TaxTMI 
TaxTMI 
2017 (11) TMI 515
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..../2013 were incorporated. 2. The assessee has raised the following grounds of appeal:- "1. The Hon'ble Dispute resolution Panel has erred in law, facts and circumstances of case by failing to give due consideration to the objections raised by assesse and rejecting almost all objection in pre conceived and mechanical manner without giving any justifiable, logical or cogent reasoning. 2. That on the facts and circumstances of the case and in law, the Assessing Officer ('AO') / Transfer Pricing Officer (TPO) / Dispute Resolution Panel ('DRP') has erred in making an addition of Rs. 1533640/- to the total income of the appellant on account of various transfer pricing adjustments and accordingly, brought down returned loss of Rs. 17377228/- to Rs. 2040830/-. 3. The learned TPO and The learned AO has erred in law, facts and circumstances of the case by proposing and selecting Hindustan Syringes & Medical Devices Pvt. Ltd. ('Hindustan Syringes') as a comparable to the assessee to benchmark the impugned transaction. 'Hindustan Svrinaes' is not a suitable comparable. This comparable is having a turnover more than 20 times the turnover of the assessee and producing entirely different pr....
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....ed, in law and on facts and circumstances of the case by failing to make appropriate adjustments to account for differences in working capital employed by the assessee vis-a-vis comparable companies, as per rule 10B(3) of the Rules. The learned TPO has acted in biased manner with pre conceived notion and has not given any justifiable or cogent reasoning for not allowing working capital adjustment. Comparable have employed huge working capital whereas assesse has negative working capital due to advance from AE instead 3. Ground No 1 & 2 are general in nature therefore they are dismissed. 4. Ground No 3 & 4 are contesting two comparable companies included by the ld TPO. Ground no 5 is against the computation of margins of the comparable as well as the assessee company. Ground no 6 and 7 respectively are for risk adjustment and Working capital adjustments. These grounds are contested. 5. Brief facts of the case are that assessee is a private limited company, which is engaged in the business of import of assembly of component and re-export of assembled medical disposable balloon catheters as 100 % export oriented unit ( EOU). It is providing a captive production to its parent compa....
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....s the most appropriate method (MAM) for the purpose of benchmarking of purchase of raw material and sale of finished goods. For benchmarking the arm's length price of the transaction of the purchase of plant and machinery and interest assessee in its transfer pricing documentation adopted CUP method as the most appropriate method. While endorsing TNMM method, assessee was adopted as the tested party and the profit level indicator used was operating profit/sales . The assessee used the data for FY 2008 - 09 and average PLI of the 5 comparable selected by was calculated at 3.35%, whereas the PLI of the assessee was computed at (-) 0.0463%, and since the margin of the taxpayer was within +-5% range of the mean margin of the comparables the transactions were stated to be at arm's length. 9. The Ld. Transfer Pricing Officer rejected the transfer pricing study report of the assessee, on fresh search, selected 6 comparables vide para No. 11 of his order wherein the average PLI of those comparable companies was 9.45% and thereafter the adjustment under section 92CA of Rs. 17629070/- was proposed. Before the Ld. Dispute Resolution Panel assessee objected for the exclusion of South India su....
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.... some amount of functional dissimilarity can be tolerated at the net margin level. According to the Ld. Dispute Resolution Panel as the company is undisputedly engaged in the provision of financial services but qualifies service income filter, hence cannot be excluded. Hence, according to the Ld. Dispute Resolution Panel the functional differences pointed out by the assessee are not significant enough to warrant the rejection of this company as comparable. Hence, the objection of the assessee was rejected. 13. The Ld. authorized representative placed before us balance sheet of the comparable and submitted that the turnover of this companies Rs. 374.26 crores while the turnover of the assessee is only Rs. 18.53 crores and therefore this is not suitable comparable. He relied upon the decision of the coordinate bench in case of DHL express India private limited versus Assistant Commissioner of Income Tax (ITA 7360/MUM/2010). It was further contested that the companies having export sales less than 10% of the total sales are excluded by the Ld. Transfer Pricing Officer wherein this companies having an 11% export and 89% domestic sales. Therefore, it fails the filter adopted by the Ld.....
