TaxTMI 
TaxTMI 
2022 (9) TMI 867
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.... 27/12/2016 arising out of draft assessment order passed U/s. 143(3) r.w.s 92CA(3) of the Act dated 30/03/2016 for the AY 2012-13. Brief facts of the case are that the assessee is a wholly owned subsidiary of Pioneer Elastic Mauritius. The assessee is a manufacturer and exporter of fabric elastics, filed its return of income for the AY 2012-13 on 28/09/2012 admitting a total income of Rs. NIL while claiming a loss of Rs. 1,47,93,576/-. The return was summarily processed U/s. 143(1) and was subsequently selected for scrutiny under CASS and statutory notices U/s. 143(2) was duly served on the assessee on 21/8/2013. The AO noticed that the international transactions entered into by the assessee company during the AY 2012-13 exceeded Rs. 15 Crores and therefore a reference was made to the Ld. Transfer Pricing Officer (Ld. TPO) u/s. 92CA of the Act for determining the Arm's Length Price (ALP). The Ld. TPO passed an order U/s. 92CA(3) of the Act dated 29/01/2016 determining the ALP at Rs. 10,26,61,671/- and the net ALP adjustment was determined at Rs.2,79,17,979/-. Aggrieved by the draft order of the Ld. AO passed U/s. 143(3) r.w.s 144C(13) of the Act, the assessee preferred an appeal....
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....f the assessee. The Ld. AR therefore pleaded that Comparable Uncontrolled Price (CUP) method adopted as the MAM for the purchases and the CPM adopted by the assessee for the sales made to the AEs is in accordance with law and hence the order of the Ld. DRP be quashed. Per contra, the Ld. Departmental Representative [Ld. DR] argued that the assessee was purchasing elastic webbing only from AEs being the group companies, amongst others, which is the major raw material. The contention of the Ld. AR was controverted by the Ld. DR with respect to the fact, that the assessee was purchasing only the packing material, spares, chemicals, consumables, yarn and testing material from non-AEs and not the major raw material. The Ld. DR also referred to the Cost Accountant Certificate submitted by the assessee wherein he demonstrated that the selling price per meter for the AEs works out to Rs. 2.65 (sales values Rs. 7,47,43,693 / quantity 2,82,71,581 meters) where as for the non-AE domestic supplies per unit works out to 5.41 (Sales Rs.6,18,61,931 / quantity 11,429,940 meters). The Ld. DR therefore pointed out that the average selling prices of the exports made to AE is only 50% of the averag....
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....nd other consumables, for the international transaction and has adopted CUP method as MAM and accordingly stated that the transactions are at ALP with respect to purchases and others. With regard to the exports of elastic the assessee has adopted CPM as the MAM. It is also seen from the order of the TPO that the operating profit (OP) ratio is determined as follows: Description Amount (Rs) Operating revenue 13,69,21,158 Operating cost 18,28,83,863 Operating profit (-)4,59,62,705 OP/OR (%) (-) 33.57 OP/OC (%) (-) 25.13 The assessee has also objected to the comparables analyzed by the Ld. TPO but has come up with an alternative search under TNMM and selected the following 7 comparables: Sl No. Name of the company OR OC OP OP/OC% 1 Gem Spinners Ltd 35.07 36.16 -1.09 -3.01 2. Vogue Textiles Ltd 2.94 2.88 0.06 2.08 3. Mallcom (India) Ltd 135.02 128.89 6.13 4.76 4. Meridian Apparel Ltd 139.88 133.81 6.07 4.54 5. Celebrity Fash Ltd 199.32 197.14 2.18 1.11 6. Oscar Fashion Ltd 14.05 13.14 0.91 6.93 7. Premo Global Ltd 3....
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....ch transactions. Therefore the assessee has justified that the Cost Plus Method is MAM for benchmarking the sales made to AEs. The assessee has also submitted that since the price paid for purchase of goods (other than elastics) to Pioneer Hongkong was same as that charged by the end of supplier ie., unrelated third party with respect to the packing material, Spares etc. As regards to the purchase of elastic webbing being a major raw material these are sourced from Pioneer Hongkong which in turn purchase these from group companies located at China, Thailand and Philippines. The assessee has also submitted external quotations to prove the fact that the price charged by unrelated third party is higher than the price obtained from the AEs. As seen from the details of international transactions, it is importing raw material mainly from its AE and almost 2/3rd of the total production are to the AE segment. Thus, import as well as export transactions are interlinked and closely linked. We are also of the considered view that the price of export is not free from the impact of the import price. Therefore, the international transactions in respect of import of raw material has direct bearin....