TaxTMI 
TaxTMI 
2026 (6) TMI 489
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....N issue. The assessee had filed application along with affidavits withdrawing these Grounds of Appeal pertaining to DIN. Accordingly, the ground on DIN is allowed to be withdrawn and the appeal is being heard on the other grounds raised by the assessee. 4. First we take up assessee's appeal being ITA No.523/Del/2021 for AY 2016-17. 5. The facts in brief are that the assessee is engaged primarily in the business of selling of Electronic Control Units and trading of Fuel Injection Parts and CNG Assembly parts. The assessee had purchased the goods for the purposes of trading from its Associated Enterprises as well as from the unrelated parties and sold these goods primarily to the unrelated parties. For this trading segment, the assessee had adopted the Re-Sale price method as the most appropriate method and had calculated its gross profit margins based on GP/sales @ 2.46%. This margin of the assessee was compared with the sole comparable selected by the assessee, which comparable had been selected after detailed transfer pricing analysis whose GP margin was 3.77% and assessee had claimed the transactions with the AE i.e. purchase of traded goods at the arms length because margi....
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....1961 ('the Act'), wholly on illegal, erroneous and untenable grounds. 2. That the order of Assessment including order of the Ld. TPO is bad in law and erroneous on the facts of the appellant. 3. That the Ld. AO (NeAC) /TPO and consequently Hon'ble DRP have grossly erred in law and on facts and circumstances of the appellant's case in selection and cherry picking of new comparables viz. Associated Auto Parts Limited and Salsons Impex Private Limited which have dissimilar functional, product and industrial profiles as compared to the appellant and do not meet the comparability criteria as prescribed under Rule 10B(2) of the Income Tax Rules, 1962 ('the Rules') and their selection is therefore bad in law and erroneous on the appellant's facts. 4. The Ld. AO (NeAC) /TPO and consequently Hon'ble DRP have grossly erred in law and on facts and circumstances of the appellant's case in not appreciating the fact that Stanes Motor (South India) Limited is the only comparable company functionally similar to the appellant's Trading Segment. 5. The Ld. AO (NeAC) has erred in law and on facts and circumstances of the appellant's case in charging interes....
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.... "Rule 10B(2) For the purposes of sub-rule (1), the comparability of an international transaction [or a specified domestic transaction] with an uncontrolled transaction shall be judged with reference to the following, namely;... (d) conditions prevailing in the markets in which the respective parties to the transactions operate, including the geographical location and size of the markets, the laws and Government orders in force, costs of labour and capital in the markets, overall economic development and level of competition and whether the markets are wholesale or retail." 11. Ld. AR also relied upon various judgements in the synopsis filed before us to contend that product and functional similarity are of paramount while selecting the comparables for judging the control and un-control transactions. Some of the judgements relied upon by the assessee for this proposition and the broad propositions laid down in these judgements are as under: * Daido India Pvt Ltd [2025-TII-218-ITAT-DEL-TP] "16. As could be seen from the profile of the company, above company manufactures 'core auto components' hence ex-facie it is not a proper or suitable comp....
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....ely 'Roto Pumps Ltd.' and 'Simmonds Marshall Ltd.' on the grounds of product dissimilarity. It was contended that Roto Pumps Ltd. manufactures pumps mainly for non-auto sector such as oil, gas, sugar, marine, chemicals, foods and beverages etc. whereas the assessee-company manufactures core engine part for four wheelers. Consequently, the operating margins of the product manufactured by Roto Pumps are not comparable with that of assessee-company. 4.2 Similarly, it was contended before the CIT(A) that Simmonds Marshall Ltd. also cannot be treated as comparable company for the determination of ALP owing to Product dissimilarity. This company manufactures fastener such as nuts, bolts and screws which are non-core auto components as compared to four wheelers engine components manufactured by the assessee-company. It was thus contended that the PLI of such comparables are not functionally comparable with that of assessee-company.... 9. We take note of the contentions of the assessee and observe at the outset that the comparable companies in dispute namely, Roto Pumps and Simmonds Marshal Ltd. are engaged in totally dissimilar business and financials of such comparable ....
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....tions has to be judged, inter alia, with reference to comparability factors as indicated under rule 10B(2) of the Income Tax Rules, 1962. Comparability analysis by TNMM method may be less sensitive to certain dissimilarities between the tested party and the comparables. However, that cannot be the consideration for diluting the standards of selecting comparable transactions/entities. A higher product and functional similarity would strengthen the efficacy of the method in ascertaining a reliable ALP. Therefore, as far as possible, the comparables must be selected keeping in view the comparability factors as specified. Wide deviations in PLI must trigger further investigations/analysis." * PCIT Vs Open Solutions Software Services Pvt. Ltd. [(2020) 315 CTR (Del) 497] * PCIT Vs. Li and Fung India Pvt. Ltd. (Following Rampgreen Solutions) [2019-TII-169-HC-DEL-TP] (Above Para 43 of Rampgreen Ruling is reiterated at Para 9 of this ruling). * Minda Acoustic Ltd. (Now Minda Industries Ltd.) [TS-468-ITAT- 2019(DEL)-TP] * Kaplan India Pvt Ltd [TS-417-ITAT-2019(DEL)-TP] * Carrier Air-conditioning & Refrigeration Ltd [TS-798-ITAT- 2018(DEL)-TP] ....
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....ransaction shall be judged with reference to the following, namely:- (a)*** (b)*** (d)*** (d) conditions prevailing in the markets in which the respective parties to the transactions operate, including the geographical location and size of the markets, the laws and Government orders in force, costs of labour and capital in the markets, overall economic development and level of competition and whether the markets are wholesale or retail. (emphasis supplied) 12. It has been submitted that when these two comparables chosen by the ld. TPO are rejected then even as per the TPO's own methodology a single comparable is left i.e. Stanes Motor (South India) Ltd. whose margins are 2.03% as against the margins of the assessee which are admittedly at 2.46%. 13. On the other hand, ld. DR has vehemently argued that the approach of the TPO and that of the DRP is correct and small difference in functional profile should not lead to rejection of the comparables. He has mainly relied upon the orders of the authorities below. 14. Considered the rival submissions and material placed on record. We are of the opinion that the functional profile of the comparables is d....
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....Ld. DRP noted all such contentions but retained all the comparables as were selected by the Ld. TPO. Assessee has raised many other grounds of appeal but at the threshold opted to argue the Ground No. 5, which is on the selection of these three comparables. The Ld. AR for the assessee has reiterated his submissions on these three comparables on the identical lines as are made in A.Y. 2016-17 in ITA No.523//Del./2021. It is the case of Ld. AR that functional dissimilarity does not allow a comparable to be retained. A reference and reliance has been made on Rule 10B(2)(d) of the Income Tax Rules. Similarly various case laws as referred to by the AR in A.Y. 2016-17 have been relied upon. 21. The Ld. CIT/DR on the other hand has relied upon the order of TPO and DRP. It is submitted by the Ld. DR that DRP has held that the three comparables, although challenged by assessee before DRP, have been found to be appropriate comparable by the Ld. DRP and urged upon the Bench to uphold the findings of Ld. DRP. 22. Considered the rival submissions and material placed on record. The fact remains undisputed that all these three comparables are in retail and after sales trade as has also been....