AI Drafter 
TaxTMI 
TaxTMI 
TaxTMI 
2019 (6) TMI 1627
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....n 144C(13) of the Income-tax Act, 1961 (the 'Act') by the Assistant Commissioner of Income-tax, Circle 9, Pune (the 'learned Assessing officer' or the 'learned AO' or the 'AO') dated 27 February 2015 (received on 16 March 2015) on the following grounds, which are independent of and without prejudice to each other : On the facts and in circumstances of the case and in law, the learned AO has erred as under: 1 Inappropriate transfer pricing adjustment amounting to Rs. 20,24,62,986 made even though all international transactions of the Appellant are at arm's length Erred on the facts and in circumstances of the case and in law to propose an upward adjustment amounting to Rs. 20,24,62,986 to the international transactions of the Appellant pertaining to manufacturing operations for financial year ('FY') 2009-10 thereby ignoring the fact that all the international transactions of the Appellant are at arm's length. 2 Inappropriate non-consideration of economic and commercial reasons for losses in the manufacturing operations of the Appellant Erred on the facts and in circumstances of the case by making transfer pricing adjustment to the international tr....
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...., substitute or amend the above grounds of appeal, at any time before or at the time of hearing of the appeal, so as to enable your Honours to decide this appeal according to law." 3. At the time of hearing, ld. AR of the assessee appraised the Bench that ground no.1 is general, ground no.5 is premature in nature needs no adjudication and ground nos.2, 6 & 7 are not pressed. In view of these submissions made by the ld. AR, ground nos.2, 6 & 7 are dismissed as not pressed. Ground no.1 is general in nature and ground no.5 as submitted by the ld. AR is premature, hence, on these grounds no adjudication is required. The only effective grounds are no.3 and 4 before us for adjudication. 4. With regard to ground no.3, ld. AR submitted by referring to the Annual Report of the company i.e. BEML Limited is a Government Company wherein 54% of the holding is by the Government and as per the Companies Act, if more than 50% holding of a company is by the Government then it is a Government Company. Ld. AR further submitted that a Government Company cannot be made a comparable to that of the assessee. He placed reliance on the decision of the preceding year in assessee's own case in ITA No.1....
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....os. 566 & 645/PUN/2013 and ITA No. 2637/PUN/2016 does not bear material risk including credit risk product liability, etc., whereas the said concerns bear the market and credit risk and other risks. 35. The Hon'ble Bombay High Court in CIT Vs. M/s. Thyssen Krupp Industries India Pvt. Ltd. reported in 239 Taxman 46 (Bom) had excluded Engineers India Ltd. being government company and where substantial part of its revenue came from executing projects of Public Sector Undertakings. Following the same parity of reasoning, we hold that Engineers India Ltd. and the otherconcerns M/s. KITCO and M/s. WAPCOS are to be excluded from the final list of comparables." 14. Thus, the Government Companies operate entirely different controlled environment. Their customers are different. Their raw material suppliers are different. Their profit margins are different. They would not operate in a free competitive environment. Therefore, in our opinion, the orders of the lower authorities need to be reversed. The Co-ordinate Bench of the Tribunal has already taken a view in the matter. Considering the above reasoning as well as the Coor....
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.... different, profit margins are different and would not operate in a free competitive environment. Respectfully following the decision of the Co-ordinate Bench, we allow ground no.3 raised in appeal by the assessee. 7. Coming to ground no.4, it was contended by the ld. AR that this issue has been restored back to the file of the Assessing Officer in the preceding year by the decision of the Co-ordinate Bench and the same view may be taken for this relevant year as well. 8. Ld. DR fairly conceded to the prayer of the ld. AR. 9. We have perused the case records and heard the rival contentions. We find that in ITA No.1670/PUN/2015, the Revenue has raised this ground in appeal before the Co-ordinate Bench for assessment year 2009-10 which is as follows :- "1. Whether on the facts and circumstances of the case, the Ld. CIT(A) erred in directing the AO to make capacity adjustment by recommending a method without justifying the reliability of the method?" 10. With regard to this ground, the assessee had made the following relevant submissions which are as follows :- "32. Referring to Ground nos.1 and 2 (i.e. "capacity adjustment"), ld. Counsel for the assessee....
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....tion y = a + bx. This mathematical model has been used to determine the average fixed costs across 3 years: The method adopted is not found acceptable for the following reasons. Firstly, this involves data for 3 years which is not sanctioned by the IT Rules which require contemporaneous data to be used. No case has been set up justifying the use of data of prior 2 years. Secondly, this assumes a mathematical model that relationship between sales and total costs is linear. There is no evidence or basis to support this hypothesis. In fact it is generally not the case that fixed costs will remain the same across years. In theory of finance and accounting too, no such theory is found. Thirdly, the statistical indicator of goodness of fit to validate the accuracy of model is not submitted despite specifically calling for the same. Fourthly, a visual inspection of the scatter diagram shows that there are three data points through which a straight line is drawn which does not fit well. In the case of JCB, the two data points almost overlap and thus a straight line is drawn virtually through two points only. Thus, the assumption is neither accurate nor based in any financial theor....
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....w the judgement of the Jurisdictional High Court in the case of Petro Araldite (P.) Ltd. (supra). The said judgement is relevant for following proposition :- "(v) In the above view, taking into account the capacity utilization of the comparable, in the present facts, as it materially affects the profit margin, the invocation of Rule 10-B(1)(e)(iii) of the Rules, cannot be found fault with This is self evident position from the reading of the aforesaid provision that all aspects/difference between the international transactions and the comparable uncontrolled transactions which materially affects the net profit margin had to be taken into account so as to have the fair comparison while determining the ALP of the tested party's transaction." 36. Considering the above, we find this issue should be remanded to the file of the Assessing Officer to follow the precedent in existence on this issue and make the adjustment in any after granting a reasonable opportunity of being heard to the assessee. Accordingly, ground nos.1 and 2 stands allowed for statistical purposes." 12. Therefore, the Co-ordinate Bench had restored the matter to the file of the Assessing Officer f....