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2016 (8) TMI 861 - ITAT PUNE

2016 (8) TMI 861 - ITAT PUNE - TMI - Transfer pricing adjustment - exclusion of ANG Industries Ltd. from final list of comparables while benchmarking the international transaction undertaken by the assessee - Held that:- The assessee was a manufacturer of auto components. However, ANG Industries Ltd. had undergone major restructuring, wherein the subsidiary ANG Auto Tech Pvt. Ltd. was amalgamated with ANG Industries Ltd. w.e.f. March, 2007. After amalgamation, ANG Industries Ltd. became well div .....

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ria to reject the said concern. However, where the concern had entered into other line of business and in the absence of segmental profits in respect of two businesses carried on by the said concern, we hold that the said concern ANG Industries Ltd. is not functionally comparable to the assessee and hence, the same is to be excluded from the final set of comparables. Upholding the order of CIT(A) in this regard, we dismiss the grounds of appeal raised by the Revenue. - Decided in favour of asses .....

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:- 1. On the facts and in the circumstances of the case, learned CIT(A) has erred in directing the Assessing Officer to exclude ANG Industries Limited from the list of comparable companies. 2. On the facts and in the circumstances of the case, learned CIT(A) has erred in holding that this company is not a comparable without appreciating the fact that the assessee has taken the stand of excluding this company as the PLI of the comparable company is 20.59 and by removing this as a comparable, the .....

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d sale of components viz. suspension products i.e. springs and bars, exhaust manifold mufflers for motor bikes, brake disks for two wheelers in the automobile sector. The assessee had entered into international transaction with its associate enterprises, against which the Assessing Officer made a reference under section 92CA(1) of the Act to the Transfer Pricing Officer (TPO) to compute arm's length price of international transaction entered into by the assessee with its associate enterprise .....

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nd the comparables and as against the operating margins of assessee at 7.72%, the arithmetic mean of PLI of comparables worked out to 13.41% and PLI of ANG Industries Ltd. was 20.85%. The working of PLI of ANG Industries Ltd. as per Annexure A is tabulated at page 4 of the TPO s order and of the assessee at 7.72% at page 3 of TPO s order. The assessee was thus, show caused as to why an adjustment to the extent of ₹ 3,08,41,000/- should not be made in the hands of assessee. The assessee exp .....

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and taken by TPO and followed in other peer companies working of PLI. Further miscellaneous expenses have been taken at ₹ 1.76 cr. instead of ₹ 1.97 cr. appearing in the Profit & Loss Statement of ANG Industries Limited for the impugned FY 2007-08. c) The foreign currency gain/loss have been taken to be part of operating profits as directed by TPO and the same should have been taken as part of operating profits in the aforesaid working. d) The figure of total cost taken by TPO ex .....

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ated enterprises. 6. Before the Assessing Officer, the assessee once again explained its case vis-a-vis working of PLI of ANG Industries Ltd. and also revised PLI of working of assessee itself. Both were rejected by the Assessing Officer and addition to the extent of ₹ 3.03 crores was made in the hands of assessee. 7. Before the CIT(A), the claim of assessee was two folds; that first of all, though the assessee has picked up ANG Industries Ltd. as comparable in its transfer pricing report, .....

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in major corporate restructuring, subsidiary company ANG Auto Tech Pvt. Ltd. was amalgamated with ANG Industries Ltd. w.e.f. March, 2007 and because of the said amalgamation, the concern became well diversified company. Further, the turnover of ANG Industries Ltd. was ₹ 143 crores as against the turnover of assessee at ₹ 54 crores. In view of size, volume, turnover and other factors, the plea of the assessee before the CIT(A) was that the concern M/s. ANG Industries Ltd. should be e .....

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ant had selected ANG Industries Limited as a comparable company in its Transfer Pricing report. However, it has considered later that the company is not comparable. I agree with the Appellant that it can change its admitted position later once it notices its error. The fundamental issue here would be; on facts, whether the company is comparable or not? 3.1.6 The Appellant Company is a manufacturer of auto components whereas ANG Industries Limited also manufactures trailers in addition to auto co .....

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on account of the following factors. • A significant growth in the trailer business: • Improved demand in the Indian under-carriage market, accelerating the company's auto component sales. • Successful performance of products like W-series of fully dressed trailer axles 3.1.8 Further perusal of the Annual Report shows that the Company has not shown separate income from the trailers segment. Therefore, it would be incorrect to compare financial results of this company with the .....

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ifferences has become infructuous, hence is dismissed. 8. The Revenue is in appeal against the order of CIT(A). 9. The learned Departmental Representative for the Revenue placing reliance on the order of Assessing Officer pointed out that the said concern ANG Industries Ltd. was picked up by the assessee while carrying on its TP study report and where the assessee had held it to be functionally comparable, then at this juncture, the said concern could not be excluded from the list of comparables .....

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The assessee was engaged in manufacturing activity in the automobile industries and was operating from its plant site at Pirangut in Pune. The assessee had benchmarked its international transaction by applying TNMM method and operating profit / operating sales ratio was taken as the PLI in TNMM analysis. The assessee had worked out its PLI at 10.50%. However, the TPO during the course of assessment proceedings, re-worked the PLI of assessee company at 7.72%. The assessee on the other hand, had p .....

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rn was not comparable being functionally different. The first aspect of the issue is that where the assessee had picked up the concern as comparable in its TP study report, can the said concern be excluded while benchmarking international transaction of the assessee. 12. We find that the said issue is squarely covered by the Special Bench of Chandigarh Tribunal in the case of Quark Systems Pvt. Ltd. reported in 132 TTJ 1 (Chandigarh - Trib). Applying the said proposition laid down by the Chandig .....

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