TaxTMI 
TaxTMI 
2020 (10) TMI 1147
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..../DRP and consequently Ld. AO have grossly erred in law and on facts in incorrectly computing the PLI of assessee by not considering the items such as commission and insurance claim recovered as operating income while computing the PLI of assessee. 4. The ld TPO and consequently ld AO have grossly erred in not following the ld DRP's directions by not treating the certain expenses viz. foreign exchange fluctuation loss, fixed interest expense and provision for doubtful debts, as non- operating expenses while computing the PLI of the assessee. Incorrect calculation of PLI of comparables: 5. The Ld. TPO/DRP and consequently Ld. AO have grossly erred in incorrectly computing the PLI's of the comparable companies namely Roto Pumps and Bemco Hydraulicsby ignoring the PLI calculated by the assessee which is based on audited financials of said companies. The Ld. TPO has grossly erred in not providing the computation of the PLI of aforesaid comparables such that the assessee might have placed its objections before ld TPO. Rejection of Comparable by ld TPO: 6. The Ld. TPO/Dl\P and consequently Ld AO have grossly erred in rejecting Hawa Engineers Ltd., as a comparable company....
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.... Pumps Ltd. be rejected as comparable since it is dissimilar to the assessee as per criteria laid down in Rule10B(2) on account of manufacturing operations being in a SEZ, operating in a different geography (more than 60% sales being Export sales) and operating in a different product segment i.e. spare parts (more than 50% sales from Spare Parts) following a different business model as compared to the assessee." 3. The preliminary issue raised in the present appeal is vide ground of appeal nos. 1 and 2, under which the assessee has challenged the assessment order passed by the Assessing Officer consequent to the order of the TPO being bad in law and void-ab-initio. Further vide ground appeal nos. 3 to 11, the assessee has challenged the transfer pricing adjustment made to the tune of Rs. 2.26 Crores. The Ld. AR for the assessee pointed out that vide ground of appeal no.7, issue which is raised is of rejection of two comparables. The assessee is aggrieved by the inclusion of M/s. Yuken India Ltd. and WPIL Ltd. on the ground that these are giant companies with R & D functions and are not comparable to the assessee having turnover of Rs. 17.87 Crores. The assessee has also raised cer....
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....ing is 31.03.2012. Then, he referred to pages 5 to 15 of the TPO's order which are on capacity utilization, whereas the assessee had not claimed any capacity utilization. The Ld. AR for the assessee then pointed out that where the assessee was engaged in import of raw material to the extent of 85%, there is no question of making purchases of raw materials from domestic market. He stressed that whole order of the TPO shows non application of mind and the order is non-est. Referring to the order of the AO/TPO, he pointed out that extraneous reasons were applied for changing the PLI of the assessee and no reasons relating to the assessee were used. Our attention was drawn to the status of the assessment from Assessment Years 2006-07 to 2016-17. The Ld. AR for the assessee pointed out that the international transactions from year to year were same; even the AEs were same and in all the years TNMM method was applied. He then pointed out that even after orders of the Tribunal, no adjustment has been made. However, the TPO has ignored all of them. He also pointed out that the assessee had made voluntary TP adjustment of Rs. 39,65,940/- which has not been referred to. The Ld. AR for the as....
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.... total turnover of the assessee for the year is only Rs. 17.87 Crores. The total turnover of Yuken India Ltd. is Rs. 170.49 Crores and WPIL Limited is Rs. 300.66 Crores. Another aspect which is also distinctive is that both the concerns were performing R & D function, whereas the assessee has no significant R & D function. Both Yuken India Ltd. and WPIL Limited in their financial statement have reported that the said companies were carrying out continuous R & D for development of new projects. 10. The Hon'ble Delhi High Court in Agnity India Technologies [2013] 262 CTR 291 (Del.) and Hon'ble Bombay High Court in Pentair Water India [TS- 566-HC-2015(BOM)-TP] have held that turnover is a relevant factor to consider the comparability of any company. The Hon'ble Delhi High Court in the case of Sanvih Info Group Pvt. Ltd.(earlier known as Oks Span Tech Pvt. Ltd./Sanvih Info)[TS-439-HC-2019(Del.)-TP], have held as under:- "8. It appears that the comparable discussed in Agnity India Technologies Pvt. Ltd. (supra) which was sought to be excluded was an Infosys Group Company which undoubtedly was 'a giant corporation'. On the other hand, in Chrys Capital Investment Advisors India....
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.... the assessee and transpired that it was operating in different geography wherein more than 60% sales were exported. The break up of the export sales and the total revenue from operation are as under:- Sl. No. Particulars Roto Pumps (INR) Assessee (INR) 1 Export Sales of products (A) 45,95,89,953 92,61,874 2 Total Revenue from Operations(B) 76,27,92,101 17,87,07,940 Export Turnover Ration (A/B) 60,25% 5.18% 14. The next aspect, which is pointed out by the assessee is that Roto Pumps had different business model as it has different product segment of spare parts; the break up of the export sales for the year are as under:- Particulars FY 2011-12 (INR) Exports of goods Pumps 22,90,91,063 Spares 23,04,98,890 Total export Sales 45,95,89,953 Spares Sales/Total Export Sales 50.15% 15. First of all, we find support from ratio laid down by the Hon'ble Punjab & Haryana High Court in CIT-II vs Quark Systems India (P.) Ltd. [2011] 244 CTR 542, wherein, it upheld the right of the assessee to plead before the ITAT that it wrongly selected a comparable, which did not fulfill the tests laid down in the Act and the Rules of being a....
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....e is that the AO/TPO has incorrectly computed the PLI of the comparable. As per Rule10B(4) read with Rule 10D of I.T. Rules, the PLIs are to be calculated based on the annual report of the company as available in the public domain. The assessee states that the TPO did not provide the calculation of the PLIs of the comparable companies and hence, no objections were filed before him. However, before DRP, the same along with annual report were filed, which was rejected on the ground that the assessee had not given required data and valid reason for difference in margin. We are of the view that where the annual reports are available in public domain then the PLIs are to be computed based on such annual reports. The AO/TPO is thus directed to verify the correctness of the PLIs from the annual reports and revise the average of the PLIs of the finally selected comparables. Consequently, the ground of appeal no.5 and additional ground of appeal no.14 are allowed. 19. Now, coming to the grounds raised by the assessee in respect of computation of PLI. First such ground of appeal no.3, wherein, the assessee aggrieved by certain income side items not considered as operating income by Ld. AO/D....