TaxTMI 
TaxTMI 
2018 (4) TMI 1637
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....gainst 3.98% earned by the assessee company and thereby erred in making an addition of Rs. 4,58,16,961/-. 2] The learned A.O./ DRP erred in holding that for the purposes of adopting the comparables, only the pneumatic segment of Shrader Duncan Ltd. should be considered as a comparable segment without appreciating that the said company should have been excluded from the list of comparable entities. 3] The learned A.O./ DRP erred in excluding Aplab Ltd. from the list of final comparable entities on the ground that the turnover of the said company had been affected due to labour strike in the company and thus, this was an exceptional year for the said company and hence, the above company could not be considered as a comparable entity. 4] The learned A.O. erred in not granting adjustment on account of working capital differences on the ground that the assessee had not produced reliable information without appreciating that all the relevant details were submitted by the assessee and hence, there was no reason to deny the adjustment on account of working capital. 5] The assessee submits that the operating margin of the assessee company considered at 3.....
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....assembly of components, welding of components, calibration and final adjustment of instruments, filling of liquid in the casing of the instrument, leakage testing by helium leak tester and final quality inspection. As per foreign collaboration agreement, WIKA Germany also provided latest technology, know-how along with designs, blue prints, layouts, etc. Calibration was the most essential part of operations in instrumentation industry, without which, the product had no acceptance. The assessee had entered into several international transactions with its different associated enterprises which are enlisted at pages 2 to 5 of the TPO's order. The assessee had aggregated the transactions and had selected TNMM method as the most appropriate method. The assessee in the TP study report had compared its aggregated margins with selected companies and found the same to be arm's length. The TPO has also aggregated various international transactions undertaken by the assessee with its different associated enterprises and had also applied TNMM method for benchmarking the transactions and there is no dispute in this regard. The TPO first observed that there were errors in computation of PLI ....
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....contention of assessee on the ground that turnover perse was not a comparability factor. As regards functional comparability, it was pointed out that the assessee had followed certain search criteria and from the said criteria entered in the database, assessee had selected 138 comparables and Areva T&D India Ltd. was also selected. However, the concern was rejected on the basis of turnover criteria. The TPO thus, rejecting the plea of assessee included margins of Areva T&D India Ltd. in the final set of comparables. 8. Another concern which was selected was Schrader Duncan Ltd. The case of TPO in this regard was that only pneumatic segment of the said concern was to be considered, whereas the plea of assessee was that where the said company deals in products that have pneumatic as well as automotive applications and where the assessee was also dealing in both the segments, margins of Schrader Duncan Ltd. needed to be analyzed considering both the segments together on an overall basis. The TPO noted that in the preceding year also, the issue was raised with regard to application of products in pneumatic segment of Schrader Duncan Ltd. and since the assessee was raising this issue....
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....rds decided various facets of transfer pricing adjustment which were raised by the assessee and the Revenue in their respective appeals. The learned Authorized Representative for the assessee pointed out that the issue raised vide ground of appeal No.2 is covered by the order of Tribunal vide para 37. 13. The learned Departmental Representative for the Revenue on the other hand, placed reliance on the orders of Assessing Officer / DRP. 14. We have heard the rival contentions and perused the record. The assessee was engaged in various activities of manufacturing and marketing of measuring instruments such as pressure gauges, pressure transmitters, chemical seals, thermometers, temperature transmitters and components and tools for refrigeration and air conditioning systems. The assessee company mainly carried out assembly operations of the components imported from its associated enterprises. Majority of import of components of assessee company were from its parent company WIKA Germany. The assessee had entered into various international transactions with its associated enterprises including import of components from its parent company i.e. WIKA Germany and also export of finish....
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....neumatic products. On the other hand, the comparable i.e. Shrader Duncan Ltd. was engaged in two fields i.e. automotive industry and pneumatic industry. The assessee admits that in its TP study, Shrader Duncan Ltd. was selected as a comparable as it was mainly engaged in the manufacture of hydraulic / pneumatic equipments, truck and passenger wheels and other auto accessories. Considering the similarity in the products, the company was selected as a comparable. In the final selection also, the said company was selected as a comparable as it was engaged mainly in manufacture of hydraulic / pneumatic equipments, truck and passenger wheels and other auto accessories. In the TP study, „pneumatic‟ was never used as a filter, but gauge has used a filter and both the assessee and Shrader Duncan Ltd. were manufacturing gauges and Shrader Duncan Ltd. was manufacturing gauges in automotive sector. The perusal of financial statements of Shrader Duncan Ltd. at page 271 of the Paper Book enlists the list of products manufactured by it and except for tyre pressure gauges, the other gauges are not in comparison. The list of quantitative details reflect Shrader Duncan Ltd. to have manu....
