ITAT upholds HSIL as comparable but excludes Cera Sanitaryware, grants MAT credit for transfer pricing assessment

The ITAT Hyderabad ruled on transfer pricing comparable selection and MAT credit issues. Regarding HSIL Limited, the tribunal upheld its inclusion as a comparable, noting that despite generic website descriptions, both entities' core activities involve tiles and sanitaryware. For Cera Sanitary Ware Limited, the tribunal directed its exclusion from comparables, following a coordinate bench decision for assessment year 2015-16 that distinguished the company based on raw material consumption patterns not being relatable to revenue proportions. The tribunal also granted MAT credit as admissible in law, addressing the crystallization of tax demand while considering carried forward credits from previous assessment years.

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Issues Involved:

1. Validity of the consequential assessment order.
2. Adjustment to international transactions by the Transfer Pricing Officer (TPO).
3. Inclusion of certain companies in the comparable set.
4. Consideration of certain cost elements as non-operating in nature.
5. Ignoring the MAT credit carried forward from previous assessment years.

Summary:

1. Validity of the Consequential Assessment Order:
The assessee challenged the assessment order passed by the Deputy Commissioner of Income Tax (DCIT) u/s 143(3) r.w.s. 144C(13) and 254 of the Income Tax Act, 1961, claiming it was prejudicial and bad in law.

2. Adjustment to International Transactions by the TPO:
The assessee contested the adjustment of INR 3,33,61,422 to the international transactions related to the purchase of raw materials/finished goods from its Associated Enterprises (AEs). The DRP had directed the recomputation of these adjustments, which were subsequently revised by the DCIT/ACIT, TP3 Hyderabad.

3. Inclusion of Certain Companies in the Comparable Set:
The primary issue was the inclusion of HSIL Limited and Cera Sanitary Ware Limited in the comparable set. The Tribunal, following its previous decision for A.Y. 2015-16, upheld the inclusion of HSIL Limited, stating that the company's segmental results in consolidated financial statements were reliable for comparable analysis. However, the Tribunal directed the exclusion of Cera Sanitary Ware Limited from the comparable set, noting significant differences in the functional profile and the proportionate revenues from different activities.

4. Consideration of Certain Cost Elements as Non-Operating in Nature:
This ground was not pressed by the assessee and hence, was not adjudicated.

5. Ignoring the MAT Credit Carried Forward from Previous Assessment Years:
The Tribunal directed the Assessing Officer to grant the MAT credit as admissible in law.

Conclusion:
The appeal was partly allowed, with specific directions to exclude Cera Sanitary Ware Limited from the list of comparables and to grant the MAT credit. The inclusion of HSIL Limited as a comparable was upheld. The assessment order was otherwise maintained.

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