TMI Blog2017 (2) TMI 1286X X X X Extracts X X X X X X X X Extracts X X X X ..... by the assessee are of no help to make adjustment of idle capacity. Therefore we are unable accept the assessee’s request for idle capacity adjustment and the same is rejected. Accordingly grounds raised on this issue are dismissed. Selection of comparable - Held that:- Assessee is engaged into manufacture of tractors, thus companies functionally dissimilar with that of assessee need to be deselected from final-list. Working capital adjustment - Held that:- While arguing the case before us, the assessee has not furnished the pricing policy and the interest clauses to make necessary working capital adjustment. This is one of the important factors to make the necessary working capital adjustment. Further, though the TPO has determined the margin adopting M/s.VST Tillers as comparable, we have directed the TPO to include M/s.HMT Ltd., as additional comparable. The TPO should take both the comparables and re-work the margins and make necessary adjustments for working capital in the light of above discussion. This ground of appeal is allowed for statistical purposes. Rationale for the use of multiple year data - Held that:- As per the discussion made by the TPO and as per the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ilter adopted by the TPO. 2.6 Without prejudice to the above, the learned CIT(A) should have at least held that comparable companies which have turnover which is closer to Assessee s turnover (i.e. within a multiple of ten times the turnover of the Appellant) should be considered as comparable companies. 2.7 The learned CIT(A) erred in confirming the action of the AO/TPO in not allowing working capital adjustment. 2.8 The learned CIT(A) erred in confirming the action of AO/TPO in adopting the single year data i.e. FY 2005-06 as against multiple year data without appreciating the fact that the data for FY 2005-06 was not available for all comparable companies at the time of preparation of Transfer Pricing Report. 2.9 The Appellant craves leave to add, alter, amend, substitute, rescind, modify and/or withdraw in any manner whatsoever all or any of the foregoing grounds of appeal at or before the hearing of the appeal. 3.0 Ground No.1 is general in nature which does not require specific adjudication. 4.0 Ground Nos.2.1 to 2.3 are related to idle capacity adjustment. M/s. SAME Deutz-Fahr India Pvt. Ltd., is a part of the SAME Group which had originally entered into j ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ge of PLI of comparables at (-)8% against the assessee company s PLI of (-) 3.34% and held the transactions at ALP. The TPO not being convinced with the working made by the assesse and comparables selected by the assessee issued a show cause notice proposing the adjustment of ₹1,65,03,225/-. The TPO adopted the single year data as per Rule 10B(4), applied turnover filter and selected comparable of VST Tillers with a turnover of ₹129.90 crores, which is very close to the assessee and rejected the multiple year data, idle capacity adjustment, working capital adjustment and arrived at the ALP of purchase from A.E at ₹11,47,85,709/- against the actual purchase price of ₹13,12,88,932/- adopting comparable purchase from AE at PLI of 9.65% in place of (-)3.34% of the assessee comparables and suggested for adjustment of ₹1,65,03,225/- downwards from purchases. The AO passed Assessment Order u/s.143(3) of Income Tax Act making addition of ₹1,65,03,225/- reduced the loss to ₹1,65,12,940/- against the loss declared by the assessee amounting to ₹3,30,69,163/-. 5.0 Aggrieved by the order of the AO, the assessee went on appeal before the Commiss ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... apacity adjustment as per Rule 10B(1)(e)(iii),10B(2) and 10B(3). The company is not a new company or startup company, It was originally set up as Joint Venture with M/s.Greaves Limited and had set up two joint venture companies, i.e. M/s.SAME Greaves Limited and M/s.SAME Greaves Tractors Limited. In the year 2002, the SAME group has entered in Indian entities and the companies are re-named as M/s.SAME Deutz-Fahr India Pvt Ltd. The company got amalgamated with SAME India w.e.f. April 1, 2002 and subsequently re-named as M/s.SAME Deutz-Fahr India Pvt. Ltd. in April, 2004. 6.1 From the above profile, it is clear that the company is not new company and was existing prior to 2002 and only re-named as M/s.SAME Deutz-Fahr India Pvt. Ltd., in April, 2004. The company along with Greaves manufacturing the tractors prior to 2002.The ld A.R has not furnished the details of installed capacity and utilized capacity from the beginning of its operations. Since the company is reasonably old from the profile, justifiable reasons have to be explained for non-utilization of the capacity and the fixed costs incurred from the year of inception, the installed capacity, utilized capacity and capacity o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Pvt. Ltd-(IT(TP)/A No.28/Bang/2012 7.2 On the other hand, the Ld.DR is relied on the orders of the lower authorities. 7.3 We heard the rival submissions and perused the material placed on record. M/s.HMT Ltd., is in the segment of manufacturing of tractors and power tillers. The functionality of the M/s.HMT Ltd., and the assesse are more or less in similar. The Ld.AR of the assesse submitted that all the functions of M/s.HMT Ltd., and M/s.VST Tillers are one and the same. The TPO has rejected M/s.HMT Ltd., as comparable merely because of the turnover. The turnover of the M/s.HMT Ltd., for the AY 2005-06 was ₹248.00 Cr. as against the assessee s company turnover of ₹120.00 Cr. It is impossible to find out comparable with all similarities inclusive of turnover. Even M/s.VST Tiller selected by TPO was with ₹130.00 Cr. The turnover filter with turnover 3-5 times is acceptable for selecting the comparable as per the decisions of the tribunals. In the Appellant s case, the TPO has adopted the turnover filter and the M/s.HMT Ltd., being functionally similar and the turnover was only two times of Appellant, we are of the considered opinion that the TPO should inc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was justified in taking entities having turnover between ₹ 5 crore to ₹ 25 crore but he was in error in considering turnover as the only relevant factor needed to be considered for a proper analysis. What about a large number of other factors which materially affect the profit? The function performed; assets employed; risk taken (FAR) analysis, were also required to be undertaken as per the Transfer Pricing Regulation and other guidelines. This was not done, which rendered the comparison as unsound and unreliable one. b) In the case of Maxim India Integrated Circuit Design Pvt Ltd (IT(TP)A No.28/Bang/2012) - (refer page 6 7 of the of the ITAT Order forming part of annexures to the Summary chart) .... The turnover, no doubt, is a relevant factor to be taken into account, but there should be some proper and reasonable parameter to apply the difference of turnover between the Appellant and the comparable which may be a multiple in the range of 2 times, 3 times, X times or any other number of times which should be applied to all the comparable companies, instead of taking a slab from ₹ 1 crore to ₹ 200 crores. Thus, if appropriate multiple to say 10 t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t of above discussion. This ground of appeal is allowed for statistical purposes. 9.0 Ground No.2.8 is related to adoption of single year data for the FY 2005-06 as against the multiple year data. The assessee has adopted the multiple year data and the TPO has adopted the single year data. No argument has been made by the Ld.AR during the appeal. The TPO has rejected the assessee s claim for adopting multiple year data placing reliance on Rule 10B(4) of Income Tax Rules for ready reference, we extract the relevant paragraphs of the TPO Order in Para No.7.1 is as under: 7.1 Rationale for the use of multiple year data: The assesse s submission that data for F.Y.2005-06 is not available at the time of complying with the documentation requirement is not acceptable since the assessee company has furnished the data for 3 out of 5 of its comparables namely for VST Tillers Tractors Ltd, Punjab Tractors and Mahindra and Mahindra Ltd. for F.Y. 2005-06 The assessee has also stated that it relied on OECD guidelines and hence adopted multiple year data. It is stated in OECD guidelines that the multiple year data may be adopted for both company under examination and for the comparables. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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