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TMI Blog2025 (3) TMI 1269X X X X Extracts X X X X X X X X Extracts X X X X ..... tion Panel ('DRP'), the Learned Transfer Pricing Officer ('Ld. TPO') and the Ld. AO (hereinafter collectively to be referred as 'Revenue') has erred in making an adjustment of INR 145,266,260 to the total income of the Appellant for the relevant A Y, as against the returned income of Nil filed by the Appellant. 2. On the facts and in the circumstances of the case and in law, the Hon'ble DRP has grossly erred in not undertaking independent verification of the objections along with supporting documentation, submissions and additional evidence application filed by the Appellant, and by not issuing speaking directions, and rather restoring certain transfer pricing and corporate tax matters to the Ld. TPO and Ld. AO for consideration and thereafter passing a speaking order, which is in gross violation of section I 44C(8) of the Act and thus, the final assessment order passed for the relevant A Y is bad in law. Transfer Pricing Grounds: A. Erroneous adjustment of INR 73,389,756 relating to transfer pricing with respect to international transaction pertaining to Purchase of Finished Goods 3. On the facts and in the circumstances of the case and in law, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s erred in making an incorrect disallowance of INR 4,141,229 under section 37 of the Act for the relevant A Y by questioning the genuineness of certain expenses and its nexus to the Appellant's business without giving due opportunity to the Appellant for explaining the relevant facts prior to the passing of final assessment order. C. Incorrect addition of [NR 8,497,174 made under section 69C of the Act 9. On the facts and in the circumstances of the case and in law, the Ld. AO has erred in making an incorrect addition of INR 8,497,174 on account of difference between custom duty actually paid by the Appellant amounting to INR 162,434,730 during the relevant A Y and custom duty alleged to be paid by the Ld. AO amounting to INR 170,931,094 based on CBEC Export Import data available with the department, ignoring the documents furnished by the Appellant on record and unwarrantedly seeking explanation/ reconciliation for above difference in custom duty paid without providing the CBEC Export Import data to the Appellant. D. Arbitrary addition of INR 59,238,100 in the computation of income and taxes 10. On the facts and in the circumstances of the case and in law, the Ld. AO h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... declared international transactions in its annual report in Form 3CEB. Accordingly, the case was referred to TPO. The TPO observed that assessee has declared purchase of finished goods from its AE for the value of Rs. 61,05,60,691. He observed that as per the report submitted by the assessee, assessee has declared margin of 10.05% (GP/Sales) in this segment on the basis of management account. The assessee has conducted a search on the Prowess and Capitoline Plus plus databases and arrived at a set of four comparables. The average of these comparables are at 11.10%. The same is reproduced below :- Sl.No. Data Source Company Name GPB 2015 (%) GPB 2016 (%) GPB 2017 (%) Weighted Average (%) 1 AR OK Glass Fibre Ltd. 12.41 10.65 NA 11,47 2 AR Rafbrix Ltd. 6.54 6.18 NA 6.31 3 AR Solid Stone Co. Ltd. 20.50 14.69 NA 17.58 4 Prowess Mineral Oriental Ltd. (Name change to Intelipro Aviatech Ltd.) 8.10 10.36 NA 9.07 Arithmetic Mean 11.10 5. The TPO rejected the above TP study with the observation that it is based on management accounts instead of audited financial statements and only two years data was taken in respect of comparable ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y the Ld. TPO. The Company is engaged trading of fibre glass products, which is similar to the Assessee which is mainly engaged in trading of fibrerock, gypsum boards, tiles, metal studs, grids and other goods. 7. After considering the submissions of the assessee, the TPO rejected the submissions of the assessee and dealt with the same as under :- SI. No. Company Name Assessee's contention TPO's observation 1. T B K Deepgiri Tile bath Kitchen Pvt. Ltd. To be rejected. * This company fails the RPT filter of 25% applied by the Ld. TPO * Functionally not comparable: Engaged in the business of trading of bathroom fittings, kitchen wares, etc. This company does not fail RPT filter. This comparable has been parameter set in the search engine as detailed above. 2. Rafbrix Limited To be accepted. * The Company passes all the filters proposed by the Ld. TPO. * The Company is engaged trading in refractory/ fire-proof bricks and related products which is similar to the Assessee which is mainly engaged in trading of fibrerock, gypsum boards, tiles, metal studs, grids and other goods. This comparable has been rejected as it is functionally dissimilar to the assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gin as PLI. The TPO was directed to consider the argument of the assessee in support of RPM as MAM and RPM as PLI and directed the TPO to pass a speaking order justifying applicability of MAM and PLI keeping in view the FAR profile of the assessee. Further assessee has raised objection on the issue of denying working capital adjustment under Rule 10B(1)(c) of the Rules for determination of ALP to account for differences in working capital employed by the assessee vis-à-vis comparable companies. After considering the submissions of the assessee, ld. DRP directed the TPO to compute the working capital in accordance with the OECD Guidelines as follows ;- "(a) Compute the average of opening and closing balances of inventories, trade debtors/receivables, trade creditors/payables of both the tested party and the comparables for the relevant year on revenue account only. (b) Compute the net working capital ratio (in percentage) after dividing the net working capital by operating cost/sales or such denominator (as is used in the PLI) both for the tested party and the comparables. (c) Determine the difference between the tested party's ratio with that of each comparable. (d) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rvices, business support services and IT expenses income which means that this method is prima facie unlikely to be appropriate for assessing whether the proposed pricing of the company's international associated enterprises transactions is at arm's length. Hence, RPM would not be appropriate for the benchmarking of the impugned transaction. For the above mentioned reasons, the use of RPM for the purpose of benchmarking by the taxpayer is rejected. Since, TNMM is tolerant to above mentioned inconsistencies and also a reasonable adjustments can be made on account of various expenditures grouped together if it is not possible to identify and adjust on account of the differences in individual line items of expenditure indicating differences in functions." 