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TMI Blog2018 (7) TMI 1972X X X X Extracts X X X X X X X X Extracts X X X X ..... e reads as follows:- "i) M/s Bharat Electronics Ltd : a) The Hon'ble DRP has erred in fact and law in disregarding the position of law that there could be differences between the enterprises compared under the TNMM method that are not likely to materially affect the price or cost charged or the profits accruing to such enterprises. b) The Hon'ble DRP has erred in fact in rejecting the company as a comparable on the grounds that it is functionally different when the primary source of income of the comparable is from manufacturing. c) The Hon'ble DRP has erred while seeking the exact comparability as mentioned above the DRP was right in fact and in law in imposing condition beyond law whereas the requirement of law is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... who held 49% of the shares with the assessee. The assessee after manufacturing exported the frequency control products to Rakon (Mauritius) Ltd. The transaction of manufacture and export of FCP was an international transaction and the income from such international transactions had to be determined having regard the Arm's Length Price (ALP) as envisaged u/s. 92 of the Income Tax Act, 1961 (Act). 4. It is not in dispute between the assessee and the revenue that Transactional Net Margin Method (TNMM) is the most appropriate method for determination of ALP of the transactions. The Profit Level Indicator (PLI) chosen for the purpose of comparison of the Assessee's profit margin with the profit margin of comparable companies, was Operating Pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ;M I C Electronics Ltd. 33.36% 6 Ruttonsha International Rectifier Ltd. 12.86% 7 Spectrum Infotech Pvt. Ltd. 18.79% 8 Gujrat Poly Avx Electronics Ltd 7.72% Arithmetic mean margin 18.77% 6. The TPO computed the ALP and the addition to be made to the total income as follows:- Arithmetic mean PLI : 18.77% on Cost Description Amount / (Rs.) Operating Cost 666,485,882 Arms Length Margin 18.77% of Operating Cost Total Arms Length Price (ALP) @ 118.77% of Operating Cost 791,585,282 Price Received 719,184,304 Shortfall being adjustment u/s 92CA. 72,400,978 The above shortfall of Rs. 72,400,978/- is treated as transfer pricing adjustment u/s 92CA of the Income-tax Act, 61. 7. Before the DRP, the as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ubmissions of the assessee for the following reasons:- "Having considered the submission, we perused the order of the TPO and also the order passed by the DRP for A.Y. 2010-11, it is noticed by us that considering the functional differences the DRP directed to exclude Bharat Electronics Ltd and MIC Electronics Ltd from the comparables, as the function of the above 2 companies remains the same, we do not find any reason to deviate from the findings of the DRP in preceding year and accordingly, direct the A.O. to exclude the above 2 companies from comparables. In respect of Bharat Heavy Electricals Ltd, we are in agreement with the submission of the assessee that the above company cannot be considered comparable to the assessee, accordi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Bharath Electronics Ltd [BEL]., MIC Electronics Ltd. and Bharath Heavy Electricals Ltd. [BHEL] is concerned, it is clear from the order of DRP that the 3 companies were manufacturers of equipments, whereas the assessee was only manufacture of components which are used in making equipments. This functional difference has been rightly noticed by the DRP in excluding these 3 companies from the list of comparable companies. Besides the above, it is also seen that BHEL is engaged in diverse activities of manufacture of power station equipments like boilers, turbines, etc. In terms of size, it is to be regarded as a very big company not comparable with that of assessee. We find no grounds to interfere with the order of DRP, consequently we dismi ..... X X X X Extracts X X X X X X X X Extracts X X X X
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