TaxTMI 
TaxTMI 
2019 (12) TMI 1641
X X X X Extracts X X X X
X X X X Extracts X X X X
....075/-. The Assessing Officer, in the draft assessment order accordingly made the addition and determined the total income at Rs.3,41,90,315/-. The assessee approached the DRP who upheld the action of the A.O./TPO. Accordingly, the Assessing Officer passed the final order making the addition of Rs.2,53,72,551/-. 3. Aggrieved with such order of the A.O./TPO/DRP, the assessee is in appeal before the Tribunal raising the following grounds:- "1. That on facts and circumstances of the case and in law, the reference made by the Ld. Assessing Officer suffers from jurisdictional error as the Ld. AO did not record any reasons in the assessment order based on which he reached the conclusion that it was "expedient and necessary" to refer the matter to the Ld. Transfer Pricing Officer ("TPO") for computation of the arm's length price, as is required under section 92 CA (1) of the Act. 2. That on the facts and in the circumstances of the case and in law, the Ld. AO erred in assessing the total income of the Appellant at INR 32,570,791 as against income of INR 7,198,240 returned by the Appellant, after making transfer pricing adjustment of INR 25,372,551. 3. That on the facts and circu....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ounds are dismissed as not pressed. Ground No.4 being premature at this juncture is dismissed. Ground of appeal No.5 relating to levy of interest u/s 234B, 234C and 234D being mandatory and consequential in nature, therefore, the same is dismissed. 8. So far as transfer pricing adjustment of Rs.2,53,72,551/- is concerned, the facts of the case, in brief, are that the assessee, during the year has entered into the following international transactions:- No. Nature of transaction Method Value of transaction 1 Purchase of raw Material TNMM 1,715,551 2 Purchase of Consumables 9,278 3 Sale of goods 428,344,863 4 Purchase of machinery 487,004 5 Payment of royalty 479,898 6 Availing of technical services 180,804 7 Reimbursement of expenses to AE's 7,311,328 9. It was seen that the assessee benchmarked the international transactions using Transactional Net Margin Method (TNMM) and Profit Level Indicator (PLI) of Operating Profit/Operating Cost. The assessee earned operating profit margin of 6.08% (after claiming idle capacity adjustment) vis-à-vis arithmetic mean of comparable companies being 5.91%. 10. The assessee had identif....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e is not engaged in the business hydraulic pumps and seat belt division as that of Rane TRW Steering Systems Ltd. 14. Referring to Rule 10TA of the IT Rules, 1962, the ld. counsel for the assessee drew the attention of the Bench to clause (b) of the said Rule and drew the attention of the Bench to the definition of 'Core auto components' which means - (i) Engine and engine parts, including piston and piston rings, engine valves and parts cooling systems and parts and power train components (ii) Transmission and steering parts, including gears, wheels, steering systems, axles and clutches; (iii) Suspension and braking parts, including brake and brake assemblies, brake linings, shock absorbers and leaf springs. 15. He accordingly submitted that the business of the assessee comes within the ambit of manufacturing core auto components which has been given a separate treatment by the legislature as compared to manufacture of non-core components as in the auto industry the business of manufacture and sale of these two segments is very different. 16. Further, the segmental data are not available. He submitted that the assessee company primarily caters to the AEs based in Europe a....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... vs Addl. CIT [ITA No. 6980/Del/2017]; (ii) Cypress Semiconductor Technology India (P.) Ltd. vs DCIT [IT(TP) A No. 1002/Bang/2011; and (iii) 24/7 Customer.com (P.) Ltd. vs DCIT [ITA No. 227/Bang/2010] 19. He accordingly submitted that Rane TRW Steering Systems Ltd., should be excluded from the list of comparables since it owns substantial intangibles, has carried out R&D activities and has low export sales as compared to total sales. 20. The ld. DR, on the other hand, heavily relied on the order of the A.O./TPO/DRP. 21. We have considered the rival arguments made by both the sides and perused the record. We find the TPO, in the order passed u/s 92CA(3) added Rane TRW Steering Systems Ltd., as a comparable. From the orders passed u/s 92CA(3) for the assessment year 2010-11 and 2011-12, we find the TPO has accepted the TP analysis filed by the assessee and has not considered Rane TRW Steering Systems Ltd., as a comparable. Further, we find from the various details furnished by the ld. counsel that this company is not functionally comparable since Rane TRW Steering Systems Ltd., is engaged in two divisions, namely, steering gear division and hydraulic pumps & seat belt division....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e total sales as against export sale of 98.90% to the total sales in the case of the assessee. He submitted that ZF Steering Gear (India) Ltd., is engaged in research and development activities in their product/process development during the year whereas the assessee has not incurred any such expenditure during the year. Relying on the decisions cited while arguing exclusion of Rane TRW Steering Systems Ltd., he submitted that all these decisions are also applicable to the present comparable. He accordingly submitted that ZF Steering Gear (India) Ltd., should be excluded from the list of comparables. 23. The ld. DR, on the other hand, heavily relied on the order of the A.O./TPO/DRP. 24. We have heard the rival arguments made by both the sides, perused the orders of the A.O./TPO/DRP and the paper book filed on behalf of the assessee. We have also considered the various decisions cited before us. We find the TPO added ZF Steering Gear (India) Ltd., as a comparable while determining the ALP of the international transaction although the assessee has not considered the same. From the details furnished by the assessee in the paper book, we find from the annual report of ZF Steering Gea....
X X X X Extracts X X X X
X X X X Extracts X X X X
....und raised by the assessee objecting the working capital adjustment in the light of the assertion of the Assessing Officer that the said claim was already allowed to the assessee at the time of TP proceedings. 27. The ld. counsel for the assessee submitted that the TPO, in his order, has wrongly stated that the assessee asked for such working capital adjustment. He submitted that working capital adjustment was never sought by the assessee and was also not required in the case of the assessee. He submitted that the relevant market factors such as difference in inventories, debtors and creditors play a major role while setting up price mechanism for transactions in independent scenario. The said factors have already been considered by the assessee during the price setting process for transactions between the assessee and its AEs. He submitted that the TPO, after arriving at the arithmetic mean of all comparables at 0.80%, worked out the negative working capital adjustment thereby making ALP at 3.28%. He submitted that the working capital adjustment is made for the time value of money lost when credit time is provided to the customers. However, in the instant case, majority of sales ....