TaxTMI 
TaxTMI 
2022 (5) TMI 1538
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.... of appeal on 30.09.2019. However, the only grounds urged during hearing are computation of correct margins of the assessee, exclusion of one comparable entities and Transfer Pricing (TP) Adjustment of management service fees paid by the assessee. The corresponding grounds read as under: - 4. The lower authorities have erred in considering Jolly Board Ltd as a comparable while computing the operating margin of comparable companies, despite such company being functionally dissimilar to the Appellant. 5. The lower authorities have, in the facts and circumstances of the case and in law, erred in incorrectly computing the operating margin of the Appellant and those of the comparable companies selected for benchmarking purposes. 6. The lower authorities have erred in the facts and circumstances of the case and in law, in treating the impairment loss incurred on account of the Appellant discounting its manufacturing operations, as an operating item while computing the net operating margin of the Appellant. The lower authorities failed to appreciate the fact that impairment loss is an extra-ordinary and non-recurring loss and hence, must be excluded while computing the operating m....
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.... have similar kind of losses and therefore, the aforesaid two items were operating in nature. The Ld. CIT-DR supported the order of lower authorities on other issues. Having heard rival submissions and after going through the orders of lower authorities, our adjudication would be as under. Proceedings before Ld. TPO 3.1 Upon perusal of Ld. TPO's order, it could be seen that the assessee is engaged in manufacture, sale and trading of structural core materials in the field of wind energy, marine and other industrial markets. The assessee imported raw material as well as traded goods from its Associated Enterprises (AE). The assessee also made payment of royalty, management fees and reimbursement of expenses to its AE. It exported finished goods also. All these transactions were benchmarked using Transactional Net Margin Method (TNMM) adopting Profit Level Indicator as OP/OI (Operating Profit / Operating Income). In its Transfer Pricing Study Report, the assessee computed its own margin as 5.33% as against mean margin of 5.58% as shown by four comparable entities. Accordingly, no Transfer Pricing (TP) adjustment was proposed by the assessee. 3.2 The management fees of Rs.42.84 Lac....
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....ted for other customers in the wind sector. However, due to sluggish growth of wind sector and unfavorable regulatory scenario, the demand was low and to utilize the idle capacity, DIAB group assisted the assessee in purchasing significant part of the goods produced. Owing to aforesaid adverse market conditions, it was decided to discontinue manufacturing operations. This was one-off event and not part of routine business activities. Such revaluation of asset was unique to the assessee and similar item was not observed in comparable entities. Another pertinent fact brought to the notice was the fact that impairment losses were not claimed as business expenditure and added back in the computation of income. 4.2 However, Ld. DRP held that treatment in computation of income would not have much relevance in the transfer pricing proceedings since profit margins of tested party as well as comparable entity was worked out on the basis of Book-Profits as per Annual Reports available in the public domain and the actual computation of income for income tax purposes was not available. Therefore, the expenditure could not be held to be non-operative on that point alone. Regarding assessee's a....
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....antiate the claim that the service was actually rendered. The assessee failed to justify the volume and quality of services and the amount paid by it to its AE. The agreement was very general and non-specific in nature. Finally, the action of Ld. TPO in determining the ALP as Nil was upheld. 4.5 Aggrieved as aforesaid, the assessee is in further appeal before us. Our findings and Adjudication 5. It is undisputed fact that the assessee has incurred impairment losses of Rs.464.67 Lacs during the year. The assessee has also paid compensation to the vendors for termination of the contract. Both these items, though debited in the Profit & Loss Account, were added back by the assessee in its computation of income (page 237 of the paper-book). In other words, these items have been treated by the assessee to be not tax deductible, being non-operative in nature. From the facts, it is discernible that the impairment losses arose due to extra-ordinary circumstances. The factory assets were revalued on account of closure of manufacturing operations and the assets were disposed-off in the subsequent years. The assessee customer did not purchase the quantity committed by them prior to settin....