TMI Blog2022 (1) TMI 647X X X X Extracts X X X X X X X X Extracts X X X X ..... is allowed. - ITA No. 874/Del/2021 - - - Dated:- 10-1-2022 - Saktijit Dey, Member (J) And Dr. B.R.R. Kumar, Member (A) For the Appellant : Siddhartha Sinha, Adv. For the Respondents : Anand Kumar Kedia, CIT-DR ORDER Per Dr. B.R.R. Kumar, Accountant Member The present appeal has been filed by the assessee against the order dated 25.06.2021 passed by the National Faceless Assessment Centre, Delhi u/s. 143(3) r.w.s. 144C(13) of the Income Tax Act, 1961. 2. Following grounds have been raised by the assessee: A. General Grounds 1. That on the facts and in law, the Learned AO/TPO erred in assessing the income of the Appellant for the relevant assessment year at INR 2,51,40,768 as against the returned income shown as INR 70,52,530. 2. The Ld. AO has erred in law, facts and circumstances by initiating the penalty proceedings under section 271(1)(c) of the Act against the appellant for concealment of particulars of income. 3. That on the facts and in law, the Ld. TPO/AO failed to recognize that Appellant is joint venture between two unrelated entities. B. Inappropriate economic analysis 4. That on the facts and in law, the Learned A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on the facts and in law, the order passed by the Ld. TPO/AO suffers from various arithmetic computational errors in margin of the comparable companies thereby impacting the determination of ALP and the total income of the Appellant without considering the rectification application submitted by the Appellant. 3. The assessee is engaged in the business of manufacturing and assembling of setup boxes. During the year in consideration, the assessee has entered into an international transaction with its AE for purchase of raw material. 4. The assessee has mainly argued with regard to three comparables. 5. BCH Electric Ltd. - The main argument of the assessee is that while the assessee is in manufacturing of setup boxes, the comparable is a well recognized, switchgear and low voltage panel manufacturer of low voltage electrical and electronic control. The turnover of the comparable is ₹ 281 crores compare to the turnover of the assessee of ₹ 48 crores. Though assessee argued on the un-comparable turnover, keeping in view 1:5 ratio of the comparable, we are unable to accept the contention of the assessee on the turnover filter. At the same time, we find that the ope ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lectric car LOVE BIRD. The company is into manufacturing of Eddy current drive, drives controls for HTS, Tachogenerator, Dynamometer, platform truck and electric buggy. 11. Since, there is a stark product differentiation, it cannot be considered as a comparable company and hence is liable to be excluded from the list of comparables. 12. Before us, the ld. AR submitted that the assessee has not represented before the AO nor filed TPSR hence the matter should be remanded back. The written arguments of the ld. DR are as under: Kindly refer to the above. This case was argued by the undersigned. The Assessee submitted Gist of arguments in writing which was provided to the undersigned during the course of hearing through Email. During the hearing I have made following oral submissions: 1. During the course of hearing Ld. Counsel for the Assessee has said that he is pressing only ground No. 7 of the appeal and has not pressed other grounds. In the instant case assessee has declared a operating profit margin of only 1.67% (AR of the assessee also agreed to this fact). The assessee is in the business of set top boxes manufacturing and apparently a margin of 1.67% is very ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as supposed to maintain relevant documents for international taxation and the assessee also required to submit TP study report. However, the assessee has not done any of the above. In gross violation and Rule 10D. Relevant portion of Rule 10D is reproduced below:-Rule 10D(1) Every person who has entered into an international transaction [or a specified domestic transaction] shall keep and maintain the following information and documents, namely:- (e) a description of the functions performed, risks assumed and assets employed or to be employed by the assessee and by the associated enterprises involved in the international transaction [or the specified domestic transaction]; (f) a record of the economic and market analyses, forecasts, budgets or any other financial estimates prepared by the assessee for the business as a whole and for each division or product separately, which may have a bearing on the international transactions [or the specified domestic transactions] entered into by the assessee; (g) a record of uncontrolled transactions taken into account for analysing their comparability with the international transactions [or the specified domestic transactions] e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se three manufacturers out of many other parties which are in the business of set top box manufacturing. Some of the prominent manufacturers of set top box during FY 2015-16, are Logic Eastern, My box Tech, Discom, Videocon, Amagi and many other. (Annexure A- material downloaded from internet) It is not clear how the assessee has offered only these three comparables without doing any FAR study without showing accept reject matrix. Therefore, cherry picking done by the assessee should not be allowed. In case if any comparable is removed at this stage then the TPO may be allowed to include other comparables from the parties which are there in set up box manufacturing. From the written submission given by the assessee today it is apparent that the assessee's only attempt is reduce number of comparables to below seven so that the assessee gets the benefit of 3% range by hook or by crook. Allowing the assessee to reduce number of comparables further at appellate stage will lead to a non compliant assessee being placed in an advantageous position vis- via complaint assessees. 8. Without prejudice to above arguments it has been held by courts that where AO's investigati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ile benchmarking the provision of software R D services to AEs during AY 2012-13 and held that the assessee could not be compared to the following companies: Infosys Limited, Larsen and Toubro Infotech Limited and Persistent Systems Limited on account of turnover filter. It held that the 3 companies failed the turnover filter of 1/10th and 10 times of assessee's turnover i.e. 18.45 crores as they had very high turnover i.e. 31253 cr. 2960 cr. and 810 cr. respectively. Genesys International Corporation Limited on the ground of functional dissimilarity as the company was engaged in development of cutting edge applications by developing state of the art GIS technologies and allied spatial data acquisition, processing and integration techniques to meet the demand of the consumers. UEI Electronics Pvt. Ltd. Vs DCIT [TS-274-ITAT-2017(Bang)-TP -IT(TP)A No. 2005 (Bang)/2016 dated 10.03.2017 (ii) The Tribunal relying on the decision of the coordinate bench in the case of Thomson Reuters India Services Pvt. Ltd. [TS-1084-ITAT-2016(Bang)-TP] held that Vishal Information technology ltd was functionally dissimilar as it provided agency services by way of outsourcing to th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d to assessee. Microchip Technology (India) Pvt. Ltd. v ACIT - TS-384-ITAT-2017(Bang)-TP - I.T.(T.P) A. No. 1586/Bang/2012 dated 03.05.2017. (v) The Tribunal relying on the decision in the case of Thyssen Krupp Industries (P) Ltd. [TS-46-ITAT-2013(MUM)-TP] (Confirmed by Bombay High Court [TS-134- HC-2016(BOM)-TP] held that the assessee engaged in the business of providing Engineering Consultancy services in the field of chemicals, petrochemicals, fertilizers, cement, pharmaceuticals and allied industries could not be compared to:- Engineers India Ltd. and Water and Power Consultancy Ltd. as they were Government companies and the contracts between Public Sector Undertakings were not driven by profit motive alone by other consideration also, such as discharge of social obligations. Further, it directed the AO to exclude infrastructure and overhead recoveries in the case of L T Sargent Lundy Limited, as they were mere reimbursement of expenses incurred by a group concern on behalf of the assessee and hence should not be considered as a commercial transaction involving profit element while computing the percentage of related party transactions. Relying on the de ..... 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