TMI Blog2015 (3) TMI 1010X X X X Extracts X X X X X X X X Extracts X X X X ..... lly which are manufactured by the assessee, is available, such a case cannot be included in the list of comparables. We, therefore, set aside the impugned order on this issue and order for the exclusion of this case from the list of comparables. Pidilite Industries Ltd. (PIL) - an admitted fact that there is acquisition and de-merger in the case of PIL during the year under consideration, and a company cannot be considered as a comparable because of exceptional final results due to mergers/de-mergers. This case is directed to be excluded from the eventual list of comparables. The cases of DIKL and SCL were rightly excluded by the TPO and the cases of MIL and PIL were erroneously included in the list of comparables. The impugned order is, therefore, set aside and it is directed to determine the arm's length margin afresh on the basis of the remaining two cases, namely, Atul Ltd. and IG Petrochemicals Ltd. It is further held that the scope of the transfer pricing adjustment should be restricted to the international transactions, which means, transaction between AEs alone and not non-AEs. The AO/TPO is further directed to give effect to the provisions of section 92C by makin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ck but also the opening stock. The Hon'ble jurisdictional High Court in the case of CIT v. Mahalaxmi Glass Works (P.) Ltd. [2009 (4) TMI 182 - BOMBAY HIGH COURT] has held that where unutilized Modvat credit is adjusted in the closing stock, similar adjustment should also be made to the opening stock as well. The Hon'ble Delhi High Court in the case of CIT v. Mahavir Alluminium Ltd. [2007 (11) TMI 41 - HIGH COURT OF DELHI] has also canvassed similar view. Respectfully following the above precedents, we set aside the impugned order on this issue and direct the AO to decide it as per law.- Decided in favour of assessee for statistical purposes. - ITA No.6217/Mum/2012 - - - Dated:- 18-1-2013 - Shri R.S.Syal and Shri Vivek Varma, JJ. For the Appellant : Shri S.N.Soparkar/Shri Bandish Soparkar For the Respondent : Shri Ajit Kumar Jain/Shri Praveen Kumar ORDER R.S. Syal, Accountant Member - This appeal by the assessee arises out of the order passed by the AO under section 143(3) w.r.s. 144C(13) of the Income Tax Act, 1961 (the Act) on 21/8/2012 in relation to the A.Y. 2008-09. 2. First issue raised in this appeal through grounds No. 1,2,3,6 and 7 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... certain objections before the Dispute Resolution Panel (DRP) against such adjustment, but without any success. Final order was passed by AO on 21.8.2012 making addition as proposed by the TPO. 5. In the present appeal, the assessee has assailed only on the aspect of selection of comparable cases on this issue. The ld. AR's objection in this regard as to the selection of comparable cases is two-fold. Firstly, the assessee is aggrieved against the exclusion of two cases out of the list of four comparable cases given by it, namely, Dai- Ichi Karkaria Ltd. Sunshield Chemicals Limited. Secondly, it is also not happy with the inclusion of two cases by the TPO, namely, Micro Inks Ltd. Pidilite Industries Ltd. In other words, the assessee has no objection to the exclusion of two cases claimed by it as comparable, namely, Indo-Nippon Chemicals Company Ltd Resinova Chemie Limited; and also no objection to the inclusion of two cases, namely, Atul Ltd. IG Petrochemicals Ltd, chosen by TPO for incorporating in the final list of comparables. The controversy is centered around the decision as to inclusion or exclusion of these four cases, which we will take up and deal with one by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... an be noticed from the assessee's TP study that the specialty chemicals manufactured by it are used in Paint industries, Civil engineering application, Structural composites, Electrical insulation material, Adhesive and Tooling material, whereas the specialty chemicals manufactured by DIKL are basically used in textile filaments and yarns. We fail to appreciate as to how the specialty chemicals manufactured by the assessee can be said to be comparable with those manufactured by DIKL. The chemicals manufactured by both the assessee and DIKL cater to the needs of altogether different types of industries. The TPO discussed three products of DIKL, namely, Trimetazidine, Tramadolc and Carboprost tramethamine as different. No where any finding has been given that the other products of DIKL are similar to those manufactured by the assessee. We have noticed from the assessee's TP study that DIKL is engaged in manufacture of specialty chemicals which are used in the entirely different industries with no resemblance whatsoever to those which use the specialty chemicals manufactured by the assessee. Other than that, DIKL is also in manufacturing bulk drugs and project consultants. It ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... visions make it amply manifest that the attempt should be to first find out a really comparable case and then in the alternative the endeavour should be to find out more than one comparable uncontrolled case, if these are available. There is no warrant in the relevant provisions that one must choose more than one case for benchmarking, even at the cost of comparability. If the number of comparable cases is more than one, then it is advisable to pick all such cases so as to iron out the peculiarities of a particular case. But when the number of comparable cases is limited to one or more, then no futile attempt should be made to find out even some incomparable cases with a view to swell the list of comparables and ultimately distort the profit rate of the really comparable case(s). The crux of the matter is that the comparability cannot be sacrificed at any cost at any stage. 