TMI Blog2018 (6) TMI 495X X X X Extracts X X X X X X X X Extracts X X X X ..... on account of inflation of purchase of raw-material- Held that:- To the show cause, assessee explained reasons for the variations in the consumption of the raw material as also extent of and how the variations arisen. As decided in assessee's own case [2015 (9) TMI 325 - ITAT AHMEDABAD] such addition to be deleted. - ITA.No.954/Ahd/2012 And TA.No.1229/Ahd/2012 - - - Dated:- 5-6-2018 - SHRI RAJPAL YADAV, JUDICIAL MEMBER AND SHRI AMARJIT SINGH, ACCOUNTANT MEMBER For The Assessee : Shri T.P. Hemani, and Shri Parimal Parmar, AR For The Revenue : Shri Vasundhara Upmanyu, CIT-DR Shri R.P. Maurya, Sr.DR ORDER PER RAJPAL YADAV, JUDICIAL MEMBER: Revenue and assessee are in cross-appeals against order of the ld.CIT(A) dated 19.3.2012 passed for the assessment year 2007-08. 2. Assessee has taken ten grounds of appeal, whereas Revenue has taken nine grounds of appeal. However, all these grounds are argumentative and descriptive in nature. Sole issue involved in the appeal of the assessee is inter-connected with ground no.1 and 2 of the Revenue s appeal. Issue agitated in all these grounds relates to determination of arm s length price (ALP) of international tra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of view that comparable selected by the assessee were engaged in manufacturing of formulations i.e. tablets, capsules, syrups etc. whereas the assessee is in the business of manufacturing of bulk drugs. These functions performed by the comparables were not similar to that of assessee. Hence, comparable selected by the assessee have been rejected. The ld.TPO thereafter selected four more comparables who were engaged in bulk drug manufacturing. It is also pertinent to note that the ld.TPO has accepted selection of profit level indicator ( PLI ) adopted by the assessee i.e. operative profit divided by operative cost (OP/OC). We will be going to take note of the details with respect to all these four comparables in subsequent part of this order. On the basis of PLI of four comparables selected by the TPO, he recommended an upward adjustment of ₹ 4,10,40,877/- in the value of international transaction undertaken by the assessee. 5. The recommendation of the ld.TPO has been given effect in the assessment order and an addition of ₹ 4,10,40,877/- has been made to the total income of the assessee. Dissatisfied with the addition, the assessee carried the matter in appeal befor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is comparable. Its sale is also ₹ 18.79 crores within the range of turnover filter. Thus, according to the ld.counsel for the assessee, the ld.CIT(A) ought to have included this comparable before determining ALP of international transactions. In his next fold of contentions, he submitted that since the assessee does not have any market risk and hence normal profit margin attributable to market/distribution function, ranging from 1.5% to 3% are not earned by the assessee and adequate adjustment ought to be made. He further contended that the assessee has been supplying bulk drags under a long term supply agreement in substantial quantities, where there would be atleast 10% to 15% quantitative discount on account of certainty of supply and certainty of cash flow vis- -vis the orders for specific similar volume of dispatch. Thus, he contended that adjustment on that account ought to be made. Apart from the above, he worked out details exhibiting that no adjustment would be required, if Welcure Drug Pharmaceuticals Ltd. has been taken into consideration. 7. On the other hand, the ld.CIT-DR has submitted that Shri Jigar Raval, DCIT, TPO-I, Ahmedabad has filed written submiss ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1.2 16.85% Welcure drug Pharmaceutical Ltd. Drug Formulations 18.79 0.07 0.37% 9. On the basis of above PLI, the ld.TPO has worked out adjustment required to be made in the value of international transactions entered by the assessee with its AE. The first question for our determination is whether turnover filter is to be applied or not. According to the ld.DR, this filter ought not to be applied. She made reference to the decision of ITAT, Mumbai. However, we are of the view that in large number of decisions, it has been held that turnover filter is one of the essential filter in order to select comparables when acted in same atmosphere. It is pertinent to observe that while conducting transfer price analysis an effort is being made to compare related party transactions undertaken by the assessee with the uncontrolled transactions undertaken by the comparable, and thus arrive at a conclusion as to whether transaction bench mark is at arm s length or not. For example, a chosen company, though functionally comparable has entered international transa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1.28 -2.42 -1.14 OP/OC (%) 13.20 -11.41 -3.69 11. Sales of Welcure Drug Pharmaceuticals Ltd. are less than the turnover filter of ₹ 23 crores. Thus, it falls in the criteria of consideration and ought to be included in the list of comparable. Once it is included in the list of comparable, then the profit level indicator would be (-) 3.69% and no adjustment would be required in the value of international transaction as per section 92(3) of the Act, because it will go to reduce the value of the international transaction as declared by the assessee. Considering this aspect, we allow appeal of the assessee and delete adjustment made in the value of international transactions. 12. In the Revenue s appeal, next issue agitated by the ld.Revenue authorities is that the ld.CIT(A) has erred in law and on facts in deleting additions of ₹ 1,43,79,263/- and ₹ 62,63,591/- which was added by the AO on account of inflation of purchase of raw-material. 13. Brief facts in this regard are that the ld.AO noticed that there was a variation in actual ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
