TMI Blog2015 (3) TMI 318X X X X Extracts X X X X X X X X Extracts X X X X ..... leted by CIT(A) and confirmed by the Tribunal. - Decided against revenue. Sale tax / purchase tax subsidy received by the assessee from SICOM - whether a revenue receipt on the ground that the subsidy given was for increasing the profitability of the assessee? - Held that:- We have considered the “1979 Package Scheme of Incentives” and as well as Package Scheme of 1993 introduced by the Govt. of Maharashtra. As rightly argued by the Ld. AR the object and purpose for which the incentive by way of sales tax subsidy is given are the identical in both the Incentive Schemes. It is true that in the preceding years the Tribunal has set aside the issue to the file of the Assessing Officer for the fresh adjudication but in our opinion as the issue has been settled by the jurisdictional High Court on the identical subsidy, we do not consider it necessary to again set aside the issue to the file of the Assessing Officer and to create the complexity of the litigation. We, therefore, following the decision of the Reliance Industries Ltd. (2003 (10) TMI 255 - ITAT BOMBAY-J ) hold that the sales tax subsidy availed in “Package Scheme of Incentives 1993” is a capital receipt and cannot be taxed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ur of assessee. - ITA No. 1476/PN/2010, ITA No. 1686/PN/2011 - - - Dated:- 20-2-2015 - Shri G.S. Pannu And Shri R.S. Padvekar JJ. For the Appellant : Smt. M.S. Verma For the Respondent : Shri Nikhil Pathak ORDER Per R.S. Padvekar, JM:- These two appeals are filed by the assessee challenging the impugned orders of the Assessing Officer passed u/s. 143(3) r.w.s. 144C and 115WE(3) of the Income-tax Act and these appeals pertain to the A. Yrs. 2006-07 and 2007-08. 2. We first take the appeal for the A.Y. 2006-07 being ITA No. 1476/PN/2011 for disposal. The assessee has filed the concise grounds in place of descriptive grounds. The concise grounds read as under: 1. The learned A.O. / DRP erred in disallowing the payments made to John Deere India Pvt. Ltd. of ₹ 1,62,80,699/-. 2. The learned A.O. / DRP erred in disallowing the expenditure incurred on software maintenance and other system of ₹ 75,72,755/- as a capital expenditure without appreciating that the same was revenue expenditure in nature. 3. The learned A.O. / DRP erred in holding the sale tax / purchase tax subsidy of ₹ 6,91,61,972/- received by the assessee from SICOM a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .Y. 2001-02. The assessee also filed the copy of the Tribunal s order in ITA No. 1658/PN/2004 dated 30-11-2009. We find that the identical issue has come for the consideration in the assessee s own case in the A.Y. 2001-02 and the issue was decided in favour of the assessee confirming the order of Ld. CIT(A) allowing the relief to the assessee in that assessment year. The operative part of the decision is as under: 6. On hearing me submissions of both the sides we have found that the nature of expenditure pertained to the year under consideration of technical consultancy fees was made in accordance of an agreement dated 31-03-2000 which was signed by one MD of John Deere India Pvt. Ltd. On the other hand; from the side of the assessee it was signed by one Deputy CHO. The said agreement had provided as per the terms for reimbursement of monthly salary. Our attention has also been drawn on the bills which were raised by John Deere wherein as well there was a reference of reimbursement of expenses. It has also been produced on record that the company had entered into an agreement dated 10-02-1998 with its joint venture company i.e. John Deere India Pvt. Ltd. and that agreement w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the decision of Pune Bench of the Tribunal in the case of assessee itself for A.Y. 2001-02 (Supra). He submitted that the Tribunal has held that the consultancy fee is allowable as a revenue expenditure. Regarding SAP maintenance and License fees, the Tribunal has set aside the matter to decide it afresh in view of the decision of the Special Bench of the Tribunal in the case of Amway India Enterprises, 111 ITD 112 (SB). The Ld. A.R. submitted further that the A.O. in the order passed u/s. 143(3) r.w.s. 254 of the Act after verifying the claims of the assessee has held the said expenditure as revenue in nature. 13. The Ld. D.R. has not disputed the above fact. He, however, placed reliance on the assessment order. 14. Having gone through the orders of the authorities below, we find that the A.O made addition of ₹ 79,62,000/- on account of payment made to John Deere (India) Pvt. Ltd. The said expenditure consisted of consultancy charges at ₹ 40,80,000/-, system maintenance development at ₹ 36,00,000/- and SAP Licence fees at ₹ 2,82,000/-. The Ld. CIT(A) has allowed the claim of the assessee by following his order for the A.Y. 2001-02. The A.O in compl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essee got benefit of ₹ 6,91,61,972/- and the assessee company treated the said as a subsidy and also declared as a revenue receipt in original return. 