TaxTMI 
TaxTMI 
2020 (8) TMI 37
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....accordance with the provisions of the Act read with the Income-tax Rules, 1962 ('Rules'), for determination of the arm's length price of the impugned international transactions of manufacturing activity. 3. erred in rejecting the use of three year average data of comparables and determining the arm's length operating margin for such activity using the operating margins earned by the comparables for only financial year ('FY") 2011-12. 4. erred in rejecting following companies merely because they have incurred losses in current year disregarding the fact that such companies are not a persistent loss making company and cannot be excluded as comparable. 1. Sabero Organics Gujarat Ltd. 2. Aksharchem (India) Ltd; and 3. Bhageria Dyechem Ltd. 5. erred in rejecting Sabero Organics Gujarat Ltd. on the ground that there was a merger during the year under consideration and thereby failed to appreciate that there was only share purchase agreement of shares of Sabero Organics Gujarat Ltd. which does not have implications on profitability of the company. 6. erred in rejecting Sabero Organics Gujarat Ltd. on the gr....
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....to section 92C(2) of the Act, while determining the arm's length price; 16. erred in initiating penalty proceedings under section 271(1)(c) of the Act for concealment of income and furnishing of inaccurate particulars of income, without appreciating the facts and circumstances of the case. 3. Briefly stated, the facts of the case are that the assessee-company filed its return of income for the assessment year (AY) 2012-13 on 30.11.2012 declaring total income of Rs. 44,42,14,250/-. It is wholly owned subsidiary of Cheminova A/S, Denmark. The appellant is engaged in providing crop protection solutions through manufacturing and marketing of agrochemicals and its intermediates. It has a broad portfolio of agrochemicals including insecticides, herbicides, fungicides and growth promoters. During the course of assessment proceedings, the Assessing Officer (AO) referred the case to the Transfer Pricing Officer (TPO) u/s 92CA(1) of the Act in order to determine the arm's length price in relation to the international transactions with its Associated Enterprises ('AE'). The TPO vide order dated 29.01.2016 passed u/s 92CA(3) made an adjustment of Rs. 5,08,08,861/- to the int....
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.... by the appellant, a total of 39 companies were considered as comparable with the appellant. The appellant had used operating profit/operating cost as the profit level indicator ('PLI'). However, the TPO did not accept the economic analysis of the appellant and rejected 3 comparable. Furthermore, the TPO rejected the use of three year average data of the comparable and determined ALP margin using single year operating margins of only previous year 2011-12. Also the TPO rejected the working capital adjustment filed by the appellant on the reason that no documentary evidence was filed to show how the same has been worked out. The appellant had recovered total amount of Rs. 12,67,58,215/- for recovery of its fixed costs from the parent company Cheminova A/S Denmark. Out of the total recovery, the TPO considered Rs. 5,54,19,490/- as nonoperating on the ground that the same was on account of recovery of costs pertaining to earlier years. The TPO reduced the same from operating income of the appellant for AY 2012-13 and computed the margin at 8.51%. Accordingly, the TPO considered the unadjusted margins of the comparable companies and revised margin computation of the appe....
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....011], ASB International (P.) Ltd. v. ACIT [IT Appeal (TP) Nos. 1978 & 2137 (Mum) of 2016], Nomura Research Institute Financial Tech (I) (P.) Ltd. v. DCIT [IT Appeal Nos. 284 and 485 (Kol.) of 2016], QAD India (P.) Ltd. v. DCIT [IT Appeal No. 1685 (Mum) of 2013]. Relying on the above decisions, the Ld. counsel explains that Sabero Organics Gujarat Ltd., Aksharchem (India) Ltd. and Bhageria Dyechem Ltd. should not be rejected as comparable. Further, it is explained by him that the AO/TPO erred in rejecting Sabero Organics Gujarat Ltd. as merged entity and not functionally comparable. The reason given by him is that the new company Coromandel International Ltd. has merely entered into share purchase agreement with Sabero Organics Gujarat Ltd. and thus it can be held that there was merely share purchase agreement that took place during the year under consideration and there was no event of merger as mentioned by the TPO. To sum up, it is the contention of the Ld. counsel that if the above three loss making comparables rejected by the TPO are included, then the ALP of comparable companies would be 13.14%, which would fall within +/-5% range, irrespective of fact that the appellant....
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.... (ii) Selection of the comparable companies, whereby arm's length price (ALP) is determined at Rs. 14.98%. An examination of the accounts clearly indicates that Sabero Organics Gujarat Ltd., Aksharchem (India) Ltd. and Bhageria Dyechem Ltd. have earned a profit in FYs 2009-10, 2010-11, 2012-13 & 2013-14 and incurred losses only in FY 2011-12. Thus it can be construed that the variation in profitability is due to cyclical business reasons. In the case of Welspun Zucchi Textiles Ltd. (supra), the Hon'ble Bombay High Court has held that "where revenue had not shown that comparables excluded by it were consistent loss making concerns, further examination would be required to ascertain whether loss was a symptom of reference points mentioned in Rule 10B(2) of Rules making it non-comparable". In Chryscaptil Investment Advisors (India) Pvt. Ltd. (supra), the Hon'ble Delhi High Court has held that : "the mere fact that an entity makes high/extremely high profits/losses does not, ipso facto, lead to its exclusion from the list of comparables for the purposes of determination of ALP. In such circumstances, an inquiry under Rule 10B(3) ought to be carried out, to determine ....
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....hile hearing of these appeals was concluded on 09.01.2020, this order thereon is being pronounced today, much after the expiry of 90 days from the date of conclusion of hearing. We are also alive to the fact that rule 34(5) of the Income Tax Appellate Tribunal Rules 1963, which deals with pronouncement of orders. Let us in this light revert to the prevailing situation in the country. On 24th March, 2020, a nationwide lockdown was imposed for 21 days to prevent the spread of Covid-19 epidemic, and this lockdown was extended from time to time. As a matter of fact, even before this formal nationwide lockdown, the functioning of the Income Tax Appellate Tribunal at Mumbai was severely restricted on account of lockdown by the Maharashtra Government, and on account of strict enforcement of health advisories with a view of checking spread of Covid-19. The epidemic situation in Mumbai being grave, there was not much of a relaxation in subsequent lockdowns also. In any case, there was unprecedented disruption of judicial work all over the country. As a matter of fact, it has been such an unprecedented situation, causing disruption in the functioning of judicial machinery, that Hon'ble S....