TaxTMI 
TaxTMI 
2023 (1) TMI 1084
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....22 for the AY 2017-18. 3. Brief facts of the case are that the assessee-company, M/s. Teejay India Private Limited (formerly known as M/s. Ocean India Pvt Ltd) is engaged in the business of manufacturing and exporting of knitted fabrics/apparels at Brandix APSEZ, Atchutapuram, Visakhapatnam. The assessee filed its return of income for the AY 2017-18 on 29/11/2017 declaring total income of Rs. NIL. Subsequently, the case was selected for scrutiny under CASS and notices U/s. 143(2) of the Act was issued on 23/08/2018. Subsequently notice U/s. 142(1) was issued along with an annexure calling for relevant details. In the course of assessment proceedings, the Ld. AO noticed that Form 3CEB report of the assessee company had international transactions with its Associated Enterprises (AEs). Hence, a reference was made to the Transfer Pricing Officer u/s. 92CA(1) of the Act for the international transactions undertaken by the assessee company in the FY 2016-17. Accordingly, the TP matters were examined by the DCIT (TPO)-1, Hyderabad and an order u/s. 92CA(3) of the Act was passed on 21/01/2021 determining the proposed adjustment as follows: Sl No Description Adjustment U/s. 92CA....
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....e assessee has raised the following grounds of appeal: "The grounds mentioned herein by the appellant are without prejudice to one another. 1. That the order of the Additional/Joint/Deputy/Assistant Commissioner of Income Tax/Income Tax Officer, National e-assessment centre, New Delhi (Ld. AO) to the extent prejudicial to the appellant is bad in law, contrary to the facts and circumstances of the case and is liable to be quashed. 2. Based on the facts and in the circumstances of the present case, the Final order passed by the Ld. AO being passed not in conformity with the directions issued by the Ld. DRP is bad in law as per provisions of section 144C(13) of the Act and hence liable to be quashed. 3. That the Ld. Dispute Resolution Panel erred in not appreciating that the order of the Ld. JCIT (Transfer Pricing), Hyderabad passed under section 92CA of the Act is contrary to law and thus liable to be quashed. 4. That on the facts and in the circumstances of the case, the Ld. AO/Ld. TPO and the Ld. DRP erred in making an upward adjustment to the transfer price of the appellant's international transactions INR 27,43,39,282/- in respect of m....
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....ing Mills Pvt Limited • GM Syntex Pvt Ltd • Nitin Spinners Limited • Guetermann India Private Limited 5.8. Excluding companies selected by the appellant in its TP documentation without giving due cognizance to the appellant's contentions. • Raghav Industries limited • Junction Fabrics & Apparels Limited 5.9. Rejecting the following companies that were additionally proposed by the appellant from the TPO's search matrix being functionally comparable: • BSL Limited • Salona Cotspin Limited • Titaanium Ten Enterprise Ltd • Lakhotia Polyesters (India) Ltd 5.10. Rejecting certain filters adopted by the appellant in the TP documentation for the purpose of conducting the economic analysis. 5.11. Application of certain inappropriate filter adopted by the Ld. TPO while conducting the fresh benchmarking analysis. 5.12. Computing the operating mark up on the cost for the comparable companies selected while performing the comparability analysis by considering foreign exchange fluctuations as operating in nature. 5.13. Proposin....
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.... length rate for benchmarking the payment of i8nterest on ECB instead of LIBOR plus 350 basis points used by the appellant. 7.2. Disregarding the use of RBI master circular as a valid CUP without providing any cogent reasons for the same. 7.3. Ignoring the judicial precedents relied upon by the appellant in determining the arm's length interest rate paid on the external commercial borrowings availed. Grounds for imputation of notional interest on outstanding receivables. 8. On the facts and in the circumstances of the case, the Ld. DRP/AO/TPO erred in : 8.1. Considering overdue receivables from AEs as on international transaction under the provisions of section 92B of the Act. 8.2. Without prejudice to Ground No.7.1 above, ignoring the fact that the appellant does not pay interest in relation to outstanding payable to AEs 8.3. Without prejudice to the ground No. 7.1 and 7.2 above, the Ld. TPO erred in not giving effect to the DRP directions to recomputed the notional interest on outstanding receivables by considering the credit period provided in the inter-company agreement ie., 30 days. 8.4. Without prejudice ....
