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TMI Blog2019 (8) TMI 929X X X X Extracts X X X X X X X X Extracts X X X X ..... rchase and sale of raw materials from Associated Enterprises ("AEs") (manufacturing segment) 2. That the Learned AO and the Learned Panel erred both in facts and law in confirming the action of the Learned TPO of making an adjustment to the transfer price of the Appellant with respect to the purchase and sale of raw materials from its Associated Enterprises ('AEs') by Rs. 7,78,49,035 holding that the international transactions do not satisfy the arm's length principle envisaged under the Income Tax Act, 1961 (the 'Act') and in doing so grossly erred in: 2.1. Upholding the use of data which was not contemporaneous and which was not available in the public domain at the time of conducting the transfer pricing study by the Assessee. 2.2. Disregarding all the data/evidences that were requested and duly submitted and placed on record throughout the transfer pricing assessment and making a mention in the Transfer Pricing Order that no relevant data was submitted by the Assessee. 2.3. Giving the Assessee inadequate time and opportunity to be heard and coercing the appellant to meet the unreasonable deadlines throughout the TP Assessment including a duration of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Appellant such as: a) Franke Faber India Ltd. b) KAFF Appliances (India) Pvt. Ltd. c) Bajoria Appliances Pvt. Ltd. d) Glen Appliances Pvt. Ltd. e) Nirlep Appliances Ltd. 4.3. Without prejudice, in conducting the fresh search, the Learned Panel/ TPO have erred in law and on facts by resorting to cherry picking of high margin comparables. 4.4. Without prejudice the Learned Panel/ TPO have erred in law and on facts by rejecting the comparable Gorani Industries Ltd. as a persistent loss maker even though it is earning profits in the Assessment Year 2014-15. 4.5. Without prejudice, in conducting the fresh search, the Learned Panel/TPO has erred in law and on facts by manipulating the turnover filter applied by her Learned self thrice during the TP assessment in order to select the higher margin companies in the comparable set of the Assessee. 4.6. Without prejudice, the Learned AO/TPO have erred in law and facts by not applying the TNMM method of benchmarking international transactions to the related party segment and unrelated party segment of the assessee when results of such segmental bifurcation were provided by the assessee. 5. Without prejudice, the Learne ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... costs to be allocated to related and non related transactions. The assessee failed to submit details before the TPO despite several opportunities being allowed and as the assessee had failed to comply with the conditions of application of CPM method as most appropriate method, the benchmarking analysis carried on by assessee was rejected. The plea of assessee that CPM method was applied in the previous year was also rejected on the ground that no verification in this regard was made in any of the assessment proceedings. The TPO also did not find favour with the gross profit margins computed by the assessee and held that the segmental prepared by it could not be relied upon. Further, even the use of application of internal TNMM method by assessee was rejected on the ground that non-associated enterprise segment was showing losses and the associated enterprise segment was showing profits. The differences in PLI as per the TPO indicated the abnormality on the ground that no prudent businessman would undertake business where the domestic segment was incurring losses. The TPO was of the view that TNMM method was the most appropriate method and the same should be applied. The assessee r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r importing raw material, assembling the same and selling the same in domestic market. With regard to application of internal Cost Plus Method, the learned Authorized Representative for the assessee before us pointed out that the same is not pressed now. However, during the TP proceedings, the assessee had placed reliance on internal TNMM method to be applied. However, the TPO applied external TNMM method and compared the margins of assessee at 1.94% with the mean margins of comparables at 10.72%. The assessee had submitted the segmental for the application of internal TNMM method i.e. related party transactions and unrelated party transactions. It was stressed by the learned Authorized Representative for the assessee before us that no opportunity was allowed by the TPO before rejecting the said claim. Our attention was drawn to the order of TPO at pages 28 to 30, wherein the submissions of assessee vis-à-vis use of internal TNMM method are referred. Then, the learned Authorized Representative for the assessee pointed out that reply in this regard was given on 10.10.2017 and the TPO's order was passed on 20.10.2017. 6. Coming to the second aspect of application of external ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on the decision of Hon'ble Bombay High Court in the case of Thyssen Krupp Industries India Pvt. Ltd. [TS-590-HC-2015(BOM)-TP] and in the case of CIT Vs. Firestone International Pvt. Ltd. reported in 378 ITR 558 (Bom). 8. The learned Departmental Representative for the Revenue on the other hand, placed reliance on the orders of authorities below. 9. We have heard the rival contentions and perused the record. First of all, ground of appeal No.1 raised by assessee is general in nature and the same does not require any adjudication. The ground of appeal No.3 is not pressed and hence, the same is dismissed as not pressed. The grounds of appeal No.6 and 7 are premature and hence, the same are also dismissed. The ground of appeal No.8 against charging of interest under section 234B of the Act is consequential, hence the same is also dismissed. 10. Vide ground of appeal No.2, the assessee has raised the issue of transfer pricing adjustment made in the hands of assessee with respect to purchase and sale of raw material from associated enterprises at Rs. 7.78 crores applying arm's length principles. In this regard, the assessee has first pressed ground of appeal No.4.6 i.e. against t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ll, the TPO had selected four concerns as comparables whose mean margins worked out to 10.72%. The TPO has revised the list of comparables and the only two concerns remained in the final list of comparables i.e. Acrysil Ltd. and JSL Life Style Ltd. The assessee had suggested certain additional companies to be accepted as comparables, which were not accepted by the TPO or DRP and the same were rejected. 12. The case of assessee before us is that since it was engaged in the business of kitchen appliances, the concerns which have to be finally selected for comparison should also be in the similar line of business. With regard to Acrysil Ltd., the learned Authorized Representative for the assessee has pointed out that the said concern was engaged in the manufacturing of sinks and faucets and the raw material which was used for them was quartz; whereas the assessee was engaged in absolutely different line of manufacturing i.e. kitchen appliances. We find merit in the plea of assessee that there is no comparison between kitchen appliances manufactured by assessee and sinks manufactured by Acrysil Ltd. Accordingly, the said concern cannot be selected as comparable to the assessee and the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Assessing Officer to include Gorani Industries Ltd. as functionally comparable to the assessee. In such situation, where the margins shown by assessee are at 1.94%, then no adjustment needs to be made in the hands of assessee on account of arm's length price of international transactions of purchase of raw material to be made in the hands of assessee. In any case, the adjustment, if any, is to be restricted to the value of international transactions and not to the entity transaction. 15. The Hon'ble Bombay High Court in the case of Thyssen Krupp Industries India Pvt. Ltd. (supra) has laid down the said proposition and merely because an appeal has been filed against one of the judgments of Hon'ble Bombay High Court in CIT Vs. Firestone International Pvt. Ltd. (supra) has been dismissed does not mean that the proposition laid down by the Hon'ble Bombay High Court does not stand. We find no merit in the order of DRP in this regard. In view thereof, the grounds of appeal No.4.1, 4.4, 4.6 and 5 are allowed and other issues with regard to transfer pricing are not adjudicated being academic in nature. The grounds of appeal raised by assessee are thus, partly allowed. 16. In the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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