TaxTMI 
TaxTMI 
2014 (6) TMI 279
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....RP/TPO has erred in law and on facts of the case in not considering ACI Infocom Ltd. as a comparable company." 3. The brief facts of the case are that VeriFone India was incorporated on August 18, 2005 is essentially engaged in the distribution and marketing of hi-tech products manufactured by Verifone Group companies viz. POS terminals, integrated terminals, ATMs, electronic cash registers and other products. For the year under consideration, the assessee imported finished goods and spares from its associated enterprises (AEs) for resale in the domestic market. The following international transactions with its AEs were reported in Form 3CEB filed with the return of income. Description of international transaction Value in INR Purchase of finished goods and spares 60,120,186 For determining the Arm's Length Price (ALP) of the international transaction, the assessee adopted Transactional Net Margin Method (TNMM) as the most appropriate method with the profit level indicator (PLI) as operating profit / operating sales. The assessee selected 9 comparable companies on the basis of a search carried on by it having a mean OP/sales of 1.22% vis-a-vis the assessee which earned OP/sales....
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.... of the comparables, namely Bartronics India, the Ld. DRP held that working capital adjustment could not be granted because its accounts payable stood at Rs. 4.22 crore against operating income of Rs. 29.13 crore. Further the Ld. DRP observed that Bartronics India's interest burden was Rs. .76 crore and that it had substantial reserve of Rs. 53.82 crore. The Ld. DRP failed to take cognizance of the fact that for working out adjustment on account payable, a comparison of ratio of account payable to sales has to be made between the assessee and the comparable. That as evident from the working submitted before the Ld. TPO at page 67 of the paper book this ratio in respect of the assessee worked out to be 99.28% as against 14.49% for Bartronics India. That this difference of 84.80% being material, an adjustment was warranted under Rule 10B(1)(e)(iii). That the facts relating to interest burden and reserves of the comparable are completely extraneous to the calculation of working capital adjustment on account of difference in account payable position. That the requirement to provide for working capital adjustment is no longer res-integra and has been settled by way of several judicial p....
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....his regard upheld the order of the AO. 8.3 Now the assessee is in appeal before us in this regard. 8.4 Ld. Counsel of the assessee reiterated the submissions submitted before the above authorities. He claimed that under Rule 10B(4) ordinarily only current year data can be used unless the relevance of prior year data can be shown and even in such case data pertaining to two prior years can be used and not beyond. As regards the sale of plant and machinery, ld. Counsel of the assessee submitted that plant and machinery sold during the year pertained only to manufacturing segment. That the assessee is a distributor and sale of manufacturing assets does not impact the distribution margin of the comparable. In this regard, ld. Counsel of the assessee referred to the Annual Report of the company. 9. We have heard both the counsel and perused the records. Upon careful consideration, we find that the TPO and DRP are correct in observing that the net worth of the company is eroding the data of the past years of the assessee consistently making losses certainly point out the abnormal working conditions and hence, this company cannot be taken as cogent comparable. The fact that assessee ha....
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....for adjudication pertains to the determination of ALP by the TPO by rejecting the comparables submitted by the assessee. 16. In this case for determining the arm's length price (ALP) of the international transaction, the assessee adopted Transactional Net Margin Method (TNMM) as the most appropriate method with the profit level indicator (PLI) as operating profit / total operating cost. The assessee selected 10 comparable companies on the basis of a search carried on by it having a mean OP/Total operating cost of 7.01% vis a vis the assessee which earned OP/total cost of 7.60%. It was thus concluded that the international transaction of the assessee are at arm's length. During the course of transfer pricing assessment proceedings, the TPO selected TNMM as the most appropriate method and used the PLI as OP/sales. The TPO disagreed with the comparability analysis conducted by the assessee and rejected 8 companies out of the total 10 companies selected by the company. Therefore, the TPO accepted only 2 companies as comparables for the TP analysis, which indicated a mean OP/sales of 22.49% resulting in a TP adjustment of INR 36,584,195. The TPO selected following comparables and cal....