2018 (10) TMI 1902 - AT - Income Tax

Tax Appeal: Tribunal Directs Reevaluation for Fair Assessment

M/s. Cameron Manufacturing India Pvt. Ltd., Versus  The DCIT, Corporate Circle-1, Coimbatore.

The Tribunal partly allowed the appeal, directing the Taxation Officer to rework the selection of comparable companies and consider adjustments towards ... TP Adjustment - working capital and risk adjustment - HELD THAT:- DRP had rejected the prayer of the assessee for granting working capital and risk adjustment - it appears that neither the assessee nor the AR had come out with any convincing materials to justify the claim made before the Ld.Revenue Authorities - the objection raised by the Ld.AR is required to be reconsidered by the Revenue considering the intricacies of the business of the assessee. Hence we hereby remit the matter with respect to granting of working capital and risk adjustment back to the file of Ld.TPO for de-nova consideration, thereby affording one more opportunity to the assessee to present its case before the Ld.TPO on merits. Most of the selection of comparable companies except in the EDS Segment we have held against the Revenue - We are of the considered view that the entire exercise with respect to selection of comparable companies other than in the EDS Segment needs to be reworked afresh in order to arrive at the appropriate result based on the appropriate comparable companies. Therefore we hereby remit back the matter with respect to selection of comparable companies other than in the EDS Segment to the file of Ld.TPO for de-nova consideration. Issues Involved:1. Selection of comparable companies in the EDS segment.2. Selection of comparable companies in the ITeS segment.3. Selection of comparable companies in the Assembly segment.4. Adjustment towards working capital and risk differentiation.Detailed Analysis:1. Selection of Comparable Companies in the EDS Segment:- Ground No. 1.1: M/s. Acropetal Technologies Ltd. as Comparable Company:The appellant argued that M/s. Acropetal Technologies Ltd. disclosed abnormal profits which should exclude it as a comparable company. The Tribunal found merit in this argument, noting that the company's margin of 57.66% for FY 2012-13 was abnormally high compared to other years. Consequently, the Tribunal directed the Ld. TPO to exclude M/s. Acropetal Technologies Ltd. as a comparable company, thereby resolving Grounds 1.1 to 1.3 in favor of the assessee.2. Selection of Comparable Companies in the ITeS Segment:- Ground No. 2.1: M/s. Infosys BPO Limited as Comparable Company:The appellant contended that M/s. Infosys BPO Limited had a significantly higher export turnover (approx. Rs. 1356 crores) compared to the appellant's Rs. 14.50 crores, making it an unsuitable comparable. The Tribunal agreed and directed the Ld. TPO to exclude M/s. Infosys BPO Limited as a comparable company.- Ground No. 2.2: M/s. MPS Limited as Comparable Company:The appellant argued that M/s. MPS Limited was a high-end service provider in a different line of business and did not meet the employee cost filter. The Tribunal noted that the Ld. TPO had not examined these objections and remitted the matter back to the Ld. TPO for de-nova consideration.- Ground No. 2.3: M/s. Hartron Communications as Comparable Company:The appellant highlighted that M/s. Hartron Communications had diversified operations and showed extraordinary profit increases. The Tribunal found the company functionally dissimilar and directed the Ld. TPO to exclude M/s. Hartron Communications as a comparable company.- Ground No. 2.4: M/s. Caliber Point Business Solution as Comparable Company:The appellant argued for the inclusion of M/s. Caliber Point Business Solution despite its different financial year, suggesting extrapolation of financial data. The Tribunal remitted the matter back to the Ld. TPO for de-nova consideration, as the method of extrapolation was not detailed.3. Selection of Comparable Companies in the Assembly Segment:- Ground No. 3.1: M/s. Cenlub Industries as Comparable Company:The appellant argued that M/s. Cenlub Industries was engaged in different activities like manufacturing lubricating systems and R&D. The Tribunal agreed that the company was functionally dissimilar and directed the Ld. TPO to exclude it as a comparable company.- Ground No. 3.2: M/s. Dembla Valves Ltd. as Comparable Company:The appellant stated that M/s. Dembla Valves Ltd. manufactured valves for specific industries, making it functionally dissimilar. The Tribunal found merit in this argument and directed the Ld. TPO to exclude M/s. Dembla Valves Ltd. as a comparable company.- Ground No. 3.3: M/s. SE Electricals Ltd. as Comparable Company:The appellant contended that M/s. SE Electricals Ltd. was involved in manufacturing generators and transformers, making it functionally dissimilar. The Tribunal agreed and directed the Ld. TPO to exclude M/s. SE Electricals Ltd. as a comparable company.4. Adjustment Towards Working Capital and Risk Differentiation:- Ground No. 4:The appellant argued that adjustments towards working capital and risk were not considered. The Tribunal noted that the Ld. Revenue Authorities had relied on previous decisions and observations, rejecting the appellant's claims. However, in the interest of justice, the Tribunal remitted the matter back to the Ld. TPO for de-nova consideration, allowing the appellant another opportunity to present its case.Conclusion:The Tribunal partly allowed the appeal for statistical purposes, directing the Ld. TPO to rework the selection of comparable companies and consider adjustments towards working capital and risk differentiation. The matter was remitted back for de-nova consideration to ensure a fair and just assessment.