TaxTMI 
TaxTMI 
2021 (6) TMI 136
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....ed with the Ready to Serve Food (RTSF) segment, albeit the assessee has two other segments also, namely, Frozen Foods and Sauces. The assessee reported export of finished goods to its Associated Enterprises (AEs) in the USA and Australia amounting to Rs. 71.04 crore and Rs. 8.20 crore respectively under this segment. The Transactional Net Marginal Method (TNMM) was applied for demonstrating the international transaction of exports under RTSF segment at ALP. For doing so, the assessee selected six comparable companies with an average Profit Level Indicator (PLI) of Operating profits to Operating Costs at 6.33% with the data of the F.Ys. 2012-13 and 2013-14 as against its own segmental PLI at 14.58%. Though the books of accounts were maintained on a consolidated basis for all the three segments and there was a combined Profit and loss account, the assessee tried to justify RTSF segmental claim by submitting a separate income statement allocating costs and income on a certain basis as mentioned on page 4 of the TPO's order. The TPO did not accept such allocation as the same was found to be vague and unreliable. Such a segmental Income statement was rejected by the TPO, who went ahead ....
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....uthorities below were justified in proceeding with the ALP determination on the basis of combined accounts approach. 4. The ld. AR argued for inclusion of Madhur Industries Limited in the list of comparables. The assessee, in its transfer pricing study report, included this company in the list of comparables with the financial figures relating to the preceding year only and not the year under consideration. The TPO refused to accept the companies with the financial data of the preceding year and stuck to the comparables companies with the financials concerning the current year only. During the course of the proceedings before the TPO, the assessee submitted Annual report of this company which the TPO did not accept on the ground that this company was not included by the assessee in the list of comparables for earlier years. The DRP did not countenance the so-called consistency approach of the TPO but approved the exclusion of the company by observing that business of this entity was not correctly spelt out or legible. Another reason given by the DRP was about the higher turnover of this company vis-a-vis the assessee company. The assessee is aggrieved by non-inclusion of this comp....
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....ad directed to consider export incentive as operating revenue. 8. We have heard the rival submissions and perused the relevant material on record. The export incentives pertain to the exports made by the assessee under the RTSF segment. A copy of the Profit & Loss Account of the assessee has been placed at page 363 of paper book, from which it is discernible that there is an item of "Other operating income" at Rs. 7.986 crore, whose detail has been given at page 377 of paper book, which includes export incentive of Rs. 7.62 crore. The assessee, while calculating its segmental PLI, considered operational income of Rs. 7.00 crore as per Appendix F, copy given at page 220 of paper book. The ld. AR pointed out that out of total export incentives of Rs. 7.62 crore, a sum of Rs. 7.00 crores pertained to the exports from RTSF segment to its AEs, which was considered by the assessee as a part of the operating income. There can be no doubt that export incentives are part and parcel of export revenue. The Government of India allows incentives with a view to encourage exports and make Indian exporters more competitive in the world market. While finalizing the price at which the goods are to ....
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..... The case of the assessee is that proportionate adjustment ought to have been given and the transfer pricing addition restricted only to the extent of international transactions. 10. This issue is fairly settled by a judgment of the Hon'ble jurisdictional High court in CIT Vs. Phoenix Mecano (India) Pvt. Ltd. (2019) 414 ITR 704 (Bom.), holding that the transfer pricing adjustment made at entity level should be restricted to the international transactions only. It is pertinent to mention that the Department's SLP against this judgment has since been dismissed by the Hon'ble Supreme Court in CIT Vs. Phoenix Mecano (India) Pvt. Ltd. (2018) 402 ITR 32 (St.). Similar view has been espoused by the Hon'ble Bombay High Court in CIT Vs. Thyssen Krupp Industries Pvt. Ltd. (2016) 381 ITR 413 (Bom.) and CIT Vs. Tara Jewels Exports (P). Ltd. (2010) 381 ITR 404 (Bom.). We, ergo, direct to restrict the transfer pricing addition only to the extent of international transactions in this segment. 11. The next issue raised before the Tribunal is about not granting working capital adjustment. Shorn of unnecessary details, it is noted that the DRP vide para 7.2 of its directions directed the AO/TPO t....