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....cal implants as well as the disposable. For this he referred to the newspaper article. 16. The Ld. Departmental Representative vehemently relied upon the order of the Ld. Transfer Pricing Officer which was confirmed by the Ld. Dispute Resolution Panel with respect to both the above comparables and stated that when the comparables are functionally closer and in TNMM method adopted by the assessee and Ld. TPO some of the dissimilarities can be ignored. He therefore submitted that there is no infirmity in the order of the lower authorities in confirming the inclusion of about 2 comparables. 17. We have carefully considered the contentions of the Ld. authorized representative and the Ld. departmental representative on exclusion/inclusion of the above 2 comparables. The functional profile of the company is not disputed by the lower authorities and assessee has also relied upon the same. After comparing the functions of the assessee, we discuss both the above comparables which are contested before us. 18. Coming to the 1st comparable of Hindustan syringes and medical devices Ltd, the assessee has placed before us copy of the Balance sheet of the comparable company for the year ended o....
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....that assessee is also utilizing some intellectual property for the purpose of exploitation of the same, which resulted into the profit earning apparatus of the company. This is also evident from the profile of the company where in it has few collaborations also, where as the assessee company does not have any R & D as well as does not use any intangible. On looking at the business segment of the company it stated that it produces only medical and surgical instruments and appliances and accordingly the entire business has been considered as one single segment. Looking at the page No. 4 of the order of the Ld. Dispute Resolution Panel wherein in para No. 6.2 This comparable is considered. The comment of the Ld. DRP on the fact that the items manufactured by the assessee are production of the semi finished medical products where is the comparable company is producing/manufacturing the goods on its own and there is a wide variance in the processing of semi finished goods in manufacturing of an altogether new item. The Ld. DRP has stated that this company is functionally quite close to the assessee company but has not held that the it is functionally comparable. But it has been included....
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.... the comparable company with the assessee company above comparable was directed to be included for the comparability analysis of the company. Further there is vast difference in the activities of the company as the comparable company is also using Intangible assets for which royalty is pad, where as the assessee is merely a job worker. Comparable is also engaged in trading activities and which does not have segmental accounts for trading as well as manufacturing activities, where as the assessee is merely a assembler. In view of the above functions, respectfully following the decision of the Hon'ble Delhi High Court, we direct the Ld. Transfer Pricing officer to exclude Hindustan syringes and medical devices private limited as a comparable company. 20. Coming to the 2nd comparable, as claimed and submitted this company is it is a leading Contraceptive Solutions Organization. It is spread across the globe in 140 countries partnering with social marketing organizations as well as private distributors in the area of Intra- uterine devices. It is the largest IUD manufacturer in the world and so far 100 million women have been served. Pregna is ISO 9001: 2008, CE, WHO GMP, ISO 14001, I....
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....presentative submitted that duty drawback has been considered by the Ld. Transfer pricing officer as operational income while comparing the margins of the comparable. He submitted that in case of liberty India Ltd (317 ITR 208) Hon'ble Supreme Court has held that it is not operational income as it is not and inextricably linked with the business of the assessee. We have carefully considered the contention of the Ld. and failed to understand that how the duty entitlement pass book scheme entity to duty drawback are not part of the operating profit. According to us, both the above incentives are provided to the manufacturer and exporter for the purpose of compensating in the duty component which is already been included in the cost of raw material. Therefore, in fact, they go to reduce the cost of raw model consumed by the assessee and hence, according to us there are part of the operating profit of the assessee and cannot be extruded for the purpose of comparability analysis. 23. With respect to the foreign exchange fluctuations He submitted that these have been considered as nonoperational items. However, the assessee has considered the foreign exchange loss of Rs. 1953939/- as op....
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.... of the assessee. He relied on the decision of the coordinate bench in case of Tata McGraw-Hill education private limited versus ACIT ITA No. 6114/del/2012 for assessment year 2008 - 09 wherein para No. 20 the coordinate benches held that the objection of the DRP that the average day to day working capital deployment is required to be computed, the bench held that the objection of the Ld. dispute resolution panel cannot be accepted as it is the average working capital deployment which is to be considered and which can be computed with reference to opening and closing balance of working capital deployed. Therefore, respectfully following the decision of the coordinate bench we also direct the Ld. assessing officer/transfer pricing officer to grant working capital adjustment to the assessee provided the assessee submits the relevant detail of working capital adjustment computation. In view of the coordinate bench decision cited before us which is on the same point, we accept the contentions of the assessee and direct the ld AO to compute working capital adjustments only on the opening and closing balance of the working capital employs at the beginning and end of the year. Hence Groun....