TaxTMI 
TaxTMI 
2025 (7) TMI 1681
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....he Tested Party without appreciating that the Assessee Company has substantiated the availability and reliability of financial data of overseas comparable companies, 1.2 Rejecting Cost Plus Method (CPM) and in the motu carrying out fresh search under TNMM Method 1.3 In carrying out comparability analysis under TNM Method without carrying out proper FAR analysis of the tested party and of the comparables selected by him 1.4 Selecting certain companies which are otherwise incomparable. 1.5 Rejecting companies otherwise functionally comparable on the ground of persistent losses for a consecutive period of two years instead of period of three years. 1.6 Not selecting companies, though functionally comparable, because of turnover of less than Rs. I crore. 1.7 Incorrectly computing the net margin of the tested party and of the comparables. 2. On the facts and in the circumstances of the case, and in law, the Ld AO erred in initiating the penalty proceedings under Section 271(1)(c) of the Act wherein the addition sustained is merely difference of opinion and does not reflect any omission or misrepresentation of facts. ....
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.... 48,30,10,842 Arm's length Profit D=A*B 1,80,08,684 Adjusted profit of Daido India after capacity utilization E=A-C (3,52,53,112) TP Adjustment F=D-E 5,32,61,796 Value of international transaction G 43,48,17,719 Proportionate cost H=G/C 82.48% Adjustment I=F*H 4,39,30,329/- 6. A final assessment order came to be passed u/s 143(3)/144C of the Act by making the adjustment of Rs. 4,39,30,329/- to international transactions pertaining to purchase of raw materials, other materials and payment of royalty u/s 92CA of the Act. The Revenue while making the above adjustments, selected 12 comparables. The details of the Companies finally selected by the DRP are as under:- Name of the Company Revised OP/OC after working Capital Adjustment 1 Rane Brake Lining Limited. 1.81% 2 Aurangabad Electricals Ltd. 4.39% 3 Sankei Giken India (P) Ltd. 5.37% 4 Talbors Engineering Private Ltd. 2.56% 5 Roots Industries India Ltd. 3.22% 6 Fiem Industries Ltd. 7.49% 7 GNA Axles Ltd. 5.52% 8 Roop Automotives Ltd. 10.40% 9 Lumax Automotive Systems Ltd. 2.88% 1....
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....arable to the assessee. *** *** "Para 5.4.1 It has been noted from the annual reports of these that comparables these engaged are into manufacturing of auto parts. The same has been accepted by the assessee also that comparables engaged these are into manufacturing of auto parts. However, the Assessee contended that products are different. The contention of the assessee is rejected due to the following:- 5.4.2. purpose For comparability the of one has to see whether the company has passed approximating filters the business conditions of the taxpayer and on the basis that main activity is that of providing business services, which may not be exactly same as that of taxpayer but requires engagement of employees with similar qualifications. It is with this view, every company should be seen and effort should be to find the substantial activity of the company and not to get dis oriented with certain key words, effort for developing intellectual property specialization, tools used by the company for delivering services and given special name company by distinguish itself. 5.4.3 Hence, the effort should be to see the company's activity in ....
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....the comparables to benchmark the international transaction. 19. In Rampgreen Solutions Pvt. Ltd. (supra), Hon'ble High Court held that, "a higher product and functional similarity ITA No.826/Del./2017 would strengthen the efficacy of the method in ascertaining a reliable ALP." But we are of the considered view that all these facts have not been taken care of by the ld. CIT (A) while rejecting the comparables chosen by the TPO. 20. So, we are of the considered view that distinction of the core and non-core auto components is the key to benchmark the international transactions undertaken by the taxpayer in this case and this view is supported with the decision of the coordinate Bench of the Tribunal in Minda Acoustic Ltd. (now Minda Industries Ltd.) (TS-468- ITAT-2019 (DEL)-TP). 21. Coordinate Bench of the Tribunal in the case of Minda Acoustic Ltd (supra) had made the distinction between core and non-core auto components as per Clause (b) & (h) of Rule 10TA of the Income-tax Rules, 1962 applicable to the identical facts of this case by returning following findings :- "14. Based on this distinction brought in the statute, the Ld. DRP has reject....
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....y engaged in manufacturer and sale of non-core automotive components and which has not been disputed by the Ld. TPO or DRP and also considering the ratio laid down by the coordinate bench of the Delhi Tribunal (supra), the comparable companies are adjudicated as under:- Roop Automotives Limited: 14. Roop Automotives Ltd. manufactures core components for four wheeler in commercial and passenger vehicles category, unlike the assessee company, which manufactures non-core components for two wheeler vehicles. The said information can be corroborated from its functional profile of Roop Automotives Annual Report produced at Pg. 1108, 1109, 1117 & 1148 of paper book Vol-IV. The relevant portion are as under:- "38 Segment Reporting The Company is primarily engaged in the business of manufacture of Auto Components for four wheelers in both in heavy carriage and passenger car vehicle category. The exports turnover of the Company is more than 50% of its total turnover. The company is engaged primarily in the manufacture and assembly of automotive components such as Universal Joints, Steering Column Shaft. Rotor Oil Filter (ROF) Carden Joints, Case Differential ....
