TaxTMI 
TaxTMI 
2017 (2) TMI 1449
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....ikin Limited, the assessee's comparable which was rejected 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.....
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....aken operating profit/operating income (OP/OI) as PLI. The assessee's PLI was bench marked with that of the comparables chosen by the assessee and held that transactions were at Arms Length. While selecting 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 f....
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....8.10 * 91.73/97.57) 17.02 Cr. 8 Actual AE cost 18.10 Cr. 9 Difference proposed to be adjusted 1.08 Cr. 6.0 The assessee filed reply to the show cause notice objecting for exclusion of the following comparables selected by the assessee: i) M/s.G.S.Auto International Ltd. ii) M/s.Ceekay Daikin Ltd.(presently known as M/sdy Ceekay Ltd) 6.1 The assessee had objected 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 reject....
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....ggested by TPO. Therefore, the Revenue is in appeal against the directions of the DRP and the assessee filed Cross-Objections. Revenues' appeal: 8.0 Ground Nos.1 & 4 are general in nature which do not require specific adjudication. 9.0 Ground Nos.2 to 2.3 are related to the inclusion of M/s.CeeKay Daikin Ltd., as comparable. The assessee argued before the DRP not to exclude M/s.Ceekay Daikin Ltd., from the comparables since the functions of the company are the same. The DRP after considering the objections raised by the assessee directed 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 o....
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....no change in the accounting policies. Though, the TPO noticed that the profits have been reduced due to start up costs of new product 'one way clutch' no evidence has been placed before us and the Ld.DR did not controvert the facts. Therefore, we do not find any infirmity in the directions of the DRP and uphold the Order of the DRP. 10.0 Ground Nos.3 to 3.3 are related to the foreign exchange (in short 'Forex') loss. The TPO has not considered the Forex loss as non-operative in nature while calculating the operative margin of the company. The DRP 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....
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....djustment. For example, if capacity utilization risk is borne by tested party as per FAR analysis in TP Report and if there is under absorption of fixed overheads due to under-utilization of capacity then the tested party would have the right to undertake the capacity utilization adjustment. Hence, the conclusion made stating that, since forex risk is borne by the assessee as per FAR analysis, forex gain/loss would form part of operating expenses and hence the assessee cannot claim the forex adjustment is totally erroneous and defies the basic principles of risk adjustment concept. 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 t....
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.... 11.0 Cross Objections No.58/Mds/2014 The assessee filed cross objections and raised the following grounds: 1. The Transfer Pricing Officer (TPO) erred in making an upward adjustment to the value of international transaction 1.1 The DRP/TPO erred in not providing any adjustment to the arm's length margin of the comparables on account of differences in working capital. 1.2 The DRP/TPO ought to have considered adjustments for difference in capacity utilization while calculating the operating margin of the Respondent since the company is in the initial years of operations and its entire capacity could not be utilized fully. 1.3 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 th....
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....tion. The assessee filed additional evidence before us and argued that the AY 2009-10 was first full year of operation and requested for capacity utilization. The assessee also furnished the details of capacity utilization of adjustment and relied on the decision in the case of Mando India Steering Systems Pvt. Ltd., (in ITA No.2092/Mds/2012). On the other hand, the Ld.DR relied on the order of the Ld.DRP. 14.1 We heard the rival submissions and perused the material placed before us. The assessee has not furnished the details of installed capacity and capacity utilized and the reasons for non-utilization of the installed capacity and resources available and utilized by the assessee. Similarly, the assessee 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 asse....
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.... cannot be included as a comparable in the set of comparables selected by Ld.TPO on account of clear contradiction between contents of Annual Report and information obtained u/s.133(6). 27. Rule 10D(3) specifies the information and documents that are to be maintained by a person who is entering into international transactions. These are official publications, published accounts or those which are in public domain except for agreements and contracts to which assessee is privy. Once the annual report of a company is for a year different from the financial year ending 31st March, then without doubt, it will cease to be a good comparable, unless the information received in pursuance to a notice u/s.133(6) of the Act from such company, is reconciled 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 financia....