11. Adverting to the facts of the instant case, it is seen that the ld. AR has fairly admitted that two cases chosen by the TPO, namely, Atul Ltd and IG Petrochemicals Ltd. are, in fact, comparable. When such comparable cases are available, then there is no need to attempt the inclusion of some other cases wh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the functional profiles. The ld. AR could not point out the percentage of specialty chemicals manufactured and sold by the assessee for use in paint industries and such percentage in the case of SCL to demonstrate that it constituted main business in both the cases. Considering the test laid down above for selection of comparable cases, viz., if the other case being largely different in the functional profile, but comparable part is minimal, such case can not be considered as comparable, we find no difficulty in upholding the impugned order in rightly excluding the case of SCL from the final list of comparables drawn by the TPO. iii. Micro Ink Ltd. (MIL): 14. Now we espouse this case which was included by the TPO at his own in the list of comparables against which the assessee is aggrieved. The assessee vide its letter dated 5.9.2011 addressed to the TPO objected to the inclusion of this case by mentioning that MIL is a seamless ink manufacturing unit and is present across the value chain of the ink industries viz. Pigments, Flush Pigments, Wire enamels resins etc. The assessee also argued before the TPO that MIL has related party transactions at 52% of its net sales ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of this case from the list of comparables. iv. Pidilite Industries Ltd. (PIL): 17. This case was included by the TPO in the list of comparables at his own. Relying on certain orders passed by various benches of the Tribunal, the ld. AR contended that the extraordinary cases involving acquisitions, mergers or de-merger during the relevant period lose the tag of comparability. Inviting our attention towards the annual accounts of PIL, the ld. AR submitted that the figures of PIL include the figures of the operations of the de-merged units of the VAM Manufacturing unit at Mahad of Vinyl Chemicals (India) Ltd. into the company, which scheme was sanctioned by the Hon'ble High Court of Judicature at Bombay in 2007. Similarly there was acquisition of Pulvitec do Brasil Industries by PIL which merged into the assessee company in the relevant year. In the light of these facts and the orders passed by various benches of the Tribunal, the ld. AR submitted that this case should not have been included by the TPO. On merits also, the ld. AR submitted that there were several distinguishing features in the facts of PIL vis- -vis those of assessee company, which necessitated the exclus ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . The term international transaction has been defined in section 92B as . a transaction between two or more associated enterprises, either or both of whom are non-residents .. . The term 'associated enterprise' has been defined in section 92A. A conjoint reading of these provisions divulges that the transfer pricing adjustment is required to be made only in respect of transactions between the AEs. In the provisions as are applicable to the assessment year under consideration, it is wholly impermissible to apply such provisions in respect of transactions with non-AEs. We, therefore, overturn the impugned order on this score. The assessee is directed to supply necessary figures for the purposes of the proper determination of this aspect of the matter. 21. To sum up, we hold that the cases of DIKL and SCL were rightly excluded by the TPO and the cases of MIL and PIL were erroneously included in the list of comparables. The impugned order is, therefore, set aside and it is directed to determine the arm's length margin afresh on the basis of the remaining two cases, namely, Atul Ltd. and IG Petrochemicals Ltd. It is further held that the scope of the transfer pric ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt issue, we find that there can be no dispute that ALP of an international transaction in the nature of expense claimed can be computed at Nil, if the assessee fails to prove the factum of having availed any services from the AE. Even if the services are availed, the consideration paid has to be proved at ALP, failing which adjustment is inevitable. Adverting to the facts of the instant case, we find that the assessee claims to have availed such services in the past as well for which deduction was not denied. At the same time, it is equally essential on the part of the assessee to prove in the first instance that it, in fact, availed the services provided by its AEs in the current year and also that the payment is at ALP. As the assessee failed to substantiate its claim for deduction 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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