TMI Blog2015 (12) TMI 684X X X X Extracts X X X X X X X X Extracts X X X X ..... see aggregating with domestic operations using TNMM should not be rejected. Nothing contrary has been brought to our knowledge on behalf of Revenue. Facts being similar, so following the same reasoning, Assessing Officer is directed to grant of relief to the assessee for the year under consideration i.e. A.Y. 2006-07 on the line of A.Y. 2007-08 discussed above. - ITA No.1380/PN/2010 - - - Dated:- 9-10-2014 - SHRI SHAILENDRA KUMAR YADAV, JUDICIAL MEMBER, AND SHRI G.S. PANNU, ACCOUNTANT MEMBER For The Appellant : Shri M.P. Lohia For The Respondent : Smt.M.S. Verma, CIT ORDER PER SHAILENDRA KUMAR YADAV, J.M: This appeal has been filed by the assessee against the order of Dy. Commissioner of Income Tax, [in short Dy.CIT], Circle1(1), Pune, dated 27.09.2010 for A.Y. 2006-07 on the following grounds. On the facts and in the circumstances of the case and in law, the Hon'ble DRP and consequentially the learned AO have in respect of transfer pricing adjustment: 1. General ground challenging the transfer pricing adjustment of ₹ 83,177,072/- Erred in making transfer pricing adjustment to the international transactions pertaining to Export Orient ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... een the risk profiles of comparables visa-vis the Appellant. 9. Applicability of +/-5% range Erred by computing the arm's length price of the international transactions pertaining to EOU operations as the mean arm's length price determined, without taking into account the lower 5% variation from the mean arm's length price determined, which is permitted to and which has been opted for by the Appellant under the provisions of section 92C(2) of the Act. 10. Erroneous comparison of the gross margins and sale price of the Appellant from the sale of CL-450 machines to associated enterprises and domestic third parties Erred by computing and comparing the gross profit margin and sale price earned by the Appellant from international transaction pertaining to manufacturing and sale of CL-450 machine to associated enterprises with the gross profit margin and sale price earned from manufacturing and sale of CL-450 machine to domestic third party. International transactions pertaining to domestic operations 11. Erroneous comparison of commission on marketing of machines and commission on marketing of spares Erred by comparing the international transaction pe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion is made based on the updated financial data for the comparable companies and adoption of controlled transactions of the Appellant itself for comparison. The Appellant craves leave to add, alter, vary, omit, substitute or amend the above grounds of appeal, at any time before or at, the time of hearing of the appeal, so as to enable the learned AO to decide this appeal according to law. 2. At the outset of hearing, the learned Authorized Representative has pointed out that he is not pressing the ground Nos.1, 3, 5, 6, 7, 8, 9, 10, 12 and 14, so they are dismissed as not pressed. 3. Bobst India Private Limited (Bobst India) was incorporated on 14.08.1995 as a wholly owned subsidiary of Bobst Group SA, Switzerland (Bobst SA). During A.Y. 2006-07, the Bobst India was primarily engaged in manufacture and sale of packaging machines and modules for printing and packaging machines (manufacturing operations). The Bobst India was also involved in marketing Bobst Group s machines and spare parts for commission as well as trading of Bobst Group s spares. Further, Bobst India was engaged in providing wide range of support services i.e. installation, machine break down repair service ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... c Industries Limited has four segments which are screen, industrial machinery, graphic products and chemicals. The assessee has considered industrial machinery segment comprising of rotary screen printing machine components and spares as comparable to its manufacturing division as detailed on page 93 of the Paper Book. The assessee in its TP study report took weighted average margin of three years for Stovec which was (-) 1.10% and also submitted a single year margin for Stovec for F.Y. 2005-06 as (-) 1.81% to the TPO. Regarding functional difference for F.Y. 2005-06 i.e. A.Y. 2006- 07, the TPO in its order held that Stovec is functionally different from the assessee and has different risk perception / risk assumed vis- -vis of the assessee. In this regard, the stand of the assessee before the TPO has been that it is in the manufacturing of machine module as well as manufacturing of machines and that Stovec also has component manufacturing activity along with machine manufacturing as compared to the assessee which also manufactures modules which are used in manufacturing of machines. The DRP in its direction upheld the order of TPO / AO and did not provide any additional contention ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ckground, the assessee submitted that Stovec has earned a margin of 2.39% in the comparable segment in FY 2003-04 and hence it cannot be considered as a persistent loss maker. The stand of the assessee has been that in returning arm s length price nature of international transaction pertaining to import of components, export of machine modules and machines, recovery of fright charges and payment of re-work fright charges relating to EOU operations entered into by Bobst company, the data pertaining to F.Y. 2005-06 for certain comparable companies was not available at the time of complying with documentation requirement. Therefore, the company has used an average of 2/3 years data (wherever available) to justify arm s length price nature of international transactions pertaining to EOU operations because of certain factors which are explained below: a) Given the nature of industry and economic conditions, Bobst India has used multiple year data (i.e. 2/3 years average) to reduce the variability / distortion to function results arising from use of single year data. The use of single year data of comparable companies may not adequate capture market and business cycle reflected in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stently loss making companies. Moreover, except unsupported reasoning, no data was brought on record by the TPO for excluding comparables selected by the assessee in transfer pricing study. Therefore, the Tribunal held that no justification to adjustment made u/s.92CA(3) of the Act and directed to delete the same. 5.4 Further, we find in the case of Goldman Sachs (India) Securities Pvt. Ltd. vs. ACIT, which has been decided by ITAT, Mumbai K Bench, wherein the TPO rejected Capital Trust as comparable because of two out of last three years taken into consideration. Capital Trust was in the red and not because the nature of business had any variance with that of the assessee. The Tribunal looked into the business segment of Capital Trust and found that in the foreign consultancy segment with which the Bench was concerned in the year 2004-05, it had operative profit / operative cost at 27.25%. Since the nature of services rendered by comparable were exactly on similar lines as that of the assessee, though, during the year, it was in the loss could not be disqualified as non-legitimate comparable. The Tribunal drew strength from Brigade Global services (supra) for reaching this co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ulations. Accordingly international transaction of the appellant pertaining to receipt of commission for marketing of machines benchmarked by assessee by aggregating the same with other international transactions pertaining to domestic operations using TNMM should not be rejected. 6.2 While in the same order, the Tribunal on the point of benchmarking of international transaction pertaining to import of trading spares held as under: 6.3.8 .. Accordingly, it was not possible to separately determine the cost incurred by the Appellant in relation to commission income earned during FY 2006-07. Accordingly, it was not possible to determine profit from each international transaction forming part of domestic operations including commissioning and marketing activity. Accordingly, both the conditions which justify aggregation of transactions i.e. when it is impractical to analyze the profits of each individual transaction or when the international transactions are closely linked, are met in Appellant's case in relation to international transactions pertaining to domestic operations. 6.3 The Tribunal further held that the international transactions pertaining to receipt of co ..... X X X X Extracts X X X X X X X X Extracts X X X X
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