TaxTMI 
TaxTMI 
2018 (7) TMI 1972
X X X X Extracts X X X X
X X X X Extracts X X X X
.... The grounds of appeal raised by the revenue reads as follows:- "i) M/s Bharat Electronics Ltd : a) The Hon'ble DRP has erred in fact and law in disregarding the position of law that there could be differences between the enterprises compared under the TNMM method that are not likely to materially affect the price or cost charged or the profits accruing to such enterprises. b) The Hon'ble DRP has erred in fact in rejecting the company as a comparable on the grounds that it is functionally different when the primary source of income of the comparable is from manufacturing. c) The Hon'ble DRP has erred while seeking the exact comparability as mentioned above the DRP was right in fact and in law ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ports raw materials, utilizes R&D services and also imports capital equipments from Rakon (Mauritius) Limited, who held 49% of the shares with the assessee. The assessee after manufacturing exported the frequency control products to Rakon (Mauritius) Ltd. The transaction of manufacture and export of FCP was an international transaction and the income from such international transactions had to be determined having regard the Arm's Length Price (ALP) as envisaged u/s. 92 of the Income Tax Act, 1961 (Act). 4. It is not in dispute between the assessee and the revenue that Transactional Net Margin Method (TNMM) is the most appropriate method for determination of ALP of the transactions. The Profit Level Indicator (PLI) chosen for the purpose....
X X X X Extracts X X X X
X X X X Extracts X X X X
....le companies, whose OP/OC was 18.77% as follows:- SI No Company Name OP/OC 1 Bharat Electronics Ltd. 24.07% 2 Bharat Heavy Electricals Ltd. 21.92% 3 Hind Rectifiers Ltd. 12.69% 4 M I C Electronics Ltd. 33.36% 6 Ruttonsha International Rectifier Ltd. 12.86% 7 Spectrum Infotech Pvt. Ltd. 18.79% 8 Gujrat Poly Avx Electronics Ltd 7.72% Arithmetic mean margin 18.77% 6. The TPO computed the ALP and the addition to be made to the total income as follows:- Arithmetic mean PLI : 18.77% on Cost Description Amount / (Rs.) Operating Cost 666,485,882 Arms Length Margin 18.77% of Operating Cost Total Arms Length Price (ALP) @ 118....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ts manufactured by MIC Electronics Ltd are totally different. They are in the nature of LED display systems, LED lighting products, solar grid, sports perimeter, bill boards ticker tape etc. These products cannot be compared with FCP components manufactured by their petitioner." 8. The DRP agreed with the submissions of the assessee for the following reasons:- "Having considered the submission, we perused the order of the TPO and also the order passed by the DRP for A.Y. 2010-11, it is noticed by us that considering the functional differences the DRP directed to exclude Bharat Electronics Ltd and MIC Electronics Ltd from the comparables, as the function of the above 2 companies remains the same, we do not find any reason to devi....
X X X X Extracts X X X X
X X X X Extracts X X X X
....as preferred the present appeal before the Tribunal raising the grounds of appeal which has been extracted in the earlier part of this order. 11. We have heard the rival submissions. The ld. DR relied on the order of AO/TPO and the ld. counsel for the assessee relied on the order of DRP. As far as exclusion of 3 companies viz., Bharath Electronics Ltd [BEL]., MIC Electronics Ltd. and Bharath Heavy Electricals Ltd. [BHEL] is concerned, it is clear from the order of DRP that the 3 companies were manufacturers of equipments, whereas the assessee was only manufacture of components which are used in making equipments. This functional difference has been rightly noticed by the DRP in excluding these 3 companies from the list of comparable comp....