7. However, the assessee filed revised return and claimed the said amount as capital receipt, relying on the decision of the ITAT, Special Bench, Mumbai in the case of CIT Vs. Reliance Industries Ltd. 88 ITD 273 (SB), Mumbai and CIT Vs. Ponni Sugar and Chemicals Ltd. 219 CTR 105 (SC). The claim of the assessee was rejected by the Assessing Officer. The Assessing Officer relied on the decision of the Hon'ble Supreme Court in the case of Sahaney Steels and Press Work Ltd. 228 ITR 253 and held that the sales tax subsidy to the extent of ₹ 6,91,61,972/- is a revenue receipt and the same was taxable in the hands of the assessee. The assessee has field the objections before the Dispute Resolution Panel (DRP) but without successes. The main crux of the reasons given by the DRP is that in the preceding year, the assessee has treated the said subsidy as a revenue receipt and for the first time in this year the assessee has claimed it a capital receipt. Now, the assessee is in appeal before us. 8. We have heard the rival ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the matter has been set aside, doctrine of estoppel is not applicable to the legal issue and moreover, the issue is seized with the authorities below for deciding the same afresh as per directions of the Tribunal in the preceding year. We have also heard the Ld. DR, who supported the order of the DRP and Assessing Officer. He reiterated the reasons given by the Assessing Officer as his argument to support impugned order and pleaded for confirming the addition. 10. In the case of Reliance Industries Ltd. (supra) the said assessee was exempted from payment of the sales tax as per 1979 Package Scheme of the Govt. of Maharashtra, for setting up a new industrial unit in the notified backward area of Patalganga in Raigarh district. It was claimed by the assessee that the amount of sales tax exemption/subsidiary should be treated as a capital receipt in the hands of the assessee. The assessee was covered for getting the said incentive under the Package Scheme of Incentive 1979 declared by the Govt. which was notified in the GR dated 05-01-1980. It was a contention of the said assessee that the earlier incentive schemes were fine-tuned to make 1979 Package Scheme so as to make them more ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mental authorities have relied on the assessment and appellate order for the earlier years they have not brought any new fact or material on record. Even before us, with respect to counsel who appeared for both the sides, no new arguments were advanced other than the arguments which had been advanced by the assessee and the Department before the Tribunal in the appeal for asst. yr. 1985-86. The preliminary argument of the Department before us that the assessee did not collect any sales-tax and therefore there is no question of any exemption or incentive being given is an argument which has been advanced before the Tribunal both in the asst. yrs. 1984-85 and 1985-86. In fact, in para 74 of its order for the asst. yr. 1985-86, the Tribunal has referred to this aspect of the matter and after noting that the argument has already been found against the Department in the order for the asst. yr. 1984-85, further observed that no fresh material was brought to their notice either in the course of the arguments or in the orders of the Departmental authorities. The position before us, with respect, is the same. Even with regard to the other question as to whether the Tribunal erroneously inte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... xperienced by the management in the actual running of the sugar factories. It was further held that though the amount of subsidy is equivalent to the quantum of purchase tax, the object behind the grant of the subsidy is not to set up a new sugar factory, but to run the factory efficiently. In other words, the subsidy is given so that the management may not be in trouble in running the factories in the initial year. In this background of facts, the Madras High Court applied the decision of the Supreme Court in Sahney Steel. In doing so, the High Court noted that in Sahney Steel's case, the payments were made directly or indirectly not for the setting up of the industries, but were made only after the production was commenced. It was therefore held, applying the ruling of the Supreme Court, that the subsidy received by the assessee, which was not for the setting up of the sugar factory, is a revenue receipt. In the other judgment, which is of the Madhya Pradesh High Court in CIT vs. S. Kumar's Tyre Manufacturing Co. (2003) 183 CTR (MP) 590, the subsidy was expressly given to meet expenditure on power. The Madhya Pradesh High Court held, following the judgment of the Supreme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eep up with the newer devices and methods adopted in the world of business as also in the several schemes that policy makers draw up from time to time to ensure the desired development in the different sectors of industry. If the Government found it convenient to adopt a policy of enabling the entrepreneurs to initially fund the capital