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Valmet Automation India Private Limited (Formerly known as Metso Automation India Private Limited) Versus Dy. CIT-15 (3) (1) , Mumbai

2017 (10) TMI 481 - ITAT MUMBAI

TPA - selection of the comparables - Held that:- Assessee engaged in manufacturing and production of Industrial Valves. Automated and Distributed Control System. It also provide Engineering services, offering innovative automation products, solutions and value adding life cycles fitted to customer’s specific needs. It offers environmental technology services e.g. advance process control, advance emission monitoring and authority reporting to help customers in oil and gas, paper and pulp, Power s .....

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facts to the contrary is put on record. The assessee is claiming that the engineering service segment on stand-alone basis has depicted profit but the goods segment has resulted in loss, which has resulted in the overall loss in the combined results considered in comparability analysis. This aspect deserves proper examination. Hence, we find that the objection of the ld. Counsel of the assessee that the segmental data should be considered in bench marking and comparability analysis is germane. H .....

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d 30.11.2016, pertaining to the assessment year (A.Y.) 2012-13 passed under the direction of the Dispute Resolution Panel (DRP), dated 07.09.2016. The grounds of appeal read as under: 1. The impugned order passed by the Learned Deputy Commissioner of Income Tax -15(3)(1), Mumbai ( the learned Assessing Officer or the Ld. AO ) pursuant to the directions of the Hon'ble Dispute Resolution Panel ( DRP ) wherein the total income of the appellant is determined as INR 61,204,050 as against the retu .....

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transaction of provision of engineering services, as determined by the appellant in its transfer pricing documentation by following a scientific search process, by application of entity-wide Transactional Net Margin Method (TNMM1) with operating profit/ operating cost ('OP/OC') as the Profit Level Indicator ('PLI'). 3 That the Ld. AO / Ld. TPO/ Hon'ble DRP have erred in considering the consolidated engineering segment as appearing in the audited financial statements of the ap .....

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ported in the audited financial statements. 5 That the Ld. AO / Ld. TPO/ Hon'ble DRP have erred in computing the arm's length price of the impugned transaction without appreciating the fact that the lower margin in the combined segment was on account of manufacturing activities pertaining to engineering goods and not on account of engineering services rendered to associated enterprises. 6 That the Ld. AO / Ld. TPO/ Hon'ble DRP have erred in not allowing economic adjustments, such as .....

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#39;ble DRP have erred in considering quantitative filters like minimum export sales percentage and turnover for identification of comparable companies. 9 The Ld. AO/ Ld. TPO / Hon'ble DRP have erred in rejecting companies selected by the appellant in its transfer pricing documentation as comparable by alleging them to be functionally non-comparable in respect of the impugned transaction. 10 The Ld. AO/ Ld. TPO / Hon'ble DRP have erred in accepting functionally dissimilar companies as co .....

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und no. 10 relates to the grievance of the assessee on the selection of the comparables. 6. Apropos ground nos. 3, 4, and 5 relating to the transfer pricing adjustment. Brief facts of the case are as under: The assessee company, Valmet Automation Private Limited ( VAPL or the company or the assessee ) is engaged in manufacturing and production of Industrial Valves. Automated and Distributed Control System. It also provide Engineering services, offering innovative automation products, solutions a .....

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INR) Method adopted 1 Import of Raw Material 4,98,58,970 TNMM 2 Import of Fixed Assets 30,11,426 TNMM 3 Engineering Services Income 7,28,37,036 TNMM 4 Marketing Services (Commission) 11,58,95,479 TNMM 5 Technical Support Services 90,456 TNMM 6 Reimbursement of Expenses (Commission expenses) 15,43,086 TNMM 7 Reimbursement of expenses (Other Manufacturing Expenses) 1,05,945 TNMM 8 Reimbursement of Expenses 20,88,828 TNMM 9 Replacement of Raw Material 87,014 CUP The TPO accepted the arm s length na .....

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ost) of the said companies was computed as 9.96 percent, against the assessee s net margin of 10.01 percent. 7. In the transfer pricing order, the Transfer Pricing Officer (TPO) rejected the comparable selected by the assessee and substituted other comparables which led to an adjustment of ₹ 2,61,13,622/- on the international transaction relating to the assessee pertaining to engineering services rendered to the Associate Enterprises for A.Y. 2012-13. 8. Before the Dispute Resolution Panel .....

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pose of benchmarking the said transaction only engineering service segment should have been considered. Lower margin in the consolidated engineering segment was on account of manufacturing engineering goods segment (Refer Annexure 1): a) In the FY 2011-12, a new facility at Vododra was set up, which became operational after September. Hence, the company could not fully utilized its capacity in the year under consideration (Page 25, 64-65); b) Significant foreign exchange fluctuation in the year .....

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the assessee to demonstrate that the engineering segment consisted of both Engineering Services and Engineering Goods , the assessee craves leave to file the audited copy of the working at the hearing. From a perusal of the statement, it would be seen that the engineering services division has earned a profit. The overall loss of the Engineering segment is attributable to the Engineering Goods division. A perusal of the Annual Reports of the assessee for the AY 2012-13 it can be seen that this .....

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d in the financial statement has comprised of two activities namely (a) manufacture and sale of engineering goods and (b) engineering services. The engineering services rendered to the Associated Enterprises (AE) formed part of the engineering service segment. Hence, it was the assessee s plea that for bench marking the said transaction, only engineering service segment should be considered. However, the ld. DRP did not accept this submission of the assessee without assigning any cogent reason. .....

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roceeds into the analysis of individual comparables rejected by the TPO and contested by the assessee and also the comparables included by the TPO and contested by the taxpayer is carried out of this Panel. 10. Thereafter, the DRP dealt with the issue of comparables and other related issues. 11. Now the assessee is in appeal before the ITAT. It is the contention of the ld. Counsel of the assessee that the assessee is providing only engineering services to its AE. The engineering segment reported .....

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segmental accounts furnished by the assessee should be used when details were not given in the audited financial statement: • Sandoz Pvt. Ltd. vs. CIT (Mumbai ITAT) (25 ITR 347) dated 5 April 2013 • M/s. Tecnimont ICB Pvt. Ltd. vs. ACIT (Mumbai ITAT) (ITA No. 7098/Mum/2010) dated 25 February 2011) • M/s. Tecnimont ICB Pvt. Ltd. vs. DCIT (Mumbai ITAT) (ITA No.6394/Mum/2012) dated 28 August 2013 • M/s. Paradigm Geophysical (I) Pvt. Ltd. vs DCIT (Mumbai ITAT) (ITA No. 1878/Mum/ .....

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e same should be taken into account. However, the ld. DR submitted that since the assessee has not provided the detailed segment of engineering services and goods earlier before the A.O., now the AO should be directed to examine both the segments separately. In rejoinder, the ld. Counsel of the assessee submitted that this is not an issue in dispute and moreover the Revenue has jurisdiction u/s. 263 of the Act to give the necessary direction to the AO. 13. Upon careful consideration, we find tha .....

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