TMI Blog2021 (7) TMI 656X X X X Extracts X X X X X X X X Extracts X X X X ..... restoring the matter to the file of AO to be dealt with in accordance with its order for the immediately preceding assessment year viz., A.Y. 2009-10. Respectfully following the Tribunal orders in the assessee s own case for immediately preceding two years, we set aside the impugned order on this count and remit the matter to the file of AO/TPO for re-computing working capital adjustment in consonance with the methodology provided by the Tribunal in its order for the earlier years. Adjustment towards voluntary transfer pricing addition offered by the assessee in the computation of total income - We direct the TPO to allow necessary relief qua the suo motu transfer pricing adjustment offered by the assessee, if the resultant transfer pricing addition turns out to be more than that. PLI determination - Direction given by DRP for taking 0.52% as PLI of the assessee, when correct PLI of the assessee, after considering Foreign Exchange (Net) and written back of Excess Provision for doubtful debts as non-operating income, came to 0.2212% - HELD THAT:- While finalizing the transfer pricing order, the TPO adopted margin of assessee from this segment at (-) 0.22% without providin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing Officer (AO) u/s.143(3) read with section 144C(13) of the Income-tax Act, 1961 (hereinafter also called ‗the Act ) in relation to the assessment year 2011-12. 2. The assessee has raised two additional grounds, which read as under: Ground of appeal 8 Following incorrect methodology for computing capacity utilization adjustment The learned AO erred in granting capacity utilization adjustment by considering only depreciation as fixed cost instead of following the methodology prescribed in Hon ble Mumbai ITAT s ruling in case of Petro Araldite Private Limited [(2014) 160 TTJ 319 (Mumbai Trib)] which is affirmed by Hon ble Bombay High Court and which is further considered in Appellant s own case for AY 2009-10 and AY 2010-11. Ground of appeal 9 Recomputation of losses to be carried forward in case resultant transfer pricing adjustment is less than voluntary adjustment offered in turn of income The Appellant requests your Honors to direct the learned AO/TPO to recomputed losses to be carried forward in case resultant transfer pricing adjustment after adjudication of all other grounds of appeal is less than voluntary transfer pricing adjustment offered in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 74. The assessee applied the Transactional Net Marginal Method (TNMM) as the most appropriate method for demonstrating the above three international transactions, under the overall Manufacturing activity, to be at ALP. The assessee computed its own Profit Level Indicator (PLI) of OP/Revenue at 0.5176% and the average adjusted PLI of the comparables at 2.48%. The difference between 2.48% and 0.5176% was voluntarily offered as transfer pricing adjustment amounting to ₹ 7,93,92,988. The TPO computed the assessee s PLI under the Manufacturing segment at 0.2212% as against the average PLI of final four comparables at 8.3027%. The amount of adjustment was worked out at ₹ 34,55,09,967. Since the assessee had already offered a sum of ₹ 7.93 crore as suo motu transfer pricing adjustment, the TPO proposed further adjustment of ₹ 26,61,16,979. The assessee assailed the draft order incorporating the above adjustment before the Dispute Resolution Panel (DRP). After giving effect to directions given by the DRP, the AO made an addition of ₹ 9,12,61,487 in the final assessment order, against which the assessee has come up in appeal before the Tribunal. 6. The asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Government Undertakings. The above discussion boils down that a Government Undertaking cannot be considered as comparable. 9. It is still further observed that the TPO went on to include this company in the list of comparables by following his view canvassed for the A.Y. 2010-11. The assessee agitated such order of the earlier year before the Tribunal. Vide order dated 11.06.2019, the Tribunal in ITA No.565/PUN/2015 and 644/PUN/2015 upheld the exclusion of BEML, being a government company, from the list of comparables. A copy of such order has been placed at page 310 onwards of paper book. In view of the above position, we hold that the authorities below were not justified in including BEML in the list of comparables. We, therefore, direct to exclude it from the final tally of comparables. II. JCB India Limited 10. The TPO proposed to include this company in the list of comparables. The assessee objected to its inclusion by urging that the financial data of JCB India Limited for the relevant year was not available at the time of making the Transfer pricing report and further that this company was also involved in rendering Design services. The TPO observed that the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... When these facts were confronted, the ld. AR fairly conceded the point. As the extraordinary financial event of amalgamation happened in the preceding year and got recorded in the books of accounts in such preceding year itself, the company cannot be removed from the list of comparables for the current year on this sole reason, if it is otherwise functionally similar. 