TaxTMI 
TaxTMI 
2021 (7) TMI 656
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....ay High Court and which is further considered in Appellant's own case for AY 2009-10 and AY 2010-11. Ground of appeal 9 - Recomputation of losses to be carried forward in case resultant transfer pricing adjustment is less than voluntary adjustment offered in turn of income The Appellant requests your Honors to direct the learned AO/TPO to recomputed losses to be carried forward in case resultant transfer pricing adjustment after adjudication of all other grounds of appeal is less than voluntary transfer pricing adjustment offered in return of income. 3. The Hon'ble Supreme Court in National Thermal Power Company Ltd. Vs. CIT (1998) 229 ITR 383 (SC) has observed that ―the purpose of the assessment proceedings before the taxing authorities is to assess correctly the tax liability of an assessee in accordance with law. If, for example, as a result of a judicial decision given while the appeal is pending before the Tribunal, it is found that a non-taxable item is taxed or a permissible deduction is denied, we do not see any reason why the assessee should be prevented from raising that question before the Tribunal for the first time, so long as the relevant facts a....
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.... was worked out at Rs. 34,55,09,967. Since the assessee had already offered a sum of Rs. 7.93 crore as suo motu transfer pricing adjustment, the TPO proposed further adjustment of Rs. 26,61,16,979. The assessee assailed the draft order incorporating the above adjustment before the Dispute Resolution Panel (DRP). After giving effect to directions given by the DRP, the AO made an addition of Rs. 9,12,61,487 in the final assessment order, against which the assessee has come up in appeal before the Tribunal. 6. The assessee seeks exclusion of two companies from the list of comparables drawn by the TPO, namely, Bharat Earth Movers Limited and JCB India Limited. The other comparable, namely, Telco, apart from the one comparable chosen by the assessee, namely, Action Construction Equipment Limited, is not in dispute. We will deal with the two comparables challenged before the Tribunal ad seriatim. I. Bharat Earth Movers Limited 7. The TPO included this company in the list of comparables. The assessee objected to its inclusion on the ground that it was functionally different and further it was a government company with fixed customer base. Following his order for the A.Y. 2010-11,....
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....ot justified in including BEML in the list of comparables. We, therefore, direct to exclude it from the final tally of comparables. II. JCB India Limited 10. The TPO proposed to include this company in the list of comparables. The assessee objected to its inclusion by urging that the financial data of JCB India Limited for the relevant year was not available at the time of making the Transfer pricing report and further that this company was also involved in rendering Design services. The TPO observed that the assessee itself included this company in the list of comparables for the immediately preceding assessment year. Since the financial data of this company for the relevant year was available at the time of finalizing the transfer pricing proceedings, he included it in the schedule of comparables. The assessee remained unsuccessful before the DRP, which has brought it before the Tribunal. 11. Having heard rival submissions and gone through the relevant material on record, it is seen that one of the reasons taken up by the assessee to avoid the inclusion of JCB India Ltd. was the non-availability of its data for the year under consideration at the time of preparing Transf....
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....d not dispute the correctness of the ALP determination of the Trading segment. The ld. AR submitted that JCB India Limited was engaged in Manufacturing, Trading and Design services and the accounts were maintained on a combined basis and, as such, the TPO went wrong in considering JCB India Ltd. as comparable on entity level with the lone Manufacturing segment of the assessee. 14. A feeble attempt was also made to canvass that even the products under the Manufacturing activity of JCB India Ltd. were different from that of the assessee. It was stated that the Ballabgarh unit of JCB was involved in manufacturing Backhoe Loaders, whereas the Pune unit was into manufacturing Excavators. The ld. AR submitted that the assessee was engaged only in the manufacture of Excavators. When asked to state the functional differences between Backhoe Loaders and Excavators, the ld. AR failed to point out any. It is common knowledge that backhoe loader is a species of the overall genus of excavators though relatively lower-priced. Backhoe loaders and excavators are broadly similar products. Unlike the Comparable Uncontrolled Price method (CUP) where product similarity is a sine qua non, the TNM....
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....onal transaction or a specified domestic transaction if- (i) none of the differences, if any, between the transactions being compared, or between the enterprises entering into such transactions are likely to materially affect the price or cost charged or paid in, or the profit arising from, such transactions in the open market; or (ii) reasonably accurate adjustments can be made to eliminate the material effects of such differences." 18. On going through the prescription of the above rule, it transpires that an uncontrolled transaction shall be comparable to an international transaction if the differences, if any, between the two are not likely to materially affect the price charged or paid or reasonably accurate adjustment can be made to eliminate the material effects of such differences. The case under consideration is a classic example which fits within the prescription of rule 10B(3) inasmuch as JCB India Limited is otherwise functionally similar to the assessee company to the extent of 99.65% of its business operations. It is just 0.35% of its Manufacturing activity (not even of the overall operations that would further reduce the percentage of Trading activity etc.), whi....
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....e for the exclusion of JCB India Ltd. on the sole reason of it having 0.35% non-manufacturing activity, when its 99.65% manufacturing activity is similar to that of the assessee. 20. Without prejudice to our above decision on merits, we also take note of the fact that the assessee determined the ALP of its Manufacturing segment for the immediately preceding assessment year and suo motu included JCB India Limited in the list of comparables, which position was not tinkered with by the TPO and got finally merged in the list of comparables. On a pointed query, the ld. AR fairly admitted that there was no noticeable difference in the functional profile of JCB India Limited for the current year vis-à-vis the preceding year. 21. In view of the foregoing discussion, we uphold the inclusion of JCB India Limited in the list of comparables. At the same time, the TPO is directed to carry out reasonably accurate adjustment to the profit of JCB India Ltd. so as to eliminate the effect of a microscopic difference due to Trading sales and service income. Needless to say, the assessee will be allowed an opportunity of hearing. 22. The first additional ground is the adoption of incorrect m....