TMI Blog2018 (4) TMI 935X X X X Extracts X X X X X X X X Extracts X X X X ..... nts (including with respect to the working capital adjustments as is sought to be urged by the assessee) in regard to the trading comparables offered by the assessee for these given years. - ITA 811/2017, ITA 812/2017, ITA 813/2017, ITA 825/2017 - - - Dated:- 10-4-2018 - MR. S. RAVINDRA BHAT AND MR. A.K. CHAWLA JJ. Present: Mr. Himanshu Sinha and Mr. Bhuwan Dhoopar, Advocates for petitioner. Mr. Deepak Anand, Jr. Standing Counsel for Revenue. MR. S. RAVINDRA BHAT (OPEN COURT) 1. Admit. 2 The following question of law arises for consideration in all these appeals: 1. Did the ITAT fall into error in regard to the finding with respect to inclusion of a comparable Modicare Limited and the exclusion of the other comparables, (which are involved in trading in similar products), having regard to the facts and circumstances of the case? 3. The appellant is a wholly owned subsidiary of Oriflame Investments Limited, Mauritius. Its business is the distribution and sale of cosmetic products primarily through direct selling channel. The direct seller to individual intermediaries is characterized as consultant who then sells the products to the user. This dis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hod can however be argued by the assessee consequent upon the remand. It is stated that appropriate adjustment with regard to the alleged dissimilarity can be carried out by the Revenue Authorities in regard to the facts and circumstances of the case. The ITAT s findings pertinently with respect to the appropriateness or otherwise of Modicare Ltd. as a comparable are contained in paras 5.9, 5.11 and 5.12 of the impugned order. The Tribunal noted that Modicare Ltd. as a standalone comparable (since all other comparables were eliminated by the revenue authorities at the early stage of the proceedings) was ideally not an appropriate comparable and has also canvassed that the comparables selected by the taxpayer have wrongly been rejected by the tax authorities. In paras 5.8 and 5.9 it is stated as follows: 5.8 Thus when considered in the light of the aforesaid statutory Rules, we find that the tax authorities while considering the grievance of the tax payer admittedly have taken a position contrary to what has been envisaged under the Rules. 5.9. Having so addressed, we find that over the years primarily the taxpayer has raised the issue that Modi Care Ltd. as a stand- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... emonstrated to be impacted either with incomparable activities; functions, accounting practices; product dissimilarities; etc. then necessary adjustments should be made. Herein noting that the tax payer s first grievance is that with necessary adjustments, even if Modi Care Limited is taken as a standalone comparable as has been done by the tax authorities even then adjustments proposed by the tax payer on valid grounds namely incomparable activities, functions accounting and Revenue recognition policies etc. is necessitated. We are given to understand that service income has been excluded by the TPO himself in the subsequent years and in fact in one of the years in the present proceedings. It has been argued that if the adjustments are thus made then no adjustments to be arm s length price of the assessee would be necessitated. We note that the tax authorities have not considered the calculations as principally they have been of the opinion that no relief was warranted. Holding the said approach of the tax authorities contrary to the statutory position we direct the TPO to look into the claim of adjustments required to be made to Modi Care Limited. While so directing it is made cl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rgued that the dissimilarity with respect to the products sold and the proportion borne by each of the turnover cannot but impact the profitability of the entity as a whole and further emphasized that segmental laid for each of these product lines is missing for the relevant year (with respect to the data available vis- -vis Modicare Ltd.). In the opinion of this Court, it is of vital importance and was not addressed by the ITAT which even while noticing the significant differences and seemingly accepting the assessee s arguments nevertheless did not exclude Modicare Ltd. altogether. In the opinion of this Court, this is a very vital infirmity which needs to be corrected. 8. As far as the reasoning of the Revenue Authorities, which has not been commented upon by the ITAT for excluding the other comparables offered by the assessee goes, for one, it was stated that mere acceptance in the past of such comparable did not bind the Revenue. The other was with respect to the differential marketing strategy adopted for the two sets of entities i.e. the trading entity/comparable on the one hand as opposed to the direct marketing entity i.e. assessee on the other hand. The assessee had st ..... X X X X Extracts X X X X X X X X Extracts X X X X
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