TaxTMI 
TaxTMI 
2025 (8) TMI 594
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....ment of Rs. 12,49,05,773 in manufacturing segment and adjustment of interest on delayed receivables of Rs. 7,82,901, resulted into determination of income of Rs. 20,18,48,270 against returned income of Rs. 3,91,18,230. 2. Assessee is aggrieved with the same and has filed this appeal raising the following grounds of appeal: - "That on the facts and in the circumstances of the case: General Grounds 1. The impugned order of the Ld. AO, to the extent prejudicial to the Appellant, is based on incorrect appreciation of fact and incorrect interpretation of law and therefore. is bad in law and contrary to the facts and circumstances of the case. 2. The Learned AO has erred in assessing the total income of the Appellant at INR 20,18,48,270 as against INR 3,91,18,230 claimed in return of income filed by the Appellant. Transfer Pricing Grounds 3. The learned TPO/ AO/ DRP have erred in rejecting the economic analysis undertaken by the Appellant and conducting a fresh economic analysis for the determination of the ALP in connection with the impugned international transactions. 4. The learned TPO/ AO/ DRP has erred in disregarding....
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.... account for differences in working capital position of the Appellant vis-a-vis the comparables. 16. The learned TPO/ AO/ DRP have erred, in law and facts, by not making suitable adjustments to account for differences in the risk profile of the Appellant vis-a-vis the comparables. 17. The learned TPO/ AO/ DRP have erred, in law and on facts, in not considering the business/ commercial expediencies of the arrangement and re-characterizing the delayed trade receivables realizations as a loan transaction, thereby computing transfer pricing adjustment in the form of interest thereon. 18. Without prejudice to Ground No. 17, the learned AO/TPO/ DRP have erred, in law and in facts, by disregarding internal comparable data wherein the Assessee has neither charged interest for delay in collection of receivables from third- party customers nor paid any interest on outstanding payables to associated enterprises as well as third-party suppliers/ vendors. 19. Without prejudice to our above arguments, if outstanding receivables are considered as unsecured loans, benefit must be given of Circular dated 01.04.2020 through which Reserve Bank of India provides for....
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....eturn of income without appreciating that interest under Section 234A of the Act is computed having regard to "tax due on returned income" and not assessed income. 29. The Ld. AO has computed interest under 234C of the Act at INR 2,74,998 as against INR Nil computed by the Appellant while filing its return of income without appreciating that interest under Section 234C of the Act is computed having regard to "tax due on returned income" and not assessed income." 3. The assessee is an associate of Alpha Design Technologies Private Limited [ an Indian company] and Elbit Security systems Private Limited [Israel Company] with a shareholding of 51% & 49% respectively. Alpha Design Technologies Private Limited is a shareholder holding 51% was engaged in manufacturing of defence equipment by one Col. H.S. Shankar. 4. Elbit Ltd and its group companies are engaged in manufacturing a wide range of defense products, including optoelectronics and electronic warfare systems. It also undertakes research and development activities relating to defense and commercial applications. It provides all the inputs about the specification and details of the products to be manufactured by the....
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....he ALP of international transactions and therefore after analysing the functions and the TP document, the ld. TPO found that there are certain inappropriate filters applied by assessee. The assessee has used filter of manufacturing income of 50% of sales instead of 75% of sales and excluded the Govt. ownership comparables. The assessee also ignored the filter of persistent loss and therefore the TPSR of assessee was rejected. 10. The ld. TPO applied various filters and carried out a search on Prowess database. He put the keywords 'Handheld Thermal Imagers, TI Based Mobile Surveillance Systems, Night Vision Equipment, Optical Sights and Optronic systems'. The TPO noted that as per the TP study report, these items are manufactured by the assessee. The ld. TPO finally reached at 4 comparables wherein he applied different previous year filter, net worth filter, persistent loss filter, core function filter, low turnover filter of Rs. 1 crore, RPT filter and reached at weighted average mean margin of 26.54%. In doing so, he rejected the comparables selected by assessee. 11. Out of 11 comparables of the assessee, Mahindra Defence Navals Systems P. Ltd. was rejected as it fails diffe....
