TaxTMI 
TaxTMI 
2017 (2) TMI 1286
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.... the Appellant. 2.2 The learned CIT(A) has erred in incorrectly rejecting the adjustment for idle capacity utilization claimed by the Appellant especially given the fact that Appellant's utilized capacity was only 34% as against 61.36% i.e. capacity utilized by the comparable company selected by TPO. 2.3 The learned CIT(A) has erred in stating that idle capacity would also exist in the non-production department without appreciating the fact that even if such adjustments carried out, the same would further increase the quantum of idle capacity adjustment which would be in favour of Appellant. 2.4 The learned CIT(A) erred in confirming the action of AO/TPO in rejecting M/s.HMT Ltd., which was initially selected by TPO while issuing show cause notice, however, while passing the Transfer Pricing Order rejected the M/s.HMT Ltd., only on the ground that the turnover of the said comparable company was twice that of the Assessee. 2.5 The learned ClT(A) erred in confirming the action of AO/TPO by upholding the arbitrary turnover filter adopted by the TPO. 2.6 Without prejudice to the above, the learned CIT(A) should have at least held that comparable companies which have turn....
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....rsement of expenses charged, incurred to the tune of Rs.29,86,30,802/- and referred the same to Transfer Pricing Officer (in short 'TPO') for determining Arms Length Price (in short 'ALP') of international transaction. 4.2 The assessee adopted TNMM for purchase and sale of raw materials and also cost on exported components adopting PLI of operating profit by operating income(OP/OI). The assessee has identified the following five comparables: Manufacturing Segment (in Rs.) VST Tillers 129.99 Punjab Tractors 958.54 Mahindra & Mahindra 7988.76 Escorts Ltd. 1307.88 International tractors 708.94 For purchase transactions, the assessee selected comparables from public domain i.e. prowess and capitaline and made the adjustments of idle capacity and worked out the weighted average of PLI of comparables at (-)8% against the assessee company's PLI of (-) 3.34% and held the transactions at ALP. The TPO not being convinced with the working made by the assesse and comparables selected by the assessee issued a show cause notice proposing the adjustment of Rs.1,65,03,225/-. The TPO adopted the single year data as per Rule 10B(4), applied ....
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....has requested for idle capacity adjustment without assigning any reason for non-utilization of the idle capacity. The assesse is a 100% subsidiary of parent AE M/s.SAME Deutz-Fahr India Pvt. Ltd. Further, Ld.DR argued that the assesse claimed the manufacturing and administrative selling expenses for adjustment of idle capacity and the same are not fixed costs relating to idle capacity adjustment. In the absence of details, reasoning for non-capacity utilization merely a startup is not a valid reason for requesting for idle capacity adjustment. The assesse has not submitted all the details leading to non-utilization of the installed capacity and the assesse is not in the first year of business. 6.0 We heard the rival submissions and perused the material placed on record. The assessee company has requested for idle capacity adjustment as per Rule 10B(1)(e)(iii),10B(2) and 10B(3). The company is not a new company or startup company, It was originally set up as Joint Venture with M/s.Greaves Limited and had set up two joint venture companies, i.e. M/s.SAME Greaves Limited and M/s.SAME Greaves Tractors Limited. In the year 2002, the SAME group has entered in Indian entities and th....
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....he assesse. The turnover of M/s.HMT Ltd., was Rs.248.00 Cr. as against the turnover of the assessee Rs.120.00 Cr. The assessee was of the view that the criteria for application of turnover filter would be 5 to 10 times of the turnover of the tested party vis-à-vis comparable companies would be reasonable. Further, the Ld.AR of the assesse argued that application of TNMM nullifies the differences such as turnover. Use of wider range of comparable companies tends to normalize any material effect of such differences of ALP. The Ld.AR contended that the TPO cannot reject M/s.HMT Ltd., as comparable merely because of the turnover. The AO also relied on the decision of the Co-ordinate Bench: i. EGAIN Communications Pvt. Ltd-ITA No.1685/PROVISIONS OF SECTION/2007. ii. Maxim India Integrated Circuit design Pvt. Ltd-(IT(TP)/A No.28/Bang/2012 7.2 On the other hand, the Ld.DR is relied on the orders of the lower authorities. 7.3 We heard the rival submissions and perused the material placed on record. M/s.HMT Ltd., is in the segment of manufacturing of tractors and power tillers. The functionality of the M/s.HMT Ltd., and the assesse are more or less in simil....
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....l adjustment by following TNMM since the purchase price was at Arm's Length Price. The assessee relied on the following decisions: This view has been widely accepted in the following cases: a) In the case of EGAIN Communications Private Limited (ITA No. 1685/PN/2007) the Hon'ble Pune Tribunal held as follows - (refer page 3 of the ITAT Order forming part of annexures to the Summary chart) "In the instant case, the comparable or the tested parties were not scrutinized to find out differences, which needed adjustments. Though the Appellant's submission could not be accepted that only entities having turnover between Rs. 8 crore and Rs. 18 crore were to be selected for comparison, yet there was also no justification for considering oversized companies as taken by the TPO. The Commissioner (Appeals) was justified in taking entities having turnover between Rs. 5 crore to Rs. 25 crore but he was in error in considering turnover as the only relevant factor needed to be considered for a proper analysis. What about a large number of other factors which materially affect the profit? The function performed; assets employed; risk taken (FAR) analysis, were also required to....
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....cts of the pricing policy and the margins as provided in Sec.92C required to be considered by the TPO before determining the ALP. In the Appellant's case, the assessee has furnished the working capital adjustment before Ld.CIT(A) and the Ld.CIT(A) has not considered the same. However, while arguing the case before us, the assessee has not furnished the pricing policy and the interest clauses to make necessary working capital adjustment. This is one of the important factors to make the necessary working capital adjustment. Further, though the TPO has determined the margin adopting M/s.VST Tillers as comparable, we have directed the TPO to include M/s.HMT Ltd., as additional comparable. The TPO should take both the comparables and re-work the margins and make necessary adjustments for working capital in the light of above discussion. This ground of appeal is allowed for statistical purposes. 9.0 Ground No.2.8 is related to adoption of single year data for the FY 2005-06 as against the multiple year data. The assessee has adopted the multiple year data and the TPO has adopted the single year data. No argument has been made by the Ld.AR during the appeal. The TPO has rejected the as....