2018 (6) TMI 495

X X   X X   Extracts   X X   X X

Full Text of the Document

X X   X X   Extracts   X X   X X

....by the TPO is to be made in the value of international transactions with the AE or it is to be confirmed at the amount CIT(A) upheld it. 3. Brief facts of the case are that the assessee-company at the relevant time was engaged in the business of manufacture of bulk drugs. It has filed is return of income on 31.10.2007 declaring total loss at Rs. 2,15,99,577/-. On scrutiny of the accounts, it revealed to the AO that the assessee entered into international transaction with its AE. Therefore, he made reference under section 92CA(1) of the Income Tax Act to the TPO for determining ALP of international transaction. The ld.TPO had noted the following international transactions undertaken by the assessee with its AE: Sr.  No. Name of AE Nature of transactions Value of transaction (in) 1. Amati Packing Manufacturers GMBH, Germany Purchase of Raw Material 2,64,77,444/- 2. Schutz & Co. (Gmbh & Co.), Germany Sale of various products 9,63,10,736   Total   12,27,88,180 4. The ld.TPO did not make any adjustment so far as transaction with Amati Packaging Manufacturing (Germany) is concerned. He has recommended adjustment qua ....

X X   X X   Extracts   X X   X X

Full Text of the Document

X X   X X   Extracts   X X   X X

....lected by the assessee was also engaged in bulk drug manufacture. Thus, these two comparables have wrongly been excluded by the ld.TPO. The ld.CIT(A) has gone through the contention of the assessee and observed that turnover filter is one of the essential filters which ought to have been applied by the TPO. The ld.CIT(A) has observed that companies having sales in the range of Rs. 8 crores to 23 crores are to be taken for comparison. This exercise has eliminated three comparables out of four selected by the TPO. Only comparable left is Gennex Laboratories Ltd. On the basis of PLI of this company, the ld.CIT(A) upheld adjustment required to be made in the value of international transactions undertaken by the assessee. This exercise has reduced the adjustment in the value of international transactions to Rs. 2,83,07,144/- as against the adjustment recommended by the TPO at Rs. 4,10,40,877/-. Revenue is impugning the reduction of such adjustment in its appeal, whereas the assessee is impugning retention of adjustment in the value of international transactions. 6. While impugning the order of the ld.CIT(A), the ld.counsel for the assessee contended that basically, stand taken by the....

X X   X X   Extracts   X X   X X

Full Text of the Document

X X   X X   Extracts   X X   X X

.... SOT 48(Mum), she contended that assessee should demonstrate as to how the difference in the turnover has influenced the result of comparable. Low turnover does not necessarily mean high margin in competitive market condition. Therefore, unless and until it has been brought in the record by the assessee that turnover of such comparable has undue influence in the margin, it should not be applied in order to exclude the comparables. 8. We have duly considered rival contentions and gone through the record. As observed earlier, the Revenue and the assessee have not disputed selection of appropriate method i.e. TNMM; selection of tested party i.e. assessee; selection of profit level indicator i.e. operative profit/operative cost. They are only disputing on selection of comparables. The assessee has selected four comparables viz. Advik Laboratories Ltd., Gujarat Terce Laboratories Ltd., Zyden Gentc Ld., and Welcure Drug & Pharmaceuticals Ltd. All these comparables were not accepted by the TPO because according to him, they were not engaged in manufacturing bulk drug, rather they are manufacturing formulations i.e. tablets, capsules, syrups etc. Thus, the ld.TPO selected comparables wh....

X X   X X   Extracts   X X   X X

Full Text of the Document

X X   X X   Extracts   X X   X X

....d.Revenue authorities have not brought to our notice of any judgment of the Hon'ble jurisdictional High Court which prohibits application of turnover filter. Therefore, we are of the view that the ld.CIT(A) has rightly made an analysis that smaller companies having turnover of Rs. 3 crores could not be considered as comparable with the assessee who has turnover of Rs. 15.84 crores. Similarly, the company who has turnover of more than Rs. 30 crores could not be compared with the assessee. Thus, we do not find any error in the order of the ld.CIT(A) on this aspect, and if we uphold the turnover filter then the ground of appeal raised by the Revenue is required to be rejected. Accordingly, we reject the grounds of appeal raised by the Revenue. 10. So far as adjustments confirmed by the ld.CIT(A) is concerned, we find that the assessee has demonstrated that Welcure Drug & Pharmaceuticals Ltd. was engaged in the manufacturing of bulk drugs. Hence, it was a comparable. It has been excluded by the TPO as well as no reason has been assigned by the ld.CIT(A) in the impugned order. Working made by the ld.counsel for the assessee in the synopsis reads as under: Particulars Gennex ....