cost of the project by obtaining loans from the public financial institutions by inducing the entrepreneur and the lender institution to rely upon the incentives provided under the Scheme for discharging such loans, it cannot be said that the incentive given being post production, though meant exclusively for meeting the capital cost, the amount of the incentive would be a trading receipt in the hands of the recipient. The fact that the time of payment is subsequent to the commencement of production would not in the larger perspective make a difference. As observed by the Supreme Court in the case of K.C.P. Ltd. vs. CIT (2000) 162 CTR (SC) 320 : (2000) 245 ITR 421 (SC), it is not the name given by the assessee or even the Revenue or anyone else that matters, but it is the true character of the receipt that determines its taxability and being regarde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ved after production commences, it cannot be said, irrespective of the purpose and object of the Scheme, that the receipt is of revenue nature. This observation of the Madras High Court and the manner in which the judgment of the Supreme Court in Sahney Steel (supra) has been explained at p. 612 of the report also show that the Tribunal in the case of RIL for the asst. yr. 1985-86 correctly interpreted the judgment of the Supreme Court in Sahney Steel (supra). The observations of the Madras High Court lend support to the view that the purpose and object of the Scheme under which the subsidy is given is of more fundamental importance than the fact that the subsidy was received after the commencement of production or conditional upon it. Therefore, in our view and with respect, the Tribunal in the case of RIL had correctly interpreted and understood the ratio of the judgment of the Supreme Court in Sahney Steel (supra). 38. In this view of the matter, we answer the question referred to us in the affirmative. Since there are other grounds in the appeal of the assessee and since there is also an appeal by the Department, they will go back to the Division Bench for being disposed of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 22,63,82,683 -do-/CUP 6 Catalogue updation services 38,95,688 -do- 7 Reimbursement Expenses 2,00,73,737 Actuals at cost Total 505,41,92,874 13. The assessee company is engaged in the business of manufacture of tractors, aggregates and spare parts which are sold in the domestic market as well as the foreign market. For this year, the total sales of the assessee company are around ₹ 808 Crs. and the profit before tax was ₹ 64.67 Crs. In this year, the assessee entered into various International Transactions with its Associated Enterprises (AEs) and the details of the same are given on page 2, para 4 of the order of the Transfer Pricing Officer (in short TPO). 13.1 It was submitted by the assessee to the TPO that the various transactions entered into by it with its AEs were at Arm s Length Price (ALP) and hence, no addition is warranted. The copy of the Form No. 3CEB filed by the assessee is on pages 149-169 of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assembly or other production of goods that are sold to related parties. The TPO has referred to the TP study report wherein it has been stated that the assessee company is the largest Indian exporter of tractors to USA and exports contributed 57% of the total turnover of the assessee company. According to the TPO, the functions performed and the assets utilized for manufacturing tractors in the domestic and export segments are the same. The TPO has mentioned that the various differences in the export and domestic segment are not material and they do not affect the gross profit of the two segments. The TPO has noted that the AEs of the assessee are enjoying locational savings since the cost of manufacture of tractors is lower than the cost of manufacture of tractors in the AE s countries. Thus, according to him, the domestic segment is a much better comparable vis- -vis the external comparables in the form of 8 companies adopted by the assessee. The TPO has finally adopted CPM as the most appropriate method for determining the ALP by discarding TNMM method adopted by the assessee for determining ALP of export of tractors to AEs as appropriate method. 13.5 The TPO has also reject ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or A.Y. 2004-05 to 2005-06 are placed at pages 282-285 of the Paper Book-2 whereas the copy of TP order for A.Y. 2008-09 is placed at pages 353-354 of the Paper Book-2. The Ld. AR submitted that for last several years, the Dept. has accepted TNMM as the most appropriate method for determining ALP in respect of the transactions of export of tractors. In such a scenario and as the facts for this year are similar to the facts involved for the earlier years and the subsequent year i.e. A.Y. 2008-09 that on the principle of consistency, the TPO should not have rejected TNMM as the most appropriate method. Ld. AR placed his reliance on the following decisions and according to him the courts have held that when the facts involved are similar for various years and the