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....esult of evidence adduced by the taxpayer. Following the same parity of reasoning, we hold that the said company Shrader Duncan Ltd. is to be excluded from the final list of comparables while benchmarking international transactions of the assessee. Accordingly, we direct so. The grounds of appeal Nos.3 to 5 raised by the assessee are thus, allowed." 16. The issue arising in the present appeal before us vide ground of appeal No.2 is similar to the issue before the Tribunal in assessee's own case in the preceding year and following the same parity of reasoning, we hold that the said concern is to be excluded from final set of comparables. 17. The next concern which was selected by the TPO was Areva T&D India Ltd. The case of assessee was that the said concern fails the turnover filter as the said concern was very big company as compared to the assessee. The turnover of assessee for the year under consideration was Rs. 57.55 crores, whereas the turnover of Areva T&D India Ltd. was Rs. 3724.12 crores. The TPO had selected the said concern but the DRP had directed the exclusion of said concern from final list of comparables. We find that the Tribunal in assessee's own case in prec....
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....sessee had applied turnover filter of Rs. 600 crores and all the companies whose turnover was more than Rs. 600 crores were excluded. The margins of Areva T & D India Ltd. with turnover of Rs. 2800 crores cannot be compared with the margins of the assessee company, whose total turnover for the year under consideration was Rs. 63 crores. In the totality of the above said facts and circumstances, we hold that the TPO had erred in selecting Areva T & D India Ltd. as a comparable while benchmarking the international transaction of the assessee. Upholding the order of DRP in this regard, we dismiss the grounds of appeal raised by the Revenue." 18. The issue which is arising before us is thus, squarely covered by the order of Tribunal in assessee's own case in preceding year and following the same parity of reasoning, we find no merit in the grounds of appeal raised by the Revenue. 19. Another factor which has been applied by TPO is the revised PLI of company Areva T&D India Ltd. as against PLI declared by the company on calendar year basis. Before the TPO, the assessee had filed the submissions and it has been pointed out that the year ending for the said concern was 31.12.2009 an....
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....ee had selected Aplab Ltd. as functionally comparable and there is no dispute to the fact that the said concern was functionally comparable to the assessee. However, during the last few days of March, 2010, there was sit down strike by the workers of Union, which ended up as per Memorandum of Settlement with the Union. The said concern paid Rs. 50.01 lakhs and Rs. 97.32 lakhs relating to the period of six months of financial year 2008-09 and 12 months of financial year 2009-10, respectively, towards employee cost. The assessee stressed that the adjustment can be made to the PLI by exclusion of extraordinary cost and once it is so excluded, the comparability of the said company with the assessee is at par. The perusal of financials of said concern reflects that the operations have been carried on by the said concern for the year and even the turnover of the said concern has not been affected because of the strike by the employees. The total turnover for the year shown by Aplab Ltd. was Rs. 97.95 crores as against Rs. 104.73 crores declared in the preceding year. In comparison, the turnover of assessee for the year under consideration was Rs. 57.58 crores as against Rs. 63.682 crores....
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....ue, hence there was no reason to deviate and exclude the said commission income from PLI. The plea of assessee that commission income earned from associated enterprises was earlier included as part of operating revenue, needs verification at the end of Assessing Officer / TPO. Though the principles of res judicata are not applicable to the Income Tax proceedings but in case the facts and circumstances are similar, then there is no reason to deviate from the stand taken in earlier year. The Assessing Officer is directed to verify the plea of assessee and in case the stand of Revenue is to include commission income as part of operating revenue in earlier years, then the same merits to be included during the year under consideration also. The Assessing Officer shall afford reasonable opportunity of hearing to the assessee and compute the operating revenue accordingly. 28. The issue raised in ground of appeal No.6 raised by the assessee is against transfer pricing adjustment made on entity level. 29. The plea of assessee before us is that the issue has been settled by the Hon'ble Bombay High Court in CIT Vs. Thyssen Krupp Industries India P. Ltd. (2016) 381 ITR 413 (Bom), wherein....