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TMI Blog2020 (8) TMI 37X X X X Extracts X X X X X X X X Extracts X X X X ..... Income-tax Rules, 1962 ('Rules'), for determination of the arm's length price of the impugned international transactions of manufacturing activity. 3. erred in rejecting the use of three year average data of comparables and determining the arm's length operating margin for such activity using the operating margins earned by the comparables for only financial year ('FY") 2011-12. 4. erred in rejecting following companies merely because they have incurred losses in current year disregarding the fact that such companies are not a persistent loss making company and cannot be excluded as comparable. 1. Sabero Organics Gujarat Ltd. 2. Aksharchem (India) Ltd; and 3. Bhageria Dyechem Ltd. 5. erred in rejecting Sabero Organics Gujarat Ltd. on the ground that there was a merger during the year under consideration and thereby failed to appreciate that there was only share purchase agreement of shares of Sabero Organics Gujarat Ltd. which does not have implications on profitability of the company. 6. erred in rejecting Sabero Organics Gujarat Ltd. on the ground that the said comparable is not functionally comparable to the Appellant, 7. erred in rejecting on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... preciating the facts and circumstances of the case. 3. Briefly stated, the facts of the case are that the assessee-company filed its return of income for the assessment year (AY) 2012-13 on 30.11.2012 declaring total income of Rs. 44,42,14,250/-. It is wholly owned subsidiary of Cheminova A/S, Denmark. The appellant is engaged in providing crop protection solutions through manufacturing and marketing of agrochemicals and its intermediates. It has a broad portfolio of agrochemicals including insecticides, herbicides, fungicides and growth promoters. During the course of assessment proceedings, the Assessing Officer (AO) referred the case to the Transfer Pricing Officer (TPO) u/s 92CA(1) of the Act in order to determine the arm's length price in relation to the international transactions with its Associated Enterprises ('AE'). The TPO vide order dated 29.01.2016 passed u/s 92CA(3) made an adjustment of Rs. 5,08,08,861/- to the international transactions of the appellant with its AEs. The adjustment was proposed by the TPO on account of international transactions pertaining to its manufacturing activity i.e. import of raw materials and export of finished goods. The TPO rejected cert ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le. Furthermore, the TPO rejected the use of three year average data of the comparable and determined ALP margin using single year operating margins of only previous year 2011-12. Also the TPO rejected the working capital adjustment filed by the appellant on the reason that no documentary evidence was filed to show how the same has been worked out. The appellant had recovered total amount of Rs. 12,67,58,215/- for recovery of its fixed costs from the parent company Cheminova A/S Denmark. Out of the total recovery, the TPO considered Rs. 5,54,19,490/- as nonoperating on the ground that the same was on account of recovery of costs pertaining to earlier years. The TPO reduced the same from operating income of the appellant for AY 2012-13 and computed the margin at 8.51%. Accordingly, the TPO considered the unadjusted margins of the comparable companies and revised margin computation of the appellant and thus made an adjustment of Rs. 4,28,76,946/-. The AO by following the direction of the DRP made an adjustment of Rs. 4,28,76,946/- in the order dated 24.01.2017 passed u/s 143(3) r.w.s. 144C(13) of the Act. 4. Before us, the Ld. counsel for the assessee submits that the appellant ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rat Ltd., Aksharchem (India) Ltd. and Bhageria Dyechem Ltd. should not be rejected as comparable. Further, it is explained by him that the AO/TPO erred in rejecting Sabero Organics Gujarat Ltd. as merged entity and not functionally comparable. The reason given by him is that the new company Coromandel International Ltd. has merely entered into share purchase agreement with Sabero Organics Gujarat Ltd. and thus it can be held that there was merely share purchase agreement that took place during the year under consideration and there was no event of merger as mentioned by the TPO. To sum up, it is the contention of the Ld. counsel that if the above three loss making comparables rejected by the TPO are included, then the ALP of comparable companies would be 13.14%, which would fall within +/-5% range, irrespective of fact that the appellant's margin is considered at 8.51% (as per TPO) or 9.38% (as per TP study). Alternatively, it is stated that if the recovery of fixed costs is considered as operating in nature, based on the submission made by the appellant, the operating margin of the appellant would be 9.38% as against 8.51% computed by the TPO. 5. On the other hand, the Ld. Depar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... profitability is due to cyclical business reasons. In the case of Welspun Zucchi Textiles Ltd. (supra), the Hon'ble Bombay High Court has held that "where revenue had not shown that comparables excluded by it were consistent loss making concerns, further examination would be required to ascertain whether loss was a symptom of reference points mentioned in Rule 10B(2) of Rules making it non-comparable". In Chryscaptil Investment Advisors (India) Pvt. Ltd. (supra), the Hon'ble Delhi High Court has held that : "the mere fact that an entity makes high/extremely high profits/losses does not, ipso facto, lead to its exclusion from the list of comparables for the purposes of determination of ALP. In such circumstances, an inquiry under Rule 10B(3) ought to be carried out, to determine as to whether the material differences between the assessee and the said entity can be eliminated. Unless such differences cannot be eliminated, the entity should be included as a comparable." In Dover India (P.) Ltd. v. DCIT (2017) 88 taxmann.com 115 (Pune-Trib.), it is held that "where a company was performing similar functions with that of the assessee, in absence of revenue establishing that said c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wn was imposed for 21 days to prevent the spread of Covid-19 epidemic, and this lockdown was extended from time to time. As a matter of fact, even before this formal nationwide lockdown, the functioning of the Income Tax Appellate Tribunal at Mumbai was severely restricted on account of lockdown by the Maharashtra Government, and on account of strict enforcement of health advisories with a view of checking spread of Covid-19. The epidemic situation in Mumbai being grave, there was not much of a relaxation in subsequent lockdowns also. In any case, there was unprecedented disruption of judicial work all over the country. As a matter of fact, it has been such an unprecedented situation, causing disruption in the functioning of judicial machinery, that Hon'ble Supreme Court of India, in an unprecedented order in the history of India and vide order dated 6.5.2020 read with order dated 23.3.2020, extended the limitation to exclude not only this lockdown period but also a few more days prior to, and after, the lockdown by observing that "In case the limitation has expired after 15.03.2020 then the period from 15.03.2020 till the date on which the lockdown is lifted in the jurisdictio ..... X X X X Extracts X X X X X X X X Extracts X X X X
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