Dept. has accepted a particular stand in some of the years, there is no reason to take a different stand in the subsequent years - a. Alfa Laval (I) Ltd. [149 ITD 285 (Pune)] b. Radhasoami Satsang v. CIT [193 ITR 321 (SC)] c. H. A. Shah Co. v. CIT [30 ITR 618 (Bom)] d. Brintons Carpets Asia (P) Ltd. [139 TTJ 177 (Pune)] e. Drilbits International Pvt. Ltd. [62 DTR 171 (Pune)] f. Agility Logistics (P) Ltd. [ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2 Tractors Farm Tractor Ltd. 1391.20 11.90% 3 Mahindra Mahindra Ltd. 3441.82 8.65% 4 VST Tillers Tractors Ltd. 131.14 9.40% 5 Punjab Tractors Ltd. 958.55 11.50% 6 International Tractors Ltd. 953.25 15.41% 7 Kerala Agro Machinery Corp. Ltd. 80.15 -0.54% 8 HMT Ltd. 281.24 -4.84% Mean 4.93% 14.4 Ld. A.R. submitted that the reasons given by the TPO for rejecting the comparable companies are not correct. Firstly, it is stated that the TPO is not justified in holding that the companies with excessive losses should be excluded. In this respect, it is submitted that in A.Y. 2005-06, Escorts Ltd. and HMT Ltd. were considered as comparable entities. In fa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... niche segment and it is not a case of software business wherein the number of companies involved are huge and the turnover plays an important role in determining the comparability of the companies. Ld. AR placed his reliance on the decision of ITAT, Bangalore in the case of Genisys Integrating Systems (India ) Pvt. Ltd. [152 TTJ 215]. In that case, the turnover of the assessee was ₹ 8.15 Crs. and ITAT held that companies whose turnover ranges between 1-200 Crs. should be selected. Ld. AR submitted that the turnover the various companies selected by it was in comparable range and there is no reason to reject any company on the basis of turnover filter. 14.7 It is further argued that the TPO had also raised objections in respect of a few comparables vide his letter dated 13.04.2012. In the said letter, the TPO has objected to the inclusion of Kerala Agro Machinery Corporation Ltd. on the ground that the said company was manufacturing power tillers and power reapers and not engaged in the business of manufacturing tractors. Accordingly, he stated that the said company cannot be considered as comparable. Further, the TPO has further stated that Kerala Agro Machinery Corporati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Net operating margin of export segment 11.17% 14.9 Ld. AR alternatively submitted that the TPO had compared the margins of the domestic and export segment. It is argued that the TPO should have compared the net operating margins of the two segments and not the gross margins. He submitted that as per rule 10B, TNMM can be applied either by adopting external comparables or internal comparables. It is contended that if at all, the domestic segment is to be compared with the export segment, then it should be at net profit level and not gross margin level. It is submitted that after all, every company is concerned about its net profit and Income tax is also levied on the net profit and not on gross profit. There are certain expenses which are incurred by the companies which have a major impact on its business. But some of such expenses are not considered while determining the gross margin. Ld. AR accordingly submitted that the comparability of the gross margin gives a distorted picture since certain important costs and elements are ignored. 14.10. Ld. AR argued that in case of gross margins, only the direct and indi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... turer carrying low risks and carrying out low - level functions. 14.13 It is stated that there was no joint facility arrangement between the AEs and the assessee company. Further, Ld. AR submitted that there was no such agreement for purchase and sale of tractors on a long term basis with the AE. He further stated that the assessee company is also selling the tractors in the domestic market and the sales to the AEs are purely governed by the demand and supply mechanism. Ld. AR pointed out that there was no contract of whatsoever nature wherein the AEs have agreed to purchase a fixed quantity of tractors produced by the assessee company and on the contrary, the assessee s domestic sales were increasing year to year and there was considerable increase in the assessee s share in the domestic market. Accordingly, the assessee submitted that the TPO has erred in holding that the assessee had a joint manufacturing facility with its AEs and there was a long term buy and supply arrangement with the AEs. The assessee has submitted the details of its sales in domestic market and the same are as under: Fig. in units Particulars F.Y. ending 31.3.2009 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... od for determining the ALP. 14.16 Ld. AR also relied upon ITAT, Pune decision in the case of Alfa Laval India Ltd. (149 ITD 285) wherein similar issue was involved. In that case, the assessee had adopted TNMM as appropriate method for determining the ALP. However, the TPO rejected TNMM and adopted CPM. In that case also gross margin of the domestic and export segment were compared. ITAT Pune held that CPM was not the most appropriate method for determining the ALP in view of the fact that there were various differences between the export and domestic segment. 