TMI Blog2017 (4) TMI 1585X X X X Extracts X X X X X X X X Extracts X X X X ..... lendaring process is required and the assessee company is in initial year of operations. The price reduction claimed for such high engineered products cannot be believable because from the submissions it can be gathered that the assessee company is operating in a special niche zone. The assessee company has not submitted any competitive factors that compelled them to sell their products at lesser price, than their production cost. The higher production of the assessee company than that of the comparables would also be one of the reasons for such price reduction since normally any company would not like to store the goods for longer time, which will affect their working capital. The fact that the assessee company had imported the calendared product from their AE has to be taken into account in this regard. Even though the assessee company argues that their profitability had reduced due to the sales factors, actually it is not so. The assessee has not submitted any valid documentary evidences to substantiate their claim. Hence, the TPO rejected the claim of assessee.DRP observed that the assessee submitted the computation of the ratio of operating profit to sales to arrive at t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g so, it cannot be considered as comparable to assessee s case. Rejection is justified. - I.T.A. Nos. 1041/Mds./2014, I.T.A. Nos. 1036/Mds./2014 - - - Dated:- 26-4-2017 - SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER AND SHRI DUVVURU RL REDDY, JUDICIAL MEMBER For the Assessee : Mr.B.Ramakrishnan, C.A For the Revenue : Mr.Pathalavath Peerya, CIT DR ORDER PER CHANDRA POOJARI, ACCOUNTANT MEMBER These cross appeals by the assessee and the Revenue are directed against the assessment order dated 27.02.2014 passed u/s.143(3) r.w.s.144C(13) of the Act consequent to the directions of the DRP passed u/s. 144C(5) of the Act on 20.12.2013. Since issues involved in this cross appeals are common in nature, these appeals are clubbed together, heard together, disposed off by this common order for the sake of convenience. First, we take up appeal of assessee (ITA No.1041/14) 2.1 The first ground raised in this appeal is too general and does not require adjudication. Hence, this ground is dismissed. 2.2 At the time of hearing, the ld. A.R of the assessee did not press Ground Nos.2 3. Accordingly, Ground Nos. 2 3 are dismissed as not pressed. 3. Ground No.4 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... duty was eliminated in the comparable also. The import percentage in the Comparables comes to 30% and this 30% was excluded from the assessee s customs duty to weed out the difference between the assessee company and the comparables. 4.3 The TPO observed that while requesting for customs duty adjustment, the assessee had stated that they need to import because their customers are into highly engineered products and find applications in automobiles and they require an exact made to specification product and hence good calendaring process is required and the assessee company is in initial year of operations. The price reduction claimed for such high engineered products cannot be believable because from the submissions it can be gathered that the assessee company is operating in a special niche zone. The assessee company has not submitted any competitive factors that compelled them to sell their products at lesser price, than their production cost. 4.4 According to TPO, another important point is that the actual production of the assessee company vis-a- vis the comparables. As seen from the annual report they have achieved 170% of their installed capacity whereas the comparables ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mention the finding of the Pune Bench in the case of Demag Cranes Components (India) Pvt. Ltd. v. DCIT(supra) dated 4.1.2012 in ITA No.120/PN/2011, which is as follows : 37. We have heard the parties and perused the available material on records in the light of the second limb of the ground 4(b). It is relevant mentioned that we have already analysed the relevant provisions of Income Tax rules vis a vis the scope of the adjustments in the preceding paragraphs in the context of the adjustments on account of the working capital . In principles, our findings on the issue remain applicable to the adjustments on account of the import cost mentioned in ground 4(b) too. The difference between the AL Margin before and after the said adjustments on account of import cost works out to 0.57% (7.18%-6.61%). Revenue has not disputed the said working of the assessee. In these factual circumstances and in the light of the scope of adjustments discussed above, in our opinion and in principle, the assessee should win on this ground too. One such decision relied upon by the assessee s counsel supports our finding relates to the decision of this bench of the Tribunal in the case of Skoda Au ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ring a reasonable indigenous raw material content was not in place. The assessee s claim is that it was in these circumstances that the assessee had to sell the cars with such high import contents, and essentially high costs, while the normal selling price of the car was computed in the light of the costs as would apply when the complete facilities of regular production are in place. None of these arguments were before any of the authorities below. What was argued before the AO was mere fact of higher costs on account of higher import duty but then this argument proceeded on the fallacy that an operating profit margin for higher import duty is permissible merely because the higher costs are incurred for the inputs. That argument has been rejected by a Co-ordinate Bench and we are in respectful agreement with the views of our esteemed colleagues. This additional argument was not available before the authorities below and it will indeed be unfair for us to adjudicate on this factual aspect without allowing the TPO to examine all the related relevant facts. We, therefore, deem it fit and proper to remit this matter to the file of the TPO for fresh adjudication in the light of our abov ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... th the fresh submissions that their import percentage is higher and their export percentage is lower than that of the comparables.The assessee primarily accepts the forex loss/gain pertaining to revenue transactions has to be considered in the operating items. There was no dispute on that ground. His only grievance was that, given an extraordinary year of depreciating rupee, suitable adjustments has to be given to the assessee company with respect to the comparable. It was submitted by the assessee that the assessee company imports 98% of raw material and the comparable import only 30% of raw material and on that basis suitable forex loss adjustment was provided to the assessee company. 6.3 The DRP observed that they are in agreement with the assessee that foreign exchange should have been excluded from the operating income, even the Safe Harbour Rules have such provisions. The DRP directed the TPO to exclude the forex admission restatement loss from the PLI cvalculations of the assessee s case. 7. We have heard both the parties and perused the material on record. In our opinion, forex fluctuations loss in the operating cost of the assessee and also forex gains in the operati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tory manager of the assessee had been produced which had been rejected by the authorities below as being not contemporary. In our view the quality of the product is important as it affects the comparability of the transactions. Quality of product has influence on the pricing of the product. There was however no independent evidence produced before the lower authorities to show superior quality of assessee s product. The assessee vide letter dated 8.2.2010 has filed an additional evidence before the Tribunal in the form of a quality certificate from Bee Pharma Labs (Pvt.) Ltd. an independent accredited third party and also comparative selling rate of the same product produced by Torrent Pharma and Unichem Laboratories Ltd has been filed and it has been requested that the additional evidence may be submitted. It was argued that the assessee was made aware of these additional evidence only after passing of order by CIT(A) and accordingly it has been requested for admission of the same. In our view an independent evidence regarding quality of products and comparative prices will be useful in deciding the issue. Learned CIT (DR) had also no objection for admission of additional evidence ..... X X X X Extracts X X X X X X X X Extracts X X X X
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