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.... 6. In addition to the original grounds of appeal raised, the assessee also filed additional grounds of appeal as follows: Without prejudice to the grounds (ground No. 5.1 to 5.14 in relation to grounds for manufacturing and sale of fabric) and (ground 6.1 to 6.6 for disallowance of royalty fee paid) mentioned in the aforementioned appeal and even though assuming but not accepting to the approach adopted by the Ld. AO/TPO, it is humbly pleaded before the Hon'ble Bench to grant the appellant leave for accepting the admission of the additional grounds stated as under: Grounds for manufacturing and sale of fabric. 5.15. Without prejudice to the application fo the Transactional Net Margin Method adopted by the appellant for determining the arm's length price of its manufacturing operation, the appellant propose to submit supplementary analysis for demonstrating comparable uncontrolled price as the most appropriate method. 5.16. Based on the facts and circumstances of the present case and in law, the DCIT, Circle 3(1) erred in not providing appropriate economic adjustment towards material difference between the operational profile of comparable com....
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....mistake which is very much curable U/s. 292 of the Act. 9. We have heard both the sides and perused the material available on record. In the instant case the assessee has accepted the final assessment order passed by the Ld. AO on 21/7/2022. The assessee has neither raised objections nor challenged the order dated 21/7/2022 but has preferred to file a rectification petition U/s. 154 of the Act. As pointed out by the Ld. DR, any order passed by the Ld. AO can be rectified U/s. 154 of the Act and the Ld. AO has rightly rectified the order on 13/10/2022. Therefore, we are of the considered view that the original assessment order passed by the Ld. AO on 21/7/2022 is valid in law as it has been rectified by the order dated 13/10/2022 which is deemed to be considered within the limitation period specified U/s. 144C(13) of the Act. We therefore dismiss this plea raised by the assessee and proceed to adjudicate the other grounds. Thus, Grounds No. 2 & 3 raised by the assessee are dismissed. 10. With respect to Grounds of Appeal and Additional Grounds of Appeal for manufacturing and sale of fabric raised vide Ground No.5, the Ld. AR submitted that the assessee is engaged in the manufa....
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....sidered it inappropriate while stating the rejection for the selection of comparables. The Ld. TPO then further substituted the following companies as comparables: Sl No Company Name OP/OC As per TPO As per assessee (corrected) 1. Suryaamba Spinning Mills Ltd 5.81% 5.81% 2. ShristiCotspinn Pvt ltd 6.29% 6.01% 3. Shri Santhosh Meenakshi Textiles Pvt Ltd 7.62% 1.31% 4. Kalpataruvu Spinning Mills Pvt Ltd 9.49% 9.43% 5. PrasunaVamsikrishnaSpg. Mills Pvt Ltd 10.71% 9.06% 6. S A P L Industries Pvt Ltd 11.03% 11.04% 7. G M Syntex Pvt Ltd 12.65% 10.27% 8. Nitin Spinners Ltd 12.76% 12.27% 9. Guetemann India Pvt Ltd 13.99% 11.38% 10. Vardhman Textiles Ltd 14.20% 13.34% 11. Morarjee Textiles Ltd 15.47% 15.46% 12. Sarla Performance Fibres Ltd 18.68% 17.25% 13. Indo Count Inds. Ltd 21.27% 19.91% 14. Prathishta Weaving & Knitting Co. Pvt Ltd 24.19% 24.23% 15. Orbit Exports Ltd 33.83% 32.82% 12. However, we find that during the AY 2017-18 the following comparables were rejected by the Ld. DRP as it is ....
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....PO has rejected the aggregation approach followed by the assessee. The Ld. AR relied on the decision of the Coordinate Bench of ITAT in Societe General Global Solutions Private Limited vs. DCIT in IT(TP)A No. 2580/Bang/2017. The Ld. AR also relied on the decision of the Hon'ble Delhi High Court in the case of Pr.CIT vs. AVERY DENNISON (INDIA) PVT LTD. Per Contra the Ld. DR in his written submission contended that the assessee has paid 4% of the total sale revenue as royalty to its AE namely Teejay Lanka PLC. The Ld. DR further submitted that the Ld. AO has rightly rejected the TP study of the assessee adopting the CUP method and has used the other method after examining the nature of transactions and therefore determined the royalty payable is NIL.The Ld. DR submitted that no documentary evidence for the services rendered was provided by the assessee and no explanation was furnished as to how commercially it enhanced the productivity. The Ld. DR further contended that the assessee could not justify what are the actual services rendered by the AO or details of technical know how received by the assessee from its AE. The Ld. DR further contended that after purchasing the fabrics t....
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.... the sides and perused the material available on record. The Ld. AO relied on the decision of the ITAT in Dr. Reddy's Laboratories Limited vs. Addl. CIT in ITA No. 2229/H/2011 and 85/H/2013 dated 2/1/2017 and the decision of the ITAT, Hyderabad in the case of Infotech Enterprises Limited vs. Addl. CIT in ITA No. 115/Hyd/2011, dated 16/1/2014. We find from the Master Circular relied on by Ld AR, that RBI prescribed the maximum cap interest on ECBs with different tenures. Therefore, the Ld. DRP has rightly determined the ALP as LIBOR + 200 basis points considering it rational based on several judicial decisions while directing the Ld TPO to adopt the interest rate @ LIBOR + 200 basis points. We are therefore not inclined to interfere with the order of the Ld. DRP and hence this ground raised by the assessee is dismissed. 21. Ground No.8 relates to notional interest on outstanding receivables. On this issue, the Ld. AR submitted that the notional interest is subsumed in the working capital and no further adjustment is required as proposed by the Ld. DRP. The Ld. AR relied on the case of the jurisdictional Bench of the ITAT in the case of M/s. Devi Sea Foods Limited vs. DCIT in ITAT....
