TMI Blog2020 (4) TMI 128X X X X Extracts X X X X X X X X Extracts X X X X ..... ord our imprimatur to the view canvassed by the TPO in rejecting the aggregation approach adopted by the assessee. - Decided against assessee. Include UMS Technologies Ltd. as comparable company - HELD THAT:- TPO has worked out the loss of UMS Technologies Ltd. at (-) 5% by allocating the expenses in the ratio of turnover of Engine segment to total revenue i.e. at 41.85%. He has completely disregarded the segment loss reported in the audited Balance Sheet. We further find that no reasons have been given by TPO for disregarding the segmental revenue as disclosed in the audited results. In such situation, we are of the view that TPO was not justified in working out the margins of UMS Technologies Ltd. at (-) 5% when the audited Balance Sheet itself shows the loss of Engine segment at (-) 22.89%. We find that if the margin of UMS Technologies Ltd. is considered on the basis of audited results, then it is comparable with the loss of assessee and therefore, no adjustment is called for. We therefore, set aside the adjustment made by TPO and thus, this ground is allowed. Since this ground is allowed, as submitted by assessee, ground Nos.4 and 5 becomes academic and therefore, require ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n appeal before us and has raised the following grounds:- The grounds stated hereunder are independent of, and without prejudice to one another: On the facts and circumstance of the case and in law, 1. The Ld Assessing Officer ('Ld AO'), erred in making a transfer pricing ('TP') adjustment of ₹ 1,43,39,991 to the income of the Appellant company with respect to the international transactions pertaining to manufacturing activity of the assessee by rejecting the TP analysis conducted by the Appellant. The Appellant prays that the TP analysis conducted by the Appellant be accepted and consequently the TP adjustment of ₹ 1,43,39,991 be deleted. 2. The Ld AO /Ld DRP has erred in disregarding the appellant's approach of aggregating the international transactions pertaining to manufacturing activity with international transactions pertaining to distribution and after sales activity without appreciating that the said activities are intrinsically linked to each other. 3. The ld.A.O / DRP erred in holding that the transactions relating to the manufacturing segment were not interlinked to the transactions of distribution and after sa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... esentation of facts. 11. The Appellant prays that the Ld AO be directed to drop the penalty proceedings initiated under Section 271(1)(c) of the Income-tax Act, 1961. 12. The Appellant craves leave to add, alter, amend, substitute or withdraw all or any of the Grounds of Appeal herein and to submit such statements, documents and papers as may be considered necessary either at or before the appeal hearing so as to enable the Hon'ble Tribunal Members to decide these according to the law. Before us at the outset, the ld. AR submitted that the main issue which requires adjudication is ground No.6 and ground Nos.6 to 9 are interconnected. The ground Nos.10 and 11 are against initiation of penalty proceedings, which are premature. We first take up ground Nos.1 to 3: - 3. Before us at the outset, ld. AR submitted that ground Nos.1 to 3 are against the orders of lower authorities, whereby it was held that manufacturing segment cannot be aggregated with distribution segment and both need to be benchmarked separately of each other. Before us, ld. AR fairly conceded that in A.Y. 2012-13 an identical issue arose before the Tribunal in assessee s own case and the Co-ord ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vident that the sale of traded spare parts does not extend to its customers to whom the goods manufactured by it were sold. In our considered opinion, the two sets of the transactions, can by no stretch of imagination, be considered as closely linked transactions . The mere fact that spare parts sold by the assessee in Indian market would be of some help in subsequent years when the manufactured diesel engines would require servicing, cannot now make the transactions as closely linked transactions , so as to come up for consideration in an aggregate manner. 8. In one sense, closely linked transactions means similar or alike transactions of purchase or sale etc. of goods or services. To put it simply, if there are several international transactions of, say, purchase of similar goods or with some variations, then instead of finding the ALP of such international transactions separately, if these are combined and benchmarked in an aggregate manner, it satisfies the prescription of closely linked transactions. The Hon ble Punjab Haryana High Court in Knorr Bremse India (P) Ltd. Vs. ACIT (2016) 380 ITR 307 (P H) considered the question of aggregation of international transa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... applied to benchmark the international transactions including Technical assistance fees and proceeded to determine the ALP of the Technical assistance fees separately. The Tribunal approved the TPO s stand on segregation of payment of Technical assistance fee. The Hon ble Delhi High Court admitted the question in this regard - `Whether the Income Tax Appellate Tribunal was right in holding that royalty and technical assistance fee did not form part of a composite transaction and have to be treated as two separate transactions for the purpose of benchmarking and computing arms length price? Answering this question against the assessee, the Hon ble High Court countenanced the view of the Tribunal that aggregation of the transaction of payment of Technical fees with other international transactions under the common TNMM, was not correct. Restoring the matter to the TPO/AO, it held that the TNMM should be separately applied for determining the ALP of the international transaction of payment of Technical fee. 11. We note that the facts of the extant case are on a rather weak footing. In that case, the Hon ble High Court did not approve the clubbing of `Technical fees with o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssee that TPO had considered comparable companies as per TP order for A.Y. 2012-13 and since in A.Y. 2012-13 comparable companies were rejected, he has rejected the same in A.Y. 2013-14 as well. Before the DRP it was submitted that UMS Technologies Ltd. was functionally comparable to the assessee and should be considered as comparable. The DRP after considering the submissions of assessee directed the TPO to include UMS Technologies Ltd. (Engines segment) in the set of comparables for the manufacturing segment activity of assessee. With respect to inclusion of Kirloskar Oil Engines Ltd. and Greaves Cotton Ltd. as comparable companies by the TPO, it was the contention of assessee that the aforesaid two companies turnover was significantly higher vis- -vis turnover of assessee and therefore, assessee sought exclusion of the aforesaid two companies from being comparables. The DRP noted the fact that turnover of Kirloskar Oil Engines Ltd. and Greaves Cotton Ltd. was very high as compared to the turnover of assessee and therefore, did not qualify as comparables. He accordingly, directed the TPO to exclude Kirloskar Oil Engines Ltd. and Greaves Cotton Ltd. from the set of comparables. Co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Ltd. and Greaves Cotton Ltd. as comparables. When the matter was carried by the assessee before DRP, DRP directed the TPO to exclude Kirloskar Oil Engines Ltd. and Greaves Cotton Ltd. from comparables but directed to include UMS Technologies Ltd. (Engine segment) in the set of comparables. Consequent to the directions of DRP, TPO worked out the adjustment on the basis of margins of UMS Technologies Ltd. as worked out by him on the basis of revenue of Engine segment to total revenue. 12. We find that in the audited Balance Sheet of UMS Technologies Ltd. for A.Y. 2013-14 segment reporting is available for various segments. With respect to Engine segment of UMS Technologies Ltd., we find that on turnover of ₹ 256.36 lacs, loss has been determined at ₹ 54.89 lacs, which work out at (-)21.48% as against loss of assessee which is at (-)22.69%. We find that TPO has worked out the loss of UMS Technologies Ltd. at (-) 5% by allocating the expenses in the ratio of turnover of Engine segment to total revenue i.e. at 41.85%. He has completely disregarded the segment loss reported in the audited Balance Sheet. We further find that no reasons have been given by TPO for disregardi ..... X X X X Extracts X X X X X X X X Extracts X X X X
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