AI OCR 
TaxTMI 
TaxTMI 
TaxTMI 
2019 (12) TMI 1641
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....rder proposing an adjustment of Rs.2,69,92,075/-. The Assessing Officer, in the draft assessment order accordingly made the addition and determined the total income at Rs.3,41,90,315/-. The assessee approached the DRP who upheld the action of the A.O./TPO. Accordingly, the Assessing Officer passed the final order making the addition of Rs.2,53,72,551/-. 3. Aggrieved with such order of the A.O./TPO/DRP, the assessee is in appeal before the Tribunal raising the following grounds:- "1. That on facts and circumstances of the case and in law, the reference made by the Ld. Assessing Officer suffers from jurisdictional error as the Ld. AO did not record any reasons in the assessment order based on which he reached the conclusion that it was "expedient and necessary" to refer the matter to the Ld. Transfer Pricing Officer ("TPO") for computation of the arm's length price, as is required under section 92 CA (1) of the Act. 2. That on the facts and in the circumstances of the case and in law, the Ld. AO erred in assessing the total income of the Appellant at INR 32,570,791 as against income of INR 7,198,240 returned by the Appellant, after making transfer pricing adj....
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.... time of hearing, did not press ground of appeal No.1, 2, 3.1 and 3.4 for which the ld. DR has no objection. Accordingly, these grounds are dismissed as not pressed. Ground No.4 being premature at this juncture is dismissed. Ground of appeal No.5 relating to levy of interest u/s 234B, 234C and 234D being mandatory and consequential in nature, therefore, the same is dismissed. 8. So far as transfer pricing adjustment of Rs.2,53,72,551/- is concerned, the facts of the case, in brief, are that the assessee, during the year has entered into the following international transactions:- No. Nature of transaction Method Value of transaction 1 Purchase of raw Material TNMM 1,715,551 2 Purchase of Consumables 9,278 3 Sale of goods 428,344,863 4 Purchase of machinery 487,004 5 Payment of royalty 479,898 6 Availing of technical services 180,804 7 Reimbursement of expenses to AE's 7,311,328 9. It was seen that the assessee benchmarked the international transactions using Transactional Net Margin Method (TNMM) and Profit Level Indicator (PLI) of Operating Profit/Operating Cost. Th....
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....s Rane TRW Steering Systems Ltd., is concerned, he submitted that this company is not functionally comparables since it is engaged in two divisions, namely, Steering gear division and hydraulic pumps & seat belt division whereas the assessee is engaged in the manufacture of automobile steering and suspension parts. He submitted that the assessee is not engaged in the business hydraulic pumps and seat belt division as that of Rane TRW Steering Systems Ltd. 14. Referring to Rule 10TA of the IT Rules, 1962, the ld. counsel for the assessee drew the attention of the Bench to clause (b) of the said Rule and drew the attention of the Bench to the definition of 'Core auto components' which means - (i) Engine and engine parts, including piston and piston rings, engine valves and parts cooling systems and parts and power train components (ii) Transmission and steering parts, including gears, wheels, steering systems, axles and clutches; (iii) Suspension and braking parts, including brake and brake assemblies, brake linings, shock absorbers and leaf springs. 15. He accordingly submitted that the business of the assessee comes within the ambit of manufacturing....
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.... (i) Terex India Private Ltd vs DCIT [ITA No. 4791/Del/2015]; (ii) Calibrated Healthcare Systems India Pvt. Ltd. vsACIT [ITA No. 5271/Del/2012]; (iii) CIT Vs Agnity India Technologies Pvt. Ltd. [ITA No. 1204/Del/2011] 18. Relying on the following decisions, he submitted that low export sales have been considered appropriate criteria for exclusion of a comparable:- (i) Omniglobe Information Technologies (India) Pvt. Ltd vs Addl. CIT [ITA No. 6980/Del/2017]; (ii) Cypress Semiconductor Technology India (P.) Ltd. vs DCIT [IT(TP) A No. 1002/Bang/2011; and (iii) 24/7 Customer.com (P.) Ltd. vs DCIT [ITA No. 227/Bang/2010] 19. He accordingly submitted that Rane TRW Steering Systems Ltd., should be excluded from the list of comparables since it owns substantial intangibles, has carried out R&D activities and has low export sales as compared to total sales. 20. The ld. DR, on the other hand, heavily relied on the order of the A.O./TPO/DRP. 21. We have considered the rival arguments made by both the sides and perused the record. We find the TPO, in the order passed u/s 92CA(3) added Rane TRW Steering Systems Ltd., as a comparable. Fro....
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..... The energy from its windmills has been utilized in-house and accounts for 96% of the energy utilized by it for its manufacturing business, thus, resulting in a different business module. Referring to page 662, 663 and 665 of the paper book, he submitted that ZF Steering Gear (India) Ltd., has also recorded income from sale of long-term investments, cost of which is unknown and cannot be determined. Further, the export sale of ZF Steering Gear (India) Ltd., is 0.5% of the total sales as against export sale of 98.90% to the total sales in the case of the assessee. He submitted that ZF Steering Gear (India) Ltd., is engaged in research and development activities in their product/process development during the year whereas the assessee has not incurred any such expenditure during the year. Relying on the decisions cited while arguing exclusion of Rane TRW Steering Systems Ltd., he submitted that all these decisions are also applicable to the present comparable. He accordingly submitted that ZF Steering Gear (India) Ltd., should be excluded from the list of comparables. 23. The ld. DR, on the other hand, heavily relied on the order of the A.O./TPO/DRP. 24. We have heard the riva....
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.... between the working capital of comparable companies vis-à-vis the assessee. 26. After hearing both the sides, we find the TPO, during the TP proceedings, granted working capital adjustment on the margin of the comparable companies even though the same was not asked for and calculated the average margin of the comparable companies at 3.28% (after working capital adjustment of cost of the assessee). He accordingly computed the TP adjustment. The ld. DRP dismissed the ground raised by the assessee objecting the working capital adjustment in the light of the assertion of the Assessing Officer that the said claim was already allowed to the assessee at the time of TP proceedings. 27. The ld. counsel for the assessee submitted that the TPO, in his order, has wrongly stated that the assessee asked for such working capital adjustment. He submitted that working capital adjustment was never sought by the assessee and was also not required in the case of the assessee. He submitted that the relevant market factors such as difference in inventories, debtors and creditors play a major role while setting up price mechanism for transactions in independent scenario. The said factors ha....
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....t case, the sales are made to the related parties and, therefore, there is no working capital risk whereas the comparable companies primarily caters to the domestic market having working capital risk. Therefore, according to the ld. counsel, negative adjustment on account of working capital is not required. 31. We find merit in the above arguments of the ld. counsel. It is an admitted fact that more than 94% of the sales made by the assessee are to the related parties and, therefore, the assessee is running its business with no working capital risk whereas the comparables companies who primarily cater to the domestic market are having working capital risk. Under such circumstances, if at all any working capital adjustment has to be made, then, it has to be a positive adjustment and there cannot be any negative working capital adjustment. We find the Delhi Bench of the Tribunal in the case of Inductis India Pvt. Ltd. (supra) has held that in case the assessee render ITES Services to the AE, there was no need for making any negative working capital adjustment when the assessee did not carry any working capital risk. The Bangalore Bench of the Tribunal in the case of Lam Research I....