the assessee filed a revised return on 21-09-2007 declaring profit as per the it at ₹ 2,16,40,763/- to correct the claim of depreciation and after claiming set-off of the brought forward losses of ₹ 2,15,15,630/- and declared net income of ₹ 1,25,133/-. The book ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... could be made. (f) Hon ble ITAT in case of Sony India Pvt. Ltd. (supra) and M/s Philips Software Pvt Ltd(supra) has allowed adhoc or flat comparability however, Hon ble Karnataka High Court has stayed operation of the order in case of M/s Philips Software Center Pvt. Ltd. On the plea of the department that rule 10B(3)(iii) stipulate for only reasonable accurate adjustment. 8.10 The above discussion clearly shows that the principles governing the need for working capital adjustment and method of calculation thereof is still evolving. There is no clear consensus regarding the same. The Hon ble High Court has stayed the decision relating to adhoc adjustment, as the adjustment has to be reasonably accurate as per I.T. Rules. 8.11 The OECD Public Draft has also made some serious observations. Particularly the fact that the comparisons of working capital only compares the levels on the last day of the tested party as well as the comparables, which may not give a representative level of working capital over the year. In case of a significant adjustment on account of working capital, selection of the comparable itself becomes questionable. Working capital adjustment requ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d to the assessee at the time of T.P. documentation. If the price determined by the assessee is within 5% of the value of international transactions, then the assessee s value is acceptable. However, once the price is beyond the 5% range, the entire difference has to be adjusted. As has been discussed in detail, the new set of 14 Comparables as mentioned in the show cause are considered ideal comparables for benchmarking. The Mean Margin of 8.64% is applied to the Operating Revenue of the assessee. Operating Revenue of the assessee Rs.84,10,45,482/- 8.64% of OR Rs.7,26,66,329/- Declared OP Rs.5,88,81,725/- Difference ₹ 1,37,84,604/- The assessee has imported raw materials, stores and spares amounting to ₹ 9,55,84,461/- from its AEs. As this is the largest transaction, the adjustment is made to this international transaction. The difference is 14.42% of the International Transaction, i.e. above 5%, accordingly the adjustment is made to the arm s length price of the international transaction of the assessee. As the margins of the assessee have been examined at entity level, the ALP of the other international transactions is accepted and no ad ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the Act 1961. Penalty proceedings u/s 271(1)( c) are being initiated separately for concealing income of true income and furnishing of inaccurate particulars of income. 2.4 A perusal of the computation of income of the AO will show that book profit as computed u/s 115JB by assessee and AO remains the same. Aggrieved upon the TP adjustments of ₹ 1,37,84,604/- on AE transactions, the assessee is before us. 2.5 The ld. Counsel for the assessee contended that following six comparables included by the assessee in its TP report have been rejected by the TPO without any justification Company Name Unadjusted margins Appellant's objections on TPO's action Atul Limited -1.46 For the purpose of our analysis in the transfer pricing documentation, the appellant has considered 'colours' segment as comparable to its own operation. As per the related party disclosure in the Notes to Accounts in the annual report of Atul Ltd. for F.Y. 2005-06, the value of related party transaction for Atul Ltd. was 14.45 percent, which is below our threshold limit of 25%. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion on TPO's action Asahi Songwon Colours Ltd. 16.62 Not in search: This company was not available in the search results carried out by the Appellant at the time of preparation of transfer pricing documentation. The learned TPO has not provided any valid justification as to how this company was identified as comparable when it did not appear in the search undertaken by the Appellant. The learned TPO has not rejected the search process or the parameters/filters utilized by the Appellant in undertaking the search process. Dynemic Products Ltd. 17.01 Food Colour: The company is engaged in manufacture of dye intermediate and various types of food colours. The aim of the company is to support and train constantly food industry in the correct selection and application of colours and to explore new applications of the colours. The products of the Appellant are not in the category of food colours. The Appellant in the transfer pricing documentation has rejected all food colour companies. Rejected by learned CIT(A) in A.Y. 2007-08. Indian Toners Developers ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n following case laws:- 1. Mentor Graphics Pvt. Ltd. (109 ITD 101) (2007) (Delhi ITAT). 2. E-Gain Communication Pvt. Ltd. (118 ITD 243) (2208) (Pune ITAT). 3. Sony India (P) Ltd. (315 ITR 150) (2008) (Delhi ITAT). 4. Philips Software Centre (P) Ltd. (119 TTJ 721) (2008) (Banglore ITAT). 5. Honeywell Automation India Ltd. (ITA No. 4/PN/08) (2009) Pune ITAT). 6. Quark Systems Pvt. Ltd. (132 TTJ 1) (2009) (Pune ITAT). 7. DCIT Vs. BP India Services P. Ltd. (TS-568-ITAT-2011) Mumbai ITAT). 8. Vertex Customer Services India (P) Ltd. (ITA No. 1506/Del/2008) (2008) (Delhi ITAT). 9. Global Vantedge (P) Ltd. (37 SOT 1) (2009) (Delhi ITAT). 10. Skoda Auto India (P) Ltd. Vs. ACIT (2009 30 SOT 319) (Pune ITAT). 11. Teva India Pvt. Ltd. (ITA No. 6107/Mum/2009) (2009) (Mumbai ITAT). 2.9 The ld. DR supported the order of the TPO, AO and DRP and relied on the same written submission as filed in assessment year 2007-08. 2.10 We have heard the rival contentions and perused the materials available on record. We find that ITAT Jaipur Bench for assessment year 2005-06 allowed relief to the assessee by following observations. 21. After considering the rival submi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tailed reasoning for holding that both these companies are comparable. The ld. CIT (A) s finding are reproduced somewhere above in this order and these findings remained uncontroverted. On technicalities, the TPO as well as ld. CIT D/R, now here before the Tribunal has tried to distinguish the facts of both these companies. In our view, a broad view has to be adopted and if the broad view is taken then we see no unreasonableness in the findings of ld. CIT (A). 22. The other company i.e. M/s. Indian Toners and Developers Ltd., the assessee claimed that the company manufactures toners and developers for photocopies, laser printers and digital printers. The same was not considered by the assessee to be comparable to the printing inks manufactured by assessee. However, ld. TPO noted that the company M/s. Indian Toners and Developers Ltd. and assessee has same NIC Code i.e. 24222 hence this company was held as comparable. The ld. CIT (A) has discussed the facts of both the companies and facts of the assessee s case and found that M/s. Atul Ltd. is a comparable case because of the decision of Tribunal in case of M/s. Sony India Pvt. Ltd. and in respect of M/s. Indian Toners Develope ..... X X X X Extracts X X X X X X X X Extracts X X X X
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