13. The next contention of the ld. AR was about the functional dissimilarity of JCB India Limited. He submitted that the assessee had international transactions under the Manufacturing segment and also the trading segment. Both the segments were separately benchmarked by the assessee and the TPO did not dispute the correctness of the ALP determination of the Trading segment. The ld. AR submitted that JCB India Limited was engaged in Manufacturing, Trading and Design services and the accounts were maintained on a combined basis and, as such, the TPO went wrong in considering JCB India Ltd. as comparable on entity level with the lone Manufacturing segment of the assessee. 14. A feeble attempt was also made to canvass that even the products under the Manufacturing activity of JCB India Ltd. were different from that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a reasonably good percentage of the Manufacturing activity, the assessee, on entity level, could not have been treated as a comparable to another lone Manufacturing company. Per contra, if Trading activity of a company forms a minimal and inconsiderable portion with the overwhelming functionally similar Manufacturing activity, then such a company cannot be ruled out for a comparison with a company engaged only in Manufacturing activity. 17. At this juncture, we consider it apt to quote Rule 10B(3) of Income-tax Rules, 1962 (hereinafter referred to as ‗the Rules ) as under: - Rule 10B(1).... ........ (3) An uncontrolled transaction shall be comparable to an international transaction or a specified domestic transaction if- (i) none of the differences, if any, between the transactions being compared, or between the enterprises entering into such transactions are likely to materially affect the price or cost charged or paid in, or the profit arising from, such transactions in the open market; or (ii) reasonably accurate adjustments can be made to eliminate the material effects of such differences. 18. On going through the prescription of the abov ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... evenue, it was held: `Indeed even the TPO would be entitled to refer to cases which deviate from the filter by finally holding that: `When export filter of 75% was applied, a little less than 75% in a case of a comparable does not make any difference, if the company is otherwise similar. It has to be accepted as comparable. The facts of the extant case are more or less similar as the issue herein is also of selection or rejection of a comparable on the ground of an infinitesimal small inclusion of about 0.35% turnover of trading and service activities in the otherwise 99.65% turnover of the matching manufacturing activity. As such, we are unable to countenance the contention of the assessee for the exclusion of JCB India Ltd. on the sole reason of it having 0.35% non-manufacturing activity, when its 99.65% manufacturing activity is similar to that of the assessee. 20. Without prejudice to our above decision on merits, we also take note of the fact that the assessee determined the ALP of its Manufacturing segment for the immediately preceding assessment year and suo motu included JCB India Limited in the list of comparables, which position was not tinkered with by the TPO and g ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f its directions that the assessee computed its margin from manufacturing operations at 0.52% and the TPO also considered the same margin in his show cause notice. However, while finalizing the transfer pricing order, the TPO adopted margin of assessee from this segment at (-) 0.22% without providing computation for the same. It has also been mentioned in the same para that the assessee filed a rectification application before the TPO. In this backdrop of the facts, the DRP accepted the contention of assessee and accordingly directed the TPO to take assessee s PLI at 0.52%. 26. It is observed that the assessee filed a rectification application on this score way back on 13.02.2015. A copy of such an application has been placed at page 72 of the appeal folder. Despite such application, the ld. AR stated that the TPO has not passed any rectification order for a period of more than six years. The ld. DR also could not place on record any rectification order having passed by the TPO on this issue. In such circumstances, we are of the considered opinion that the DRP was fully justified in directing the TPO to consider assessee s margin at 0.52% as against (-) 0.22% adopted by the TPO ..... X X X X Extracts X X X X X X X X Extracts X X X X
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