TMI Blog2014 (2) TMI 1287X X X X Extracts X X X X X X X X Extracts X X X X ..... No error in the order of Ld. CIT(A) vide which it is held that DEPB benefits should be included in operating profit margin. We are aware that Department in its appeal has not agitated such direction of Ld. CIT(A) but as it was argued before us and we uphold the inclusion of DEPB benefit in operating profit margin. depreciation be treated as operating expenses while computing ALP by TNMM - Held that:- No infirmity in such directions of Ld. CIT(A) as according to well established principle of law while working out profit margin and cost, comparison should be made with like to like and similar to similar. This principle has also been held applicable by the ITAT in assessee’s own case in the aforementioned two orders, where on the basis of similar proposition DEPB benefits have been held to be computed as part of profits while computing margin of the assessee as well as comparables. Accordingly, we decline to interfere in such finding recorded by Ld. CIT(A) and the ground of revenue is dismissed. - ITA No. 587/MUM/2013, ITA No. 891/MUM/2012 - - - Dated:- 5-2-2014 - I. P. Bansal (Judicial Member) And N. K. Billaiya (Accountant Member) For the Revenue : Ajeet Kumar Jain F ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urged at the time of hearing, the decision of the CIT(A) may be set aside and that of the AO restored. 2. During the year under consideration assessee has entered into following international transaction: Transaction Associated Enterprise Associated Enterprise Amount of transaction in Rs. Method adopted Sale of bathrobes Vincenzo Zucchi S.P.A Italy 21,21,02,367 TNMM The assessee in its TP report has considered this transaction at Arm s Length Price(ALP) by comparing average rate charged from A.E and non-AE. According to T.P report sales of AE was at ₹ 7.62 per piece which is more than the average rate charged from non AE which is ₹ 6.39 per piece. However, TPO did not accept such submission of the assessee on the ground that quality and styling of product sold to different countries is not exactly same as per requirement of CUP method. Therefore, he held that CUP method was not applicable and assessee was required to show cause as to why TNMM should not be applied. Applying said method TPO has adopted four comparables ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd applying TNMM method. However, Ld. CIT(A) has held that TPO s action of excluding depreciation as non-operating expenses is not acceptable and on DEPB it is the finding of Ld. CIT(A) that the same should be considered as operational receipts. Accordingly, the grounds raised by the assessee have been partly allowed by Ld. CIT(A). The department in its appeal is agitating the action of Ld. CIT(A) regarding depreciation to be treated as operating expenses. The assessee in its appeal is contesting the order of Ld. CIT(A) regarding application of TNMM in place of CUP method and also the working of the TPO with regard to two comparables namely Ashnoor Textiles Mills Ltd. and Modern Terry Towels Ltd. Similarly the assessee is agitating the exclusion of comparables namely Santogen Exports Ltd. and Vanasthali Textiles Industries 3. After narrating the facts Ld. AR submitted that the grievance of the assessee are as follows: (1) Following two comparables have wrongly been excluded. 1. Santogen Exports Ltd. 2. Vanasthali Textiles Industries He submitted that these comparables were included in assessment year 200708 and these have been excluded simply for the reason that f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 7. Welspun Zuchi Textiles Ltd. 28.23 0.43 1.52 Referring to above table it was submitted that if Santogen Exports Ltd. and Vanasthali Textiles Industries. is included in the comparables and depreciation is considered as operating cost then the assessee s margin will be at arms length as the same will be 1.52% against arithmetical means of comparables at 1.49%. He also invited out attention towards these submissions of the assessee which are recorded by Ld. CIT(A) in para 13 at page 19 of the order of Ld. CIT(A), wherein such plea was taken that these two comparables were chosen as comparable by TPO for assessment year 2007-08. The said para of Ld. CIT(A) read as under: xiii. The appellant in its submission has contended that the TPO has chosen to ignore the comparative data of Santogen Exports and Vansthari Textile Industries without assigning any reason for doing so. In this regard, it is stated that both these companies were chosen as comparables by the TPO for A.Y.2007-08. However, in the search conducted for the year under consideration for th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng adjustment made by TPO should be upheld. 5. We have heard both the parties and their contentions have carefully been considered. So far as it relates to inclusion of two comparables namely, Santogen Exports Ltd. and Vanasthali Textiles Industries the fact has not been denied that those two comparables were included in the list of comparables during the assessment year 2007-08. It has not been shown that these two comparables were consistent loss making companies. It is the plea of the assessee that comparables should be chosen from the perspective of their functional comparability and as per parameter laid down in Rule 10B(2) of Income Tax Rules, 1962. It was also the submissions of the assessee that these two companies had made profit in the earlier years and have suddenly come into losses in the year under consideration. If it is so, those two concerns cannot be excluded from the list of comparables just for the reason that for the year under consideration these two concerns have incurred losses. Therefore, we se no justifiable reason for exclusion of these comparables. 5.1 Now coming to the plea of the assessee that DEPB should be taken as operating income, we found tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessee. We, therefore, uphold the impugned order of the learned CIT(Appeals) deleting the addition made by the AO by way of TP adjustment and dismiss the appeal of the Revenue. The aforementioned order was later on followed for assessment year 2007-08 vide order dated 7/8/2013 in Departmental appeal vide ITA No.7961/Mum/2011. 5.2 In view of above discussion, we do not find any error in the order of Ld. CIT(A) vide which it is held that DEPB benefits should be included in operating profit margin. We are aware that Department in its appeal has not agitated such direction of Ld. CIT(A) but as it was argued before us and we uphold the inclusion of DEPB benefit in operating profit margin. 5.3 So far as it relates to contention of the Revenue that Ld. CIT(A) has erred in holding that depreciation be treated as operating expenses while computing ALP by TNMM, we found that Ld. CIT(A) has decided this issue in favour of the assessee by the following observations: The TPO in his order has not considered depreciation as operating expense in nature. In this regard it is mentioned that the appellant is in to manufacturing and depreciation is cost which needs to be considered as ..... X X X X Extracts X X X X X X X X Extracts X X X X
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