AI Drafter 
TaxTMI 
TaxTMI 
2019 (12) TMI 1694
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....(TPO) has erred in making adjustment to the International transaction declared by the assessee by Rs.3,46,21,430 and consequent addition of Rs.3,46,21,430 to the returned income of the assessee. 2. a. On the facts and in the circumstances of the case, the learned Commissioner of Income Tax (Appeal)/ (Assessing Officer)/Joint Commissioner of Income Tax (TPO) has erred in rejecting the Product Classification of Assessee, being the 'Automobile Ancillaries' which has been used from past many years and has been accepted by the revenue consistently. b. On the facts and in the circumstances of the case, the learned Commissioner of Income Tax Appeal)/ (Assessing Officer)/Joint Commissioner of Income Tax (TPO) has erred in coming to conclusion that the products manufactured by assessee pertain to Engine Part Segment. c. On the facts and in the circumstances of the case, the learned Commissioner of Income Tax Appeal)/ (Assessing Officer)/Joint Commissioner of Income Tax (TPO) has erred in not considering the factual submissions of the Assessee that it manufactures products which is used to cool inside the car and not the engine. 3. On the facts and....
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....ng the Function Assets and Risk Profiles of comparables selected for addition to the assessee's own set of comparables. 11. On the facts and in the circumstances of the case, the learned Commissioner of Income Tax (Appeal) /(Assessing Officer)/Joint Commissioner of Income Tax (TPO) has erred in not considering the response of the assessee against the comparables proposed to be added to the assessee's comparable. 12. On the facts and in the circumstances of the case, the learned Commissioner of Income Tax (Appeal)/ (Assessing Officer)/Joint Commissioner of Income Tax (TPO) has erred in coming to conclusion that only one company MIs Subros India Ltd is comparable to assessee and rejecting all other company. 13. On the facts and in the circumstances of the case, the learned Commissioner of Income Tax (Appeal) / (Assessing Officer)/Joint Commissioner of Income Tax (TPO) has erred in giving benefit of safe harbor limit of +/- 5% to the assessee on the Cost of International Transaction of Purchase instead of calculated arm's length cost of sales. 14. Without prejudice to above on the facts and in the circumstances of the case, the learned C....
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....6. The taxpayer in its TP study to benchmark the international transaction qua manufacturing functions aggregated all transactions used Transactional Net Margin Method (TNMM) with Operating Profit / Sales (OP/Sales) as Profit Level Indicator (PLI). The taxpayer made the payment of technical know-how and royalty as per prior approval of Ministry of Commerce & Industry as well as Reserve Bank of India (RBI) for the compressors and kits respectively as the reimbursement has been stated to be inextricably linked to the manufacturing functions performed by the taxpayer. The taxpayer has not made separate benchmarking qua trading segment. The taxpayer selected 31 comparables with the PLI average of 1.08% to benchmark the international transactions as against PLI average of taxpayer at 1.77% and found its international transactions at arm's length. 7. Ld. TPO by rejecting the entity level analysis computed the PLI of manufacturing sector at 1.3%, rejected 30 comparables out of 31 chosen by the taxpayer and retained only one comparable, namely, Subros Ltd.. TPO introduced 5 new comparables and computed their average PLI at 10.70% and thereby computed the arm's length price of internatio....
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....ansaction is scientific and relied upon the order passed by the TPO. 13. However, on the other hand, appeal filed by the taxpayer revolves around the sole fact that so far as a manufacturer is concerned, there are two segments : (i) Non-core auto components and (ii) core auto components. 14. Ld. AR for the taxpayer contended that since taxpayer is manufacturing non-core auto component viz. air-conditioner compressors and components used for cooling interiors of the car, it cannot be compared with manufacturing company which is into the manufacturing of core components without which car cannot run. It is also one of the contentions of the ld. AR for the taxpayer that without non-core auto component car can run. So, the core auto components are one without which a vehicle cannot run whereas without air-conditioner compressors and components, certain automobiles, such as, buses, trucks, tractors, etc. can run whereas without radiators and carburetors, no automobile can run. 15. Ld. AR for the taxpayer supported the order passed by the ld. CIT (A) to the extent that ld. CIT (A) rejected 5 comparables on the basis of product dissimilarity and on account of failure of quantitati....
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....of the appellant, the Assessing Officer rejected the few companies but still accepted the 2 companies Banco Products India Ltd. & Eco Auto Component Ltd. which were showing raw material less than 60%. AR states that TPO has cherry picked the comparables found by him in respect of Space Technologies India Pvt. Ltd., it that this Company was engaged in making Carburetors for the scooter industry. He has produced the copy of annual report, whereby the Company profile as reproduced, as under:- SPACO had technical tie ups with renowned companies from Europe as well as Japan for a long period. We have also developed our own technical capability to design and manufacture Carburettors with venture diameters ranging from 7 mm to 30 mm to suit 2stroke and 4strokeengines of 22cc to 500cc. We are committed to achieve Total Customer Satisfaction by making, available to our customers, products that conform to international Standards on Quality, Cost and Delivery. 21. I agree with the view of appellant that Spaco Technologies is dealing in a totally different segment and therefore, is not proper comparable. 22. The appellant Company in ground nos. 11 and 12 has requeste....
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.... of the Group. Hence, there is no geographical segment as well. Therefore, the disclosure requirements of Accounting Standard - 17 on 'Segment Reporting' issued by the Institute of Chartered Accountants of India are not applicable." 25. The above profile of the Company shows that only Company in public domain which satisfied all the filters and conditions adopted by TPO and appellant is M/s. Subros India Ltd. On a FAR analysis also, it fits as the best rather the only comparable available with the assessee or the TPO. 26. The PLI of M/s. Subros India Ltd. after providing working capital adjustment as worked out by appellant is at 4.12%. The adjustment is worked out as under:- Particulars Amount in INR Total sales of manufacturing segment 438,00,00,000 Arm's length margin (%) 4.12% Arm's length margin 18,04,56,000 Arm's length cost 419,95,44,000 Operating cost 430,01,00,000 Difference in the arm's length cost & operating cost for which adjustment is required to be made 10,05,56,000 Percentage of purchases made from AE to total cost 34.43% Proportionate difference for which adjustment is required to be made ....
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.... manufacturing core products which cannot be compared with the assessee which is purely into production of noncore auto components mainly various types of horns. From the perusal of the definition of 'core auto components' as given in the Rules, it can be inferred that core auto components are crucial part of automobile that requires sophisticated technology for manufacturing and such components are very lifeline like the heart and brain of automobile which are vital for power performance, actual running and stability of the automobile. Like engines and engine parts are inextricably link with the performance of the vehicle, without which vehicle cannot move; transmission system which assists in running of car; steering and steering systems, gears and clutches; axels and wheels; suspensions which balances the vehicle; breaks, etc. In other words, without the core part neither the automobile can run nor can it function. Whereas non-core auto components which are not covered under the core components could be like accessories, equipment, vehicle parts such as head lights, wipers, dash board equipment, horns, etc., which are used in the vehicle but they are not vital for the actual run....