14.17 Without prejudice, Ld. AR submitted that if at all, CPM is to be adopted, suitable adjustments on account of the above differences may also be made. 15. The Ld. CIT (DR) supported the orders of the lower authorities. It is argued by her that there is no res judicata in income tax proceedings and therefore, simply because the TNMM was accepted as the most appropriate method in the earlier years that did not mean that the same should be followed in the current year. It is submitted that each year is an independent year and since in this year, the TPO has given elaborate reasons for rejection of TNMM, there is no r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the ALP adjustment is made only to the export of tractors and in respect of other reported transactions the Assessing Officer has accepted the method adopted by the assessee as well as determination of the ALP as per the T.P. study filed by the assessee. The contention of the assessee is that it had exported tractors to AEs for last several years and the assessee has adopted TNMM method as the most appropriated method for determining the ALP in respect of the transaction of export of tractors to the AEs from A.Y. 2004-05. The said contention of the assessee has not been disputed before us by the Revenue. Admittedly, for all those assessment years starting from 2004-05 onwards and also for the A.Y. 2008-09 the Assessing Officer has accepted the TNMM method as a most appropriate method for determining the ALP in respect of the sale of tractors by the assessee to the AEs. The assessee has filed the copies of the assessment order for the A.Ys. 2004-05 and 2005-06 which are placed in the Compilation (Page Nos. 282 - 285 of the P/B-2). The assessee has also filed the TPO s order for the A.Y. 2008-09 which is placed at Page Nos. 353 - 354 of the P/B-2. Though the TPO/DRP has gone on discu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the subsequent year without explaining how facts differ. It is seen that the TPO has gone on the turnover for rejecting the comparable of the assessee but in the preceding year A.Y. 2005-06 the TPO had accepted the very same companies as comparable. If TPO desires to reject the comparable as there is a change in the parameters or FAR analysis then he should have brought on record how the parameters of the FAR are different in this year as compared to A.Y. 2005-06. There is a merit in the contention of the assessee that the tractors segment is niche segment and there is no much difference in the turnover of the comparable entities selected by the assessee. 19. The TPO has expressed his reservation on the Escorts Ltd. and HMT Ltd. comparable selected by the assessee on the ground that those two companies have incurred losses. It is seen that in the A.Y. 2005-06 those two companies has incurred the losses but in spite of the losses in that year, the TPO has not rejected those two companies as a comparable. We fail to understand why there is inconsistency approach of the TPO in the next assessment year i.e. A.Y. 2006-07 which is before us, even though there is no change in the param ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... business as no specific objection is noted by the TPO, those companies should be considered as comparable. The assessee states that net operating margins (NOM) of the balance four companies is within plus or minus 5% of the net operating margin of the export segment and hence, the transactions are at ALP. The assessee has filed the working on the above contention which is as under: Sr. No. Name of the company Net operating margin 1 Tractors Farm Tractor Ltd. 11.90% 2 Mahindra Mahindra Ltd. 8.65% 3 Punjab Tractors Ltd. 11.50% 4 International Tractors Ltd. 15.41% Average net operating margin 11.87% Net operating margin of export segment 11.17% 21. It is seen that out of the 8 companies selected as a comparable in this year i.e. A.Y. 2006-07, 7 companies were also selected in A.Y. 2005- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . and hence, the CPM could not applied. The Tribunal held that considering the differences in the functions performed and the assets utilized, suitable adjustments are not possible to be made and hence, the said case CPM was not the most appropriate method for determining the ALP. The operating part of the discussion in the said decision is as under: 50. Considering the above submissions, vis- -vis the method i.e. CPM (cost plus method) adopted by the learned TPO to determine the ALP, which has been relied upon by the learned Departmental Representative, we find that the learned TPO while adopting CPM has failed to appreciate several material aspects of the issue as discussed above. In our view, the learned TPO was not justified in comparing the gross margin in export segment vis-a-vis gross margins in domestic segment. There are various differences in the functions performed and the risk