11. With the above observation, TPO has justified in adopting TNMM as the MAM. 12. TPO observed in its order that DRP vide its order has directed the TPO to consider the submissions of the assessee including the FAR profile of the assessee and pass a speaking order justifying on the net profit margin is the MAM for PLI for benchmarking the transactions under consideration. However, TPO analysed audited financials of three ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in manufacturing segment and in trading segment with its AE, achieved profit of 10.05% and with non-AE it has achieved 10% and in overall entity level, the assessee has achieved 26%. He submitted that TPO has not considered the abovesaid segmental report. He further submitted that assessee is not doing any value addition with regard to trading activities. In this regard, he relied on the decision of Hon'ble High Court of Delhi in the case of Pr.CIT vs. Fujitsu India Pvt. Ltd in ITA 34/2019 & ors. order dated 12.10.2023; Mumbai Bench of ITAT in ITO vs. L'oreal India (P.) Ltd. vs. (2012) 24 taxmann.com 192 (Mum.); Delhi Bench in Karcher Cleaning Systems Private Ltd. in ITA No.4986/Del/2019 order dated 18.10.2023 and Delhi Bench in D Light Energy P. Ltd. vs. Assessing Officer in ITA No.516/Del/2022 order dated 10.06.2024. 17. In all the above cases, Hon'ble High Court of Delhi as well as coordinate Benches has accepted the RPM method in trading activities. He relied on the same. He also brought to our notice page 2271 of the Paper Book wherein assessee has filed a copy of invoices of purchase of material from its AE, Star-USG Building Materials Co. Ltd. and relevant customs clearance ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... misunderstood the business of the assessee and proceeded to complete the ALP on the basis of TNMM method. In our considered view, the TPO has to redo the ALP adjustment on the basis of various details available on record which shows that assessee has two segments - (a) manufacturing and (b) trading activities - and the ALP of the trading activities was accepted by the Revenue in the earlier assessment years on the basis of RPM. Therefore, we are inclined to remit this issue back to the file of AO/TPO to redo the ALP adjustment on the basis of RPM and at the same time, we direct the assessee to file audited segment report before the AO/TPO and bring on record FAR analysis and also submit the relevant documents in support of its submissions to the AO/TPO. It is needless to say that TPO may provide opportunity of being heard to the assessee. Accordingly, grounds no.3 to 7 are allowed for statistical purposes. 20. With regard to Ground No.8, relevant facts are, during assessment proceedings, the Assessing Officer observed that various expenses incurred by the assessee during the year are much higher than the expenses incurred in the immediate preceding year. The Assessing Officer comp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Assessing Officer to verify the additional evidences submitted by the assessee. Accordingly, we direct the Assessing Officer to verify the additional evidences and allow the claim of the assessee as per law, after giving proper opportunity of being heard to the assessee. Accordingly, ground no.8 raised by the assessee is allowed for statistical purposes. 24. With regard to ground no.9, relevant facts of the case are, during assessment proceedings, Assessing Officer observed that as per CBEC Export Import data available with the Department, assessee had paid customs duty of Rs. 17,09,31,904/-. Accordingly, notices u/s 142(1) along with questionnaire were issued to the assessee to submit the same. In response, assessee submitted that the assessee does not route any customs duty paid from its profit & loss account and accordingly customs duty paid as per export import data is not matched with the ITR in the subject year. The Assessing Officer, not satisfied with the submissions made by the assessee, issued another notice u/s 142(1) of the Act to the assessee and was asked to furnish supporting documents along with details of customs duty paid on input invoice value of Rs. 79,79,93,47 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the information available from CBEC export and import data. From the assessment order, we observed that even Assessing Officer does not have details of customs duty paid by the assessee. For the sake of justice, we are inclined to remit back this issue to the file of Assessing Officer to collect the information from assessee. Assessing Officer cannot make the addition merely on the basis of CBEC export import data and Assessing Officer has to collect the total imports made by the assessee during the year and reconcile the same with customs duty paid by the assessee. Needless to say that assessee may be given an opportunity of being heard and we direct the assessee also to submit the relevant information before the Assessing Officer. Accordingly, ground no.9 raised by the assessee is allowed for statistical purposes. 31. In the result, the appeal filed by the assessee being ITA No.2060/Del/2022 for AY 2017-18 is partly allowed for statistical purposes. 32. With regard to appeal for AY 2018-19, since the facts are exactly similar to AY 2017-18 our above findings in AY 2017-18 are applicable mutatis mutandis in AY 2018-19. Accordingly, the appeal being ITA No.2061/Del/2022 for AY 2 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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