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....hicles category, unlike the Assessee Company which serves the two wheeler vehicle industry. In view of the above, relying on the order of the coordinate bench of the tribunal in the case of Sanden Vikas India Ltd.(supra), we are of the considered opinion that, Roop Automotives Limited is not an appropriate comparable. FIEM Industries Ltd. 17. FIEM Industries is sought to be excluded by the Assessee from the list of comparables as the functions/assets/risks are entirely different from the Assessee Company. 18. As per the Functional Profile of the company as seen from its Annual Report produced at page 922 of the paper book Vol-IV, the Company is engaged in manufacturing of Automotive Lighting &Signalling Equipment, Rear View Mirrors, LED Luminaires for both Indoor & Outdoor Lighting, Integrated Passenger Information Systems with Display & Software for Railways, Metro, Airport & Busses (IPIS) and Plastic & Sheet Metal Components. 19. Further, in the Letter to Shareholder of the above Company [produced at pg. 923, 931 & 932 of the paper book Vol-IV],it is stated as under: i) "Your Company inculcates a deep culture of continuous improvement in its products driven b....
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....f Paperbook Vol-IV), states as under:- "GNA Axles Limited is a Company established in 1993. The Company manufacturers auto components for the four wheeler industry, primary product being Rear Axles, Shafts, Spindles and other Automobile Components for sale in domestic market and foreign market." The company has manufacturing locations in Punjab, Phagwara. 23. As could be seen form the profile of the company, above company manufactures 'core auto components' hence the above Company is not a proper or suitable comparable. In view of the above, relying on the order of the co-ordinate bench of the tribunal in the case of Sanden Vikas India Ltd.(supra), we are of the considered opinion that, GNA Axles Limited is not an appropriate comparable. Sankei Giken India (P) Ltd. 24. As per the Annual Report on notes to Financial Statements under Corporate Information (produced at Page No. 878 of Paper book Vol-IV), the above Company is engaged in the business of manufacturing components such as Gear guard pedal, auto, Exhaust pipes for 4 wheelers muffler components, Rear Arm, AC parts cooling system for four wheeler as well as two wheelers in automobile industry. It is ....
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....or being in some of the world's premium automobile brands such as BMW. Caterpillar, Daimler, Harley Davidson, Hyster-Yale group. NACCO. Navistar, Renault-Nissan, Toyota, VW group etc. One of its subsidiaries, Roots Auto Products Pvt. Ltd. has been a significant supplier of air horns with sizeable market share. The brand has 250+ product variants recognized by countries like North America, Europe, Middle East. Africa and the SAARC region." 28. The above Company manufactures for Automotive Solutions, Cleaning solutions, Commercial furniture, Casting components, Plastic moulding, Precision Tools, Die &Mould Solutions and Calibration Solutions. The Export turnover of the above Company was Rs. 5174.30 Lakhs in 2013-14, as compared to Rs. 4399.14 Lakhs in 2012-13. The tremendous growth in Export turnover of HEP segment has helped the company to achieve better overall turnover and profitability, which can be corroborated from Pg. 691 of the Paper book Vol-III. 29. The above Company is not only into automobiles industry, but has varied and diversified areas of manufacturing such as medical aerospace lab testing and commercial furniture manufacturing, which are not in the automobi....
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.... Boxes, Winches, Jacks etc., the same is reproduced as under:- 'Remsons is a Pioneer in the manufacturing of Auto Products since the last 50 years. Delivering best quality Products like Control Cables, Gear Shifters, Pedal Boxes, Winches, Jacks etc. We are an OEM manufacturer supplying to two, three and four wheeler vehicles, commercial vehicles and off highway vehicles all over India and automotive OEM's globally. We were first player to manufacture Control cables, in India. Some of the other products we manufacture are Gear Shifters, Flexible Shafts, Jack Kits, Winches, Pedal Boxes and Parking Brake Cable Assemblies, to name a few. In line with our future ready vision we are manufacturing state of the art sensor products across the automotive, earth moving, agriculture and marine sectors. With advanced manufacturing facilities across the country, including a brand new facility at Pune and an advanced manufacturing facility in UK our global presence has increased through through Joint Venture collaborations with Aircom Group a leading global manufacturer of Tire repair kits & Daichi a leading player in automotive infotainment systems." 35. The Co-ordinate ....
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....rther, in the case of Imsofer Manufacturing India (P.) Ltd. v. Deputy Commissioner of Income-tax, Circle-11(1), New Delhi [2020] 121 taxmann.com 209 (Delhi - Trib.) held that the company in past 3 years had shown losses in 2 years only. Therefore, it could not be rejected as comparable on ground that it was a persistent loss making company. In the case of John Deere India (P.) Ltd. v. Deputy Commissioner of Income-tax, Circle-11(1), Pune [2017] 77 taxmann.com 7 (Pune Trib.) the coordinate bench of this Tribunal has held that a company which had earned profits in one out of three years could not be said to be persistent loss making company and could not be excluded from the comparable list. 41. The coordinate bench of the Tribunal in the case of Walt Disney Co. (India) (P.) Ltd. v. Deputy Commissioner of Income-tax-7(3), Mumbai [2017] 81 taxmann.com 321 (Mumbai - Trib.) held as under: "The Bench noted that in one of the last three years, the concern was in profits and, therefore, in this background it inferred that such a concern could not be considered as a persistent loss-maker. At the time of hearing, the learned representative for the assessee had drawn our attention....