TMI Blog2015 (8) TMI 6X X X X Extracts X X X X X X X X Extracts X X X X ..... INTURI RAMA RAO, JJ. For The Assessee : Shri J.J. Varun, AR For The Revenue : Smt. K. Kamakshi, CIT-DR ORDER PER INTURI RAMA RAO, A.M. : This appeal by Assessee is directed against the Order of the Assessing Officer (AO) passed u/s. 143(3) r.w.s. 92CA(3) consequent to the directions of the Dispute Resolution Panel (DRP) u/s. 144C(5) of the Income Tax Act, 1961 (Act). 2. Briefly stated, assessee M/s. Granules India Limited is engaged in the business of manufacture of bulk drug (API) Formulations/Granules (PFI) and tablets. Assessee is having a wholly owned subsidiary in USA named Granules USA (Inc.) to market the products manufactured by assessee. For the AY. 2009-10, assessee filed its return of income on 30-09-2009 declaring total income of ₹ 1,04,02,901/- after claiming deduction under section 10B of the Act. 3. The AO ultimately determined the total income at ₹ 12,71,70,274/- vide Draft Order dated 31-01-2014 by making the following adjustments : i. Transfer pricing adjustment u/s.92CA Rs. 8,86,12,580 ii. Belated payment of Provident F ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to no relief being granted by the Assessing Officer in Final Assessment order u/s. 143(3) dated 31.01.2014. 7. Without prejudice to Ground.5, the TPO erred in applying the following filters in selecting comparable to determine ALP under TNMM a. Turnover Filter this filter resulted in reducing the no. of comparables b. Functionally different selected comparable companies which are functionally different that of the assessee The TPO erred in making adjustment of ₹ 8,86,12,580/- in respect to sales made to its AE. 8. The DRP in para 8.0 of their order erred in rejecting the submissions made with respect to ground No. 7 above, which consequently led to no relief being granted by the Assessing Officer in Final Assessment u/s. 143(3) dated 31.01.2014. 9. The Assessing Officer erred in initiating penalty proceedings u/s. 271(1)(c) at the time of finalization of order of Assessment. 10. For the above and / or any other additional grounds that may be submitted at the time of hearing of the appeal, the appellant prays before the Hon'ble Tribunal that the above addition be deleted and necessary order be passed . 5. The assessee has raised 10 grounds in it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... saction with the AE were at arm s length. 8. The TPO held that transfer pricing study of the assessee by making the AE as tested party was defective and rejected the same by giving the following reasons : i. FAR analysis of the companies selected as comparables not properly carried out; ii. Search process and matrix not provided; iii. Filters applied not revealed; iv. Multiple year data used; v. Foreign comparables selected are cherry picked and found to be functionally dissimilar. The activities in which they are engaged are different from that of the taxpayer. 9. In addition to the RPM, the assessee carried out an independent analysis by applying Transactional Net Margin Method (TNMM) as the most appropriate method for analyzing the sale transactions. This TP study was rejected by the TPO. The TPO had used only the current year data on Prowess and Capitaline Plus databases for searching the comparables and selected 8 comparables, the arithmetic mean PLI (OP/OC) of which comes to 21.01% as against the PLI of the taxpayer at 9.35% which is outside the arm's length range of [x/-] 5%. Therefore, the TPO made adjustment u/s. 92CA(3) of ₹ 8,86,12,580/-. B ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ure combined); v. Companies having different financial year ending (i.e., not March 31, 2009) or data of the company does not fall within 12 month period i.e., 1-4-08 to 31-3-2009 after rejected; vi. Companies that are functionally different from that of taxpayer, after giving valid reasons, were excluded; 13. With regard to TNMM method, to determine the ALP for transaction entered by assessee with its AE, it was submitted before Hon'ble DRP that the TPO was not justified in rejecting the comparables selected by the assessee on the ground viz (1) turnover filter applied by assessee is not appropriate (2) selection of comparable with forex revenue more than 60% is not appropriate and no rationale and (3) comparable selected by the assessee are functionally different. 14. The DRP held that the assessee had been selected as the tested party and applied the turnover filer of ₹ 250 Crores to ₹ 380 Crores. The TPO in principle agreed with the assessee that there should be a turnover filter in manufacturing sector and the dispute is in respect of the quantum. It was noted that the assessee adopted the sales range of ₹ 190 Crores to ₹ 440 Crore where ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e of AO following the orders of this Hon'ble Tribunal for earlier years. 18. We heard the rival parties and perused the orders of this Hon'ble Tribunal for the earlier years as well as the orders of the lower authorities. We concur with the submission of the Ld. AR that issue should be sent back to the file of AO/TPO with a direction that ALP may be determined by adopting RPM as most appropriate method in line with the earlier assessment years. The co-ordinate bench of this Hon'ble Tribunal held in ITA No. 1793/Hyd/2012 (AY. 2008-09) in para 11 of its order held as under: 10. . 11. We have considered the rival contentions and examined the issue. Since we have already considered above that A.E. should be selected as tested party, it is nothing but natural that the T.P. study should be undertaken by Resale Price Method only, as A.E. is only undertaking the distribution of assessee s products in the local market. Profitability of the selected Comparable companies in domestic market may vary with the profit margins available abroad, particularly in the USA market. DRP also rejected the method solely on the reason that AE was not selected as tested party. The ..... X X X X Extracts X X X X X X X X Extracts X X X X
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