TaxTMI 
TaxTMI 
2015 (11) TMI 1911
X X X X Extracts X X X X
X X X X Extracts X X X X
....nts. The assessee imports various types of components and equipments for its operation from its associate enterprise (AE) in Israel. It also manufactures additional mechanical, electrical items assembly, tests and qualifies the product. Apart from making purchase from its AE, assessee also sells the assembled equipments to its AE at agreed rate in the purchase order. During the year under consideration, the assessee has undertaken DRUSHTI project for BSF where it has supplied 341 numbers of handheld image (HHI). The assessee has reported the financial results as per the audited financial accounts which are reproduced by the TPO in para.3 and 4 as under: "3. Financials of the taxpayer based on the audited financials for FY 2009-10: Operating revenue (sales includes excise duty, excluding other income) 52,96,44,913/- Operating cost 58,54,31,153 Operating Profit (-) 5,57,86,240 OP/Sales (-)10.53% OP/Cost (-) 9.52% 4. International transactions as per 3CEB Report: The tax payer company has entered into the following international transactions with its Associated Enterprises (AEs) during the financial year 2008-09: Descriptions of the ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....f the Companies Assessee's contentions 1 Opto Circuits (India) Ltd Development, manufacturing, distribution & marketing of medical equipments and devices. 2 Portescap India Pvt Ltd Deals in motor technologies like brushless DC, brush DC, can stack motors, disc magnet motors & stepper linear actuators. 3 FCI Oen Connectors Ltd Manufacture of Rack & Panel Connectors, Terminal Connectors, Flat Cable Connectors, Circular Connectors, PCB Connectors, Heavy Duty Connectors, IC Sockets etc. and Copper and Fiber Optic Cable Assembly, backplanes and Value Added business. 4 Motherson Tradings Ltd (Merged] Electrical Distribution System (EDS), Polymer Products and complete module solutions to the Indian automotive industry. 5 Reed Relays & Electronics India Ltd Manufacture Ruthenium plated non- pressurized dry reed switches, SMD & PCB mountable Reed Sensors in various forms, screw-mountable and threaded proximity sensors and magnet sensors, thermal reed sensors, level switches, and other reed-based products. 6 SPEL Semiconductor Ltd Semiconductor Assembly & Test facility providing high quality Integrated Circuits Packing solutions. ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....i c facts and ci r cumstances of theinternational transaction, as required by Rule 1OC(1) and Rule 1OC(2) of Income Tax Rules, 1962. 4. That on facts and in law, the Transfer Pricing Officer and Assessing Officer have erred by selecting companies as comparable under TNMM which are functionally different and had high turnover as compared to the Appellant Company. The learned DRP in this regard, has erred in reject ing only 6 out of such 10 companies for undertaking the benchmarking analysis to arrive at the ALP despite having made detailed submissions regarding differences in scale of operations and functions between the Appellant Company and such comparables. 5. The learned DRP and Transfer Pricing Officer have erred in neither discussing nor rejecting the submissions made by the Appellant Company to the show cause notice before the issue of order u/s 92CA. For the above and other grounds that may be urged at the time of hearing of the appeal, your appellant humbly prays that the appeal may be allowed and justice rendered. 6. Ground Nos.1 to 3 are regarding the rejection CUP method and using TNMM as the MAM by the TPO for determining the ALP. The learn....