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....43(1)(a) at Rs. 6,60,79,915 resulted into total income of Rs. 20,18,48,270 wherein the only issue is variation in respect of ALP of international transaction of Rs. 13,57,68,359. 19. In appeal before us, where assessee has raised in all 29 grounds of appeal, assessee has furnished 3 volumes of PB consisting 3887 pages and also furnished the case law compilation citing 19 judicial precedents and also placing 17 pages detailed note. The assessee has also placed on 19.12.2024 the functional profile and manufacturing process of assessee of 28 pages. Further on 22 April,2025 the assessee also submitted once again a note of functional profile of the assessee. 20. As per the last note submitted the assessee explained the Manufacturing process which is consisting of manufacturing subunits through integration, assembly and testing of various electrical, mechanical and optical items. The raw material of the products being manufactured can be broadly categorised as electronics, optical and mechanical items including processing, assembly of sub assembly, integration and testing the final product. The finished goods consist of the bill of materials which is required for manufacturing. The....
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....have any research and development activities and therefore functionally it is not comparable. He further referred that the General optics Asia Ltd has also significant research and development activities which is constituting 5.7% of its total revenue. He further referred to a comparable selected by the learned transfer pricing officer of Lotus wireless technologies India private limited which is manufacturing wireless instruments and compare the assessee which is manufacturing products such as mobile surveillance system and radars. The learned dispute resolution panel considered these products as comparable. 22. He also argued that in the transfer pricing study report the assessee has stated assessee to be a manufacturing company which undertakes full-fledged risk but in fact it is functioning at the instruction of its associated enterprises who supplies goods to the assessee which are further modified, manufactured, assembled as per the direction of its associated enterprises and does not make any research and development value addition to the product. Therefore in no circumstances it can be compared d with the assessee company. He further submitted that the assessee has total....
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....quality standards capabilities, research and development capabilities. It also manufactures electro- optic product which are used as a components and imports by the associated enterprises to be integrated and process to manufacture their final products which is sold by the associated enterprise to their end clients. The sales orders from the associated enterprises are also coupled with all necessary inputs concerning the specification and details of the products to be manufactured in accordance with the requirements of the customers which only the associated enterprises decide. The designs are provided by the associated enterprises and based on these designs the assessee estimates the cost and submits a proposal to its associated enterprises which is when approved by the associated enterprise sale order is issued and the execution is carried out as per the agreed delivery plan. The raw material is also sourced from the associated enterprises mostly and the assessee's production team considers the proprietary nature of the raw materials sourced from the associated enterprises which are imported from associated enterprises at no cost. We have also been shown the invoices for importin....
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....egotiates the price with referred vendors on independent basis without having the involvement of its AE(s). iii. Manufacturing of goods: The Company's manufacturing activity is predominantly divided in two categories, viz. limited production and full-fledged production. iv. Warehousing and Inventory management: Functions relating to receipt, storage and issuing the raw material for production are performed by Alpha Elsec India. The Company maintains the inventory of raw materials on lead time basis. However, it does not maintain the inventory of finished goods as the products are manufactured and sold based on the requisition made by the AE(s). v. Logistics: The functions pertaining to inbound Logistics (in relation to procurement of raw material) are generally taken care of by the supplier of the products. Op the other hand, the Company's AE(s) are responsible for undertaking activities in relation to outbound logistics (i.e. in case of sale of finished goods), which includes packing, shipping, insurance, custom clearance and other necessary functions to coordinate the movement of finished goods from the Company's factory to the AEs premises.....
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....ee, how the company operates. Thus, The learned TPO has also believed the functional profile of the assessee stated in the transfer pricing report which is not correct. There is no discussion in TP Order of the risk involved in the whole process undertaken by the assessee as well as by the AE. Had this exercise been carried out by the learned TPO, he would have reached at a conclusion that assessee is merely an assembler who does not have research and development activities but is merely doing assembling or manufacturing activity as per the direction of its associated enterprises. It is more akin to a job work or contract manufacturer. 28. Thus, without analysing the functions carried out by the assessee properly and merely looking at the transfer pricing study report prepared by the assessee which is far from the facts produced before us, the learned TPO has determined the arm's-length price of the international transactions comparing it with large scale companies who have their own independent research and development activities and have higher turnover by multiple times. 29. As the functions carried out by the assessee explained before us, a fresh look at the comparability....