assumed in these two segments and therefore, the same cannot be considered as comparable cases for determining the ALP. There is no marketing risk in the export segment, no risk of bad debts, no product liability risk in export segments whereas the assessee has to bear all these risks in the d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the net profit of the domestic export segment is more proper. The assessee at page No. 141 of the paper book has given working of the net profit of the two divisions as per which, the net profit of the domestic segment is 13.04 per cent and that of the export segment is 12.55 per cent. We find that there is hardly any difference between two segments. We also find substance in the submission of the learned Authorised Representative that in respect of transaction with AE, the assessee also does not have to bear bad debt risks, product/warranty risks etc., hence some percentage of reduction should he given in the margin computed for the domestic segment for the above risk. 52. Considering the above material facts in totality, we are of the view that the learned TPO was not justified in adopting the CPM as the most appropriate method. On the basis that the assessee had a joint facility arrangement or a long-term buy and supply arrangement with its AE, as we have discussed hereinabove, we find that there was no sufficient reasons with the learned TPO to reject CUP method or TNMM adopted by the assessee to determine the arm s length price (ALP). We thus hold that the addition made b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd we approve TNMM as a most appropriate method adopted by the assessee for determining the ALP. We also hold that even after excluding KAMCL the average operating profit margin of the 7 companies are at 5.71% as against the 11.70% of the export segment of the assessee company. The ALP declared by the assessee is well within the limit. We, accordingly, hold so. In the result, the Ground No. 4 is allowed. 24. Now, we take up the assessee s appeal for the A.Y. 2007-08 being ITA No. 1686/PN/2011. The assessee has filed the concise grounds. Ground No. 1 reads as under: 1. The learned A.O. / DRP erred in holding the sale tax / purchase tax subsidy of ₹ 9,51,40,606/- received by the assessee from SICOM as a revenue receipt on the ground that the subsidy given was for increasing the profitability of the assessee. 25. The facts which revealed from the record as under. The assessee had established an unit at Sanaswadi near Pune in 1998. The Government of Maharashtra had introduced a Maharashtra's 1993 Package Scheme of Incentives . This scheme was introduced for giving incentive to the units for setting up units in backward areas. As per this scheme, the assessee was eli ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Company 1 Escorts Ltd. 2 Tractors Far Equipment Ltd. 3 Mahindra Mahindra Ltd. 4 VST Tillers Tractors Ltd. 5 Punjab Tractors 29. The PLI taken for the purpose by the assessee was net operating profit margin (0PM) to total sales. It was contended by the assessee company that its PLI was much more than the average 0PM of the comparable entities. Based on the above calculations, the assessee had submitted that the international transactions relating to export of tractors to its AEs were at ALP. It was also submitted by the assessee that TNMM was the most appropriate method for determining the ALP in respect of the international transactions relating to export of tractors in the earlier years also by the assessee. But the AO/TPO adopted Cost Plus Method (CPM) and made an upward adjustment of ₹ 49,18,60,160/- to the value of the international transactions relating to export of tractors. The reason for adoption of CPM as opposed to TNMM, according to the assessee, w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g out low-level functions. In such cases, transfer pricing determination involves intangible property or pricing of manufacturing arrangements. But there was no such arrangement between the assessee and the AEs. The sale to the AEs was purely governed by the demand and supply mechanism and there was no contract of whatsoever nature wherein the AEs had agreed to purchase a fixed quantity of tractors produced by the assessee company. The assessee sought to demonstrate that through on the fact that its domestic sales were increasing year-toyear and also there was considerable increase in the assessee's share in the domestic market, the assessee company had also purchased its raw material from local vendors and it was not a case of job work being carried out by the assessee for its AEs. The assessee also stated that just because 48% of the total revenue of the assessee was from exports, it did not mean that the assessee was a contract manufacturer. 30. The assessee submitted that it had requested for adjustment on account of following differences - Adjustment on account of difference in the level of value chain. Adjustment on account of sales and marketing functions and associat ..... X X X X Extracts X X X X X X X X Extracts X X X X
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