X X X X Extracts X X X X
X X X X Extracts X X X X
....and 2.4 as under: "2.3 Having considered the arguments of the assessee we are in agreement with the findings of the TPO. The CUP method requires the use of specific data as observed by the TPO. From the invoices supplied it was not possible to determine the description of the products and arrive at a conclusion whether the products purchased from the AEs and no AE5 are identical. Assessee has also rebutted the findings of the TPO in this regard. In a recent decision of the Murnbai Tribunal in the case of Weispun Zucchi Textiles Ltd reported in 56 SOT 444(Mum) it has been held as follows. ".... in the absence of exact data made available by the assessee to compare the prices of similar products supplied to AEs and non- AEs,. CUP cannot be applied as most appropriate method for the transfer pricing exercise. Moreover, there was also a difference in geographical location and size of the markets also in as much as the AEs the assessee were in Italy whereas the non- AEs, i.e., Wal Mart was based in USA having much bigger market than Italy. Therefore, there is no infirmity in the impugned order of the learned CIT(Appeals) confirming the action of the AO in rejecting the....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... require significant investment in fixed assets. He has pleaded that this company should be excluded from the set of comparables. 9.2 On the other hand, learned Departmental Representative has submitted that the assessee has not raised any objection regarding investment in fixed assets before the authorities below and taking this plea the first time before the Tribunal which cannot be accepted. Further, this company is in the identical activity of manufacturing of semi-conductor assembly and test facility providing integrated circuit packing solutions as recorded by the DRP in the assessee's own contention. Thus, learned Departmental Representative has submitted that this company is functionally comparable with the assessee. 9.3 We have considered the rival submissions as well as relevant material on record. The only objection taken by the assessee before authorities below against this company is that this company is in the different product of semi-conductor assembly and test facility. However, we find that the semi conductor assembly and test facility activity of the said company is comparable with the assessee's activity of opto-electronic equipment which is manufactured a....
X X X X Extracts X X X X
X X X X Extracts X X X X
....he TPO/AO for verification of the fact regarding RPT and decide the same as per law. Needless to say if it is found that the RPT of this company is more than 25% then this company cannot be considered as a good comparable. 11 Continental Device India Ltd: The learned AR of the assessee has submitted that as per the annual report of this company, it is engaged in the business of manufacture of transistor and diodes which is significantly different from the business of the assessee. Further, this company is a pure manufacturer whereas the assessee was involved in assembly of various components to make the final product. Thus, the learned AR of the assessee has submitted that this company is functionally not comparable with the assessee. He has also referred to the fixed asset of this company which is 22 times more than the assessee. 11.1 On the other hand, learned Departmental Representative has submitted that this company is admittedly in the activity of manufacturing silicon semi-conductor chips and devices as well as LED lighting products and display solutions. Therefore, this company is functionally comparable with the assessee. The objection of the high fixed assets was....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e, this is a good comparable for the purpose of determining the ALP. 12.2 We have considered the rival submissions as well as relevant material on record. The DRP has recorded the finding at page 6 as under: "10. Centum Electronics Ltd - It is seen that this company designs and manufactures electronic products and caters to the defence and aero space industry. The field of operation of products are similar. In our view this is functionally comparable." As it is clear from the findings of the DRP that this company is in the activity of design and manufacturing of electronic products and caters to the Defence and aero space industry. Therefore, the DRP has considered only the field of operation of the product being Defence without giving finding of the similarity of the product itself. Defence and Aero space may be using a variety of products and all may not be identical and similar. Accordingly, we set aside this issue to the record of the TPO/AO for proper verification of the description of the product manufactured/assembled by the assessee as well as by this company and then decide the comparability of this company after considering the objections of the as....
X X X X Extracts X X X X
X X X X Extracts X X X X
....lly comparable. 6. Reed Relays & Electronics India Lid This company manufactures reed relays and swi tches and keyboards whichare not comparable. In our view it is not functionally comparable. 14.1 It is clear that in case of Opto Circuits (India) Ltd. the said company was found engaged in the manufacture of cardio vascular equipment and devices. The revenue has not produced any record or fact before us to dispute the factual finding of the DRP that this company is in the activity of manufacturing of entirely different product which is used for medical and health care purpose. Therefore, we do not find any error or illegality in the finding of the DRP in rejecting this company being functionally not comparable with that of the assessee. 14.2 In case of Portescap India Pvt. Ltd., the DRP has recorded the fact that this company manufactures high precision, special purpose motors for surgical and dental instrument. Therefore, the functions and the equipments of this company are entirely different from the product of the assessee. Accordingly, we do not find any reason to interfere with the finding of the DRP when the facts recorded by the DRP are not disputed by the rev....