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2015 (4) TMI 42 - ITAT HYDERABAD

2015 (4) TMI 42 - ITAT HYDERABAD - TMI - Transfer pricing adjustment - DRP excluding M/s. Ashapura Clay Tech Ltd. from the list of comparables for the purposes of Transfer Pricing Analysis resulted in the deletion of transfer pricing Adjustment of ₹ 2,55,49,852 worked out by the TPO - Held that:- Although we agree with the contention of the Learned Departmental Representative that M/s.Ashapura Claytech Ltd. cannot be excluded from the list of comparables only on the ground of high/abnormal .....

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quired sizes. All this minor processing work being done by the assessee does not change the basic nature and character of the product and what is ultimately sold by the assessee company remains to be the same commercial product, viz. Grey Bentonite Clay/Fullers Earth Lump.

On the other hand, M/s Ashapura Claytech Ltd. is using Grey Bentonite Clay/Fullerís Earth Lump as raw material and after carrying out different operations, such as crushing, milling, sieving, etc., it is producing B .....

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rial. The activities carried on by the assessee company as well as the M/s.Ashapura Claytech Ltd. thus clearly show that the assessee company is engaged only in trading of Grey Bentonite Clay/Fullers Earth Lump, whereas M/s Ashapura Claytech Ltd. is engaged in the manufacturing of Bentonite Biogreen Granules, where Grey Bentonite Clay/Fullers Earth Lump is used as raw material. Thus find ourselves in agreement with the Dispute Resolution Panel that the product/function of M/s. Ashapura Claytech .....

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red by the Revenue against the order of the learned Dy. Commissioner of Income-tax, Circle 2(3), Hyderabad (Assessing Officer) dated 31.1.2014 passed under S.143(3) read with the directions given by the Dispute Resolution Panel(DRP) under S.144C of the Act. 2. The solitary issue raised by the Revenue in this appeal is that the learned DRP has erred in excluding M/s. Ashapura Clay Tech Ltd. from the list of comparables for the purposes of Transfer Pricing Analysis, in order to determine the Arm s .....

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n trading of Betonite/Fullers Earth Lumps and also carries out minor processing involving quality check and moisture control before exporting it to its AE. The return of income for the year under consideration was filed by it on 30.9.2009, declaring a total income of ₹ 1,90,95,412. During the course of assessment proceedings, it was noticed by the Assessing Officer that the assessee company has entered into the following international transactions with its Associated Enterprises- (a) Sale .....

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rating Profit to Operating Cost (OP/OC) as Price level indicator (PLI). In the said report, five comparables were selected by the assessee by applying certain filters and since the Arithmetic Mean of OP/OC of the said five comparables at 11.52% was within the range of +/-5% of its own OP/OC of 10.53% in relation to the international transactions with AE, the price charged to the AE in respect of these transactions was claimed by the assessee as at Arm s Length. 4. After going through the relevan .....

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.Bombay Minerals Ltd. and (4) M/s.Cochin Minerals Ltd.. Out of these four comparables selected by the TPO, three comparables, viz. M/s.Ashapura International Ltd., M/s.Bombay Minerals Ltd. and M/s.Cochin Minerals Ltd. were already there in the list of comparables selected by the assessee in its TP study report. The inclusion of the new comparable, M/s. Ashapura Claytech Ltd. by the TPO was objected by the assessee by submitting that the said entity was engaged in different manufacturing activity .....

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he assessee that M/s. Ashapura Claytech Ltd. having OP/OC of 48.72%, was abnormal/super profit making company and the same could not be taken as comparable on this ground also. 5. The Transfer Pricing Officer did not find merit in the objections raised by the assessee to the inclusion of M/s.Ashapura Claytech Ltd. According to him, Bentonite was a natural product on which only processing was required to be done to be made useful in final consumption. He observed that it is not a manufactured pro .....

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ction of the assessee that M/s. Ashapura Claytech Ltd. being abnormal/super profit making company, could not be taken as comparable, relying inter alia on the decision of the Mumbai Bench of ITAT in the case of Exxon Mobil Com.India Pvt. Ltd. in ITA No.8311/Mum/2010. Accordingly taking the Arithmetic Mean of OP/OC of 23.90% of the four comparables selected by him as Arithmetic Mean Margin and applying the same to the corresponding Operating Costs (including reimbursement of expenses) of ₹ .....

