TaxTMI 
TaxTMI 
2017 (9) TMI 1881
X X X X Extracts X X X X
X X X X Extracts X X X X
....Appellant at Rs. 71,163,895/- (Taxable income 17,411,958 considering the brought forward losses) as against total loss of Rs. 31,195,218 claimed by the Appellant in its tax return for the AY 2010-11. 3. That Ld. CIT(A) erred in upholding the reference made by the Ld. AO without recording any reasons in the assessment order based on which he reached the conclusion that it was "expedient and necessary" to refer the matter to the Ld. TPO for computation of the arm's length price, as in required under section 92CA(1). 4. That Ld. CIT(A) erred in upholding the orders of the Ld.AO/Ld. TPO determining the arm's length price of the Appellant's international transactions from associated enterprises in the following manner- 4.1 By disregarding the multiple year data selected by the Appellant in the TP documentation and in selecting the current year (i.e. financial year 2009-10) data for comparability despite the fact that at the time of comparison done by the appellant, the complete data for financial year 2009-10 was not available within the public domain; 4.2 By rejecting 3 out of 4 comparable companies selected by the Appellant in the transfer pricing d....
X X X X Extracts X X X X
X X X X Extracts X X X X
....n PLI Avg. PLI Import of finished goods for resale TNMM with OP/OR as PLI 32,30,48,100 6.40% Companies with similar trading activity 4.40% Import of raw material and intermediaries TNMM with OP/OR as PLI 33,33,16,565 0.82% Companies with similar manufacturing activity 2.04% Import of capital goods 63,09,548 Payment of royalty 32,83,626 Availing of technical services 1,72,28,906 Availing of product development services 1,46,58,966 Receipt of inspection charges 52,46,523 Sales of finished goods 2,82,628 Receipt of loan repayable after 3 years No Benchmarking required 7,66,60,993 NA NA NA Interest on term loan CUP 6,29,284 1.25% 2.53% 4. The assessee has benchmarked the ALP of international transaction pertaining to manufacturing segment by applying the TNMM method using operating profit margin on revenues OP/OR as PLI. There i....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... the tested party and also of the comparables and further our attention was drawn to capacity utilization ratio. We would like to reproduce the comparative table from the part of the paper book which is as under:- Nissin India-Tested Party Class of Goods Installed Capacity (Unit Nos.) Actual Production (Unit Nos.) Value Per Unit Installed Capacity (Value) Actual Production (Value) Reference Tandem Master Cylinder Assembly 136,136 54,206 1,912 260,227,356 103,616,120 Annexure 3 of submission dated Jan 03, 2014. Point 14.1 & 14.6 of notes to accounts Caliper Assembly 134,775 105,880 1,392 187,642,902 147,413,322 Prefilled Clutch Assembly 68,068 47,117 2,237 152,247,999 105,386,804 Engine Mount Bracket 204, 204 48, 193 308 62,830,046 14,828,154 Disk Brake System Assembly 17,017 2,894 3,304 56,229,088 9,562,613 Total 560,200 258,290 719,177,391 380,807,012 Capacity Utilization Ratio 46.11 52.95% Comparable companies 1.) Allied Nippon Limited ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....4,274 Capacity Utilization Ratio 164.78% 164.78% Summary Company Capacity Utilization ratio Allied Nippon 242.60% Brakes India 66.74% Hindustan Composites 86.29% Rane Brake Linings 164.78% Average 140.10 8. On the basis of the above, it was submitted that the learned Assessing Officer, had erred in concluding that the assessee failed to submit the production and installed capacity in same units. It was submitted before us that from the perusal of the above noted chart the capacity utilization of various comparables, is discernible as the capacity of Allied Nippon, Brakes India, Hindustan Composites and Rane Brake Lining which are reproduced hereunder: Particulars Capacity Utilization % (Refer Pg. 594 of PB Tested party 52.95% Comparable companies Allied Nippon 242.60% Brakes India 66.74% Hindustan Composites 86.29% Rane Brake Linings 164.78% Average 140.10% 9. Further it was submitted that the company which are in existence, for the last 30 to 40 years and are utilizing the capacities, the neces....
X X X X Extracts X X X X
X X X X Extracts X X X X
....r the Act. The TPO is duty bound to move a step forward and issue a notice under Section 133 to seek the information of capacity utilization of installed as well as production in the same unit which is not done by the TPO. Moreover, the TPO was under obligation in law to conduct his own TP study , if rejected the three comparable were rejected by him by bringing more comparable which are comparable with the profile of the assessee. That exercise of bring more comparables in the form of TP study had not been done by TPO and TPO had determined the ALP adjustment based on only one comparable and further notice under section 133 were not issued to the comparables for seeking the necessary information's on capacity utilization . The case in hand is not one case, where it is not possible for TPO to find out the other suitable comparable after rejecting the comparables of the assessee. But no efforts were made by the TPO to find out the more comparable so as to make the ALP adjustment based on mean profit margin of the comparables. In our view, the making adjustment on the basis of standalone comparable is not a healthy practice, unless the comparable available is internal one and is t....