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....ed by the assessee is partly allowed for statistical purposes. 24. With respect to Grounds No.9 and 10, the Ld. AR submitted that the AE has incurred certain expenses for reworking on behalf of the assessee on the fabric sold by the assessee to third party customers in Sri Lanka. The Ld. AR submitted that these are actual cost incurred by the AE on behalf of the assessee to third party customers and hence to be reimbursed to the AE. Per contra, the Ld. DR relied on the order of the Ld. DRP. 25. We have heard both the parties and perused the material available on record. We find that the assessee has not provided any details as reworking charges carried out by the AE in relation to export with supporting evidences either before the Ld. Revenue Authorities or before us. We therefore concur with the decision of the Ld. DRP and upheld the TP adjustment made by the TPO in this regard. Thus, the Grounds No. 9 & 10 grounds raised by the assessee are dismissed. 26. Ground No.11 relates to disallowance of leasehold amortization charges. The Ld. AR submitted that the assessee has taken the land on lease in 2009 for a period of 23 years and has paid a sum of Rs. 5.40 Crs. The Ld. AR ....
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....el erred in not appreciating that the order of the Ld. DCIT/ACIT, TP-3 Hyderabad (Transfer Pricing Officer), passed under section 92CA of the Act is contrary to law and thus liable to be quashed. 3. That on the facts and in the circumstances of the case, the Ld. AO/Ld. TPO and the Ld. DRP erred in making an upward adjustment to the transfer price of the appellant's international transactions INR 311,013,646/- in respect of manufacture and sale of fabric, INR 174,580,352/- in respect of payment of royalty, INR 5,439,746 in respect of payment of interest on ECB and INR 5,287,269/- on account of imputation of notional interest on outstanding receivables. A. Grounds of Appeal on Transfer Pricing Issues Grounds for manufacturing and sale of fabric 4. On the facts and in the circumstances fo the case and in law, with respect to adjustment to the transfer price of manufacturing and sale of fabric, the Ld. DRP/AO/TPO erred in 4.1. Rejecting the transfer pricing documentation maintained by the Company, in good faith, as required under section 92D of the Act read with Rule 10D of the income tax Rules, 1962 on the basis that the search process appl....
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....nitweal Limited • Soma Textiles & Industries Limited • Santosh Fine Fab Limited • Lakhotia Polyester Limited • Titaanium Ten Enterprise Limited • ManomayTex India Limited • Junction Fabrics & Apparels Limited 4.10. Not considering the following additional comparable company proposed by the appellant identified from the search matrix shared by the Ld. TPO during the assessment proceedings. • BSL Limited (Seg) 4.11. Rejecting certain filters adopted by the appellant in the TP documentation for the purpose of conducting the economic analysis. 4.12. Application of certain inappropriate filters while arriving at the final set of comparable companies. 4.13. Computing the operating mark up on the cost for the comparable companies selected while performing the comparability analysis by considering provision for doubtful advances as a non-operating expense and liabilities no longer required written back as non-operating in nature respectively. 4.14. Not providing appropriate economic adjustments towards material differences between the operational profile o....
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....g overdue receivables from AEs as on international transaction under the provisions of section 92B of the Act. 7.1.1 Without prejudice to Ground No.7.1 above, ignoring the fact that the appellant does not pay interest in relation to outstanding payable to AEs 7.2. Without prejudice to the ground No. 7.1 and 7.2 above, the Ld. DRP/AO/TPO erred in disregarding the fact that the appellant is engaged in manufacturing operations wherin the overall credit period of outstanding receivables are higher. 7.3. Without prejudice to ground Nos. 7.1 , 7.2 and 7.3 the Ld. DRP/AO/TPO erred in considering outstanding receivables from third parties as well as domestic related parties while computing the notional adjustment. 7.4. Without prejudice to Ground Nos. 7.1, 7.2, 7.3 and 7.4 above, imputing interest using SBI term deposit rate instead of London Interbank Offered Rate (LIBOR). C. Grounds for disallowance of leasehold amortization charges. 8. On the facts and in the circumstances of the case, the Ld. DRP/AO erred in: 8.1. Disallowing land lease hold amortization charges of Rs. 23,47,826/- by concluding that same as an apportionment....