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made by the Assessing Officer to the total income of the assessee in the draft assessment, objections were filed by the assessee, before the Dispute Resolution Panel which mainly included the objection of the assessee for inclusion of the M/s.Ashapura Claytech Ltd. as comparable. 7. In support of its claim for exclusion of M/s. Ashapura Claytech Ltd. from the list of final comparables, the following submissions were made on behalf of the assessee before the Dispute Resolution Panel. (i) The com .....

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ry in the fixed assets. (ii) Ashapura Claytech Ltd is into production of Bentonite Granules and has produced 9924 MT out of total production of 13524 MT of all products. Hence even though it is into primarily into activities of Bentonite it is into production /manufacturing activity as against trading activity conducted by the company. From the website of Ashapura Claytecgh Ltd, it is evident that they are into manufacturing activity only. (iii) The assessee has relied on the decisions in the ca .....

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llowing case laws - Capital IQ Information Systems (India) (P) Ltd vs DCIT (2013)32taxmann.com 21 (Hyd- Trib) ....... SAP Labs India Pvt Ltd vs. ACIT Banqalore/2011 44 SOT 156 Bangalore Teva India (P) Ltd (2011) 44 SOT 105 (Mum) (URD) Adobe Systems India Put Ltd vs ACIT 44 SOT 49 (Delhi) (URO) Saunay Jewels (P) Ltd vs ITO (2010) 42 SOT 4 (Mum.) (URO) Sapient Corporation (P) Ltd (2011) 46 SOT 56 (Delhi) (URO) To sum up Ashapura Claytech Ltd has to be rejected both on grounds of functional differe .....

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ited as one of the comparables. The assessee has not controverted rejection of two of its comparables neither the method applied or choice of PLI. The objection is restricted to mostly inclusion of Ashapura Claytech Limited. On going through the detailed submission of the assessee as mentioned in earlier paragraph, we find that the following comparables were selected by TPO while arriving at ALP price as under: Sl.No. Name of the assesse OR OC OP OP/OR OP/OC 1. Ashapura Claytech Ltd. 6.38 4.29 2 .....

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ng decision of Capital IQ Inforamtion Systems (India)(P)Ltd. vs. . DCIT, ITAT, Hyderabad . We are of the view that the AO is not justified in including Ashapura Claytech Ltd. as comparable. Accordingly, we direct the TPO to compute ALP excluding Ashapura Claytech Ltd. Aggrieved by the direction issued by the DRP under S.144C(5) of the Act in pursuance of which the Assessing Officer has passed the impugned order under S.143(3), the Department has preferred this appeal before the Tribunal. 9. The .....

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d Departmental Representative contended that the product of M/s Ashapura Claytech Ltd. is similar to that of the assessee company and even the activity carried on by these two entities is also almost similar. He submitted that this aspect was elaborately dealt with by the Transfer Pricing Officer in his order, while rejecting the claim of the assessee for exclusion of M/s Ashapura Claytech Ltd. from the list of comparables on the ground of product/functional differences. He contended that the ob .....

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ucts of the two companies are different, but even the functions performed by them are entirely different. He submitted that the product, viz. Grey Bentonite Clay/Fullers Earth Lump, is purchased by the assessee from the mine owners and the same is sold in the same form, after removing impurities and moisture and making lumps of specified sizes after drying. He contended that no major process thus is carried on by the assessee and the product is sold almost in the same form, which does not consti .....

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ry owned and used by the said entity for the purpose of its operations. He submitted that the assessee company, on the other hand, does not have any plant and machinery except some computers and testing equipment, which is sufficient to show that it is not into any manufacturing activity at all. 11. We have considered the rival submissions and perused the relevant material on record. Although we agree with the contention of the Learned Departmental Representative that M/s.Ashapura Claytech Ltd. .....

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olved in manual breaking of lumps using hammer in order to reduce the lumps into required sizes. All this minor processing work being done by the assessee does not change the basic nature and character of the product and what is ultimately sold by the assessee company remains to be the same commercial product, viz. Grey Bentonite Clay/Fullers Earth Lump. 12. On the other hand, M/s Ashapura Claytech Ltd. is using Grey Bentonite Clay/Fuller s Earth Lump as raw material and after carrying out diffe .....

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