TMI Blog2019 (8) TMI 929X X X X Extracts X X X X X X X X Extracts X X X X ..... e applied, which as per the TPO, in this case was external TNMM method. In the totality of the above said facts and circumstances, we find merit in the exercise carried on by the TPO in this regard, wherein proper show cause notice was issued to the assessee at the start of proceedings itself as to why this method should not be applied in view of the nature of business of assessee, wherein the assessee was engaged in importing of raw material and in some cases, manufacturing certain items and selling the same in domestic market or in some cases, importing then assembling and selling in the domestic market. The household appliances from the manufacturing unit at Pune included kitchen hoods, built in hobs, cooking ranges, cook-tops, etc. The most appropriate method which needs to be applied was the TNMM method. Selection of comparables - Acrysil Ltd. - 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 same is rejected. JSL Lifestyle Ltd. - In the absence of segmental being available and the products being different, though som ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1 (in short the Act ). 2. The assessee has raised the following grounds of appeal:- The grounds mentioned herein are without prejudice to one another. 1. That the order of the Learned Deputy Commissioner of Income-tax, Circle - 2(1) ( Assessing Officer or Learned AO ), which is in conformity with the directions of the Dispute Resolution Panel, Bangalore ( DRP , Learned Panel ), and the order of the Learned Deputy Commissioner of Income tax (Transfer Pricing - 1(2)) ( Learned TPO ) to the extent prejudicial to the Appellant, is bad in law and liable to be quashed. Adjustment to purchase 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 ₹ 7,78,49,035 holding that the international transactions do not satisfy the arm's length principle envisaged under the Incom ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts manufacturing segment. 4. The Learned AO / Panel / TPO erred in disregarding the search strategy adopted by the Assessee and applying the Transactional Net Margin Method (TNMM ) thereby undertaking fresh search for external comparables, in completing the transfer pricing assessment. 4.1. Without prejudice in conducting the fresh search, the Learned Panel/TPO have erred in law and on facts, in failing to comprehend the functional profile of Elica and selecting non-comparable companies in the list of comparable companies such as: a) Acrysil Ltd. b) JSL Life Style Ltd. 4.2. Without prejudice in conducting the fresh search, the Learned AO/ TPO have erred in law and on facts, in failing to comprehend the functional profile of Elica and thereby arbitrarily rejecting the companies proposed as comparables by 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. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cing proceedings and noted that ElicaSpa, Italy formed a joint venture Elica PB India Pvt. Ltd. in India on 16.04.2010. The manufacturing unit was located in Pune, India. The assessee was not only manufacturing the goods but also importing raw material, components and in certain cases, the entire units from their associated enterprises, which were required to manufacture the products. The assessee had entered into various international transactions with its associated enterprises, which are tabulated under para 4 at page 2 of the order of TPO. The benchmarking analysis undertaken by the assessee using CPM method for manufacturing functions was found to be not correct method to be applied. The TPO show caused the assessee in this regard and was of the view that CPM method was to be rejected and TNMM method was to be considered as most appropriate method. The TPO also modified the filters to be applied and selected certain concerns to be comparable with the assessee and show cause notice was issued to the assessee. The TPO rejected CPM method in final analysis in the absence of data being available of costs and both direct and indirect costs to be allocated to related and non related ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... peal No.8 against charging of interest under section 234B of the Act was claimed to be consequential. The issue raised in ground of appeal No.2 was against transfer pricing adjustment. The learned Authorized Representative for the assessee before us made specific reference to the ground of appeal No.4.6 and also pressed grounds of appeal No.4.1 and 4.4. The issue raised in ground of appeal No.5 was that adjustment, if any, should be restricted only to international transactions and not at the entity level. He further pointed out that in case these grounds of appeal are decided, then the other grounds of appeal would become academic in nature i.e. grounds of appeal No.4.2, 4.3 and 4.5. 5. Coming to the issue raised in ground of appeal No.4.6, the learned Authorized Representative for the assessee first tried to press upon as to which method is to be applied i.e. internal Cost Plus Method or internal TNMM method or external TNMM method. The learned Authorized Representative for the assessee pointed out that the assessee was essentially a domestic seller of household goods and was importing raw material, manufacturing and selling the same in the domestic market or imp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... case two concerns are excluded, then no concern would be left in the final list of comparables. In this regard, he pointed out that ground of appeal No.4.2 needs to be adjudicated i.e. for inclusion of Gorani Industries Ltd. Admittedly, the said concern was functionally comparable to the assessee, but it was rejected on the ground that the said concern was loss making. It was pointed out before us that the said concern Gorani Industries Ltd. was not persistent loss making. Further, the TPO has pointed out that the said concern had operational losses in assessment years 2012-13 to 2014-15. Our attention was drawn to submissions of assessee before the DRP at pages 14 and 15 of order, wherein in assessment year 2014-15, there were no losses of said concern. The learned Authorized Representative for the assessee stressed that though Gorani Industries Ltd. had negligible profits, which is also mentioned by DRP at page 19, but even the margins of assessee were also low i.e. 1.94%. 7. Coming to the last ground of appeal i.e. ground of appeal No.5, which is being pressed, it was pointed out that TP adjustment, if any, is to be restricted to international transactions only. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eing available, there was no basis on which internal TNMM method could be applied. In the totality of the above said facts and circumstances, we find no merit in the reliance placed upon by the assessee on internal TNMM method. 11. Now, coming to the next aspect of the issue i.e. most appropriate method to be applied, which as per the TPO, in this case was external TNMM method. In the totality of the above said facts and circumstances, we find merit in the exercise carried on by the TPO in this regard, wherein proper show cause notice was issued to the assessee at the start of proceedings itself as to why this method should not be applied in view of the nature of business of assessee, wherein the assessee was engaged in importing of raw material and in some cases, manufacturing certain items and selling the same in domestic market or in some cases, importing then assembling and selling in the domestic market. The household appliances from the manufacturing unit at Pune included kitchen hoods, built in hobs, cooking ranges, cook-tops, etc. The most appropriate method which needs to be applied was the TNMM method. The next step is in order to determine whether the ar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... see has raised arguments for its inclusion is Gorani Industries Ltd. The said concern was selected by TPO in the initial show cause notice but in final analysis, was rejected on the ground that it was persistent loss maker. The observations of TPO in this regard are that the said concern had incurred operational losses in assessment years 2012-13 to 2014-15. The assessee had objected to the same before the DRP and pointed out that the TPO had incorrectly calculated the margins of said concern as it had included the finance costs as part of operating expenses for assessment year 2014-15. In case the corrected margins of said concern are worked out, then OP/OR works out to 0.13%. The DRP did not accept the plea of assessee on the ground that the said concern had shown marginal income. The said concern was functionally comparable to the assessee as it was engaged in manufacturing and sale of glass, gas, cook tops, chimneys, etc. The said concern was functionally comparable to the assessee and for the instant assessment year had shown marginal profits though OP/OR was only 0.13%; but there is no merit in rejecting the said concern either on the ground it was persistent ..... X X X X Extracts X X X X X X X X Extracts X X X X
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