Tribunal partially allows appeal, excludes companies from comparables list, cancels adjustment. Other grounds dismissed. Decision on 11.12.2019.

The appeal was partly allowed by the Tribunal, excluding Rane TRW Steering Systems Ltd. and ZF Steering Gear (India) Ltd. from the list of comparables and canceling the negative working capital adjustment. Other grounds were dismissed for not being pressed, premature, or mandatory. The decision was pronounced on 11.12.2019.

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Issues Involved:
1. Jurisdictional error in reference to Transfer Pricing Officer (TPO)
2. Incorrect assessment of total income
3. Errors in transfer pricing adjustments
4. Validity of initiation of penalty proceedings under Section 271(1)(c)
5. Levy of interest under Sections 234B, 234C, and 234D
6. Additional ground regarding negative working capital adjustment

Issue-wise Detailed Analysis:

1. Jurisdictional Error in Reference to TPO:
The appellant contended that the Assessing Officer (AO) did not record any reasons in the assessment order to justify the reference to the TPO for determining the arm's length price of international transactions, as required under Section 92CA(1) of the IT Act. However, this ground was not pressed during the hearing, and thus, it was dismissed.

2. Incorrect Assessment of Total Income:
The AO assessed the total income of the appellant at INR 32,570,791 against the declared income of INR 7,198,240 after making a transfer pricing adjustment of INR 25,372,551. This ground was also not pressed during the hearing and was dismissed.

3. Errors in Transfer Pricing Adjustments:
- Comparability Analysis: The appellant argued that the AO/TPO erred in modifying the comparability analysis on inappropriate grounds, selecting non-comparable companies, and disallowing economic adjustments for sales downturns. Grounds 3.1 and 3.4 were not pressed and dismissed.
- Inclusion of Rane TRW Steering Systems Ltd.: The Tribunal found that Rane TRW Steering Systems Ltd. was not functionally comparable due to its diversified business, low export sales, and significant R&D activities. The company was excluded from the list of comparables.
- Inclusion of ZF Steering Gear (India) Ltd.: Similarly, ZF Steering Gear (India) Ltd. was excluded due to its diversified business, low export sales, and significant R&D activities.

4. Validity of Initiation of Penalty Proceedings:
The ground regarding the initiation of penalty proceedings under Section 271(1)(c) was considered premature and dismissed.

5. Levy of Interest Under Sections 234B, 234C, and 234D:
The ground related to the levy of interest under these sections was considered mandatory and consequential, hence dismissed.

6. Additional Ground Regarding Negative Working Capital Adjustment:
- The appellant argued that the TPO wrongly made a negative working capital adjustment, which was not sought by the appellant and was not required. The Tribunal found merit in the appellant's argument, noting that the majority of sales were to related parties, meaning the appellant did not bear any working capital risk. Citing various decisions, the Tribunal held that negative working capital adjustment was not justified and allowed the additional ground.

Conclusion:
The appeal was partly allowed, with the Tribunal excluding Rane TRW Steering Systems Ltd. and ZF Steering Gear (India) Ltd. from the list of comparables and canceling the negative working capital adjustment. The other grounds were dismissed as not pressed, premature, or mandatory in nature. The decision was pronounced in the open court on 11.12.2019.

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