2020 (10) TMI 1147 - AT - Income Tax

Tribunal directs reassessment for assessee including PLI recalculation, comparables exclusion, and transfer pricing adjustments.

Bucher Hydraulics Pvt. Ltd. Versus The ACIT, Circle-5 (1), New Delhi

Bucher Hydraulics Pvt. Ltd. Versus The ACIT, Circle-5 (1), New Delhi - TMI Issues Involved:1. Legality of the assessment order.2. Incorrect calculation of Profit Level Indicator (PLI) of the assessee.3. Incorrect calculation of PLI of comparables.4. Rejection of comparable companies.5. Cherry-picking of comparables.6. Rejection of adjustments under Rule 10B(3).7. Voluntary transfer pricing adjustment.8. Transfer pricing adjustment proportionate to the value of international transactions.9. Claim of brought forward losses and unabsorbed depreciation.10. Interest charged under sections 234B/234C.11. Penalty proceedings under section 271(1)(c).12. Additional grounds regarding computation of PLIs and exclusion of Roto Pumps Ltd.Detailed Analysis:1. Legality of the Assessment Order:The assessee challenged the assessment order passed by the Assessing Officer (AO) consequent to the order of the Transfer Pricing Officer (TPO) as being bad in law and void-ab-initio. The primary contention was that the TPO's order was non-est due to the non-application of mind and extraneous reasons applied for changing the PLI of the assessee.2. Incorrect Calculation of PLI of the Assessee:The assessee argued that the TPO incorrectly computed the PLI by excluding certain items such as commission and insurance claim recovered as operating income. The Tribunal directed the AO/TPO to re-examine these items and decide after affording reasonable opportunity to the assessee.3. Incorrect Calculation of PLI of Comparables:The Tribunal found merit in the assessee's claim that the AO/TPO incorrectly computed the PLIs of comparable companies. It was directed that the PLIs should be computed based on the annual reports available in the public domain.4. Rejection of Comparable Companies:The Tribunal held that Yuken India Ltd. and WPIL Ltd. should be excluded from the final list of comparables due to their high economic scale and R&D functions, which made them not functionally comparable to the assessee.5. Cherry-picking of Comparables:The Tribunal agreed with the assessee that the TPO/DRP had erred in cherry-picking new companies as comparables without considering the comparability criteria under Rule 10B(2).6. Rejection of Adjustments under Rule 10B(3):The Tribunal directed the AO/TPO to exclude the foreign exchange fluctuation cost while computing the PLI of the assessee, as the assessee had a high import content, and the fluctuation was an extraordinary item.7. Voluntary Transfer Pricing Adjustment:The Tribunal held that the voluntary transfer pricing adjustment of Rs. 39,65,940 offered by the assessee should be considered in case any transfer pricing adjustment is made.8. Transfer Pricing Adjustment Proportionate to the Value of International Transactions:The Tribunal directed the AO to recompute the transfer pricing adjustment proportionate to the value of international transactions, following the ratio laid down in the assessee's own case for the Assessment Year 2013-14.9. Claim of Brought Forward Losses and Unabsorbed Depreciation:The Tribunal directed the AO to verify the claim of brought forward losses and unabsorbed depreciation and decide in accordance with the law after affording reasonable opportunity of hearing to the assessee.10. Interest Charged under Sections 234B/234C:The Tribunal did not specifically address this issue in the detailed analysis but generally, such issues are remanded back to the AO for re-computation based on the final assessed income.11. Penalty Proceedings under Section 271(1)(c):The penalty proceedings under section 271(1)(c) were not specifically addressed in the detailed analysis but are typically contingent on the final outcome of the assessment order.12. Additional Grounds Regarding Computation of PLIs and Exclusion of Roto Pumps Ltd.:The Tribunal allowed the additional ground of appeal for the exclusion of Roto Pumps Ltd. from the final list of comparables due to differences in area of operations, nature of products sold, and market in which goods are sold.Conclusion:The Tribunal directed the AO/TPO to re-examine and recompute various aspects of the assessment, including the computation of PLI, inclusion/exclusion of certain comparables, and consideration of voluntary transfer pricing adjustments. The appeal of the assessee was allowed, and the AO was instructed to carry out necessary verifications and adjustments in accordance with the Tribunal's directions.