TaxTMI 
TaxTMI 
2017 (2) TMI 1449
X X X X Extracts X X X X
X X X X Extracts X X X X
....d by the TPO. 2.1 The Hon'ble DRP failed to note that it is an exceptional year of operation for M/s.Ceekay Daikin Limited, during which year the company has ventured in manufacturing a new variety of clutch, viz., 'one way clutch' and the start up cost incurred in the new product line has affected the company's margin. Hence, the company cannot be adopted as a comparable. 2.2 The Hon'ble DRP ought to have noted that as per the decision of the Hon'bte ITAT Bangalore in the case of Trilogy E business Vs. DCIT, if there are specific reasons for abnormal profits or losses or other general reasons as to why they should not be regarded as comparables, then they can be excluded for comparability. 2.3 The Hon'ble DRP ought to have appreciated that as evident from the schedules of the Balance Sheet, there are details of amalgamated shares of the company with its erstwhile shareholder M/sdy Ceekay Limited and hence the company cannot be taken as a comparable. 3. The Hon'ble DRP erred in directing the TPO to exclude the forex loss on from the computation of operating cost of the assessee. 3.1 The Hon'ble DRP ought to have noted that the loss arises only due to sales or purchase act....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ecting the comparables, the assessee has selected public limited companies as comparables and eliminated the private limited companies in selection of comparables. The reason given by the assessee for selecting public limited companies was that "it was very difficult task to get the data of Private Limited Companies (the Financial data for Private Limited Companies could be available only from the Registrar of companies) hence decided not to consider the Private Limited companies as comparables". The reasons given by the assessee to restrict comparables to Public Ltd. Companies was not accepted by the TPO since the data is available in public domain. The assessee company being Pvt. Ltd. Company, the TPO was of the view that the assessee should have included the Private Ltd. Companies, also as comparables. The assessee declined for inclusion of Private Ltd companies since the data from public domain is only available on payment but not freely. The assessee also used multiple year data for arriving the margin against the Rules of contemporaneous data. The assessee further stated before the TPO that the Transfer pricing study conducted by the assessee was as per the Indian TP regulati....
X X X X Extracts X X X X
X X X X Extracts X X X X
....jected for inclusion of the following comparables selected by the TPO: 1. M/s.Amtek Ring Gears Limited. 2. M/s.Highway Industries Limited. 3. M/s.Rambal Limited. 6.2 The assessee also submitted for inclusion of the following additional comparables: 1) M/s.Federal-Mogul Bearings India Ltd. 2) M/s.India Japan Lighting Pvt. Ltd. 3) M/s.Jay Bharat Exhaust Systems Ltd. 4) M/s.Mubea Suspension India Ltd. 5) M/s.R S M Autokast Ltd. 6) M/s.Remsons Industries Ltd. 7) M/s.Somic Z F Components Ltd. 8) M/s.Talbros Automotive Components Ltd. 9) M/s.Vaid Elastomer Processors Ltd. 10) M/s.Victor Gaskets India Ltd. The TPO considered the reply of the assessee and rejected the objections raised by the assessee for exclusion and inclusion of comparables and also rejected the assessee's request for additional comparables. In respect of use of multiple year data the TPO rejected the same and adopted the data relating to the financial year in which the International transaction has been entered into. The TPO adopted the PLI of 8.27% as worked out above and determined the ALP of purchase cost at Rs.17.49 Cr. against the actual cost of Rs.18.60 Cr. and suggested for downward a....
X X X X Extracts X X X X
X X X X Extracts X X X X
....cted the AO to include M/s.Ceekay Daikin Ltd., as comparables for determining the margin. 9.1 Aggrieved by the Order of DRP, the department has filed appeal before this Tribunal. Appearing for the Revenue, the Ld.DR argued that it is an exceptional year of operation for M/s.Ceekay Daikin Ltd. During the year the company has ventured in to manufacturing of new variety of clutch i.e. one way clutch and the startup cost incurred in the new product line has affected the company's margin. The Ld.DR submitted that if specific reasons exists for abnormal profits or loss or other general reasons which will have material effect on profit margins of such company should be excluded as comparable. It is evidenced from the balance sheet of M/s.Ceekay Daikin Ltd that it has been amalgamated with the M/sdy Ceekay Ltd., and there were circumstances prevailing for exclusion from the comparables. According to the Ld.DR, the TPO has rightly excluded M/s.Ceekay Daikin Ltd. On the other hand, the Ld.AR argued that it is not disputed that the companies functionally comparable to the assessee and the company M/s.Ceekay Daikin continues to be in the same line of business. The DRP has upheld the function....
X X X X Extracts X X X X
X X X X Extracts X X X X
....has directed the TPO to exclude the Forex loss from the operating income as well as from the comparables similarly Forex gain also should be excluded. 10.1 Aggrieved by the Order of the DRP, the Revenue is on appeal before us. The Ld.DR argued that Forex loss is an operative income which arises only due sales or purchase activities which are Revenue in nature and it should be part of operating loss. According to the OECD guidelines, the Forex loss or gain arising due to Revenue receipt shall form part of operating income. The Revenue relied on the decision of the Hon'ble ITAT in the case of M/s.Zenta Knowledge Service Private Limited and M/s.Mercedes Benz R&D India Pvt. Ltd., wherein the Hon'ble ITAT considered the Forex loss as an operating loss. On the other hand, the Ld.AR submitted that the DRP directed the TPO to exclude forex gain/loss placing reliance on Safe Harbour Rules. The Ld.AR further submitted as under: Safe Harbor Rules provides for exclusion of forex gain/loss from operating profit. Forex gain/loss should be excluded because it would not be possible to ascertain the revenue/capital nature of forex gain/loss in case of comparable companies. It is pertinent to....
X X X X Extracts X X X X
X X X X Extracts X X X X
....Given that under transfer pricing provisions, the objective is to determine the Arm's Length Price of transaction and to see if any profits are shifted to AEs, the forex loss/gain arising out of external market forces are to be excluded as the same are not under the control of the assessee or the AEs. Given the above, for determining the ALP of transaction with AEs, the forex fluctuations should be excluded. This is also the position taken by CDBT in computation of margins under safe harbor provisions. It is pertinent to note that this reinstatement was made only for the purpose of complying with the Accounting Standards. Therefore, forex loss on account of restatement is a notional loss accounted only to comply with AS. The assessee also relied on the following decisions of the tribunal: a) Airbus India Operations Private Limited (IT(TP) A No.35/Bang/2014), b) D.A. Jhaveri (ITA 5161/Mum/2007), the Hon'ble Mumbai Tribunal 10.2 We heard the rival submissions and perused the material placed before us. The assessee claimed foreign exchange loss amounting to Rs.3.06 Cr. which was considered by the TPO as operating income for computing PLI. He did not exclude the same. Out of ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... The DRP erred in confirming the action of the TPO in selecting Amtek Ring Limited as a comparable company without appreciating that the said different financial year ending from that of the Respondent. 1.4 The Dispute Resolution Panel (DRP) erred in confirming the order of the TPO in holding that RPT filter should be applied at the rate of 25 per cent instead of 33 per cent. 1.5 The DRP erred in confirming the action of the TPO in not considering the fresh set of comparable companies submitted by the Respondent for benchmarking analysis. 1.6 The DRP erred in confirming the order of the TPO in excluding interest expenditure while computing the PLI of comparable companies. 2. The Respondent craves leave to add, alter, amend, substitute, rescind, modify and/or withdraw in any manner whatsoever all or any of the foregoing grounds at or before the hearing of the appeal. 12.0 Ground Nos.1 & 2 are general in nature which do not require specific adjudication. 13.0 Ground No.1.1 is related to the working capital adjustment. The assessee has requested for working capital adjustment. The DRP has rejected the assessee's objection for allowing the working capital adjustment, since th....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ssee has also not furnished the details of the comparable companies installed capacity and utilized capacity and the levels of break even. In the absence of reasons for non-utilization of installed capacity the claim for capacity adjustment is unfounded. The assessee claimed to be in the second year of operation but furnished the details in respect of sales to fixed costs which is insufficient information to decide whether installed capacity was due to start ups or not. The assessee did not explain the reasons for non-utilization of optimum capacity and therefore, this objection of the assessee cannot be accepted and the decision of the Co-ordinate Bench in the case of M/s.Mando India Steering Systems Pvt. Ltd., (cited supra) is not applicable and this ground is dismissed. 15.0 Ground No.1.3 is related to selection of Armtek Ltd as comparable. The Ld.AR of the assessee objected before the DRP for selection of M/s.Amtek Ring Gears Ltd. which follows the FY June, 2008 to June, 2009. The DRP rejected the objections of the assessee since effectively nine months were covered in the accounting period. The Ld.AR argued that the assessee follows the accounting period April to March and a....
X X X X Extracts X X X X
X X X X Extracts X X X X
....d with the figures available in such annual report". In the instant case, the assessee is following accounting year from April to March and the comparable company M/s.Amtek Ring Gears Ltd., is following June, 2008 to June, 2009. Once, the company is following a different accounting year, there will be a wide range effects in the operating results and the company seized to be a good comparable. The AO has not reconciled the financials of the comparable company to the corresponding period of the tested party by collecting necessary information and re-casted the financials. Therefore, following the decision, in the case of M/s.Hewlett Packard (India) Globalsoft (P) Ltd., ITAT Bangalore Bench we direct the AO to exclude the M/s.Amtek Ring Gears Ltd., as comparable. This ground of Cross-Objection of the assessee is allowed. 16.0 Ground No.1.4 is relating to RPT filter. The TPO has applied the RPT filter of 25% and the assessee objected for restricting it to 25%. The DRP has rejected the assessee's objection on the ground that the 25% has become more or less acceptable and it gets support from the fact that 26% is a threshold limit for treating the company as AE u/s.92A. Similarly, Se....